BRR - Straight from the source

HEEMSKIRK CONSOLIDATED LIMITED

HSK - Excellence in Mining and Exploration Presentation - Mr Peter Bird, Executive Director, Corporate and Markets

http://www.brr.com.au/event/51581

WEDNESDAY, SEPTEMBER 17, 2008, 2:00 P.M.

            HSK     Thanks, Kerry, and good morning, everyone. And just to start, I would like to thank Excellence in Mining and Exploration for allowing us to present today.

10                    Whilst, it may be a bit of a down day in the market, which would be an understatement today, I think the story of Heemskirk is a very interesting one, and hopefully I can keep your attention for long enough part to tea and coffee which I think is scheduled in about 20 minutes’ time. Okay. So the standard course of the statement, which I will draw your attention to. This presentation

15                    is both on our website and has been announced to the market part of this, so if you are after a copy, there are some copies at the booth. Alternatively, please download from our Website. Okay. Heemskirk is a little bit different from some of the things you might have seen in the past couple of days. Our objective as a mining house structure is to generate positive cash flow from

20                    direct and indirect investment within the resources industry. And I’ll go through how we do that in the next few slides. As supporting objectives, we seek to grow profits in the longer term, distribute dividends, and clearly have a counter cyclical approach. And we regard ourselves as a bit of a “can do” group of people.

25

                        For a relatively young company, we already have operations and investments both within and external to Australia. We have offices in four first world countries of approximately 70 employees direct and indirectly approximately 200. And the group, as with many groups, are very experienced in the mining

30                    and finance business. We have production on stream now from our new development in Spain, from an existing mature asset in Canada and gold and silver production from the Pajingo gold mine, which we are a joint venture partner, and we are currently conducting on market share buy back programme.

35

                        We listed on the Exchange in October 2004 raising $20 million, and we are classified as a mining producer, approximately 75 million shares on issue and we are capitalised at about A$100 million and we are a dividend paying company.

40

                        This slide before you just illustrates where our sites are. You'll see, we are based out of Melbourne and you’ll see the Pajingo site in Queensland. And if you cast your eyes to Europe, you’ll see the Los Santos tungsten operation. We have a very small regional office in the UK. It’s an office of one. And we

45                    run an industrial minerals business out of Canada. I’ll cover these in a little more detail as we move forward.

                        This slide was, in fact, in our prospectus, but it hasn’t changed and our objectives haven’t changed. When we listed, we raised the $20 million in cash and that was effectively 100% of our value, if you would like, which is the Y axis. And we said that over time, we'd seek to add strategic cash flow generating assets to the business, and at the same time maintain our cash position and our ability to invest in equity. And that we believe we have

5                      completed, and I’ll refer to that slide in our presentation.

                        If you'd remember a slide in the presentation, it’s this one. And as I said at the opening of the talk, we’re a little bit different. Heemskirk Consolidated is based on the classic mining house model. And as a result, we will invest in

10                    seed opportunities. For us, that’s our exploration. We don’t do (inaudible) (00:03:56) grassroots exploration because we don’t believe that’s necessarily our skill set. We invest in equities for two reasons. One as a treasury function and the other is a strategic function. So we are not a fund manager. We get involved in mining corporate finance, but only so as we can access cash flow

15                    potentially for what we’re ultimately driving for, which is the box on the right-hand side, strategic cash flow generating assets. So that image was in our prospectus four years ago.

                        If we roll the clock forward, this is what we look like now. We do make seed

20                    investments. We do invest in equities. We will get involved in finance transactions if we believe that we will generate cash flow for the business. And ultimately, we wan to populate the strategic assets. And you can see now that we have three direct strategic investments. It’s effectively full businesses now, and that’s occurred over a four-year period.

25

                        The other point to make, I think, for such a young company is we’ve got very long-life assets and we’ve got our commodity diversity. Some of these commodities, which I’ll talk about are not necessarily that sexy compared with the gold and perhaps copper and the like. But one of the things we’ve learned

30                    with the great mining houses of the world previously is that you can make very good returns from some of these not so popular products. And the other point to make is that they are long-life asset.

                        So turning to first of those, the Pajingo gold mine in Queensland, it was sold

35                    under a tender arrangement from Newmont and Heemskirk and North Queensland Metals where the successful tender as we paid $25 million for and predominantly a cash transaction. It’s located in Queensland for those of you familiar with the gold industry, you would know, it’s quite a significant mine in Australia's history. It’s a producing mine. We’re already in production,

40                    as you can see, about 20-odd thousand ounces of gold and 21,000 ounces of silver for the first six months. Predominantly in development ore at the minute hence, the costs are a little higher, but we would anticipate over time we’ll get more interest to (inaudible) (00:06:23). Heemskirk has some Put Options in place at A$900 per ounce, so that provides -- we regard that is insurance for

45                    the business. And based on the JORC Resources published, there is approximately five years of mine life with what we know. Very much to Newmont's credit, they left the mine in excellent condition and the equipment, and we are quite thankful for that. The mine commenced in 1996 under the original owners and has produced in excess of 2.1 million ounces at approximately 11 grams. It’s a high-grade epithermal system. And for us, it gives us commodity and geographic diversification away from our other assets, a foothold in Australia, clearly Australian cash flow. It’s very well supported, region viz-a-viz infrastructure and is managed well by our joint

5                      venture partners. The other point I would like to draw your attention is that it’s got quite a large lease area, 830 square kilometers of lease, which we believe will be of interest to us as we move forward.

                        This is a stylized long section of the Pajingo mine. What we’ve done since

10                    we’ve had the mine is reduce the processing capacity, which is an unusual thing from a high rate to 300,000 tonnes per annum. That’s given us that mine life of about 4 to 5 years, which allows us to carefully evaluate whether or not there is potential to extend their life. If it were a very short life mine, of course, you’re plagued with the issue of trying to find dirt for the mill, and we

15                    didn’t want to be in that position. So it’s funded exploration from an existing facility. And as we move forward the joint venture, we’ll focus on that. But in a worst case scenario, it will take operating as a positive cash mine, so that’s not a bad situation to be.

20                    Turning our attentions now to Spain, we got involved in the Los Santos Tungsten operation. For those of you who don’t know, Los Santos was a Billiton discovery in the 80's. It was then discovered by a chap by the name of Derek Carter who I think is in the audience, who is now with Minotaur and his colleagues in Spain. It’s a wonderful discovery and we were fortunate enough

25                    to purchase this operation a couple of years ago. We own it 100%. We’ve got an established product market and we’re producing.

                        Just quickly on the mine, there’s a little photograph of the mine area. A couple of things you'll notice, it’s quite small from a mining perspective. A production

30                    rate of only 400,000 tonnes per annum, seven days a week, it’s a low operating cost project, life of mine grade of 0.3% WO3, which I’ll come to in a second. It's open cut. It’s very simple, low strip ratio, and a minimum 10-year mine life with mineralisation outcropping.

35                    Some of you may ask the question, what’s tungsten, because it's not that well-known. It is a noble metal. It's very hard and so therefore, it's used predominantly in abrasive cutting tool, lighting and drilling functions. It's a metal used in every day life. It's the ball in your ballpoint pen, the little button in your mobile phone that vibrates, and of course, every excavating you walk

40                    past. It's used as a hardening agent in the bucket. It's a product in demand, and it's inert chemically, which is a very good thing.

                        There are very few quality producing mines in the Western world. China is the predominant producer. This, as we understand, is the third producing mine in

45                    Europe, and there's literally, if you count on one hand or perhaps maybe two, the producing mines in Western world, there are very few. Stating the obvious mines do take some time to bring into production and demand for this product remains very high. For those of you who saw the CRU presentation on Sunday morning, which is a very good presentation. Tungsten wasn’t mentioned but I think what was interesting is that the point made about what is an oversupply, what is an undersupply. And our sense is in I'll be very interested to know what to say how you guys think that our sense is that the demand for this product remains very high. There is no market to trade this

5                      metal as a noble metal. So really, the only access if you're interested in investing in the product is via listed producers of which there are only a few in the world. It's a strategic asset, therefore, both in terms of its location, the mine life, and its size.

10                    Just very quickly on the tungsten price, the intermediate product for tungsten is called ammonium paratungstate, APT. And the easy way to read this chart is the approximate price at the moment between $22,000 and $25,000 per tonne of APT. You can see the price has jumped up quite strongly. There is a very simple reason for that. China has become a net consumer of the metal

15                    and they change their legislation to reflect this viz-a-viz tax in 2002. So this is not a recent phenomenon. It’s been going on for a while. So they'reconsuming, as we understand, all of their own tungsten and other material if they can get hold of it as they industrialise. So I'm not suggesting the price is going to stay at that level, but what I would suggest is that it's

20                    probably going to stay above that $5,000 a tonne level for a while.

                        A quick snapshot of project. As a capital project, a very small 13 million Euro in capital, we went slightly over that. When I say slightly, about 5% simply because we have to put in the gen set, which was out of the scope of the

25                    capital. So we're very pleased with that outcome. It was acquired in '06. We constructed it in '07 and we commissioned it in '08, and that’s a great credit to the people who worked in Spain who are both very professional and just generally very high quality people. And we probably didn’t really appreciate that when we first got involved in this project. I think to do that in Australia at

30                    the moment would be quite difficult. We're in production, as I've mentioned. We have a six-year offtake agreement with the Plansee Group. The Plansee Group recently took over OSRAM Sylvania. So those of you who were looking at a light bulb, you would often see the name OSRAM written on it. They have been involved in this business a very, very long time.

35

                        This is a quick aerial view of the project. The first thing that strikes you is just, one it’s a fairly isolated area and two, it's a very small mine footprint. If we just move forward one slide, you can see that we're working out of the Los Santos Sur pit, which is in the center of the image there and the mineralisations

40                    moves out to the left, and there will be a series of open pits all fairly small and all fairly shallow. The other thing, for the experience, that you might notice is there is no tiling stand. We produce a pace tile, which is effectively a sand which is readily salable for things like cement. It's quite inert. So this is a very, very commerce clean mine.

45

                        If we look at just a quick section, a quick image of the mineralisation, what you'll notice also about Los Santos Sur, you’ll see in the light blue an image of the pit rim. And the most obvious thing is it all continues well below (inaudible) (14:22) iron pit. So we remain optimistic about the potential life of this project.

                        Just some quick snaps of the mine. As I indicated, it’s quite small. You can

5                      see relatively small equipment operating in Los Santos Sur. We crush the material. There's the final stockpile. You'll notice a little bit of snow in the background. The climate of this region is probably very similar to Batthurst or Orange in New South Wales. Into our rod mill, again, very small equipment. You can see a couple of guys standing there next to it. Through spirals, onto

10                    Wilfley tables and the white material there is the concentrate, which we on ship and we ship it in bulk of bags in 20-tonne containers to Plansee. So it’s a gravity separation process. The only reagent we use is one flocculent, a very, very clean, a little bit like mini-sands and very clean project.

15                    Not satisfied with just being a tungsten producer, we had a very good look at this project when we got involved and felt maybe we could produce something else. The waste drop from Los Santos of which there is about 1.6 million tonnes per year, again fairly small, is ideal for aggregates. And many mining houses prior to us have been involved in the aggregates business,

20                    and we're aware that it can be quite a lucrative business.

                        So we recently announced on the 21st of July that an aggregates business have been approved. Our equipment, which is a very simple crushing equipment has been procured. Production, as it's said, will get underway in

25                    the latter part of 2008, very low capital, very quick payback, less than 2 million Euro, and of course, Euro-based sales. So this, from being a tungsten mine is now a mine with two commodities and therefore two revenue streams. The other way of looking at that is it do risks your project which we quite like. So you'll hear more about that as we move forward in the aggregates

30                    business.

                        I should stress the aggregates, we would seek to supply, are into the freeway and railway development, which is going on particularly in Western Spain rather than in the domestic housing market, which is relatively depressed

35                    currently in Spain. And there is just a quick picture of the commissioning of the crushing plant and the different size fractions of material, which we are producing.

                        Okay. Moving to our last strategic asset, Heemskirk Canada. This was the

40                    first strategic asset we got involved with. We bought it for 5.6 million Canadian. It’s a long life consistent business which produces, out of Western Canada, a series of products, barite, silica, zeolite and gypsum, and predominantly into the oil and gas drilling industry. If you can see on that slide, there's the Lethbridge plant just near the US border.

45

                        Lethbridge has been operating for 40 years and the Moberly silica operation in the center of the slide there has been operating for approximately 20. So these are established businesses. Again, not that exciting but very good to provide a cash flow base to the business as we seek to grow. About 40 people in the business and we are actively operating.

                        Just a quick diversion. For those of you not familiar with the oil and gas

5                      business in the Western Canadian Sedimentary Basin, the reserves according to Teck Cominco, which I sourced this slide from are about 175 billion barrels, which sits just behind Saudi Arabia. So this is a massive, a massive area for -- for which we provide product into for drilling -- predominantly drilling muds. Because drilling muds are quite heavy, the

10                    barriers to entry really are transport. So, for example, we would not seek to compete down in the Gulf region, and one would suspect you wouldn’t seek to compete from there up into this region simply because of transport costs. But it’s a very, very big area. It would go on for many years and it has been going on for a long time already, so it's an established business.

15

                        Okay. This is just a little photograph of the barite when it's bagged, the drilling mud additive. The only thing I wanted to point out here is to API, which is American Petroleum specs, which is a very good thing to have stamped on your bag. That’s that little diamond on the left. That’s a little bit like (inaudible)

20                    (00:19:13) Australian standard for products. So ours is two specification, which is very important.

                        There is an image of the silica product, which is supplied into both glass manufacture and into silica flour, which is used for high temperature cement

25                    oil well products. So we're very leveraged to that industry and it has been for many years and it's been operating for many years. So we'll continue to work on that. So just in closing, how we're going to talk? A couple of minutes? That’s good because I think everyone probably wants a cup of tea. It can be pretty dry on the third day of the conference. In closing, we put this slide

30                    together to try and compare ourselves with your sort of standard mining company, your standard mining company and there was a slide and a very good slide in the previous presentation in Australia as well. You go through sort of four broad phases, if you would like. You explore, you evaluate, you construct or develop, and hopefully, you get to the point of production and

35                    generating cash flow. That’s what we all seek to do. What's a little bit unusual for us, as we believe as a relatively young company is that we populate all of those areas already. And we do it because of the slightly different business model, which we have. Well you see, capital is our exploration vector and to a lesser extent brownfields exploration on existing sites. We're evaluating

40                    things at Pajingo with our joint venture partners. We are constructing or well into the construction phases of touchstone at Los Santos with aggregates and the silica for our project in Canada. And by continually looking for projects we covered the evaluation, construction and production areas by looking outside the company, and we'll continue to do that. But ultimately, what we're driving

45                    for is those strategic cash flow generating assets. We have production in Canada from two sites. We have production in Australia via our joint venture in Pajingo, and we are producing tungsten concentrate in Spain. So we're moving to the right which makes us feel more comfortable particularly in those reasonably choppy times.

                        So just in closing, Heemskirk’s acquired, integrated and expanded an industrial minerals business in Canada, providing cash flow. We built Los Santos in pretty quick time but that’s the credit to the people and also very much a function of the style of plant and ore body it is that assists you greatly. We have had fairly major growth in assets. We paid fully franked dividends in 2006 and 2007. We do have a good team. Pajingo is producing gold at a sound margin. And hopefully, my brief comments on the aggregates is going to be a little bit of a flavor of the sort of brownfields things we have done and

10                    we'll seek to do as we move forward as a growing mining house. So with that, I'd like to close and thank you very much for your attention this morning.

INTERVIEW CONCLUDED

Contact brr@brr.com.au for more information

DISCLAIMER: Transcripts made available by Boardroomradio.com is a free service whereby the transcripts are created by one or more third party contractors without any involvement or oversight by Boardroomradio.com or the respective company, firm, partnership or individual that is being transcribed. Boardroomradio.com and its contractors, client companies, firms, partnerships and guest speakers (paid or otherwise) do not invite reliance upon, nor accept responsibility for, the information they provide. Boardroomradio.com makes every effort to provide a high quality service. However, neither Boardroomradio.com, its transcript providers, nor the providers of any other written or oral data made available on the Boardoomradio.com site (and its partner sites) give any guarantees, undertakings or warranties concerning the accuracy, completeness or up-to-date nature of the information provided. Users should confirm information from another source if it is of sufficient importance for them to do so. Boardroomradio.com, its directors and employees do not accept any liability for the results of any actions taken or not taken on the basis of information in this site, or for any negligent misstatements, errors or omissions.