Compass gets Chinese partner Michael Vaughan Monday, May 08, 2006
WHILE looking for an off-take partner for its Browns oxide project in the Northern Territory, Compass Resources has stumbled across something much bigger: finding a partner willing to fund the capital development of both the oxide and sulphide developments for rights over half of the production.
China's Hunan Nonferrous Metals Corp (HNC) has signed a letter of intent with Compass, covering exploration and development of its base metals assets in the NT.
As part of the deal, HNC has agreed to subscribe to 12 million Compass shares priced at $A2.50 each, leaving the Hong Kong-listed group with about 11% of Compass' issued capital.
Fresh from signing the deal at 2am on Sunday, Compass chairman Gordon Toll told MiningNews.net he could not be sure of HNC's intentions with regards to a takeover, but a takeover was not what Compass was seeking.
"I'm not sure that (a takeover) is their game but they're learning fast about Australian equities and securities laws and listing rules and so forth, so they'll know soon or they'll pay big bucks to city lawyers to find out how to play the game," Toll said.
"We've got our goal of … becoming a mid-tier mining enterprise and we see this as a strategic move that gets one asset developed by someone who needs a strategic part of the output and frees up resources for us to do other things.
"With … $A90 million in the kitty, we'll probably see a few deals float through the front door."
Toll said HNC are large users of cobalt and the metal is a large part of what attracted them to the Compass and its Browns project.
About 1000 tonnes of cobalt are expected to be produced annually from the Browns oxide development when it comes online by the end of the year, with more cobalt output likely when the sulphide component gets off the ground in the future. The oxide project will also produce 10,000t of copper and 750t of nickel annually.
Toll said HNC would be a logical off-take partner for Compass' 50% share of production.
Compass also has uranium mineralisation in its NT ground though the commodity has been specifically excluded from the HNC deal. Compass said any potential uranium development is "now essentially fully funded".
As alluded to earlier, the deal will allow Compass and HNC a 50:50 split of production from both the Browns oxide and Browns sulphide developments. At this stage, Toll said it was not clear as to whether the split was on a value or commodity basis.
A formalised deal, subject to Foreign Investment Review Board approval and Compass shareholder approval, is expected in the third quarter.
HNC has committed to provide $A60 million towards the development of the $40 million Browns Oxide project, along with a $6 million cost overrun facility.
HNC will also provide all the capital required to develop up to a 4 million tonne per annum Browns Sulphide operation. Brokers have estimated capital costs of a 2Mtpa operation at $A300-400 million.
HNC has also agreed to fund 70% of Compass' base metals exploration expenditure in the NT for the next five years and then 50% thereafter. HNC will also repay some of Compass' exploration expenditure to date, expected to be at least $10 million.
Toll said he was extremely pleased by the deal and said it could become a case study for doing deals with the Chinese in the future.
HNC is the largest integrated producer of nonferrous metals, excluding aluminium, in China. The company has a vertically integrated production chain that includes exploration, mining and ore processing as well as midstream smelting and downstream refining and value adding.
Shares in Compass were up 27c (9.5%) at $3.12 in midday trade.
CMR Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
