arh article great read resource stocks

Major Shareholder are:
Lampton Pty Ltd 4.87%
Westpac Custodian Nominees 4.44%
Heal R & H 4.33%
Mineralogy 3.2%
JP Morgan Nominees 2.77%
Resource Stocks Magazine July 2006 edition
Page 67 and 68
What a difference a year can make.
The transformation of Australasian Resources from a seemingly directionless junior to a drivon ironore player is one of the Australian market most compelling stories.
By Michael Vaughan
In early 2005 Australasian Resources, then known as Sherlock Bay Nickel Corporation, was a company in trouble. It had a $15million debt hanging over its head with no way of repaying the money as its flagship Sherlock Bay Nickel project was still years away from production.
Fast forward to today and with new management, a new name, renewed energy and a deal for a new, company-making project on the brink of being finalised(or likely completed by the time you're reading this) the rags to riches story of Australasian Resources is fast materialising.
The tranformation of Australasian Resources started in late 2005 when the new board, led by managing director Darren Hedley and chairman Domenic Martino, made the decision to switch the compan's focus from the nickel sulphide project to the rampant iron ore and uranium sectors.
While the change in direction seems obvious due to the strength of both the uranium and iron ore markets from a producer's perspective, a change in strategy takes more than just an idea, it also needs a couple of quality projects.
The first piece in the puzzle fell into place with the acquisition of the Mount Salt Uranium Project in the Pilbara region of Western Australia from mining entrepreneur Professor Clive Palmers privately owned Mineralogy group.
The move gave AustralasiaResources a solid footing in the red-hot uranium sector via a project with a system of radiomtric anomalies covering a 20 kilometre strike length and spanning 4-5km in width.
Then in the days before Christmas the company was gifted a potentially company-making present from Palmer-an option to purchase the Cane River iron ore deposit plus a guaranteed 400 million tonnes of ore from Mineralogys Balmoral Sourthern Block magnetite deposit.
The news got even better in May this year when the deal was altered as a result of Mineralogy entering into a separate arrangement with Chinese group CITIC Pacific.
Mineralogy is now offering Australasian Resources the opportunity to purchase one billion tonnes of magnetite ore from the Sourthern Block leases.
The revision of the deal effectively doubles the tonnage of ore Australasian Resources can purchase from Mineralogy and means the junior can now source ore from one location, avoiding the time and expense of having to construct its own railway line.
Mineralog's agreement with CITIC allows the Chinese Group to purchase up to six billion tonnes of magnetite ore at a cost of US$215million for the first billion tonnes and a further US$200million for every additional package of one billion tonnes of ore. Inclusive in the agreement is a gross royalty of 6-10% on production
which is estimated to add another A$100mill to Mineralogys coffers for each billion tonnes mined.
Under the terms of the deal Citic will invest US$1.37bill for stage two in developing a mining and processing operation along with a port and related infrastructure at Cape Preston.
Importantly for ARH the deal will provide the company with the port needed to export the products from its proposed development. The company will likely have to contribute to the capital and operating cost of the port on a prorata tonnage basis.
To date, the company has drilled out an initial resource of 618million tonnes grading 31.7% iron at the Balmoral Southern Block that preliminary metallurgical work has indicated is able produce a 71% iron concentrate.
A resource upgrade is expected shortly which will see this figure approach the one billion tonne mark.
The promising metallurgical characteristics of the ore gives the company the option of producing a range of magnetite products including concentrates, blast furnace and DRI (direct reduced iron) pellets and/or HB(hot briquette iron)
ARH plans to kick start a full feasibility study for the project in September 2006 following the conclusion of negotiations with Palmer. Mineralogy have been working this project in earnest for the last ten years.
The Central Block has already had significant feasibility work completed and it appears the Southern Block is a direct extension of the same orebody, giving Australasian Resources a huge head start having full access to this information.
Considering the company's junior status, one would assume it would be difficult to match the $US215mill citic paid Palmer for its first billion tonnes of ore with a cash payment, so the deal with Palmerwill probably see him given a majority stake in the company in exchange for the ore.
This would be a major coup for ARH because Palmer's Mineralogy group has been referred to in the past as potentially having more iron ore in the ground than RIO Tinto and BHP combined and could potentially lead to deals for more ore in the future.
Hedley was enthused by his company's relationship with Mineralogy and clearly impressed by Mineralogys founder and owner Professor Cliver Palmer.
"Professor Palmer is an astute businessman and a man with vision," Hedley said.
"He picked these leases up in 1985, knowing that one day he would be residing over one of Australia's premier iron ore producing regions and that day has come,"
Independant consultant Hellman & Schofield have estimated Mineralogy has an exploration target of between 60 and 100 billion tonnes of ore in its leases.
For a junior such as Australasian Resources, even a small portion of this massive inventory of iron ore could potentially provide the company with enough feed to sustain a significant size iron ore operation for a number of decades at a time when demand for the metal is on the rise and new sources of supply are struggling to come on.
It also provides a massive option value if the compan's major shareholder owns all the iron ore on the lease.
while China's seemingly insatiable demand for iron ore has been well documented, India also looms as the new frontier for iron ore producers. The government of the country has officially stated its goal to increase steel production almost three fold to 110 million tonnes per annum by 2020.
Hedley has already visited India and said he received a very strong endorsement for his company, its strategy and its project. At this stage Australasian Resources keeps an open mind when it comes to future offtake partners but a line is starting to form with production still several years away.
While the Australasian Resources story has clearly grown since the company was solely focused on the SHN nickel project metallurgical heal leach test work on ore from that project continues and will tae another six months to evaluate.
The project carries a low-grade nickel sulphide resource of 24.4Mt grading 0.4% nickel for 101,3000t of nickel, meaning building a conventional flotation circuit may be cost prohibitive and better returns are on offer using bacterial heap leaching technology.
Hedley said ARH could well bring the project into production itself in the nex couple of years, though he would also consider joint venture partnerships and possibly an outright sale on the right terms.
"All options are open for us on this asset" he said. The key is to realise the appropriate value.
Meanwhile the Mount Salt project and the compan's other uranium play, the Copper Bore Well project, remain at the exploration licence application stage though Hedley said the company would expedite the appropriate exploration programs once the tenements are granted.
So while Australasian Resources probably won't make the transition from explorer to producer until 2010 the hard work and astute deal making the company has been involved with in the past eight or nine months has laid the foundation for a profitable future and completely transformed the companys fortunes.
This is by far the most exciting magnetite play in Australia if not the world.
Its size, location, access to gas, access to infrastructure and favourable metallurgical qualities puts us well ahead of the rest Hedly said.
The fact that Citc have chosen to invest heavily in this area is testimony to the quality of the asset.
Our vision for Australasia Resources is the multi billion dollar league found amongst the Top 150 company list and this project underwrites that vision Hedley said.

This had taken awhile to type finally I now know how to copy and paste thanks for the help. Great Read.