PRESENTATION BY VINCENT ALGAR, MANAGING DIRECTOR OF SHAW RIVER RESOURCES LIMITED (SRR)
“AMEC Investor Briefing: Investing in Mining Stocks”
TUESDAY, SEPTEMBER 2, 2008, 2:15 PM.
SRR I thought I would bring a prop in. If anyone has not seen any high grade manganese, you might as well come and have a look at this stuff. (Inaudible)
10 (0:00:08) picking it up. I cannot be liable for that and I have not covered it in my liability slide. I did not want to put it up in a glass table in case I will be corrected. Yes, there are a few things, tough all weekend, but we rather talk about that now, shall we? (Inaudible) (0:00:23) New South Wales.
15 I can tell you a little bit about it. I used to pick this up last week. It is a Merrill Lynch note and it is titled “Fortune Favours the Brave.” The subtitle there was “Use Weakness to Buy.” Now, there are a lot of companies presenting here, a lot of companies on the market that have a -- which might represent as a weak share price, because the market has taken them now but the
20 fundamentals of our businesses and our exploration models hold steady and I would like to tell you a little bit about that today with respect to Shaw River Resources.
Shaw River floated 18 months ago, give or take. We came out as a spinout of
25 Atlas Iron Limited which is just due to start production of iron ore in the Pilbara. I am sure there might even be a couple of Atlas Iron shareholders in the audience. I hope they are. They had a good spike yesterday morning. Atlas remains a 43% and very enthusiastic shareholder of our Company, but we have, for the last 12 or 18 months, been focused on the advancing gold
30 and base metal assets in the Pilbara. We hold about 6000 square kilometres of tenements, principally with gold and base metal mineral rights. We have been advancing all of these projects through to a drill-ready stage and have completed up to 12,000 metres of gold drilling in the last 18 months.
35 But during the course of our work, we have identified that in some of the rocks in our own tenements that there is potential prospectivity for manganese. Now, we will talk a bit about manganese as I work through this presentation. The most important thing being that strategic mineral, it is kind of a metal, we had some stuff on our own ground and we started having a
40 closer look at it. As I started doing the research into a manganese, I thought, “Well, you are in the Pilbara. You are in an under-explored terrain with the rights of rocks and you have got exploration targets and you have got mineral mines, metal mines, and one of the best manganese provinces in the entire world right under your belt here.” Using a similar philosophy that Shaw River
45 Resources has always had is that Pilbara is an unexplored terrain and it has always been easy for people to go and find iron ore and they have done that. But they have not really focused on that potential for manganese, and one of the big drivers for manganese was the price.
We had the recent opportunity to pick up two more projects, and one of those projects I will spend quite a bit of time talking to you about today.
Let us just have a look at the manganese market as a whole. Why are we
5 interested in this stuff? Manganese is the fourth most used metal in the world after those others. You take a couple of things away from this slide. It is consumed in steelmaking. Up to 90% in the world production is consumed in steelmaking and the bottom point that I will make there is that this is the most critical one. There is no satisfactory substitute for manganese in the
10 steelmaking process. So supplying this stuff, finding it, producing it, and bringing it on this trend is very, very important thing. Historically, the price has been an issue for manganese, particularly for manganese exploration. I think that is something that we really need to focus on.
15 Just have a look at that bottom picture there, another key thing to take from this. I think that picture on the bottom right-hand side of that slide is a plant structure in Beijing. I think there is a picture of the Bird’s Nest on there. The other thing to remember, we are not only talking about China that has a growing economy here, we are talking about the whole of Asia, and when the
20 US gets back on board, it will be growing back again. So the demand for steel is something that will continue onwards. When you have steel, you have to consume 90 kilograms per tonne of manganese ore. There is roughly a ratio of about 2.2 tonnes of ore to a tonne of alloy. I will give you a couple of handouts. Hopefully, you will pick them up and you will be able to have a
25 closer look if any of these slides are not legible to you.
There are some really important things about this manganese market and that is the price and that is the supply environment that we find ourselves in going into the future. The biggest producer of manganese currently in the
30 world are the South Africans. They also have the biggest resources in the world.
In some documentation that I have got, the South African company that has those resources admits that Australia is one of the biggest potential resources
35 for exploration for manganese. We have three producers now currently in the country -- we have Bootu Creek, OM Holdings, we have Consolidated Mineral’s running Woodie Woodie, and we have Groote Eylandt which is run by BHP Minerals. Now, we have one more company, Hancock Prospecting, which is due to start an operation in East Pilbara as well on a lower grade ore
40 with a higher iron content. That certainly puts us in the belt that you are going to see more and more of this movement to Australia becoming a dominant manganese plant because we have got the right rocks and we have got all the things we need to make sure that this going to be great place to have manganese. The continuity of supply that we can offer, like we do in our iron
45 ore, is just fantastic compared to what a country like South Africa is experiencing. They have got all these reserves and reserves, but can they produce consistently? In fact, that is one of the key drivers of that price change.
Now, the manganese price is quoted, just for a bit of education here and we have been learning about these things, it is quoted in dollars per percent unit of manganese sold. So if you have got a 40% ore and it is trading at $16 per percent, you can work out what a 40% ore is worth to you. So it is dollars per
5 percent unit per tonne. At the moment, the price is sitting at about 16 and it is sparked very, very quickly.
Why has it taken longer to rise than the price of iron ore? Well, that is because supply issues have always been an issue in this market. As bigger
10 players have started to dominate supply, so you have got more control over the price, and that is a very important thing. So the historical price levels that we see there will likely not ever be returned to. Even if we look at the long-term price at 2010, estimated price on that chart is about 8. Now, we are thinking that if the South African supply does not remain consistent or
15 increase that the current prices which are on $16 per unit are going to be sustainable, and that is pretty much what we are looking forward to. Just so you have got an idea, the current production cost per unit is about $4 for something like Woodie Woodie. So they are clearing $12 per percent tonne unit on anything that they produce, and that will be the story that I will be
20 using as a base case.
Just looking at our projects then. I hope you have got a bit of a feel for why we are looking for this stuff and I have got another slide later on if you want to put more detail on exact comparisons, for example, what is in this thing
25 compared to what would be in a 5-gram per tonne piece of gold. These are our project locations. You can see from the red tenements, those are our current holdings across the Pilbara area. We have a series of base metal and gold assets and we have been spending the last 18 months really working those up to a drill-ready status. We have made a gold discovery up near Port
30 Hedland, about 50 kilometres out of Port Hedland, and we have done a lot of drilling on that to advance it to the next level. Our exploration plans over the entire area on all our other projects have moved them to a drill-ready stage and I have got drill targets for gold, base metals and copper-gold throughout that area.
The identification of manganese potential at Mt. Minnie, which is our project down in the Ashburton, started to ring the bells about whether we should be looking at this mineral. Then the other opportunities came our way at Barramine out here in the far east and down at 701 Mile which is right on the
40 bottom of the slide. For those people at the back, you would have to stand up and have a look at it, just south of Newman.
Now, I will focus on a couple of those. This is how we look. I have just mentioned this already; I will skip through this slide. Basically, we have got
45 these drill-ready targets on all our base metal projects, so we are just going to focus on the dollars. Three manganese projects -- Barramine, I will just take a point here. Barramine sits about 80 kilometres northwest of Woodie Woodie. 701 Mile sits south of Newman. Mt. Minnie sits about 200 kilometres south of Karratha. They are all located in highly favourable geology for the presence of manganese deposits. They all show similarities to known deposits in proximity. They are all close to rail and road infrastructure. I will be happy to take questions on the issue of rail infrastructure in the Pilbara and answer them as best I can. It is a very interesting scenario.
Let us look at just quickly at the Mt. Minnie slide. Two target areas down in the southwest. We are working furiously on those. Great position, structure geology, presence of dolomites, we are in business. We have also got other targets here that are ready to go.
But what I really will spend time today talking about is the Barramine Manganese Project. That slide is a little small, but up here you can see the red tenement. That is Port Hedland. It is about 250 kilometres from there. Unfortunately on this slide I have not got the railway line, but the railway line
15 ends here at Yarrie. Yarrie is on the BHP line. It is a very unutilized line; the most underutilized railway line in the Pilbara because those two mines, Yarrie and Goldsworthy, are not in full-scale production and they are not unlikely to be because they are in their dying days. That is only about 60 kilometres by road to the top of this tenement package. To the south of this area, we have
20 about 40 strike kilometres along there, half of which is undercover. We do not know how thick that cover is. The southern portion is exposed, and I will show you some more of that later on. Eighty kilometres to the south, in the same rocks, is hosted the Woodie Woodie Manganese deposit on (inaudible) (0:10:44). Current resource is 15 million tonnes at 41% manganese.
Now, if you look at the numbers on the screen here, we were offered this opportunity. We got up there on the chopper. We did not hang around. We got straight onto it. We went and evaluated the opportunity that we had, 58.5% manganese, very low deleterious elements, low phosphorus, very low
30 iron, very low silica, spread across 10 different outcrops in this area that we have picked up over chopper. We identified another 13 occurrences that we could not sample on a day because the chopper could not carry any more samples. You will know why when you pick this thing up. Some really great stuff there. So we have gone out. We have given it a thrashing. Subsequent
35 to that, made the deal, got the guys on the ground, moved my entire team out there, and I was down with them. Last Tuesday morning, we had 11 people on the ground getting a plant together and getting strata on the rocks and doing more sampling, so we can get a fairly firm idea on what is going on on the ground.
So we have picked up the manganese and iron ore rights. I got those thrown in because just to the north of that project area there is a (inaudible) (0:11:56) occurrence called Mt. Cecilia. We will keep that for another day. Samples up to 58% manganese that we picked up through the first part of sampling. The
45 average gives us an ore grade material, same as Woodie Woodie using a 30% cut-off. The geology is extremely favourable, and from all the people that I have spoken to, I have engaged some expert consultancy work on Woodie Woodie, the geology is extremely favourable. In the right rocks in the right place at the right structures. The guys out there are getting the job done. The Pilbara rail infrastructure, whether you take it down to Woodie Woodie and get on the road which is a sealed road on the way to Port Hedland from Telfa or whether you track it up to the end of the Yarrie railway line, you are in business.
This is… you might call this the old money slide. That is a photograph I found in a geological journal of the manganese deposits at Western Australia taken in 1952. There were the outcrops at Woodie Woodie, subsequently 15 million tonnes, $9 billion of in-ground value. These are our photos from about a
10 month ago up on the Barramine area.
That is a person I met. You might be able to see it on your handout, but there is actually a guy standing in there for scale. So that is the top of the hilltop in there. I should have gotten a camel to stand in there. There were camels
15 around there (inaudible) (0:13:23).
So just what are we going to do about it? The most important thing for us is to get some drill holes in the ground. We have got to do our homework. It is really new. We got in there very little work done in this area. It is on the other
20 side of the Oakover River. It is right up on the edge of the great sandy desert. You could see the dunes when the wind comes up. It is like being on Mars, but it is a fantastically beautiful place. It is right at the edge of civilization as we note, but we have got the guys out there and we have got good infrastructure right up to our project doorstep and we are going to make sure
25 we can get out there and get the work done. So we are going to be pushing towards getting some early drill holes in before the end of the year (inaudible) (0:14:02) infrastructure permitting and then moving the other projects along. So the 701 has got a 3-kilometre strike length of exposed manganiferous shale, very similar to the Balfour Downs occurrences, currently being worked
30 by Hancock, and we will be pushing ahead on those and then simultaneously working on our many occurrences and getting a handle of that geology arising we have got there. So the play is to get ourselves onto those things and give it a good thrashing.
35 Just summarizing very briefly, where we stand with that, just summarizing that, while you have a quick look at that, we have taken an opportunity here to leverage off a critical strategic market. The price is good if you compare it to the prices of other things in the ground. Manganese offers a great amount of leverage. The prices change fundamentally going into the future. It is not a
40 price that is going to be really valuable coming down. If we need steel, we need to put 90 kilograms a tonne of manganese into that steel to make good steel, and everyone is going to need steel to do all things they are going to do. Even without the US playing the game at the moment, when they come back into play, they will need steel too. So we are going to make that. They
45 also need manganese to go into it. So it is a fundamental. It is a bulk commodity. You need to look hard to find it and we have not looked very hard (inaudible) (0:15:24), yet we have got one of the best manganese mines in the regions on the whole planet. The rocks are perfect. So in terms of shortest opportunity, we are still seeking that transformational discovery. We have done a lot of work on our base metals and gold and we are not planning to (inaudible) (0:15:41) at this stage. They are ready and we will drill them when we are ready to drill them when we find it well to do that. Atlas remains an enthusiastic shareholder and our teams are in place and are getting on
5 with their job.
Now, I am just going to close it and then we will answer some questions from there.
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