miningnews update, page-2

  1. 3,816 Posts.
    And dont forget this Peter Gonella effort micaman.


    >SAMAG's turn in the spotlight

    By: Peter Gonnella

    Posted: 2003/06/18 Wed 06:00 EDT | © Mineweb 1997-2003

    PERTH – It was only three years ago around tech boom time that a handful of Aussie juniors were raving about the dawn of a sexy new industry in Australian resources, promising riches for all stakeholders. Sound familiar.
    No, if you thought laterite nickel, you were close but that was earlier on; it was magnesium, the light and super strong metal of the future hailed by the promoters as being set to revolutionise car making and aerospace manufacturing applications. The leading players Australian Magnesium Corp [ASX:ANM] (AMC) and Magnesium International [ASX:MIL] (then Pima Mining) were trumpeting that they were aiming for production start-ups in 2003, offtake agreements were being stitched up left right and centre, and Federal and State Governments were committing taxpayers’ money to this infant sector with apparent gay abandon.

    But the harsh reality is that billion-dollar-plus pioneering mineral processing projects in this country, as BHP Billiton and others know only too well, can be gruesome. HBI and laterite nickel experiments have gone horribly wrong in this country, and now magnesium is also proving to be an expensive nut to crack.

    Last week work on AMC’s partly finished A$1.7 billion Stanwell magnesium development came to a terminal halt (see related article in side bar). AMC’s shareholders paid a heavy price for their board’s high-risk quest for low-weight metal glory, and now the market is firmly focused on the moves of the other key player, MIL, whose SAMAG project needs a mountain of funding before construction begins.

    While MIL’s managing director Gordon Galt has been going to great pains to point out the major differences between SAMAG and Stanwell – predominantly the commercially used Dow processing technology and the expectation of a fixed-price EPC contract – nevertheless a company with a total market capitalisation of about A$40 million looking to ultimately raise A$700 million in debt and equity and convince the market the proposed big-ticket operation can be the start of something beautiful has got Aussie entrepreneurial spirit written all over it. And that’s not always a good thing, especially when it involves complex and energy intensive processing to produce a designer metal.

    Market commentators are cautious, at best. SAMAG would be difficult to fund, according to Shaw Stockbroking research prepared by respected magnesium analyst, Graeme Newing, who believes MIL might hive off the SAMAG assets into a separate IPO to avoid massive dilution to its existing shareholders’ equity. He added that “investment returns could be adequate”, not to mention the lengthy lead and payback periods. Not a ringing endorsement.

    Unpleasant memories of the AMC/Stanwell disaster and the capital blowouts, long ramps-ups and high running costs that crucified the Aussie laterite nickel miners and their shareholders will make investors wary and MIL’s job tough. Bankers and their lawyers will have a field day structuring senior and mezzanine finance facilities that won’t allow MIL to draw down a cent without meeting stringent parameters and without significant contingencies and guarantees in case of overruns.

    It seems Australia’s metal of the future might stay stuck in the future for some time yet.

    Footnote: BHPB is thinking about progressing the Ravensthorpe laterite nickel project in Western Australia.

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