Cazaly goes back to basics -------------------------------------------------------------------------------- Friday, 5 August 2011 Tania Winter
WITH the pending sale of its Parker Range iron ore property for $A180 million to an unnamed Southeast Asian investment group, Cazaly Resources is getting back to what it does best ? exploration.
However, Cazaly?s immediate focus is to ensure the deal gets over the line, as it remains contingent on a number of conditions including finalising of port access deals and environmental and Foreign Investment Review Board approvals.
The deal has a 45-day due diligence and exclusivity period, after which Cazaly plans to accelerate its exploration efforts in the Parker Range region as part of a planned exploration joint venture with the Asian party, while derisking its exposure to costly development options.
While the monies to be attributed to the JV are yet to be finalised, obviously pending the outcome of the Parker Range sale, Cazaly joint managing director Clive Jones told MiningNews.net it would allow the company to open its purse strings even further and let it get on with the job of advancing the remainder of its portfolio.
Cazaly has $A8 million in the bank.
?But really, the medium-term focus is iron ore in the Yilgarn, where we have a strong royalty stream with these guys and a larger joint venture agreement where we will manage exploration,? Jones told MNN.
?I have no idea yet what money we will be spending but it will be what is required to underpin the future of the project.?
Not wanting to count his chickens just yet, Jones said the company would continue to eye offshore opportunities, particularly in the bulk commodities space ? namely iron ore, bauxite and copper.
?We actually have a couple of reasonably advanced copper plays in our portfolio which we are going to attack as well and are definitely interested in offshore,? he said.
The Parker Range deal, for which Cazaly is liable for a break fee capped at $1.5 million if the company breaches various trigger events or fails to complete the transaction, allows for an initial $40 million payment within six months of the sales and purchase agreement being signed, but this can be extended by mutual agreement.
A further $55 million will be paid upon the first exports of iron ore from the property or within two years of the sales deal.
In addition, a royalty of $2.50 per tonne is payable on all ore produced, capped at a maximum of 10% of the gross profit margin.
Cazaly?s plan to export 1.4Mt of Parker Range iron ore through Fremantle port from March next year before switching to Esperance at an expanded rate of 4.6Mtpa about a year later were scuppered in May by WA Transport Minister Troy Buswell and Premier Colin Barnett.
Both Buswell and Barnett rejected the Fremantle proposal only a week after Cazaly?s original proposal to export through the Kwinana bulk terminal was taken off the table when Fremantle Ports allocated available new capacity to rival iron ore miner Mineral Resources.
But Cazaly?s plan to use the Esperance port in year two of its operations was thrown a lifeline when Buswell confirmed the government was working with the Esperance Port Authority on options to expand its iron ore capacity.
In the Pilbara, Cazaly retains a 49% stake in the Hamersley iron ore property. Fellow junior Winmar Resources retains a buyout but recently let an option agreement to increase its 51% stake to 100% lapse.
?We are happy to retain our stake in Hamersley and Winmar has recently done a deal with an Indian group to fund that project for them,? Jones said.
?So for now are happy to let them get on with the job of proving it up.?
Meanwhile, Cazaly continues to hold talks with a possible development partner for its Earaheedy project northeast of Wiluna in WA, which it holds under an equal JV with junior Vector Resources.
Jones said discussions were relatively advanced with a different party to the group running the ruler over Parker Range.
?To be frank, Earaheedy needs a major partner as it has the potential to be huge, up to 1 billion tonnes in scale,? Jones said.
?But in the meantime we are getting back into the field to do some follow-up work with our joint venture partner Vector Resources.?
The exploration target over the property was recently upgraded to between 300-400 million tonnes grading 54-56% iron ore, or 57-60% calcined iron.
Shares in Cazaly were down 10.53% or 4c in morning trade to 34c.
CAZ Price at posting:
33.0¢ Sentiment: Hold Disclosure: Held
