There has been much speculation and breath holding in anticipation of what may be the next project or destination for Pilbara iron ore producer BC Iron (ASX:BCI).

In 2006, led by its indefatigable managing director Mike Young, BC Iron took an iron ore exploration play located in what was in at the time, inaccessible territory, to emerge as one of the success stories of the junior iron ore sector rush.

Access to infrastructure was the secret behind that success with the company’s Nullagine mine located close to a train station on the Fortescue Metals Group (ASX:FMG) express train to Port Hedland.

BC Iron’s 50:50 Nullagine Joint Venture with FMG now produces iron ore at a rate of five million tonnes per annum.

Throughout the 2012 financial year the Joint Venture mined and crushed 3.54 million tonnes of iron ore, resulting in shipment of 3.55 million tonnes.

Ore Reserves at Nullagine have been increased to 41 million tonnes at 57.1 per cent iron and the company is sitting comfortably on a bank balance of over $93 million.

 

The Nullagine Jint Venture has hit all advancement targets ahead of schedule

History is repeating with infrastructure a factor behind BC Iron recently joining forces with ASX-listed Cleveland Mining (ASX:CDG) to look for projects in the South American country of Brazil.

“It’s a very strategic move in that it covers all of Brazil for Joint Ventures in iron ore,” Young told The Inside Story.

“The Board of Cleveland mining, collectively, has a great deal of in-country experience.

“They have connections with the main players within the country’s infrastructure sector, which is very important.

“Brazil is not much different to Australia in the fact there is lots of iron ore, but there is not a lot of infrastructure.

“Brazil has a domestic pig iron industry if you want to start up small and get a bit of cash flow going.

“With a project of the Nullagine JV you could make money selling into the domestic market – you just wouldn’t make the margins that we are making.”

The Board members of Cleveland Mining are no strangers to BC Iron with FMG non-executive director Russell Scrimshaw and FMG founding member Jim Williams both having a seat at the table.

Russell Scrimshaw was a key person in the relationship between Fortescue and BC Iron.

Cleveland managing director David Mendelawitz is also a FMG alumnus, where he held the position of Head of Business Improvement, while company chairman Don Baily was a founding shareholder and chairman of LionOre Mining before it was purchased by Norilsk Nickel.

Bailey has also been deputy mining director of Rio Tinto running its operations in South America, Southern Africa and Continental Europe.

“That meant that the due diligence required in terms of Cleveland’s Board and management was relatively straight forward,” Young said.

“I think people may now look again at Cleveland and realise it has a really good team.”

Cleveland Mining’s main focus, at present is the Premier gold mine in the company’s Crixás Hub, located in Goiás state in Brazil.

Construction of the Premier mine is nearing completion and Cleveland plans to commence commissioning of the plant shortly.

“They started the gold mine to generate some cash flow as they wanted to be self-funding, which is great as that keeps their capital structure nice and tight, like ours,” Young said.

“That mine serves two purposes: one, it produces gold, which is as good as cash in terms of maintaining liquidity; and it establishes them as miners in Brazil and gives them bona fides with the regulatory bodies.”

Young explained that by establishing a mine in Brazil a company also establishes its bona fides as a miner.

The logic is similar to that pertaining to companies operating in Australia; if a company can demonstrate it can meet the strict approvals processes once it means it can approach the approval of its next project with confidence.

“I have no doubt that if we had looked at another project in Western Australia we would have a gold star next to our name in terms of meeting approval requirements,” Young said.

“And I believe that it’s the same for Cleveland in Brazil.”

As exciting as the new deal is Young said it didn’t mean BC Iron would be shifting its focus from its Pilbara operations or blinker its sights in regards to other acquisitions within WA.

 

Nullagine Joint Venture location map.

The company has long-stated it has a modelled a three tiered business development strategy and it is determined to stick to it.

The first tier involves extending the known resources at the Nullagine JV, which is classified as Project Inventory.

“That means being fully informed as to what we have got and what we can mine down to every single tonne,” Young said.

“Our workforce is constantly working on developing that and we expect to deliver those results in the third quarter of this current financial year.”

The second tier to BC Iron’s strategy entails seeking out new opportunities to work with FMG.

“It’s pretty simple,” Young continued.

“They have a railway, we have a relationship, we know how they work, and they know how we work.

“Great; let’s go look at other projects.”

The third tier is the deal with Cleveland, which allows BC Iron scope to pursue projects in Brazil.

The deal is consistent with the ethos behind the BC Iron strategy in that it allows the company a very low cost entry into Brazil.

It also leverages off Cleveland’s vast intellectual property as well as the healthy amount of goodwill that company has built up during the past three years of operating in the country.

Cleveland recently completed a placement of approximately 16.9 million new ordinary shares raising approximately $10.7 million before costs.

BC Iron put its hand up for approximately 8.8 million of these at the price of 64.2 cents per share at a cost of approximately $5.64 million, representing five per cent of the total ordinary shares Cleveland will have on offer once the placement has been finalised.

“We took a placement in Cleveland as a good investment,” Young said.

“We decided that if we are going to work with these guys we may as well back them.

“It tells the market we support them, and it also tells Cleveland that we support them.”

With all the goodwill and cash in place, all the newly formed JV needs is a project to develop.

The intention now is to set up a Joint Venture committee to run its collective eye over a number of targets that are already under consideration.

“The Joint Venture committee will go and assess those targets, come up with drilling programs, assessment programs and co-fund it all,” Young said.

“We have formed a Joint Venture with a good company with very good management to operate in a good mining jurisdiction.

“All we need now is the right project.”

BC Iron Limited (ASX:BCI)
…The Short Story

HEAD OFFICE
Level 1
15 Rheola Street
West Perth WA 6005

Ph: +61 8 6311 3400
Fax: +61 8 6311 3449

Email: info@bciron.com.au
Web: www.bciron.com.au

DIRECTORS
Tony Kiernan, Mike Young, Morgan Ball, Terry Ransted, Andrew Haslam, Malcolm McComas, Jamie Gibson

MAJOR SHAREHOLDERS
Consolidated Minerals 23.9%
Regent Pacific Group 23.1%
Henghou Industries 9.9%

SHARES ON OFFER
104 million

MARKET CAPITALISATION
$271.1 million (at 23/8/12)

It should be no surprise a company called Latin Resources would have a South America-focus. The company’s managing director Chris Gale climbed down from the company’s project in Peru to drop by The Roadhouse for a quick chat.

Latin Resources has two projects in Peru, the Mariela iron ore project and the Guadaluptio iron heavy mineral sands project. Magnetite and minerals sands are an interesting combination. How will they work together?

The magnetite, from our perspective, is a no brainer.

The large South American steel manufacturer Gerdau operates a plant some 25 kilometres south of the Guadalupito project and we anticipate selling our magnetite into their plant, from which they will produce pig iron for steel manufacture.

Guadalupito is our flagship project. Besides the magnetite it is also a multi commodity mineral sands project.

It was identified by one of our geologists two years ago, who said that if it was in Australia it would have been in operation 20 years ago.

You recently announced a new JORC-compliant inferred heavy mineral resource at Guadalupito. How do the numbers stack up?

The resource within the 1070 hectare Tres Chosas area is 257 million tonnes at 3.9 per cent heavy minerals in situ.

The latest estimate also updated 850 hectares of the Heldmaier area for 136 million tonnes at 5.5 per cent heavy minerals.

We now have a total at Guadalupito of 393 million tonnes at 4.5 per cent heavy minerals in situ for 17.7 million tonnes of contained heavy minerals.

Like the Guadalupito project the term ‘Heavy Minerals’ covers a lot of ground. What particular commodity is emerging as the key at Guadalupito?

The major mineral we have at Guadalupito is magnetite and andalusite, which is used in the manufacture of refractory bricks for kilns.

It is also becoming a replacement for zircon in a number of products.

Most andalusite currently comes out of South Africa; it’s not a huge market with sales of globally of 400,000 to 500,000 tonne but will increase as it potentially replaces some Zircon products.

What is worth noting however, is that over the past four years the price for andalusite has gone from around $120 per tonne to $350 to $400 per tonne.

What about Mariela, what type of project is that shaping up to be?

We consider Mariela to be situated in, what is emerging to be, an iron-oxide/copper/gold (IOCG) province.

BHP Billiton has just staked around 400,000 hectares through the district, Antofagasta from Chile has around 600,000 hectares and CST Mining recently sold its Mina Justa copper project for over $500 million. Metminco’s project is around 300 kilometres north of Mariela

We think Mariela could be a very big IOCG project, but of course, we can’t be totally sure until we have conducted enough drilling to be certain.

And there is currently some drilling being carried out at Mariela by your Joint Venture partners?

That’s right, we joint venture the Mariela project to a Chinese concern called Junefield Group, which is our largest shareholder.

They will spend $35 million on a Bankable Feasibility Study to earn a 70 per cent interest.

They recently moved a second drill rig onto the project after drilling just three holes of the current 20 hole program.

They must like what they’re seeing?

 Perhaps, I don’t think they would move a second rig in if they didn’t.

How long have you been there?

We hold 100,000 hectares in the area; we started pegging ground there in 2008.

This particular project, Mariela that we are focused on at present is 5,000 hectares.

Have you been able to identify any other reasonable targets within that tenement holding?

Ilo Norte is displaying some copper gold potential – we have already drilled eight holes there and anticipate drilling a further 10 towards the end of this year.

It’s in a very good area. Southern Copper own three mines there and they have produced around 400,000 tonnes of copper.

It appears you are in a reasonably populated area in mining terms so there must be a good deal of infrastructure in the vicinity?

Mariela is 40 kilometres from a major port, from which Southern Copper exports all its copper.

One of our key strategies has been to locate close to ports and close to infrastructure because we don’t have the money to build railways and ports.

We’re focused on mining districts – for a number of reasons.

One, for infrastructure and also for community involvement; South America is a very mining friendly jurisdiction and Peru is a great example of that.

Community relations and social issues are very important and it is very important for a company to get these things right.

That’s why we maintain a strong local focus in terms of where we want to sell or product and who we employ.

Is your strategy of looking to supply local markets contributing to the local aspect of the projects?

We employ 40 local people out on site. We have about 60 to 70 people working for us in Peru now; around 40 to 50 of those are at Guadalupito, and about 10 more at Ilo Norte, which is a small town within Mariela.

The local people recognise us as an avenue for employment, which for us is important.

Has South America always been the main target region for the company?

We started operations in Peru in 2008 as a private mining company. We were the third Australian explorer into Peru; there are now twelve.

I was told at the recent Latin Down Under conference that in 2008 there were 20 Australian explorers in South America, there is now 80.

I think everybody needs to look at what is happening in South America versus what is happening in Africa.

There’s no doubt South America has really become a popular destination. What was the attraction for Latin Resources to go to Peru?

We always considered Peru to be an ideal jurisdiction to set up a mining operation.

Two years ago our confidence was confirmed when the Fraser Institute rated Peru as the third-best destination for mining. It has always been in the Fraser Institute’s top ten.

There are over 900 million people in Latin America and the growth in the region is obvious.

Brazil has just eclipsed the United Kingdom as the sixth largest economy in the world.

Forget China for the moment, there are six countries in South America that have grown over six per cent over the last three years.

The internal demand for construction and materials in Brazil, Chile, Columbia, Peru, Ecuador – Mexico also falls under the Latin America banner – you would probably put Argentina on that list too, is phenomenal.

Vale sells all its iron ore to China, there’s not enough iron ore left to actually supply the growth that is occurring in South America.

Would these internal South American countries be your targeted customer base?

Gerdau is the largest steel producers in Brazil at 21 million tonnes per annum. They have 52 plants scattered across the Americas, and they’re using scrap iron to feed most of those plants.

That’s their model, but they are running out of scrap metal. They can’t buy enough economically viable iron ore from Vale. They are actually starting to buy their own mines now.

How does the cost of mining in Peru compare to Australia?

To employ a geologist in Peru costs us $60,000 – $70,000. We wouldn’t get change out of $200,000 to employ an Australian geologist.

To drill a diamond hole in Peru costs around $150 per metre, while in Australia it can be anywhere from $300 per metre.

You’re obviously happy working in Peru?

Absolutely. Watch this space; I think South America is going to be a wonderful mining destination.

A BIG STORY: Hillary Clinton’s recent tour of Africa may well been seen as a consequential step for the future of Australian mining on the resources-rich continent.

For, while the story of Chinese mining ambitions in Africa is well-known, it is becoming apparent that Australia also has an important role to play.

The United States is becoming increasingly concerned over China’s growing interest in Africa, which is home to seven of the world’s 10 fastest-growing economies, thanks partly to massive injections of Chinese cash, such as the $20 billion in loans just announced by Chinese President Hu Jintao.

During the US Secretary of State’s 11-day swing around the continent, one of her major themes was the nature of foreign investment.

Without mentioning China by name, Clinton urged African leaders to carefully consider foreign-sponsored projects.

China’s involvement in Africa is usually characterised as having devastating consequences for the populations of impoverished countries in terms of harsh labour conditions, corruption, human rights abuses and economic exploitation.

 

Certainly Chinese investment often comes at a cost.

African resources are dug out of the ground and shipped to China for processing and value-addition.

Infrastructure projects, which sometimes collapse or need to be closed within a few years, often employ entirely Chinese workforces.

And loans are nearly always tied – meaning the money can only be spent with Chinese companies.

Zambia has been a particular flashpoint in Sino-African relations, with a Chinese mine manager killed last week by workers in a riot over labour conditions that have allegedly led to dozens of deaths through poor safety, beatings, summary dismissals, non-payment of wages and, in at least one instance, mine security staff firing into crowds of unruly employees.

Australia’s approach, on the other hand, has been markedly understated and so far reasonably successful.

At the African Union Summit, held in Addis Ababa last month, the Australian Government was singled out for praise in helping African countries with improvement to their mining governance.

The Federal Government is engaging with their African counterparts to assist with transparent mining regulations, contract reviews and – ironically, perhaps – mineral taxation policies.

According to the ABC News, South Africa’s African National Congress party sent a delegation to Australia to study the Mineral Resources Rent Tax.

And last April the Prime Minister’s newly-appointed special envoy to Africa, Joanna Hewitt, signed an agreement with the Liberian government to provide $700,000 to help set up a natural resource taxation unit.

Her visit received no media attention in Australia, but Liberian officials appreciated Australia’s support.

There are currently more than 220 ASX-listed exploration and mining companies that have a combined market capitalisation in excess of $250 billion with interests in Africa, according to the Australia-Africa Mining Industry Group (AAMIG), which is a Federal government-assisted body.

With more than $50 billion so far invested in African mining and an understated diplomatic approach to providing assistance, it could be that Australia emerges as the quiet achiever over coming decades.

 

By Steven Jones of Corporate Zest
steve@corporatezest.com.au 

This article first is published courtesy of Symposium and Corporate Zest

http://www.symposium.net.au/blog.html

DIGGERS AND DEALERS: Just before Endeavour Mining Corporation executive director and CEO Mark Connelly was to deliver his presentation at Diggers & Dealers, the ASX and TSX-listed company announced it had entered into a definitive arrangement agreement with Avion Gold Corporation.

The deal will result in Endeavour acquiring all of the issued and outstanding common shares of Avion via a court-approved plan of arrangement.

Summary of the transaction:

–    Acquisition of Avion in an all share transaction with each Avion common share exchanged for 0.365 of an Endeavour common share valuing Avion at CDN$0.88 per share or CDN$389 million, using closing prices on the TSX as of August 7, 2012;

–    The acquisition will immediately increase Endeavour’s forecast gold production by approximately 50 per cent to 282,000 to 304,000 ounces for 2012;

–    Endeavour is providing a US$20 million short term exchangeable loan to Avion to restart the Tabakoto mill capacity upgrade, leading to further gold production growth to over 450,000 ounces per year when Agbaou reaches steady state production;

–    Endeavour’s NI 43-101 compliant, attributable Proven and Probable gold reserves will increase by 31 per cent to 2.8 million ounces and Measured and Indicated gold resources increase by 52 per cent to 6.0 million ounces and Inferred gold resources increase by 167 per cent to 3.3 million ounces; and

–    The acquisition of Avion will create one of the largest West African mining companies with three producing mines, a fourth mine currently in construction, and an attractive pipeline of exploration and resource development properties.

 

Mine and project location map. Source: Company announcement

 

Speaking to journalists after his presentation, Connelly said the company’s reasoning behind the deal was its desire to grow.

He said the deal reflects the company’s previously announced plans to become a 450,000 to 500,000 ounce producer by the end of 2013.

“This presents that today,” he said.

“We will be at 450,000 [ounces] with the acquisition of Avion, plus the upgrade of the Tabakoto mine in Mali.

Connelly said Endeavour had been looking at a number of opportunities that had become increasingly attractive due to valuations easing within some of the targets the company had been focused on.

“Our primary targets have always been in West Africa,” he explained.

“We have our technical operational base there, we have demonstrated we can build projects, permit them and operate them successfully within West Africa.

“Avion has open pit mining and underground at Tabakoto and Kofi in Mali. They have a very good exploration opportunity in Burkina Faso, called Houndé.

“We see Mali as being another potential for us. It is the southwest part of Mali; all the operational mines are there…so we are in the right jurisdiction and right location.”