juniors giant deal might be a mistake http://www.theaustralian.news.com.au/common/story_page/0,5744,17408703%255E643,00.html
Junior's giant deal might be a mistake
Nigel Wilson, energy writer
November 30, 2005
AS the Cazaly Resources share price heads for the stars, a dose of reality seems in order - the future is not in its hands.
History may well determine Nathan McMahon and his fellow board members have made a strategic miscalculation in pursuing an early deal with BHP Billiton covering the long-term sale of iron ore from the Shovelanna ore deposit near Newman.
In stock market terms, the MOU is fantastic - Cazaly's share price has grown sevenfold since it pegged Rio Tinto's acreage, next to BHP Billiton's orebody 18.
But as BHP Billiton CEO Chip Goodyear made clear in Perth last week, the offtake agreement depends on Cazaly getting State Development Minister Alan Carpenter to accept its application.
In reality, his decision is not about the rights or wrongs of the pegging, nor about BHP Billiton's aim to incorporate Shovelanna into its ore body 18 development plans - but about standing up to the two biggest mining companies in the world.
Rio's application under section 111A of the WA Mines Act to have Cazaly's application struck out had the potential to hand an extraordinary opportunity to the minister. The significance of the Cazaly move is that the application for the minister to intervene covers an exploration lease, not a mining lease.
In the case of mining leases, a gazumped company might be able to demonstrate that, because of the expenditure it has made on a mine, a claim to have leases restored has merit.
But in exploration lease claims under Section 111A, it's the public interest and not merit which the minister has to weigh up.
Mr Carpenter has been none too subtle in suggesting previously that companies holding leases on mineral reserves should use them or lose them.
So the Cazaly application gave him the opportunity to break the duopoly in the Pilbara iron industry, by encouraging Cazaly.
That is, until Cazaly linked up with BHP Billiton. The conundrum Mr Carpenter now faces is that if Cazaly's claim is accepted, he will be seen to be favouring BHP Billiton over Rio.
That might not be a smart move, considering the power both companies have in the WA economy.
A safer bet would be to return the lease to Rio and allow the two giants to hammer out a commercial arrangement over the future of Shovelanna.
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