This is an old post but for those looking for a BUZZ then have a...

This is an old post but for those looking for a BUZZ then have a read.

Citadel Resources Stakes Some Big Claims In Saudi Arabia, Proving That There’s Life After Oxiana For Owen Hegarty

from Minesite

Older investors might remember a young chap visiting London in the 1990s to spruik a story about a copper/gold discovery in the almost forgotten South East Asian country of Laos. A few listened, but not many. Pity, really because those who did made fortunes. That youngster was Owen Hegarty. The project was called Sepon and his company was Oxiana. Roll forward a decade or so and the young man isn’t so young any more, and Sepon ended up making Oxiana one of Australia’s most successful miners with a share price that ran from a few cents to more than A$3.00. A few months ago Oxiana disappeared into the merged OZ Minerals, but out the side door crept Hegarty, not in an official capacity yet, but with his sights set on replicating the Oxiana copper-gold story, this time in an even more interesting country: Saudi Arabia.

The vehicle chosen for the soft return of Hegarty is Citadel Resources, a company which has its foot on a portfolio of prospects in Saudi, including a 50 per cent stake in the Jabal Sayid copper-gold project to the north-east of the Red Sea city of Jeddah. In geological terms this deposit can be described as “a beauty�. It was largely drilled out in the 1970s, by the French mineral survey organisation, BRGM, on contract to the Saudi government, and then simply handed back, complete with a resource of 74 million tonnes of material containing one million tonnes of copper. Four lodes were outlined, the main two containing 52 million tonnes at 1.6 per cent copper, but no calculations were made on the gold content.

For the past 30 years Jabal Sayid has remained undeveloped and untouched in the desert. The Saudi government, floating on a sea of oil, was in no rush to develop a mining industry. The oil focus aside, there was no hard-rock mine culture in the country, no local hard-rock geologists, and the thought of allowing into an Islamic Kingdom a flock of western explorers, with all of their well-documented bad habits, was too much to contemplate.

How times change! Without anyone really noticing, thanks to all the background noise of the mining boom elsewhere, Saudi Arabia has opened its doors to foreign investors in its embryonic mining industry. Joining the World Trade Organisation in 2005 was one step into the modern world. Drawing up a new mining act, another. But, on top of those steps the country also offers a superb financial and infrastructure environment. There are no government royalties, no state equity imposition, 100 per cent foreign ownership if wanted, no income tax, a 20 per cent flat corporate tax, diesel fuel at US15 cents a litre, and a mountain of industrial development debt finance available as the Saudis look for somewhere to invest their oil wealth. In many ways Saudi Arabia today is the Laos of yesterday, complete with the unavoidable reality that its strict Islamic culture bears hallmarks of the strict communist culture which can still be seen in Laos.

Hegarty’s plan is to start work at Citadel as a “senior adviser�. He told Minesite that he had unfinished business at OZ in ensuring the smooth integration of Oxiana into its merger partner, Zinifex. So for now, as far as Citadel is concerned, Hegarty said, “I’m simply working alongside the person who’s pulling it all together�. And that person, Ines Scotland, is as interesting as the geology and background of Saudi, because Ines is a woman working in the very masculine world of mining, and the even more masculine world of Islam. “She really is going very hard at it,� Hegarty said of Scotland, a former senior executive at Hegarty’s old firm, Rio Tinto. “She’s setting Citadel up to become a significant miner in the Arab world.�

Scotland told Minesite that she had been working closely with Hegarty on the detailed mine plan being drawn up by Citadel. She also acknowledges that she is modelling the business on Oxiana. “The parallels are obvious. But one of the differences is that we didn’t have to pay for Jabal Sayid, and neither did our joint venture partners. It came directly from the government, which is keen to see the development of a modern mining industry. Also, we only have half, but we have been given all the BRGM data.� Citadel’s partner in Jabal Sayid is a private Saudi family, a fact which should make it much easier to access some of that lovely Saudi debt finance.

As for the project itself, it has all the attributes of a world class copper mine. It’s close to the Red Sea, with easy access to the metal hungry market of India, and possibly into Europe. The orebodies are said to be amenable to underground bulk mining techniques with the aim being to extract three million tonnes of ore a year to yield between 55,000 and 60,000 tonnes of copper in concentrate for an initial 13 year mine life. Early capital expenditure estimates are around US$330 million, with half of that cost falling to Citadel, which will therefore need to raise up to US$50 million in fresh equity. The cost of copper production is likely to be around US$1 a pound, but should decline when gold credits are added to the equation.

The plan for Jabal Sayid is to spend the next few months finalising the mine plan, and then to refurbish the underground workings of BRGM. The Australian mine contractor, Byrnecut has already been awarded the refurbishing job and is mobilising staff to the site now. Underground drilling will start around the same time, with another Australian contractor, Swick Drilling, having already won that job. Other work to be completed soon includes the ordering of long lead items, such as the all-important mill and crusher. That will be followed in a few months by a resource upgrade statement, which in turn will lead on to a start on site works by the middle of next year, and project commissioning by the middle of 2011.

While Jabal Sayid will occupy most management time, there are other projects in Saudi on Citadel’s books. These include the 100 per cent owned Shayban gold prospect which has revealed tantalising assays as rich as 37.8 grams a tonne over 39 metres, and which could become a low-cost mine yielding up to 75,000 ounces a year at less than US$300 per ounce. There is also a sulphide nickel project called Wadi Kamal which is highly rated by geologists who have had an early look at the layered structures of the discovery, and on which a drilling programme is being planned.

On the market, Citadel is a sleeper. Australian investors are always wary of anything outside the comfort zone of their backyard. Then there are the big unknowns of Saudi as a hard-rock mining location. That means the company’s shares have sagged with the overall mining market, from a peak earlier this year of A40.5 cents to recent trades at around A26 cents, a price which values the company at an untaxing A$130 million. However, what the wide market doesn’t yet see in Citadel, Hegarty does, and while that’s just the view of one man it shouldn’t be overlooked that he was the man who turned an unloved piece of Laos into one of the world’s biggest copper mines. He now reckons he can see the same potential in a piece of unloved Saudi Arabia.

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