Winmar Resources

The waiting game

The Hamersley Iron Project operated by emerging junior Winmar Resources sits in a prime location between the iron giants of Western Australia.

An advanced exploration target in the heart of the Pilbara, the Hamersley Iron Project has excellent development potential. It is a Joint Venture between Winmar Resources Limited (ASX: WFE), who owns 51%, and Cazaly Iron Pty Ltd, a wholly owned subsidiary of Cazaly Resource (ASX: CAZ), who owns the remaining 49%. Both the project and Winmar itself have interesting stories behind them.

Winmar began its life as Optima ICM Limited, a computer electronics and software company. Experienced stockbroker Albert Wong and his now-retired business partner Neville Wran bought Optima in 2009, shortly after the company had lost its major government contract and gone into administration. “We put in a cheeky offer to take control of the company through a Deed of Company Arrangement (DOCA). We didn’t expect to win it, but we did,” says Wong, who is now Chair of the Winmar Board.

“Once we won control of the company, we began looking around for opportunities,” he continues. “It wasn’t until September 2010 that we came across the Hamersley Iron Project, which at that time belonged to Cazaly Resources. They told us, ‘we’re developing another, more advanced project called Parker Range and we need money to do so – which is why we’re prepared to sell you an interest in our next most developed project, Hamersley’. Given the strong demand for and popularity of iron ore at that time, we reached an agreement with Cazaly to acquire 51% of the tenement by spending the sum of AU$10 million, including $4 million upfront payment to Cazaly for them to use on Parker Range. We spent the remaining $6 million in the ground. As luck would have it, within weeks of signing the deal, Fortescue announced the multibillion development of its Solomon project, which borders Hamersley” he explains.

The prime location of the project, in the heart of the Pilbara region of Western Australia where all the country’s mining giants reside, helped Winmar raise $7 million and lift the company out of administration. Andrew Forrest of Fortescue Metals Group (ASX: FMG), a former business partner of Wong’s, bought a small stake in Winmar through his private family company – “for old times’ sake,” says Wong.

Winmar enjoyed a much celebrated debut to the ASX, trading at a premium and attracting investment from well-known parties in the industry. Several months later however, in mid-2011, commodity prices began to decline and dragged investment down with it. Nevertheless, Winmar managed to complete its earn-in to the Hamersley Iron Project an entire year ahead of schedule. There is an option for Winmar to claim 100% ownership of the project further down the line.

Well positioned

Wong believes Hamersley is a great project and better than that of its junior competitors because it has the ‘two Gs’ – geography and geology.

“Geographically we are well located. We are within 25km of both Fortescue’s rail line and Marendu, Rio Tinto’s rail line,” he explains. “Rather than constructing our own infrastructure, for us it’s a matter of negotiating – and we’ve been doing that with Fortescue since the early days, with regards to getting access to their infrastructure. A lot of juniors may have a resource, but they’re in the middle of nowhere; if there’s no-one else around, they can’t justify the immense cost of building the required infrastructure. We don’t have that problem.”

In terms of geology, the Hamersley Iron Project has an Inferred Mineral Resource of 343 million tonnes at 54.5% Fe, and an Indicated Resource of 42.6 million tonnes at 55.2% Fe. Winmar’s Exploration Target for the project is 400 million tonnes at 54-56% Fe.

“I believe that the grade and type of iron ore that we have is attractive, and comparable with what Rio and Fortescue have,” Wong adds. “We can either sell the iron ore directly, ourselves, or we can do a mine-gate deal where they can blend our ore with theirs. Those matters are still to be determined. We are a babe in the woods relative to our neighbours, but being surrounded by the big boys means we’re in the right area.”

Path to the finish line

Wong recognises that Hamersley’s location brings challenges as well as advantages, but he’s hugely optimistic that when the time is right, the project will bring Winmar great success.

“It’s just a matter of time until iron ore makes a comeback. We have a commodity that is going to be in demand for some time. How we extract maximum value from it will depend on luck, and timing. At the moment, we’re proceeding conservatively with our feasibility studies and continuing negotiations with our big neighbours, who have been accommodating in meeting and speaking with us. We maintain good relationships with them, and hopefully they’ll see the merit in what we have.”

The speed with which Winmar can advance the Pre-Feasibility Study (PFS) for the Hamersley Iron Project is constrained by the junior’s limited budget. This causes numerous difficulties – for example, although discussions to date indicate that Fortescue should agree to accommodate Winmar on its rail infrastructure to Port Hedland, no formal agreement can be made until the PFS is complete. Wong thinks that if Winmar is lucky, the Hamersley Iron Project could be in production in less than two years. But equally it could be five years before it reaches that stage.

Wong is also open to the possibility of the project being “snapped up” by one of Winmar’s larger neighbours. “We’re a small fish swimming alongside whales; and as my former business partner [Wran] used to say, ‘where whales are concerned, small fish are often the sweetest’,” he quips.

“As we prove up the Hamersley project to investors, shareholders, neighbours and others, they will see the project’s value, allowing us to raise the additional capital we need to advance it through to production,” says Wong.

“I think this project is a winner, and our shareholders deserve to be rewarded for their patience. We’re always speaking to people, and there’s interest coming out of China. The timing just has to be right – and I think it will be, as long as we can hang in there.”

http://www.winmarresources.com.au

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