h.sun article fyi

Ducks make this prospect a real flyer
• by: John Beveridge
• From: Herald Sun
• May 30, 2012 12:00AM


The goal is to keep pushing up the phosphate resource until it gets closer to the billion tonne mark. Source: Supplied
TO make the jump from exploration to production, a company needs to get a few ducks in a row in these difficult days on the share market.
First, and most obviously, it needs a resource that is large, rich and close enough to transport to make economic sense as a mine.
Then it needs enough cash to fund continuing exploration and infill drilling until it can get a scoping study and a bankable feasibility study done.
And finally, it needs at least one and preferably several cornerstone investors who will hang around for a few years and don't mind stumping up more cash as long as the results keep stacking up.
Many explorers have one or two of these ducks in a row but it is a rarity to find a company with all three of them and to be able to buy it at a discount.
Rum Jungle Resources has just got that final duck in a row with canny diversified investment company Washington H Soul Pattinson moving up to a 15 per cent shareholding after underwriting the shortfall in director's pre-listing options.
Those options cost 30c to convert - well above yesterday's close of 24c - which gives small investors a very rare chance to buy cheaper than the professionals.
Other well credentialled and long-term investors Acorn and Lion Selection are sitting just under the 5 per cent mark and private Sydney investment company Farjoy was a second underwriter of the options and will have increased its stake.
The cash from the options leaves Rum with around $15 million in the bank which will help to keep up the frantic pace of drilling, which is averaging about 17 holes a day at Barrow Creek after 130 further holes were drilled at Ammaroo.
The goal is to keep pushing up the phosphate resource until it gets closer to the billion tonne mark, giving the project enough scale and mine life to start production.
Drilling should also start this year once final heritage approvals are received of an area closer to the railway line.
Particularly significant in the Rum story was an announcement this month of a maiden potash resource of 530,000 tonnes in the brine of 16 salt lakes - a number that is sure to rise further and which nicely rounds out the "feed the world" fertiliser theme.
The barriers to production are falling and the Rum's proximity to rail, the port at Darwin and hungry Asian markets and its potential for minimal processing before shipping make it the pick of Australia's potential phosphate projects.
Rum Jungle moves from a speculative buy to a buy, courtesy of a handy price dip and the emergence of cornerstone shareholders.
Speaking of Washington H Soul Pattinson, the company has been consistently asked by fund manager Perpetual and a few others to unwind its longstanding Japanese-style cross-shareholding with Brickworks.
While such a structure wouldn't be allowed under current law, the official Soul Patt's and Brickworks line is that the grandfathered cross-shareholding helps to insulate both companies from the economic cycle and to ward off unwanted takeovers.
Large Brickworks and Soul Patt's shareholder Perpetual disagrees and wants to break up the structure, arguing that it hides substantial value in both companies.
Without going into the merits of both arguments, a quick comparison of the share price graphs of Perpetual and Soul Patt's tends to suggest that the latter isn't the one that is in most urgent need of changing the way it does business.
With a nifty habit of spotting trends early and jumping on them - as shown by the Rum Jungle play - and a conservative and very thorough investment philosophy, Soul Patt's is a buy whether Perpetual gets its way or not.
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