Robin Bromby | November 17, 2008
The Australian
Chasing projects
THAT is not to say that the sector has gone totally moribund. Apparently, hope still flickers that the right project can save the day.
First we had former fish and chip shop operator Sam's Seafood Holdings (SSS) switching into Indonesian coal exploration two months ago. Now pearl player Atlantic (ATI) has decided that bauxite in Vietnam is just the thing.
Atlantic had been involved in pearl farming in Burma -- that must have seemed like a great idea at the time -- but ended up in administration. The mess was sorted out by bringing in a new board and handing over the pearl operations to the former main shareholder in return for $9 million in debt owing to him being written off, with Atlantic retaining an off-take deal for pearls.
Apart from the obvious drawbacks of trying to do anything in Burma, it has been hard to get skilled workers because no one can compete with the oil and gas explorers when it comes to wages. In addition, growing pearls requires a lot of running about in boats and diesel costs have soared. Then there is the problem that sales of pearls in Japan have plummeted.
Atlantic has been recapitalised with a new board under Perth businessman John Hannaford, who also sits around the directors' table of two juniors with US energy plays -- oil explorer Emerald Oil & Gas (EMR) and coal play Bathurst Resources (BTU).
The company is acquiring a bauxite project in Vietnam's Bao Loc region. The country has the third largest bauxite ore reserves after Guinea and Australia but has the advantage of being next door to the world's biggest market. Atlantic's strategy is that this proximity and logistical advantage will put it at the lower end of the cost curve.
This will be important if the aluminium sector takes any more hits.
BNP Paribas sent out a report on Wednesday that revealed aluminium demand had slowed substantially in China in the past few months. Output in October was down 5 per cent month on month, 10.7 per cent year on year. The bank's analysts believe more capacity will have to be idled.
However, demand for bauxite in China is still way above what it was a few years ago and will remain strong. And it's not as if Atlantic is wanting to sell bauxite next week. It is no doubt hoping that, if it can prove up an economic resource, then everything will be onwards and upwards in China again by the time it is ready to mine.
http://www.theaustralian.news.com.au/business/story/0,28124,24660477-18261,00.html
JB
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