Two years after selling its Nifty copper mine to India's Aditya Birla for $159 million in cash and debt, Straits Resources has once again joined the ranks of Australia's copper producers. It is also about to begin gold production, has advanced plans for a solar salt project on the drawing board, and has boosted coal production at its Indonesian operations to three million tonnes a year.

 

It is that rarest of beasts in the Australian market today - an emerging mid-cap diversified resources company.

 

Driving the whole show is the Sebuku openpit colliery, which at current prices and following the appointment of a new contractor and a change in marketing strategy has transformed into a genuine cash cow.

 

The new contractor boosted coal production at Sebuku, located in Indonesia's remote Kalimantan province on the island of Borneo, to 2.6Mt last year from 2Mt in 2003.

 

After a bit of operational tweaking, Straits is confident the wash plant will produce 3Mt in 2005.

 

March quarter production was a little disappointing, but managing director Milan Jerkovic said a number of issues were being addressed to ensure the target is reached, including mobilising a sixth mining fleet and commissioning a second crushing screen circuit, which has added further flexibility to the bypass circuit at the washplant.

 

Historically, Straits concentrated its marketing efforts on the spot market but a change in strategy has seen the focus shift to longer-term contracts with mature customers.

 

The sea change is already bearing fruit. Straits realised $US26 a tonne for Sebuku coal in 2004, up from the $US20 a tonne it was averaging on the spot market in 2002 and 2003, and Patersons Securities expects it to exceed $US40.

 

Straits has sold a full year's production for the first time and is securing sales contracts for 2006. Most of the tonnages are for three to five years, with major power companies in Japan, Korea and Hong Kong targeted in addition to its ongoing relationship with a major utility in Malaysia.

 

This combination of stronger prices and an improved operational performance has boosted Sebuku's operating margins to a healthy 45%, compared with around 28% in 2002 and 2003. Austock forecast it would increase to 60% if prices remain firm and a tight rein continues to be kept on costs.

 

The entire production will be booked to Straits' account for the first time in 2005 after it mopped up a 20% minority shareholding earlier this year to take full control.

 

The Whim Creek copper operation near Karratha in Western Australia will also make its first contribution this year after the mine, which first produced 116 years ago, was reopened in early May.

 

But it has not been all smooth sailing. Straits chief executive Milan Jerkovic said construction had to be shut down for several weeks because it could not find labour, and at other times it was unable to take measures that would have accelerated the project. The four-month delay is likely to cost the company as much as $20 million in lost sales.

 

Whim Creek is now expected to produce around 10,000 tonnes of LME Grade-A copper cathode in 2005, increasing to full capacity of 15,000tpa in 2006.

 

Whim Creek takes Straits back to its roots. The equipment was brought over from New South Wales and the company's first mine, Girilambone, which underpinned its float more than a decade ago.

 

Whim Creek currently has about 6.6Mt in reserves grading 1% copper, located within the Whim Creek and Mons Cupri deposits.

 

The low-grade nature of the orebody means that bedding down the mining and processing operations will be critical in the project achieving a satisfactory level of profitability in 2005, Patersons said.

 

That level of reserves is sufficient for just four years of operations, but Jerkovic is confident there is enough geological upside for 10 years.

 

"We need to see eight to 10 years reserve life and annual production around 25,000 tonnes of copper for it to be a significant contributor to our long-term earnings profile," Jerkovic said.

 

He also believes there is potential for deeper sulphide mineralisation, and is weighing the options for building a concentrator to treat the sulphide ores. "In six months time we'll have a fair idea if it's doable," Jerkovic said. Ideally, a concentrator would service not just Whim Creek but other smaller or more marginal projects held in the district by other parties.

 

Straits also has big plans for copper beyond the Pilbara, and earlier this month made a proportional off-market scrip bid for Tritton Resources that could see it hold around 63% of the new copper miner – similar to the stake it held when Tritton undertook a $15 million IPO some 18 months ago.

 

"Essentially we may be looking at consolidating those assets into a single copper entity with some market size," Jerkovic said.

 

"If you look at where we're going, at 40,000 tonnes of production we're ahead of the pack generally ... and I think we can occupy that mid-tier ground that people are looking for quite quickly."

 

The third leg of Straits' immediate development plans, the Mt Muro gold operation in Indonesia, is due to come onstream mid-year.

 

Initial production is forecast at between 80,000-100,000 ounces of gold a year at cash costs of around $US200 an ounce.

 

At the end of last year the resource was upgraded to 600,000 ounces of gold equivalent.

 

"We believe we're dealing with a larger geological structure that may prove to be a significant find in the longer term," Jerkovic said.

 

All the mechanical and electrical refurbishment of the plant and equipment on site has been finished and dry commissioning of the crusher and other parts of the plant was underway at the end of May.

 

Operations will begin with lower grade material near the mine, ramping up to the 100,000tpa production rate once higher grade material from the Botol area is accessed.

 

Mt Muro was operated by Aurora Gold until 2002, when it experienced significant difficulties with illegal miners. Jerkovic said informal and illegal mining was continuing in the area but had very little impact on the reserve and resource area currently required for production.

 

"Our strategy is to employ locals where possible, giving them a positive social and financial outcome," Jerkovic said.

 

On the medium-term horizon, Straits has defined resources of more than one million ounces of gold plus antimony at its Hillgrove project near Armidale in NSW.

 

It is currently deciding whether to restart the operation using the existing infrastructure in 2006 at a capital cost of between $5 million and $10 million. The other option is to review and assess the larger gold potential, which Jerkovic said could take two to three years to complete.

 

Straits also plans to build a $130 million solar salt field on the eastern part of the Exmouth Gulf in WA.

 

Assuming all environmental approvals are received during 2006, development could begin in mid-2007 with first salt shipped two years later.

 

All this activity is having a massive impact on Straits' bottom line. Analysts are forecasting its calendar 2005 net profit after tax will more than double last year's $16.5 million result to above $50 million, an estimate Straits is comfortable with. -Australia's Mining Monthly