After more than three years of disappointment in its search for large gold deposits in Mondolkiri province, Australian mining firm OZ Minerals announced yesterday it has decided to sell its Cambodian assets to another Australian company.
In a statement to the Australian stock exchange, OZ Minerals said that it had sold its gold resource in Mondolkiri province for AU$17.8 million, or $19.2 million, to Renaissance Minerals Ltd, and that a further $24.3 million would be paid to OZ Minerals in the event that Renaissance Minerals actually extracts gold.
As part of the deal OZ Minerals will also purchase $5.4 million worth of shares in Renaissance Minerals, making it the company’s largest shareholder.
The decision comes after OZ Minerals conducted a string of recent exploration activities in an attempt to add to an initial resource of 605,000 ounces of gold that was announced in early 2010. Shin Ha Mining Co, a former partner of OZ Minerals, is also considers legal action against OZ Minerals for allegedly withholding mining data from its explorations in Mondolkiri before buying Shin Ha out of the operation in 2009.
OZ Minerals yesterday said that the reason for the sale was down to the lack of gold discovered at its Okvau-Ochhung concession in Mondolkiri as well as a strategic decision to concentrate more on mining copper elsewhere.
“OZ Minerals sought to develop and operate a mid-tier gold mine in Cambodia and to this end took its Cambodian interests from a grassroots project to an identified gold resource,” Terry Burgess, CEO of OZ Minerals said in a statement. “However after review, we have concluded that this project does not fit within OZ Minerals strategy with regard to scale in relation to the commodity and our overall preference for mid-tier copper projects.”
Since its creation in a 2008 merger between Oxiana Ltd and Zinifex Ltd, OZ Minerals has been beset by ups and downs. In 2010, the firm offered the market much to ponder when it announced it was expecting 2 million ounces of gold resources from its Mondolkiri explorations. But a year later, the company had changed its tone and was informing the market about its “disappointing” results from activities in the province.
Midway through 2011 it was reported that OZ Minerals had paid hundreds of thousands of dollars to family members of government officials inside the Ministry of Industry, Mines and Energy. Both the government and OZ Minerals denied that any wrongdoing was involved in the payments, and police in Australia have declined to confirm whether or not an investigation is taking place in the country.
OZ Minerals declined to comment as to whether the sale was linked to an investigation of its operation in Cambodia by Australian authorities.
In buying OZ Minerals’ assets, Renaissance Minerals said in a statement to the Australian bourse yesterday that it had acquired an initial gold resource of 729,000 ounces.
Justin Tremain, managing director for Renaissance Minerals, said the size of the resource in Okvau had been revised upward thanks to the discovery of a “new independent resource” that had been recently identified by OZ Minerals.
In a telephone interview from Perth, Mr. Tremain said that the investment had been made with the aim of increasing its gold discoveries in Mondolkiri to between 1.5 to 2 million ounces. But extraction could go ahead even if the resource does not reach that size.
“That’s the potential which would justify a large operation,” Mr. Tremain said referring to a resource of 1.5 million ounces and above. “We need to look at the economics of mining the existing resource,” he added.
Analysts said that OZ Minerals’ decision to leave Cambodia was not likely to have a negative impact on how investors perceive the potential of the extractive industries here as OZ Minerals had bought so many shares in Renaissance Minerals.
While the resource proved too small for OZ Minerals it could still prove to be a successful purchase for a smaller mining firm such as Renaissance Minerals.
Since coming to Cambodia, OZ Minerals has spent millions on exploration. In January 2011, the company announced it had reached an agreement with an unnamed company in an area called Mesam in order to conduct more exploration. But results from the area were unable to convince OZ Minerals that it was worth pursuing its Cambodian project.
“I don’t think this decision [to sell] is really relevant to the overall gold prospectivity of Cambodia, it would have to be considered more relevant to the gold prospectivity of [OZ Minerals’] tenement package,” said Jo Battershill, an analyst at UBS Bank in Australia.
Still, by selling its assets, OZ Minerals has dampened expectations that Cambodia would one day have a recognized global company in charge of operating a large-scale gold mine.
Richard Stanger, president of the Cambodian Association of Mining and Exploration Companies and managing director of Liberty Mining International, said the move should not be seen as a hit to the potential of Cambodia’s wider mining industry.
“It says nothing about the size of possible resources in Cambodia. It is simply a strategic decision of OZ Minerals to sell to a company with the capability to further explore and develop the project,” he said. “OZ Minerals have a number of focus areas globally and only so many people to explore and develop them. Most importantly, the focus of OZ is copper.”