MINEWEB: Now, we go onto mining, to Petmin, and Geoff, you've got some interesting news.
GEOFF CANDY: Well, Bradley Doig, the chief operating officer of Petmin is in the studio, and it's because you're planning to list on AIM tomorrow. I suppose the first question is, why AIM particularly as opposed to the Toronto Stock Exchange, or possibly Australia?
BRADLEY DOIG: Yes, we did some homework, we looked at all the markets in contention, so to speak, and we felt comfortable on AIM. We felt we knew that, historically, a lot of capital's been raised on AIM for mining ventures in South Africa, and we felt that we offered something slightly different to the run-of-the-mill mining stocks that have been listed recently, which were all sort of long-dated exploration stuff. We produce cash, that's the name of our game, and we felt we might have a small competitive advantage in going to AIM on that basis.
GEOFF CANDY: And of course, one of your strategies is you are disposing of stuff that isn't really either close to bearing cash or already generating cash.
BRADLEY DOIG: That's it. Our strategy is simply to buy cash-producing assets and improve their performance, or secondly buy something we can bring to cash within 24 months of acquisition.
GEOFF CANDY: Now you're involved in coal and silica as well. Where do you see the coal price going, and the coal market going in 2007?
BRADLEY DOIG: Coal look, anthracite is a slightly different market, you can't really track the price that accurately, but there are some indices which we look at, and currently we're quite bullish on the price. We've sold forward quite significantly for 2007 at $52 FOB, obviously, which gives us, I think, solid visibility of earnings next year.
GEOFF CANDY: Now, you were looking to raise about R50.4m on AIM, with part of the reason behind it hoping to expand and develop operations, specifically in and around Richard's Bay. You've got a drilling plan looking to expand your operation at Richard's Bay. Tell us a bit more about that.
BRADLEY DOIG: What we've got is, historically we bought a company called Springlake Holdings in November 2005. That comprised three assets, the three assets being an existing colliery, Springlake Colliery, and a close to the cash development project called Somkhele. Now Somkhele's mining seam, we've got seams up to 15 metres thick, they're all open cast. We've got a proven reserve of 12 years at a million tons run of mine production. So we believe that in that area, where we have our tenement, so to speak, we have a lot more opportunity to develop there. So we're going to focus on that area. We'll be in production in January next year. We've built the plant, the plant cost us just over R100m to build, and we've developed the mine we've actually already taking coal out of the ground at the moment.
GEOFF CANDY: And you're looking to expand the life of the mine as well?
BRADLEY DOIG: Definitely yes. We think there's probably around another 25 years there.
GEOFF CANDY: Looking at what you're planning to do, you're also selling Baobab, which is part of the Springfield operation, or the acquisition. What are you looking to do with the money that you get from that?
BRADLEY DOIG: All the things we'd like to invest in must be earnings-producing, to the extent that we're going to look to acquire additional allocation through RBCT [Richards Bay Coal terminal], and that'll obviously enhance our earnings, we think. And we'll obviously look to invest in projects that we can bring close to cash. We obviously are always evaluating new deals, substantive.
GEOFF CANDY: Are there any particular acquisition targets in mind at the moment?
BRADLEY DOIG: Not at the moment, no. What we'll do is, once we've settled down and the listing's completed, we are evaluating a number of things, and we'll continue to do that. We have great shareholders who give us a lot of support, so we get access to a number of deals.
GEOFF CANDY: Now, you also talk about a desire to be a multi-commodity minerals business. Does that mean you're looking at things other than anthracite and silica, or are you focusing particularly on these two?
BRADLEY DOIG: No, we definitely want to be a multi-commodity minerals business, we'll look at base metals, we'll look at iron ore if it suits, we'll look at other base metals, things like I mean it's not base metals we'll look at fluorspar and we'll look at dolomite, things like that, industrial minerals.
GEOFF CANDY: We've seen a major run in a lot of these minerals, and a lot of the commodity prices, particularly. What is your view on the commodity market generally in 2007?
BRADLEY DOIG: Look, there's talk of a super-cycle, you know, and if you look at the underlying value of the commodities per se, relative to the prices that companies are trading on the market, there's still a lot of value there, and we see the commodities cycle continuing. I mean, there's a lot of growth in China.
MINEWEB: Just staying on this commodities cycle, there is a kind of thought that the commodities cycle may be over, and that particularly the Chinese don't want prices to get that much higher, because obviously there's huge demand coming out of China. They'd like to see the prices get a bit lower. In terms of the deals that might be made with the Chinese in Africa, do you think that might compromise commodity prices and the resource sector a little bit, because of the negotiation that might take place to get the price down?
BRADLEY DOIG: You know, the sad thing about the mining industry there's been so little real investment in things like zinc and tin and stuff like that, over the last 5-10 years, so I don't believe that it's going to depress the commodity prices at all. I think you've got a lot of new capacity coming on stream with the majors, but there's still an opportunity for juniors and others to get involved and actually succeed in the marketplace. So we don't see a long-term change in the outlook at the moment, given the fact that the current demand in China's unbelievable for ferro-alloys, which is where we supply our products into.
GEOFF CANDY: And just on the junior mining side, operating within the African context, infrastructurally obviously the majors have got an advantage there. How do the juniors make it profitable, how do the juniors make an inroad into a mining scenario that is difficult?
BRADLEY DOIG: It's a tough game. The thing with juniors is, in the past the majors let the juniors actually take the risk on exploration activities, and then looked to make an acquisition once the risk's out of the deal. At the moment we're looking to raise capital, we've bought producing assets. We believe if you're smart, and you keep the costs under control, you can do it. That's the game.
GEOFF CANDY: Just in terms of the new operations you're looking to bring on stream in 2007, how, what will this do to your bottom line?
BRADLEY DOIG: Look, obviously we raised the money last year and we haven't seen the earnings effect. We've got the dilution, and we believe it's going to add significantly to our bottom line. It's a serious project, it is high-quality anthracite, it's got very good phos levels and very low sulphur levels, and there's a lot of demand for the product, so we believe it will add a lot.
GEOFF CANDY: And, just looking at your other operations, there does seem to be quite a lot more life of mine available for a lot of these projects as well.
BRADLEY DOIG: Well, on some parts we've got, because of the Samrec [South African Mineral Resource Committee] card, we've got a life of mine model of 11 years, but we believe we can move.
GEOFF CANDY: What do you mean by the Samrec card?
BRADLEY DOIG: Well, in terms of that, you've got various categories of resources and reserves. We currently have proven reserves, which give us a life of mine there of 12 years, but in the resource category we have another 35, so we just have to spend a little bit of money moving it up the chain.
GEOFF CANDY: And any particular reason you decided to list on AIM just before Christmas? Are you hoping to catch the ?
BRADLEY DOIG: No, look, we weren't looking for a hype or anything like that. We understand the people that we've got on board, we wanted to get enough shares to create some trade on AIM, and we're basically looking forward to next year. And raising additional capital on AIM will be on the back of the deal.
MINEWEB: Wayne, quite an interesting story there.
WAYNE MCCURRIE: I must say, yes. Look, when you talk about the commodities super-cycle and that, remember, as a miner you'd talk 10, 15, 30 years, and I believe on 10, 20, 30 years we probably are on a commodities super-cycle. I mean, we were in a commodities down-cycle for 30 years. There's no logic as to why there can't be an up-cycle. But, within that, prices can still fall 50%, the same as in the down-cycle prices doubled and then fell again. And the point for a share investor, understand we might be in a 20- or 30-year super-cycle, but if, in the next two years the prices fall because of slowing US growth or whatever the story is, that's what'll drive the share price in the shorter term. So, if you believe in the commodities super-cycle, which I do, actually, and you buy commodity shares today, you will make probably a very good return on a 20-year view, but you might lose a good few nights sleep on a two-year view on that, and unfortunately investors don't take the 20-year and 30-year view. It's been my experience, when you talk to any investor and I mean, this can be very sophisticated investors as well as the person in the street they're always long-term investors, they're always buying something for the long term, until the day they lose money on it. Then, all of a sudden, they become very, very short-term investors.
GEOFF CANDY: Very quick selling. Bradley Doig is Petmin's chief operating officer.
© 2009 Petmin Limited