Minesite Article
News
December 02, 2010
Exco Resources Finds Favour With The Banks And The Chinese, But The Views Of Near-Neighbour Xstrata Remain A Mystery
By Alastair Ford
It’s no wonder Exco’s Michael Anderson and Geoff Laing always go out for dinner with their bankers at Barclays Capital whenever they come through London – the combination of Barclays finance and Exco’s White Dam gold project has proved so successful that you almost have to pinch yourself when you read the numbers. For starters, there’s the cash that’s now coming in. Exco currently has about A$11.5 million in the bank. But according to Michael Anderson, that sum should have risen to around A$60 million by this time next year.
That’s not a bad result for a small-scale gold project that’s not even Exco’s main asset. More to the point, though, as far as the bankers are concerned, all the project debt has now been paid off – and in double quick time. The US$16 million White Dam financing was put together back in the early part of 2009, when the world was an even more miserable place to be in economically than it is now, but at a time too when the gold price was strong. So it made sense for Barclays to be looking at gold deals, however small. Still it’s not every day that you put up financing for a gold mine that ends up getting paid off in full within thirteen months, just seven months after first production, and before the first mandatory payment was even due.
Certainly such a result is worth a celebratory dinner, or two. “From start to finish, it’s hard to see how White Dam could have gone any better for us”, says Michael Anderson. At the last official production update, which was released back in September, the company stated that production rates were running 30 per cent ahead of target, while operating costs of less than A$600 per ounce and an average sale price of over A$1,380 per ounce meant that margins were “very healthy”. At that stage the company reckoned it was on track to repay the Barclays loan by the first quarter of next year.
At some stage Exco will stop being able to surprise shareholders with good news, but the recent strong run of news may have a little way to go yet. The success of White Dam has all sorts of implications for the longer term. One is that if and when Exco needs to borrow money again, it’ll have a decent track record. “It’s a fantastic thing to have on Exco’s CV, for the next time we go in front of a credit committee”, says Michael Anderson. For the more immediate term, though, with White Dam running ahead of expectations, and the company now debt free, the focus can once again shift back to Exco’s main project, the Cloncurry copper project in Queensland.
Exactly how development will proceed at Cloncurry is currently the subject of delicate negotiation, and has been for some time. And it’s because the future of Cloncurry is still very much in the balance that getting White Dam right was so important. With a cash pile that’s set to increase in value almost by a factor of five over the next 12 months, there’s no likelihood of Exco being boxed into a corner by a bigger, nastier potential partner. Funding squeeze? – not with White Dam throwing off cash merrily, the company’s bankers well and truly satisfied over the port and cheese and the end of a tasty meal, and the gold price heading back towards US$1,400.
Still, if Exco’s short-to-medium term position is strengthened by the White Dam production, it does still have to get a deal done at Cloncurry. This, says Michael Anderson, is “imminent”. Cloncurry is a good-looking property in its own right, given that it boasts a resource of 55.7 million tonnes of ore containing 472,000 tonnes of copper and 394,000 ounces of gold. What makes it even more of an intriguing proposition, though, is its proximity to the famous Ernest Henry mine, which is operated by Xstrata. Xstrata’s processing facilities at Ernest Henry look tailor-made to treat the Cloncurry ore, and are likely to be significantly under-utilised now that the Ernest Henry open pit is virtually mined out.
Xstrata, though, is being rather coy about its position on whether or not it’s interested in the Cloncurry ore, at least in public. But it had better make up its mind one way or the other fairly soon, because Exco has been cracking on with pit design and environmental work, and is unlikely to hold off the design and costing of a plant at Cloncurry much longer. Geoff Laing speaks abstractly of the phenomenal growth that he’s witnessed on recent trips to China. Chinese growth is, of course, part of the rationale for buying into a copper story, but Geoff’s not been to China merely to form a view on the global economic outlook. As has happened with so many other Australian companies, a Chinese partner may very well come in and make the running at Cloncurry.
“We expect a little bit of competitive tension to emerge”, says Michael. “But someone has got to make the first move”. The hope among investors is that it’ll be Xstrata. But if it isn’t, Exco is already gearing up with alternative development plans. Because make no mistake, the Chinese interest is very real. “The interest is absolutely there”, says Michael. “They want o come and work on our pipeline. They want to come in, on the register, and on a project basis.” With the copper price riding so high, now is the time.