Fingers crossed for Adelaide miner
Local investors in Adelaide-based junior miner Western Desert Resources will have to wait on a report from administrators Ferrier Hodgson before knowing whether the once high flying stock will survive.
WDR’s chairman is Rick Allert, the prominent Adelaide businessman who’s been behind a string of major ventures linking the Northern Territory and South Australia.
Local investors have been enthusiastic about the stock’s prospects in the last two years.
The junior miner’s board appointed voluntary administrators and receivers on Friday after Macquarie Bank withdrew financial support.
“The recent substantial fall in the iron ore price to a five-year historical low, which shows no sign of abating in the short term, when coupled with a strong Australian dollar, has substantially contributed to this outcome,” the miner said in a statement.
The move comes after the price of iron ore fell to fresh lows of US$83.60 a tonne on Friday – well down on its 2011 high of US$186 a tonne.
WDR’s share price had risen above 90 cents shortly after the price of iron ore peaked – its shares closed at 14.5 cents Friday.
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The price of Australia’s most important commodity has fallen more than 37 per cent in 2014 due to additional supply hitting the market and slowing economic growth in China.
Western Desert said it had held ongoing talks with its banker about the restructure of its project finance, debt repayments and working capital.
However Macquarie withdrew its offer for short-term support last Wednesday.
The miner said while it had received other offers of financial support, it had been unable to seal any firm commitments.
Shanghai-based CSLA analyst Ian Roper expects iron ore prices to fall to around $75 in the longer term.
A report last week by Roper said if the price falls below $US80 a tonne for a prolonged period, more than 80 mines worldwide will need to close, including 13 in Australia.
Allert has a long standing connection to the Northern Territory – he was one of the driving forces behind the completion of the Adelaide to Darwin rail link in 2004, and is a former head of the NT Development Corporation and other NT ventures.
The former Adelaide Crows deputy chairman issued a statement on Monday expressing his surprise at the WDR collapse.
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“But nobody can anticipate a fall in the iron ore price from $US136 a tonne when we opened the mine in December to $US84 a tonne,” said Allert, who owns about 4 million shares.
“It’s putting a strain on every iron ore producer, particularly the smaller ones.”
His partners in the venture include Australia’s biggest pub owner Bruce Matheison, former major Billabong shareholder Scott Perrin and former Woolworths chief executive Roger Corbett.
Corbett, chairman of Fairfax Media, told The Age’s Business day he was “naturally very disappointed”.
“It’s a very good deposit of iron ore,” he said.
“It’s got some wonderful logistics facilities to mine it and of course through some unfortunate circumstances getting the logistics running they ran out of money, and when you run out of money and you can’t refinance yourself you go into liquidation.”
The collapse of WDR comes after the Chinese-backed Cairn Hill mine in South Australia closed due to similar commodity price concerns.
A year ago investors in WDR were smiling when China’s Meijin Energy offered $1.08 per share for Western Desert; the offer was withdrawn shortly after.
Ferrier Hodgson told media it had sent staff to the remote NT mine on Saturday where they are assisting in taking control of the site, while others are at Western Desert’s head office in Adelaide.
“We’re currently conducting an urgent assessment of where the operations are at and what decisions we can make going forward,” the company said.
If WDR can survive the setback, investors might still be well rewarded in the long term; in the meantime, it’s a nervous wait.
Another SA company, minerals explorer Royal Resources, may have picked a bad time to raise capital, in the light of the WDR collapse.
Royal announced it $4.183 million capital raising on Monday.
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