Came accross a good article about the MPJV, dated 17 July...

Came accross a good article about the MPJV, dated 17 July 2007...

United Minerals And Its New Best Friend Norsk Hydro Stalk Rio Tinto

By Our Man In Oz

If it’s possible to imagine a mineral more boring than iron ore it has to be bauxite. To the naked eye there is no difference between a handful of bauxite and a handful of red gravel. In fact, in Australia that’s pretty much what bauxite is, red pebbles which gave their name to a hillside suburb east of Perth, Roleystone. Looks, as ever, are deceiving. A couple of weeks ago Rio Tinto said it would pay US$38.1 billion for the Canadian aluminium maker, Alcan which, when boiled down is a massive gamble on the future price of electricity and the plentiful availability of red pebbles. The electricity part of the equation is all about accessing Alcan’s cheap and sustainable Canadian hydro-power. The bauxite part is all about accessing Rio Tinto’s Australian bauxite, some of which is developed, and some of which will either be developed – or snatched by a newly-formed joint venture of a small Australian explorer, and a giant Norwegian adventurer.
The prime target of the joint venture formed by United Minerals Corporation of Australia (UMC) and Norsk Hydro of Norway is an area in the far north of Western Australia known as the Mitchell Plateau. It was here, as long ago as 1966, that explorers from BHP Billiton, Rio Tinto and Alcoa, outlined a big resource of bauxite. That development never happened says more about the remote location -just 400 kilometres from Indonesia, or 2,000kms from Perth- and the complete absence of a power source. Over the past 40 years a variety of explorers have looked at the potential of the Mitchell Plateau, and imagined the wealth creating effect of marrying its bauxite with offshore natural gas. The numbers have never added up. What’s changed? Well there are a number of factors starting to change – one of which will bring a wry smile to the face of the man who created Kimberley Diamond, Miles Kennedy.

New factors include Rio Tinto, which owns the best of the Mitchell Plateau bauxite in partnership with Alcoa, getting a lot bigger in aluminium, and needing to supplement its existing mines at Weipa on Queensland’s Cape York Peninsula with fresh material, perhaps from the Mitchell Plateau. Aluminium itself is increasingly seen as the next big beneficiary of the China boom, potentially triggering a stampede for bauxite in the ground, the alumina extracted from the bauxite, and the aluminium metal at the end of the process. What that means is the world’s second most boring mineral is on the way to becoming as valuable as the most boring, iron ore.

This is where the United/Norsk plan becomes extremely interesting and could lead to a development of global mining significance. The new partnership has started life by exploring tenements which effectively surround the main Mitchell Plateau resource of the Rio Tinto/Alcoa joint venture. That big undeveloped asset is estimated to contain around 400 million tonnes of bauxite assaying 44 per cent alumina. United’s chairman, Phil Crabb, who is best known as the chairman of the nickel and uranium explorer, Thundelarra, says the plan is for the United/Norsk joint venture to find its own resource. Results, so far, from 508 holes for 3846 metres drilled, have been interesting, but not eye-catching. United’s share price (the company formerly traded as United Kimberley Diamonds and still owns the web address www.ukd.com.au) at around A88 cents is well off its 12-month low of A22.5 cents, but even at the latest price the company is only capitalised at A$91 million. The reason the market value is interesting is that when United and Norsk announced their joint venture they spoke of a plan to develop a bauxite mine and alumina plant costing between A$4 to A$5 billion – a rather heavy lift for a small Aussie explorer.

Now for the Miles Kennedy factor. It is possible that United/Norsk will find sufficient bauxite on their tenements. But if they don’t there is no doubt that a joint venture which includes the world’s third biggest aluminium maker (Norsk) will be well received by the government of Western Australia should it press a button marked “use it, or lose it”. That button is the one that underpins mineral ownership in Australia. Miners have a right to mine, but the minerals are always the property of the government or, to be absolutely correct, the Queen – the very same who resides at the end of the Mall.

A Norsk/United approach to the government over winning access to the Rio Tinto/Alcoa tenements is not on agenda, says Crabb. Seasoned observers of the Australian mining scene reckon he’s just being the gentleman, for now, and not wanting to be seen jumping on someone else’s tenement. Norsk Hydro, with its roots deep in a country which produced the ultimate seaborne raiders, the Vikings, might not have the same view. The chaps from Oslo might argue that Rio Tinto, Alcoa and BHP Billiton, have spent 40 years kicking the Queen’s red pebbles around the Mitchell Plateau and perhaps it really is time for a new owner with the balance sheet and desire to make the project happen.

In many ways, this is how Miles Kennedy started the Ellendale diamond mine. Originally a Rio Tinto discovery it lay dormant for 25 years because Rio Tinto preferred to spend its money on the much bigger Argyle diamond discovery. Kennedy, who explored all around Ellendale, eventually went to the government and demanded that the use-it, or lose-it, rule be enforced. The government agreed, and Rio Tinto was forced to sell Ellendale for about US$22 million. It is, of course, an interesting debating point as to whether Rio Tinto’s assessment of Ellendale’s economics were right all along – but that’s something the next owner of Kimberley, London’s Gem Diamonds, is about to discover.

Meanwhile, further to the north there are stirrings on the astonishingly remote and rugged Mitchell Plateau where the forces of global aluminium consolidation are about to meet Phil Crabb, one of the grand old men of Australian exploration. A classic example of “watch this space” if ever there was.