June 26, 2002 BUSINESS AND INVESTING > THE SPECULATOR
SPECULATOR: SAND HO!
Magnetic Minerals has been a winner for patient shareholders since it listed in October, 2002, following a public issue of 30¢ shares. They may do even better if hopes of a takeover come good for this heavy mineral sands prospector, which has established large resources within the sand-plain country north of Perth. The company was the first mineral sands listing in many years and was floated on the concept of using magnetic mapping technolgy to identify hidden deposits. That is the speciality of managing director George Sakalidis, a geophysicist of more than 20 years' standing who was involved in locating West Australian discoveries such as the world-class Silver Swan nickel deposit, the Three Rivers and the Rose gold deposits using an aero-magnetic data base.
Geologist and chairman Dr Alistair Cowden told shareholders at their last annual meeting that the magnetic mapping technique had proved to be a low-cost, highly effective exploration tool. Follow-up drilling of identified targets has outlined an inferred resource of 133 million tonnes of 4.8% heavy minerals at Dongara, 320km north of Perth and just south of the port of Geraldton. Richest intersection ran as high as 20% HMs over 20m and all within about 30m of the surface. Composition of the heavy mineral suite was ilmenite 55-59%, rutile 8-11% and zircon 15-19%. The discovery is also sited about 60km north of world-class producer Iluka Resources' Eneabba operation, which produced up until 1998 heavy mineral sands with a value of $3.4bn. Beyond Dongara, Magnetic has a suite of other prospects with tenements or tenement applications covering 3100 sq km or 65% of the northern Perth basin.
After listing, Magnetic shares drifted to as low as 18¢ last September but recovered on encouraging field progress and news of a planned pre-feasibility study to develop the Dongara resource. In April, the company began a new 7000m drilling program, part-funded through a placement of 4.74 million shares at 38¢ (a 12.5% discount to market) to clients of Perth broker Hartleys. That lifted issued capital to 36.4 million shares (including 7.7 million escrowed until October). With the shares at 55¢, that gives the company a market capitalisation of $20m.
Coincidentally, on May 29, Iluka Resources announced a friendly $130m bid for another heavy minerals player, Basin Minerals, with plans to open a mine in the Murray basin, an area straddling the Victorian, NSW and South Australian borderlands. Iluka, which already holds 19.9% of Basin, expects the merger of Basin's developing Douglas mine and its own KWR project would generate costs savings of $60m with a planned opening in 2004, creating one of the highest-margin mineral sands mines in the world.
The buzz around the traps has been that something similar could emerge with the Dongara-Eneabba deposits, especially after Magnetic commissioned Hartleys to explore a range of development options with established operators, including an outright sale. The Dongara pre-feasibility study gave the project a net present value of $63m as a stand-alone operation or considerably more if fast-tracked with an established producer.
On June 19, Iluka chief executive Mike Fowell returned from visiting American customers and revealed in Perth that the company was holding talks with Magnetic Minerals and "they might make an interesting play for us". Results of Magnetic's current drilling program will emerge in future weeks.
All of that cannot hurt the chances of Magnetic's original parent, Image Resources, which hopes to list on July 4 following a public issue of up to 20 million shares at 20¢ to raise $4m. That will take total issued shares to 53.4 million since the company has been going as a non-listed entity since 1994, building an aeromagnetic data base with which to locate gold, base metals and diamonds.
Since spinning off Magnetic, Image retains 2.27 million shares in Magnetic. Image's prime targets in the float are gold and nickel sulphide, with 15 projects throughout WA and another at Tennant Creek in the Northern Territory.
Image had no underwriter, although Hogan and Partners acted as broker to the issue. Once again, Sakalidis looms large as exploration director with a 5.52 million shareholding. Managing director is geologist Roger Thomson, former general manager exploration for both Delta Gold and Sons of Gwalia, while lawyer Peter Thomas is chairman (and a director of Magnetic too).
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