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$2.30 stock a possibility?

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    Time seems right for Xolobeni

    Tim Treadgold

    Thursday, September 18, 2003
    OLD undeveloped orebodies never die; they just wait for the right time -- and the right owner. Everyone in the mining industry knows that this is true. Outsiders find it hard to understand, which is partly why few people have looked (or taken seriously) the plan by Mineral Commodities to mine the Xolobeni titanium minerals deposit near Durban on the east coast of South Africa.

    The next few months will force a fresh assessment of Xolobeni (pronounced Zolobeni) inside South Africa, and in Australia. Like its big brother further to the north, the proposed Corridor Sands project of WMC Resources in Mozambique, Xolobeni is a direct competitor to a string of proposed mines in Australia, especially those in the Murray Basin.

    Unlike its Australian rivals, Xolobeni is close to infrastructure and established titanium mineral mines. For an estimated US$200 million in capital, the project has the potential to produce 425,000 tonnes of heavy mineral concentrate a year, generating around US$73 million a year in revenue for at least 20 years. More importantly from an Australian perspective it has the potential to steal a slot in the tightly-controlled titanium minerals market from the Murray Basin hopefuls.

    But, this is the point where the critics say that if it looks so good why didn't the original explorer, the Rio Tinto-run Richard Bay Minerals, or the second owner, Iluka Resources, elevate Xolobeni from concept to mine? The answer, as is too often the case with titanium mineral mines, has less to do with geology than it has to do with social, political and environmental issues �Eand the way the old South Africa was run.

    The new broom, which has swept away decades of apartheid and oppression, has put Xolobeni back on the new-projects radar screen. In the bad old days, the mainly-ilmenite orebody, which occurs slightly inland along a 22km stretch of coastline, lay in the province called Transkei, a notional black homeland now known as Eastern Cape, but still a place close to the bottom of the human development index, with large tracts without electricity or piped water. The strip of land on which the orebody lies is also known as The Wild Coast, a name derived from its legendary rough weather, but also because it was once a centre of the African National Congress during South Africa's low-key civil war, and was a virtual no-go area for white-run companies.

    Understand this background and it is possible to see why the Caruso family of Perth, which snatched control of Mineral Commodities about three years ago, is so confident that it will achieve what eluded Rio Tinto and Iluka, and why they believe the third owner of Xolobeni will overcome environmental objections.

    A key to their strategy is to work very closely with the impoverished locals who desperately want a few human basics, and are largely disinterested in the environmentally preferred eco-tourist proposals designed to suit a handful of rich Europeans taking horseback holidays down the coast.

    Patrick Caruso, a member of the ruling family, has spent much of the past five years in South Africa overseeing the drilling-out of the orebody and cultivating local backing. He is now supported by Alan Luscombe, a former senior Iluka executive who has joined Mineral Commodities as its chief executive.

    Luscombe said the proposal to develop Xolobeni has reached "a very delicate stage" in the complex decision-making processes of South Africa. "We're pretty confident that we will be able to develop the resource, but we have to wait for formal government approval."

    When that comes, Luscombe said he would be ready to move quickly, launching Xolobeni as a dry-mining (front-end loader) operation, feeding into a wet concentrator for gravity separation, and then on to a dry plant. In a notional average year about 250,000t of ilmenite will be produced and used as roaster feed to produce 147,000t of titanium slag. Other products for export will include 19,000t of rutile, 15,000t of leucoxene, 15,000t of zircon and 75,000t of pig iron.

    Decisions on precise locations of the different processing stages will be made once approvals are obtained, leaving Luscombe with maximum flexibility to take advantage of tax breaks and other incentives being offered by industrial site operators in the region.

    Some well-informed investors have picked up the latest stage in the Xolobeni saga and had pushed the Mineral Commodities share price up from 15.5c in late May to 27.5c in late July. Luscombe, in his formal presentations, argues that the stock can go much higher, possibly up to the $2.34 inferred by applying the price WMC paid on a per-tonne basis for Corridor Sands to Xolobeni.

    As well as the Xolobeni project, Mineral Commodities has other titanium mineral and zircon projects on its southern African drawing board. These include the Tormin zircon project adjacent to a Trans Hex beach diamond project on the west coast of South Africa, and the Walvis Bay exploration play in adjoining Namibia.

    If Mineral Commodities successfully develops Xolobeni it will have done much more than prove that the third owner of a mineral asset is often the developer. It will be the latest in a small, but extraordinary band of small Australian companies, such as Aquarius Platinum and Zimbabwe Platinum Mines, to have introduced their skills to African mines. - Australia's Mining Monthly

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