Desert to bloom for WDR by: BARRY FITZGERALD From: The...

Desert to bloom for WDR

by: BARRY FITZGERALD
From: The Australian
August 20, 2013 12:00AM


Western Desert Resources will truck ore 165km via a private haul road to Glencore Xstrata's port of Bing Bong. Source: Supplied

Source: TheAustralian


THE barramundi fishing in the rivers of the Northern Territory's Gulf Country is as good as it gets. At the better fishing spots, the advice is to take at least six rods because the fish are so big and so plentiful that the average Joe is going to have four or five of them smashed within a couple of hours of action.

WESTERN DESERT RESOURCES (ASX: WDR)

That it is a remote part of Australia explains the quality of the fishing. It is also tough country for cattle, meaning it could well remain remote for ever and a day. But the mining industry -- a welcome employer of indigenous people in the job-starved region -- is doing its bit to ensure the region becomes known for things other than fabled fishing holes and largely failed cattle-grazing operations.

Glencore Xstrata's expanding McArthur River zinc-lead mine has been the mainstay mining operation in that neck of the woods for almost two decades. However, today's interest is in the fast jelling iron ore ambitions of Western Desert Resources (ASX: WDR), a $260 million company that has former Coles Group chairman Rick Allert as chairman.

Pokies and pubs king Bruce Mathieson and Scott Perrin, a former director and major shareholder of Billabong way back when its surfwear still had lots of street cred, own a combined 18 per cent (fully diluted) of WDR. And like the rest of the share register, they have some good reasons to be getting excited about WDR's near-term future.

In about 100 days, WDR expects to begin sending off iron ore from its $172m Roper Bar project -- which takes its name from the natural bar on Roper River to the north, with the bar acting as a separation point between fresh water and salt water. The low-cost development has an annual production target of three million tonnes at an average expected operating cash cost in the first two years of $60 a tonne when grades of 60 per cent-plus iron get moved.

Its timing could not be better given that iron ore has surprised just about everyone and headed back into boom territory. The steelmaking raw material fell to as low as $US110 a tonne in May but has since rebounded to $US137 a tonne, which is more or less $150 a tonne in local currency. So presently, at least, cash margins of $90 a tonne or $270m annually are within reach for WDR.

There a couple of factors behind the relatively low capital cost of the development. Unlike the boys trying to break into the industry in the Pilbara, WDR's Roper Bar project enjoys relatively simple infrastructure solutions.

Ore will be trucked via a 165km private haul road to Glencore Xstrata's under-used port of Bing Bong, where it will loaded on to barges for trans-shipment on to Panamax and Supramax carriers in deeper water. Compare that with 500km-plus rail distances in the Pilbara, if a project can in fact gain access to the privately owned lines, and assuming that it has a port allocation.

There are still some boxes to tick before WDR gets the market re-rating that will come from a successful transition from developer to producer. The key issue there is finalisation of the debt component of the project.

The expected $115m debt package is tipped to be wrapped up in a couple of weeks, given that there would be plenty of competition for the business at current iron ore prices, and Roper Bar's forecast low cash costs of production.

An announcement on debt completion could well be the trigger for WDR's suggested market re-rating. Yesterday it was trading at 66c a share. Commonwealth Bank's equities desk has a share price target on the stock of $1.17, which is near enough to double the present price not to worry about the difference. It is forecasting a profit this year of $22.8m, rising to $80.1m in 2015.

Like others, the analysts there were a bit surprised that WDR's share price did not get a wriggle on following the recent news that Hong Kong commodities trader Noble had been signed up to purchase all of Roper Bar's production for up to five years, starting with the planned initial shipment in mid-November.

The Noble offtake deal was another tick in the box for WDR as it derisks Roper Bar ahead of first production. But the lack of response in the share price points to the market being nervous that WDR had given away too much to secure the deal. The actual terms remain confidential but it can be said that the pricing was based on the main index for 62 per cent iron ore, and that there was no discount for the volumes involved.

At this point it is also worth noting that Noble is the Northern Territory's only other iron ore producer from the two million tonne-a-year Frances Creek operation, a two-hour drive south of Darwin compared with Roper Bar's nine-hour drive. The two operations are about 400km apart so there are no obvious synergies to be had from bringing them together.

But that has not stopped some chatter that should WDR hit its straps, as hoped, Noble could well look to upgrade from an offtake arrangement to full ownership as it did at Frances Creek. Time will tell on that score. What is known with more certainty is that WDR and its Roper Bar project enjoy strong support from the region's traditional owners.

Investors down south can be a bit twitchy on the subject for reasons best known to themselves. Still, it was something worth checking out with the traditional owners themselves, just to be sure.

The following statement was issued to The Australian: "Northern Land Council chairman Wali Wunungmurra today commended Western Desert Resources and traditional owners for outstanding outcomes regarding the iron ore mining development south of Roper River in the Northern Territory.

" 'This landmark agreement was signed in 2012 and is already delivering outstanding employment outcomes for Aboriginal people living in the Roper River and Borroloola region,' Mr Wunungmurra said.

" 'Western Desert Resources has already exceeded the agreed employment targets, with over 80 Aboriginal people, mostly from the region, working in relation to the project.

" 'This is an outstanding achievement which is a real credit to the company and Aboriginal workers, and which reflects the sincere personal commitment of the Western Desert Resources board and management to making a tangible difference for the better for Aboriginal people in remote Australia,' Mr Wunungmurra said."

That is about as far away as possible from the prevailing view in Australia's capital cities that mining and its interaction with traditional owners (through native title in this case rather than Aboriginal freehold rights as is the case in Arnhem Land to the north of Roper River) is all about conflict.

And it should be said, that is a credit to all involved.

http://www.theaustralian.com.au/business/opinion/desert-to-bloom-for-wdr/story-fnciil7d-1226700124411