Home' Australian Resources and Investment : March 2015 Contents 66 • Australian Resources and Investment • Volume 9 Number 1
(oxidation by nature) of a mineral called olivine, which had
nickel in its crystal structure. Olivine is an iron-magnesium
silicate, and when you oxidise everything, the magnesium
disappears and you’re left with iron and residual nickel. If you
can imagine this ore body – and the bulk density of this ore, to
200 metres deep, is 1.17 tonnes per cubic metre – it virtually
floats on water, which is also 50 per cent Fe2O3 (iron ore).
So, it’s a very interesting ore.
nickel division – wingellina nickel project – DFs
We did a feasibility study when the nickel price went to
A$50,000 per tonne, and these are the numbers we used
for a 40-year project. We used the long-term nickel price at
$20,000 per tonne, and a cobalt price of $45,000 per tonne in
an $0.85 exchange rate. And we’ve been around the world for
six years with this project, with prices moving up and down.
I recall going to see some brokers – and this is an asset
at the time, which is commanding more than $600 million
of market capital in Metals X – and being told that I was a
complete idiot for using a $20,000 nickel price, when the spot
nickel price was $40–50,000 per tonne. All I can tell you is
that six years on, I’m still a complete idiot, because the nickel
price is now down at about $15,000 per tonne and I’m still
using that rate – some things don’t change.
This is a mega project: it starts with 40 years of reserves,
it’s got a big hurdle rate, as these projects do, and it’s a
$2.5-billion pile of cash to jump over. It’s a project that should
operate for 40 years, and should generate $0.5 billion of free
cash per year – for an initial 40 years. There’s a lot more of
this nickel out in those areas.
nickel division – central Musgrave project
We own 100 per cent of this, and 100 per cent of the rights
to offtake this project. It’s one of the largest – I think if
you check numbers, it’s the fourth-largest undeveloped
nickel-cobalt project in the world today. The nickel and
the stainless steel markets are certainly emerging from a
physical change process, where they’ve been dominated
by ferronickels – in fact, there are booming exports of pig-
nickel, and that’s changing in the market; it has driven
prices of nickel up 60 per cent this year. But, astoundingly,
London Metals Exchange (LME) stocks of nickel have
continued to go up. So, what part of economic theory tells
you that makes sense? It’s pure speculation in this market.
We believe that this new project could get up in the next
price upswing – it’ll be funded, and I’d just like you to know
that we don’t think we can develop this project ourselves. We’re
not Andrew Forrest, nor do we want to take on the debt to do
this; our objective is to try and build this project by retaining
a free-carried interest to commercial production. And we’ve
signed a memorandum of understanding (MOU) with Samsung
C&T and some Korean giants on that basis about 18 months
ago – and MOUs are great, they’re non-binding. So that deal
that we signed left Metals X with a 30 per cent free carry to
commercial production. It needed a 17.5 per cent internal rate
of return to be bankable in Korea. So, we actually signed it just
in time for the nickel price to fall totally out of bed, so it’s just
been parked, and it’s fast re-emerging.
But that’s a great deal for Metals X – that’s like someone
cutting me a cheque for $750 million and handing it over,
and before I could get my grubby little mitts on it, snatching
it back and saying, ‘I’m going to go and spend that for you’.
And in three years’ time, we’re going to have a 30 per cent
free-carried interest in that cash flow. So, that’s 30 per cent of
$0.5 billion for 40 years.
the investment synopsis
I’m here speaking because I’m selling, so I’m giving you the
investment synopsis on Metals X. Metals X is a diversified
miner – one of the few in Australia. It’s a company that pays
dividends; a gold mine that pays dividends. It’s got a strong
balance sheet. It’s got fully funded growth options in gold
and tin. It has diversified metals exposure. It’s got very large
metal inventory across base and gold metals. It’s got that free
option, on that massive world-class nickel project. It’s got
significant share price upside – and what resource company
in the market today doesn’t? It’s well covered by research. One
of the very difficult things for Metals X as a company is that it
hasn’t been to the market since 2009 – five years – and hasn’t
offered the brokers anything: no placements, no mandates,
and very hard to get research done.
But I’m pleased to say that there are now eight research notes
on Metals X, and they all have average buy prices of about twice
its current trading price.
proudly positioned as an australian miner
I present you the Metals X story, and we’re proudly positioned
as an Australian miner.
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