Plenty Of Dimes On Offer As Auz Mines Takes Control Of Its Nickel Operation

The Age

Monday August 15, 2005

BARRY FITZGERALD

ONCE the formal presentations and liver-bashing of last week's Diggers & Dealers was out of the way, many of the delegates that hadn't fled Kalgoorlie on the first flight out took up one of the dozen invitations on hand for a mine tour.

Apart from anything else, the chance to kit-up for a visit to a mine-face in humid conditions and a couple of hundred metres underground is about the best hangover cure going around.

The trick is to pick one that doesn't involve a light plane or a drive of more than a 100 kilometres from Kalgoorlie's main drag. The Blair nickel mine of Australian Mines (AUZ) fits the bill nicely.

Blair is all of 35 kilometres south-east of town and by the standards of the Kalgoorlie region, it's quite a nice spot for a picnic. That's all it might have been reduced to if AUZ hadn't sorted out the operation earlier this year by paying off the contractor and taking control of things itself under a new mine manager, Cullum Winn.

A change to selective mining produced the goods in the June quarter, with operating cash costs falling from an unsustainable $A11.04 a pound of nickel in the March quarter to $A6.92 a pound.

Winn's plan is to make Blair a stable producer of 75-105 tonnes of (payable) nickel a month. The cash flow from that, plus AUZ's cash kitty of about $2 million, means that at long last, the search for life-extending reserves can kick off.

As things now stand, Blair's reserves of 49,345 tonnes at 3.32 per cent nickel are good until March 2007. But there is plenty of exploration upside on AUZ's next best asset - its big exploration ground position surrounding the mine.

A $1.2 million exploration program, both for nickel and gold, kicks off in about six weeks, and the new owner of WMC, BHP Billiton, has indicated a willingness to help find extensions to the Blair orebody through the application of some high-tech exploration wizardry it has at its disposal.

As the owner of WMC, BHP wants to keep third-party supply ore sources up to its Kambalda nickel concentrator. But in the case of AUZ, it is also the holder of some 2 million shares.

At AUZ's princely price on Friday of 1.7 ? a share for a market capitalisation of $7.3 million, BHP's Chip Goodyear won't be giving the group's $34,000 holding much thought. But at least the stock got a move on last week, with Friday's closing price up 13 per cent for the week.

LUKE Murphy, Tolhurst Noall's director of corporate finance, was seen floating around the D & D conference, more often than not with a mobile phone planted to his ear.

That suggests that the float of Purus Energy, a new entrant into Australia's burgeoning coal seam gas (CSG) industry, is going off well. The $9 million float is fully underwritten by Murphy's top-end-of-Collins-Street company.

Getting the float away has been made all that much easier for Murphy and the team at Purus - advised by Paul Dickson at Quotient Capital - by the $612 million acquisition by Santos of Tipperary Corp, owner of a majority stake in the Fairview CSG project in Queensland. The Santos deal delivered an investor confidence boost to the entire CSG sector, with incumbents such as CH4 Gas, Arrow Energy, Sydney Gas and Queensland Gas all having gone for a run since.

Investors thought that if one of the country's major oil and natural gas producers reckons draining methane gas from buried coal seams has a big future, then "girlie gas", as CSG is sometimes unkindly referred to by the petroleum producers, must be worth having a look at.

The main difference with Purus to the other CSG groups is that it has Victoria's onshore Otway Basin as its sole focus. The bulk of its 10,200 square kilometres of tenements covering the prospective Killara coal measures also are wholly owned.

Six discrete CSG project areas have been defined to date, and based on information from petroleum wells drilled in the past and seismic data, Purus reckons at least five of them have a good shot at being home to methane-bearing coal seams.

Purus is no recent arrival in the business, as that work suggests. About $2 million has been pumped into the company over the past three years by seed capital investors.

The advanced nature of the exploration ground means that two trial field production tests could get under way in the first half of next year. Initial drilling costs will be lower than might have been the case thanks to a $1 million drill-for-equity deal with Mitchell Drilling.

Mitchell is Australia's biggest privately owned drilling company and is said to have particular experience in the CSG business. Its chief executive, Nathan Mitchell, is a non-executive director of Purus.

© 2005 The Age

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