AZR aztec resources limited

looking at new highs, page-4

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    This is the AFR article.


    Iron ore's new lease of life
    Feb 08
    Ian Howarth


    When BHP stopped mining iron ore at Koolan Island off the coast of Western Australia in 1993 the company opened the pit wall to the ocean, flooding the workings with seawater, and destroying the loading jetty.

    It figured that would stop anyone re-opening Koolan Island to mine the remaining pods of high-grade iron ore BHP knew still existed and which it had so profitably exploited for almost 30 years.

    But BHP did not figure on iron ore prices soaring to well over $US65 a tonne, up from $US46 a tonne 12 months ago, and China emerging so quickly as the world's biggest consumer of iron ore.

    Contract negotiations between BHP Billiton and Rio Tinto and the major steel mills in Japan for iron ore supplies from April this year are close to resolution and some analysts suggest prices could double to about $US90 a tonne for top grade iron ore.

    Nor did BHP Billiton take into account the tenacity of juniors such as Aztec Resources that feed on the crumbs brushed aside by the majors.

    To get Koolan Island back into production Aztec needs only a new jetty to load ships and a new fleet of mining machines.

    But perhaps the bigger story behind the new iron ore market is whether magnetite-style iron ore will play a major role in the market as haematite ore did in the 1960s.

    Haematite, particularly the high-grade material mined in the Pilbara today by BHP Billiton and Rio Tinto, is perfect for blast furnaces as it can be used directly from the mine.

    Magnetite requires upgrading into pellets or pig iron to improve the iron content, but WA, South Australia and Tasmania all have large magnetite deposits.

    So far, the only one in production is the Savage River mine in Tasmania, although OneSteel is only 18 months away from magnetite production in the Whaleback ranges in SA.

    Yesterday, North American resources entrepreneur, Robert Friedland's investment company Ivanhoe Mines, agreed to sell Savage River mine and its associated pellet plant to London based Stemcor Ltd, one of the world's leading steel trading houses, for $US21.5million ($28million).

    The mine is Stemcor's third investment in iron ore in Australia.

    Investors Mutual fund manager Jason Teh said that despite the activities of the iron ore hopefuls, little would change the balance of power while BHP Billiton, Rio Tinto and Brazil's CVRD control 70per cent of the market.

    "In reality the other 30 per cent of the market won't significantly influence global supply and hence global pricing," Mr Teh said.

    "As the price sticks [higher] than expected it has a flow-on effect to the smaller, 'speccy-type' players," in the market, he said.

    In the meantime, the remnant haematite ore bodies like those on Koolan Island will continue to attract the attention of miners.

    The mine was opened by BHP in 1965. It lies 10 kilometres east of Portman Mining's 50 per cent-owned Cockatoo Island iron ore mine which was also opened by BHP and mined between 1951 and 1986.

    Portman resumed mining at Cockatoo Island in 2001. At Koolan Island BHP extracted 68 million tonnes of high-grade haematite ore, which averaged 67 per cent iron, becoming one of the world's premier iron ores because of its high grade and low impurities.

    Now Aztec, using BHP data, has proved probable resources of another 25 million tonnes of similar quality ore, for which it has already signed preliminary sales agreements.

    Aztec chairman Ian Burston said that new drilling was likely to expand the ore resources along 6kilometres of strike extensions of the main ore body and four smaller ore bodies which were abandoned by BHP.

    The ore is set to be a highly profitable export for Aztec, as it was for BHP, because transport ships load at the mine, eliminating transport costs which dog other projects.

    To finance the project CITIC, which is the largest Chinese state-owned enterprise with assets of more than $US43billion and revenues of $US3.9billion, has taken a strategic stake in the company.

    Societe Generale has acquired a 6per cent stake in Aztec and the UK-based mining house, Cambrian Resources, recently underwrote part of a financing deal.

    Portman, meanwhile, is producing close to 6 million tonnes a year of iron ore from two mines, one at Cockatoo Island and the other at Koolyanobbing, north-east of Perth.

    Those operations and the massive prices being obtained for iron ore from Portman's Japanese and Chinese customers have prompted US iron ore producer, Cleveland-Cliffs, to launch a takeover for the group.

    Early in January, Cleveland-Cliffs offered $3.40 a share for Portman valuing it at $605million.

    Cleveland-Cliffs operates six iron ore mines and is the largest iron pellet maker in the US.

    Portman's board has recommended the offer, noting that it "represents an opportunity for Portman shareholders to realise the value of their holdings at a time when the share price fully reflects the recent surge in iron ore prices".

    In South Australia, One Steel is moving closer to opening its magnetite iron ore mine. The magnetite will ultimately be used domestically allowing the high value haematite to be exported.

    Down range from One Steel is Andrew Forrest's Fortescue Metals group which hopes to join the ranks of future iron ore producers.

    The sharemarket believes its story. In just 10 months its shares have risen from 60¢ to a record on Monday of $3.75.

    Grange Resources is set to start a $13million bankable feasibility study on its Southdown magnetite iron ore project in WA to see if Southdown magnetite can be converted to iron ore pellets.

    Grange managing director Geoff Wedlock said if the project was viable it would start construction in 2006 and begin exports in 2008.

    At the small end of the market, Aviva Corp has resurrected a plan to produce pig iron in the WA mid-west.

    Aviva holds coal deposits near Eneabba in WA and aims to blend coal and iron ore into pig iron to be shipped out of Geraldton or a similar regional port. But Geraldton Port is having major problems and is unlikely to be viable in the near term.
 
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