EXCO RESOURCES LIMITED
75% Increase in Resource Tonnage over last 2 years
EXS - Resourceful Events Investor Series: Melbourne - Mr Michael Anderson, Managing Director
Thu, 31 Jul 2008 03:45PM
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Mr Michael Anderson
Thu, 31 Jul 2008
03:45PM Australia/NSW
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EXCO RESOURCES LIMITED (EXS)
ASX code: EXS
Website: http://www.excoresources.com.au
Industry: Materials
Principal Activities:
Exploration for copper, gold and uranium
Address:
8 Colin Street, Level 2
WEST PERTH
WA
Phone: (08) 9211 2000
Fax: (08) 9211 2001
Executives & Directors
Mr Barry Sullivan , Chairman
Mr Michael Anderson , Managing Director
Mr Alasdair Cooke , Executive Director
Mr Craig Burton , Non Exec. Director
Mr Peter Reeve , Non Exec. Director
Mr Eamon Byrne , CFO
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Announcements from the preceding six months are shown below.
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EXCO RESOURCES LIMITED (EXS) Events
Australia/NSW
EXCO RESOURCES LIMITED (EXS)
| Boardroomradio Broadcast with Michael Anderson | Fri, 21 Nov 2008 |
| 2008 AGM Presentation | Thu, 20 Nov 2008 |
| Annual General Meeting Results - 20 November 2008 | Thu, 20 Nov 2008 |
| Open Briefing - MD Gives Corporate and Development Update | Wed, 5 Nov 2008 |
| Quarterly Activities and Cashflow Report | Fri, 31 Oct 2008 |
| 2008 Annual Report | Thu, 30 Oct 2008 |
| Notice of Annual General Meeting/Proxy Form | Wed, 15 Oct 2008 |
| Audio Broadcast with Michael Anderson | Fri, 3 Oct 2008 |
| Lapse of Options | Thu, 25 Sep 2008 |
| Financial Report 2008 | Wed, 24 Sep 2008 |
Please note: This company appears on this website as a result of its listing on the Australian Securities Exchange. Boardroom Radio does not claim any association with any company listed on this site.
PRESENTATION BY MICHAEL ANDERSON, MANAGING DIRECTOR OF EXCO RESOURCES LIMITED (EXS)
“75% Increase in Resource Tonnage Over the Last Two Years”
http://www.brr.com.au/event/48838
THURSDAY, JULY 31, 2008, 3:45 PM.
EXS Look, I’d like to echo what Warrick said. I think it’s great that the investor series has come to Melbourne and when I saw that I think I was probably one
10 of the first to respond. We’ve had, as Exco, some very strong support from the Melbourne investor community over the years. A lot of our large retail shareholders are there. Our two largest shareholders are here. You know Ivanhoe and Lion. It’s been a great opportunity to come down and participate in the first event. Again echoing Warrick, I think perhaps the timing isn’t all
15 that it could have been. The market backdrop clearly isn’t doing any of us too many favors at the minute, but the irony is, from an Exco perspective, I think we are in, I think, undeniably be the strongest position we’ve ever been in. And I think that that’s true with many companies. The fundamentals are also very, very strong. But you’ve got wave of sentiment and volatility that’s tough
20 for a lot of people to deal with from an investment perspective. But all we can do is stick to what we know and what we can control with our projects and take those forward and write it out. And I guess one of our advantages is that we’re in a position to do that with a decent cash position. And I think that’s a strength in a market like this. But let me tell you a little bit about the story.
25
For those of you who don’t know the company, it has been listed for 10 years here in Australia. And our primary focus here is in Northwest Queensland, the Mount Isa block. We’ve got a strong growing position up there that’s been built up over the last 10 years. We’ve also established quite a sizable
30 resource base in that. A few key joint ventures are part of the mix as well. But of late, our primary focus has been on developing our project, the Cloncurry Copper Project. We have recently completed our pre-feasibility study and made a fairly seamless transition to full definitive feasibility work, and that is targeting production by late 2010. And as Carrie said, I think too that copper
35 is holding up there nicely. Lots of reasons why that is and I think there’s every reason to remain somewhat bullish, albeit, I think Warrick said growth maybe has gone out of the price, but it even at 367 or 368 where we are this morning per pint, that’s a far cry from the prices of a dollar of seven, eight years ago. So I think there are some strong market fundamentals behind the scene for
40 companies such as ourselves looking to emerge as a new producer. A bit of a snapshot, we’ve got about 250 million shares out there. The price chart is a bit scrambled. Price obviously isn’t where we like it to be, but I think the key number on that page for me is the cash position. We are spending aggressively, but I genuinely believe adding serious value. It’s going to be in
45 our quarterly video out later this week. I think our position at the end of June will be about $16 million, still pretty healthy and more than sufficient to take us through to some key decisions on our projects.
We have got a very strong Board. Barry Sullivan, our Chairman is the former General Manager of Mount Isa Mines knows that region and knows the business very well up there. And Alasdair Cooke and Craig Burton, who some of you may know is directors and Principals of companies such as Sally
5 Malay when it started, Abaddon Nickel and Marabella Nickel. They made the transition from explorer to producer before so that all goes extremely well for us and looking to do the same. And our most recent Director is Peter Reeve, the CEO of Ivanhoe Australia, who as you see they are our largest shareholder, and I’m sure many of you know that their IPO has now closed
10 and from what we gather has all gone extremely well. And we all look forward to, I think, Robert Freeland is due to present at Diggers next and that would be a pretty exciting presentation and the timing of course, if he has got his racing away in this market, will further underscore his reputation as one of the best promoters in our game. So yeah, we’ve got a, as I said, a strong mix of
15 Board and a strong register, our top 10 these days comprises about 56% of the company and they’ve been with us for a long time and a lot of those people are in Melbourne and some of them are in the audience here today. So again, like I said, it’s nice to be here in front of you with the chance to update you on the story.
20
The growing position does focus around Cloncurry itself in the centre of the map here. This is our key project area. We call it the E1 Camp. It sits just 8 kilometres east of the currently operating Ernest Henry Mine and that’s part of the story that I’ll talk a little bit about later on. But from our own standalone
25 project potential, the lease is shown here in green and some of our key deposits noted, and some of those deposits already sit on granted mining leases and already host, as I say, some sizable resources. Our activities up here range from ongoing grassroots exploration but have certainly progressed now to significant resource development and resource conversion
30 as the key critical mass for our project and we have a total resource base of just under 42 million tonnes. For the project itself, we’ve grouped together the E1 deposits and a couple of smaller but higher grade deposits at Monakoff and then Great Australia. There’s about 36 million tonnes there. And that will continue to grow. We’ve had some significant success in the last two years in
35 coming close to doubling this resource base and I have every expectation that growth will continue into next year.
The results we’re getting from the current drill programs are certainly supporting that belief and there will be some further resource updates in this
40 current quarter. Part of that mix will also be upgrading the categories from inferred to indicated and ultimately the basis for a probable reserve for the project as we move in to the definitive feasibility work. The in-fill programs at our E1 camp have been very, very gratifying and satisfying and have delivered not only more tonnes but greater confidence in the resource base
45 for us as being some significant intersections here through the heart of the ore body which certainly will add some further input tonnage for us, and more recently, this particular whole which currently is outside of the resource model. So as we go through with the resource upgrades this coming quarter, we do expect some sizable tonnage increases all adding more copper into the mix which is certainly going to help the economics of the feasibility work. There does appear to be some continuity between those three E1 deposits for those of you that know them, E1 north here, E1 south and E1 east. The pink color on the charter or map is the magnetic imagery. There is a lot of
5 magnetite in these ores and that goes hand in hand with the copper and the gold and is also becoming an interesting by-product for us and others up in the region. Just a little bit on the Monakoff area which is about 15 K south of E1. We have got the existing Monakoff mining lease here and picked up some of the surrounding leases about a year and a half ago. We have
10 already converted a small resource at Monakoff East and we’re targeting similar resource--new resources at Salebury, Crow’s Nest, Fisher Creek. The grids here are a little bit higher and they certainly make their way into our mine schedule pretty quickly. Monakoff and Monakoff East will be the first two deposits that we mine.
15
So lots of upside within the current portfolio and we’re targeting that pretty hard at the moment. This helps give you a closer look at the proximity to Ernest Henry. So we’ve got the existing mine here in our E1 deposit sitting, as I say, just 8 km away. We also picked up--the two blue leases are another
20 joint venture with a company called Liontown. We’re spending quite aggressively there simply because anything we can deliver into the mix from those leases will be very meaningful in the context of the study going forward and you can see also the strategic nature of the land package. Also we have the joint venture with Ivanhoe, and I think that will certainly come to a bit more
25 prominence once Ivanhoe Australia is trading and their slow aspect will increase quite significantly once they list. I think it’s due to start trading on the 7th of August. They’ve been spending about $600,000 or $700,000 down here so far but all is part a plan to spend ultimately 5 million to earn their percentage. These leases for us are a long way to the site and certainly
30 there’s a nice bit of optionality that they are doing the managing and the spending down leaving us to focus on the flags of E1 camp.
So what does all that mean? I guess it’s come in to the mix to say that the land package, the resource base, which we certainly believe had reached a
35 critical mass to form the basis of the pre-feasibility work. We’ve been progressing this standalone concept around E1 the throughput now pushing up. We did look at 2 million tonnes per annum in the pre-feasibility as a base case and that was pretty robust. But it was clear that going larger was going to deliver better returns for us and so far so good, we certainly see that the
40 resource base can support that and so the definitive feasibility work will target two-and-a-half and possibly even as high as 3 million tonnes per annum. And I guess a straight correlation with the additional copper that we’ll produce from that in an average grade of approximately a percent. There is significant by product potential that I mentioned. The base case is copper-gold. The gold
45 reports to the copper concentrate, you will get paid for that at the smelter. We can produce a separate pyrite concentrate which will contain significant cobalt and the ores are about 25% to 30% magnetite and it’s pretty straightforward to produce a magnetite concentrate. Those two by-products can come close to doubling the NPVs of the project. The key will be the marketing and the transport of those concentrates and later this year, we will certainly involve our more detailed discussions with some of the off-take partners and almost certainly out of Asia in that respect.
5 In terms of the project itself and the other key aspects of getting any project up to production, we have got need of title agreements in place. I think that’s a good tick in the box. Our EIS process is well advanced. We launched our terms of reference early this year. We do expect to submit our full blown EIS contemporary with the full piece of validity work in the first quarter of next
10 year and certainly the seamless transition from pre-feasibility to definitive feasibility is well underway. “This was the base case so come if you like for the pre-feasibility.” We released this information earlier this month. It was, as I say, based on our, as I said, 2 million ton per annum throughput with a 10- or 11-year mine life. Capital cost, which I think we’re consistent with a number
15 of industry benchmarks of around the $200 million mark and operating cost which for a project this size, I think, they’re not in the lowest quartile but they’re certainly acceptable with the margins that are available with spot copper. We did assume the forward curve for copper which averages at about 250 a pint, say, the current spot is about 365. So a base case NPV excluding
20 the by-products, as I mentioned, of 120 million, we’re certainly sufficient to demonstrate that this was a robust project. I do expect that the definitive feasibility work will deliver a lot more upside in that and not only from the by-products but also from that additional throughput in the extra copper that we expect to produce. So that was really the key for the pre-phase was to
25 demonstrate that we had a robust base case.
Opportunities for upside, as I say, are not only in the resource base but we also have been pretty conservative in our modelling to date. We’ve used $2 a pint for the pit optimizations. I think every justification to match that with the
30 curve that we’re using for the project. And I think in terms of price and the volatility is obviously likely to emerge as Warrick said but there are a plenty of things that you can do about that. I think there’s a far more proactive and knowledgeable approach to hedging these days, not just with forwards but with puts and you can lock in prices and I think that that’s something we’ll
35 certainly seriously consider later this year. Because putting even a price of $3 for the first three, four years of this project which is eminently possible at the moment on current deals that are being done again will significantly impact the economics in a positive way. We do have some other aspects to focus in on the operational side both the approach to mining and the scheduling and
40 even the labor regime which at the minute in Queensland is quite at one end of the extreme with any of them six roster. So we’ll be looking at all those opportunities through the next six months and the ongoing work on by-products. We’ve demonstrated through the pre-feasibility test work that these things are recoverable and I haven’t said much about uranium simply
45 because at the minute, in Queensland, it’s illegal to recover it which is a tremendous disappointment to many of us. But as and when that political situation changes, we certainly have got the potential to produce a uranium by-product as well. And at the minute we have no value attached to that but it can be as lucrative as the magnetite for us. So there certainly are as some things to further investigate there. And as I said, the price protection side of things will very much form part of our financial modelling going forward.
So the definitive feasibility work is underway. We had been working with a
5 company called GRD Minproc who I’m not sure if many of you would know. Through the pre-feasibility work they did a fantastic job and it’s actually quite tough to get good consultants these days. They all pretty busy on billion dollar projects for BHP and Rio. So getting them involved with us and been able to transition with them seamlessly into this definitive work was a real plus and
10 they area now focus with us on those opportunities for upside that I spoke about relooking at the mine scheduling and the throughput and the whole optimization side on the cost structure and the test work to optimize the by-product recoveries. The drilling programs to support all of this are nearing completion. We had targeted the end of July for that and we’re coming pretty
15 close. There will be a bit of sort of time lag with results and then further modelling, but I do expect those upgrades to come this quarter as we’ve targeted it and we still are very much on track to finalize the full feasibility work in the first quarter of next year. As I mentioned, the environmental work is also on track. We commenced our baseline work in late 2007. You need a
20 full year of wet and dry season baseline studies. We’re in position to do that and having had our application for an EIS approved, we do, as I said, expect to complete that submission in the first quarter. What happens after that is something that’s no doubt on the critical part of the project. The approval process is something that of course involves the civil servants, not just
25 ourselves. And we are trying to do everything that we can to keep them in the loop and keep them informed of all the key issues. There currently are no show stoppers that any of us have identified. However, those processes on the average seem to take longer. We do want to expedite that as best we can and certainly have a program of proactive engagement with the relevant
30 stakeholders.
So the time table, here we are in Q3 of ‘08 and I think we’ve kept on track. You could argue, we’ve done all the easy things up to press but having got the pre-feasibility put to bed, EIS well underway, the definitive feasibility work
35 started. I’d like to think that we can keep ticking those boxes and as I said focus on getting our approvals in the backend of ’09 and getting straight into construction with a 12- to 15-construction period, we still believe it is possible to be in production late 2010.
40 Everything that I’ve been talking about has been relevant to our standalone development scenario but it is very worthwhile taking a moment to talk about the situation with Xstrata. We do sit, as I said, right next door to them and if you got a copy of the presentation in front of you, the picture on the first page which--get straight back to, that’s the Earnest Henry dumps and that’s the E1
45 project area. It’s billiard table flat putting a hole (inaudible) (00:17:37) across that is about as difficult as it would get in terms of supplying them with ore. And I think we know that and they know that. I think we’re past arguing or discussing any technical problems or challenges on the project. It simply becomes a commercial discussion. And our view is that having demonstrated both the technical and the commercial credentials of our project that the ball is really in their court to make us an offer that turns our head. If they do, great, we’re happy to talk. If they don’t, well we’ve got a project that we are happy to go forward and develop. Everything that we understand about
5 Ernest Henry in terms of their open pit mine life and their plans to go underground suggest they have good sizable gaps in their production schedule that we could help them fill, and that would be a lower capital risk option for us. It would be us tapping into a much lower operating cost environment. I think there is a tremendous win-win to be had and we’ll see if
10 Xstrata are prepared to play that game. I believe they will be in time, but it does come down to them making us an offer, as I said, that stands scrutiny against what we can deliver ourselves.
I won’t dwell on the market fundamentals too long, just to set it, you know, the
15 backend of the copper curve is probably the most significant thing for us to look at because by the time we are in production, over ten years, what are we going to be elected delivering our copper into. And the copper curve has doubled in the last year and it continues to flatten at levels well above $2.50 which is where we have been modelling. And I think that all goes well if the
20 margins we’re trying to extract will be sustainable.
So in summary, I believe there are three paths to what we all want as shareholders and proponents of companies and that is value. We have a project that does stand on its own two feet, the technical and commercial
25 credential as I said having been established through the pre-feasibility work. We’ll continue to improve on that through the definitive studies. The potential win-win with Xstrata will also still be part of our thinking over the next few months and I genuinely believe that that can be a much more lucrative outcome for us, but it will come down to those commercial discussions in
30 time. And then I think with Ivanhoe’s upcoming listing, I think that’s going to focus the market’s attention on some of the comparative valuations up in our regions. You know, Exco is market capitalized less than $100 million. Ivanhoe is going to be capitalized at about $625. There certainly are some interesting comparisons to be made and I think there is an opportunity to consider some
35 potential consolidation up in that part of the world, higher downfalls remains to be seen. But we are committed to following the path which leads to value potentially the quickest. I think we’ve got some healthy options as I said. Despite the market backdrop, I think this company is in very strong position and I look forward to keeping you all informed over the next few months.
INTERVIEW CONCLUDED
Contact brr@brr.com.au for more information
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