Document KRJdLB8O7aZa4rxLRrQ0zv2qr

t mmvfs EXHIBIT CSR-477 B-DEC-92 .... THU 1 V : 35 9 ' ASBEST O S O C I e T V OUST I H c p . e e RvftJiAW. -IJ* 29th Septeiiibar. )90C'. AUSTRALIA BLUB ASBESTOS PTY. LTD, Historical In 1943 developments tt Wittenoom through A.B.A. Pty., ltd. were commenced In order to produce erocidolitr. asbestos to provide row materiel for the asbestos cement industry in Australia and in the expectation that fibre surplus to Australia's need could be sold abroad. At tbx.-s time practically all asbestos fibre required by Aui-.u-nlinn * industry was imported and importance was attached to the project because of the difficulty of importation under war time conditions in addition to tno saving in overseas exchange. As far as I am aware no thorough investigation i the deposit at Wittenoom was made, the decision to proceed being made on outcrop readings and on Mines Department rcj.-orv which indicated minimum values of 3" of fibre over about 2'-0" of ore in the general Wittenoom ores, and indication? according to Mines Deportment reports of excellent continu. etion of the deposit over s vo3t area of the Homeroley r-anoo as judged by outcrops in the various gorges along the c Kamersley Range. After operations were eoinmenced and when results were not as good as anticipated, a reassessment war- made anu it was discovered that the fibre in tho wittenoom area war. unlikely to average more than about 2?j". nevertheless oper ations were continued. The company struggled on, with Government assistance in the way of roads, provision of water and general township houses and facilities, but by ).9!5 the company had accumulated losses of approximately fl.6CO.CC-3- Investigstlons in the meantime had indicated that s better ore body existed in Colonial Gorgo some two miles from Wittenoom mine. Diamond drilling was carried out to substantiate outcrop rending.'! anti, despite the difficult*'.* of diamond drilling at that timo, sufficient drilliny wus .carried out to confirm that a fairly large deposit of fibre values above 3" existed. A decision was made to op* up tu--> area, in the first place using the old'Wittenoom mill to process the ore. A little later in 1959, and following firm fibre contreets from Johns-Manville. a decision was made to instal an improved mill at Colonial Gorgo to treat the ere from that area end the Wittenoom operations were shut down completely. From 1957 to 1961 we were mining in Colonial Goi<;<in ore averaging about 3.4"' of fibre, and as a result ,\.!i.,\. Ltd. operated profitably, reducing the accumulated loss io almost zero. A dividend {the only one) of $364,200 was pai*. in 1960. From 1961 onwards, however, es the mine extended m from the gorge, ore values began to deteriorate gradually t? the present 2.8" approximately and once egain A.8.A. Ltd. operated at e loss each year. The P. 6 L. Appropriation Account now ahows an accumulated loss of approximately $2,500,000. By the time decreasing ore values were pporcM we had outstripped the boundaries of the diamond drilling .outcrop readings for the epee and it was decided to again diamond drill ahead of the workings to establish what values lay ahead. This further diamond drilling hod been avoided previously es it was known that it would bo difficult and costly 4 t -.he asbestos seam was dipping further below the. ground. A; thot time tho qnologints and the A.fl.A. 't-'t: otill beloved that oufceropo In a gorgo two inlluo now Colonial Gorge indicated without doubt that the deposit li- RECEIUEt- FROS 4445606 i:.es.m 10: 4 3 P. 0 3 -- SEC-92 THU lT:*e ASBESTO SO C IET V A U ST I NO R . S 2. on, at least for that distance. However, when wo commenced diamond drilling it beeame apparent that the Colonial Gorge deposit petered out rapidly end it is now believed, as a result of this and other prospecting in the Hamorsleys, thM-. the asbestos deposits are not continuous, but come and go, enrichments taking place in lens type elliptical crons just as they do in the South African asbestos deposits. The position now at colonial Gorge is that fibre values of about current value, 2.8", can be mined for perhaps a further three to four years and thon the deposit virtually cuts out. Following the discovery that the Colonial Gorge deposit did not llvo on, further prospecting was done in the general Wittenoom area by diamond drilling. We elso sought and obtained the essittance of the Western Australian state Geological service to carry out a geological survey in the Hamersley Ranges, with a view to endeavouring to determine what factors caused enrichments of fibre, so giving a load on how to find such enriched areas. Also, of course, it wo* hoped that the geological team might locate 6ome enriched pockets. To date the only success is that In tho Wittenoom area generally we have located and delineated an area of reasonable values et Eastern Creak, about two miles from the present mine. Diamond drilling is not statistically an accurate way of assessing overall fibre values, because the cost of drilling holes closely enough to obtain accurate Information is too high. However, on the Information we hove gathered on the Eastern Creek area from outcrops and from drilling, it appears that the area, viewed optimistically, mey contain about $0,000 ton* of fibre averaging 3.4" of fibre, or parhaps a total of 100,000 tons averaging 3" of fibra. if one took 2.8" as tha minimum mineable value,, then perhapo the area contains 200,000 tons, but it is not possible to see at present that anything less than 3" could, in fact, be mined economically, on the outcrop and diamond drill readings this area does not look as good as the Colonial Gorge area did at the same phase of operations. On the other hand, with rising costs an area considerably better than Colonial Gorge would be needed for profitable operation. The Western Australian Geological Survey has not come up with any firm indications of how fibre can be located, except from obvious outcrops. In the course of their work they did discover promising outcrop readings at Junction Gorge, $0 miles from Wittenoom, but this ereo has not been drilled. The outcrop does not Indicate an area any better than the colonial Gorge area end it would, in fact, hove to be considerably better than this to justify a new establish ment $0 miles eway from Wittenoom. We ere about to drill on this Junction Gorge area.- Mining Methods. The improvement in performance for a few years frem 1937 onwards was not only because of better fibre values, but also because of improved mining techniques which wore adopted when the Colonial Gorge mine was commenced. This method consisted essentially of ftining largo stopes to a height of only 40" to 42", leaving small pillars at about 30 ft. spacing. (The height has crept up to 44" lately.) With good economic conditions in Australia now and with ample work available in the Northwest of Australis, it is now difficult, indeed to get men to work in 42" high atopes, Irrespective of pay. A oyutom of mining/ using full toolroom for men has been evolved end reasonably proven in our present working?-. RECEIVED FROK 4446696 12.03.199: 10(44 F. 9 2 THU 1TS**1 ASBESTO S O C I E T V P UST INC p . 1 0 3. on a limited scale as a satisfactory method. If a new area was opened up it is believed that this method would haw to toe the one adopted In order to remove the disability of other wise working in 42" heights. Indications are that the system could possibly be cheaper than the present ono, apart from the advantages of bolng able to man it more easily. The variation In method is a long-wall system of mining. It hsc the disability that it requires a great deal of costly pre liminary development before one begins to mine ore on a commercial scale, and this, in turn, of course, mean3 con siderable 'outlay of capital expenditure before mining of ore can commence. Although the method has been reasonably proven in our present workings on a small scale, it is probably beyond doubt that when developed on a large scale many diffi culties will still emerge. Expert mining opinion is, however, that it should be possible to overcome eny such difficultly. It must be remembered, however, that this method was care fully considered some years ago when the 42" high stupa was adopted and on expert advice at the time was rejected because of possible difficulties with the roof caving and because of possible loss of fibre bearing ore. Selling Prices and Market. When we started mining at Wittenoom, the type of asbestos that occurs there - ereeidolite, or "blue" osbeste* was suspect as a fibra to use for the manufecture of asbestos cement. Today it is recognised as being as satisfactory o* the normally used chrysotile and now sells for this purpose at about the seme price, grade for grade, as chrysotile. It is now recognised as being worth about twice the price, erode for grade, as amosite fibre. Work done by C.d.ft. to prove that blue fibre was satisfactory helped materially to bring about this situation and augmented work by Johns-Manville. In recent years Herdie'e also have proven the efficiency of blue fibre for use in asbestos cement products, particular3y in pressure piping. In 1954, however, Hardie's would not recognise that blue fibre was worth more than amosite fibre and con sequently we could not obtain a market in Australia for the fibra we were producing et a reasonable price. We asked for and obtained a Tariff Board hearing with the object of get tin-, a form of protection which would force the use of blue fibru in Australia fce whet we believed to be the correct price for its quality, we were turned down by the Tariff Board who ac cepted Hardie's view that the fibre was only as good as amosite and so worth only $100 per ton approximately as eorpered to $200 per ton which we assessed as its proper value. later, in 1957, we entered into an arrangement viih Hardie's whereby we egreed to keep out of the asbestos cement industry as manufacturers and they, in turn, would purchase blue fibre from us at prices keyed to the price of chrysotile fibre. This meant a price of approximately $200 per ton. it also meant, however, that C.S.R. ceased to have a reason for mining fibre unless it was profitable. Over the past ten years fibre prices have fallen by some 7# despite the fact that the quality of fibra has im proved. Our basic costs at Wittenoom, however, have risen sharply, wages and stores having risen some 6o% to 70!!. Tor example, in 1956 a tradesman received a total of $36-SO per weak. Ha now receives $59-26 per week, and in addition wo hava to ensure a 6-day weok to keep such men, Hardin's hetvo continued to pay tin rr<oro for our fibre thin wo con obtain on tho world markot, dospito, tho fact that our grading has not been as good as fibre availaole fro > t lsowhere (because wo could not afford to make it so). Hardie's consider that they have been paying us about $10 p-:r ton more than tho fibre is actually worth based on whet ti.:y could otherwise obtain on the world market and it is diffi cult not to agree with this. We have been selling about half our output to Hardie's in recent years. At the beginning of this year we invited James Hardie Asbestos pty., Ltd. to study operations at Wittenoom with a view to them taking an interest in thia project as they were the largest user of the fibre produced there. They expressed interest and said that they did consider that it was desirable to obtain asbestos from Australian sources if possible, end confirmed that if the fibre could be upgrades to world standard that they would be content to go on using con siderable tonnages of Wittenoom fibre at about tho price thvy were then paying. After some further consideration of the matter they asked if Cape Asbestos Co. could join with them in an assessment of the prospects of Wittenoom with the in tention that if the prospects were satisfactory Hardie'# and Cape would join in tne project, Cape possibly supplying sumo technical know-how for operations, and in any case marketing any fibre that had to be sold abroad. We agreed to this approach. The assessment by Cape Asbestos and by Hardie's haa now been completed and as a result both Cape and Hardie's say that they cannot ace how they can Interest themselves in the venture. They cannot see that the area con be mined economically. They believe that the values of fibre are just too low and, in any case, they believe that on present indi cations the Ufa of the known ore deposits is so short (a maximum of about five years in their judgment) based on presently available information, that they cannot see that it is worthwhile trying to keep wittenoom alive. They cerethat based on South African experience, other pockets of asbestos fibre may be found, but by the some token consider that all the evidence to date is that even if such pockets are found they wi!2 be no better than tho ones already kr.tv.n. The position in South Afriee is somewhat different the Car-? people believe, because although the south African deposit? may not be as widespread as ours, they do get very good lcc-i pockets or enrichments, even up to IS" of fibre. It la the presence of these very good locel enrichments in South Afriee that enable them to mine the general run of country econo-ru;;.:. They cannot see any hop* of striking such rich local enrich ments at Wittenoom or in the Hemersleys generally. Tho obntroct nnd'conduoions section of Mr, v.uyf.*-'-* , report is attached. Tho full report Is available. Hr. Y.<w r concludes by saying "X cannot recommend that James Hardie u Co., Pty., Ltd. interest themselves in Wittenoom in any way-. Mr. J.T. Adamson in s letter to me which ececmpwned the report says "I suppose I should confirm in writing what I said to you last week - with the utmost regret my company has decided that it cannot accept your kind invitation to fee in the Wittenoom Eastern Creek proposition". As pert of his report Mr. Kuyper compares wittene' (Colonial Gorge) with the lowest grade mins they have in South Africa. This is their Koegas mine. This min* is 20 A 4 5-DEC-92 THU i T : * 3 ASBESTO SOCZ S T V t A U ST I HC P . 1 2 5. nilei from railhead to port compered to road transport of 180 miles for Wittenoom. Soma figures ere: Koaqas Colonial Gordo Kins Present If ore sortir.; Operations is instance a:.?. production lifted to 20,000 t.p.a. Deposit - inches of fibre (av. last yr.) 4.01 2.93 2.93 Direct costs - $ per ton fibre 133 184 145 F.O.B. cost including transport, depreciation and overheads (Depreciation at Koeges is only $7.68 compared to $33.47 at Wittenoom due to Wittenoom'! high capital cost for mechanisation.) 14$ 234 184 c This illustrates how uncompetitive wittenoom is compered to Cape's lowest grade mins. Ore Sorting. As mentioned previously we ere mining approximately 44" of rock' to btoin, say/ 3" of fibre. This means the ore is only 6% fibre. If ore of this quality Is milled the yield is very low and the fibre quality is ruined because of the large amount of rook ground with it. To avoid this v:e have a gang of man manning a picking belt where they endeavour to pick off and discard barren reek. Xt is Important in this operation not to dlseerd rock with fibre in it. By this means we can sort out end reject enough barren rock (15*,i of the total feed) to bring tho grade of ore to about 8*/.. we have now developed et Roseville a sorting device which should enable manpower for sorting to be eliminated n-.d should enable us to reject safely 30)4 of the mill feed, thus Increasing tho grade of ere milled to about 10*. Xt is be* lleved in fact that by installing two such sorters at different locations in the mill circuit we may be able to lift the amount of rock rejected safely without significant loss of. fibre to almost $0)4 of the total feed, so enriching the ore to about 12tt. Advantages Which should flow from the use of these sorters would bet 1. Reduction of men and reduction therefore in housing and township facilities. 2. Less wear and tear or\ the milling equipment. , 3.' Better quality fibr?. 4. Better yield of fibre per ton of rock mined.t The possible economic advantage for installation of these sorters at Wittenoom on the basis of producing 20.0C0 tons of fibre per annum has been assessed as follows: 9 22 THU 17:44 ASBBSTO l` i S O C I ETV A U S T INC___P .13 6. () Capital cost for two sorters installed $150,000 (b) Possible overall savings in cost and value of extra fibre recovery $300,000 p,. It must be emphasised that these figures are still to be confirmed by experience and that the electronic sorting device is still only in a development stage. At lower production retes the gain would be roughly pro rata to production, i.e. at our present production level of about 12,000 tons p,s..the gain would probably be about $150,000 p.e. The Putura Recent losses have been) Year ended December, 1952 - - 1*63 15 months ended March, 1965 12 months ended March, 1966 Current rate of less $235,000 p.a. $226,000 $615,000 $820. COO $850,000 p.a. The obovo results are after charging about $400.cco p.a. for depreciation of plant. Capital expenditure (so caller but it is essential expenditure to keep Wittenoom going), how ever. has been averaging about $400,000 p.a., so that current!;, our cash outgoings, neglecting change in stocks, are at uh<rate of approximately $650,000 p.a. We have been forced to increase wages at witter.oem in order to compete with the Iren ore ventures, etc. Having done this we arc not experiencing great trouble in getting enough men to man the trades sections, the mill section cd other surface sections of our operations. We cannot hold >:<?r, in tha vital underground sections, hovtever. and the opinion has firmed at Wittenoom that almost irrespective of comings and living conditions we cennot get and train and hold men :o work in 42"-44" of headroom. Even our efforts throughout tin. yeer to bring workmen in from abroad, particulorly from Lebanon, have been quite unsuccessful es almost ell of then heve now left wittenoom despite the fact that some of them reached the stege where they were earning very high money as underground workers. If the present opinion on labour is corroct (as 1 believe it is), then we cannot expect to do my better at Wittenoom in the present mine end may easily do worse, with rising costs wo now need to produce 400 tons asbestos per week at Wittenoom to just break even, wherein year ego we considered that at 300 tons per week we could arc-:) even. The mine staff hold out no prospect of being able to obtain labour to produce 300 tons per week, let alone 400 tour: per week. We could change over our mining to full headroom long wall mining. This would probably take us close to c-o years to complete and in the meantime there would be little Improvement to costs. At the end of that two years we would then have et most two jffears life left in the mine. It must he emphasised too, that wa do not know whet our loss of fibre may be with this new system.- Assuming w instel electronic sorting and that it lives up to its present promise, and do change the mine over to a-long wall system, then the position over the next two years could be guossed at, something as follows) 5-DEC-92 TWU X T : *S ASBeS To s o c i e t v AUS T I MC R . 1 4 7. 6 months operating es now (it will take 5 months to instel the sorters) Cash Loss 1 400,000 18 months change-over period but with electronic sorting 4 (losses continuing at $800,000 p.a. but less the saving of $150,000 from sorting) 973.OOP 1,375,000 After that we could operate for two years end on the assumption made thot we eould then get enough labour to enable us to produce 20,000 tone p.a., ve could just about operate on a break-even cash basis. It is attractive to lnstal the sorting equipment to prove just what it may save end the effect it has on milling operations end to convince others in the mining field that we have e valuable invention. On these estimate#, howevor. it cannot possibly save enough to warrant us doing this because its presence makes no difference to the vital factor which limits production i.e. gotting men to work underground. Eastern Creek Area. To open up the Eastern Creek area, erect new plant there and carry out the very considerable mine development which is necessary if we adopt the long-wall system of mining would be very difficult if we attempt it whilst still trying to operate our present mine. Each operation would interfere with the ether. We would need mere men, more accommodation and so on. For the purpose of this particular estimate 1 am. assuming, therefore, that our present operations are shut down and that we treat Eastern Creek as a new venture carrying none of the burden of depreciation of plant or of write-off of development from the existing operations, but on the other hand, taking free advantage of any assets that are at present at Wittenoom, Hew Capital cost. Crushing plant, ore sorting, sundry other equipment, roads, etc, $600,000 Alterations to existing mill 300.000 Hew mine equipment for complete mechanisation 350.000 Mine development ($500,000 before mining operations can commence rising to a peak of $1,000,000) 1,000,000 W $2,150,000 Zn addition the township would need to be upgraded. This could cost $1 M. if done properly, but at least probably $500,000 expenditure would bo essential. This nov; copitol has not been taken into consideration in the figures below. It has been assumed for the present purpose that Government would havo to provido thia if wo voro to deddo to go oheao. Depreciating the cssets involved in this Eastern s-nec-92 T MU 1 ? S ftSBCSTO S o C I E T y_ OUST IMC P.1S e. Creek development over five years (which would be the life el the mine et 20,000 tons p.a, rate>, total cost of fibre ex Wittenoom is estimated by Mr. Broadhurst to be 1144 psr ton. if an average selling price of $165 per ton ex v.'itter.u'?.Is assumed, then the profit Is $21 per ton, or say $400,000 p.a., or say 20# p.a. return on the $2 M. risk (no tax would be paid). This is the most optimistic presentation that con be made. It assumes a 20,000 tons p.a. rate which we have 4 never achieved end involves considerable changes and develop, ments in mine mechanisation, the effectiveness of which has not been proven at Wittenocm. It also ignores the probable high cost of building up the labour force again in order to enable a production level of 20,000 tons p.a. to be achieved. If one is more conservative, assumes an average output of 15,000 ton* p.a. and bases estimates on the present type of mining equipment now being used, then the cost of fibre ex Wittenoom la estimated to be $170 per ton as compared to the selling price of $165 per ton. Under these circumstance* the operation would result in a loss, that is we could not i-.-n fully repay the new capital over a five year period. St could be hold, of course, that in tho next fivo years other areas worth mining may be found and that hence the depreciation of all new assets over five years is un realistic. However, to offset this view, one must consider - (a) that from our experience to date establishment charges at any new area may be again at least as much as we are now proposing for the Eastern Creek area; (b) no provision has been mado in assessing the capital cost above for the continuing capital expenditure which always seems inevitable whilst operations continue; it) our experience at Wittenoom has been that performance is always worse than estimates. Government. Help which is within the power to give by Government if they wish to do sc is; (a) Up-grading the township. As stated above it is esti mated that a minimum of $500,000 would be required to bring the tovmship to something approaching the type of accommodation and conditions generally which will apply to the iron ore ventures and which people in these localities will no doubt demand more and more. (b) Government could subsidise development as they do for gold mining, for example. On the basis of the figures presented, we would need a subsidy of something like $30 per ton to encourage us to go ahead. On 100,000 tons of fibre and five years operation this is equivalent to $3 M. subsidy by the Govern ment. Even if one could conceive of the Government agreeing to subsidise to this extent! it would be difficult to do it on development alone as the totsl development undor the normal definition of that word st Eastern Creek would not be mora than $1 M. It ia certain from poafc oxporionco that negotiation with the Government for lerge amounts by way of subsidy or K-Att.TM l-auM 1v* vw*y pirotcnOMiA* i