24/10/2013 - 11:57

Northern on side with trading giant

24/10/2013 - 11:57

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Rare earths explorer Northern Minerals struck a 50 per cent offtake agreement with Japanese trading giant Sumitomo Corporation last December – but it was nine months before the deal was announced. The timeframe is indicative of the measured approach taken by the Japanese, according to Northern Minerals managing director George Bauk.

Northern on side with trading giant
PATIENCE: George Bauk says relationships with Japanese customers often take time to develop. Photo: Attila Csaszar

Rare earths explorer Northern Minerals struck a 50 per cent offtake agreement with Japanese trading giant Sumitomo Corporation last December – but it was nine months before the deal was announced.

The timeframe is indicative of the measured approach to business dealings taken by the Japanese, according to Northern Minerals managing director George Bauk.

“Relationships with the Japanese take a long time to develop,” Mr Bauk told Business News.

“One thing the Japanese are very strong and committed to is about developing trust; it’s about building a relationship, it’s about getting to know each other.

“But once you’ve developed a relationship with a Japanese company or individuals you’ll have that trust for a long time.”

Securing an offtake partner was imperative for Northern Minerals strengthening its business case for its Brown’s Range project in the East Kimberley, with a feasibility study likely to be completed in mid-2014.

At that point the memorandum of understanding is expected to become binding and Sumitomo will have secured an annual supply of 1,500 tonnes of heavy rare earths, which it will use for development of its hi-tech machinery assets.

Mr Bauk said winning Sumitomo’s confidence presented challenges, among them aligning its business case with the needs of a such a large corporation (Sumitomo reported profit of $669 million in the three months to June 30 this year).

Then there were the cultural differences. That divide, Mr Bauk said, was bridged thanks to the Northern Minerals management team’s experience with other cultures, which is not limited to Japan.

“If you’ve worked globally you’ll come across many different cultures and every culture is different,” Mr Bauk told Business News.

“As long as you’re aware of cultural diversity, you’ve then got a good chance to be able to work with different groups.

“In our instance, it was trying to understand the Japanese way, and then by having our marketing manager with Japanese experience – that helped us immensely.

“One thing he was able to do was accelerate discussions we were having and bridge gaps that some other companies may struggle with if they’re not totally aware of other cultures.”

The Northern Minerals agreement is understood to be only the second arrangement Sumitomo has struck to source rare earths outside of the dominant producer, China.

Mr Bauk said the recent softening of Western Australia’s mining sector hadn’t affected Sumitomo’s confidence in Northern Minerals’ ability to get the project off the ground.

“From a risk point of view I think Japan as a country has had a long history and a successful history and a long history in mining investments, so I personally feel that those bridges aren’t as critical,” he said.

“We’ve had a few hiccups with the MRRT and all the rest of it and I guess that was quite a big shock, but they’ve got a long history of (witnessing Australia’s) political stability.”

Sumitomo was similarly open minded when it came to the fact Northern Minerals’ largest shareholder is Chinese investor Conglin Yue and Associates, which holds 45.6 per cent shareholding and the executive chairman’s role.

“There are always questions asked … but those questions have been there all the way,” Mr Bauk said.

“When we announced the unnamed MoU (Conglin Yue) was a 19 per cent shareholder, and when we were able to release to the market that it was Sumitomo he was 46 per cent. So in that time both parties had a chance to pull out.”

Given that China has its own significant demand for rare earth products, some resistance from the Chinese chairman to such a large amount of product being earmarked for a Japanese buyer might have been expected.

But Mr Bauk said his involvement was a more objective one than simply adhering to his own country’s interests.

“What he’s after as a major shareholder and board member is for maximum value for the company … having only half the product tied up in a non-binding MoU means that other companies, perhaps Chinese companies, can still come in,” he said.

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