29/11/2005 - 21:00

Plenty to digest in iron ore dispute

29/11/2005 - 21:00

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Over the years I have heard many stories of inequity when it comes to the handling of disputed mining claims.

Plenty to digest in iron ore dispute

Over the years I have heard many stories of inequity when it comes to the handling of disputed mining claims.

Some, going back generations, reflect a time when government was not so accountable and rules could be bent to suit the state’s purposes – often to the benefit of big companies who were developing our resources.

So it is with some sympathy that I have watched the dramatic events surrounding the Shovelanna tenements in the Pilbara where exploration minnow Cazaly Resources Ltd is doing battle with global resources giant Rio Tinto.

While David and Goliath is the obvious analogy, a more apt description is that of a lion cub trying to grab a bit of kill before the pride’s leader has finished with it.

In the great cat metaphor there are a number of outcomes, all of which carry far more risk for the cub than the lion.

Of course, the upside for Cazaly and its partner is huge if they can pull it off.

There’s no doubt that their actions are cheeky and smart – pegging a tenement that the long-term holder has let lapse is one of the edgier forms of business practice, but it’s common place, well-known and legal.

Use it or lose it is a long running theme in Western Australian resources, to the point where mining and exploration permits as well as state agreements expressly demand that – with specific timetables and expenditure.

It’s a system designed to encourage people to use their assets rather than sitting on them.

Of course, there’s always another side to the argument.

Tim Treadgold’s Briefcase column on page 22 outlines the Rio position – everything except naming the courier who took 10 days to get a package from Perth to Marble Bar.

It’s a common story, which many of us have experienced. By coincidence, it even bears resemblance to an issue the other week where promotional material from WA Business News ended up in a wheatbelt school where, by coincidence, my mother-in-law works. Of course, the similarity ends when the consequences are spelt out in dollar terms.

In my view, the biggest problem regarding the Shovelanna situation is the time it has taken to resolve the issue.

It is now in the hands of State Development Minister Alan Carpenter who is expected to take months to make a judgement.

Back in August, when the tenement was claimed by someone linked to Cazaly, the issue was one simply of precedence.

Should the minister overturn accepted practice and hand back the exploration licence?

Prospector types I have spoken to say that alone would have turned the accepted practice on its head and created real concerns about sovereign risk in a state where exploration has been steadily decreasing for years, to alarmingly low levels.

One person I discussed the issue with was Peter Symonds, whose company Maincoast Pty Ltd was drawn into the Shovelanna dispute through legal action by Fortescue Metals Group Ltd, even though he denies any link to the tenement.

Mr Symonds says there is simply no precedent for allowing Rio to have its lease back.

“If you peg an EL (exploration lease) and you don’t have certainty over it, how can the little companies survive?” he asked.

Perhaps, that point is made by the staggering rise in Cazaly’s share price as awareness of the tenement has risen and the explorer has started cutting deals with major players like BHP Billiton Ltd.

Cazaly’s investors have latched onto the magnitude of the resource and, if they didn’t already think title was certain, perhaps they’ve read the delay in ministerial action as favourable.

Whatever the case, Cazaly’s investors have punted on big time success, making the matter more complex and increasing the burden on the minister’s decision making.

Junior players light up the market

WHILE the Cazaly sideshow has occupied many hours and column centimetres in recent days, the real story is the fact that it is a story at all.

Juniors are now real players in the iron ore market, several are producers already and a few more are set to join that club.

While the output of all the juniors will not be more than a small percentage of the two majors, the fact that they exist is a massive change and should be noted.

At a time when iron ore is in hot demand, the junior sector can help extract resources that might otherwise remain untouched and therefore not benefit the state.

Smaller players are often more innovative in what they do to get to the market, sometimes leading to new practices that benefit all.

They also offer a different level of employment options than their giant rivals, as well as different remuneration.

In short, it provides choice for all stakeholders.

In the longer term, there is the possibility that one of these players might grow to become a real third force in the local market, be it through discovery and development or by way of acquisition.

Alternatively, if a downturn comes, the majors have on hand ready-developed resources they can acquire at reasonable prices.

So there’s always a bright side, no matter which way you look at it.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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