Turmoil in North Africa

puts heat on phosphate

Barry FitzGerald
February 7, 2011

The political turmoil in Egypt and Tunisia has raised the potential for the same sort of winds of change to start blowing in Morocco, the world’s dominant producer of phosphate.

THE political turmoil in Egypt and Tunisia has raised the potential for the same sort of winds of change to start blowing in Morocco, the world’s dominant producer of phosphate.

Fitch Ratings, for one, thinks that Morocco is unlikely to suffer contagion in the short term, even if it also suffers from the same sort of social inequality that is breeding unrest elsewhere on the Dark Continent.

There is a bunch of investors out there who are not so sure. They are the ones that last week chased Phosphate Australia (ASX: POZ) from 11.5¢ to 19.5¢ by the close of trade on Friday – a gain of 69 per cent, if you don’t mind.

Fellow Northern Territory phosphate developer, Minemakers (ASX: MAK), has also benefited from the question marks over Moroccan supplies. Its shares have bounced from below 40¢ a month ago, to 59¢ on Friday.

Those gains came as Stuart White from the Institute for Sustainable Futures at Sydney’s University of Technology was telling a US conference that political instability in North Africa and the Middle East was an additional component in a looming supply-demand gap in global phosphorus resources.

”Morocco alone controls the vast majority of the world’s remaining high quality phosphate rock. Even a temporary disruption to the supply of phosphate on the world market can have serious ramifications for nations’ food security,” the good professor said.

Sort of puts the high price of bananas in perspective.

GARIMPEIRO has been banging on about the market’s apparent undervaluation of Exco Resources (ASX: EXS) since before his hair went grey.

The last rant was back in August last year when Exco was a 33.5¢ stock. It is now a 58.5¢ stock, valuing the company at a little more than $200 million (undiluted). So the undervaluation has been at least partly addressed, not because anyone listens to Garimpeiro, mind you.

No, the reason has been the stellar performance at the group’s White Dam goldmine in South Australia. The project really hit its straps in the December quarter, producing its gold at a class best, for mines without the benefit of by-product credits, of $289 an ounce.

All that allowed Exco to pay off its gold loan. It now looks forward to generating a net cash flow of more than $5 million a month for the rest of the financial year. As good as the December quarter effort was, it is the group’s Cloncurry copper project in soggy north Queensland that remains its key asset.

Xstrata’s Ernest Henry treatment plant sits 8 kilometres away and is the obvious place for Exco’s resource to be processed. But after more than five years of shadow-boxing on the subject, no deal has been struck.

If a deal is not struck some time soon, you would have to think a stand-alone development is on the cards. Either way, there is good reason to value Exco’s Cloncurry project at upwards of $400 million (61 million tonnes containing 519,400 tonnes of copper and 500,000 ounces of gold).

That’s what Shaw Stockbroking did in its recent report on Exco that set a target price for the stock of $1.12. Fox-Davies Capital has a target price on the stock of 88¢ a share. Needless to say, both targets are well north of the current share price.

WHEN you’ve got Tony Sage’s Cape Lambert (ASX: CFE) on the share register with a 17 per cent stake, it is best to get on with things.

And so it is with last year’s float of Peruvian exploration specialist Latin Resources (ASX: LRS). It has not set the world on fire since raising $6 million in September. But it could be a different story in 2011, with last year’s float giving Latin the funds to do some serious work on the portfolio of coastal iron ore projects it has assembled over the three years in a country that relies more on its resources industry than does Australia, if that is possible.

Watch out for drilling programs to generate news in the months ahead at the Guadalupito, Ilo Norte, Ilo Sur and Mariela projects. Garimpeiro’s listing there is more than alphabetical; it is saying that Guadalupito in particular is the one to watch.

It is part of a large coastal placer deposit of magnetite and other heavy mineral-bearing sands in an uninhabited part of Peru, some 25 kilometres north of the port town of Chimbote, home to Peru’s biggest steel smelter.

Some smarter guys than Garimpeiro reckon it has got serious potential as a multi-commodity play covering magnetite, andalusite, monazite rare earths elements, mineral sands, wolframite and, for good measure, maybe gold.

What would make it even more interesting would be if Latin could secure a bigger ground position than it already has. On that score, Garimpeiro’s Peruvian cousins have passed on the tip that a deal that would allow Guadalupito to shape up as something potentially much bigger for Latin could be close at hand.

THE ability of junior explorers to re-invent themselves is a joy to behold. That’s just what TNG has been doing, switching its focus from its Manbarrum zinc-lead project in the Northern Territory to its Mount Peake iron-vanadium project, also in the Top End.

The change of focus has put some much needed pep into the group’s share price. It motored off to 12¢ a share on Friday, a gain of 3.1¢ or 34.8 per cent on the day. Still, Garimpeiro can remember writing up TNG when it was a 50¢ stock and more.

While TNG may well extract some value from Manbarrum before long, it’s the potentially large scale Mount Peake project that is going to provide the near-term interest. A scoping study into the project’s potential is likely to hit the ASX platform this week.

The market’s main interest will be in what the study says about a new hydrometallurgical process that TNG and the Perth-based metallurgical consultant, METS, have been working up for use at Mount Peake to extract the metal units of vanadium, titanium and iron.

The new process has the potential to deliver major capital and environmental advantages over the conventional pyrometallurgical processes (roasting), making it a possible game-changer for TNG and its Mount Peake ambitions.

Sourced & published by Henry Sapiecha

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