June 20, 2007Oxiana Still Has A Very Big Future Ahead Of ItBy...

June 20, 2007

Oxiana Still Has A Very Big Future Ahead Of It


By Our Man In Oz



Who’s buying Oxiana? That’s a double-edged question which has Australian tongues wagging as the share price of the copper, zinc and gold producer raced this week to a 12-month high, and tested its all-time high reached in May last year. At the latest price of around A$3.70 the company is valued at A$5.6 billion, but would certainly cost a full bidder a lot more. Oxiana’s suite of assets, plus expansion plans which include the possible addition of nickel, means it is a tasty target for one of the world’s mega miners keen to find “bolt-on” acquisitions. Xstrata is the most frequently-named suitor for the business dubbed “the mighty ox” by its charismatic chief executive, Owen Hegarty, but he’s also quick to add that he has a simple takeover defence strategy: “keep the share price up, continue to grow”.

Gold pour at Sepon
In terms of making Oxiana popular with its shareholders Hegarty’s policy is faultless. The recent upward run has added A$1.10 (42 per cent) to the stock in just three months and guaranteed Hegarty a star’s reception wherever he goes. That was obvious in Perth on Monday night when 400 of the faithful rolled up to an evening reception to hear from the man himself. In hindsight, Oxiana needed a bigger room and more drink waiters, not that many complaints were heard as Hegarty worked the room in his pure-Aussie style, replete with football analogies as to how the company is performing …. “we’re in the second quarter (Australian Rules football is played in four quarters). We’ve survived a difficult start-up. We’ve got a successful, sustainable business now with a growth profile that will probably get us to half-time”.

Half-time! Surely he’s joking. Oxiana’s rise has catapulted the company from relative obscurity into the ranks of Australia’s top 100 companies. But Hegarty’s comment about having almost reached half-time is the best indication that he reckons his job is only half done. The next target is a top 20 spot and, before anyone doubts his optimism, a ranking which challenges the big two of Australian mining, BHP Billiton and Rio Tinto. “I’m keen to build the business to the point where it rivals the world’s biggest mining houses,” Hegarty told Minesite.

To do that Oxiana needs to add more big mines to its flagship copper/gold operation at Sepon in Laos, the zinc/copper mine at Golden Grove in Western Australia, and trim more of the small assets it owns – such as the deal seen earlier today when it sold the small Wiluna goldmine, also in Western Australia, to emerging gold specialist, Apex Minerals, for A$29.5 million. Next cab off the mine-development rank is the A$775 million Prominent Hill copper/gold project in South Australia, followed by expansion at Golden Grove, expansion at Sepon, and development of the A$415 million Martabe goldmine which was the plum inside Agincourt. On the back burner are nickel opportunities, including an exploration project in China, and a large laterite (low-grade) nickel deposit discovered by Agincourt near Wiluna.

Getting a firm grip on Oxiana’s production profile is not easy, and is perhaps the only valid criticism of Hegarty’s high-speed “catch me if you can” takeover defence. Investment bankers who follow the stock have been heard to mutter that they would like expansion plans to slow somewhat for fear that costs could get out of control. Given Hegarty’s rampant optimism the critics might as well whistle in the wind. There is no way that the Oxiana seen today will be the Oxiana seen in two years time. Output of key minerals in the March quarter included: 46,398 ounces of gold, 21,124 tonnes of copper, 24,514 tonnes of zinc, and 571,139 ounces of silver. Joining that production profile will be 104,000 tonnes of copper and 115,000 ounces of gold a year from Prominent Hill in the second half of next year, followed by Martabe which is in the final stages of a feasibility study but is expected to produce 250,000 ounces of gold and two million ounces of silver a year when in production.

Hegarty’s hectic development schedule is underpinned by an absolute belief in the current resources boom lasting a lot longer than some cautious observers believe. “I bore my boys and girls witless some times, but I actually spent a few years studying economics and I reckon this is classic economic growth on a scale not seen before,” he told Minesite. “This is the China, India, Brazil and Russia factor. But, just have a look at world economic growth and you’re seeing everybody chipping. It doesn’t mean you won’t have humps and bumps along the cycle, but this is generational driven and commodities are going to be the big winners.”

Long-term followers of Oxiana and Hegarty will say there’s nothing new in his enthusiastic observations. In fact, the last time Minesite spoke with Hegarty it even suggested that optimism should be his middle name. Since then he’s successfully bedded down the acquisition of Agincourt, which adds more gold to Oxiana’s profile – and found that he’s inherited a more than interesting nickel deposit. If looking for the “what’s new factor” in Oxiana, it is nickel.

The nickel asset of immediate interest, as opposed to exploration for the stuff in China, is the Wiluna laterite orebody, a big structure containing at least 600,000 tonnes of nickel, but at a low grade of just 0.8 per cent. The grade doesn’t seem to worry Hegarty, nor does the complexity of treating laterite material, a process which has made fools of much bigger miners, including BHP Billiton and Inco. Hegarty’s view of Wiluna is: “it’s a very significant orebody. We will give it a serious, long, hard, look. We’re really not afraid of laterites now. We’re at a scale now where we can tackle some of this bigger more technically complex operations” – a view which may provide for interesting future developments at Oxiana.