Gabi Mills, editor of The Mining Chronicle, examines Cape Lambert's African interests and the company's managing director, Tony Sage's, golden touch.
Cape Lambert?s Tony Sage is on something of a roll.
This might not come as a surprise to those who have followed the savvy entrepreneur?s trajectory over the last few years, but when the man with the golden Blackberry and the mastermind behind a raft of extremely promising plays in West Africa looks excited about the future, you?d be wise to immediately book a meeting with your broker.
For instance, at the time of going to press, Cape Lambert had just announced that its total cash proceeds from the sale of assets acquired from former resources company CopperCo would rise to more than A$205M. This was following confirmation at the beginning of February 2011 that it had entered into an in principle agreement to sell its 25 per cent interest in the Lady Loretta project in Queensland to Noranda Pacific, a wholly owned subsidiary of Xstrata (which holds the remaining 75 per cent interest), for a total consideration of $30M payable in cash on completion.
Lady Loretta, a lead-zinc-silver deposit was acquired by Cape Lambert as part of its successful $135M bid for the assets of CopperCo in June 2009 ? a typical Sage move to scoop up an apparently struggling group, build up its assets, and sell them on for huge profits.
?Our aim is to try to sell off the remaining CopperCo assets over 2011,? said Mr Sage.
?We?ll be seeing action over the next few weeks in the Sappes Gold Project in Greece and finalising Lady Loretta, and because we?ve got interests in the hottest spot on the planet for iron ore at the moment ? West Africa ? we?re looking very strong.?
Mr Sage says that 2 billion tonnes of iron ore has been identified at the collection of West African interests that Cape Lambert has acquired, including the Marampa Iron Ore Project a 25 per cent interest in African Iron which has an 80 per cent interest in the Mayoko Iron Ore Project and a 37% interest in the Kukuna Iron Ore Project.
And Australian interests aren?t the only ones fighting for a piece of the action in this new frontier of opportunity.
?China is angry with the WA iron ore producers, and so is looking to West Africa for new opportunities for investment. That region is set to be the next Pilbara.?
Cape Lambert isn?t alone in setting its sights set on West Africa?s potential.
?Rio Tinto, Vale, Bellzone, Xstrata, and Sundance Resources will all compete head to head in this area, as well as Cape Lambert of course. Meanwhile Chinalco and Shandgon all want a piece of the action too.
?As far as Cape Lambert is concerned, we?ve been building an asset base in West Africa for a long time, and crucially, two of our biggest interests are the closest to the coast.?
As in any extraction situation, it?s not enough just to have a massive deposit, with no way of shipping ore to port. Several neighbouring sites are stranded, but not so the Cape Lambert projects. They have access to transport and this, Mr Sage believes, elevates their attractiveness in the eyes of investors.
?Our Marampa Iron Ore Project in Sierra Leone will be one of the first to have oreshipped out of West Africa. Cape Lambert has transport access rights for the Marampa Iron Ore Project on the Marampa rail and via Pepel Port. The railway will be finished in May 2011 and we expect to transport 2 million tonnes of ore per annum, rising to an extra 3, meaning we?ll eventually be shipping 5 million tonnes per annum,? he said.
Management is now working on crystallising shareholder value from the company?s 100 per cent interest in the Marampa Iron Ore Project in Sierra Leone, which may involve a trade sale or an initial public offering on either the ASX or London AIM.
?We have a number of sizeable projects in our portfolio that we believe will generate significant returns to Cape Lambert?s shareholders in the coming years, most notably the Marampa Iron Ore Project in Sierra Leone, where we expect to generate a cash inflow of a minimum A$300M during 2011,? Mr Sage said.
As is the case with many mines in this previous far flung colonial outpost of the British Empire, the Marampa iron ore site was originally owned by the UK. ?It was mined up until 1977 before the owners moved on. With technology today, we can get hematite out up to 65 per cent. We don?t have to pay cap ex on railway stock ? we just pay freight costs and that alone saves us hundreds of millions of dollars. We?re expecting to easily make A$500m when we put Marampa up for sale, which again adds digits to our already healthy cash reserve.?
In Sierra Leone, the Kukuna Iron Ore Project, which Cape Lambert has a 37 per cent interest in and manages, also looks promising. ?It has the same ore as Marampa, and is just 85kms from the new port.?
Historically, the British miners of old found a ?whole pile of coal on the coast? and, thanks to the burgeoning industry in the region, Mr Sage is betting on the fact that the ?four or five power stations? which will be needed to power the iron ore mines in the area will need coal to feed the ovens.
?At the moment there?s no need to import coal, so we are going to see if there?s enough supply there.?
It?s not always been plain sailing for Sage and Cape Lambert. Being something of an innovator in the industry, he and his close knit band of directors have had to swim against the tide on occasion.
?We had trouble convincing institutions of our model. It?s very different to others, those who want producing mines. It?s very difficult to get a mine up and running ? I take my hat off to Andrew Forrest at FMG and all he?s achieved. We try to capture the growth through discovery through to pre-feasibility.
Cape Lambert has built a highly successful business model centred on acquiring distressed or undervalued assets or companies, then applying funds and technical resources to them so as to create value and in time allow for a realisation of that value, typically through a trade sale or ?spin out?.
?In the case of African Iron, we will continue to receive ongoing income from our 25 per cent interest in the company, and will receive a royalty of $1 a tonne of iron ore shipped from DMC?s Mayoko Project in the Republic of Congo. So we?ll always have an income (without having to manage the project).
?In total, cash generated from the sale of the various assets acquired from CopperCo has so far amounted to approximately AUD$205M, which is a staggering 52 per cent return to date on our initial investment,? said Mr Sage.
?We still retain a number of assets, worth more than A$80M, which once liquidated will have generated a total profit to Cape Lambert of approximately A$150 million in less than two years.?
The company has not only generated significant profits in recent years, but in the past 24 months has also returned approximately A$144m to shareholders in the form of special dividends and capital returns.
?We carry no debt, so any surplus funds generated from our activities will be returned to shareholders, which is something we have a proud track record of achieving in recent years,? Mr Sage said.
This article first appeared in the current issue of The Mining Chronicle. Click here to read the paper on line.
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