CYCLONE Tracy and Michael Kiernan both came to Pine Creek, 200km south of Darwin, and the nearby iron ore mine of Frances Creek – one destroying its fortunes, the other resurrecting them. By Charles Amery - RESOURCESTOCKS*
Territory Resource's Frances Creek iron ore project in the Northern Territory
In September Frances Creek will ship its first iron ore exports to China from a mine that a little over two years ago did not even have any proven resources.
In February this year its resources were 9.73 million tonnes at 60.7% iron with 4.81Mt in reserves.
The 1970s iron ore field is now owned by the newly named Territory Resources, which as Territory Iron was a small but committed, low capital ASX-listed company with little to spend on exploration and development of its iron ore tenements.
Along came Kiernan – the likeable, larger than life formidable industry character who as MD had transformed ConsMin from a 200,000t to a million tonne manganese producer, and billion-dollar company.
Through his family company Crawley Resources and together with Hong Kong-based commodity traders and marketers the Noble Group, they took a 30% placement in Territory Iron, happily paying over the odds for the shares and providing what was a $30 million investment to fire up the junior and particularly Frances Creek.
Now as Territory Resources based in Perth, that small company is looking to become a mid-tier Australian resource group diversifying into a range of carbon steel material commodities via mergers and acquisitions.
"We changed the name from Territory Iron to Territory Resources to better exemplify the future direction of the company," company chairman Kiernan told RESOURCESTOCKS.
"We want to develop Territory Resources into a group with four to five different types of commodities, primarily for the steel industry of China – a carbon steel industry supplier.
"I was attracted to Territory Iron as it was then called because it was a small company which had done very well to get where it was at that time with a limited amount of capital," Kiernan said.
"Doug Stewart [the retiring managing director] started the business basically from scratch, conducted exploration without much capital and had driven the company with a limited amount to spend on exploration.
"It had proved up enough to begin developing projects and once again with limited capital basically brought the Frances Creek operation to commencement.
"So Noble and myself saw an opportunity where we could, instead of buying something, invest our money. I am not one who likes to buy businesses. I would rather invest in a company or a project to develop that company so the money goes into the ground," he said.
"We approached Territory and said we would like to take a placement and did it well above market price to demonstrate we were not asking for free kicks.
"We took 30 percent of the company at 50c a share when shares were trading about 30c, so injected $30-odd million to be used to develop Frances Creek and/or some other opportunities."
According to managing director Doug Stewart: "We were a wallflower for a while until Crawley Resources came along and took us for a dance. Now we are looking at what progeny may come out of it. Having Crawley and Noble behind us is extraordinary. Now we have taken a company with no reserves 25 months ago into production."
Iron ore was being produced and exported up until 1974 from the old Frances Creek centre within the project area but flooding and damage to its infrastructure forced its closure.
It stayed untouched for more than 30 years but as those years progressed a number of industry changes brought its economic revival closer.
Vital infrastructure had been put in place with the development of nearby rail links and new port facilities in Darwin; there were new modern exploration techniques and mining and processing equipment; and of course the vastly improved market conditions.
It paved the way for Frances Creek to once again begin producing iron ore from the Northern Territory and recently saw Territory Resources move to producer/exporter status and the railing of the iron ore to the port of Darwin for the first shipment to China.
"Frances Creek has about 10Mt of resource which will give it about a five-year mine life at an annual production of about 1.5Mt," Kiernan said.
"I have a target to double the resource base to 20Mt and double the production to 3Mt annually. Logistically that is feasible. It is a project that has never been subject to modern exploration techniques over the past 30 years.
"We always look at a project and ask where is it today, does it wash its face – and if the answer is yes, then where can you take it to and grow it.
"That was the philosophy used at ConsMin where we took a business with about a three-year mine life producing about 200,000t of manganese which now has a 15 year-ish mine life producing a million tonnes."
Kiernan's philosophy is one of aggressive exploration and having the courage and conviction to bring the desired results, and he has a good record of proving any of his sceptics wrong.
"I love proving sceptics wrong and there are some about Frances Creek, but in our assessment we consider it is more than likely we will double our resource base over the next two years and that will lead to a doubling of production to 3Mt a year," he said.
"Logistically the rail can handle that; logistically the port can handle that. The big benefit is that infrastructure is in place and on a user-pays basis.
"It is a very simple dig, crush and screen then a small 15km trucking distance to the rail link where it is taken on a tonne rate into Darwin where we will truck it about 3–4km from the stockpile area to the port.
"Later when we have the money we will run a conveyor across to cut out that rehandle which is costly and degenerates the product.
"I would like to feel that the profile of Territory Resources is to export about 10Mt of iron ore a year, probably from a couple of different tenements, so becoming involved in another iron ore project. We are certainly looking at some locations in Western Australia and South Australia."
Territory Resources will operate its different projects with fully owned subsidiaries, the first being Territory Iron for the Frances Creek project.
But Frances Creek will certainly not become a stand-alone project for the future growth of the company, and only recently Territory announced a heads of agreement to evaluate a major manganese deposit in Burkina Faso, West Africa.
The agreement was with Dubai-based Wadi Al Rawda Industrial Investments and Weatherly International – with Wadi having been granted the rights to the Tambao manganese deposit and AIM-listed Weatherly and Territory Resources agreeing to acquire a 72% interest in the project.
Territory will spend $US100,000 on a pre-feasibility program and if favourable will jointly fund metallurgical testing, a bankable feasibility study, environmental studies and site preparations.
Kiernan sees the company profile expanding to about 10Mt of iron ore annually, about 1Mt of manganese, and with Territory also starting to consider a chromite deposit overseas with the ability to produce about 500,000t a year.
He believes mineral sands, particularly zircon, has a strong future driven by the Chinese demand for ceramic tiles and possibly vanadium and magnetite making up the commodities mix at Territory, with uranium possibilities on some tenements also coming under some low key scrutiny.
At the moment as a producer the Frances Creek project stands alone, but Territory is cashed up and ready to explore and develop as well as looking at mergers and acquisitions in reaching its goals.
"The business has $30 million in the bank – probably about $10 million of that will be spent on finalising the development of Frances Creek which will then start coming to cash flow positive. We intend to spend $6–7 million a year for two to three years," Kiernan said.
Kiernan is back – did he ever go away – and he likes the climate.
"It's a great industry – with people I like – in a boom time and it ain't going to end despite what anyone says."
* This report, first published in the August 2007 edition of RESOURCESTOCKS magazine, was commissioned by Territory Resources
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