THERE has always been something seductive about a garage sale. One side of the deal thinks it is getting a bargain, the other side is happy to see the junk carted away. Well, what happens in the suburbs also happens in business, especially the mining business, where a couple of recent junkyard deals are pointing to a new and exciting phase in the mining boom.
Last week, LionOre Mining snapped up $300 million worth of plant and equipment from receivers of the failed Bulong laterite nickel mine for almost the scrap value of $15 million. A week earlier, Pilbara Mines paid $1.4 million for the mothballed plant and equipment of the Cadjebut lead and zinc mine.
There is a pattern here. Two mothballed mineral processing plants sold in a week. Why?
The answer is that the minerals game is moving on from last year’s exploration re-birth phase, when we saw a mountain of new floats, to a genuine mine development phase – and this is where investors can expect a fresh burst of optimism and profit-making potential if they follow the fate of the old plant and equipment.
LionOre is not telling precisely why it wants the Bulong plant except that it will not use it for treating laterite nickel. The only clue was it may be used "to expand existing nickel sulphide operations in WA and Botswana and establish new production bases in highly prospective regions".
In other words, LionOre has plenty of options, ranging from expanding its Maggie Hays and Emily Ann mines in the south of WA, or using parts of the Bulong plant to achieve a fast (and cheap) start to mining at the Waterloo project.
With a market capitalisation of $1.2 billion there is not a lot of value in following the Bulong plant.
Cadjebut, however, is different, and it could be the difference between the new owner, Pilbara Mines, making a modest, or a strong profit from its Jaguar copper and zinc project.
In early February, Pilbara said it would cost about $43.4 million to develop Jaguar into a mine with an annual output around 10,000 tonnes of copper, 34,000 tonnes of zinc and one million ounces of silver. Values assigned to the project include a cash flow estimate of $88 million, a project net present value of $55 million, and an internal rate of return of 41 per cent.
Briefcase is yet to see a re-worked set of assumptions because Pilbara is still writing up its bankable feasibility study. However, if there is one thing that enhances the economics of a mineral project it is a reduced capital cost and that is what appears to have happened with the Cadjebut purchase and it would not be surprising to see $10 million come off the Jaguar cost base.
The stock market has not been comfortable with Pilbara since it floated as a miner in 1999 and almost immediately invested in a piece of digital telephone technology. Those days are over. Pilbara has seen the error of its ways and appears to be onto a reasonable base metals find just four kilometres from the old Teutonic Bore copper mine which was first worked by BP Minerals back in the 1970s.
Investors, after a burst of activity last year, are still watching Pilbara from a close distance. They probably smell a rights issue on the way to fund the development of Jaguar. But that concern has been minimised with a bit of bargain basement shopping at Cadjebut, a deal with the potential to change the outlook for Pilbara and make its current share price of around 18c (which values the entire company at just $17 million) look rather low – not that Briefcase gives share tips.
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INVESTORS have every right to feel a little confused about recent developments at Financial Resources, a local financier with ambitions to become a mini-diversified industrial – well, management would dispute the mini in that potted description.
On April 1 Financial Resources said it was buying a Kalgoorlie equipment leasing business called Alljay. On April 19 a deal with property investor Aspen Group was announced to create Aspen Financial Resources with its aim being, and a direct quote is needed here "to launch a fixed interest style fund offering investors high yielding debt securities".
Briefcase is not a financial expert. It tries (hard) to master a simple task, understanding the English language and, with all due respect to Barry Samuels, the boss at Financial Resources, it is none the wiser from that description as to what the new business is.
Presumably (and one should never presume) it is a mechanism for investors to invest in property mortgages and other property-backed securities.
But, rather than look at either the Alljay deal or the Aspen joint venture it is worth looking at some of the people starting to play a part in the life of Financial Resources, a small specialist money-lender with its foot in a range of finance and tax-based leasing products.
The new business has Samuels and Aspen boss, Angelo Del Borrello, on the board plus Terry Salotti a non-executive director of Bill Wyllie’s company, Wyllie Group, and Ray Turner, a former chief executive of Town & Country Building Society.
Salotti and Turner, without any reference to their girth, are not lightweights in the business community. They will not spend their time sitting around the Aspen Financial Resources boardroom table talking about the weekend football results.
It is the people behind the business rather than the business itself which strikes Briefcase as seriously interesting, that and a feeling that Ray Turner is looking for a way to carve out a slice of the finance world like he did at T&C.
Whatever the final result there is little doubt that Financial Resources will eventually be worth a lot more than the lowly $10 million valuation assigned to the company by its recent share price of 16 cents.
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