By Greg TubbyPERTH, Aug 31 AAP - An out-of-the-money gold hedge...

By Greg Tubby
PERTH, Aug 31 AAP - An out-of-the-money gold hedge book has
forced iconic mining house Sons of Gwalia Ltd to its knees, but its
tantalum business still accounts for about 55 per cent of world
production and could prove attractive to potential buyers.
Global demand for tantalum - a specialty metal used in
everything from mobile phones to Playstations - has recently
rebounded to the heady heights of the dot.com boom.
The surging demand pushed ore prices earlier this year to
$US40-50 per pound from a low of $US15 in 2002, with US-based Cabot
Corp, one of the two biggest processors in the tantalum industry,
saying demand was within five per cent of 2000 peak levels, or 85
per cent above the 2002 lows.
Uncertainty over Sons of Gwalia's output continuing could lead
to a further lift in the tantalum price as consumers may scramble
to acquire or lock in supplies, Intersuisse said.
"With Sons of Gwalia producing about 55 per cent of the world's
primary tantalum output, and being the only major potential source
of increased output in the near term at a time of strongly rising
tantalum demand because of its dominant reserve and resource
position, major consumers might be forced to move to stabilise the
world tantalum market," Intersuisse said.
Although Sons of Gwalia's administrators hope to recapitalise
its tantalum business, the assets could prove attractive to a
number of potential buyers, Goldman Sachs JBWere said.
"We expect that the sale of this business, as opposed to a
recapitalisation, is a possible outcome," it said.
WMC Resources Ltd has already said it might look at the tantalum
assets.
But Credit Suisse First Boston said limited disclosure - which
it described as among the worst of the peer group - made it
difficult to unravel the operating performance of Sons of Gwalia's
tantalum business.
"While the tantalum business was deteriorating, seemingly on
declining asset quality, returns seemed strong and the business
sound, although uninspiring from a value growth perspective," it
said.
In the meantime, Sons of Gwalia's problems might present an
opportunity for niche tantalum producers, Intersuisse said.
"We regard Tantalum Australia NL as being well placed to
participate in some of the potential opportunities that might
eventuate from the longer term fall-out of Sons of Gwalia being
unable to continue its tantalum production and its assets being
sold off," it said.
"In the nearer term, we would expect Tantalum Australia to be a
beneficiary of firmer tantalum prices if the tantalum market reacts
as expected when its major supplier's future is uncertain, as it is
now."
Haddington Resources Ltd, which mines tantalite near Kalgoorlie
and sells it to Sons of Gwalia under a take or pay contract, has
halted trading in its shares after slipping 1.5 cents yesterday to
10.5 cents yesterday on an unusually strong turnover.
But one market observer said Haddington may benefit if the major
tantalum consumers are forced to deal with the company directly
rather than through Sons of Gwalia.
Another potential beneficiary from higher tantalum prices is
Perth-based Gippsland Ltd, which is expected to release the results
of a bankable feasibility study on its high grade Abu Dabbab
project in Egypt next week.
Gippsland shares closed up 0.5 cents at 10 cents today.