Tuesday

Phosphate Rock Producers: Minemakers (MAK) up 19.5%

1 Comment December 22, 2009 – 7:58 am |   | Permalink |  Print This Post |

We posted an all you need to know about phosphate rock and phosphate rock producers article on the 30 November - and since then started our slow accumulation of phosphate rock producers. We have been buying Minemakers (stock code MAK.AX on Yahoo) and Phosphate Australia Ltd, POZ.AX on yahoo (personal portfolio for higher risk higher reward investment) - since then MAK is up >25% whilst POZ up 13.5%.

Below is an interview of MAK who recently commenced production of Phosphate Rock from its mines:

Q1 Minemakers yesterday made an ASX Release concerning mining and export of
its first bulk sample of Phosphate Rock from Wonarah. Why is this seen by you
as such an important event?
A. Thank you Cameron. There are a whole collection of reasons why this is seen by
Minemakers as being so important. In no particular order they include the following.
Firstly, it is a genuine historic event. As far as we are aware, it is the first export of
rock phosphate from the Northern Territory, and it is certainly the first export of that
commodity in general terms from mainland Australia for quite some time. We are
proud that it is Minemakers that has done it and we aim to be even prouder of the
Company going forward. We see rock phosphate as being a wonderful new and
major export commodity for Australia and, of course, we are aiming that Wonarah will
be one of the big half-dozen mines of the Northern Territory along with such ones as
Ranger Uranium, Gove Alumina and Groote Eylandt Manganese.
Another aspect of which we are very pleased, is that it was all done so very quickly.
The price of rock phosphate took off about Christmas two years ago. It took us until
April to get drill rigs into the field, bearing in mind that at that time there was a boom
on and it was very difficult to get qualified people and rigs. Despite that, we have
been able to drill it out and come up with what is easily Australia’s largest resource of
rock phosphate and be able to get all of the permits in place to be able to engage
upon this bulk sampling exercise. We are very pleased with the co-operation that has
been given to us by all of the responsible agencies in the Northern Territory
Government, and also for the enthusiasm for our efforts by the Traditional Owners as
represented by the Central Land Council.
To put a better perspective on it, our approvals allow us to export something like
11,000 tonnes under the tenure of our current exploration licence and, as we
understand it, the next largest export approval previously given in the Northern
Territory was only 500 tonnes. So, back to the timing; in considerably under two
years we have been able to get sample out into the market. We do expect permitting
to be completed around April and, assuming that the current recovery and markets
continues, we will be able to get into production by the middle of next year, give or
take a whisker.
The material is currently being crushed in Darwin and will be able to be loaded onto
ships by about year-end to go to our first two potential customers in India and in New
Zealand. There is a bit of a herd mentality in this and we rather expect there will now
be follow-up orders which we will be able to supply. There is a great diversity of
potential markets but we do have to get a foothold against the established players
and the level of interest being shown in our product is very encouraging.
I think another important factor is that all of this has been done against the
background of a Global Financial Crisis for the last 12 or 15 months. This time last
year, everything was looking particularly grim as all of our listeners would know and it
was very difficult to raise funds and to maintain market enthusiasm. Despite that, we
have been able to carry on single-mindedly with what we were intending to do and it
has now borne fruit.
Just to wrap it up, one advantage that we believe we have had is the ability to run a
year-round operation in the sub-tropical part of the Northern Territory. This tried
mining has never been carried on after the initiation of the wet season and it certainly
points to us being able to do that at full scale level.
I will just wrap up the answer to this question by sincerely thanking our management
and staff who only a couple of days before Christmas are still on site and/or in Darwin
doing all this sort of work. We had a terrific crew that has worked enormously hard
trying to bring value to our shareholders this year, and being up on site only a couple
of days short of Christmas at the most trying time of the year weatherwise, certainly
exemplifies this.
Q2 The rock phosphate price has taken a beating this year. How are prices
trending at present?
A2 It certainly has Cameron and it is amazing what a difference a good old Global
Financial Crisis can make to commodity price forecasts and profitability forecasts.
Nonetheless, I think it is important that, despite the vicissitudes of the GFC, the rock
phosphate price only got down to a number which was about twice its historic
average. So we can be quite confident now, I believe, that as the price recovers it will
be doing so from this much higher base level.
Price figures that one generally looks at are FOB prices, or Free On-board prices,
from Morocco. What that doesn’t factor in is our proximity to our target markets in
Asia, East Asia and Oceania. We have a very significant sea freight advantage to
these target customers. We look at shipping rate cost projections very closely and no
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one is saying that they are going to go down. In other words, the more shipping rates
go up, the more Minemakers is favoured in the future.
As we move into discussions with potential customers, it is becoming more and more
evident that the price of rock phosphate is pulled up or down by the price of fertiliser,
rather than the other way round. In general, the Indians work on a formula whereby
they work backwards from the price of staple phosphate fertilisers, such as DAP, to
come up with what they believe to be a reasonable price for purchase of the rock
phosphate raw material. To put it somewhat simplistically, the more one has to pay
for a cake, the more one is willing to pay for the ingredients. The good news for
Minemakers is that this month alone the price of DAP in the US has gone up about
15%. We know that Chinese costs are increasing strongly and they have begun to
import DAP as well. The price rise seems to have been occasioned by supply and
demand and although there is a lag factor, we can be reasonably confident that this
increase in the DAP price is going to feed into a rock phosphate price increase using
that Indian formula.
The other good news in the last week or so is that the Aussie dollar has started to
retreat, based on the Reserve Bank hinting strongly that it has pushed up interest
rates far enough. Let us hope this is the case, and should the Aussie dollar revert
back more towards the historic long-term number then it is a potential addition to the
bottom line for the project.
Q3 In relation to Copenhagen etc, global warming has been very much in the news
lately. Is there any relevance to Wonarah?
A3 Firstly Cameron, as a geologist I don’t want buy too much into the debate, except to
say that anything predicted for the future can be seen many times in the earth’s
geological record. It has been both hotter and colder in the past and certainly has
had more carbon dioxide in the past so, personally, I’m fairly relaxed about it.
Nonetheless, phosphate has to be of great significance should global warming
concerns prove to be well founded in the future.
Firstly, carbon dioxide reductions mean sequestration of it and one of the most triedand-
true and cheapest methods, is to tie up CO2 in vegetation. In general, more
phosphate applications, more vegetation and bigger plants, trees, etc. Perhaps not
so much in Australia, as our native plants here have adapted to our very phosphate
deficient soils, but certainly so for most other areas of the world. Additionally, if
climate change does bite then there is likely to be a reduction in arable land and so
the remnants of it will need to be even more productive; this means larger
applications of artificial fertilisers to get the productivity up to the levels needed to
feed the world.
So for those of our shareholders and listeners who are strongly concerned about
global warming, then I would suggest that phosphate should be a great commodity to
invest in.
Q4 Any final comments for the listeners?
A4 For those of the listeners who are shareholders I would like on behalf of the Board to
thank them very much for their support during this difficult Global Financial Crisis
year. In particular, thanks to those who voted with their wallets in August and made a
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little bit of history for Minemakers by being part of the most successful Share
Purchase Plan that has ever been undertaken by an Australian mining company.
For those thinking of becoming shareholders, I cannot of course offer investment
advice per se. What I can say about Minemakers is that it has huge phosphate
resources. That commodity is one that is in demand and will be ever more so in the
future. Minemakers’ Board and Management are dedicated to becoming a major
independent player in the world fertiliser raw materials trade. Lastly, prices of
phosphate fertilisers are rising again.
The Board and Management are determined that 2010 will be a great year for our
shareholders provided, of course, that global market conditions allow it but all the
signs are looking very good right now.
May I wish all the listeners a very Merry Christmas and a safe one, and a very
prosperous 2010. Thanks very much your efforts in helping Minemakers getting its
message across to its shareholders this year, Cameron.
Andrew Drummond
Managing Director

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