cazaly, bhp deal official miningnews.net

Cazaly, BHP deal official


Ben Sharples


Tuesday, November 29, 2005
IT'S official. Cazaly Resources has signed an agreement with BHP Billiton for the sale of iron ore from the disputed Shovelanna tenement which could net Cazaly up to $A85 million a year at current prices.

A memorandum of understanding will see the fleet-footed junior producing around five million wet tonnes per annum of primary crushed ore to BHPB, subject to Cazaly delineating a JORC compliant proven and probable reserve of 100Mt.

Cazaly has calculated that its margin based on current prices will be in the range of $A70-85 million per year, based on production of 5Mtpa and standard industry contract mining and primary costs.

Capital costs weren't disclosed, though Cazaly managing director Nathan McMahon told MiningNews.net he was confident they would be relatively nominal considering the operation was "basically mining and selling it to a delivery point".

McMahon said the company was looking either buying a crusher to process the ore or employing contract crushing to do the job.

BHPB must elect whether to purchase any additional ore in excess of 100Mt within six months of Cazaly determining the size and quality of the reserve; otherwise the junior has the option to sell additional ore to third parties.

Cazaly said it expects first production within 2-3 years of receiving all necessary consents and approvals for exploration.

Cazaly will be responsible for the exploration, mining, primary crushing and delivery of the ore, and the partners will assess whether Ore Body 18 and Shovelanna should be developed as a single unified mining operation.

A JORC complaint inferred resource of 216Mt at 62% iron has been calculated by Cazaly for the tenement based on historical drilling data prior to 1986. Drilling was carried out at 150m spaced holes on 300m spaced drill lines.

The MOU is subject to a number of factors including the granting of the license, technical and legal due diligence and ministerial consents. Cazaly said it was in the process of making their second and final submission to the Western Australian Minister for State Development, expected by mid-December.

Shovelanna was pegged under the nose of former tenement holder Rio Tinto, which has appealed to the WA authorities to get the project back.

Cazaly has rapidly progressed since pegging the ground in August, forming a joint venture with Echelon Resources – which will get a 14% stake on completion of its obligations – completed a scoping study and received backing from international banking group Investec.

In addition, Cazaly revealed one of Fortescue Metals Group largest shareholders, HMC Investors, has acquired 2.7 million shares in the junior equating to a 6.36% stake.

Shares in Cazaly have enjoyed a remarkable run over the past couple of weeks more than doubling from 68c to $1.50 before the company entered into a trading halt last week. Shares initially jumped 90c this morning to $2.40, and before dropping back to $1.93 in midday trade – a rise of 28.7%.

Echelon shareholders were even bigger winners with this morning's announcement, with shares in the company up 32.5c (or 57.5%) at 89c in midday trade.