MELBOURNE-BASED gold and nickel miner MPI Mines is banking on a recent $24 million equity placement to help turn around its lagging gold business and is even eyeing a place among the top 10 local gold producers.
The funds will underpin a major expansion of MPI Mines’ successful WA nickel business, where it could triple production to about 30,000 tonnes by the end of 2005.
The relative newcomer to the Australian Stock Exchange – MPI was last year’s most successful resource float – made the announcement last week, saying it had successfully raised the funds through a placement with some of its Australian and European institutional shareholders.
MPI Mines managing director Brian Phillips told WA Business News part of the funds would help improve the company’s gold business.
He said MPI needed to spend more money on its gold operations, to drive down costs and extend mine life.
Key to MPI’s planned turnaround is a deal to acquire the gold assets of its US-based joint venture partner, Pittston.
Currently, MPI holds a half-share joint venture interest in the Victorian Stawell Gold Mine and exploration areas, and a 25 per cent interest in the Western Australian Coolgardie project with Pittston.
Under the agreement, MPI Mines will acquire Pittston’s gold stake for $3.6 million, which includes $2.1 million worth of debt and some hedging.
By acquiring Pittston’s share, MPI will take 100 per cent control of Stawell and a 50 per cent stake in Coolgardie, doubling its current annual gold production to about 140,000 ounces.
But, more importantly, it allows MPI to spend capital on the gold business to return it to profitability.
Mr Phillips said that, because Pittston had been looking to exit the mining industry for the past three years, it had not contributed any capital to extending mine lives or exploration.
“The reason for raising these additional funds . . . is to not only help pay for the purchase price but really ensure that we do have the funds to conduct a turnaround on the Coolgardie, and in particular the Stawell and Golden Gift deposits,” he said.
“With the departure of Pittston it is now our intention to complete, very rapidly, the feasibility that will demonstrate the value of completely redeveloping our Golden Gift deposit.
“In parallel with that we are also committing significant expenditure in Victoria and in Coolgardie, too.”
Mr Phillips said MPI expected to see the gold business return to profitability after the turnaround, which would be complete in mid-2005.
Stock in the company has slightly fallen away from an all-time high of $1.85 in December last year, but Patterson Ord Minnett head of research Rob Brierley said the outlook for MPI was still extremely strong.
While the placement would assist development of the nickel business – which was currently the most profitable operation – it also had a lot to do with re-capitalising MPI’s gold business, he said.
“There is significant potential still in [MPI’s] gold business, particularly in Stawell,” Mr Brierley said.
“MPI has a large resource there – it still has a million and a half ounces in resource – the project has been starved of capital over the last three years.
“But I don’t think you will hear much about their gold operations until after they wrap up this acquisition.”
MPI has twice previously tried to buy-out Pittston’s stake, both times without success. And although this time an agreement has been brokered between the two companies, Mr Phillips warned it was still subject to bank and MPI shareholder approval.