Mid-tier miners steal Diggers & Dealers spotlight

Kalgoorlie, Western Australia — While uranium was a much talked about subject at the recent Diggers & Dealers forum, stockbrokers, fund managers and resource bankers in the capacity crowd were merely seeking clones of Jubilee Mines (JBM-A) and Consolidated Minerals (CSM-A).

Only a few years ago, Jubilee Mines was a penny stock before it discovered high-grade nickel in Western Australia’s northeastern goldfield. And Consolidated Minerals (ConsMin) was the end result of a failed manganese producer in Western Australia’s Pilbara region.

The transformation of these companies has been aided by robust dividends, new discoveries, shrewd acquisitions, and strong metal prices. The pair is drawing the attention of some big Australian fund managers which, in turn, is bringing greater focus on Australia’s mid-tier producers, another option to the healthy, steady returns of BHP Billiton (BHP-N, BHP-A) and Rio Tinto (RTP-N).

Jubilee Chairman Kerry Harmanis was rewarded for his company’s performance by being selected as Digger of the Year, four years after he won the award following the spectacular Cosmos nickel discovery in the Kathleen Valley area, 30 km north of Leinster in Western Australia. His subsequent presentation promised even more mines near Cosmos.

ConsMin’s Chief Executive Michael Kiernan spiced up his presentation with the announcement of an unaudited A$70.3 million after-tax profit in 2004-05, and a recommendation of a fully franked dividend of A12 per share that would bring the full-year payout to A18 apiece. Kiernan’s numbers include A$19 million from the sale of shares in Portman, an iron miner bought by Ohio-based Cleveland Cliffs (CLF-N).

Jubilee’s financial performance is still on the bean counter’s production line, however, in the June quarter Harmanis said cash-in-the-bank and receivables stood at A$132 million and that a “generous” dividend would likely be declared in September.

Jubilee’s new Prospero discovery, south of the deepening Cosmos mine, now has a resource of 1.06 million tonnes grading 5.72% nickel.

Like ConsMins, Jubilee has invested some of its burgeoning capital. It holds a 16.15% stake in Falcon Minerals (FCN-A), a junior with ground in the emerging Collurabbie region, north of Cosmos. In the same area, Falcon is in a joint venture with BHP Billiton’s Nickel West division, following BHP’s recent takeover of WMC Resources.

ConsMin, meanwhile, has taken over Reliance Mining, which operates the Beta-Hunt nickel mines at the Kambalda complex and sends its ore to the Nickel West concentrator; acquired a position in emerging polymetallic miner Jabiru Metals (JML-A); and placed some cash in Mithril Resources (MTH-A), a miner with a big-picture exploration program.

In the meantime, the well-established manganese and chromite mines in the Pilbara are looking at expanding, buoyed by demand from China and elsewhere in Asia.

Other highlights from Diggers & Dealers include:

– The fires of speculation were fanned on rumours that Xstrata (XTA-L) was going to make a bid for growing polymetallic producer Oxiana (OXR-A), operators of highly profitable gold-copper operations in Laos. Oxiana is also advancing the sizeable Prominent Hill copper-gold project north of Olympic Dam in South Australia, and recently bought the Golden Grove lead- zinc-silver-copper operation from Newmont Mining (NMC-T, NEM-N).

– Avoca Resources (AVO-A) with its recently discovered Trident gold deposit, in the historic Higginsville camp, south of Kambalda, is forming a blueprint to fast-track production, possibly using a regional mill. What’s more, the company is aggressively undertaking step-out drilling and exploring deeper on its leases. Managing Director Rohan Williams said probing below optimal depths for open-cuts had been surprisingly sparse.

– Ivanhoe Mines (IVN-T) Chairman Robert Friedland provided another entertaining presentation in a whirlwind visit that did not give followers of Ivanhoe’s Oyu Tolgoi copper-gold project in Mongolia much new information, apart from the company’s proposed mining techniques.

– Canadian-listed LionOre Mining International (LIM-T), which has substantial nickel and gold operations in Western Australia, is converting the Avalon nickel processing centre at Bulong, near Kalgoorlie, to sulphide nickel from nickel-cobalt laterites, using its 80%-owned Activox hydrometallurgical process. Avalon will be useful for treating problem ores, notably those with arsenic and high magnesium oxide.

– Big-thinking entrepreneur Andrew (Twiggy) Forrest is undaunted by the prospect of establishing his Fortescue Metals Group (FMG-A) as a third force in the Pilbara iron ore province, which is dominated by BHP Billiton and Rio Tinto. Fortescue was courting Hancock Prospecting but the latter decided to join Rio Tinto to develop its Hope Downs iron deposit. Fortescue says its aggregate resource for the Cloud Break and Christmas Creek deposits in the Chichester Range now tallies to 2.12 billion tonnes grading 58% iron. The company has ordered materials to build a 250-km railway to Port Hedland.

– Gold Fields (GFI-N), still licking its wounds from the failed takeover bid by fellow Johannesburg-based Harmony Gold Mining (HMY-N), is active in Australia, primarily through its St. Ives gold operation at Kambalda, south of Kalgoorlie in Western Australia. Farther north, Gold Fields is pleased with the transformation of the Agnew operation, which produced 65,000 oz. gold in the recent quarter (8,000 oz. better than forecast), from being an ugly duckling when acquired with St. Ives from WMC Resources for US$233 million in late 2001.

– As the first collier to present at Diggers, Centennial Coal (CEY-A) showed how good operators with quality eastern seaboard coal deposits can perform, particularly after taking control of New South Wales miner Austral Coal. Centennial expects to produce 21 million tonnes of run-of-mine coal from 15 mines.

– What will happen to the mammoth, low-grade Boddington gold deposit, south of Perth, Western Australia, now that 22% owner Newcrest Mining (NCM-A) wants out? Presentations indicate this cobweb-gathering project may well remain that way for some time, as both partners — AngloGold Ashanti (AU-N) and Newmont — think Newcrest wants too much for its stake. As project blowouts in Australia are reaching epic proportions, many Australian pundits believe the asking price of US$1 billion for Boddington could keep climbing.

Elsewhere on the Diggers & Dealers floor, Southern Cross Resources (SXR-T) outlined its uranium projects in South Australia. In fact, uranium was talked about around the many traps and hotel bars.

A brief exploration boom in the 1970s put Australia on the uranium map and in the space of three years the country had 26% of world reserves but several political fumbles eventually handed the wheel in the global uranium supply market to Canada.

Pressure is now be applied to lift Australia’s profile in uranium, with the Prime Minister John Howard coalition Liberal government making it known that trade negotiations with the Chinese has China pushing hard for Australian uranium.

Interest in Australian companies with uranium projects has lifted appreciably in 2005 and gained further momentum when the Howard government made it clear it would veto any Northern Territory efforts to ban new uranium mines. Northern Territory Chief Minister Clare Martin, a former journalist known for her anti-uranium views, recently declared, on the eve of a landslide election victory, that there would be no new yellowcake operations in the jurisdiction.

But the Northern
Territory is very reliant on Canberra, and is not a state.

There are political hurdles elsewhere, too, with the exception of South Australia, which is for any kind of mining. The state reaps revenue from Olympic Dam, the world’s largest hard rock uranium mine, and Beverley, the biggest in situ leach uranium operation.

Just as Diggers & Dealers concluded, Federal Resources Minister Ian Macfarlane said Canberra was setting up a 3-year framework for new uranium developments, including making it easier to mine, explore and export U3O8.

Diggers & Dealers’ venerable session chairman David Reed, in an address at the Forum dinner outlining Australia’s influence in global mineral production, beseeched Western Australia’s Mines Minister Alan Carpenter to change the anti-uranium views held by Western Australia Premier Geoff Gallop. That produced the biggest applause of the program.