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Shares In Exco Resources Race Ahead, As A Development Deal At Cloncurry Draws Ever Closer
By Alastair Ford


On the phone from Australia, Michael Anderson sounds in an upbeat mood. Its quite a contrast to the sound and fury he was producing in May when he last caught up with Minesite in London, and when the row about the Australian resources tax was in full swing. Right now, Australias political future may remain in the balance as the political wheeler-dealers continue on their merry round, but the future for Exco has never looked brighter. And, as if to underline that point, the companys shares have jumped from the A22 cents at which they were trading before the Diggers & Dealers conference got underway earlier this month, to current trades at around A43 cents. As Michael Anderson says: It feels like the worlds paying attention for once.

Two things have changed. Firstly, the key metals that Exco has in its Australian portfolio, copper and gold, have been excluded from the latest Aussie resource tax proposals, and even if the prevailing view amongst mining industry pessimists is that after the election result is clear they might be up for grabs again, as things stand the company looks safe. More significant even than that, though, is that Exco has now signed up a development partner for its flagship Cloncurry copper project in Queensland, which contains around 300,000 tonnes of contained copper. Sin-Tang of Singapore will come in for an initial A$4.9 million direct interest in Exco, with a view to investing directly in development work at Cloncurry within the next three months. That can only be good news for Exco, as the recent upward surge in the share price confirms, even if the placing was done at what now seems like a lowly A30 cents. But as Michael Anderson points out, at the time the placing was done, that price actually represented a 15 per cent premium on recent levels.

In any case, the placing is not the main event, more the opening stages of a courtship. Sin-Tangs real commitment will come when the development funding for Cloncurry is raised. But by then other parties could well have intervened. Its never been a secret that Exco considers that the best home for its Cloncurry ore would be the mill at Xstratas neighbouring Ernest Henry operation. Xstrata, though, has not shown itself to be overly keen to come to the negotiating table with a reasonable proposition.

In the face of that apparent indifference, Exco hasnt been shy in pursuing alternative options. Enter Sin-Tang to shake things up a bit, with a commitment to use its "best endeavours" to invest directly in Cloncurry and raise debt finance. Meanwhile, in the background, sits Ivanhoe. Ivanhoe already holds a large, strategic holding in Exco, and just lately has been adding to it with on-market purchases. Ivanhoe might be flushed out into the open soon, now that Sin-Tang has started to make the running. And so might Xstrata, which will have an increasing amount of spare capacity at Ernest Henry in the months and years ahead. But what the Sin-Tang deal proves is that Exco doesnt need either Xstrata or Ivanhoe to make a mine. And paradoxically, that clear demonstration of viability will only make it more attractive to both.

Therell be a decision on Cloncurry within the next couple of months, says Michael Anderson. Weve got a copper project thats going to be developed one way or another, but theres more than one game in town. The right thing for these ores is for them to go through the Ernest Henry mill. But if that cant happen, Ivanhoe will back us in doing an off-take deal. Weve given ourselves a credible commercial alternative, and its coming to a head in the next few months. The stars have started to align.

Meanwhile, Excos small gold operation at White Dam continues to go from strength to strength, following the first gold pour in April. With the gold price on the march, and the dump leach operation at White Dam performing ahead of expectations, it looks as though Exco will be able to pay back the development capital leant to it by Barclays six months ahead of schedule. And, as Michael Anderson points out, that bodes well for anything else we ever want to do. Cloncurry is of a different order of magnitude, but Exco has now shown itself capable of building and operating a mine profitably. Thats something the powers-that-be at Xstrata, Ivanhoe and Sin-Tang will also have noticed, and not only because it demonstrates a certain technical capability. Cash flow from gold mining also means that putting the squeeze on Exco will be very difficult indeed. This autumns newsflow should make for fascinating reading.