Rusina Mining
Rusina Mining (ASX: RML) is an active mining exploration company that is focused on the emerging Philippine mining sector. The Company has defined a JORC compliant resource estimate for nickel laterites at its Acoje tenement on the island of Luzon.
The Acoje property also hosts chromite, nickel sulphides and platinum group metals.
Rusina has nice plump cushion to fall back on until cashflow resumes
First the bad news. Rusina’s shipping costs have risen and nickel prices dropped so low as to make the Acoje laterite project non-profit making. A few local consignments are still being shipped, but none to China, and cashflow is less a flow than a drip.
Now the good news. Rusina will survive while others fall by the wayside. Cash reserves of AUD5.2 million can be made to stretch until June 2010 without losing a single key member of staff, and without raising any further capital. With a further AUD2.2 million due in receivables and AUD4.1 million from the potential sale of property the cash position is looking sound. In the meantime, European Nickel continues to progress the massive heap leach project where Rusina’s future lies.
Nickel: when will it recover?
Two charts (Chart 1)(Chart 2) really tell us all we need to know about nickel’s collapse over the last 18 months. In spring 2007, prices were touching a record USD24/lb. Unsurprisingly, producers cranked up their operations to take advantage of the boom, marginal operations became economic and worldwide nickel metal production cranked up.
Inevitably, laws of supply and demand took over. Chinese steel mills controlled their costs – already high because of record thermal coal costs – by reducing nickel content of their steel, compromising on quality in the process. London warehouse levels skyrocketed to multi-year highs, and competition in a dwindling market forced nickel prices down to USD5/lb. They now sit a smidgeon over this depressed value. In such a siberian environment, only low cost producers, or those with deep enough pockets to mothball projects and wait, will survive.
With a possible global depression setting in, nickel fundamentals can’t be taken for granted, but the market will not evaporate. World consumption has increased from 1.08 to 1.32 million tonnes per annum between 1999 and 2007, over half of this latterly comprising Asian demand. Readers may be surprised to know that the entirety of the Americas accounted for just an eighth of world consumption. Europe accounts for about a third.
The situation in the all-important Chinese market is temporarily struggling. According to Mr Xinfang Jiang at a presentation to the International Nickel Study Group a month ago, stockpiles in seven major Chinese ports totted up to over 8 million tons of ore and were likely to stay there until the end of this year. This represents 6 months’ worth of 2007 imports. Call on these stockpiles has largely dried up as many blast furnaces were making losses and have been shut down. Electric furnaces are the destination of Acoje ore, but here margins are even lower, and many have turned from nickel pig iron to the production of other Ferro-alloys e.g. ferrochrome and ferromanganese.
Beyond the current slump, there is better news. Despite the stockpiles, Chinese stainless steel production is set to continue its ascent. Between 2000 and 2007, stainless steel production reached climbed by a multiple of 15 to 7,550,000 tons. This year, production is expected to reach 8,600,000 tons – 15% higher, despite the difficulties. Going forward, annual growth is expected to continue at a rate of 1.5x Chinese GDP growth. Wider still, the world population is expanding by 70 million people a year, with a strong trend towards urbanisation.
Once the stockpiles wane, as they eventually will, prices will increase. Good news for Rusina shareholders.
Back to Rusina.
Meantime, Rusina’s cash burn is low, thanks to its policy of striking commodious partnerships, of which there are two crucial ones. The first is with big fish Philippine partner DMCI, who operate the port at Acoje. All the port maintenance and shipping costs are DCMI’s responsibility, and as Acoje is just one of its operations, staff and resources can be redeployed until the storm passes. Once it does, a return to speed should be straightforward.
In the meantime, DCMI is turning its attention to the open minable chromite on the property. Acoje used to be known for housing SE Asia’s largest chromite mine, which ran for over 50 years and was renowned for its high quality ore. During the last quarter a bulk shipment of 867 tonnes of high grade lump chromite were shipped at a grade of 43% Cr2O3 and a Cr:Fe ratio 2.5:1. The Acoje lump chromite has favourable metallurgical characteristics and lower grade ore is easily beneficiated to higher grades. DMCI are investigating a small pilot plant. If viable, chromite could replace nickel laterite as a source of near-term cashflow – or supplement it, if nickel prices stage a recovery.
Another of its joint ventures with DCMI is on hold. The two companies were investigating a ferronickel facility (calcine kiln and possibly an arc furnace) to enhance the Acoje laterite ore, using coal from DCMI’s nearby Semirara mine. Rusina has up to 40% free carry, but it isn’t sensible to proceed in the current environment. It requires buoyant nickel prices, but in any case cash is king.
To quote Rusina CEO and MD Rob Gregory’s last quarterly statement, “Rusina has established cash flow, infrastructure and employment with zero risk to Rusina shareholders by allowing DMCI adequate profit for this (Direct Shipping of Ore) endeavour”. Exploitative and ruthless business relationships rarely pay off in the long run, as in life in general, and Rusina’s wisdom is now transparent even to the cynical. Gregory’s claim that “Rusina has demonstrated that it knows how to do business in the Philippines” is seen to be well backed both operationally and relationally.
Further justification for the claim comes from the European Nickel joint venture which represents Rusina’s long term future. Under this agreement, European Nickel is spending USD10m on a Feasibility Study of heap leaching the Acoje ore. By so doing they will earn an interest of up to 40%. The Pre-Feasibility Study shortly to be released by European Nickel is apparently highly encouraging. It calls for a 25,000 tpa Nickel Heap Leach plant operating for 14 years at a mining rate of 3million tpa (dry basis). This is a far larger operation than the current DSO agreement, and produces a nickel hydroxide product fetching 75% of the LME nickel metal price – multiples more than the laterite ore. Blend optimisation yields recoveries of 80% nickel and 70% cobalt - excellent for this sort of project. Economics look highly robust with an estimated breakeven nickel price of just USD3/lb, i.e. solid even at today’s prices.
Pre-feasibility studies can generally be characterised as educated guesses, and the dawning of reality sometimes paints a very different canvas. However, Gregory points out that the economics of the heap leach process have been subjected to greater rigour within European Nickel’s Caldag bankable feasibility study. Confidence in the capital and operating costs, particularly on the engineering side, is far higher than usual. Full Bankable Feasibility is the next stage, and should report in late 2009.
What next?
Rusina does not intend to sit on its corporate hands for the next 18 months. Industry casualties are likely, and Rusina should be in a position to benefit. Rusina would of course not be a cash bidder, but if opportunity comes a-knocking, an all share deal would be possible. Given DCMI’s size and contacts, and that it views Rusina as its exploration arm, it wouldn’t be surprising if a string of options came Rusina’s way over the next year or two.
As we have said, Rusina is cushioned for the next 18 months at least, but will eventually need capex for the heap leach project. An early capex guesstimate was US500m, of which Rusina would be responsible for 40%. However, Gregory envisages that much of it would be funded by off-take agreements. Sooner or later credit will slacken, but financing is a non-issue until the BFS reports in a year or so.
Rusina as an investment.
With the current share price at AUD0.059 (2.5p) and just over 245m shares in issue, Rusina is capitalised at AUD14.5m (GBP6m). Acoje, Zambales, Sodaco and Barlo and others – space precludes mention of the last three – hold vast mineral wealth. The strike length of Acoje alone is 15km and none of the resources are vacating the building.
There are striking investment opportunities all over the place at present, but in this author’s view, on-time, on-budget and risk-aware management is worth a premium. Over recent weeks Rob Gregory has bought several tranches of shares and even exercised out-of-the-money options, joining Chairman Gordon Getley in a show of solidarity. It is tempting to follow suit.
Now the good news. Rusina will survive while others fall by the wayside. Cash reserves of AUD5.2 million can be made to stretch until June 2010 without losing a single key member of staff, and without raising any further capital. With a further AUD2.2 million due in receivables and AUD4.1 million from the potential sale of property the cash position is looking sound. In the meantime, European Nickel continues to progress the massive heap leach project where Rusina’s future lies.
Nickel: when will it recover?
Two charts (Chart 1)(Chart 2) really tell us all we need to know about nickel’s collapse over the last 18 months. In spring 2007, prices were touching a record USD24/lb. Unsurprisingly, producers cranked up their operations to take advantage of the boom, marginal operations became economic and worldwide nickel metal production cranked up.
Inevitably, laws of supply and demand took over. Chinese steel mills controlled their costs – already high because of record thermal coal costs – by reducing nickel content of their steel, compromising on quality in the process. London warehouse levels skyrocketed to multi-year highs, and competition in a dwindling market forced nickel prices down to USD5/lb. They now sit a smidgeon over this depressed value. In such a siberian environment, only low cost producers, or those with deep enough pockets to mothball projects and wait, will survive.
With a possible global depression setting in, nickel fundamentals can’t be taken for granted, but the market will not evaporate. World consumption has increased from 1.08 to 1.32 million tonnes per annum between 1999 and 2007, over half of this latterly comprising Asian demand. Readers may be surprised to know that the entirety of the Americas accounted for just an eighth of world consumption. Europe accounts for about a third.
The situation in the all-important Chinese market is temporarily struggling. According to Mr Xinfang Jiang at a presentation to the International Nickel Study Group a month ago, stockpiles in seven major Chinese ports totted up to over 8 million tons of ore and were likely to stay there until the end of this year. This represents 6 months’ worth of 2007 imports. Call on these stockpiles has largely dried up as many blast furnaces were making losses and have been shut down. Electric furnaces are the destination of Acoje ore, but here margins are even lower, and many have turned from nickel pig iron to the production of other Ferro-alloys e.g. ferrochrome and ferromanganese.
Beyond the current slump, there is better news. Despite the stockpiles, Chinese stainless steel production is set to continue its ascent. Between 2000 and 2007, stainless steel production reached climbed by a multiple of 15 to 7,550,000 tons. This year, production is expected to reach 8,600,000 tons – 15% higher, despite the difficulties. Going forward, annual growth is expected to continue at a rate of 1.5x Chinese GDP growth. Wider still, the world population is expanding by 70 million people a year, with a strong trend towards urbanisation.
Once the stockpiles wane, as they eventually will, prices will increase. Good news for Rusina shareholders.
Back to Rusina.
Meantime, Rusina’s cash burn is low, thanks to its policy of striking commodious partnerships, of which there are two crucial ones. The first is with big fish Philippine partner DMCI, who operate the port at Acoje. All the port maintenance and shipping costs are DCMI’s responsibility, and as Acoje is just one of its operations, staff and resources can be redeployed until the storm passes. Once it does, a return to speed should be straightforward.
In the meantime, DCMI is turning its attention to the open minable chromite on the property. Acoje used to be known for housing SE Asia’s largest chromite mine, which ran for over 50 years and was renowned for its high quality ore. During the last quarter a bulk shipment of 867 tonnes of high grade lump chromite were shipped at a grade of 43% Cr2O3 and a Cr:Fe ratio 2.5:1. The Acoje lump chromite has favourable metallurgical characteristics and lower grade ore is easily beneficiated to higher grades. DMCI are investigating a small pilot plant. If viable, chromite could replace nickel laterite as a source of near-term cashflow – or supplement it, if nickel prices stage a recovery.
Another of its joint ventures with DCMI is on hold. The two companies were investigating a ferronickel facility (calcine kiln and possibly an arc furnace) to enhance the Acoje laterite ore, using coal from DCMI’s nearby Semirara mine. Rusina has up to 40% free carry, but it isn’t sensible to proceed in the current environment. It requires buoyant nickel prices, but in any case cash is king.
To quote Rusina CEO and MD Rob Gregory’s last quarterly statement, “Rusina has established cash flow, infrastructure and employment with zero risk to Rusina shareholders by allowing DMCI adequate profit for this (Direct Shipping of Ore) endeavour”. Exploitative and ruthless business relationships rarely pay off in the long run, as in life in general, and Rusina’s wisdom is now transparent even to the cynical. Gregory’s claim that “Rusina has demonstrated that it knows how to do business in the Philippines” is seen to be well backed both operationally and relationally.
Further justification for the claim comes from the European Nickel joint venture which represents Rusina’s long term future. Under this agreement, European Nickel is spending USD10m on a Feasibility Study of heap leaching the Acoje ore. By so doing they will earn an interest of up to 40%. The Pre-Feasibility Study shortly to be released by European Nickel is apparently highly encouraging. It calls for a 25,000 tpa Nickel Heap Leach plant operating for 14 years at a mining rate of 3million tpa (dry basis). This is a far larger operation than the current DSO agreement, and produces a nickel hydroxide product fetching 75% of the LME nickel metal price – multiples more than the laterite ore. Blend optimisation yields recoveries of 80% nickel and 70% cobalt - excellent for this sort of project. Economics look highly robust with an estimated breakeven nickel price of just USD3/lb, i.e. solid even at today’s prices.
Pre-feasibility studies can generally be characterised as educated guesses, and the dawning of reality sometimes paints a very different canvas. However, Gregory points out that the economics of the heap leach process have been subjected to greater rigour within European Nickel’s Caldag bankable feasibility study. Confidence in the capital and operating costs, particularly on the engineering side, is far higher than usual. Full Bankable Feasibility is the next stage, and should report in late 2009.
What next?
Rusina does not intend to sit on its corporate hands for the next 18 months. Industry casualties are likely, and Rusina should be in a position to benefit. Rusina would of course not be a cash bidder, but if opportunity comes a-knocking, an all share deal would be possible. Given DCMI’s size and contacts, and that it views Rusina as its exploration arm, it wouldn’t be surprising if a string of options came Rusina’s way over the next year or two.
As we have said, Rusina is cushioned for the next 18 months at least, but will eventually need capex for the heap leach project. An early capex guesstimate was US500m, of which Rusina would be responsible for 40%. However, Gregory envisages that much of it would be funded by off-take agreements. Sooner or later credit will slacken, but financing is a non-issue until the BFS reports in a year or so.
Rusina as an investment.
With the current share price at AUD0.059 (2.5p) and just over 245m shares in issue, Rusina is capitalised at AUD14.5m (GBP6m). Acoje, Zambales, Sodaco and Barlo and others – space precludes mention of the last three – hold vast mineral wealth. The strike length of Acoje alone is 15km and none of the resources are vacating the building.
There are striking investment opportunities all over the place at present, but in this author’s view, on-time, on-budget and risk-aware management is worth a premium. Over recent weeks Rob Gregory has bought several tranches of shares and even exercised out-of-the-money options, joining Chairman Gordon Getley in a show of solidarity. It is tempting to follow suit.
