FYI, article in todays The Australian. Chaos is only mad at...

FYI, article in todays The Australian.

Chaos is only mad at himself for being a long term homogenous shareholder and not being savvy and taking profits when the shares were +$1 in the halcyon days of November 2007 - I did. Now considering buying Heron again as cash is King, opportunities are hetrogeneous - HLOL.
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Heron Resources (HRR)
Tim Boreham | March 24, 2009
Article from: The Australian

CAN dire commodity prices be used to explain away share underperformance in the resources sector? When it comes to laterite nickel the answer would seem to be "to a large degree", but one Heron holder accounting for 3.5 per cent of the register is far from convinced.

Sydney investor Alex Alexandrou believes Heron's board should be doing more to realise the latent value of the shares, which are trading at their net asset value of 13.3c a share.

In a five-page missive, Alexandrou calls for Heron chairman Craig Readhead to resign. Readhead replies: "The Heron board does not agree with your analysis and I will not be resigning my position."

Alexandrou chronicles a few shortcomings on the board's part, but his key concern is the fate of the joint venture deal to fund the massive Kalgoorlie Nickel Project (KNP).

Heron's 100 per cent interest in the project currently is free-carried by 13 per cent shareholder Vale Inco, which can earn up to a 60 per cent interest. Vale funded the pre-feasibility study and by the end of July must decide whether to go ahead with a $50 million bankable study. KNP is vaunted as a $2.2 billion mine, producing 23,000 tonnes a year over 34 years.

The most optimistic (and unlikely) scenario is that Vale recommits on the basis of giving Heron a free ride all the way to production. But more likely it will seek to renegotiate the project or exit it altogether. Fellow Heron holder BHP Billiton hardly set a shining example by walking away from a $5 billion hole in the guise of the Ravensthorpe nickel mine.

While investors assume Vale will cut and run, Readhead remains optimistic. "We view the relationship with Vale very highly," he says. "It is our hope they will continue in the KNP. If there's any need for terms to be renegotiated, we will consider that if and when it is raised."

Alexandrou argues that investors have assigned not a cent of value, yet last month Mitsubishi bought a 33 per cent stake in Indonesia's Weda Bay laterite deposit for $216 million, thus valuing the 65,000-tonnes-a-year project at $720 million.

"No matter how crude or cruel the number crunching is, in comparison our company's stake in KNP should be worth a few times more than what the market values our company today," Alexandrou says.

"How much lower can the share price plunge below cash backing and historical lows (other than our company sliding into receivership) if Vale does not proceed to the next stage?"

Alexandrou fears Vale will use the "same feeble excuse" of the low nickel price and the global financial crisis to renegotiate the farm-in agreement on unfavourable terms to Heron. If that happens, he says, the Heron board should take flight.

So far, the spat has been gentlemanly. "Alex is a good supporter of Heron," says Readhead, who hasn't heard any similar grievances from other investors. Given potentially sympathetic parties to Alexandrou speak for more than 5 per cent of the stock, an EGM to force the issue is possible.

We rate Heron as a speculative buy for those convinced that Vale will take a long-term view and not walk away from one of the world's biggest undeveloped deposits. The pre-feasibility study puts KNP's cash costs at $US4.42 a pound (including cobalt credits), compared with the current spot nickel price of $US4.49/lb.

If Vale baulks, there's the prospect of Vale (or BHP) launching a Heron takeover.