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Tagged with: 2006

Jan 2006 - CHINA

China is not expected to suddenly grind to a halt

We remain surprised that a number of people still don’t believe that China can continue to consume metals and materials for many years to come and not suddenly grind to a halt in 2006, 2007 or 2008. Quite often such people have never been to China and are basing their expectations on theory.

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.

Jan 2006 - Golden Tiger Mining

Golden Tiger Mining NL (GTX) –Establishing a Mineable Resource at Zhudong in Eastern Guangxi

  • Golden Tiger’s current projects are all located in the province of Guangxi in southern China, with most of them contained in a vast ~15,550 sqkm Exclusive Area in the Dayaoshan region of eastern Guangxi (approximately 180km x 75km with a north eastern extension of ~50km x 40km up to the boundary between Guangxi and Guangdong), ~31sqkm at Xinka Tian near Guilin in the north, and ~11sqkm at Yueli in the northwest, south of Fengshan in the “Golden Triangle”.
  • GTX use an in-house Landsat-based technique to identify major structures and potential mineralisation, followed by geochem and IP, which when combined with its managerial team’s knowledge and expertise in discovering orebodies, enables GTX to identify what areas it believes have the greatest potential likelihood of success when it starts drilling.
  • The result has been for GTX to focus initially on the four areas of Zhudong, Jin Zhu Zhou, Ying Yan Guan, and Wanan out of 33 licence areas under scrutiny in the Dayaoshan Exclusive area in which GTX has either a 76% or 82% interest with up to 3 Geological Brigades and 3 Institutes in the Guangxi BGMR. GTX is also focusing on its Yueli prospect in western Guangxi.
  • Rocks in the Dayaoshan region are predominantly from the Cambrian era and the gold orebodies are hence usually free-milling compared to the refractory “Carlin style” Triassic orebodies that are typical of western Guangxi. Drilling has initially focused on Zhudong in the breccia and skarn types of mineralisation there before targeting the deeper “plumbing system” from early December 2005.
  • After Zhudong, the next area of focus is Jin Zhu Zhou which contains a number of nuggetty gold vein sets with an average grade of 1oz/t within sampled grades ranging between 5g/t and 435g/t in good ground conditions. GTX are targeting a buried intrusive to the west as the feeder source for the stacked vein mineralisation, and intend to conduct 2 IP surveys and a geochem stream sediment survey over the general district, starting by the end of December 2005.

Jan 2006 - Michelago Limited

Michelago Limited (MIC) – Merging with Golden China Resources (AUC.V)

  • On 14 December 2005, MIC announced that it had executed a BCA (Business Combination Agreement) under which it intended to merge with Golden China Resources Corporation (AUC.V) using a scheme of arrangement. In the BCA, both companies undergo a consolidation of their shares such that MIC shareholders receive 1 new AUC –for- 25 MIC shares and AUC shareholders receive 1 new AUC –for- 5 old AUC shares (or effectively MIC shareholders receive 1AUC –for- 5 MIC).
  • As part of the BCA, Golden China Resources (GCR) intends to provide MIC with a >US$9.2m loan (secured by MIC’s ASG (Gold Ridge) assets), to add to the US$12.2m ANZ loan and other monies being used to replace the US$25m working capital facility that Shandong BioGold was receiving from the Bank of China to purchase the concentrates treated at the BioGold facility in Shandong Province.
  • Michelago sees the proposed merger as providing the next stage in its growth due to Golden China’s: advanced refractory project at Nibao in Guizhou, exploration and financial assets, 85% international institutional holding, and Hong Kong based investment bank sponsorship connection providing another access to China.
  • Golden China’s refractory Nibao orebody asset in Guizhou may be able to initially supply the expansion of BioGold and enable the combined company to reap the full benefits of mining the ore through to gold bars. Nibao could also have the potential to feed a separate Bactech (bacterial oxidation or bacox) plant in the Golden Triangle. Golden China also has a number of exploration assets and agreements in China at various stages of exploration through to possible fruition.
  • All of the current 3 orebodies at Nibao have differing characteristics and their geological interpretation is under review as further information comes to hand. The resource at Nibao could ultimately range between 1moz and 4moz, although just how much is mineable (some of the grades are <1g/t) depends on the PFS and subsequent BFS, as the orebody requires a higher cost bacox-type process.
  • MIC still appears to be receiving little recognition for its holding in ASG and hence Gold Ridge, despite the increase in the gold price potentially significantly upgrading the Project’s worth. Gold Ridge appears to have upside potential from the “gaps” in its orebodies, at depth, and the fact that its resources were top-cut.

Feb 2006 - Chinese Mining Co

The Chinese are coming!

In our last month’s column in Paydirt, we concluded that it was “hence no surprise to see Chinese based companies trawling the world for orebodies that have long-life (ideally 10 to 20 years plus) potential and are prepared to finance their development”.

Mar 2006 - S A Platinum Mines

How Deep Can the South African Platinum Mines Go ?

It was widely believed that due to differing geothermal gradients, the maximum depth that the South African platinum mines would ever extend to could be up to 1600m or 1700m below surface, compared to the gold mines extending to depths of 4km or so. However, that platinum depth limit gradually crept closer to surface to a perceived ~1200m to 1300m.

Mar 2006 - Newest Goldfield

The World’s Newest Goldfield

In August 2002, the US Geological Survey’s open file report drew a number of parallels between the Carlin Trend of Nevada and the sedimentary rock-hosted gold mineralisation of China’s Golden Triangle (based on southern Guizhou, northwestern Guangxi and eastern Yunnan), and prophetically stated that “it is likely that many Carlin-type Au districts in China, when fully developed could have resource potential comparable to the multi-1000t (of gold) resources in northern Nevada”.

Mar 2006 - Platinum Australia

Platinum Australia Ltd (PLA) – Bringing Smokey Hills into Production at ~95,000ozpa 4E (>40,000ozpa platinum)

  • Platinum Australia (PLA) currently has two main projects in South Africa that are in the process of being taken through to platinum production, namely Smokey Hills in the east (~13km NW of Steelpoort) and Kalplats (~90km SW of Mafeking).
  • PLA expects both projects to soon receive their “New Order” Prospecting Rights allowing Smokey Hills to convert to a Mining Right after completing the BFS in June 2006, and Kalplats to extend the exploration, upgrade the ore resource and complete a BFS by June 2007.
  • Smokey Hills is a conventional UG2 eastern limb (of the Bushveld) reef that is expected to initially be mined by open-cut and then underground, very similar to the UG2 being mined underground on the adjacent Modikwa (ARM/Angloplats) platinum mine about 4km further south. Production has been estimated at ~95,000ozpa 4E PGM (Pt, Pd, Rh, Au) based on diluted grades of 5.0g/t and 82.5% recoveries, although >5.2g/t 4E and >=85% recoveries appear to be achievable.
  • Kalplats represents a previously unrecognised style of platinum mineralisation in 3bn year-old greenstone rocks. Initial studies show that production from the >3.5g/t higher grade reefs could result in 3E PGM production rates ~190,000ozpa, although we have used a more conservative model on 3.25g/t and ~175,000ozpa.
  • Both Smokey Hills and Kalplats appear to have significant upside potential. Smokey Hills could extend its planned mining west across the boundary into Modikwa ground in an arrangement with ARM/Angloplats, while Kalplats appears to have been misunderstood, with recoveries ~80% using conventional techniques, and possibly material extensions on strike and on parallel structures.

Apr 2006 - Africa’s Miners

Africa’s Artisanal Miners targeted to triple to 15million in the next 10 years

This was a forecast made in one of the last papers at the Indaba Conference in Cape Town on 9 February 2006, on Artisanal (Scale) Mining or ASM by Kevin D’Souza. ASM has been defined as the most primitive form of mining characterised by groups or individuals exploiting deposits – often illegally with the simplest equipment.

Apr 2006 - Crescent Gold Ltd

Crescent Gold Limited (CRE) –Bringing Sickle into Production by the end of 2006

  • Crescent’s main asset is the old Barnicoat operation of Sons of Gwalia at Laverton in WA to which it has added a number of exploration projects to result in the current sizeable land position. A new discovery was made called Sickle, only ~5km southeast of the existing plant, and CRE has been extending the resources and reserves with a target to start production in the December Quarter of 2006 at 60,000ozpa for 5 years at cash costs of ~US$300/oz.
  • The cost of modifying the 1mtpa old plant up to current required standards has been estimated at A$5.6m, and it appears that CRE may then expand the plant up to a rated 1.5mtpa and 90,000ozpa to 100,000ozpa based on resource extensions, for an additional A$6m. Such extensions could come from satellite orebodies, reduction of the cut-off grade with higher A$/oz gold prices and/or following a number of possibilities to extend Sickle below its current 100m depth.
  • Aside from the extended life potential at Laverton, CREs other assets are often overlooked, namely nickel, uranium and China. CRE’s 4 uranium exploration projects are still under consideration for possibly an in-specie / IPO distribution similar to some of the recent very successful uranium exploration IPOs.
  • The 3 CRE uranium projects in the NT (which approves of uranium mining) are relatively advanced, with a project north of the old Rum Jungle uranium mine, the Tennant Creek project containing uranium anomalism, and the Calvert Hills project containing recognised Westmoreland Conglomerate uranium host rock.

May 2006 - Ore Sorter

New Ore Sorter Set to Shake up the Nickel Sulphide Producers

On 2 May 2006, we saw the new Consolidated Nickel (formerly Reliance and now a wholly owned subsidiary of Consolidated Minerals) - Ultrasort ore sorter at the Beta-Hunt nickel mine at Kambalda in WA. It had only been in operation for 5 days, but the initial results from commissioning with low grade waste dump material were visually and utterly MIND BOGGLING !!.

May 2006 - IAMGOLD Corp

IAMGOLD Corporation (IGD.AX, IAG, IMG.TO) –Combining Gallery Gold into a >500,000ozpa ~ US$275/oz Cash Cost Gold Producer

  • This report is based on publicly available information and was commissioned by Gallery Gold Limited (now IAMGOLD Corporation) to increase the market’s knowledge of IAMGOLD Australasia’s operations and regional potential of their key projects of Mupane in Botswana & Buckreef in Tanzania.
  • While Gallery Gold brought operating mining expertise and an Australian geological knowledge approach to the merger, IAMGOLD brought financial muscle resulting in a much stronger gold producer with production >500,000ozpa, a market cap >A$2bn, and US$99m in net cash (which includes 148,420oz in gold at US$329/oz).
  • Gallery Gold was bought for approximately US$200m, and has two operational areas being the Mupane mine in the Tati region of Botswana that produces about 100,000ozpa at cash costs of US$260/oz, and the Buckreef prospect in the Lake Victoria Goldfields of Tanzania on which a scoping study estimated production of 140,000ozpa at cash costs ~ US$260/oz for capex ~US$55m.
  • IAG has holdings in 4 operating gold mines in West Africa, being 40% of Sadiola and 38% of Yatela in JV with Anglogold Ashanti in Mali, and 18.9% of Damang and Tarkwa in JV with Gold Fields in Ghana. These 4 holdings resulted in attributable production of almost 450,000oz in 2005 and have been estimated (by IAG) to produce almost 480,000oz at cash costs of almost US$280/oz in 2006. The addition of GGN currently increases production to well over 500,000ozpa at similar costs.
  • All the prospects at Mupane and Buckreef-Busolwa are being re-interpreted using the latest 3 dimensional geological techniques by parts of the same team that successfully applied the technology to Kingsgate’s Chatree mine and region in Thailand. The initial re-interpretations have determined a number of new targets that could lead to higher resources at potentially higher grades.

Jun 2006 - Perceptions/Reality

Perceptions and Reality

By Friday 9 June 2006, the resources stocks had taken a major fall with some stock prices down by up to 40% since the peak around 12 May and the Philadelphia Gold and Silver Index down by 30%, as the gold price dropped by 19% from US$726/oz down to US$608/oz. The fall was based on the perception that the market had run too high with commodity prices driven mainly by hedge fund speculation and share prices by almost all forms of trading. Hence the perception was that demand had to fall because such commodity prices were perceived to be unsustainable and consequently the prices similarly should fall, which they have to some degree.

Jun 2006 - Cons Minerals

Consolidated Minerals Ltd (CSM) –Establishing One of WA’s Lowest Cost Long Life Nickel Producers at >10,000tpa Nickel

  • With the early success from East Alpha’s Hangingwall Reef, potential in Beta West and Beta South, extensions to Beta Contact, mining of Beta Hangingwall (above both the 20 and 40 surfaces), and initial results from the ore sorter, CSM appears to be creating a Nickel Division that has the potential to produce >10,000t Ni pa for at least 10 years at possibly one of WA’s lowest cash costs of nickel.
  • On 4 May 2006, CSM’s Board announced approval for a new $14m ventilation shaft to be sunk at Beta Hunt as part of its visionary 2-phase twin-decline underground nickel exploration and development initiative. Phase 1 targets 90,000t of nickel mineralisation over 1-2km of lava channels south-east on strike from Beta and East Alpha, and Phase 2 targets another 150,000t of nickel, further SE on strike.
  • The completion of the new ventilation shaft enables movement of up to 1mtpa to occur up the decline, potentially comprising 400,000tpa of Nickel ore, 300,000tpa of Gold ore and up to 300,000tpa of waste (depending on the future installation of an underground ore-sorter to remove the waste for use as backfill).
  • The initial results from the A$1.5m CSM-Ultrasort developed ore sorter have been unprecedented, upgrading unsaleable 0.5%Ni low grade waste into a ~3%Ni to 4%Ni very saleable product. This product can be used as a sweetener to increase the average ore grade delivered to the old WMC concentrator, resulting in lower costs, higher recoveries and potentially greater profitability.
  • The discovery of the hidden mega orebody at Greensnake and potential hidden look-alikes at Camp East and Mike East, all infer that Woodie Woodie Manganese has the potential to have a life >20 years at a production rate >1.0mtpa.

Jul 2006 - Study of Volcanoes

Study of volcanoes reaping orebody benefits

Just as the modelling techniques have advanced significantly in recent years such that most companies appear to use either datamine, vulcan or surpac to model their orebodies, with exploration identifying potential mineralisation using techniques such as 3d IP, Roly Hills’ 4 winds technology, Nick Archibald’s fracsis fractal graphics, and leapfrog, the study of volcanoes has also significantly evolved.

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