Roll with Poli Kevin Andrusiak | May 06, 2008 IF the investment community has learnt anything from Fortescue's rise, from Forrest plaything to somewhere near the top of the resources tree, then it has been this - it's a good time to fall in love with Tony Poli's Aquila Resources.
Most of the market missed being a part of Fortescue's near 30,000 per cent rise on the sharemarket because they either refused to get involved with a company run by Andrew Forrest, or didn't understand/believe in an iron ore boom.
Or maybe it was a combination of both.
Anyway, once bitten, twice shy, market punters have been looking around for the next Fortescue, and the next iron ore explorer to make them mega rich so they never have to work again.
This is where Aquila comes in.
Aquila is getting more and more affection these days from the people that matter, but there is one key ingredient missing.
That would be liquidity. Given that Poli owns about 30 per cent of the company - and its joint venture partner AMCI has about 7 per cent - Aquila, or more importantly, the punters, have had issues with available stock, which has kept the carbon steels miner out of the top-200 index.
But that could all change now that Aquila has promised to provide all shareholders with a free bonus share based on a one-for-five ratio.
The bonus kicks in now that Aquila has completed the Pre-Feasibility Study for the West Pilbara Iron Ore Project, which has confirmed the viability of a 25 million tonne per year operation.
At that rate, Aquila expects margins of something like 80 per cent, based on current iron ore prices.
Given that first shipments aren't expected until 2012, there is a strong chance that this will change, but the estimated Freight On Board (FOB) per tonne of ore will remain about $US20.
The study also suggested that Aquila build a 160km railway and new deepwater port at Cape Preston, and that is why the estimated capital expenditure for the project is a cool $3.9 billion. So, infrastructure will remain an issue, but Aquila is at least talking to the big players on the Balmoral leases, like Australasian Resources and Citic, to see what can be done.
But back to the share bonus - Poli wants to reward shareholders for their faith in the company and the fact it has achieved an important milestone.
It is no coincidence that it will also improve stock liquidity.
“Given Aquila's market capitalisation, increased liquidity in the stock should improve the likelihood of the company being included in the ASX 200 or 300 index, which will lead to an increase in our market exposure,” Poli said.
So the news is all good for Aquila shareholders. The news is also all good for Red Hill, the other player in the West Pilbara project.
Red Hill falls under what is called the API joint venture vehicle, which is a partnership between AMCI and Aquila.
API can earn up to 80 per cent in the West Pilbara project from Red Hill, but astute market watchers should note that 85 per cent of the resources to be mined in stage 1 of the West Pilbara project comes from Red Hill's joint venture leases with API.
Also, AMCI has recently moved to a 19.9 per cent stake in Red Hill, and industry sources suggest that punters should “watch this space” for more goings-on in the not to distant future.
Shares in Red Hill closed up more than 5 per cent today. Shares in Aquila jumped nearly 15 per cent.
ARH Price at posting:
0.0¢ Sentiment: None Disclosure: Held
