Exco Resources has something Xstrata wants
business.theage.com.au
* Barry FitzGerald
* June 2, 2008
* Page 1 of 2
FOR near on three years, there has been an expectation that "Big" Mick Davis at Xstrata will strike a deal with Exco Resources to keep its hungry concentrator plant at its Ernest Henry copper/gold mine in north-west Queensland fully fed.
The open-cut mine at Ernest Henry is on its last legs and the move to an underground operation means that it will be all too hard to keep the concentrator full - and by extension, Xstrata's Mount Isa smelter - without bringing in a new ore source around 2010-11.
That's where Exco fits in, with its fast-growing copper/gold resource at its E1 camp, eight kilometres from Ernest Henry.
Informal talks between the two continue but there is no deal yet. What can be said with some certainty is that if a deal is to be struck, it is closer now than it was three years ago when Exco (ASX: EXS) was a $20 million company and not the $100 million group it is today (37.5¢ a share on Friday).
In that three-year period, Exco has not been sitting on its hands waiting for Big Mick to call. It has been busy building a resource base that now stands at 400,000 tonnes of copper and 393,000 ounces of gold across a number of deposits in the broader Cloncurry region, with the E1 camp the biggest at more than 200,000 tonnes copper/200,000 ounces gold. Drilling continues and there is more to come, with Exco having a target to get to 500,000 tonnes of copper by the middle of next year.
More to the point is that Exco has been busy studying the feasibility of a stand-alone development that would cost $187 million and produce 20,000 tonnes of copper-in-concentrates and 14,000 ounces of gold annually.
It looks to be feasible all right, with a super quick payback of two or three years. But that ignores the even bigger returns that would come from having the stuff run through the Ernest Henry plant.
With its advanced work on the stand-alone option, Exco has established the yardstick for a deal with Xstrata. It will be about sharing the substantial benefits in doing away with the stand-alone concentrator option.
One way or the other, Exco is poised to get the sort of re-rating that comes when an explorer/developer becomes a producer, either through its own plant or someone else's.
The professional money has been backing home that idea. Robert Friedland's Ivanhoe and Robin Widdup's Lion Selection have been exercising options at 35¢ a share and now hold 19.6% and 10.8% of Exco respectively. Apart from helping build Exco's cash towards $20 million, it also means Exco doesn't have to worry about Xstrata making a low-ball takeover bid to secure control of the E1 camp.
Citadel in the desert
GARIMPEIRO'S camel-herding mates tell him that some of the big boys of the mining world have put Saudi Arabia on their radar.
Rio Tinto is said to be among those that have taken up exploration ground in recent times, partly in a response to the attractive fiscal regime and mining laws adopted by the kingdom as it wrestles with its 60% youth unemployment problem. Oil revenues are at bonanza levels but you can only employ so many people to count the petro-dollars.
Another reason the majors have become interested in what else lies beneath the desert sands is the trail-blazing work by ASX-listed Citadel Resource Group (ASX: CGG). It recently put the market on notice that the resource estimate for its Jabal Sayid project was in line for an upgrading following good copper hits sitting above the previously outlined resource.
It already has 1 million tonnes of copper and 440,000 tonnes of contained zinc in the camel bag that is providing the basis for a mining options study.
Citadel was knocking around 27.5¢ a share on Friday, which is pretty much where it has been for the past 12 months. Interest should build once the mining study is released. Apart from anything else, the US30¢ a litre cost of diesel in the kingdom gives the project a cost advantage that Western producers can only dream about.
Just ask BHP Billiton. Its fuel bill for the pre-strip of the Olympic Dam open-cut will be a monster.
A game of Boulle's
MADAGASCAR'S onshore oil potential has helped fuel Alan Bond's return to the list of Australia's wealthiest. It is also home to Rio Tinto's $US585 million mineral sands project, and Straits Resources and others are excited about the coal potential of the world's fourth-biggest island.
But wait, there's more. A $10 million float called Malagasy Minerals has a Voisey's Bay-style nickel/copper and platinum group metals prospect (Ampanihy) as its priority target. Coal is also part of the package, as is the acquisition of the French Government's drilling and assaying business in the country. Ampanihy was identified more than a decade ago by Jean Boulle, Robert Friedland's partner at Diamond Fields Resources, the group that discovered Canada's Voisey's Bay and then got acquired by then nickel king Inco for $US3.3 billion back in 1996.
Boulle will directly and indirectly hold about 5% of Malagasy, mostly through an unlisted company called Madagascar Resources, which he owns about a third of.
The group's coal interests include some coverage of what could be the eastern limb of the Sakoa coal beds. There have been some interesting share and cash deals by Straits and others involving the Sakoa coal beds that are said to have similarities to Riversdale's coking coal resources across the water in Mozambique.
Lead manager to the offer of 50 million shares at 20¢ each is Element Capital. |
