Sale of the Century Zinc Project
Fred Cook
Science, Technology, Environment and Resources Group
Contents
Introduction
Why did RTZ.CRA sell?
Attractiveness of the purchase to Pasminco Limited
Native title
Other factors
Conclusions
Further reading
RTZ.CRA announced on Thursday 9 January 1997 that its huge Century Zinc
deposit located 250 km north-west of Mt Isa (Qld), as well as the smaller
zinc deposit at Dugald River in the same region, had been sold to Pasminco
Limited for A$345 million. RTZ.CRA nets a 'profit' of about A$100 million
from the transaction, having invested A$240 million in exploration and
development on the two properties to date.
Figure: Location map of Mt Isa area, NW Queensland showing Century
Zinc and Dugald River sites as well as locations of other major mines
(owners) in the region
(Map of Australia key: BH Broken Hill, B Boolaroo, E Elura, P Pt Pirie,
Ri Risdon, Ro Rosebery)
Discovered by CRA Limited in 1990, the Century Zinc deposit is a gently
dipping 30 metre thick sulphide layer in ancient shale sediments, shaped
like a dinner plate and extending from the surface to 350 metres depth.
Indicated resources stand at 118 million tonnes of 10.25% zinc, 1.5% lead
and 36 grams per tonne silver. Any development of the resource would be
by open pit mining methods, eventually producing a pit of dimensions 1.8
km by 1.2 km at the end of the 20 year mine-life. RTZ.CRA has estimated
that the capital cost of developing the deposit and the 300km slurry pipeline
to the Gulf of Carpentaria would be A$1.1 billion and at full production
would produce 450 000 tonnes of zinc concentrates and 40 000 tonnes of
lead concentrates annually. This would make Century the largest zinc mine
in the world.
The prime reason for the sale cited by RTZ.CRA is that the projected
return on investment from mining the deposit has fallen below the global
'hurdle rate of return' adopted by the newly merged mega-company. RTZ.CRA
denies that the anticipated delays caused by a native title challenge
to the project were a significant factor in the decision to sell. But
quite clearly, the revised time frame for the mine development process
flowing from the need to negotiate with the traditional land owners would
have been factored into the feasibility analysis, probably resulting in
a slight reduction in the forecast rate of return for the project, from
what otherwise could have been expected. The native title issue is therefore
likely to have been one factor in RTZ.CRA's decision to sell its subsidiary
Century Zinc Limited.
The purchaser, Pasminco Limited, is the Australian company which was
established jointly by the then CRA Limited and North BH Peko Limited
in 1988 to take over the zinc (and lead) mining and smelting interests
of the two companies which, at that time, were the competing producers
at Broken Hill. Pasminco's major assets currently include three Australian
zinc (lead/silver) mines (Broken Hill, Elura and Rosebery), three Australian
smelters (Pt Pirie, Risdon and Boolaroo) and the Budel zinc smelter in
The Netherlands.
As a zinc mining and smelting company, Pasminco Limited had struggled
to attain profitability since its formation in 1988. However, in 1995
it made a sound turnaround to record a A$12.2 million after tax profit
and it is now regarded as a strong company with expanding world zinc interests.
A significant feature of the Century Zinc mineralisation is that it produces
a very high quality clean zinc concentrate which is keenly sought by the
world's zinc smelters. Metallurgical testing by RTZ.CRA of the mineralisation,
which is characterised by its negligible iron content, has confirmed that
a clean high grade concentrate could be produced from the ore which would
result in small amounts only of iron oxide waste (jarosite), being produced
during the smelting process. Jarosite waste, generated by smelters using
iron-rich concentrates as feedstock, contains heavy metal contaminants
such as cadmium, mercury and arsenic. Availability of the low-iron Century
concentrates is critical to the Budel smelter because tighter environmental
standards imposed by the Dutch government on the Budel operations require
that jarosite production cease by around 2000.
Currently RTZ.CRA's zinc output from its global mining operations is
of by-product status only, hence zinc is not regarded as a core business.
So, in a sense, had it gone ahead with development of the Century Zinc
deposit rather than disposing of it, RTZ.CRA would have been reversing
its global operational strategy which has been to concentrate on iron
ore, bauxite/alumina/aluminium, diamonds, copper, gold, uranium and coal
as its main target commodities.
The RTZ.CRA dual-listed company has shown a significant change in its
business strategy compared to that which applied to the former CRA company.
There is now greater emphasis on global priorities rather than regional
Australian priorities. Selling off mineral prospects that do not fit its
global strategy is not new to RTZ.CRA. For example, RTZ.CRA relinquished
or sold off some of its gold prospects in Papua New Guinea in 1994 and
1995 (e.g. Hidden Valley), and also rationalised its worldwide exploration
and R&D strategies in 1996 resulting in some 300 exploration professionals
losing their jobs globally, including 110 Australian staff.
RTZ.CRA would probably now hold a suite of possible new projects around
the world arranged in priority order for development as determined by
a number of criteria including
- projected profitability, break even, rate of return and life of mine
- level of regulatory constraint to immediate development
- capital investment required
- market prospects for the mine/smelter products
- degree to which the development fits the core business strategy of
the corporate entity.
Century Zinc would have fallen below the minimum requirements based on
these criteria.
By acquiring the Century Zinc project Pasminco Limited has enhanced its
chances of overcoming what was shaping to be a major concern for the company,
viz, finding suitable feedstock for the Budel zinc smelter in The Netherlands.
Pasminco had made a significant capital investment in 1995 to acquire
the residual 50% equity in the smelter and now owns it outright. Feedstock
for the smelter in environmentally conscious Holland must be high grade
low-iron concentrates, hence the Century concentrate was seen as ideal.
Prior to the purchase of Century Zinc, Pasminco had in place contracts
to buy around half the Century Zinc output from RTZ.CRA, but it was concerned
that it did not have any control over how rapidly the development of the
new mine would proceed. For Budel the urgency for the Century concentrates
supply has not changed, taking into account the 2000 deadline for the
termination of jarosite waste production; but with Pasminco now owning
the mineral resource, it will be able to expedite development upon resolution
of the native title issue.
Ultimately, if high quality concentrates cannot be supplied to Budel,
Pasminco fears it may have to close the Budel smelter and face huge losses.
Pasminco Limited has indicated that it has in place an existing loan
facility which it can draw down to make the A$345 million purchase of
Century Zinc, which is conditional on resolution of the native title issue
leading to validation of the appropriate mining leases by the Queensland
Government.
The small Dugald River project would not have played a strategic role
in the sale negotiations. It is likely that RTZ.CRA would have included
it in the package to get it off its books, it being of minimal value as
a stand-alone project.
There are currently eight native title claims over the Century Zinc project
area under the Native Title Act 1993. The National Native Title
Tribunal (NNTT) has registered all native title claims over any land except
current freehold as a consequence of the February 1996 High Court decision
in the Waanyi case. In that case the High Court ordered the NNTT to register
a native title claim for land Century Zinc wants to develop. Under the
Native Title Act 1993 registered native title claimants have a
right to negotiate about certain future acts including the creation of
mining rights. Century Zinc had earlier contended that the granting of
two pastoral leases over the land had extinguished native title.
As part of the negotiations under the Act, Century Zinc presented a package
of benefits and programs to the Aboriginal communities in the southern
Gulf of Carpentaria region, in August 1995. The offer covered land access,
community development, employment, training, business opportunities, site
protection and environmental issues. The offer has a value of $60 million
over 20 years.
At a meeting of Gulf Aboriginal communities held in June 1996 at which
the Waanyi people (the traditional owners of the project area) were represented,
a resolution favouring the mining project was reported to have been agreed
on in principle by a narrow majority. (12 to 11) However the spokesman
for the Gulf region Aboriginal community, Carpentaria Land Council Co-ordinator
Mr Murrandoo Yanner, has claimed that the Gulf region Aboriginal elders,
at a meeting in early July 1996, were unanimous (22 to 0) in opposing
the mining and slurry pipeline development going ahead (AAP, 8 July 1996).
In the days following, the Queensland Premier indicated he was considering
introducing legislation to enable compulsory acquisition of the land needed
for the Century Zinc mine and pipeline. However, RTZ.CRA responded that
it would not be seeking special legislation, preferring instead to observe
the negotiation processes with the Aboriginals.
In an effort to resolve this impasse, general agreement on a 'cooling
off' period between Aboriginal groups, the company and government agencies
was reached.
An additional consideration affecting mining company access to the Century
Zinc site has arisen following the December 1996 High Court Wik decision,
to the effect that leasehold title does not necessarily extinguish native
title.
Century Zinc Limited, the Queensland Government and the Aboriginal claimants
are continuing the negotiations as required under the Native Title
Act 1993. These are to be finalised by 13 February 1997 but it is
now likely the final touches to any agreement will not be completed until
later in February.
MIM Holdings Limited is the other major Australian zinc concentrate producer,
and its zinc operations are in the same region at Mt Isa and Hilton to
the south and McArthur River to the north-west. MIM has committed in recent
years to large developments (McArthur River lead/zinc commenced mining
in 1995) and major acquisitions of part equity in base metal and gold
deposits in the Mt Isa region (Ernest Henry, 1993) and in Argentina (Bajo
de la Alumbrera, 1994). It may not have been a bidder for the Century
Zinc project.
The acquisition of Century by Pasminco ensures that there will continue
to be two major Australian zinc concentrate producers. It is projected
that Pasminco Limited will become the world's largest producer of zinc
concentrates and zinc metal when the Century Zinc project is developed.
Historically CRA has been a discoverer of its own mines; for example
Argyle diamonds, Weipa bauxite, Hamersley iron, Kelian gold, Bougainville
copper, Peak gold and base metals, Kintyre uranium, and many of its coal
mines in Australia and Indonesia. However, CRA did acquire Coal and Allied
coal in a takeover in the early 1990s. Historically RTZ has been both
a discoverer and acquirer of mines (e.g. Kennecott copper).
The proceeds of the sale of the Century Zinc project will probably be
used to fund other new RTZ.CRA projects which may include any development
of the Kintyre uranium project in Western Australia.
As at March 1996 the RTZ nominee company, Tinto Holdings Australia P/L,
owned 48.83% of the CRA shares on issue. The next largest shareholder
was ANZ Nominees Ltd (5.56%).
Pasminco has a widely spread share register with shareholders registered
in Australia, Europe, the US and Asia. As at 26 August 1996, the four
largest shareholders in Pasminco Limited were ANZ Nominees (22.02%), Westpac
Nominees (13.87%), National Nominees (9.76%) and AMP Society (7.19%).
The sale at a resonable price of the Century Zinc project by RTZ.CRA
to the largely Australian-owned Pasminco Limited will result in a higher
level of Australian ownership of the mining operation. Technically the
project fits well in the Pasminco resource asset inventory and development
schedule, and once in full production will confirm Pasminco as the world's
largest zinc miner and processor. Secure supply of the low-iron Century
Zinc concentrates is essential for the viability of Pasminco's Budel smelter
in Holland. The urgency of the supply of Century Zinc concentrates to
Budel is a strong incentive to Pasminco to expedite development of the
mine once agreement on the native title issue has been reached with the
traditional owners.
Pasminco's Century Zinc mine will compete strongly with MIM's zinc mining
operations in the Carpenteria-Mt Isa region and this is likely to be beneficial
to the Australian zinc production industry overall.
There are positive signs that the negotiations over native title claims
covering the Century Zinc development proposal are nearing completion
and it is likely that the agreement between the Aboriginal claimants,
the Queensland Government and the company will be signed in late February
1997, permitting the project to proceed.
Agreement between the native title claimants and the company over the
Century Zinc proposal may serve as a useful precedent for similar types
of negotiations between Aboriginals and miners elsewhere.
Newbery, SP, Carswell, JT, Allnutt, SL and Mutton, AJ (1993) The Dugald
River Zinc-Lead-Silver deposit; An Example of a Tectonised Proterozoic
Stratabound Sulphide Deposit in Matthew, Ian G (ed) International
Symposium - World Zinc '93 The Australasian Institute of Mining and
Metallurgy, Melbourne, 1993, pp 7 - 21.
Waltho, AE, Allnutt, SL and Radojkovic, AM (1993) Geology of the Century
Zinc Deposit, Northwest Queensland in Matthew, Ian G (ed) International
Symposium - World Zinc '93 The Australasian Institute of Mining
and Metallurgy, Melbourne, 1993, pp 111 - 129.
|
