MPI closes offering oversubscribed Michael Quinn 03 January 2003
MPI Mines' $7 million IPO has closed oversubscribed, with the positive sentiment currently enjoyed on the gold and nickel front pointing to the possibility of strong trading in the company's stock when it lists later this month.
Managing director Brian Phillips told MiningNews.net MPI offered investors "a reasonably good option on the nickel price and, if we are able to extend our operations at Stawell, a reasonably good option on the gold price".
Refreshingly, he pointed to market sentiment for nickel and gold rather than MPI's assets per se as the reason behind the strong demand for shares.
"The market is looking for somewhere to invest and get leverage," Phillips said.
"To be realistic I don't know that the assets that we're offering are necessarily worth so much more than the value we put on them."
MPI used a US$3.20/lb price for nickel and A$525/oz for gold in its valuations. According to Phillips it "would have been a bit fatuous" to have used a higher gold price based on the precious metal's strength over the last couple of months. In the past few days gold has been trading at over $610/oz.
MPI has stakes in gold and nickel mines in Victoria and Western Australia.
On the operational front, MPI is talking to gold banks about providing hedging for the new Golden Gift development at its Stawell operation in Victoria.
The potential bank involvement comes despite Golden Gift having an inferred resource - 2.9Mt grading 8gpt. Phillips said Stawell had long mined part of its inferred resources to save the time and money needed to prove those resources further.
"I want to have it [the Golden Gift development] underpinned by a two-to-three-year forward put in place at $600/oz-plus if we can," Phillips said.
He declined to put a cost on the deep development, saying the numbers were still being formalised, but with extensive infrastructure needed, including a couple of vent raises, it would run to "tens of millions" of dollars.
Phillips was unapologetic about the likelihood of taking on hedging for Golden Gift.
He said the current anti-hedging sentiment sweeping the gold world was being pushed by companies that have the "luxury" of either a very strong balance sheet or no project developments.
"My philosophy on hedging is I'm anti-hedging unless you are doing it to secure a very, very defined activity," he said.
"I hedge sufficient to protect the capital cost of doing that work [such as developing Golden Gift] ... if we didn't need the funds I wouldn't endorse hedging.
"It would not be rational to put the company at risk by committing to major project work and then finding that the metal price simply doesn't support it.
"We may still decide to go ahead with or without a bank [without forward sales], but that's a rather higher-risk strategy if you look at the way the gold price has run just lately - if it ran in the other direction to the same degree that would be a very, very risky way of embarking as a new company."
Phillips expects to get the green light from the joint venture that owns Stawell - MPI and American company Pittston - to mine an 80,000t bulk sample at Golden Gift to confirm grade and geotechnical estimates.
The Stawell gold operation currently has a mine life to 2004, with production over the last four-to-five years coming in at 93,000-114,000oz per annum.
MPI intends to acquire the 50% of Stawell (and 25% of the Coolgardie gold project in Western Australia) held by Pittston at a cost $5 million in shares or $5.5 million in shares and cash.
The recently re-commissioned Coolgardie project, owned 50% by Herald Resources and 50% by MPI/Pittston, is expected to produce around 40,000oz this year and more than 60,000ozpa thereafter. Current reserves are just short of 200,000oz.
MPI's nickel portfolio includes the Black Swan operation near Kalgoorlie, where reserves total 531,000t grading 6.5% nickel for a contained 34,426t of nickel. Currently defined underground resources add another 12,650t of contained nickel, and production in 2003 is forecast at just under 10,000t.
There is also a low grade but large disseminated sulphide resource containing 59,200t of nickel at Black Swan, while further to the north near WMC Resources' Mt Keith nickel mine MPI owns the undeveloped Honeymoon Well project, where a sulphide inventory of 118Mt grading 0.8% nickel has been identified.
Phillips is excited by a recently formed alliance with OM Group, one of the biggest nickel producers in the world and 100% owner of the Cawse laterite operation.
MPI has an 80% stake in the alliance with OMG, the same interest it has in the Black Swan and Honeymoon Well projects.
The alliance is investigating ways to add-value to in-ground nickel resources using alternative processes, which could reduce the transport, smelting and refining costs that constitute more than half the cost of producing nickel metal.
"If we can cut out a whole bunch of the nickel mass - for example, instead of shipping a concentrate which we currently do at 20% nickel, we ship an intermediate product direct to a customer at 40-60% nickel because we put it through a different process - then we would obviate a humungous amount of the cost associated with producing nickel."
While reiterating the alliance was at an early stage, Phillips said modifications at the Cawse plant could provide opportunities to add-value to both the high-grade Silver Swan deposit currently being mined as well as the 59,2000t low-grade surface sulphide resource at Black Swan.
"The feasibility for running the openpit [at Black Swan] will be confirmed by the end of this first quarter, but that will be done on a vanilla style - produce a concentrate and sell it - and we sure as hell aren't going to develop it that way," Phillips said.
"We'll prove it will work no matter what happens as a concentrate - that's our fall back position - but we'll be taking the different styles of concentrate that we can produce at our plant and seeing how we can add value to that concentrate at Cawse, or using some other technology that OMG has at Finland and North America."
