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Magnetite play breaks ranks
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Friday, 1 June 2007

WITH iron ore not likely to lose favour any time soon and with deals with one of China's largest steel mills under its belt, Australasian Resources believes it has broken through the ranks of emerging magnetite companies to become a player of note in the Pilbara region. Colin Jacoby reports.

Australasian Resources managing director Darren Hedley, who spoke at IIR's Mining the Pilbara conference in Karratha earlier this week, was not shy about talking up the potential of the company's estimated $A2.6 billion Balmoral South magnetite project in the Pilbara region of Western Australia or the steelmaking commodity's importance.

"There is a myth out there that magnetite is a poorer cousin than hematite," he said at the conference.

"I can tell you that China has a desperate desire for [magnetite]. They are used to it, they are comfortable with it and that is why they are investing serious money into it.

"The key thing I want to get across is that magnetite is extremely desirable and is a desired product."

Hedley has every reason to sell the magnetite story, with the 1.1 billion tonne Balmoral South magnetite project continuing to steam ahead.

"I guess it doesn't matter which way you carve up this project … there is a lot of magnetite players out there in WA at the moment and a lot of people out there trying to work out who will make it and who won't. Well this one has already made it," he said.

For Hedley, it was two recent deals with Chinese companies that made the project seem very real.

One was Hong Kong-listed, Chinese-backed CITIC Pacific's deal with Mineralogy, the privately owned company of Professor Clive Palmer, whereby CITIC paid $290 million for the right to mine 1Bt of ore at a block bordering Balmoral South.

The second was Australasian's deal with the giant steel mill Shougang, which would inject $56 million into the Balmoral South project through a share-and-option subscription agreement, with attaching options to raise a further $42 million on exercise.

Under the deal, Shougang would also provide total funding for the Balmoral South project, estimated at $US2.1 billion ($A2.6 billion) and would purchase all of the iron ore products from the project.

Australasian expects shareholder approval for the second $A28 million placement from Shougang today after the Foreign Investment Review Board approved the placement last month.

However, Hedley remembers the days when it was uncertain whether the project would get off the ground at all.

"When I first started travelling around Australia 18 months ago and telling people about the project and what was happening up here, they said you would never get the money … you are just another junior company trying to get its project off the ground," he said.

"So it is pleasing now when I travel around and see the same people and say we have just got $56 million banked and they have got an option to fully fund it in interest-free terms for 25 years."

Earlier this week, the company announced a further 30% upgrade to its indicated resource of 744 million tonnes with an iron grade of 32.9% in Davis Tube Recovery (DTR), using a 15% magnetite iron cut-off.

"The increase in the indicated resource estimate … provides an excellent basis to further increase the probable ore reserve estimate for the project, which is currently at 547Mt," the company said at the time.

"Based on previous conversion rates from resource to reserve, the company expects a proportionate increase to the current ore reserves in the near future."

Australasian said infill reverse circulation drilling at the project would continue as part of the feasibility study, with results expected to be announced soon.

Production from the Balmoral South project is expected to begin in 2010 and is expected to provide 13 years of iron ore exports.

Last year, Australasia entered a deal with Palmer's Mineralogy, for the right to mine 1Bt of iron ore from Balmoral South.

The deal provided Palmer around 80% of Australasian's issued capital, with the company required to have at least 12 months worth of working capital before it could be re-admitted to trading on the Australian Securities Exchange.

In April, Australasian re-listed on the Australian bourse following the announcement of the Shougang deal after being in a trading halt since mid-December.

Since re-listing on April 16 at $2.22, Australasian has since seen its share price drop back to close yesterday at $1.34.