cazaly on its own: bhp - article

http://finance.news.com.au/story/0,10166,18929984-462,00.html

Cazaly on its own: BHP
From: By Andrew Trounson and Kevin Andrusiak
April 26, 2006



BHP Billiton is to eschew the lure of booming iron ore demand and leave junior miner Cazaly Resources to battle alone against Rio Tinto in its dispute over the Shovelanna iron ore tenement, despite further evidence Rio has no immediate plans to develop the lucrative deposit.

BHP's deal with Cazaly to buy planned production from Shovelanna would have given Cazaly a big slice of some $300 million a year of revenue, but was conditional on the junior being awarded the tenement. Now that Western Australia's resources Minister John Bowler has rejected Cazaly's application in favour of Rio, the deal is set to fall through and has virtually killed off any chance of BHP and Rio slugging it out in court.
While BHP and Rio are racing each other to expand production to meet rising demand in China and secure market share in the face of competition from Brazil and each other, it appears the rivalry does not extend to BHP taking on Rio and the West Australian Government.

"It is up to Cazaly to pursue options as they see fit," a BHP Billiton spokeswoman told The Australian yesterday.

The BHP spokeswoman declined to comment on whether BHP would now make the same offer over Shovelanna to Rio. But it is unlikely Rio would be interested, preferring to hold Shovelanna as a long-term opportunity.

That means the ground could lie untouched until at least 2025. Industry insiders have told The Australian that Rio did not include the Shovelanna tenement in its July negotiations with the West Australian Government for royalty relief on future iron ore developments over the next two decades.


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The negotiations were held just weeks before Cazaly pounced on Shovelanna - estimated to be worth up to $6 billion - after a courier failed to lodge vital documents from Rio with the West Australian mining registrar.
If the report from the industry insiders is true, it could mean the ground will lie virtually untouched by Rio for 46 years despite Mr Bowler's proclamation that it was in the "public interest" to hand the ground back to Rio.

A Rio spokesman couldn't comment yesterday on whether Shovelanna had been included in the negotiations on royalty relief.

But Cazaly managing director Nathan McMahon, still seething over the state Government's silence since it stripped Cazaly of the ground, said his company could have been adding $17 million a year to government coffers within three years through royalty payments if Shovelanna stayed in Cazaly's portfolio.

He added that Cazaly had tried to negotiate a deal with Rio after legally pegging the ground in August, but its invitation to pay Rio 150 per cent of all money it had spent on Shovelanna plus a royalty fee on all iron ore mined was rejected. "We knew Rio had a history of being litigious," Mr McMahon said. "To me, being snubbed meant they were going to rely on being part of the big business machinery and go straight to the Government to get relief."

Rio is believed to have spent about $500,000 on Shovelanna, meaning Cazaly was offering $750,000 for an asset that it expected to generate about $300 million in revenue annually from for 20 years.

Cazaly's deal with BHP was the key to developing Shovelanna, which lies near BHP's existing iron ore and rail operations. The deal with Cazaly would have resulted in Cazaly handing over its ore at the mine gate, allowing BHP to feed it into it rail network that carries ore to Port Hedland for export.

The deal would have also solved the problem posed by the high phosphorous levels in Shovelanna ore that are a turn-off for steels mills, since BHP would have blended it with its other ores.

Cazaly expected to generate a margin of up to $85 million a year on the deal after the cost of mining and initial ore crushing.

The deal was also dependent on Cazaly proving up a reserve of 100 million tonnes of ore. The current inferred resource amounts to 216 million tonnes.