batavia and mincor and bogans

April 20, 2010

Strong Leverage To Rising Metals Prices: Mincor Resources And Batavia Mining Ride The Australian Mining Boom.

By Our Man in Oz / www.minesite.com

You know that the mining boom is back in Western Australia when coffee shops shut at 3pm because the owner can't find staff for a second shift, the local Porsche and Bentley dealer is expanding his salesroom, car parks are full, and mining company executives present to packed houses. Those were four of the impressions gathered by Minesite's Man in Oz after he got stuck in traffic and arrived late last Friday to listen to talks by David Moore from Mincor Resources and Greg Bittar from Batavia Mining. The location was Fraser's restaurant in Kings Park, which overlooks Perth, a city which went into overdrive last week thanks to the remarkable revival of business activity, and the arrival of the Red Bull air race circus which attracted a crowd of 100,000 spectators around the banks of the Swan River and on a flotilla of yachts and launches.

For young stockbrokers, accountants, lawyers, and investors, the mood in Perth today is exhilarating. For older hands it is more a case of welcoming back the boom, an old friend who probably never went away, just paused for breathing space. China is the driver of what's happening in Australia, especially in the west and the north. Large-scale investment in iron ore, coal, and natural gas projects are the headline grabbers, but the boom is reaching down into every layer of the economy and society, and it's not all good. The boom has brought the return of ugly Australians: heavy drinking, loud-mouthed yobs known as CUBS, or cashed-up bogans. For anyone that's uncertain about what "bogan" means, he/she is an unsophisticated, poorly educated, lout - with oodles of cash from high-paying labouring work. And to get an idea of what oodles means down here, a good is example is the base rate for a worker on the Gorgon liquefied natural gas (LNG) project, which is A$150,000, or 90,000 in British pesos. Skilled workers get much more.

It was against this background of a boom in its early revival stages that around 200 investors and interested spectators battled through the hardships of heavy traffic, scarce parking space, and a dubious fish lunch, to learn more about two companies that are plugged directly into the Chinese demand for raw materials. Mincor is the better-known story because it has been successfully mining nickel at Kambalda for almost 10 years. Batavia is less well known, but is showing signs of replicating Mincor's formula by developing a resource which was discovered by a major mining house, and then ignored because of better opportunities elsewhere and the low mineral prices which slowed the Australian resources sector in the 1970s and 80s.

David Moore's presentation on Mincor ran over-time, not that he bored anyone. But it was while he competed with waiters distributing fish floating on something orange, that careful listeners were able to identify the next events which will drive the Mincor share price higher. First step up will be a decision scheduled for next month regarding the re-opening the company's mothballed flagship mine, Miitel. Closed in late 2008, when the nickel price crashed, Miitel is described by David as Mincor's "sleeping giant". That's not just because of significant past production, but more because the exploration which continued during the global slowdown has significantly expanded the known amount of nickel in Miitel, where the possibility of a link with the nearby Mariners mine is now realistic, a development which would significantly lower future mining costs.

And even as it cues up Miitel for production, Mincor is also expecting to learn more about its curiously-named US-NOB project, a high-tech search for ultra-sized, nickel orebodies. News from US-NOB will be a longer-term value driver for Mincor's shares, which have risen from trades at less than A$1.00 this time last year, to recent trades around A$2.17. That's a solid recovery, but nonetheless one that is actually well behind the upward move in the price of nickel, a point made rather delicately by David. While other company chief executives might have highlighted the gap that has opened between the nickel price and Mincor's share price, David simply used a graph to show how Mincor tracks the nickel price. Right now there is a fascinatingly large gap, which David describes as:"strong leverage to the nickel price".

If Mincor is a fairly-well known, if currently undervalued nickel story, Batavia is a stock at the foot of the same escalator. Although it plans to develop a different mineral, iron ore, the parallels with Mincor are nevertheless there for anyone looking closely. Mincor's claim to fame was its gutsy acquisition in 2001 of nickel mines effectively abandoned by the company which discovered them decades earlier, Western Mining Corporation (now part of BHP Billiton). Batavia is following the same route, having acquired an iron ore deposit discovered by BHP at Roper River in the Northern Territory more than 50 years ago. But, in a similar vein, the Roper River project was never developed because BHP discovered the giant Mt Whaleback iron ore deposit at Newman in Western Australia at about the same time.

Batavia's plan is similar to the one developed by Territory Resources when it was briefly an investor's favourite thanks to the re-opening of another Northern Territory iron ore deposit, Francis Creek. Unlike most of the small iron ore projects across the border in WA the NT deposits have the advantages of a nearby rail system which is open for business, and an open port in Darwin, which will be able to handle two million tonnes of Roper River ore from 2012, and then up to five million tonnes a year as port space becomes available. Further down the track there is the possibility of export via Maria Island in the Gulf of Carpentaria, about 200 kilometres south of BHP Billiton's big Groote Island manganese operations.

If a common theme can be spotted linking the provenance of Mincor and Batavia a second theme can be found in the way both companies are being followed by Australian investors familiar with resource project development. In both cases there is an underlying commodity enjoying a significant price re-rating as global growth accelerates. There is a link back to discovery by a mining major, and later abandonment in pursuit of bigger targets, and there is the common management heritage - in the hothouse which is Perth at the start of a boom.