brm mentioned in article

This came off the CFE forum


Watch This Space For Some Surprising Moves From Cape Lambert Iron Ore


By Alastair Ford



What’s the latest at Cape Lambert? Well, unlike in the rest of the market, where activity is grinding to a painful halt, projects are moribund, good capitalists are in despair, or even if there is a degree of creativity and optimism the frozen debt markets preclude action, Cape Lambert is moving forward apace. In this it is helped by the tidy A$320 million it still has to its credit, A$240 million cash in the bank, and A$80 million owing by a Chinese company that will without doubt pay up, as it wants to do further deals with the company.
No, Cape Lambert Iron Ore is not frozen, or in a state of shock, or even, particularly, hunkering down in the face of difficult markets. Indeed Cape Lambert’s chief, Tony Sage, unhappy as he is with an A18.5cent share price that discounts by 30 per cent the company’s cash on its own, let alone all the other projects it has inside it, is nevertheless one of the few directors around still confident enough, just as we speak, to be talking up the China story. Chinese growth is, of course, key to Cape Lambert. It was Chinese money that bought, after a slight tussle with some Russians, the company’s principal iron ore project earlier in the year. It was Chinese money that filled up Cape Lambert’s coffers, and it’s Tony Sage’s Chinese contacts that added the commercial value for African Minerals when it chose to do a deal with Cape Lambert on its own iron ore properties in Sierra Leone. That, and an old friendship that dates back many, many years.

Ask Tony what’s going on at Cape Lambert, and there are four key areas that come up for discussion. The first is the Marampa property, about which he talks at length. The second is the ongoing saga of Power United’s shareholding in the company – currently frozen - about which he talks revealingly. The third is the exploration progress that the company’s making on its Cape Lambert South property in Australia, about which he talks briefly, but on which he expects to provide a fuller update once drill results come in during January. And the fourth is all the possibilities for corporate activity that are open to a company with A$320 million at its disposal. On that subject he talks, at the very least, intriguingly.

To start with Marampa, some facts that are plucked out of the air have more resonance than others. Tony says, mid-flow on the potential for this Sierra Leone iron ore re-start, that the Chinese have the third largest embassy in Sierra Leone. Minesite didn’t particularly like to interrupt to enquire who has the first and the second, because Tony’s point is that the Chinese are serious about Sierra Leone, and they are serious about coming in on Marampa. “The good news”, he says unequivocally, “is that we’ve been to China, and the Chinese are keen to build the infrastructure”. Anyone watching developments in the Democratic Republic of Congo, where it looks as though the Chinese are muscling out competitors all along the copper belt, should pay attention to who’s in bed with who in Sierra Leone too, although before we go to town on the Chinese interest the caveat ought to be laid down that there are currently countless unconfirmed reports doing the rounds that the Chinese are leaving Africa in droves.

Still, there not looking to up sticks from Marampa, though, since they’ve not yet, officially, arrived. But nevertheless, the plans have been laid. “The first thing we’ll do with the Chinese is fix the port”, says Tony. He estimates that won’t take more than US$20 million. The plan then will be to put a screening plant in at Marampa to work the tailings, and then to truck the product down to the port for export. Later on, the on-site team will get the rail connection back up and running. “Nothing is concrete”, cautions Tony, before adding that “the scoping study should be ready on the tailings by 30th June”. He’s not worried either by reports that the iron ore price is likely to drop substantially during the next round of price negotiations. Sure, they’ll drop, he concedes. But he argues that “although the Chinese want their iron ore price lower, they know their stockpile is going to run down”, and that will keep them from pushing the price too low.

Time will tell on that one - morning commentary from broker Fairfax in London this week reported on speculation that some Chinese buyers will push for an 82 per cent price cut during the next round of negotiations, although the analysts at Fairfax themselves think settlement will be at around 50 per cent below current prices. But as we said earlier, Tony’s still very much a believer in China, and thus, almost for old times sake, Minesite is glad to trot out the once familiar, and now strangely forgotten arguments once again: “China’s growth rate will go down to six per cent this year”, says Tony, “but that’s six per cent for 1.2 billion people. The Chinese are still going at 100 miles per hour. Exports may be suffering, but their internal stimulus package will still build all that rail capacity, and all those cars”.

So on that view, it’s no wonder the Chinese are interested the company’s Cape Lambert South property as well, even if not with quite the same enthusiasm as they’re showing for Marampa. Tony reckons that ultimately the company will be able to flip Cape Lambert South for in the region of several tens of millions of dollars, and possibly at the high end of that range. That’s nice enough, but Cape Lambert’s (or more properly African Minerals’) rival down on Marampa, London Mining, has, via broker research, put a value of US$350 million to US$400 million on Marampa. To be sure the iron ore market may not be in as great a shape looking ahead as it was for the first part of 2008, but we’ve already established that Tony Sage is still fairly bullish in general.

And in the run up to Christmas, Tony’s bullish mood is surely helped along its festive way by the fact that one of the key twin pillars in the faction that tried to get him thrown off the board of Cape Lambert a month or so ago, has now had its shareholding in Cape Lambert frozen by the Supreme Court of Western Australia. This is Power United, run by Mick Shemesian, and which, at least according to Mick, holds a fair slug of Cape Lambert shares. Mick’s former partner, Brett Matich, disagrees, though, and says the Cape Lambert shares are actually his. So the matter has gone to the courts, a fact which greatly helps Tony, as the other dissenting shareholder, Roman Abramovich’s Evraz, has lost a powerful ally. Together those two dissenters spelled was trouble for Tony, even if he could ultimately handle it, but Evraz has stated in the press that it’s now looking to sell, so by the time the courts free up the Power United shares, Evraz will probably be long gone and Mick Shemesian, who’s reputedly a friend of Chris Brown at London Mining, will have less of a lever over the company. Asked if that all meant that Brett Kadich was a friend of his, Tony Sage issues a hollow laugh, and says, in political fashion, “it does favour the current board of Cape Lambert”, and then adds, “he’s no friend of mine whatsoever”.

Friend or no, Brett Kadich’s action does give Tony more room for manoeuvre in the fourth and final of the four areas of activity that are currently predominant in Cape Lambert: corporate activity. With all that cash in the bank, you’d expect Cape Lambert to be busy, and it is, although, understandably Tony is reluctant to give out details. Instead he lays it out like this: as far as he can tell, the only juniors in Australia that are really cashed-up at the moment are Golden West, Brockman, and Cape Lambert. With such a limited field, plenty of opportunities are coming Cape Lambert’s way, some of them so good that the company may even stray outside of its stated area of expertise in iron ore. On Minesite we’ve written reams of copy on how explorers are suffering from the current funding shortfall. But consider it from the other side – current market conditions represent a real opportunity for the likes of Cape Lambert. Thus Tony outlines a hypothetical deal in which he will issue a A$2 million convertible note at 12.5 per cent interest to a cash-strapped company on the assurance that if the company “fails to get its house in order”, as he puts it, then the asset itself will revert to Cape Lambert. “If we do five of these deals then that’s A$10 million that will earn us A$1.2 million in interest and our risk is minimal”. It’s time to get ruthless, and since so many Australian-traded juniors may not survive at all, Cape Lambert can pick and choose. One of the deals that the company is currently working on is, says Tony, “probably going to shock everyone”. Watch this space to find out what it is.