*** ox making a motza ***

Ox making a motza


Thursday, February 02, 2006

THOSE setting the curriculum for mining finance and investment analysis courses in future years must surely cite Australian miner Oxiana in any derivatives unit – as a counter-argument! For this is a company that at current metal prices and cost forecasts is banking well over US$1 million daily. Focus Feature by Michael Quinn



Aerial view of Oxiana's Sepon operation

As those grating American sitcoms say, you do the math. Over the course of the next 12 months Oxiana's Sepon copper project in Laos is pegged to be producing around 360,000 pounds of copper per day, while zinc from Golden Grove is targeted at somewhere in the region of 800,000lbs per day.

The current margins based on forecast operating costs are in the order of US1.50/lb for copper and US60c/lb for zinc – generating around $US500,000 daily in both cases – with the poor old laggard gold throwing in a bit of extra coin worth mere $US130,000 or so.

Asked whether there might be some temptation to lock in some of the record copper and zinc prices of late, managing director Owen Hegarty is both colourful and unambiguous: "None whatsoever. We're anti-hedging. We've had those genes removed from the DNA of the Ox."

Hegarty has previously commented that hedging represents a no-win game for boards and management, because (to paraphrase Hegarty), "if it goes the wrong way investors want to know why you've hedged, and if its goes the right way they want to know why you haven't hedged more".

While the no-hedging strategy is clearly working a treat at present, Oxiana must get big kudos for its operational performance. Sepon was once isolated, somewhat degraded jungle in the south of Laos containing far more unexploded mines from the Vietnam War than much else. Infrastructure was essentially nil.

It now constitutes a major copper and gold operation, producing at an annual rate of 60,000 tonnes of copper and 200,000oz of gold. Various scenarios are in the pipeline for an approximate doubling of those outputs over time, with resources continuing to grow.

While the Sepon gold plant is conventional in nature, the whole-of-ore leach SX-EW copper plant is not.

The joint venture of Ausenco and Bateman won Australia's top engineering award for the development which came on line on schedule and budget, and which, just as Hegarty/Oxiana had been forecasting since 2004, delivered 30,000t of copper in 2005 as commissioning and ramp-up was completed. (Actually it was 30,480t, with those extra 480t worth a cool $US1.5 million or so in operational cashflow at current prices!).

'On time, on budget' hasn't exactly been an overused phrase in the past year or two in the general mining sector.

Elsewhere in the development pipeline, Oxiana claims to have "one of the world's best undeveloped copper and gold deposits" at Prominent Hill in South Australia.

A development decision is due mid-year, with capital costs for a 90-100,000tpa copper and 110-130,000oz gold operation put in the region of $A550 million.

Further down the pipeline are exploration joint ventures and 100% held prospects in Australia, Laos, Thailand and China.

The latter is possibly where the next surprise from Oxiana could spring in 2006. While prospects in Sichuan Province are more generative in nature, Hegarty told MiningNews.net that some of the more advanced prospects/projects in Yunnan Province included current producing operations – albeit small scale at present.

In Sepon, Oxiana holds a key competitive advantage over many other Western companies seeking prime Chinese mining acreage. The copper-gold operation tangible proof to the many potential vendors or partners that make site visits that Oxiana is capable of delivering.

Similarly, Hegarty said the acquisition of the Golden Grove zinc-copper-gold operation last year meant Oxiana was now also open for business in Western Australia.

As befits ambitious growth companies, The Ox continues to be very much a work in progress.


http://www.miningnews.net/storyview.asp?storyid=53310§ionsource=s0