With more than 1 million tonnes of copper and 3 million oz of contained gold, Sepon is the fulcrum waiting for Oxiana to raise the capital to shift the investment world.

Development of Sepon, in which Oxiana has an 80% stake, will not be cheap, or easy. The capital requirement is in the order of $150 million and Laos is a developing country, with the usual issues associated with higher risk offshore locations.

But, with the right mix of capital and tight management control, Sepon should also be the company-maker for Oxiana, a company best known over the past five years for its copper mining operations on the Mediterranean Island of Cyprus.

 

 

Oxiana's managing director, Owen Hegarty: "We have received plenty of support from potential backers who can see that the commodity price cycle is moving in our favour."

The numbers associated with Sepon are impressive by any measure. At first blush it seems to be a project better suited to a mining major, rather than a small Australian company with a modest share price and small market capitalisation.

Pre-feasibility studies are based on a proposed operation producing an average 40,000 tonnes of copper per annum, plus 125,000ozpa of gold, over an initial 20-year mine life, starting towards the end of 2002. Operating costs are estimated at about US43c per pound for the copper and US$153/oz for the gold. A combination of solvent-extraction, electrowinning (SX-EW) and heap leaching will recover the copper and gold. Annual earnings, according to at least one study, are put at about US$51 million before interest and tax.

With such encouraging initial forecasts it is surprising that the company which discovered Sepon, Rio Tinto, opted to sell down its 100% stake. That, however, is precisely what Rio did last year after forming a view that Sepon could never be one of the giant copper-gold projects that it seeks.

As someone once said, one man’s poison is another man’s fish, and that has certainly been the case for Oxiana which won a highly-competitive bidding process to buy the 80% stake offered by Rio Tinto. The price was US$4 million on the table plus US$18 million in staggered payments — enough to recover Rio Tinto’s estimated $26 million spent in proving up the Sepon resource.

Oxiana’s managing director, Owen Hegarty, is confident that Sepon will transform his company, but he also acknowledges that winning over the investment community will not be easy. Earlier this year he said the message from the market was that Sepon represented a tremendous resource “probably worth $400 million”

“But the first thing you have to do is get it, and the second thing is to persuade investors that Laos is okay,” Hegarty said. “We have received plenty of support from potential bankers who can see that the commodity-price cycle is moving in our favour.”

He was largely correct. Since forking out the first US$4 million the world copper price has trended upward. Gold, however, remains a hard ask with a price that refuses to threaten the $US300/oz barrier.

Since announcing the Sepon deal, Oxiana’s share price has rocketed from 4c to 20c and back down to 7c — a genuine rollercoaster which has as much to do with commodity prices as country risk concerns, especially in the light of troubles in Zimbabwe, Fiji and other emerging economies.

Funding options remain open for Oxiana. A possible route is to use the Murchison United case study which involves raising the capital while offsetting the risk with a blend of forward metals sales and hedging contracts. It cuts the cream off the cake should metal prices explode, but pleases bankers by locking in a fixed metal price and foreign exchange exposure.

Hegarty said his preference is to keep Sepon as majority Oxiana-owned project though an outside partner was possible. It also appears likely that Rio, rather than sell down its residual 20% stake will remain an equity partner in Sepon — another encouraging sign for a proposed development.

Read More...

 

 

The Sepon exploration camp in Laos with the Nam Kok River in the foreground. Rio Tinto drilled more than 45km of diamond holes at Sepon to test the viability of a big open-pit.