Chairman’s Report
Dear Shareholder,
Following the significant changes within your Company outlined in last year’s Annual Report, I am pleased to report that, during the 2007 financial year, Breakaway moved quickly to implement the key elements of its growth strategy as a leading Australian nickel and base metals exploration company.
The restructure of the Company – including the acquisition of a premium portfolio of Australian nickel exploration assets from LionOre Mining International Ltd and a $13.5 million capital raising – was completed in August 2006, clearing the way for the integration of the assets and exploration teams from the two companies. LionOre was subsequently acquired by Norilsk Nickel, which is now Breakaway’s largest shareholder with a 19.75% interest.
Under the leadership of our Managing Director, Peter Buck, our exploration team moved quickly to recruit additional highly skilled and experienced personnel, and to establish all the required infrastructure and support to underpin a world-class exploration effort. In the current competitive environment in the mining industry, this in itself is no mean feat.
We relocated to a new modern office headquarters in West Perth in December and we now have 17 full-time geological, technical, administrative and support staff in place – ably supported by a group of highly skilled contractors.
With our expanded asset base comprising more than 3,300km2
of prospective tenements, one of our first objectives was to carry out a strategic review of our exploration portfolio in order to prioritise our projects. This was completed in March and as a result, we established two key operating fronts – base metals exploration in North Queensland at our 100%-owned Eloise Project (surrounding the producing Eloise Copper Mine where we hold a 30% net profit interest) and nickel sulphide exploration in Western Australia’s Eastern and Northeastern Goldfields.
We quickly identified the Scotia and Kambalda West nickel projects in Western Australia and the Eloise Project in Queensland as near-term exploration opportunities with company-making potential.
Major programmes of Reverse Circulation and Diamond drilling commenced at the Scotia Nickel Project in May and subsequently at the Altia lead-zinc-silver project at Eloise in June. Drilling was immediately successful at the Scotia Project, resulting in the discovery of a new zone of nickel sulphide mineralisation, termed the Western Contact Trend.
Encompassing a 238km2
tenement holding in the strongly mineralised Kambalda-Mt Keith nickel corridor, the Scotia Project represents an important strategic opportunity for the Company. Our major focus of activity is the Saints area, 15 kilometres north of the Scotia Mine, where we have been drilling around the known St Andrews and St Patricks deposits and targeting the nearby Western Contact Trend – opening up a major new exploration front.
The presence of these three relatively shallow zones of mineralisation highlights the potential to delineate, multiple small-to-medium sized nickel sulphide deposits. In addition, we continue to test the potential for a very large accumulation of nickel sulphides at depth.
At West Kambalda, the Company initiated exploration activities with scoping reviews and independent geological assessments of the four known nickel deposits within our tenements, 1A, 5A, 5B and Andrews. This review has highlighted the significant potential to target extensions of these deposits, all of which remain open at depth and have only undergone limited drilling below depths of 100-350 metres.
At Eloise, the Company commenced exploration with a focussed diamond drilling programme on Altia where previous explorers located encouraging evidence of lead-silver mineralisation, 4 kilometres southwest of the Eloise Copper Mine. Step-out drilling delineated a mineralised zone over a strike 500 metres down to 250-300 metres below the surface. The drilling is wide-spaced and has only partially delineated the deposit, which is geologically similar to BHP Billiton’s (“BHP Billiton”) world class Cannington silver-lead deposit, located approximately 100 kilometres to the south. Further drilling is in progress on parts of Altia to investigate selected options for extensions. In addition, it is planned to place a stronger emphasis on copper exploration due to the proximity of the project to the Eloise Copper Mine and the positive indications for additional deposits on Breakaway’s tenements.
While our focus remains on progressing our more advanced project opportunities, we are also advancing exploration on other prospective target areas including Mt Clifford-Wildara, which is located in the same region as major nickel discoveries such as Sinclair (Jubilee Mines) and Waterloo (Norilsk Nickel), Miranda (immediately south of the Cosmos-Prospero deposits) and the East Kimberley. Each of these areas has the potential to yield a significant discovery for the Company.
Fundamental to our strategy is a strong commitment to allocate sufficient resources to do justice to our projects.
Our exploration expenditure for the half year to 30 June 2007 was $7.1 million, and the Board has approved ongoing expenditure of $10-12 million on exploration on an annualised basis.
This strong exploration commitment – which really differentiates Breakaway in the current resources environment – is underpinned by our strong balance sheet, with free cash of $18.4 million as at 30 June 2007. As reported last year, our other asset, a 30% net profit interest in the producing Eloise Copper Mine in North Queensland, has also generated a significant income stream for the Company which has further strengthened our financial capacity. In the period between September 2005 and September 2006, the Eloise royalty generated a total of $15.5 million in earnings for Breakaway.
During the second half of 2006, the operator of the Eloise Mine, FMR Investments Pty Ltd (“FMR”) (formerly Barminco Investments Pty Ltd), commenced a series of initiatives aimed at securing a long-term production future for the Eloise Mine, including decline access and ventilation to facilitate development of the deeper levels of the mine below 1,000 metres vertical depth. As a result of the additional expenditure associated with this programme, combined with fluctuations in the copper price and some short-term mining issues, FMR advised Breakaway in February this year that further royalty payments were unlikely until the 2007/08 financial year.
At the time of preparing this report, FMR had established a long-term production plan for the Eloise Mine predicated on the application of a new mining method to extract a large mining block that includes a JORC compliant resource of 2.1 million tonnes at 2.9% Cu. Following a period of below budget production during much of the 2007 financial year, FMR has advised that the commencement of mining in these zones is expected to reduce operating costs and increase production, establishing a long term production future for the mine for the first time.
Based on this information, your Board believes that, subject to the copper price and the mine achieving its production targets, royalty payments should resume during calendar 2008.
In conclusion, I am confident that, with a clearly defined strategy for advancing its projects, exploration activities gathering momentum on its two major operational fronts, and a high-quality team of people in place to drive its growth, Breakaway is set for a particularly active and rewarding period over the next 12 months.
During the year, the Board was expanded and restructured with the appointment of senior Australian mining executive, Mr Jeffrey Gresham, as a Non-Executive Director in October, as reported in last year’s Annual Report, and my own appointment as Non-Executive Chairman in November, taking over from Mr Jon Young.
My appointment as Chairman effectively completed a board restructure overseen by Mr Young which was designed to expand the Board’s skills base and provide a greater level of independence in line with current corporate governance guidelines and ASX Best Practice Recommendations. Mr Young, together with Non-Executive Director Mr Garry Connell, remain on the Breakaway Board as valuable contributors to the Company’s strategic direction.
I would like to take this opportunity to thank my fellow Directors and the outstanding team of individuals, employees and consultants who make up the Breakaway team and who represent the lifeblood of the Company and are very ably led by our Managing Director Peter Buck, whose experience and commitment is invaluable and greatly appreciated by all at Breakaway.
Having experienced at first hand over the past 9 months the energy, enthusiasm and commitment within the Company, I have little doubt that Breakaway is very well placed to achieve success.
John Atkins
Chairman
