wtf is goin on!!!, page-6

re: wtf is goin on? I noticed that on 18th April NIA was the focus in the 'Pierpont' views column on Shaws website - on the chart it did dive after this date but don't know if it had anything to do with it...article following below...

On returning to Australia, Pierpont realised we have a Niagara of our own. The Antipodean one is Niagara Mining Ltd, which has a paper deluge in almost the same volume as the real Niagara's deluge of water.

In less than four years, Niagara has more than trebled its issued capital from 34 million shares to 111 million. Oddly, it has managed to flog all this scrip without creating any substantial shareholders. Perhaps this is because it has also not managed to create any profits. Over the four and a half years to last December, Niagara has managed to lose $4 million.

By the end of 2004, Niagara had barely half a million in the kitty, but then it scored a coup or a sort of coup anyway. In January, Niagara agreed to buy the Windarra nickel mine from WMC Resources for $7 million.

On the back of the nickel fever now infecting the market, Niagara in March raised $1.4 million by placing 7 million shares with sophisticated investors at 20c. It was one of those placements that leave Pierpont wondering whether the phrase "sophisticated investor" might be code for "rich wood duck".

You see, the sophisticated investors are the only ones in Niagara's modern history to pay 20c for their shares.

Niagara's register is richly littered with contributing shares. Some 14 million were issued at 1c with 5c to pay and another 60 million were issued at 0.1c with 5c to pay. Doug Daws and his brother Chris, who are respectively chairman and chief executive officer, issued several of these to friends of management in 2004 as a poison pill against any takeover threat.


Niagara's share price was only 12c at the end of 2004 but jumped to about 20c after the Windarra deal was announced. It's back to 18c as Pierpont quills this column, so the sophisticated investors are slightly under water.

What the sophisticates have done is to put all the contribs in the money. Consequently, all the holders of contributing shares, who are friends of management, have been exercising in large numbers. According to Ian Huntley's Datanalysis service, some 8 million of the contribs were paid up in March at the same time as the wood ducks were paying 20c.

This is terrific for the friends of management who picked up the el cheapo contribs, but not so good for the sophisticates, who are being diluted a bit more every time the contribs are paid up and sold. It's also terrific for Niagara because Chris reckons there are still some 60 million contributing shares that have not yet been paid up. As Niagara is a limited liability company, that represents $3 million in uncalled capital, which the directors can start calling in at 1c a year from 2007, or perhaps earlier.

The smart thing for the holders to do is therefore to pay up right now and give themselves the option of selling at a three or four-bag profit. If Pierpont were holding any of the contribs, incidentally, he would pay them up and sell because Windarra is a mine that your correspondent would treat warily.

Windarra has an imperishable place in Australian mining history. It was the Windarra deposit that sparked the great nickel boom of 1969, driving the share price of Poseidon from $1 to $280 in just over four months.

The 1969 market was electrified by a report from Poseidon's consulting geologist, Geoffrey Burrill, which estimated the grade of the Windarra deposit at 3.56 per cent. The electricity ran out when Poseidon failed to raise funds to develop the mine quickly and slid into receivership in 1975. Windarra was mined jointly by Shell and WMC but proved a dog of a mine because of unstable ground conditions.

This week Niagara has signed and executed the agreement to buy Windarra. It has paid $1.5 million deposit and still needs another $5.5 million to pay off WMC. On top of that, Niagara has agreed to pay WMC a further $1 million after it has mined the first 10,000 tonnes of nickel metal.

Announcing the agreement, Niagara said Windarra had produced 7 million tonnes of sulphide ore averaging more than 1.58 per cent nickel before it closed in 1991 because of low prevailing nickel prices.

These various statements raise a few issues about Windarra. Grade is the biggie. The Geoff Burrill estimate of 3.56 per cent was later proved by a Senate committee to have absolutely no basis in fact. Indeed, when Geoff was asked on oath before the committee to explain how he came up with the number, he couldn't.

The only information he had at the time was a phone call to the assay lab where some unidentified minion had told him that they were getting numbers between 2 and 5 per cent. On the basis of this, he issued a statement to Poseidon, subsequently released to the stock exchange, saying the strike averaged 3.56 per cent. Geoff had absolutely no basis for saying that, and the two decimal points gave the statement a highly misleading air of precision.

A grade of 3.56 per cent is rich in nickel terms, but the ultimate head grade of the Windarra mine was less than half that figure. WMC mined Windarra from 1976 through to 1990. Its reports of average grades ranged from 2.06 per cent to 1.28 per cent.

Worse, when Windarra was first opened, it suffered from some of the worst problems of any underground mine Pierpont has known.

Like many large sulphide ore bodies, Windarra was subject to vertical shearing. There were a number of nasty rock falls.

The ultramafic rocks that hosted the ore were bordered by two banded iron formations. Poseidon began sinking a decline by making the correct decision, which was to start in the banded iron formation on the western side, but the rock was very hard. It struck water and believed it was in a very wet rock. In fact, it should have persisted because the water inflows were only temporary.

Instead, a second decline was started through the eastern ultramafics, with some dramatic results. Now Pierpont is only a layman, but he never thinks it's a good omen for a decline when the portal nearly collapses, but that's what happened at Windarra and WMC later had to sidetrack around it.

The upper stages of the decline went through what was called Corridor Ultramafic, which was subject to heavy caving.

Every level had to pass through Charly Shear to reach the ore shoots. Charly Shear was a vertical fault running sub-parallel to the ore shoots, only a metre or two thick but tremendously difficult to develop and secure. One result was that the final decline comprised five kilometres that were necessary and probably an extra two kilometres of overruns to bypass failures that had occurred in Charly Shear.

One geo who worked underground later told Pierpont: "After the original decline struck water, followed by the vertical shears in the first few hundred metres of advance, it finally broke out of Corridor Ultramafic after several weeks of delay rockbolting the ground. The decline then chopped through another narrow banded iron formation unit and entered the ore-bearing ultramafic host rocks.

"This proved to be a landmark event because the decline ploughed immediately through what became known as E Shoot, which was discovered by the decline itself. A significant parcel of higher-grade nickel ore was permanently sterilised as a result."

All these flaws were inherent in the mine by the time that WMC got there. Pierpont is not sure who chose the site of the sewage dam, but that turned out to be another minor problem. The dam leaked into a nearby vent rise and meant that everyone working in that section of the mine had to wear gumboots and Pierpont strongly suspect gas masks.

WMC's former chief executive, Hugh Morgan, later told Pierpont that on a scale of 0 to 10 for ground difficulty, Windarra would have rated about an eight. When Pierpont asked if WMC made a profit on Windarra, he said: "The net effect if the accountants sharpened their pencils? We were lucky if we could say we broke even on the whole venture from go to whoa."

The mine was closed by WMC late in 1989-90 after reporting that reserves of economically recoverable ore were nearing exhaustion. Now the heroes from Niagara are reopening it.

Chris Daws told Pierpont he had spoken to several former mine managers and believed that while ground conditions at Windarra were an issue, it was probably no worse than current mines such as Leinster.

Chris said Niagara wouldn't be able to work on the mine until it had paid WMC another $5.5 million. He thought Windarra was worth a try because there could be further ore reserves below the 550 metre level, which was as far as WMC had developed it, and ore grading over 1 per cent was a good prospect when it was considered that current nickel mines were working on a cut-off grade of 0.5 per cent.

Well, Doug is a WMC veteran, so should know what he's doing, and Pierpont wishes the brothers well.

But it's still heroic stuff. In a sense, Niagara is an appropriate company for this historic reopening. Workers on the Windarra mine must have experienced a few waterfalls and a lot of rock falls too. So it's the ideal stock for anyone who ever wanted to go over Niagara in a barrel.

You can contact Pierpont at www.pierpont.com.au