I think it has to do with this.... IMO AGO should continue from...

I think it has to do with this.... IMO AGO should continue from here, Althought i do not hold AGO, like to see UMC head in the same direction, Production.......

MiningNews - Digging deeper with David Flanagan

Friday, 29 August 2008

ATLAS Iron is the next Australian company set to join the exclusive club of Pilbara iron ore miners, with operations due to kick off at its Pardoo hematite project in October. Kate Haycock spoke to the company’s managing director, David Flanagan.

Kate Haycock: It’s been a big year for Atlas Iron with some significant achievements. What do you think the most important milestone has been so far?

David Flanagan: That’s a good question. I would say the biggest milestone would be our port agreement with Fortescue Metals Group. And then behind that is getting to the stage we’re currently at with the approvals process – that’s been a pretty big milestone too.

KH: Atlas is due to start mining in October. How confident are you that you will be able to meet your deadlines?

DF: We’re very confident. We’ve mobilised all of our employees to site now and they’re making ready to start work so we can meet that December shipping date. We’re about as confident as you can get, really.

KH: What about the environmental approvals for the project? Are you also confident you will receive those in time?

DF: To date, the environment minister has dismissed two of the appeals and modified one of the conditions on our project. We’re happy with it, the DMAs [Decision Making Authority] are happy with it, and we expect soon after the election they’ll swear in the environment minister and they will give us his or her consent.

Then it will go across to the minister for mines, whoever that may be, and they will approve the mine, and the very next day we will start digging holes.

Our people will be on site, waiting and rearing to go, from around about September 22.

KH: Can you run through your offtake situation at the moment?

DF: At the moment we are negotiating offtake agreements for Pardoo for the first three years. We haven’t completed those and we’ll announce those to the markets when we do. That will all be done before we export our first shipload of course.

Most customers need at least 35 days notice before they can send a ship to pick up your ore. So if we were going to meet a middle of December deadline we need to complete our agreement no later than the beginning of the second week of November.

KH: Will you be selling into benchmark contracts?

DF: We’ll actually have an offtake committee which will meet on a regular basis with our customers and we’ll look at how we’ll sell that ore on a regular basis.

Some of that ore will be sold into a long-term benchmark but some will be sold into a spot market price. There is a premium for spot market products at the moment in the order of 10 to 20 per cent.

KH: You’ve said you’re willing to consider equity partnership deals to further develop your projects in the Pilbara. How do you think Australia is handling the issues of Chinese investment in Australia and in the iron ore sector?

DF: Every company has their assets and projects for development and what they’ve got to look at is developing those assets as well as they can. In some instances, you’re better off having an integrated customer – for our magnetite deposit, that’s clearly a target we’ve got.

With 1.3 billion tonnes there, we’ll get a partner and have them have an equity share. It all depends on the situation, and it’s not easy to judge whether it’s being done well from the outside.

KH: And on a regulatory level, do you think the systems we have in place with Foreign Investment Review Board approvals are appropriate for the iron ore industry?

DF: The FIRB approval process provides a mechanism for the government to slow down, stop, or allow acquisition by a foreign body and that is a good process to have. Those decisions need to be made in the best interests of the nation and it is good to have that mechanism in place. Those decisions should be made with our children, their children and grandchildren in mind.

KH: Given the speed with which the global economy is changing, with talk of a global recession, what is your view of the iron ore market in the next few years – which will be an important time for Atlas Iron?

DF: We see the iron ore market remaining strong in the future.

KH: You don’t have any fear that Chinese demand will drop off?

DF: No I don’t have any fear there – there’s 100 million people in China every year moving from below the poverty line to above the poverty line. Over the next 15 years, 80 per cent of the Indian population will be self-supporting, it’s currently around 40 per cent.

There’s a lot of people with income to spend and they want to have a higher quality of life, which means more infrastructure. That means more base metals, more steel, more energy and more of those sorts of things.

And another reason why I think commodity prices will remain high is that we will remain in under-supply, despite the ambitions of everyone who is out there talking about it.

It’s very difficult to start a mine – Kate, it is very difficult. You will hear a lot about approvals, about land access and heritage and those sorts of issues. But getting people, getting good people, and keeping those people, and keeping them aligned and focused on achieving their objective for a long period of time is hard work.

KH: What do you see as the key difficulties for other junior iron plays trying to muscle their way into what has traditionally been a closed shop?

DF: The guys who are in there right now having a go are aware of what they need to do and I don’t need to give them advice. But I see it’s about project management – if you want to start a mine, you’ve got to have everyone in your company thinking about project management.

To put ore on a ship by this date I need to do this and this, there are 10 things I need to do. So then you ask, how do I get the first thing done? I need a plan A and a plan B for contingencies if it doesn’t work properly, and then for the next step I need a plan A and a plan B and so on.

You’re constantly strategically balancing your resources and acquiring the technical input you need to achieve each of those milestones. And that starts from day one.

KH: What do you attribute your success to thus far?

DF: I’ve thought about that because obviously if there’s something you’ve done, you’d like to replicate it but I think we’ve been lucky. We’ve also had a board, and a management team, and a group of employees and shareholders who all want to do the same thing. So when the management comes to the board with a concept with high conviction, the board is able to see it is a good thing to do.

We’re able to do things quickly, we don’t spend a lot of time deliberating, we look at the upside and our cup is half full when we look at opportunities. We look at the upside, which might be $500 million, we look at the downside, which might be $100,000, and we ask, what does that do for shareholder value, what does that do for our strategic objectives, is there an opportunity cost? And then we just have a go.

KH: Some people have compared you to Andrew Forrest – do you see yourself following in his footsteps?

DF: Andrew has some fantastic attributes so I take that as a compliment. However, FMG is looking to be a 200 million tonne per annum producer – it is almost a global domination type iron ore model. Obviously it is quite different to our business model.

Our business model is to get to 10 million tonnes, then 12, and to grow our business steadily – we’ve also got a very strong commitment to leaving a lasting benefit wherever we operate and that attracts people to us. So if we can do that and make good money for our shareholders, that’s our objective.

KH: Can you give me an example of these social benefits and what you think are the most important things Atlas has been doing?

DF: I’ll give you one example – let’s look at Aboriginal people. Some companies think it is good to have statements like “we want to have 20 per cent of our workforce be indigenous by 2020”. That’s a noble ambition and a good ambition – but if you have Aboriginal people working for your organisation and they know they’ve only been employed because they are Aboriginal, it doesn’t engender a lot of self-confidence.

If you employ an indigenous contractor and they didn’t have to compete for that contract, they just got it because they are an Aboriginal contractor, they don’t have to meet key performance indicators to keep that contract.

We want to have an organisation that promotes indigenous benefits wherever we go in a competitive process. We employ an Aboriginal guy because he is the best guy for that job – we employ the best indigenous contractor because they are the best, and that contractor or that employee is to be admired for getting that job and retaining that job.

And we think that if we start that it will snowball, and we may end up with 20 per cent of our workforce as indigenous. But they won’t be employed just because they are Aboriginal – they’ll be employed because they are the best.

We got CDE Capital from the Northern Territory and they are the best at what they do, and they’ve been fantastic for our organisation.

When someone joins our organisation we say these are our values: we want to make money for our shareholders and do the right thing. And the right thing will be measured on how you believe your family will judge you in generations to come. So I think that’s a good measure.

So we explain this to mining contractors and we say to them, we’re not going to tell you how to manage indigenous people but we want some ideas. And when you come back and bid for the contract, we’ll measure you by the ideas you put up, the quality of your work, and the cost of your work.

And so far we have had some great ideas and we’ve created competitive tension between contractors who want to win jobs. And maybe they can win jobs at a higher price if they provide better outcomes for indigenous people, and better outcomes for Atlas.

KH: Thanks for your time today David, and good luck with getting Pardoo on track later this year.

DF: Thank you Kate.