A strategic demerger

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 02 Sep 2016   Posted by admin


Metals X’s processing plant at its Higginsville Gold Operations.

By Elizabeth Fabri

THE new financial year is set to be a game changer for diversified resources company Metals X, as it moves towards a spinoff of its gold division and production at its newly acquired Nifty asset.

In August Metals X announced its intent to undertake a $115.6 million capital raising and demerge its gold division; a move that would strengthen the company’s position as one of Australia’s top gold miners.

With Metals X’s metals division bolstered by its recent takeover of Aditya Birla, the company stated that its base metals division could now stand alone “as a formidable diversified base metals company”.

As it stands, Metals X has three operating gold projects, four process plants with a 5.5 million tonnes per annum (mtpa) combined capacity, a resource base of 15.4 million ounces and ore reserves of 2.89 million ounces. The company currently produced at a run rate of 220,000 ounces per annum, with plans to double this in the next few years.

Gold spinoff

In August, Metals X sparked interest with the news of a potential spinoff of its gold assets, stating there hadn’t been a better time than now to investigate the option.

“The main reason is that diversified miners or companies that have mixed base metals with precious metals, or gold and base metals together, have been comparatively undervalued by the market to approximately 30 to 40 per cent of comparative basis, so the strategy is pretty simple,” Metals X chief executive and executive director Peter Cook said.

“We believe it’s in the best interest of our shareholders, having now built ourselves as the ninth largest gold miner in the country (moving to the fifth largest gold miner in the country), to realign our gold division into a pure play gold division so it can be lined up with those others on a peer basis.”

The demerger would be subject to regulatory and shareholder approval, and if approved would take about four months to complete.

The intent for a spinoff was announced alongside the company’s $115.6 million capital raising.

Peter Cook was expected to step into the role of managing director of the gold business unit, while Metals X’s other executive director Warren Hallam would become managing director of the base metals business.

Higginsville, South Kalgoorlie and CMGP

The Metals X gold division is continuing to provide the company with steady production and revenue.

Like all Australian gold miners the company is benefiting from a much higher Australian dollar gold price, which includes plenty of opportunities to put more money in the bank to repay back capital investments and reward shareholders, Mr Cook said.

Higginsville and South Kalgoorlie were two of its top performers, acquired through the acquisition of Alacer Gold’s Australian Business Unit.

In the June quarter, preproduction grade control and stripping and development for the start of mining at Mt Henry was completed. The developments facilitated the company’s goal of transitioning core feed source from the Trident underground mine to Mt Henry. South Kalgoorlie was also progressing strongly following rehabilitation of the old decline and development towards new high grade areas.

“South Kalgoorlie’s really just through the phase of redeveloping the HBJ underground mine to its now point of consistent sustainable production,” Mr Cook said.

The company has reported positive outputs from HBJ, Georges Reward pit with total quarterly production of 199,201 tonnes at 1.83 g/t gold, and an additional 33,704t at Cannon.

The Central Murchison Gold Project (CMGP) made progress on its ramp up with its second full quarter of production.

CMGP came online in October 2015, and would continue to boost Metals X’s gold division, with output increasing 30 per cent in the June quarter from the previous quarter.

In June the company also completed a five-year development plan for its low cost Fortnum gold project, which could produce 322,000oz across five years.

Wingellina EPA success

Metals X’s Central Musgrave Project (CMP) nickel asset is one of the largest underdeveloped nickeliferous ‘pure oxide’ limonite accumulations in the world.

While Metals X has given no indication when the project would be developed, the company was one step closer to construction with recent Environment Protection Authority (EPA) approval.

The final EPA report was published in late June, and no appeals were received in the 14 day public review period.

Mr Cook said the environmental approval was a major milestone for the company, but progress would not begin until the nickel market recovered.

 “Wingellina won’t be developed until the nickel price improves,” Mr Cook said.

“If it was to be developed the way the previous feasibility suggested it will be a three year construction that will cost $2.5m.

“There is a lot of interest in it due to its very high cobalt print and the hunt that’s on in the world today for cobalt with this lithium battery demand that’s increasing, so it will have its day, we just have to be patient.”

EPA chairman Dr Tom Hatton said the project proposal was assessed at the highest level of environmental impact assessment.

“In assessing the proposal, the EPA noted the proponent’s efforts to avoid and minimise environmental impacts by using best practice technology, dust suppression measures, minimising vegetation clearing footprints and preparing a Mine Closure Plan which addresses rehabilitation, stakeholder consultation and the decommissioning of mining infrastructure,” Dr Hatton said.

The Phase 1 Feasibility Study reported the project would have a minimum 40 year mine life with an average annual production rate of 40,000t of nickel and 3000t of cobalt.

Renison developments

The Tasmanian Renison joint venture with Yunnan Tin Group underwent a significant change in the June quarter.

In May, Metals X completed a transition from contractor to owner operator at the 700,000tpa tin concentrator plant to lower costs by utilising the active pool of skilled labour available through redundancies at neighbouring mines such as Rosebery.

“We always had the skills to do it as we had been owner operator before, so we made the decision to buy a completely new fleet to put our own labour pool in play and essentially looking to drive $1500 per tonne of tin off our costs,” Mr Cook said.

“Renison is a mine that’s been going for 50 years and it’s probably got the longest resource and reserve life it’s had in its history.”

The transition to owner operator was relatively smooth, with anticipated lower quarterly production of 1,153 tonnes for the three month period.

The next step for the site will be to improve overall head-grade and tin metal entering the tin concentrator circuit by introducing modern ore sorting technology.

The project is targeting annual tin production of between 7000t and 8000t from the current resource of 245,000t..

Positive explorations results continued in the quarter with definition drilling at Area 4 and the Lower Federal Zones.

The company also continued to explore opportunities at Mt Bischoff open pit, about 80km from Renison.

Aditya Birla purchase

Metals X had its eye on Aditya Birla’s Nifty mine for years, and as of August was the proud owner of the world-class asset.

“We’ve always viewed Nifty as having huge potential,” Mr Cook said.

“The core strategy for us was really two fold; firstly it’s a mine that we believe in the way we operate things, and the way we can renovate those things- we can make some large improvements to the mine and large increases in productivity in the mining operation and focus on a much longer life.

 “We’re in control now, we’re in the driver’s seat and we got hold of the steering wheel and are making the changes we believe we need to make.”

Mr Cook said the acquisition significantly strengthened the company’s base metal division, which previously only recorded production from the Renison mine.

“We now have a very diversified base metals division with two production sources, not just one,” he said.

“The plant runs at about 60 per cent of its capacity; objectively we really need to get that up so we can fully utilise the infrastructure that’s in place and we need to reinvest in that.

“It’s pretty much steady state; it’s still producing 35,000 tonnes a year of copper metal, which is a fairly sizeable copper mine in its own right.”

Outlook

Mr Cook said it was an exciting time for the company, and the spinoff was an opportunity for it to “unlock the considerable value that sits under the Metals X umbrella”.

“It was pleasing to see that the equity raising was “monstered” with heavily oversubscribed applications,” he said.

“Following the equity raising and demerger process, our shareholders will own shares in two formidable mining companies with great opportunity and outlook to grow and prosper.”

Proceeds from the equity raising would be used to expedite development of additional production from company projects, both gold and base metals.

Proceeds would be used to expedite and enhance the economics of the Fortnum gold project, including a faster re-establishment of the Starlight underground mine and an expedited exploration and development drill program at the nearby Peak Hill mining centre. Funds would also be allocated to Mt Henry gold project development and any required plant modifications to the Higginsville plant; working capital for initial mine development and the establishment of steady state production at the Comet and Great Fingall underground mines within the Central Murchison Gold Project; mine development and exploration drilling at the Nifty project; and towards additional acquisition and growth opportunities, both internally and externally.