developing o.seas miner.the australian

A small,but significant(imho) mention,as one of the few mine developing Australian companies.Appears as though the market is starting to take Perkoa on as reality.

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New miners offer some promise but precious little grist for the mills
Of the three big finds in Australia since 1999, only one is in production, writes Robin Bromby

December 30, 2006

SO much demand, so few new mines.
There were 114 new mining and oil companies listed on the Australian Securities Exchange in 2006, and many of them came on at a premium.
But so far all the resources sector has produced is some very small mines that will make a negligible impact on world metal output.

Of the new mining and oil companies, a large number will burn through their $4 million or $5 million raising and still have no discovery. Even if they do come up with the goods, they face years of work before the first ore comes out of the ground. Don't even start trying to figure out when dividends might be forthcoming.

Look at the uranium sector: 80-plus companies and the only deposits that could be brought into production in the short term are those owned by BHP Billiton and Rio Tinto and which were proved up years ago. As it is, even Yeelirie and Kintyre are still mothballed by West Australian Labor party bans on uranium mining. You can add Summit Resources and Nova Energy as having well-advanced deposits but most of the juniors have projects which, even if they prove to be economic, are five or more years away from development.

Another yardstick to measure the achievements of our mining sector (and to a lesser extent the oil sector) is the dearth of companies turning a profit.

The number paying dividends is lamentable. Take out the global majors on the ASX, and the miners paying dividends in the past year form a very lonely bunch: Bolnisi Gold, Dominion Mining, Equigold, Kingsgate Consolidated, Newcrest Mining, Oxiana, Troy Resources and Mincor Resources. Eight, just eight.

This must be qualified by the fact that metals prices were in the basement for several years and it takes up to 10 years to get a mine into production.

There have arguably been three big discoveries in Australia since 1999. Only one, the Thunderbox gold mine, is in production. Iluka Resources's apparently huge mineral sands find in South Australia's Eucla Basin is still in the pre-feasibility study stage, while Oxiana's Prominent Hill copper-gold project is still 18 months away from seeing the first ore going into the mill.

Andrew Forrest would probably insist that Fortescue Metals Group's 3.7 billion tonne Chichester Ranges iron ore project should be included in that list but it was not a recent discovery, just comprehensively drilled for the first time. Even so, its start-up has been pushed out to 2008.

Another old discovery not yet developed, BHP Billiton's Ravensthorpe laterite nickel deposit, has also been delayed beyond 2007.

The number of new mines in 2007 is, by global standards, small. They include Olympia Resources's mineral sands operation at Keysbrook in Western Australia; Crescent Gold producing 90,000oz of gold a year at Laverton; Golden West Resources sending 1 million tonnes a year of iron ore to Esperance for export; Allegiance Mining with its Avebury nickel mine in Tasmania; Terramin Australia producing lead and zinc at Angas in South Australia; and Giralia Resources bringing on its Snake Well gold mine. There are more, and also mine expansions, on company agendas.

There are some bigger projects coming on, but these tend to be overseas, such as AIM Resources's Perkoa zinc project in Burkina Faso and Bolnisi Gold's massive silver-gold project in Mexico.

One bright spot has been iron ore. Companies including Murchison Metals, Mt Gibson Iron, Midwest Corp and Gindalbie Metals have, from small starts, put together substantial projects in the Midwest region of Western Australia and, in addition, pulled in very big Asian money.

If only the rest of the mining sector could point to such a bright spot.

All this would not matter if supplies of metals were going to be plentiful over 2007. But they are not, in most cases. Opinions vary, but "deficit" is the term to use with zinc, nickel and other metals.

Copper may have retreated in the face of the US housing industry correction; US home starts are down 15 per cent on the year, although figures this week showed an uptick in November.

Copper, selling for a record $US8800 a tonne at the London Metal Exchange in May, was down to $US6380 a tonne on Thursday as stocks at the LME rose to 180,275 tonnes, their highest since April 2004. Older market watchers say that copper and lumber prices in the US point to the way the economy is going, but this may no longer hold true. And copper's path may not be a reliable guide to what is happening to metals in general.

China's agreement this week to a further 9.5 per cent rise in iron ore prices suggests that copper may be following a road of its own.

Nickel is still trading above $US33,000 a tonne and the 27-month forward contract price on the LME is still a very rosy $US24,175 a tonne. Forward zinc, lead and tin prices are robust. In fact, tin was this week trading at a 17-year high, with the spot price reaching $US11,500 a tonne on Thursday - hardly an indicator of a slowdown in metals demand.

The top commodities person at Canada's Scotiabank was reported this week as saying uranium and zinc would be top performers for 2007. Patricia Mohr said the upswing in uranium prices was "secular" rather than "cyclical" - that means, they're here to stay - because utilities were switching out of fossil fuels into nuclear energy. She said exploration for uranium had surged, but there had been little improvement in mine production.

In the case of base metals, zinc was taking over from copper as the leader. China uses 2.6 times more zinc than the US, so any US slowdown would have limited impact on the metal's price.

And nickel was looking good, too, with Mohr forecasting a super cycle on the back of stainless steel demand with prices staying high not only in 2007 but through 2008.

For Australia, it all comes back to the legacy of depressed exploration in the late 1990s and the first years of the present decade. Mines closed, companies went broke or switched to dotcoms.

Investors didn't want to know explorers. Geologists left the industry and those remaining got older. At least one university geology department was closed down. No money, no drilling. Now, not enough metal and not enough people to man the industry.

This lack of exploration is also now starting to make itself felt in the gold sector, according to Canada's Metals Economics Group. This consultancy, based in Halifax, says the low gold price over the turn of the century, and the Bre-X scam (which involved salting a deposit in Indonesia), have left gold reserves in a parlous position.

MEG reported in mid-year - and nothing has happened since to change the situation significantly - that the majors had enough gold reserves to last them 14 years, but new discoveries were not keeping up with production. Between 1992 and 2005, total world output of gold was 1.1 billion ounces, but this was 1.8 times the rate of discovery of new resources in deposits greater than 2.5 million ounces.

"To make the discrepancy even worse, by year-end 2005 only 52percent of the discovered resources had been upgraded to reserves ... The shortage of large, major company-sized projects is likely to remain a critical issue for the largest gold producers," the report said.

Melbourne-based Surbiton Associates, in its most recent quarterly survey of the Australian gold industry, produced a sobering picture. Gold production in the September quarter was 2 tonnes down on the corresponding three months of 2005.

Perhaps the big issue for 2007 will be meeting what used to be known as "the revolution of rising expectations". Hundreds of millions of dollars have gone into resources companies this year. Institutions and private investors alike will be looking not for any more promises but for some pretty impressive performances.

d.