MAC/20: Mines and Communities

Xstrata plays the spoilt brat

Published by MAC on 2005-02-07


Xstrata plays the spoilt brat

By Barry FitzGerald, The Age

February 7, 2005

Xstrata has received a bagging over the way in which it closed the Windimurra vanadium mine in Western Australia. It destroyed the project with gas-axes and bulldozers. If Xstrata wasn't going to mine Windimurra, then no one else was either.

But the boys from Zug aren't the only ones to have practised a scorched earth policy on mine shutdowns.

The shutdown of the Koolan Island iron ore mine in Yampi Sound off the coast of WA in the early 1990s by BHP Billiton is a case in point.

Once the decision was taken to walk away, BHP flooded the ocean-side pit and removed the jetty used by the operation.

At 3 million tonnes a year, Koolan was not worth the effort for BHP with its world-class Pilbara iron operations on the mainland. BHP clearly thought that Koolan had had its day and by its actions, attempted to make it a certainty.

But the China-led boom, of more recent times, in demand for iron ore has put Koolan back on the map, much to the benefit of its new owner, Aztec Resources.

Things have been moving quickly for Aztec in recent months, as has the group's share price with its rise from 10¢ in September to Friday's close of 22¢.

The surge in iron prices, and the promise of a further 30-50 per cent US dollar price increase, has meant there has been plenty of backers for resumption of production at Koolan at an initial annual rate of 2 million tonnes over 15 years.

Last week, Aztec was able to announce that mainly Chinese buyers had committed to take all of the project's production.

Koolan is a high-grade, low-impurities iron ore with a transport savings advantage over its Pilbara cousins because it is already on the coast (under it in parts).

Aztec's plan to return Koolan to production - a push to an annual rate of 3 million tonnes is planned - also got a move on with the recent options underwriting agreement that pulled in $24.3 million.

Canny investor, the London-listed Cambrian Mining, put its hand up for $5 million of new shares at 20¢ each from the options underwriting.

Cambrian, one the world's best-performed stocks last year, has a strategy of growing its mining house-style investments across the range of steelmaking raw materials.

To that end, it recently emerged as a backer of moves by Perth-based Vulcan Minerals to get involved in the nickel and copper-cobalt business in Finland.

Cambrian is best known in this market for its scrip-only takeover of Melbourne-based Deepgreen Minerals last year.

Deepgreen shareholders who held on to their Cambrian shares have witnessed a sixfold increase in value of their holdings.

Cambrian itself is applying to list on the ASX. Now that its market value is approaching $400 million, Cambrian can be relied on to make some more moves into the local mining market.

Sydney-based Michelago hits town later this week to bring investors up to date on its big-time gold ambitions in China and the Solomon Islands.

The basic message will be that the group reckons it's on the way to producing more than 300,000 ounces of gold annually within three years.

The group's current share price of 7.2¢ for a market capitalisation of a little more than $50 million tells you that the market has yet to cotton onto the growth story.

That's the reason the group has decided to come down south and spread the word. As sophisticated as the local is in its understanding of gold and gold equities, it's fair to say there is a bit of a void when it comes to gold opportunities in China in general, and in the case of Michelago specifically, the potential for a reopening of the abandoned Gold Ridge mine in the Solomons.

Michelago has based its push into China on the environmental edge that bacterial oxidation has over the roasting of refractory ores.

Through its BioGold investment, Michelago is already poised to reap cash flows from production in China.

But more important is the exposure the company will gain to some 4 million ounces of refractory gold as China's environmental crackdown on roasters takes hold.

In the Solomons, Michelago has positioned itself to take a near half-share in a project capable of coming back into production in 2006-07 at an annual rate of some 150,000 ounces of gold and with a gold resource of 2.3 million ounces under its belt.

Given the Solomons law-and-order problems, it will be no walk in the park. But the success the Australian-led forces have had in restoring law and order has raised hopes that conditions will soon allow a restart at Gold Ridge.

The mine is capable of generating 30 per cent of the country's GDP. So apart from anything else, the country needs a restart to underpin its future economic independence.

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