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2006

Jan 2006 - Year End & China

  • The main potential restriction to China’s growth appears to be insufficient raw materials in the world (based on what I could see). China is currently in 10-year Growth Phase 1 to 2010, when it is expected to accelerate into Phase 2 to 2020 (based on a presentation at China Mining 2004).
  • The top 3 performers by company have been Independence (IGO) up 2,364%, followed by Kingsgate at 1,573% and then Consolidated Minerals up 906% (based on share price appreciations since ERA’s first report less dividends).
  • I remain amazed that there is still a view that “the sky is going to fall” or “this cannot be a super-cycle” or “commodity prices have to fall if not in 2006, then definately in 2007 and if not in 2007, then it has to be 2008”, or “commodity prices are overdue for a correction because they should have turned down at the end of 2004 according to the historic world IP growth curve” or “China has to grind to a halt due to fundamental economic theory” – to anyone who makes these remarks you should ask “when was the last time you visited China ?”. Quite often the replies are either : “never; a long time ago; or I don’t need to go there because it is obvious what has to happen.” To those that haven’t gone, do yourself a favour, take a week off and go (Singapore Airlines return from Sydney is about A$1200) and make your own opinion based on first hand observations, otherwise much greater monies can easily be lost through taking the wrong stance.
  • It has been commented that nickel prices must fall because the nickel laterites have to be developed in order to meet demand, with a new nickel laterite mine required every year to meet demand expectations. But each 40,000tpa to 50,000tpa nickel laterite mine costs at least US$2bn to construct over 3 years or so, and then take up to 8 years to reach full capacity and require maintenance and sustaining capex of US$100m per year. That level of capex requires minimum levels of nickel prices to be viable, and Minara are still not quoting their cash costs.
  • This belief that commodity prices have to fall is the only rationale I can apply to the relatively weak performance of Australian nickel producers such as Mincor and Sally Malay during 2005 as shown in Table 1, which we believe are both capable of exceeding A$1 per share, with Independence capable of being well over $2 per share (a 70% appreciation on $1.18 = A$2.01). Both Consolidated Minerals (CSM) and Titan Resources (TIR) also do not appear to yet be receiving any consideration for their potential nickel production, but that could change over the coming year to December 2006.

Aug 2006 - DnD - IGO

  • McLeay grades are higher than expected (7%Ni in development, 20%Ni in face)
  • McLeay South (beyond the Goldfields extension) may extend SE parallel to (and East of) East Alpha under Lake Lefroy (if it does, it has the potential to significantly enhance IGO’s value).
  • Anglogold stated they are starting a PFS in 07 & then BFS in 08 on Tropicana.
  • This comment is in response to a number of queries we have received in which we rate IGO as an ACCUMULATE (Hold, Buy on weakness), based on our previous reports, a group visit to the mine (mainly McLeay at IGO’s Lightning Nickel during the recent Diggers and Dealers Conference in early August 2006, and the presentation made at Diggers by Anglogold in favour of Tropicana).
  • McLeay is the extension of the Gibb-Victor channel, beyond Victor South. At this stage it is not clear whether it is faulted south of the Goldfields extension (based on the TEM plate boundary, whether it is a faulted extension of Silver Lake (Lunnon, seems too far) or if it is a separate channel that extends southeast parallel to East Alpha (and outside of CSM Ni) as shown in Figures 1a and 1b.

Dec 2006 - Sino Gold Limited

Sino Gold Limited (SGX)

  • The Jinfeng plant is HUGE, SGX appear to have a ~US$250m plant at the cost of ~US$90m to US$95m.
  • Initial grades are higher than we expected at Jinfeng with the first bench showing a clump of ~14g/t values, and inferred higher reconciliations, resulting in expected initial Year 1 open-cut grades ~20% higher at 6 to 7g/t.
  • Just how much gold Jinfeng can produce annually is open to debate. Rated as 180,000ozpa based on 1.2mtpa, peak production appears to have the potential to be ~300,000ozpa to 400,000ozpa or so. (It was not surprising post the visit that Gold Fields established a new 50/50 JV with SGX targeting potential 5moz orebodies with 500,000ozpa production, & increased their holding in SGX to 17.4%).
  • This comment was written following an analysts’ trip to Jinfeng ahead of the China Mining Conference in Beijing in November 2006, at which SGX received the Mine Development of the Year Award for the Jinfeng Gold Project. The trip highlighted the size of the Jinfeng plant, its potential capacity, early indications of higher grades than expected and included a presentation on SGX’s exploration activities in China.
  • The Ausenco (AAX) built Jinfeng plant as shown in Figures 1a and 1b is HUGE with the main section about 0.5km long and the whole plant at least 800m long. It looks like it should easily achieve the usual 20% (for Australian built plants) above rated capacity, and that is before the 50% expansion. (The 20% above normal usually results from the fact that a 15% design contingency is built into the size components in Australian plants, however a 25% design contingency has been used at Jinfeng (based on accepted practice in the Asian region)). While the 50% expansion (at a possible cost of US$15m from cashflow) appears likely to occur, numerous variations are to be tried first to see what the plant can achieve before it is expanded.

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