Wednesday, October 22, 2008

Marathon shares nosedive

Notice is hereby given that the Annual General Meeting of the Shareholders of Marathon
Resources Limited will be held at the Mercure Grosvenor Hotel Adelaide, 125 North Terrace,
Adelaide South Australia on Friday, 28 November 2008 at 9:30am (Adelaide time).


(Watch this space for invitations to the footpath outside the Grosvenor!)

Despite taking SA Premier Mike Rann to China a couple of weeks ago, Chris Schacht has seen the value of Marathon Resources shares nose-dive in the last day or so to 22 cents per share!

Just like the pilots in that Qantas jet that recently plummeted thousands of feet over the briny blue sea, the Marathon Directors are trying to manually control the fall with any lever that comes to hand.

Hence this morning’s gravity-defying announcement that the company “will start more non-drilling exploration in the Arkaroola Wilderness Sanctuary from today” (ABC Radio news).

“Marathon will now complete a gravity survey program of the site at Mount Gee,” says the announcement. “The company says this will add to its evidence of a significant uranium deposit at the site.”

Will this flapping of the management’s arms be enough to restore flight to the plummeting shares of Marathon Resources?

Unfortunately for Marathon, there might not be much joy in their gravity sampling joy stick.

They are having to to rely on non-invasive techniques, such as stream-sampling where a field hand simply collects representative samples of sand and rock chips from creekbeds. They were doing this straight after the indefinite suspension of their drilling program.

Gravity surveys are also non-invasive and get them around the ban on exploratory drilling. However, it is likely to be a complete waste of money on Arkaroola. Because of the gravitation effect of the hills it will add nothing to the understanding of the mineralisation unless there are significant density differences between the ore and the host rocks. That is not to say that it could not work there - but the only way to iron out the differences due to the terrain, is to remove the anomolies caused by the extra bulk of the mountains. It would be a huge amount of data collection and processing, and likely be easily subject to error as it would need to allow for every hill and valley.

This type of survey works well in flat country where gravity highs (due to ore bodies) and lows (eg due to presence of oil or gas) are obvious, where there are clear density contrasts.

So, a desperate announcement, but unlikely to significantly reverse the fall.

This development of a rapid fall in share prices for Marathon is somewhat surprising given that Schacht obviously had a chance to get into Rann’s ear about uranium exports in front of the uranium-hungry Chinese whilst on tour there.

But consider this….

Miner BHP Billiton has been travelling rough in the share crisis, (but nowhere near as rough as Marathon Resources, which faced an inquiry of it from the ASX, 22 October 2008.)

BHP was running around $28 a share when Marathon dropped to 21 cents. Were they really part of the same global financial crisis?

Marathon had the fortunate coincidence of having one of its directors travel to China with the Premier of SA, immediately before the latest developments in the financial crisis. Not that this (in spite of their egos) necessarily caused the crisis, but what they found out, or should have, might be a crisis for both, and for Marathon and SA.

The Chinese as we know are intensely interested in cleaning up their energy use, and increasing it. Uranium is the way of the future. Midget Mike talked it up plenty, before he went to China and while he was there. Hasn’t said much since, but he must be regretting the end of the three mines policy which so hamstrung the old ALP, pre Mike and therefore (remember the ego), pre-Rudd and pre-Schacht.

The triumvirate got rid of the three mines policy. Midget Mike got to be Premier, and National President of the ALP. Schacht got to be a Director of Marathon and Rudd the Dud got to be Prime Minister.

Unfortunately, WA changed its government a couple of weeks ago, and BHP Billiton rediscovered its interest in a little known uranium deposit called Yeelirrie. Happens to be the biggest and the easiest to mine in the world. Here’s an extract:

Yeelirrie, WA

The Yeelirrie deposit is between Wiluna and Leinster, WA, about 500 kilometres north of Kalgoorlie and close to the Goldfields gas pipeline. It is also close to the existing infrastructure serving WMC nickel mines at Mount Keith and Leinster.

Western Mining Corporation (WMC) discovered the shallow and extensive deposit in 1972. It is reputedly the world's largest sedimentary deposit of its kind. In August 1978 Urangesellschaft Australia Pty Ltd bought for A $3 million a 10% interest in the deposit, but this was reacquired by WMC in October 1993. At the same time Esso was brought into the project and given 15% equity in return for a commitment to fund 80% of the Stage I feasibility study and pilot plant, then costed at A $21 million. Esso withdrew in May 1982 for commercial reasons and the share reverted to WMC.

The deposit extends over 9 kilometres, is up to 1.5 kilometres wide, up to 7 metres thick and lies mostly at a depth of 5.5 metres below the surface. It comprises a mineral resource of 35 million tonnes with an average grade of 0.15%, containing 52 000 tonnes of uranium oxide, which could readily support a low-cost mining operation producing a proposed 2500 tonnes per year of uranium concentrate with 1000 tonnes per year of vanadium oxide by-product.

An Environmental Impact Statement was produced in 1978 and resulted in environmental approval from both state and Commonwealth governments. In the twelve years to 1983 WMC and its partners (then including Esso) spent a total of $35 million preparing to develop Yeelirrie as an open cut mine, including building and operating the pilot metallurgical plant at Kalgoorlie. A $320 million project was envisaged and sales contracts were being planned. However, the 1983 federal election and implementation of the ALP "three mines policy" meant that permission to negotiate sales contracts was withdrawn in March 1983. Plans were then abandoned, and WMC's attention focussed on developing Olympic Dam.

A new state Labor government was elected in 2002 with an ideological anti-uranium stance. Pursuant to this, the 1978 state mining agreement for Yeelirrie was revoked in March 2004. However, WMC Resources retained the mining tenements and awaited future opportunities after undertaking rehabilitation of the site by the end of 2004. In 2005 ownership passed to BHP Billiton Ltd.

You can look it up yourself:

URANIUM INFORMATION CENTRE Ltd.A.B.N. 30 005 503 828
GPO Box 1649, Melbourne 3001, Australiaphone (03) 9629 7744 fax (03) 9629 7207
Copyright © 2000 UIC. - All rights reserved.URL - http://www.uic.com.au/

The same site describes Mt Gee, of interest to Marathon, Mr Rann (his home solar panels were installed by a then principal of Marathon) and Mr Schacht:

Mt Gee, SA

Working with data from earlier drilling campaigns, Marathon Resources has quantified to publishable standard the uranium resources of the Paralana ore system comprising a number of uranium and polymetallic ore bodies spread over 12 km in the north Flinders Ranges of South Australia. The Mt Gee deposit has a total of 33,000 tonnes U3O8, mostly as inferred resources and mostly low-grade (0.05% cut off) but with some higher-grade portions. Other or ebodies in the system are also prospective. The area has been drilled extensively since 1968 by Exoil, CRAE (Rio Tinto) and Goldstream. In 2007 Marathon initiated a pre-feasibility study and an environmental impact study for underground mining at Mt Gee. The results of ongoing drilling and the initial studies are expected in mid 2008.

The Mt Gee - Mt Painter mineralisation is the source of uranium in the palaeochannels around Beverley, a few kilometres east.

So, it’s a smaller, low grade, hard to get deposit, in the middle of a sanctuary. Worse, WMC clearly preferred its WA prospect to SA’s, but was foiled by a difficult (WA) government on one hand, and assisted by a compliant (SA) one on the other. It developed the more expensive underground mine at Roxby instead. WMC bailed out and BHP took over its interests, here and in WA.

Enter the newly elected WA Liberal government. BHP’s in the box seat. It can cite the global financial crisis, and point to its share slide, as a reason to defer expansion at Roxby. It can play WA against SA to see who will help it the most with its development. It has the choice – here or WA.

It’s got the uranium market sewn up with its ownership of all the major deposits. Marathon’s a minnow, valued at around $13.6m (ASX, 22 October 2008). It can’t hope to compete with ore that’s many times more expensive to mine and one third the quality of BHP’s Yeelirrie deposit which has already been brought up to pre-production stage. No wonder Marathon’s share price is dropping. Schacht doesn’t have to tell anyone to unload it while they can get a cent. Any punter worth the name in the market can see it coming.

Worse. For Midget Mike the Miner, there is the unsavoury prospect that after his trips to Chile and China, BHP will have rediscovered its interest in the larger, easier to mine Yeelirrie deposit. It might, in the name of its own financial crisis, be induced to suspend its plans for expansion at Roxby and, after a time, and with suitable inducements, rediscover its much more economic Yeelirrie prospect.

This gives Midget Mike much to think about, and explains the trip to China with his mate from Marathon. No big announcements on his return. Think of the consequences. An end to the SA mining boom! End to the expansion and the photo opps developing infrastructure from Port Augusta to Roxby to Beverly. Won’t have to worry about mining Arkaroola. That’s a salvation, Jane.

So who is in the box seat? BHP and the premier of WA. Just watch this space. And whose shares and electoral stocks are dropping?

2 comments:

Xanthopus said...

a very interesting and well researched piece, mike

assuming the company makes it through to the 28th of november i'll see you on the footpath!

though, given the company's straitened circumstances, i wonder if we shouldn't perhaps suggest the names of a few of the community halls our side of politics usually uses?

Anonymous said...

Your site is number one re this Marathon bollocks...good work mate..dunno if you been following todays devs on the Coober Pedy site but reckon your comments their would be welcome with what you know..looks like we been hoodwinked mate..geez..whats the world coming to Mike..people like you are salt of the earth and a healthy dose of the salts for these corporate ratbags that be friggin with the planet..good work buddy..keep it up..Mike for PM!

http://cooberpedyregionaltimes.wordpress.com/2008/10/23/arkaroola-cowboys-return-waste-and-damage-remain/