http://www.theaustralian.com.au/business/opinion/ownership-proble...

http://www.theaustralian.com.au/business/opinion/ownership-problems-distract-investors-auzex-resources-azx-70c/story-e6frg9if-1226054942623

AUZEX chief John Lawton reckons investors are chasing fool's gold by way of projects with dazzlingly high grades: it's better to assume low grades and build the plant to suit.

"The market prefers sexy high grades, but when it comes to mining the stuff in open cut it will disappear on you," Lawton says.

"The nature of gold is that it's highly erratic. With low grades it just becomes a matter of an earth-moving exercise."

Auzex's Caterpillar effort is the Bullabulling project near Kalgoorlie, which yielded 370,000oz until the 1990s, under old owner Resolute. The AIM-listed GGG Resources bought half the project in 2009 for $3 million.

At the time of Auzex's purchase, the resource stood at 430,000oz, with Auzex expanding this since to 1.98 million ounces (inferred), with a targeted 1 million ounce maiden reserve. The idea is to produce 150,000oz to 200,000oz a year, based on a massive plant with capacity of 5 million tonnes a year or more.

At 1g/tonne, the head grade is not compelling, but certainly attractive enough for GGG on March 14 to launch a hostile scrip offer, then valuing Auzex at $95m (87c a share). The crude summary of GGG/Auzex relations is they're not happy campers. Auzex claims its register, which includes Colonial First State, Baker Steel, Macquarie and Contango, will snub the proposal, which is now worth about 69c a share.

If the offer lapses, which we view as likely, that leaves the unacceptable status quo of joint ownership. Lawton says Auzex maintains an agreed nil premium merger (in other words Auzex, the project's operator, taking over GGG) is the ideal structure.

Lawton says the ownership uncertainty weighed on investors. "Our retail shareholders are seriously pissed off with the whole thing," he says.

Peeved they may be, but the stock has still had a decent run over the past 12 months and, indeed, since the offer was lodged.

Criterion will avoid this one until the venturers thrash it out: there are plenty of developing gold plays without ownership distractions.


Temu