Minews Story
Date: May 20, 2005
Cambrian Tops Up Shareholding in Aztec Resources Ahead Of 2006 Production.
Interesting to see that Cambrian Mining has agreed to swap 60 million shares in AIM and Aussie listed Aztec Resources for a million shares in Asia Energy with RAB Special Situations (Master) Fund. Just to clarify the position this deal will increase Cambrian’s holding in Aztec to 18.7 per cent, while reducing its shareholding in Asia Energy to 22.7 per cent. The thinking behind the management decision of the hedge fund, which may be Christian but is certainly not altruistic, is hard to gauge. Aztec should be in production a full year before Asia Energy; it is in Western Australia rather than Bangladesh; and it has already set up offtake deals for a large part of its iron ore production. Just as important the share prices of companies have retreated by about one-third from their peaks earlier this year. The market capitalisation of Asia Energy, however, is many times that of Aztec so the two words - lobster and pot - come to mind.
RAB has been a cornerstone investor of both Cambrian and Asia Energy and Cambrian rationalises this share exchange as assisting Cambrian to achieve its objective of being a diverse mining house primarily servicing the steel industry. Fair enough, coal in Bangladesh is more likely to be used in power stations rather than steel mills whereas Aztec’s iron ore has only one destination. RAB also likes to feel it can influence management directly, or by proxy. The word ‘Master’ in the title of the fund gives a subtle insight into this philosophy. So it may be backing John Byrne of Cambrian to make sure that Aztec lives up to its forecasts on the schedule for production and tonnage, and preferably beats them.
Following its March quarterly results Seymour Pierce, broker to Aztec Resources pointed out that the latest estimate of measured, indicated and inferred resources had risen to 45.1 million tonnes at 64.6 % iron. This is some 5.6 tonnes up on the previous estimate and as exploration is continuing there is every reason to think that it will increase further. The bankable feasibility study is now close to being completed and one would assume that Cambrian is confident that it will prove robust or it would not have increased its shareholding no matter how much RAB twisted its arm. Additional studies, covering the environmental aspects of the project, have now been completed and Aztec is progressing negotiations with traditional owners for land access.
The most important thing is that offtake agreements are being put in place with major steel makers at much higher prices than existed a year ago and the company is confident that this will pertain for the next two or three years due to high demand for qood quality iron ore and a tight supply situation. During the March quarter the company negotiated a Memorandum of Understanding with Mitshibishi Corporation for the supply of 500,000 tonnes per year to Japanese and Asian customers for a period of 10 years, or the life of the mine, whichever is less. This brings the total annual production now covered by such agreements to 2.9 million tonnes out of an anticipated total of 4 million tonnes.. Mitsubishi is Japan’s largest trading and investment company with operations in 80 countries.
The feasibility study should be completed at any minute as financial modelling and report compilation is in its last stages. Provided all the requisite project approvals are received production should start with the first shipment of ore in the middle of next year. Designs and preliminary capital cost for the jetty and shiploader are complete. The jetty will be just under 300 metres long and the travelling ship loader will have a capacity of 4,500 tonnes/hour which is sufficient for a 200,000 tonne ship. Looks as if Cambrian made a shrewd move to top up its shareholding while the price was depressed by market conditions and before investors were wakened by the bankable feasibility study and the imminence of production.