mine gate sales unlikely at any stage

We have previously mentioned the option of mine gate sales for BRM to generate an initial, limited cash flow. My feeling is that any mine gate sales from Marillana are unlikely, at any stage. My reasoning is as follows:

Rio Tinto blends its ore from various sources into a 'Pilbara blend'. This blending process is done at their port at Cape Lambert, over which they have exclusive use. The port at Cape Lambert is owned by Robe River Iron Associates and is operated by Pilbara Iron, a subsidiary of Rio Tinto. Because this operation occurs away form any other parties, Rio does not have to worry about complaints from other business residents regarding environmental impacts (dust, etc) at Cape Lambert.

Although the Rio approach of blending ores could incorporate output from BRM, we would have to construct a haulage road from Marillana to Rio's nearest rail line, up through the ranges, to Yandicoogina. No such problems for IOH and their mine gate agreement as their Phil's Creek mine is simply a few kilometres from Yandicoogina stockyard, where Rio would assume ownership. The cost of a BRM haulage road through the ranges would surely outweigh any commercial advantage from what would be low volume annual mine gate sales (and who knows what sale price per tonne), if it could be justified at all. That effectively rules out Rio!

BHP is not currently interested because it does not blend its ore from the various sources into a 'Pilbara blend' as Rio Tinto does. Each of the different grades from their different mines is reflected in specific off-take agreements, with the contract specifications for the ore being mine specific. Because BHP shares use of Port Hedland, it does not have the same situation as Rio regarding environmental impacts of blending ores at the port. Consequently, any blending operation (with associated dust, etc) would need to be done at the mine end rather than the port end. This creates an undesirable logistics problem, hence BHP's current approach of mine-specific off-take contracts.

Given the above scenario for BHP, I can envisage only one set of circumstances where BHP might be interested in a mine gate sale arrangement with BRM. That would be where BHP decides to develop a new mine site, at a location adjacent to Marillana, to recover ore of the same or lower Fe content than Marillana offers but with a higher potassium impurity level, and wanted to use BRM's ore to blend on site to improve its product.

Firstly, I can not see BHP wanting to develop such a site from a commercial perspective and, in any case, we can not yet say with certainty what grade ore we would have on offer (see my post 3521855 'When will beneficiation test results appear' of 25/11/08 01:57). So a BHP mine gate deal at any stage seems very unlikely!

I have no idea what possibilities exist regarding Hancock for this option or a possible haulage contract. Because they are a private company, information is a lot harder to come by.

All in all, I don't see that any realistic possibility of mine gate sales exists, but I would love events to prove me wrong.

Regards,
Bones