August 09, 2007Marathon Resources’ Uranium Potential Was First...

August 09, 2007
Marathon Resources’ Uranium Potential Was First Spotted By Crosby Partners

By Our Man In Oz

Most punters, of the stock market and horse racing variety, like to follow a winner. In Australia, where they do things differently, there’s a prime example of why it’s sometimes good to follow a loser. Well, to be completely honest, there are actually two examples, and one loser. Crosby Partners, the Hong Kong-based merchant bank, is the two-time loser, though to be fair it has twice picked a stock which has gone on to be a winner. Two years ago it was Crosby’s low-ball bid for the Pakistan-focused explorer, Tethyan Copper which led to a bidding duel and eventual high-priced takeover of that company by a consortium of Canada’s Barrick Gold and Chile’s copper giant, Antofagasta. Last year, Crosby started the same game with an even lower-ball bid for the Australian uranium explorer, Marathon Resources, only to be beaten by Marathon’s soaring share price and joint venture deal which involved a big Chinese trading house.

For casual observers of the stock market, there’s a pattern here. Crosby has displayed considerable acumen in spotting undervalued resource stocks, tried to get them on the cheap, and then watched the price soar. The obvious way to play the game is to follow Crosby into a deal, wait for everyone else to catch on, and make yourself a winner even if Crosby is a loser.

Marathon is the latest Crosby game, but it’s worth a Tethyan refresher. The original bid for Tethyan was delivered in May, 2005, and priced at A64 cents a share. After 10-months of haggling and a series of counter-moves Barrick and Antofagasta won the day with an offer of A$1.40, a 118 per cent increase on Crosby’s starter price. With Marathon, the bidding started in July last year at A68 cents a share, was eventually lifted to A$3.52, with Marathon itself steaming ahead to hit a peak price of A$6.98 in late June. Over an 11-month period the price of Marathon rose by 920 per cent – though it has slipped back to around A$5.13 in the current sell-off. Despite the price correction over July it is worth looking at what attracted both of Crosby’s moves, and keep an eye out for its next move.

With Tethyan it was the potential to win control of a world-class, undeveloped copper and gold structure called Reko Diq. Located in one of the world’s least desirable locations, a remote corner of Pakistan, close to the borders of Afghanistan and Iran, Reko Diq has one redeeming feature, it is very, very big. If peace ever reigns in that part of the world it has the potential to become of the world’s great copper/gold mines – which is why fleet-footed Crosby struck first, and Barrick and Antofagasta could not resist the prize.

Marathon is a similar situation. The location is not as politically sensitive, but the environment is. The plum inside the company is an undeveloped uranium orebody called Mt Gee. Discovered more than 30 years ago it is located in the rugged hill country known as Arkaroola, about 450 kilometres due north of Adelaide. No-one doubts that there is an awful lot of uranium at Mt Gee. Deutsche Bank estimates the resource at 31,000 tonnes, and told clients in late May that it was such a high quality resource that Marathon’s share price had much further to run with a 12-month price target of A$8.24 – or about 1100 per cent more than what Crosby was prepared to offer just 13 months ago.

What helped drive Marathon out of Crosby’s reach, apart from the spot uranium price soaring from US$50 a pound to US$130/lb during the currency of the bid, was Marathon’s ability to find friends in high places. Late last year the Chinese trading house, CITIC and interests associated with the Queensland coal miner, Ken Talbot, took 10 per cent placements in Marathon. Their combined 20 per cent, and the financial firepower they control gives them effective control of Marathon which is pushing ahead with a unique exploration and mine plan.

Marathon chief executive, Stuart Hall, told Minesite on the sidelines of a uranium conference in Western Australia, that the current mine plan was to drive into the Mt Gee orebody from outside Arkaroola, thus avoiding any surface disturbance. The exact direction and angle of the drive, which would run for about two kilometres, is yet to be decided because recent drilling is expanding the resource, and finding rich material at greater depth. “The structure appears to be getting richer at depth, so we need to do more work before finalising mine design,” Hall said. Ongoing drilling and environmental data collection is expected to last the rest of 2007, with 2008 taken up with pre-feasibility studies, leading into a full feasibility study in the first half of 2009, and a possible start on construction later that year.

Work at Mt Gee, especially the proposed novel mining method makes the company one to watch, especially as South Australia is one of the pro-uranium mining states in Australia. But, of much more interest is to maintain a watching brief on what Crosby does next because even if it becomes a three-time loser its ability to pick under-valued assets can make other people a lot of money.