miningnews articles

Dryblower on McMahon’s quixotic tilt at the Rio windmill
Monday, 23 June 2008


IT’S hard to not admire Nathan McMahon, chief executive of the small Australian explorer, Cazaly Resources, for his determination to do battle with a giant opponent. In that regard this latest round of Cazaly Resources versus Rio Tinto is David versus Goliath. But, as Dryblower will explain, the latest Cazaly attack is also pure Don Quixote.

For poorly-read mining types, Don Quixote is a literary classic about a fictional Spanish chap who attacked windmills in the belief that they were monsters.

For poorly-read literary types, Cazaly believes Rio Tinto is a monster which has failed to develop its iron ore deposits fast enough, and should forfeit them – to Cazaly, of course. In the latest development Cazaly is demanding the relinquishment of the Rhodes Ridge iron ore deposit, in much the same way as it once demanded Rio Tinto release the Shovelanna iron ore deposit.

So much for the background. But, as you dig into Cazaly’s statement last week that Rio Tinto has failed to comply with the terms of a State Agreement covering the Rhodes Ridge iron ore deposit the more it looks like a quixotic attack on a windmill – and doomed to fail no matter how valiant the effort.

What McMahon is seeking is a declaration that Rio Tinto has failed, after 35 years of sitting on Rhodes Ridge, to develop it as a mine.

On that score, McMahon is 100% correct. There is no mine at Rhodes Ridge, despite the original State Agreement saying it would start around 1982.

Some investors, fired by McMahon’s enthusiasm and well-managed coverage in a curiously compliant national media, have piled into Cazaly, pushing the stock up from a pre-attack 32.5c to a peak last Wednesday of 70c.

Cazaly fell back on Friday to 56c before going into a voluntary suspension, the second in as many weeks, with an announcement scheduled for today, or tomorrow.

While everyone waits for the next act in this performance of Don Quixote (sorry, Cazaly versus The Monster) it is entirely possible that one of the grey-cardigan brigade at the stock exchange might be looking at trading in Cazaly shares during May, in the days leading up to the original suspension, when Cazaly almost doubled from 17c to 32.5c without any significant announcements.

Dryblower will leave the share trading to the experts, admitting he’s often curious why certain shares go up, and down.

On the genuinely important matter of whether Cazaly has a case against Rio Tinto over its non-development of the Rhodes Ridge iron ore deposit there is more certainty, and the answer is straight from Don Quixote, a waste of time and effort.

The reasons Dryblower is so certain of Cazaly failing are four-fold.


First, mining law in Western Australia says it will, especially as there’s a State Agreement in place.


Second, it’s not just Rio Tinto who’s supposed to stick to the wording of a State Agreement, it’s the WA Government as well.


Third, Rio Tinto is spending money on Rhodes Ridge with drilling rigs onsite, defeating the no-work argument, and


Fourth, because Rio Tinto has a perfectly good explanation why Rhodes Ridge has not been developed – the market for iron ore was awful throughout the 1980s and 1990s, and only the China-led resources boom of the past five years has changed that.

For Cazaly, even with a side-deal lined up with the darling of the month, Andrew Forrest and his Fortescue Metals Group, the end result of Rhodes Ridge is already in sight even before the first charge at a windmill.

Rio Tinto might be a monster, but it’s a very important monster, pouring investment capital into WA and developing Australia’s biggest research project, the HIsmelt iron ore research facility.

All this is long before the debate gets to the question of security of tenure and the two-sided nature of State Agreements that call for a company to demonstrate it’s making the best effort possible to develop a resource, and for government to accept that extensions of time are often required, especially if commercial conditions are not favourable – which the WA Government has done, repeatedly.

Cazaly is a creature of the boom. Rio Tinto has been around a lot longer, and stuck with WA through good and bad times – that’s why the WA Government, no matter what a lower court might find, will eventually stick with the monster it knows.



WA Government shouldn’t intervene: Cazaly
Monday, 23 June 2008

CAZALY managing director Nathan McMahon says the Western Australian State Government should not interfere in the company’s bid to take the Rhodes Ridge iron ore deposit off the hands of Rio Tinto and its joint venture partners.

Last week Cazaly launched a bid to acquire the Rhodes Ridge deposit in the Pilbara – estimated to be worth $A4 billion – held in a joint venture between Rio Tinto, Hancock Prospecting and Wright Prospecting.

Cazaly says it will challenge the JV’s right of occupancy over the land in the Warden’s Court, saying the JV had failed to meet the terms of its state agreement over the tenement area.

However, the WA Government has issued a statement saying it would stand by Rio over the deposit.

On the ABC’s Inside Business program, McMahon said it would be “a disgrace” if the WA Government interfered if the Warden’s Court ruled in favour of Cazaly.

“I don’t see why a minister would over-rule an open judiciary hearing on the basis of a piece of ground that should have been developed decades ago,” McMahon said on the program.

“The state of Western Australia’s got nothing out of Rhodes Ridge for 32 years and I don’t see why any minister would want to support people sitting on ground even if they [have] complied with the basic requirements under the state agreement.”

In its response, Rio said Cazaly’s claim over Rhodes Ridge holds no weight, stating that the JV partnership was in full compliance with the terms of their tenure and the Rhodes Ridge State Agreement Act.