‘Scrap’ merchants find a world of nickel and opportunity

23/04/2008 - 22:00

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It’s the kind of story that would be big news in so many places. A couple of boffins come together with a pair of money men, see a gap in the market, and set up a business.

It’s the kind of story that would be big news in so many places.

A couple of boffins come together with a pair of money men, see a gap in the market, and set up a business.

A decade later, this specialist team has launched three listed companies worth almost $2.5 billion combined.

But they’re not leveraged equities experts in New York or tech heads from Silicon Valley.

Instead, this group is based in West Perth and has focused on nickel, creating a successful incubator of miners, as well as a diffuse collection of satellite interests, all from the “scrap” assets and leftovers of other bigger players in the resources field.

It all happened in about 1998, when resources were very quiet.

Former BHP Ltd geologists, Alasdair Cooke and Donal Windrim, had seen the Big Australian downsize its exploration department, and wanted to go it alone.

Mr Windrim said they had worked together extensively in Australia and Africa and felt opportunities were being missed.

“There was an enormous amount of unfinished business in Africa,” he said

“We had some similar ideas that might work better than could be done in big groups like BHP.

“We needed some financial assistance and, more importantly, the corporate skills for setting up junior explorers from a commercial and legal perspective.”

Entrepreneur and minerals explorer Bill Clough was already known to the pair, as was lawyer-turned-investment banker Craig Burton; these two would provide the financial and corporate muscle to move the geologists’ project ideas to the next level.

The party dubbed itself the Mitchell River Group – the birthplace of a host of nickel companies Sally Malay Mining Ltd, Albidon Ltd and Mirabela Nickel Ltd.

“We set ourselves up as a base metals project generation team,” Mr Burton said.

After a bit of digging about, the four decided that nickel sulphides provided the best opportunity in terms of extraction and marketability, especially with exploration having dropped off and new discoveries becoming rare.

“We believed that the nickel market was the tightest and that it would run ahead of the others,” Mr Burton said.

“What we did was, we went out there looking for nickel sulphides, looking for situations where there were proven nickel sulphides in the ground but it was difficult to get at.”

Mr Windrim said the nickel market had changed since the last big boom and there was not the necessity to build a capital-intensive smelter or develop a mine of a large scale to feed it.

“Smaller companies can sell their produce to a smelter, as Sally Malay does now,” he said.

Kimberley producer Sally Malay Mining Ltd is the most complete example of their strategy, producing ore for export from its original investment resource north of Halls Creek.

Word in the industry at the time had the resource written off as sub-economic, yet today the site is a working mine and the core asset of a company valued by the market at close to $1 billion.

“There is a lot of folklore out there on these old deposits that simply isn’t true,” Mr Burton said.

However, all the belief in the world did not make things easy. The deposit’s owner had sought to sell it several times, only to have the deal fall through.

To sell the asset again to an unknown group, the owner demanded a hefty $1.5 million deposit on the $1.7 million price, forcing Mr Burton to abort plans to build a house in Cottesloe and use the money for the business.

“We had a meeting and I decided to put the house money on an uneconomic resource, then I had to tell my wife,” Mr Burton said.

“We had a lot of trouble overcoming it with the investment community.”

It’s a story that mirrors Sally Malay’s float, with managing director Peter Harold going cap in hand to his friends and family to raise the money needed.

Mr Burton said that, while industry folklore meant his group could get access to assets because of their knowledge, it also proved a barrier to raising funds.

“Investors would go to people in the industry as a sounding board, and there was a lot of negativity,” he said.

There was one major hurdle in the Sally Malay float story. The company was due to list on September 12 2001. As it turned out, the day after the New York terrorist attacks, and the company’s shares did not commence trading until the 14th.

Despite the tough run, Mr Harold simply described himself as lucky to get the job in what was a case of being in the right place at the right time, given he had no track record of project management, let alone a mining company.

“The way they do business is all very relaxed,” Mr Harold said.

“Alasdair was on the board for many years. He is very clever on the geological side.”

“Without them I would not have come back to Perth and certainly wouldn’t be living in Cottesloe.”

Mr Windrim described the group as very collegiate, though not as tightly knit as in the past.

“There is no boss, we don’t have titles, we don’t believe in it,” he said.

“At any one time one of us takes the running.”

But as relaxed as it sounds, Mr Windrim also underlines the discipline that brought early success.

“We only bring things to market that we have previously been able to fund ourselves,” he said.

“We would not take anything to market that we did not believe in.”

Sally Malay is the biggest of the three nickel companies in the group’s stable. The other two are West Perth-based Albidon, run by Dale Rogers, and Mirabela, head by Nick Poll.

Both were listed in 2004 and have market capitalisations of around $680 million and $800 million respectively.

Albidon’s core asset is a deposit in Zambia, which the group found after studying the wider geology of the area and finding an existing discovery that was open tenure at the time.

Mr Windrim said they found Albidon’s most advanced project, Munali, which is set for first production within a month, after noting lots of similarities in the region to that of Voisey’s Bay, Canada, home of the world’s biggest nickel mine.

 “We thought there was value to be added and risk, of course, is part of the business,” he said.

Mirabela’s main asset is half a world away in Brazil, a deposit located by Mr Clough when he knocked on the door of a regional mining department office while on a diving and minerals exploration expedition to South America.

“These are three successes,” Mr Burton said of the nickel plays.

“There are another 100 times we looked for something and it hasn’t worked out.

“We are scrap hunting, a lot of it is price and timing; we look for geological scraps.

“There is the potential to recognise these opportunities ahead of the pack.”

Mitchell River Group has also branched out from the nickel focus with the group linked to companies such as Exco Resources Ltd, Energy Ventures Ltd, African Energy Ltd, Golden Gate Petroleum Ltd – collectively valued at around $125 million by the market – and unlisted OvalBiofuels.

As the group’s interest has widened, so too has its circle of intimates. For instance, Mr Burton got involved through his Verona Capital business with another West Perth investor, Charlie Morgan of Seaspin Pty Ltd, and Argonaut director Eddie Rigg to back Wildhorse Energy Ltd, a company many still consider part of the wider Mitchell River Group stable.

Those players are also involved in Latent Petroleum Ltd, which wants to develop the Warro gas field north of Perth, believing that rising gas prices will make the field commercial.

But at the Mitchell River Group – where Mr Clough has stepped away from having an active interest – the current focus is on Mirabela, which is in the final stages of raising $US320 million of equity and debt, with the objective to commission the Santa Rita project by the middle of next calendar year.

Santa Rita is the biggest greenfield nickel sulphide discovery in the past 12 years.

Mr Burton is enthusiastic about its prospects, noting that Mirabela has a market capitalisation below that of Sally Malay yet has reserves several times the size.

He is also keen on the differences between Australia’s boom-time cost structure and that of Brazil.

“There’s heaps of labour without the cost pressure, they have a can-do attitude,” Mr Burton said.

Even the difficulties in the debt markets can’t dampen his enthusiasm.

Mirabela is currently looking for a $US260 million debt component in its financing arrangements and Mr Burton exudes a confidence that may not have been so evident back when the group first sought to get Sally Malay up and running.

“At the moment we believe there should not be any issues putting it away,” he said.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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