INTERVIEW: Jubilee To Prosper From New Australian Mine By James...

INTERVIEW: Jubilee To Prosper From New Australian Mine

By James Attwood
Of DOW JONES NEWSWIRES

SYDNEY (Dow Jones)--Jubilee Mines NL (JBM.AU) expects to start development of a new underground mine in Western Australia later this month with plans to at least match output levels at its current Cosmos mine from mid-2007.

Australia's third largest nickel producer is waiting on permitting approvals to begin excavation on the Prospero ore body as part of an ongoing A$6 million feasibility program, said Executive Chairman Kerry Harmanis.

"It's too early to tell output yet but I wouldn't be anticipating anything less than the current levels at Cosmos (of around 11,500 tons of contained nickel a year)," Harmanis told Dow Jones Newswires in an interview.

"We just need this next quarter to do some more drilling and assess the size of it - it's still growing, but that's a good problems to have," he said.

Jubilee recently increased Propsero's resource to 960,000 tons, from its previous 645,000 ton estimate, and plans to release another upgrade next week after incorporating fresh drill results.

Harmanis said the start of development at Propsero is evidence of the success of the company's growth strategy based on aggressive exploration on one of Australia's most prospective nickel sulfide belts in Western Australia's Kathleen Valley.

"We've chosen an organic exploration route rather than mergers and acquisitions and it's paying dividends. It's a pretty simple strategy which we've delivered on and people can believe what we say," he said.

But some nonbelievers of the Jubilee story continue to voice concerns over the company's short mine life at its sole operating mine.

"It's just like life in general," responds Harmanis.

"Do you believe the only thing that exists in the universe is what you can feel and touch and measure or do you have belief and trust. To me the latter is important and those sort of analysts are people for whom the cup's half empty."

"So in Jubilee there's a belief factor that we're going to find more of this high grade material and keep delivering," he said, adding the company expects to hit its production target for the fiscal year 2005 ended June 30. He didn't elaborate.

Macquarie Research is certainly a believer, recently raising Jubilee's share price target to A$7.50 from A$6.50 and maintaining an outperform rating following Prospero's resource upgrade. The stock closed Friday at A$6.94, valuing the company at A$908 million. Harmanis has a 17.6% stake.

"JBM remains our preferred nickel stock, with its extremely high operating margins, healthy dividend yield and first class exploration potential," Macquarie said in a recent report.

Rules Out Near-Term Bid For Falcoln Minerals

Jubilee has been under the investor spotlight, particularly as nickel prices have doubled since early 2003 as part of a China-led global commodities boom.

Harmanis said the company prefers to focus on growing the business rather than positioning itself as a potential takeover target.

"We'll wait and see what happens when it happens, meanwhile we're really enjoying it here and we're on a roll now with exploration, operations and a good nickel price."

However, he acknowledged there is scope for further consolidation in the industry, even after BHP Billiton's (BHP) recent takeover of the country's largest nickel producer WMC Resources Ltd.

"The thing that drives these sorts of things, apart from high nickel prices, is nickel units - who has the reserves, who makes the most profit, who's got the best potential to yield more units and in that regard we think we've got the best chance of anybody," he said.

"Whether that leads to M&A, I don't know. We're just happy doing what we're doing at the moment."

Despite its stated preference for organic growth, Jubilee has enough cash to look at acquisitions itself.

It has built a 19% stake in Falcon Minerals Ltd. (FCN.AU) to gain exposure to Falcon's 30%-owned Collurabbie discovery, a move Harmanis describes as "putting our foot on a potentially world class project".

While ruling out a takeover bid for Falcon for now, he said there are encouraging signs for the project with BHP Billiton "running with it" after taking over WMC's participation.

"We're just happy to sit for the time being and see how it looks. It's still an exploration project and high risk but there's a pretty seductive sort of suit of metals with platinum, copper and nickel."

Despite nickel's recent price slump from US$16,875 a ton in early June to US$14,450 currently, Harmanis remains upbeat on prospects based on China's sustained demand strength.

"It's going to be volatile but I tend to think the next few years will be on the upside."

*****

It's awesome news.

Kerry Harmanis is the Real Deal.

Cheers.