inova explores where others fear, page-7

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INOVA Resources -- the rebadged Ivanhoe Australia -- is treading a different path to many of the nation's other miners.

The explorer, and now producer, founded by North American tycoon Robert Friedland, is highlighting the potential for growth and exploration under new management -- something that has been on the backburner since the billionaire lost control to Rio Tinto last year and improving the balance sheet and cutting costs became the focus.

But now, new managing director Bob Vassie has flagged a more aggressive approach to finding a partner to develop the company's flagship $345 million Merlin molybdenum and rhenium project near Mount Isa. He has also committed to continuing to explore the vast Queensland copper and gold ground Friedland put together, and which at one stage drove Ivanhoe Australia's market value as high as $1.25 billion, or about 10 times its current value.








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Unfortunately for shareholders, all this is happening not only in a downbeat investment atmosphere but as Inova's controlling shareholder, Rio's Canadian-listed subsidiary Turquoise Hill, has bankers working on selling its stake in Inova.

If successful, the move could drag the fortunes of minor shareholders in any number of directions, depending on the buyer.

Vassie hopes the dual processes will be complimentary rather than complicating.

"The Turquoise Hill process has started and we've just completed an update of the Merlin study," Vassie told The Australian.

"I'm now preparing to get on the road to beat the bushes around Merlin, and I'm hopeful the Turquoise Hill process will run its course and I'll be poised exactly ready with where we are in Merlin, both technically and commercially."

Aside from general market malaise, Inova's share price has suffered from uncertainty around the ownership structure and a perceived lack of desire of the Mongolia-focused Turquoise Hill to develop Merlin or its other key asset, the Mount Elliott/Swan deposit.

Interest in Merlin, which Inova says is one of the world's highest-grade deposits and can be ready in 18 months, is expected from mainly Japanese and Korean firms. "But I wouldn't discount the Australian interest, where people are looking for projects to put in their pipeline," Vassie said.

The process to find a partner does not look like an easy one, having been going on for well over a year already and at much higher prices than there are now.

But Inova hopes a more aggressive approach and options to reduce capital costs by developing higher-grade concentrate, along with other improvements to Ivanhoe's previous studies, will spur interest.

Rio's indirect stake in Inova was built as it sought control of Friedland's Ivanhoe Mines (now Turquoise Hill) to get control of that company's main asset, the $US6.2bn ($6.68bn) Oyu Tolgoi copper and gold mine in Mongolia. When it was successful, Rio replaced Ivanhoe Australia chief Peter Reeve on an interim basis with former Citadel Resources chief executive and Rio employee Ines Scotland, who focused on balance-sheet management, including an $80m share issue, and containing costs.

Vassie was hired at the start of this year.

"By the end of last year the board knew where it wanted to go and we needed someone to come in and execute," chairman Peter McMahon said.

"We want to make sure we hit our targets at Osborne, get a better focus on exploration, and go back and look hard at our Merlin project."

Vassie and McMahon are former Rio employees but neither now has an official link to the big miner. Osborne, which is about 200km southeast of Mount Isa, started production last year and, according to Vassie, will provide enough cash for exploration, development and corporate costs for at least the next couple of years.

Based on Ivanhoe's reserves and ore throughput targets, the mine has the potential to produce about 15,000 tonnes of contained copper in concentrate and 35,000 ounces of gold this year to deliver $150m to $160m of revenue (depending on gold and copper prices).

Osborne is also crucial to the value of Merlin, which is 50km to the north, because it provides infrastructure and a site for a molybdenum and rhenium processing plant.

Another 25km to the north is the Mount Elliott/Swan copper and gold deposit, which Vassie describes as one of Australia's top three undeveloped copper and gold deposits.

Inova is not involved in the sale process of the Turquoise Hill stake being run by Citigroup but Vassie says he is optimistic about the potential.

"There are people kicking our tyres and their interest varies," says Vassie.

"There's people interested in Merlin because it has super high grade, there is good infrastructure and it is being a real steel industry business.

"There's people extremely interested in Swan, which is half a billion tonnes of listed resource."

The company has said it is working on an updated resource for Swan.

If Turquoise Hill sells its stake to a single buyer, the buyer will be forced to make a takeover offer for the whole company.

If it sells to a number of buyers, such as funds, who each have less than 19.9 per cent, an offer for the whole company may not be required.

McMahon says Inova's exploration has been cut down amid the share price and market slump, but not abandoned, with a $10m to $12m spend planned this year.

"We've cut down on exploration but we didn't want to stop it because it's part of the brand of the company, and if you just go back to just being a copper-gold producer there's no real sizzle in the story," he said.

Ivanhoe Australia did not set out to be a molybdenum developer, but when the high-grade Merlin was discovered in 2008 wasted no time shoring it up.

Molybdenum is used to make high-strength and high-temperature steel. Prices are trading at a four-year low of about $US9 a pound after falling 40 per cent in the past year.

Rhenium is used in high-temperature alloys such as those used in jet engines, and has an opaque pricing system.

Vassie says Merlin will be designed to stand on its molybdenum credentials at current prices and that any rhenium profits will be cream on the top.

By the end of the year, Inova plans to pull up stumps at its office overlooking Melbourne's Formula One track and Port Phillip Bay.

It will head north to Brisbane to be closer to its projects, people and project regulators and where things generally run smoother if people know you are true locals.