re: the australian report on caz situation

Cazaly loses Shovelana ore lease
Nigel Wilson
April 22, 2006
CAZALY Resources, accused last year of claim jumping, has been stripped of the Shovelana iron ore lease in the Pilbara in a decision that has sparked criticism of the West Australian Government.
Resources Minister John Bowler late yesterday said he had determined "in the public interest" that Cazaly's application for an exploration licence over ground formerly held by Rio Tinto should be terminated.

"I have carefully examined and considered the very substantial submissions presented by both parties and I am satisfied that the public interest is best served by terminating Cazaly's application to explore the Shovelana prospect," Mr Bowler said.

He later declined to explain the public interest grounds.

Cazaly managing director Nathan McMahon said he was gutted by the decision, which had wiped out a great deal of value for the company's 2100 shareholders.

Cazaly shares had run up from less than 50c at the time the company pounced on Rio's administrative lapse to $2.12 yesterday, up 5c, on speculation Cazaly would win control of the lease.

Mr McMahon said he was very angry, because Cazaly had acted within the law and had achieved more at Shovelana since pegging the lease last August than Rio and Hancok Prospecting had done in the previous two decades that they had held the lease.

"This affects everyone in the mining industry in this state. The Government has bowed to big business by allowing Rio to knock us out."

Cazaly had brought in a joint venture partner, Echelon Resources, to help drill the tenement and had gained financial backing from South Africa's Investec.

It had also signed an offtake agreement with BHP Billiton, which has operations adjacent to Shovelana, to buy all of the iron ore Cazaly mined and to ship it out on its Pilbara railway network.

Mr McMahon said that with BHP Billiton as a partner, Cazaly could begin mining within two years.

Analysts said last night that this agreement might have harmed Cazaly's position in the Government's eyes as it effectively meant BHP Billiton, and not an independent third party, would end up benefiting from Rio's embarrassment.

Mr McMahon said Cazaly was considering its legal position. He believed there was sufficient support for its position to fund a substantial legal challenge.

Justin Walawski, chief executive of the Association of Mining and Exploration Companies, said the Government's decision was "unbelievable".

"It sends a message that junior explorers are not wanted in this state," he said.

Rio Tinto Iron Ore chief executive Sam Walsh welcomed the decision, saying the company had always intended to renew the Shovelana tenement lease.

"Investors in the resource industry need confidence and security that long-term decisions can be made in a stable and certain policy and administrative environment," Mr Walsh said.

The Cazaly application was made on August 26 when Rio and Hancok Prospecting failed to meet a deadline at the Warden's Court at Marble Bar for extending their lease over the Shovelana iron ore prospect just 25km from BHP Billiton's huge Mt Newman mine.

Rio had not drilled on the lease since 1985 but objected to the application to explore being granted to Cazaly, claiming its failure to meet the deadline was inadvertent - a courier had not delivered the paperwork on time.

Mining law experts argued that a gazumped company might be able to demonstrate that, because of the expenditure it had made on a mine, a claim to have leases restored had merit.

Resolution of the dispute had been expected before Christmas but a complicated legal process involving submissions supporting claims and counter-claims took longer than predicted.