another point of view / if any consolation

Article today's Mining News

Cazaly claim catastrophe - Dryblower


Monday, April 24, 2006


WOW! Not even Dryblower in his darkest of moods would have tipped a 78% wipe-out for Cazaly Resources after last week's loss of the Shovelanna iron ore tenement.


Perhaps a 50% drop or more likely 33% but not the best part of 80%, because a fall of that magnitude says almost as much about Cazaly as it does about the fragility of the rest of the speculative end of the mining market.

But there it is: a crash of monumental proportions that has left the Cazaly faithful with an $A86 million headache as their company plunged from a market value of $108 million at the close of business on Friday to around $22 million today.

Blame – and we are now playing the blame game – is being hurled at Western Australia's Mines Minister John Bowler for returning Shovelanna to Rio Tinto.

"A win for Goliath over David" is one interpretation from Cazaly and its spin doctors. "Death of the WA Mining Act" is another.

Dryblower, who has seen a few interesting events in almost 40 years of watching how the WA mining industry works, reckons there is more than a dash of hyperbole in those claims.

For non-followers of the Cazaly caper, and for close followers who lost the plot a little during the excitement of the past six months, let's consider the facts – and then apportion blame for $86 million fluttering out the window.

The game started when Rio Tinto botched its paperwork. Even Rio admits that, and acknowledges that Cazaly seized the moment to "peg" the Shovelanna claim. But, and this is a point lost in the telling of the story, Rio had paid for the renewal.

That exchange of money was an event that caught Dryblower's eye at the start of the process, and always looked to be problem for Cazaly because there is something extremely important about someone handing over a cheque for an asset – and something even more important about the other side accepting the cash. And that's what the WA Government did: took Rio's cash in Perth, acknowledged receipt specifically for the Shovelanna tenement, and then waited for the renewal paperwork to make its way to Marble Bar.

Bowler has not detailed his reasons for going against Cazaly, and perhaps they will come out in any future legal challenge, but it appears that the money trail was critical.

Whatever the reason for the minister voting with Goliath, there are others who deserve to cop some of the blame for the destruction of investors' wealth in Cazaly – including Cazaly itself and a few other suspects, including BHP Billiton.

On the company, Dryblower reckons that Cazaly management got a little ahead of itself in promoting Shovelanna almost as if it was a company asset. Sure, there was case to argue that Rio's paperwork blooper created hope – but there was always going to be an appeal, and perhaps a legal action lasting years, if not a decade, as the famous Bronzewing South case showed.

On BHPB, here was a world-class company behaving in a very curious manner, saying it would buy ore from Cazaly if/when it got Shovelanna. BHPB will argue that there were lots of provisos attached to its statements but the fact that they came from such a market leader simply added fuel to the Cazaly fire – something BHPB says it never does.

Blame, and whoever cops most, is cold comfort to the punters who paid up to $2.38 for Cazaly as recently as a month ago. They are the people most deeply out of pocket as they watch their shares limp along around the 46c mark.

But also in trouble is the wider speculative end of the market because Cazaly is a warning shot across the bow of the boom that some companies have feet of clay – and not iron ore.