The Metal Detective:Aurox: spot the magnetiteTuesday, 18 March...

The Metal Detective:
Aurox: spot the magnetite
Tuesday, 18 March 2008

http://www.miningnewspremium.net/storyview.asp?storyid=193931

WE LIVE in an unforgiving market. Sometimes targeting the right commodity (iron ore) and the right country (China) isn’t enough – just ask Aurox Resources chief Charles Schaus. The Metal Detective, by Stephen Bell

Perth-based Aurox is an interesting variation on magnetite, the lower grade form of iron ore that several Western Australian juniors are trying to commercialise as China’s steel sector booms.

Aurox’s Balla Balla project near Port Hedland is a magnetite play, but has only used that guise since late 2006.

In the three decades before that it was on the books of various owners as a vanadium deposit.

And vanadium – a steel additive – was the rationale for the boys at Aurox picking up Balla Balla in early 2005.

But from September 2006, their focus changed to iron ore – specifically the sale of vanadium-rich magnetite concentrates to specialist steel mills in China.

MD can almost hear the indignant groans from readers bemoaning the cynicism of companies that swap commodities mid-stream.

Over the years MD has seen plenty of nickel plays suddenly become platinum-rich or marginal gold projects transforming themselves into copper giants with uranium haloes.

Turning a vanadium deposit into iron ore looks like a similarly opportunistic exercise, but the devil is in the details for Aurox punters.

Firstly, the company still plans to produce vanadium, the same stuff that Windimurra wants to churn out of the old Xstrata operation.

But Aurox won’t get paid for vanadium.

It aims to produce 6 million tonnes (rising to 10Mt) per year of magnetite concentrates, shipped to a couple of Chinese steel mills – Chengde Iron & Steel Group and RockCheck Steel – who have signed long-term offtake contracts.

Those speciality mills rip out the vanadium for free – a bonus for their expanding pig iron and steel production.

But the offsetting positive for Aurox is that it gets paid the Hamersley fines price for its concentrates, giving it a sweet margin.

So why did Balla Balla sit in the ground for three decades?

It is only now that the Chinese niche market for vanadium-rich magnetite is opening up.

Aurox aims to be the first overseas company supplying these types of ‘titano-magnetite’ concentrates (grading roughly 57% iron and 1% vanadium) to China.

The junior argues that it is much simpler (and more profitable) to supply magnetite to China, rather than competing with low-cost Chinese vanadium producers.

In fact, the Balla Balla plant will use roughly the same flow sheet as the other magnetite hopefuls, based on crushing, milling and magnetic separation.

The difference, according to Aurox, is that Balla Balla starts off with a higher in-situ iron grade (45% versus 31-37%) than other WA hopefuls, and requires less crushing.

That means it should consume roughly half as much power, while saving plenty on up-front capital costs.

Chuck in an opencut mine, a 100km slurry pipeline to Port Hedland and a ship loader, and away she goes.

Of course, nothing is ever quite that simple with magnetites.

Despite Aurox having what looks like an eminently bankable project, its shares have been crucified in the past five months – halving in value.

At the current price of 73 cents, Aurox has a market capitalisation of $109 million.

This is despite the company sitting on $73 million in cash left over from an equity raising last year.

That leaves Balla Balla valued at just $36 million, a miniscule sum when you consider that Cape Lambert last month agreed to flog its namesake 1.6 billion-tonne project to a Chinese group for $400 million.

Admittedly Balla Balla, at 325Mt, is much smaller. But its grade is significantly higher and the tonnes are expected to grow to 650Mt by August.

There are probably two main reasons why investors have avoided the stock.

One is that people don’t believe Aurox will be able to fund the $750 million project, which aims to start construction in August.

Second is that it is yet to secure environmental approvals – a worrying situation given the green tape strangling some Mid-West miners.

But Schaus is pretty confident on the latter front. He doesn’t own any banded iron formations, and Balla Balla sits under flat, saltbush pasture well-chewed over by cattle in the past 100 years.

As for funding, harsh times call for harsh solutions, namely selling off some of the farm.

Early today Aurox responded to a Dow Jones Newswires report, telling the ASX that “there are presently no offers or transactions before the company for the sale of an interest in its wholly-owned Balla Balla magnetite project”.

However, Schaus is on record as saying he is talking with “several groups” about potentially selling them as much as 30% of Balla Balla.

The parties include Chinese groups, investment funds and mining companies, he told Dow Jones.

If consummated, the deal should ease the funding risk for Aurox, while topping up cash ahead of debt and equity raisings later in the year.

Maybe it will be the trigger to get Aurox noticed as a serious iron ore wannabe, rather than just another leopard that changed its spots.


*A feature on Aurox Resources and Balla Balla will appear in the April edition of Australia’s Mining Monthly Magazine.

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