East meets west works best for base metals player

HAVING a major “eastern” investor with the understanding of a major base metals market has helped a base metals miner develop two major projects under budget.
East meets west works best for base metals player East meets west works best for base metals player East meets west works best for base metals player East meets west works best for base metals player East meets west works best for base metals player

Mark Davis believes MMG's "eastern" investor is its secret weapon.

MMG counts China Minmetals as a major shareholder and possibly one of its best weapons.

Thanks to that shareholder's patience and understanding of Chinese base metals demand MMG was able to develop the Las Bambas open cut copper mine in Peru and the Dugald River underground zinc mine in northern Queensland at times when very few were developing projects.

Had it tapped the Australian market like other Australian miners it would have been left waiting to get funds along with everyone else while demand for those metals languished.

That would mean that when the market turned it would have then found itself among the crowd scrambling to get materials and contractors to build its projects and facing all the cost implications that means.

Working counter cyclically meant MMG could cut some keen deals with its contractors.

MMG executive general manager operations of Australia, Africa and Asia Mark Davis told the AusIMM Global Mining Leaders 2018 conference that the east-west investment model had let MMG grow its asset base at a time when other models could not.

"They have a unique understanding of Chinese fundamentals," he said.

"China accounts for 50% of the world's copper demand."

Davis said in the traditional western model when the cycle turned down the standard response was to cut exploration and expenditure.

He said that was a major concern for miners going forward.

"When MMG decided to invest [in Las Bambas] it was a tough time for copper products," Davis said.

"We acquired it when it was 56% complete.

"We completed it under budget."

Davis believes the copper market has a unique forward look.

"There are significant pressures in supply going forward," he said.

"I think from a demand perspective there is an opportunity for that demand to be higher based on electric vehicles.

"That gives us the opportunity to bring new projects to life to feed that unique demand."

Having Minmetals on the register also allowed MMG to take its time developing the Dugald River zinc mine.

That mine has been on the books for at least 11 years.

Back in 2007 one of the big issues facing it was the power situation in Queensland's northwest.

Davis said the mine was one of the top 10 zinc mines in the world.

However, it also came with some technical issues in the underground workings that needed to be solved.

It took MMG 10 years to overcome those challenges.

The company was also dealing with very low prices in the zinc market.

"We had to take a business case to our shareholders," Davis said.

"They were enthusiastic.

"Then we took it to the banks. They were less enthusiastic."

MMG was able to leverage Minmetals' relationships with Chinese banks to get its funding.

The China Development Bank ended up putting up the funds for Dugald River.

Davis said he spoke to the man who was the doorkeeper for the bank's investment team.

He told Davis that he used to have a site in the US that he used as a reference as an ideal project.

"He said he now had a new reference mine, Dugald River," Davis said.

"He said that what he could see was that the $600 million they had given to us had been used well."

Part of that was due to the length of time it took to develop the mine.

Once the technical problems were sorted out MMG did extensive test work on the ore using the old Century zinc operation's plant.

That informed the development of the processing plant at Dugald River.

It turns out the 10 years of refining engineering plans led to a much more efficient and effective development.

The timing of the build also played into MMG's hands.

"The project execution was done at a time when we had access to 18 contractors at a time of an industry downturn," Davis said.

When the mine came on line the zinc price hit a 10 year high.