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9/20/2006 4:56:51 AM Dow Jones INTERVIEW: Australia's CBH Pre-commits To Zinc Project


By James Attwood
Of DOW JONES NEWSWIRES

SYDNEY (Dow Jones)--Confident zinc's four-year bull has much further to run, Australia's CBH Resources Ltd. (CBH.AU) is ordering long-lead items for an estimated US$100 million project ahead of a formal go-ahead decision.

A feasibility study into the Sulphur Springs project won't be ready until month-end but CBH has decided to proceed with the purchase of A$9 million in equipment, said Chairman James Wall.

"We're in the process of making a pre-commitment for ordering the sag and ball mills - they're long-lead items and in this environment you've got to get yourself in the queue," Wall told Dow Jones in an interview Tuesday.

Sulphur Springs is in Western Australia's Pilbara region, where giant iron ore expansion projects run by BHP Billiton (BHP) and Rio Tinto (RTP) are adding to the intense global competition for mining materials and labor.

After a capital investment "in the order" of US$100 million, the mine will process at least 1.25 metric tons of ore a year from 2008, churning out 75,000 tons of zinc concentrate and 65,000 tons of copper concentrate, Wall said.

But the company is also looking at a model based on 1.5 million tons throughput, thereby exceeding output at the company's only current operating asset, the Endeavour zinc and lead mine in central New South Wales state.

Sulphur Springs' logical offtaker, at least for the project's zinc concentrates, is CBH's 24.8% shareholder, Toho Zinc Co. (5707.TO) of Japan.

The commitment to order long-lead items allows the project to progress while CBH puts together a financing package over the next four to five months, Wall said.

While funds could come from an equity raising or arrangements with offtakers, debt raising is expected to play a large part.

"All those doors are open, but CBH only has A$6-7 million debt, so there's potential to do quite a lot more without affecting the gearing ratio."

But Wall said debt financing is unlikely to entail hedging.

"I'm not against buying puts at the right time in the market but I'm against selling forward the metal, which has the effect of locking you into particular prices, whereas puts are more like an insurance policy."

Zinc, used to galvanize steel, surged to an all-time high US$4,000 a ton in May before falling back into a volatile, range-bound trading pattern in recent months, prompting some to call the end of a nearly four-year uptrend.

But Wall said now is "definitely not the right time" to be buying puts, describing current base metal price weakness as "a nice little correction."

"It's early days - we're not anywhere near the top of the market in my view."

His confidence is driven by critically low, and still shrinking, global zinc stocks as years of exploration under-investment and structural expansion barriers constrain the supply side's ability to react to China-led global demand.

The bullish market view gives CBH the confidence to grow on several fronts, he said, pointing to the company's ongoing takeover of Triako Resources Ltd. (TKR.AU), whose Mineral Hill project is expected to add around 30,000 tons to Endeavour's output within 18 months.

Wall said Endeavour's throughput rate has all but recovered from a "self mining" incident last year: "In the last quarter I would anticipate we'll be back at 1.2 million tons a year."

At the same time, CBH is waiting for the New South Wales state government's nod to begin an exploration decline at its Broken Hill brownfield project. A formal decision on whether to go ahead with a new underground mine at Broken Hill is expected next year.

In total, the company is looking to reach around 300,000 tons annual production in the coming years to become Australia's third-largest zinc miner, after Zinifex Ltd. (ZFX.AU) and Xstrata PLC (XTA.LN).


-By James Attwood, Dow Jones Newswires; 612-8235-2957; [email protected]
-Edited by Paul Godby


(END) Dow Jones Newswires

September 19, 2006 23:56 ET (03:56 GMT)