West Perth-based Murchison Metals Ltd has confirmed its 375 million tonne estimate over the 15-year mine life of its Jack Hills iron ore project, saying in an announcement today that Midwest Corporation Ltd's statements about the project were incorrect.
West Perth-based Murchison Metals Ltd has confirmed its 375 million tonne estimate over the 15-year mine life of its Jack Hills iron ore project, saying in an announcement today that Midwest Corporation Ltd's statements about the project were incorrect.
Murchison is in the process of conducting a scrip takeover of Midwest, which in turn questioned the relative value of the company's iron ore resources and therefore of the Murchison shares being offered in the bid.
The full text of a Murchison announcement is pasted below
Perth, Western Australia, 23 November 2007 - Murchison Metals Limited is pleased to provide further information in relation to its aggregate target production estimate of 375 million tonnes1 over the proposed 15 year mine life of the Jack Hills iron ore project in the attached "Overview of Jack Hills Project Resource Potential".
This includes the information on which Murchison has relied and the methodology Murchison has used in forming its views on the resource potential.
Murchison has obtained confirmation from independent specialist iron ore group Ferrum Consultants that Murchison's methodology is reasonable (see further comments on the following page and information in the Overview attached to this announcement).
Whilst Murchison believes that its prior disclosure in relation to targeted production is both reasonable and consistent with accepted market practice, Murchison is making this additional disclosure in light of statements made by Midwest in its Target's Statement as to the resource potential of the Jack Hills Project.
In the first 26 pages of Midwest's Target's Statement there are no less than 20 references to the AMC report and the reliance the Midwest Board has placed on AMC's report to justify rejection of the Murchison offer.
For the reasons set out below, Murchison believes that the Midwest Board has failed to make adequate reference to the fact that AMC qualified its report in a number of significant respects and that any recommendation to reject the offer arising from reliance on the AMC Report should also have been significantly qualified.
Murchison believes that Midwest's statements about the resource potential of the Jack Hills Project are incorrect.
Resource potential of the Jack Hills Project
As announced on 21 November, Murchison expects to release an update to its JORC compliant mineral resource in the week commencing 26 November 2007.
Murchison has previously announced a JORC compliant Mineral Resource of 97Mt. This Mineral Resource is based on drilling in an area that comprises approx 20% of the Jack Hills Project area.
Murchison stands by previous announcements to the market in relation to the target to expand production at Stage 2 of the Jack Hills Project to up to 25Mtpa over 15 years, which implies an aggregate targeted production from the Jack Hills Project of 375Mt¹ over the proposed life of mine. This proposed expansion is the subject of the bankable feasibility study which is progressing well and, as mentioned in the Bidder's Statement, is expected to be completed by the end of 2008. The achievement of this milestone is subject to the outcome of the studies, government approvals and time taken by the Western Australian Government to select an infrastructure provider.
Targeted production is a concept used by both Murchison and Midwest and is relevant to enable the market to assess the potential scale of the projects which may be developed and whether the proposed projects are expected to be able to support the infrastructure which will be required for those projects to proceed.
To support the aggregate targeted production for the Jack Hills Project, a number of exploration targets have been identified and are being actively explored. These targets give an indication of the resource potential of the Jack Hills Project area, but do not comprise a JORC compliant Mineral Resource.
Murchison's current estimate of the aggregate of the size of the exploration targets for the Jack Hills Project comprises a range of between 301Mt to 516Mt, with a midpoint of more than 400Mt2.
The Overview attached to this announcement provides a summary of the information on which Murchison has relied and the methodology that Murchison has employed to form its views on the resource potential of the Jack Hills Project. Ferrum Consultants, an independent specialist iron ore consulting group, has conducted a limited scope, high level review of the methodology applied by Murchison to assess that resource potential and has confirmed that the methodology adopted by Murchison is reasonable.
The attached Overview also includes maps which indicate the areas within the Jack Hills tenements from which Murchison currently believes production is likely to be sourced over the life of the project.
In Midwest's simplistic assessment of the resource potential of the Jack Hills Project in its Target's Statement, Midwest seeks to apply a conversion factor from resource to reserve of 75%. The level of conversion of a Mineral Resource (or for that matter an exploration target) to Ore Reserve depends on a range of project specific factors including the initial parameters adopted in estimating the target or resource and on the nature of the deposit and economic circumstances relating to the project at the time of completion of the relevant bankable feasibility studies. There is no standard industry conversion factor which can be applied to a project such as the Jack Hills Project. Notably Midwest applies various conversion factors of between 98% to 75% to its own resources and exploration targets. For the reasons set out in clause 7(a) of the Overview attached to this announcement, Murchison believes that the resource potential of the Jack Hills Project supports its targeted production estimates.
Midwest's misuse of AMC's report
The Midwest Board commissioned AMC to undertake a desk top review of the resources potential of both companies. AMC did not have access to non-public information, did not visit the Jack Hills site and did not have any discussions with technical employees and/or external consultants used by Murchison.
AMC's report is heavily quoted in its Target's Statement and is relied on by the Board of Midwest as a key justification for rejecting Murchison's offer.
As stated above, in the first 26 pages of the Midwest's Target's Statement there are no less than 20 separate references to the AMC report and the reliance the Midwest Board has placed on AMC's report to justify rejection of the Murchison offer.
Murchison believes that the Midwest Board has failed to make adequate reference to the fact that AMC has qualified its report in a number of significant respects and that any recommendation to reject the offer arising from reliance on the AMC Report should also have been significantly qualified.
In terms of relying on the AMC Report as a basis for assessing the resource potential of the Jack Hills Project, the following important qualifications to AMC's Report need to be taken into account:
- the report is expressed to be subject to a number of constraints including "limited scope, no site visits and no access to Murchison technical and management staff and limited access to detailed technical information";
- the report is based solely on public information pertaining to Murchison. Murchison notes that AMC did not request, nor did it otherwise obtain access to, a vast array of data that Murchison has assembled on the Jack Hills Project over the last 2 years;
- the report states that "Limitations to the drillhole records, geological understanding and time available have prevented AMC from carrying out a full resource estimate".
Murchison notes that two representatives of AMC had just two weeks to consider and prepare a report on the geology and resource potential of both the Jack Hills and the Weld Range Projects;
- the report notes that "AMC considers that the level of its work completed for this IR is "best endeavours" restricted by time and information availabilities. While [AMC] believes that its conclusion and estimates are reasonable for the high-level nature of the assignment, AMC cannot warrant that its assumptions used in developing those conclusions and estimates have resulted in a complete and reliable assessment";
- the report notes that "it is pertinent to note that AMC has only been able to obtain results for 356 of the 419 drillholes as referred to above and, therefore, AMC's assessment may not be accurate or complete if the missing data are from locations that would materially affect the estimate" - something AMC could presumably not determine given its lack of access to key data. (The Jack Hills drill program to date comprises over 540 drillholes meaning that AMC has only reviewed 66% of available drillhole data);
- the report does not comply with the ValMin Code (the code governing technical assessment of mining assets);and
- the report states in relation to the nature of the ore at Jack Hills that AMC requires "...further work to get a better technical understanding of it and more rigorously consider the economic viability of the identified resources and the resource upside".
As the attached Overview to this announcement explains, Murchison has, in making statements about its resource potential, considered a wide range of information from a variety of sources concerning the Jack Hills Project including:
- existing resource and reserve information;
- drilling data (including available historical data);
- detailed surface mapping and onsite assessment of matters such as geological structures, outcropping and topography;
- experience and knowledge gained from site visits by company geologists and external technical consultants;
- experience gained from the existing Stage 1 open pit hard rock mining operations;
- historical data gained from previous owners and previous exploration and assessment activities;
- computer generated modelling of the ore body; and
- internal and external reports on other technical matters relevant to the ore body such as metallurgical assessments, bulk density calculations, resource interpretations and grade simulation methodology.
Apart from publicly released drilling data, neither Midwest nor AMC has had access to this information. AMC indicates that due to "time and information constraints" to prepare its check estimates, it has loaded the limited available drillhole data into its software and interpreted and adjusted that information.
Midwest and its directors are aware, or ought reasonably to be aware, that without access to all material information and data neither AMC nor Midwest is able to accurately calculate or "second guess" the resource potential of the Jack Hills Project. That is why AMC qualified its report in the way it did.
The importance of access to the non-public information described above is best evidenced by the fact that AMC's assessment of Midwest's resource potential has been based on a review of considerably more information than just the publicly available drill results. AMC has, quite properly, considered non-public data held by Midwest (such as discussions with management, surface mapping and sampling information) in order to identify resource potential in areas where Midwest has yet to conduct any drilling.
In this regard, Murchison notes that AMC was able to attribute an additional 62 - 128 million tonnes to the Midwest resource potential based at least in part on "reconnaissance assessment", rock chip samples and either limited or no drilling. This represents some 35 - 50% of Midwest's total assessed resource potential.
By way of further example, Murchison notes that Midwest's Wilgie Mia North area has an AMC assessed resource potential of 30 - 70Mt based only on "reconnaissance work". This is a project area that has not been drilled. From a search of ASX releases and other public sources of information Murchison has been unable to find any public data on the Wilgie Mia North. Whilst no drillhole data was available, Murchison notes that as a consequence of "discussions with management" and a review of other non-drill related data, AMC was able to assess significant additional resource potential at Wilgie Mia North.
As AMC has quite rightly acknowledged, any assessment of the resource potential of the Jack Hills Project which is based solely on published drill data, is carried out in just two weeks and is completed without access to key data and technical personnel must be appropriately qualified.
Murchison's Chairman, Paul Kopejtka, said the Company remained confident about the resource potential of Jack Hills.
"With our partner Mitsubishi, we are pushing ahead very positively on a wide range of fronts with the development of both the Jack Hills Project and the associated rail and port infrastructure," Mr Kopejtka said.
"Whilst we are obviously very concerned about the way in which the AMC report has been used, we are encouraged that the Midwest Board has acknowledged in the Target's Statement that if a full merger occurred there is synergy value to be created for shareholders of both companies and there is the prospect of a re-rating of the combined group."
"We remain convinced that the logic of jointly developing these projects is compelling and that the timing is right for both companies."
