whisky a go go

November 19, 2009

Vulcan Resources Pulls Off The Deal Of The Century In Finland.

By Charles Wyatt / www.minesite.com

“It’s amazing the deals you can do if you have some money in your pocket” says Alistair Cowden, managing director of ASX-listed Vulcan Resources. “We went very quiet and conserved our cash through the problems that started in the second half of last year, but now we are back in the game.” Back in the game he certainly is, as in the space of two months he has agreed to merge Vulcan with another Aussie company, Universal Resources, and has bought some good-looking plant for Vulcan’s Kylylahti copper project from the bankruptcy estate of a Finnish subsidiary of Belvedere Resources for peanuts.

Alistair did not actually use the word ‘peanuts’, but when one looks back at the feasibility study for Kylylahti and sees that the capex requirement for building just such a plant was €85 million compared with payment of only €4.7 million for the Belvedere plant, located a mere 45 kilometres away, the case is made. Actually it is better than that, as Vulcan is getting a grant from the Finnish Government which means that the price paid will not be much over €2 million.

Understandably, Dr Cowden describes this deal as an enabling transaction for his company, as it will not only ensure that Kylylahti gets into production, but because it also comes with various resources, mineral tenements, buildings and real estate. The newly acquired Luikonlahti plant is currently on care and maintenance, but it is thought that it will cost no more than €7 million at the outside to refurbish and upgrade it. It comes with full permitting, and has the benefit of all necessary infrastructure, including a sealed road over to Kylylahti and a spur to the rail line which is only 1.5 kilometres away, all set to kick off with a capacity of 350,000 tonnes per annum, an output level which can be upgraded to 600,000 tonnes per annum in due course. In support of that, the Kylylahti resource amounts to 8.1 million tonnes grading 1.18% copper, 0.24% cobalt, 0.22% nickel, 0.47% zinc and 0.66 grammes per tonne gold.

The acquisition of Luikonlahti brings with it another 3.3 million tonnes of copper-nickel-cobalt resources at the Hautalampi deposit. This sits on granted mining licences and is awaiting final approvals. Add to this the resources in three proven deposits within 35 kilometres of the plant, plus come highly prospective exploration areas and it is easy to see why Vulcan can now claim to be in a dominant position in the world famous Outukumpu mine camp.

There will now be no need for a new plant at Kylylaht,i as the ore will be transported to Luikonlahti at a cost estimated at only €2.70 per tonne for processing. The result will be a suite of four concentrates – a copper-gold concentrate consisting of 26% copper and 10 grammes per tonne gold, a low grade zinc concentrate, a nickel-cobalt concentrate equivalent in value to a six to eight per cent nickel concentrate, and a pyrite-pyrrhotite concentrate for storage or tailings. More will be known when the feasibility study is fully updated.

In the meantime Alistair Cowden will be fully occupied with all the paperwork pertaining to the acquisition/merger with Universal, and this is unlikely to be completed before Christmas. When the deal it was announced in September, Vulcan had A$30 million in the bank and this was key to putting the deal together, as Universal had the well advanced Roseby copper project in Queensland as well as a highly prospective portfolio of exploration projects, but not much money.

At the time Vulcan’s rating suffered from the fact that its flagship project was on the other side of the world, but this has been sorted out by the merger, and the acquisition of Luikonlahti will enable Vulcan-plus-Universal to create a significant, copper-focussed, global mine development company much more quickly than anyone expected. Vulcan has cut the best part of two years off the time it would take to develop a stand-alone plant at Kylylahti, and the cash flow generated will also accelerate Roseby into production.

One aspect of the Vulcan/Universal merger is the cost saving on offer from combining two copper projects under the one management team. Another is the massive change that has taken place in stock and metal prices. Just a year ago the copper price was diving for the floor and taking the share prices of Universal and Vulcan with it. Now it is back around the US$7,000 per tonne mark, and that is before there have been any real signs of improvement in the US housing market. What a moment to put together a big copper company with significant gold production. Nobody can forecast what the prices of these two metals will be by the time Kylylahti starts to produce its 10,500 tonnes of copper and 11,900 ounces of gold a year, but whatever they are the project will also get significant credits from cobalt, nickel and zinc.

It is a pity that it takes so long to put together such schemes of arrangement as investors may get bored. But it will be worth the wait. Vulcan will end up with 64 per cent of the merged company and Dr Cowden will be chief executive. Hopefully he will then be able to come to London to tell us all about the potential at a Minesite Forum early in 2010. Before that, however, he will have to decide on a new name for the company. Any suggestions should be sent to Emma (emma[at]minesite.com) and she will pass them on. The winner will receive an excellent bottle of old single malt whisky when Alistair is next in London.