Prophet Vendt lets off some steam over Monarch
Staff reporter, 23 June 2008
MICHAEL Kiernan’s departure from the Territory Resources board has been the signal for release of some pent-up frustration about the company’s support for Monarch Gold.
Fat Prophets mining analyst Gavin Wendt said this week Territory’s “successful and gradual iron ore production ramp-up” at Frances Creek in the Northern Territory had been overshadowed in recent times by uncertainty regarding the company’s operational focus and the substantial sums invested in Monarch Gold, a “company of dubious financial merit to say the very least” and a “basket case of an operation”.
Wendt said Territory’s estimated $A24 million exposure to Monarch, now looking to sell off its Davyhurst gold assets near Kalgoorlie in Western Australia after failing to revive the field, looked tenuous given the Kiernan-controlled gold company’s problems. But he ventured: “We understand the company is confident of fully recouping its exposure.”
“We welcome the leadership change at [Territory] this week,” Wendt said.
“We believe it will provide the impetus for a long-overdue rebound in the company’s share market fortunes, most importantly by removing uncertainty from the minds of investors with regards to the company’s operational strategy. This rebound will take time ... but we are confident that Territory will re-establish itself in the minds of investors as one of the iron ore sector’s best emerging players.
“Unfortunately, positive news over recent months relating to the company’s achievement of its maiden profit and 500,000th tonne production milestone has been overshadowed by the company’s ill-conceived investment in ailing gold miner, Monarch Gold. Whilst we have conceptually supported Territory’s diversification strategy, investment in Monarch made no sense from our perspective. Fortunately, the bleeding appears to have stopped, with the departure of Michael Kiernan from the board.
“We understand that the Territory board finally said enough-is-enough and put a line through Mr Kiernan’s plans to inject a further $A3 million into the embattled gold miner. Without Territory’s support, Monarch could be close to collapse, which is obviously not a great outcome for Territory, given it is now stuck with a 19.9% stake in a company with little obvious attraction.”
Territory’s existing producer status and potential to grow output, exposure to the new high iron ore benchmark prices announced this week by Rio Tinto, and strong balance sheet put it in an excellent position compared with its peers in the junior iron ore sector, according to Wendt, particularly the “vast majority of pure iron ore plays that are set to hit the market over the next few years”.
“Nearly all of these new entrants will have heavy debt burdens and their operations will be very sensitive to fluctuations in iron ore prices in our view,” he said.
Territory, on the other hand, was increasing production from two million tonnes per annum of high-grade ore to 3Mtpa by mid-2009 and complementing the mine expansion with enhancements to port and rail capacity, including work in conjunction with the Darwin Port Corporation and the Northern Territory Government to triple current stockpile facilities. The company’s growth plans were backed by a plan to spend $A25 million over the next two years to increase resources at Frances Creek.
These stand at more than 10Mt grading 60.47% Fe, with reserves at 5Mt grading 61.3% Fe.
“We understand the target remains the doubling of the Frances Creek resource in the short-term,” Wendt said. “As we have highlighted previously, Frances Creek hosts significant areas that have been largely untouched by modern exploration techniques, including 12–14 km of strike that will be targeted during the current program. In particular, the northern tenements contain significant potential for additional discoveries. The tenements lie on the northern extension of the Frances Creek structure and sporadic outcrops exist along the structure with minimal work been completed on the tenements to date.”
The analyst said the key to profitability and longer-term survival in the industry was the ability to minimise costs and remain dynamic. This was a big advantage he believed Territory Resources had over its smaller iron ore peers, though the company was still to get its operating cost base down to its target of $US55 per tonne.
“Given the poor share price performance of Territory Resources over recent months, particularly in the light of its relative performance against its emerging iron ore peers, serious questions were being asked,” Wendt said.
“It was quite obvious that the best interests of Territory shareholders were not being served by some of the company’s recent business decisions, most particularly relating to the ongoing investment in Monarch Gold. It was inevitable that something would eventually give.”
Also in the June 23 - 29, 2008 edition
- CONTRACTING
- No contraction for contractors
- COVER STORY
- Laterite nickel the real deal
- EXPLORATION
- Evelyn juts, reveals potential
- FINANCE
- Bonwick casts several lines
- Technology key ingredient in new Cook coal plan
- INNOVATION
- Oh what a feeling ...
- INSIGHT
- Australians idle?
- INTERCEPTS
- Katanga dodges DRC bullets
- Zinc miners should get back to the merger table
- MEDITERRANEAN'S GHOST
- Goliath back ... with an army of lawyers
- PROJECT WATCH
- Kanyika gets initial thumbs up
- ReGENERATION
- 60 seconds with Mat Longworth
- Heron turns bird of prey
- TECHNOLOGY
- Freeport vs Rio in robotic drill race
- Technology not yet on the map
- UnCUT
- Gold, Aditya Birla
- VIEW FROM THE WEST END
- Mining can wait