Magazine Interview
25 7월 2001 - 6:07PM
UK Regulatory
RNS Number:4514H
AuIron Energy Ld
25 July 2001
25 July 2001
Wall Street Reporter Interview
Edited, Agreed Text
WSR Introduction:
AuIron Energy Limited, headquartered in Sydney, Australia, is a diversified
resources group whose primary focus is the South Australian Steel and Energy
Project (SASE). The Group is developing the commercial application of the
AusIron smelting technology to produce 2.5 million metric tonnes of pig iron
per annum using coal and iron ore from the Group's resources in South
Australia. The Group's UK focus is the Ballymoney Power Project for the
possible development of a major electricity generation facility and mine on
the Group's 660 million-tonne lignite (brown coal) resource in Northern
Ireland.
URL: www.auironenergy.com.au. E-mail: auiron@auironenergy.com.au. Phone:
+61-2-935 72044. Fax: +61-2-936 81313.
Neill F. Arthur, Managing Director & Chief Executive Officer, spoke with Wall
Street Reporter Magazine.
WSR: I understand that there has been a very strong interest in AuIron
from a company called Capital Group. Could you tell us about that
relationship and the core business of your company?
AUY: One of the reasons for the interview is the recent investment by
Capital Group from the United States. Capital, of course, is one of
the world's largest fund managers. The fact that it has become one
of our largest shareholders is of great significance and obviously
also a vote of confidence in the assets and management of AuIron.
Capital is actually one of the largest foreign investors in Australia
and it has substantial positions in great companies like BHP-
Billiton, Fosters Brewing and SouthCorp, just to name a few. These
are obviously high quality, long term exciting businesses. They
are growing companies in the real economy and we're very pleased to
be in that same category. AuIron has just been included in the new
global materials fund manager index put out jointly by Morgan Stanley
and Standard & Poor's and we're one of only 30 Australian companies
in that index.
WSR: There is a tremendous focus right now on the energy sector. Given
the landscape, how is AuIron Energy positioned to take advantage of
the market opportunity?
AUY: We have two great energy assets. We have almost 16 billion tonnes
of coal in South Australia, all low ash content steaming coal for
power generation use, and we have the UK's biggest coal deposit at
Ballymoney in Northern Ireland. In Northern Ireland we have almost
700 million tonnes of very low sulphur content lignite or brown coal.
So, with our company an investor actually gets two legs up in terms
of value adding to energy: first, a very competitive position in
owning part of tremendously large coal assets (equivalent to over 5
tonnes of coal per issued share) and secondly, based on both of those
coal assets, we have two very large value adding projects. So AuIron
investors will get both sides of the equation.
WSR: What are some of the value added opportunities and services that
AuIron Energy brings to the marketplace today?
AUY: In Australia the main project is what we call the SASE (South
Australian Steel & Energy) Project. Ultimately, this will be a
billion-dollar investment. The intention of this project is to use
our own coal and our own iron ore; we've got a billion tonnes of iron
ore as well. We will be processing those directly, using leading
edge direct smelting technology to produce high quality pig iron for
the world steel industry. Pig iron is the intermediate key raw
material for making steel, especially in electric arc furnaces, and
that's basically the only profitable part of the world steel
industry. The technology is Australian-owned.
We have built a $20 million demonstration plant in South Australia
which has been successfully operating since November of last year.
We are close to finalising the planned operating periods of that
plant. So by the end of this year, we will be completing a
feasibility study for the commercial plant and we expect to be in
operation in 2004 to produce 2.5 million tons a year of pig iron.
Just to give you some indications of values, the current price in the
United States for pig iron is approximately $120 a tonne in a recent
tender with Nucor. We expect that our cash operating costs will be
less than half of that figure. Many people believe that we will
actually become the world's lowest cost producer. So that's an
indication of the potential value that AuIron investors would get
simply through that project.
But there is actually more to the South Australian project than that.
The technology that we're planning to use will co-generate
substantial amounts of cheap electricity from smelter waste heat.
The South Australian electricity market has much in common with
California. The power industry is in one heck of a mess due to
regulatory disadvantages, shall we say, and so with AuIron being able
to co-generate surplus electric power at virtually zero marginal cost
from waste heat is a tremendous potential upside for our project.
So, we're looking forward to crystallizing that value for our
shareholders when we finalize the feasibility study later this year.
In South Australia, because we have so much coal, we are also looking
at developing substantial markets for steaming coal itself, both for
local and overseas power stations. To that end, we've recently
completed a trial coal mine and we've extracted bulk samples ready
for power station testing as well as testing in the SASE smelter.
WSR: You've been telling us about a brand new technology platform that's
going to revolutionize existing platforms. In addition to that,
could you discuss the cost structure of AuIron Energy, one that is
very efficient and gives you a great competitive advantage?
AUY: The cost structure for our business and our projects derives from
some important key advantages that one has for projects in Australia.
Firstly, I suppose the Aussie dollar is only about half the value of
a U.S. dollar. Secondly, our major coal and iron ore assets can be
mined extremely cheaply. Thirdly, the technology we're planning
using will have a capital cost that is probably less than one quarter
of the capital cost of the traditional iron and steel industry. So,
we have a tremendous advantage, not only in operating costs but also
in capital costs.
Finally, in terms of management of the company, it's a conscious
policy that we try to employ and retain the very best people we can
find and the rest of our workforce and assistance is basically
contracted employees and consultants. So, we endeavor to keep our
overhead costs to an absolute minimum. Again, looking after
shareholders' interests.
WSR: Tell us about your background, some of the key players in your
management team and the overall structure of your board of directors?
AUY: Starting with the board of directors, the non-executive chairman is
Alfred L. Paton. He was formerly chairman of ABN Amro Hoare Govett
in Australia, a major European banking equity group. He was also
chairman and managing director of Placer Pacific in Australia and a
member of the Placer Dome Canada board. He has an outstanding
background in both mining and finance over a long period of time.
Louis A. Clinton, the non-executive deputy chairman, will be of
particular interest to American investors because he is actually an
American. He was originally chief financial officer of Freeport-
McMoRan and was with Freeport for 35 years. For his last eight years
with Freeport he was president and CEO of Freeport-McMoRan Pacific
and put together $4 billion worth of project financing for the major
Grasberg & Ertzberg copper and gold projects in Indonesia which are
the world's largest gold and copper projects. We also have the
former legal counsel for Rio Tinto in Australia on our board, as a
non-executive director, as well as several other key people from the
mining and finance industry.
In terms of management, I've been with the company 14 years. I've
put together the two major projects that the company now has. I was
appointed chief executive about three years ago and we've driven the
company forward quite significantly in that time. My background is
that I'm a chemical engineer by training. I spent 20 years with a
blue chip company in Australia called CSR and was involved in the
running, acquisitions and mergers of a number of resources businesses
particularly in the iron ore and coal industry and other energy
infrastructure matters. I was then headhunted and appointed
chief executive officer of the Coal Corporation of the State of
Victoria. I set that up and ran it for the Victorian government for
three years before joining AuIron Energy. I was retained by McKinsey
in the early 1990's to advise the German government on the
privatization of the East German coal mining and power industry after
the wall came down. My principal background has been in mining,
finance and corporate strategy over a long period of time.
My senior staff team includes: Ian Mutton, who was general legal
counsel for the blue chip CSR in Australia. The guy running our pig
iron project, Greg Hawkins, has 30 years experience in the iron ore
and steel industry in Australia and North America. The man running
our Northern Ireland mining and power project, Walter McClay, has 20
years experience in the power industry, has been to Harvard and was a
director of one of the United Kingdom power utilities. Our CFO is
Joe Fontana - 14 years experience in the mining/finance industry. Our
Corporate Affairs man is Graham Haddow, formerly 2IC in the South
Australian Government Mines and Energy Department.
So you can see that we've actually targeted and retained the best
possible people we can find.
WSR: What are some of the strategies to enhance and bolster the growth
of your company and increase its intrinsic value?
AUY: We are driving forward to complete the feasibility study for the
pig iron project in South Australia. That study should be finished
by the end of the year, so we should be starting construction of the
billion-dollar project in the first half of next year with full
production within two years after that.
In Northern Ireland, with our Ballymoney Coal Project and Power
Station Project, we have recently advertised for the appointment of
financial advisers and have had responses from 13 major banks and
financial institutions keen to join the project. We expect that over
the next months we'll be requesting proposals from power station
partners to join the project, and we'll be pushing forward to
complete the feasibility studies and apply for planning permission
for the mine and power station there. In Northern Ireland and the
Republic of Ireland, there is basically another California-type power
crisis coming and we are very well placed to become the lowest cost
generator of power for the whole of the island of Ireland.
So, in South Australia and Northern Ireland we expect to become the
lowest cost producer and that obviously means a great deal in terms
of intrinsic value coming through for AuIron shareholders.
That's not only our own conclusion because we've had two major
broking research reports produced by Salomon Smith Barney
(Citigroup), one in July last year and one in January of this year.
Both of those reports, the first one of which was 110 pages, pointed
to the significant upside in both AuIron share value and future
profit and dividend growth.
WSR: As we move forward what are some of the exciting near-term
milestones you see for AuIron?
AUY: We expect to announce over the next couple of months the successful
completion of the operations of the pig iron demonstration plant. We
expect to have several announcements about who are the participants
in the pig iron projects that we believe we can undertake in this
region; we expect also to have some announcements about the
development strategy of the Ballymoney Northern Ireland project.
Recently, we completed a fully underwritten rights issue and the fact
that that was done by Old Mutual Securities of the UK at a premium to
the then market price and has been fully subscribed, I think is an
indication of the great deal of interest in the company's projects
and value going forward.
I neglected to mention at the start of the interview, that we, in
fact, already have a trading facility in New York on the over the
counter Bulletin Board section and our code there is ARONF. That
wasn't organized by us but by another party in the United States. So
there is some trading that takes place already in the United States.
END
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