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Gold/Mining/Energy : Mining News of Note -- Ignore unavailable to you. Want to Upgrade?

To: LoneClone who wrote (19407)	5/12/2008 10:43:11 AM
From: LoneClone	Read Replies (1) \| Respond to of 195027

Brazil’s Bahia State Opens Up To Iron Ore, And For London-Listed ENRC The Quick And Dirty Numbers Stack Up Nicely By Daniel O’Sullivan minesite.com[tt_news]=45527&tx_ttnews[backPid]=755&cHash=1e1dfa8317 Kazakhstan-based ferrochrome and iron ore producer Eurasian Natural Resources Corporation (ENRC) is certainly putting down a marker with its US$300 million acquisition of a 50 per cent stake in Brazilian iron ore project company Bahia Mineracao Limitada (BML). ENRC’s foray into Brazil’s north-eastern state of Bahia, where BML is conducting pre-feasibility studies on developing a 470 million tonne measured and indicated resource grading 39 per cent iron, shows that ENRC is ready to step way outside of its Former Soviet Union comfort zone in search of future growth, and that it will not be confined to the sort of inter-oligarch asset-juggling that one might have presumed was its modus operandi, given the tangled relations between itself and fellow FTSE-listed Kazakh miner Kazakhmys, and the controlling shareholder clubs in each. An ENRC spokesman says BML’s plans are to construct an iron ore mine and processing operation which would commence production in 2011 and reach a run-rate of 20 million tonnes per year (mtpy) of iron ore concentrate output by the end of 2012. ENRC’s half-share of this will be a significant addition to its current 17mtpy of concentrate output from existing operations in Kazakhstan. The spokesman says there has been no final decision on whether the BML concentrate would be further beneficiated through a pelletising plant, although previous reports on the BML project have stated this as probable. The buy-in, achieved through exercising an option with an entity named Zamin BM NV, might also be seen as brave because the project itself will not be among the cheapest build-outs. While BML has previously put the price tag for the mine, processing infrastructure and dedicated export port, at US$1.6 billion - but subject to further possible increases - the ENRC spokesman will only confirm that the project costs should come in at around the same level as recently-announced comparable projects in Brazil, which he further specified as between US$100 million and US$120 million per tonne of annual output. This tells its own story. As well as pushing BML construction costs out to the US$2 billion to US$2.4 billion ballpark, another obvious Brazilian iron ore project currently in development, and seen as coming in around the same range on a per tonne of annual output basis is the US$3.46 billion MMX Minas-Rio project in the neighbouring state to the south, Minas Gerais – this comes in at around US$117 million per tonne as long as a planned 3mtpy of local lump ore sales are added to the planned 26.5mtpy high-grade pellet feed destined for export - not an unreasonable adjustment, given that local Brazilian prices are determined by the international price. MMX Minas-Rio is, of course, the project for which global mining giant Anglo American earlier this year agreed to pay an eye-watering US$5.5 billion for the 51 per cent of the project it did not already own, having paid only US$1.15 billionn for 49 per cent in 2007. The construction price-per-tonne of annual output yardstick is just a ‘quick and dirty’ comparative method which ignores a host of qualitative factors, yet it is nevertheless handy enough for some analysts to criticise Anglo for buying into a project which looks an expensive build – and even more so, at around the US$131 million per tonne mark, if only export pellet feed is counted – given that recent and ongoing iron ore production expansions in Australia can average US$100 million per tonne, while in South Africa some come in at US$65 million per tonne. Yet if Anglo is taking a bet that iron ore market fundamentals justify such capital expenditure ratios on a plant build-out, then ENRC is playing for similar stakes with its new venture as well – although, of course, the scale of its equity buy-in to the project vehicle itself are an order of magnitude smaller, something in its favour. When it comes to funding the capital expenditure, the ENRC spokesman said all options are on the table right now, including a stand-alone project financing which could be non-recourse to the shareholders. Despite Brazil’s heavyweight status in the iron ore business, to date Bahia has no notable iron ore production of its own and is instead focused on other minerals such as gold, copper, manganese and uranium. Nevertheless the state government is keen to clamber on board the iron ore boom, having signed a protocol last year with BML on developing the project. As well as state government backing, ENRC can take comfort in the fact that BML itself was formed by experienced managers from Brazilian national iron ore giant CVRD, now more commonly referred to as Vale, and that the BML project itself offers upside in the additional 1,490 million tonne inferred resource at 30 per cent iron content. Also perhaps from news that Brazilian mining entrepreneur Eike Batista, who controls the MMX group now receiving billions from Anglo, and who boasts that the ‘X’ in his various company’s names refers to the huge multiplier effect his investments enjoy, is now also sniffing around iron ore opportunities in Bahia.