WITH a well-funded Chinese partner and plans to become a mid-tier miner, Terramin Australia is on the hunt for projects.
For the past few years the company, based in Adelaide's Westpac House, has had two main focuses: to get its Angas zinc/lead mine in the Adelaide Hills up and running, and to finish a definitive feasibility study on its $500 million-plus Algerian project, which is also targeting zinc and lead.
With both of these goals achieved, and the company having amassed a deep level of geological, management and engineering talent, it is keen to pounce on other projects while the Algerian development travels through final sign-off and construction, which will take some years.
Frustrated by a market which is valuing companies with no projects, or modest resources, at well above Terramin's market capitalisation, executive chairman Kevin Moriarty is determined to give investors a reason to sit up and take notice.
Start of sidebar. Skip to end of sidebar. Related Coverage
* MMG's timely move into zinc mining The Australian, 6 days ago * Venturex acquires new project Perth Now, 10 days ago * Terramin looking to buy projects Adelaide Now, 23 Dec 2010 * Terramin's Algerian project progressing Adelaide Now, 28 Jun 2010 * Riches may lie unrealised The Australian, 23 Jun 2010
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His secret weapon is a partnership with China Non-Ferrous Metal Industry's Foreign Engineering and Construction Company (NFC), which owns a substantial stake in Terramin and is keen to snap up Australian assets in partnership with the Adelaide company.
"They have a large capability and they want to work alongside us on things like feasibility studies," Dr Moriarty says.
"We would envisage using them in new projects that we would like to get involved in."
Dr Moriarty said until now Terramin's philosophy had been to target only high-margin projects.
"In other words they are very competitive on capital costs and operating costs.
"What we're now realising is that with the backing of people like NFC, who literally are backing us financially and with expertise, we can start to look at projects which are perhaps well out of the capabilities of the companies that are holding them ... particularly because perhaps they are more marginal, but we believe we can turn those projects into safe cash producers with the assistance of NFC.
"That's the strategy which will be unfolding this year."
Dr Moriarty says more projects are moving into "marginal territory".
"What was once considered completely uneconomic is now very do-able."
He uses the example of the zinc price as a reason for this change.
When Dr Moriarty started Terramin, the aim was to get a base zinc price of US20c-US30c per pound.
The price the company's Algerian project was based on was US90c, while the Chinese were even more forgiving in their calculations.
"What's actually going on is, there's a race on to get ahead of the boom and realise that the cost margin is moving rapidly.
"Most of the brokers are well behind what's happening.
Dr Moriarty said Terramin was one of very few zinc-focussed miners.
"So if people want equity exposure to zinc there's not much to choose from."
Dr Moriarty said the company was looking to buy larger projects.
"When you're looking at projects that were considered marginal in the past, you need size," he said.
He is particularly frustrated that many other companies, which are mostly blue sky, are valued higher than Terramin, which has an operating mine and significant mineable reserves.
"When you look at our reserves, we're pretty unusual in that we have about 2.6 million tonnes of lead and zinc metal, and 1.8 million tonnes of that is in mineable reserves.
"To put it in terms of pricing we have three billion pounds of zinc metal in reserves. That's Terramin's share.
"We estimate the C1 cost - the cost where you are taking all the credits into account - at today's prices, is probably around 40c. Today's price of zinc is $1.12 per pound." ($US1.01 as of last week).
This meant that Terramin had more than $2 billion in upside on its current mineable reserves.
"We do offer great leverage to zinc, but at the moment, the markets are only interested in copper," he said.
As such, the company, and its project team, will be looking predominantly at Australian copper-gold projects.
"I'm looking for projects where we can get into production in the next two to three years.
"We're talking to people who have that sort of time line, but we're not talking about hostile takeovers.
"There's an awful lot of hopeful people out there who have a resource, but turning that resource into a project..is a really risky and specialised business, and I'm not sure the markets understand that."
Dr Moriarty said the company was currently looking at Australia, while not ignoring Algeria.
"I want to keep the focus strong. Working in foreign countries is very hard. There's a big cultural gap, there's a big understanding gap."
On NFC, Dr Moriarty said the Chinese firm was: "primarily a giant construction company focussed outside of China."
"They build aluminium and copper refineries in place like Iran and Zambia."
NFC has also been working on aspects of the copper processing expansion at BHP billiton's Olympic Dam mine in South Australia.
The author owns Terramin Australia shares.
TZN Price at posting:
39.7¢ Sentiment: Buy Disclosure: Held
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