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Tagged with: 2003

Jan 2003 - Gold Price Pt 2

The black art (part 2) of short-term gold price trading

Long-term forecasting of the gold price is fine for modeling purposes, but what do you use in day-to-day trading for gold or gold shares.

Jan 2003 - Lodestone Expl

Lodestone Exploration Limited – Targeting Gold and Copper Mount Morgan Look-alikes in Queensland

  • The IPO Offer : Lodestone Exploration Limited (LODE) is offering a subscription of 12.5m shares at 20c to raise $2.5m (minimum subscription 12.5m shares raising $2.5m) to find hidden gold and/or gold-copper Mount Morgan look-alikes southeast of the historic Mount Morgan mine in QLD. As part of the offer, 1 free option (exercisable at 20c before 7 December 2004) is to be issued for every 2 shares subscribed.
  • LODE’s underwritten offer (by ABN AMRO Morgans) is on a project that is actually relatively very advanced, having already flown three surveys since 1998 including aeromag and TEM in a joint venture/exploration alliance with BHP Billiton, and delineated a series of targets that are ready to be drilled.
  • The rationale behind the project is that Mount Morgan (which produced 9.4moz of gold and 360,000t of copper before it closed in 1990) has been classified as a VHMS (volcanic-hosted massive sulphide) deposit, and in other parts of the world where these types of orebodies exist (such as Noranda) they usually occur in clusters or multiple deposits. Hence this project to find the other orebodies possibly associated with Mount Morgan, which may be hidden, but can be exposed using the latest advanced exploration techniques.
  • Using a geological theory of LODE’s Chief Geologist with knowledge of VHMS deposits, a concept for the project was made and has been verified in the field by observation of the rock structures and the airborne electromag surveys. Initially 17 targets have been identified and ranked according to their prospectivity. Now those targets await drilling.

Feb 2003 - Gold Volatility

Gold returns to volatility

In our opinion the gold price has reverted to what it was like pre-producer hedging, which was not just 5 or 6 years’ ago, but actually more than 15 years’ ago. The GFMS Gold Surveys record the net new forwards as shown in Table 1.

Feb 2003 - Cons Minerals

Consolidated Minerals Ltd (CSM) – Extending its Life Beyond 10 Years at Higher Rates of Production

  • CSM has already established an ore reserves/resource life of 10 years at Woodie Woodie Manganese and is extending Coobina Chrome’s life towards 10 years. In the current exploration programme, CSM is aiming to extend the lives of both operations beyond 10 years and enable Coobina to consider doubling its chrome production to 500,000tpa (our modelling factors in an increase to 350,000tpa).
  • CSM’s annualised manganese production appears to be capable of increasing closer to 580,000tpa of lump and fines, of which the lump component could be >380,000tpa based on the progress that has been achieved in the 6 months to December 2002, and the new reporting disclosure.
  • CSM appears to be fairly valued, however, its products are in a poorly understood “area” of the market in which product sales and prices realised are not easily identified (like precious or base metals). Consequently, CSM’s share price appears likely to rerate according to its profit results and resulting P/E ratios, Price/cashflow ratios, and relatively high dividend yields (currently of about 8%).

Feb 2003 - Kanowna Lights

Kanowna Lights Limited (KLS) – Reviewing Mount Carrington in NSW

  • In November 2002, KLS acquired an option from Virotec (VTI) over the historic Mount Carrington epithermal polymetallic field (primarily gold and silver, with minor copper and zinc) in northern NSW. The requirements of the option are for KLS to raise about $1m to complete a feasibility study by 15 March 2004.
  • The feasibility study requires a mining operation capable of producing 200,000ozpa of gold equivalent for at least 5 years (there is already a resource of 280,000oz gold and 10.3moz silver), and if the option is exercised VTI is issued with 19.9% of KLS’ ordinary shares and an equivalent number of options.
  • Mount Carrington has been mined at various times since 1886 and parts have been joint ventured with most of the major companies at one stage or other. The last mining was a series of shallow open-cuts between 1989 and 1990 by Mt Carrington Mines (MCM) who closed their operations citing lower grades than expected and poor metallurgical recoveries, which appears to have mainly
  • resulted from a geological misinterpretation of probably steeply dipping veins.
  • A joint venture with CRA from 1990 to 1994 resulted in a completely different interpretation and a new stratigraphy with 75% more intrusives than those previously recognised. However, CRA did not have access to the entire field and after they withdrew, little work was undertaken as MCM passed through various guises before becoming Virotec focusing on cleaning acid mine drainage water.
  • Although the MCM open-cuts focused on the central area of the field, there were significant mines outside of the central area which appear to have been barely explored such as Lady Jersey which produced 25% of the field’s wealth from gold, and possibly Pioneer, White Rock etc. KLS intends to take a two pronged approach focusing on the old open-cuts and the other historic mining areas.

Feb 2003 - Independence Gold

Independence Gold NL (IGO) – Long Nickel Mine Acquisition Could be Significantly Profitable for IGO

  • IGO’s wholly owned subsidiary Lightning Nickel Pty Ltd bought WMC’s Long/Victor nickel mine for $15m on 17 Sep 2002. This was based on IGO’s estimated return of $60m in after tax cashflow, from producing 27,000t of nickel over 5 years (treating 750,000t of 3.6%Ni ore reserves at 150,000tpa) and receiving a nickel price of US$3.15/lb (US$6950/t), and an A$ exchange rate of US55c.
  • IGO ramped up beyond their targeted production rate of 12,500tpm (150,000tpa) inonly 3 months (by January 2003), and are also achieving 10% to 15% highergrades than expected of >4% nickel (due so far to less dilution than expected).
  • Long’s life appears likely to be at least 7 years all probably at greater than an average annual grade of 4%Ni. This is based on our site visit observation of progress to date, the driving towards Gibb South and new extensions there, probably a favourable decision on Victor South in 2003, the current mining rate of 34% in resources (outside of reserves) and additional remnant mining,
  • The geology appears to be so complex that it is virtually impossible to put strike limits on the orebodies, resulting in a strong probability of extensions to them within the lava channels. There also appears to be at least 3 possibilities of finding new unmined orebodies : either within the existing channels, below the Long lava channel, or there could be a link between the Durkin orebody (to the northwest) and Long as shown in figure 6 on page 4.

Mar 2003 - BEE

BEE – Is the market over-reacting?

At the Indaba Conference in Cape Town from 18-20 February 2003, a very sobering perspective of the expected unrecoverable discount impact of BEE (Black Economic Empowerment) on share prices was given by a number of brokers.

Apr 2003 - “Money Pipeline”

Caught in the “Money Pipeline”

Gold companies enjoy a relatively simple method of receiving revenue from gold that they produce, since when it leaves the mine gate it is already in a salable form, that usually only requires refining to 4-9s or 0.9999. Companies are usually paid based on the price of that day that it leaves the mine gate.

Apr 2003 - Zimplats

Zimplats (ZIM) – Turning the Vision into Reality

  • The Hartley complex’s 170moz of platinum resources have been incomprehensible in terms of actually being mined, yet Implats in their February 2003 half-yearly presentation in Johnannesburg stated that Zimplats could increase its current platinum production from 85,000ozpa to 440,000ozpa within 10 years using 100,000ozpa modular units.
  • The transformation of the vision into potential reality has been due to the initial success of the Ngezi open-cut followed by encouraging early development signs from the Ngezi underground. These early indications and signs are probably what is behind the IMP remarks that ZIM is the jewel in IMP’s crown and is of strategic long-term importance to Implats.
  • The initial progress at the Ngezi underground has resulted in Zimplats starting a BFS on the first expansion phase to double production by about 200,000ozpa 4E (platinum, palladium, rhodium and gold) to attain nearly 400,000ozpa 4E by Dec 2005 with about 2mtpa from the Ngezi open-cut and 2mtpa from underground.
  • The platinum price rose by 45% or US$210/oz to peak at US$700/oz in the past year before falling back towards US$600/oz, however demand still appears to be favourable, driven by 3 previously overlooked factors such as Chinese jewellery demand (higher than IMP’s mine production), increasing Chinese autocatalyst demand, and accelerated American development of the fuel cell.

May 2003 - Diamonds

Diamonds Have Been Too Hard

Diamonds, like gold, have their own allure or attraction. Phrases like “diamonds are forever” and “diamonds are a girl’s best friend”, immediately spring to mind. As the hardest naturally occurring gemstone, they have a documented history of being included in crown jewels for centuries if not millennia, and the larger ones are often sold for princely sums especially if they are pink in colour.

May 2003 - Aquarius Platinum

Aquarius Platinum Ltd – Overcoming its Operational Issues

  • Aquarius’ share price has more than halved in the past year to a low of A$5.00 due to the Rand’s strength, and lower non-Pt PGE prices, while possibly overreacting to BEE (Black Economic Empowerment), the expected Money Bill’s royalty rates, the perceived forex exposure/money pipeline (due to accounting the sale of pges 3 months before they occur, and booking the difference), Zimbabwe’s financial influence on Mimosa, and operational restrictions at Kroondal and Marikana.
  • The strengthening Rand is materially increasing the costs on the South African operations, (a R125/t cash cost at Kroondal becomes US$17.90/t at ZAR7/US$, compared to US$13.90/t at ZAR9/US$). The Rand corrected slightly to 7.5/US$ on Friday 2 May, but remains volatile as the US$ continues to weaken against the Euro (reputedly from the oil nations switching currency, and the US financing Iraq)
  • The operational restrictions being encountered by Kroondal in the form of potholes and other geological disturbances were being rectified during the March Qtr 2003, since face availability had risen to over 80% on one of the shafts in February, while only 67% is required to attain a 250,000tpm throughput rate.
  • Marikana is being commissioned on low recovery oxide and transition ore for the period to May 2003 when it is expected to begin increasing its blend of sulphide to about 75% by September 2003, with production gradually building up to an expected 130,000ozpa 4E, and possibly an expanded 160,000ozpa.

Jun 2003 - Platinum Mines

Platinum mines do not only produce platinum

We find that a number of advisers and investors still perceive platinum companies as only producing platinum and not up to 12 different metals all from the same reef or ore zone, namely the 6 PGMs or platinum group metals of platinum (Pt), palladium (Pd), rhodium (Rh), iridium (Ir), ruthenium (Ru) and osmium (Os), the other 2 precious metals of gold (Au) and rarely silver (Ag), plus the 4 base metals of nickel (Ni), copper (Cu), cobalt (Co) and chrome (Cr).

Jun 2003 - Heritage Gold NZ

Heritage Gold NZ Ltd (HTM) – Given An Unexpected Opportunity to Potentially Achieve Gold Production

  • Heritage is a North Island NZ gold exploration company that was established in 1984 by Peter Atkinson and has the opportunity to toll treat ore through Newmont’s Waihi Gold (or Martha Mine), following the discovery of the Favona mineralisation and extension of Waihi’s life to ~2015 at 300,000t and >100,000ozpa.
  • Newmont’s expected >1moz Favona gold mineralisation was discovered using geophysics, following up the relationship between vent breccias and gold mineralisation that HTM had proven at its Onemana project. HTM are applying similar geophysical techniques (and the same consultant) at its Waihi North project, located almost on the edge of the Waihi open-cut and extending through to the old Golden Cross mine.
  • Heritage initially uses an inverted aeromag technique to target potential gold mines in its main project areas of Waihi North and Karangahake, before following up with geophysics. The inverted aeromag technique highlights epithermal alteration that can be shown as identifying the historical gold mining districts (adjacent to HTM’s projects) of Waihi and Golden Cross.
  • Apart from Onemana, all HTM’s exploration projects are located within about a 10km radius of the Waihi gold mine. At Karangahake, Heritage are using the inverted aeromag technique and a recently completed 3-D perspective of the old workings, development and stopes, so as to prioritise where to explore with a view to attaining early cashflow.
  • At adjacent Rahu, HTM have identified a hidden potentially mineralised system through applying geophysics, that can now be drilled with a focus on attaining early cashflow by potentially using the spare capacity in Waihi’s 1.3mtpa mill.

Jun 2003 - Perth Mint Gold

Perth Mint Gold (PMG) (ZAUWBA) – At Last, the Ability to Buy Gold on the ASX

  • On the 16 May 2003, the Gold Corporation (a statutory authority of the WA Government ) issued a new AAA rated tradeable gold product called PMGs (Perth Mint Gold Quoted Product) where 1 PMG = 1/100th of an ounce of gold, with the ASX Code : ZAUWBA.
  • Investors can buy on market through any stockbroker (with the settlement being made through CHESS, T + 3) at the same charges applicable to shares. Being 1/100th oz, the individual PMGs would currently trade at about A$5.40 each, which should encourage healthy trade as the product achieves market penetration.
  • Deutsche Bank has been appointed as market maker for PMGs to ensure that the trading value is close to the spot gold price (based on the US$/oz gold price and A$/US$ exchange rate). Gold Corporation can also support the market in PMGs.
  • In order to satisfy the ASX, the product is classified as a call warrant with a closing date of 6 May 2004. Theoretically that means that the original allowed issue of 100t of gold or 321.5m units (or 3.215moz) cannot be increased beyond that date, and remains at that number until 31 December 2013, when it is likely to be rolled into a similar product. If a trading volume of more than 100t of gold is required after 6 May 2004, then another series can be issued.
  • The PMGs are guaranteed by the Perth Mint. They can be converted into cash at a cost of $0.50/oz plus $100 (settlement T + 5). They can also be converted into gold that can either be stored at the Perth Mint or physically delivered in various specified forms with typical delivery charges.
  • Although there is risk due to the strength in the A$, an investment in PMGs is not subject to issues that can affect gold shares such as falling gold production, rising cash costs or lower grades than expected which has affected some shares in the past year, such as Kingsgate (KCN) down from A$3.79 to A$2.96 between 28 May and 2 Jun 2003 when A$ gold was little changed from A$554/oz to A$556/oz, or Gympie (GYM) down from $0.73 to $0.43 between 2 Jan and 5 Feb 2003 when A$ gold rose from A$610/oz to A$647/oz.

Jul 2003 - FSR

Approaching FSR Likely to Affect ALL Mining and Exploration Companies

Most members of the public should by now be aware that brokers and advisers are concerned about the SOA contained in the FSR (Statement of Advice in the Financial Services Reform Act of 12 March 2002), that is in its transition period before being formally fully implemented from 12 March 2004.

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