The surging iron ore price is fuelling renewed investor interest...

The surging iron ore price is fuelling renewed investor interest in junior iron ore stocks, in the process stoking speculation that Rio Tinto may bid for its little Pilbara neighbour CZR Resources.

CZR’s Robe Mesa project adjoins the operating Yarraloola mine of Rio Tinto, with only a tenement boundary separating them. Given that geology knows nothing about man’s legal fences, and that Rio and CZR therefore share the same deposit, there is growing talk that the mining giant will do the obvious thing to expand its operation by consuming CZR.

Shares in CZR, which is controlled by ultra-rich prospector Mark Creasy, have been ticking up in recent days as investors tune in to this scenario. But given CZR still has a market capitalisation of just $38m, any bid would be tantamount to chicken feed for Rio.

CZR is in the throes of completing the definitive feasibility study on Robe Mesa, with recent drilling highlighting strong potential to increase the forecast production rate from the 2Mtpa outlined in the pre-feasibility study to 3Mtpa.

Highly regarded resources commentator Tim Treadgold noted in his recent column that a recently completed drilling campaign which focused on the southern end of the Robe Mesa, as well as testing deeper iron-bearing areas, has boosted the confidence that an early plan for a series of small pits can be superseded by a bigger and more efficient mine.

“Rio Tinto is currently drilling the southern portion of the Robe Mesa with exploration crews reportedly moving steadily closer to the boundary its shares with CZR,” Treadgold wrote.

“Last reports indicate that there are seven drilling rigs active on Rio Tinto’s side of the mesa which is understood to contain a uniform ore grade on either side of the border.

“In theory, Rio Tinto, with a fully mobilised exploration team and heavy-duty mining equipment at the ready, could make CZR a cash offer to buy the northern portion of the Robe Mesa and continue mining.”

Treadgold notes that even if Rio Tinto offered A$10/t for the 8.2Mt in the current reserve on CZR’s side of the boundary it would generate $82 million – more than double CZR’s current market value.

“But with a new resource number on the way and with iron ore sticking at US$150/t, any offer would have to be a lot higher to get CZR to consider a quick sale,” he said.

Treadgold also highlighted the strength of CZR’s beefed-up management team, which includes the appointment last year of seasoned iron ore executive Russell Clark as chairman and equally well qualified Stefan Murphy as Managing Director.