what's the story about mre?, page-5

This helps explain the 'Twiggy' thing with Anaconda bust in 2001. This article is from 2002

If it is successfully completes negotiations with its US bond holders for a cash buyout at 25c in the dollar, troubled nickel laterite producer, Anaconda Nickel, promises a complete break with the past. This will include changing its name, moving to new premises in Perth and replacing the Andrew Forrest-designed company logo.

In a no punches pulled speech today to the Sydney Mining Club, new CEO, Peter Johnston (ex WMC nickel), who took over last December as part of a new management team, ridiculed the past “promises that came thick and fast.”

Instead he asked his audience to look forward to the potential for the Murrin Murrin nickel and cobalt plant in the Eastern Goldfields of Western Australia.

Murrin Murrin - which he described as a giant hydrometallurgy plant - went from laboratory trials to world scale construction without a pilot plant in between. The result was a major series of technical problems that disrupted production, put Anaconda on the brink of receivership and precipitated the change in management.

There were commissioning delays, cost overruns, slow ramp up of production, and a series of “catastrophic” plant failures in each autoclave train of the Murrin Murrin plant.

Today, after spending $30m over two years on litigation against the plant designer, Fluor Daniel, Anaconda is still locked in arbitration that could see a return of up to $700m (although, if that eventuates, it will go to the US bond holders).

Peter Johnston revealed that the true cost of the Murrin Murrin plant has now reached $1,700m against the original estimate of $960m. The true costs of production are still not known.

Ramp up of production never came close to the original management’s promises of 100% in 12 months. Competitive plants only reached 80% in 2-3 years.

However, Peter Johnston says that a final $70m of capital expenditure will finally see the production ramp up to 92%, or 40,000tpa of nickel plus several thousand tonnes of cobalt, by June next year. “There are no technical problems we do not have a solution to. These will be permanent fixes, not band aids.”

Until this ramp up gives economies of scale, the cost of production cannot be finally arrived at. However, Peter Johnston says that it is clear that Murrin Murrin will never get as low as the 50c/lb originally predicted under Andrew Forrest that was going to put existing sulphide nickel producers out of business.

“The reality is that Murrin Murrin will be a bottom quartile nickel producer but, because of its low grades of an average 1% nickel, will always have to compete with all the world’s existing nickel producers.”

Future technical issues include the declining head grade from the present 1.3% nickel, which may see the need for the “promised but missing” fifth autoclave to be built to increase ore throughput after 2005.

Other issues are the improvement of plant integrity and the building of recoveries from 79% at the time of the management change, through 85% now, to a target of 89%.

As to the other Andrew Forrest growth promises, like three nickel province expansion to three 100,000tpa nickel plants, a magnesium plant, fertiliser plant, rare earths plant, two gas pipelines, water pipelines and so on, these have all been laid to rest.

Commented Peter Johnston, “ At one time Anaconda was committed to $8,000m of growth. All these peripheral activities have been stopped….None of these peripheral projects would ever deliver a return on assets to shareholders.”

The head office count has been reduced from 164 to 28, general managers from 12 to four, overheads from $22m to $6m, and a rebudgetting carried out to ensure that Murrin Murrin remains cash flow positive in its operations, as it has since March this year.

1/08/2002 12:00 AM