Is it better to list on AIM or the TSX ? (from an Australian company viewpoint)

Australian companies looking to raise finance, potential share price appreciation and international exposure are often faced with a choice between listing on AIM (the Alternate Investment Market of the London Stock Exchange) or the TSX (the Toronto Stock Exchange). This column has been based on our observations to date, since the early 1990’s.

Marengo Mining Ltd (MGO) – Delineating their Copper-Moly-Gold Orebody at Yandera

• In early 2005, Marengo switched from exploration in WA to establishing an orebody at Yandera in PNG. Yandera had been explored by BHP in the mid-1970s at the same time as BHP farmed-in to Ok Tedi (and delineated the gold cap over the orebody) which caused Yandera to drop onto the back burner. A number of companies have since looked at Yandera mainly from a large company viewpoint but failed to take it any further until Marengo acquired the Project.
• Yandera is a classic large company target with a copper geochem anomaly ~8km long by 2km wide averaging 0.5%Cu with 5 identified phases of porphyries containing grades up to ~1%Cu (plus Molybdenum and Gold credits), which may include some higher grade zones. MGO started their drilling campaign at the end of May 2006 on their main Gremi Zone target aimed at establishing continuity for a recognised JORC resource by December 2006.
• As we have seen with other Australian junior companies, the large mining company approach is not necessarily always the way to develop these orebodies, and geological techniques and technology have advanced considerably since the 1970’s. A greater understanding of Yandera is expected after MGO brings in structural geological consultants to delineate the main controls of the copper-molybdenum-gold mineralisation, and identify how best to proceed forward.
• Although Yandera generally appears to have an overall low grade signature for Molybdenum (~150ppm or 0.015%), we encountered a number of samples of visible Molybdenum, including rocks that appeared to be riddled with it (as shown in Figure 6b on page 4 of this report).
• Gold appears to have not been a separate consideration as a individual entity when Yandera was being explored, despite the presence of pin-head sized visible gold, and alluvial workings (that are still being worked). Reputedly there is gold in quartz veining too, which requires further follow up and investigation.

Did WMC sell one of the jewels in its crown ?

It is well known that the sale of WMC’s Kambalda nickel division (encompassing the Kambalda and Widgiemooltha regions, Lanfranchi and Carnilya) has been very lucrative for WMC (now BHPB’s Nickel West). However, with the market caps of the small companies operating those mines now totalling ~A$1bn (and rising), a spate of new and ongoing discoveries by them and reputed problems in the Nickel West’s remaining nickel division, did WMC in fact sell the jewel in its nickel crown ?

Sally Malay Mining Limited (SMY) –Increasing After-tax Profits to >A$60mpa

• With nickel averaging ~US$28,300/t in SQ06 (US$12.87/lb or 40% higher than JQ06 in A$/t terms at A$37,400/t), and copper ~US$7,640 (US$3.46/lb), SMY may have had a spectacular quarter, easily the best so far. Even providing for hedging, in SQ06 SMY may have exceeded last years’ NPAT of ~A$16m. Significant after tax profits are being generated at these nickel prices, if nickel averages US$20,700/t in 2008 (in line with its forward price), SMY’s after tax profit could then be >A$110m.
• Sally Malay recently gave a production forecast lasting 10 years based mainly on its namesake mine of Sally Malay which according to our modelling is the main profit driver behind the company. However, the forecast does not take into account the lower orebody or extensions on strike along the boundary of the intrusion, that could extend SMY’s life well beyond 10 years.
• Sally Malay expects to use the spare capacity in its mill to treat ore from Copernicus (in JV with Thundelarra) and from Panton (in JV with Platinum Australia). However, the additional profits from these two satellites are relatively small compared to Sally Malay using our current price profiles, grade and cost estimates, and have been excluded from our total modelling.
• Lanfranchi’s current estimated life at ~10,000tpa nickel production is about 5 years. However, it has the potential to be significantly longer since there appears to be little difference between the mineralised lava channels at Lanfranchi and the lava channels at Kambalda and Widgiemooltha that have been found by the other small nickel sulphide producers to extend on strike for many kilometres.
• Production at both of SMY’s WA nickel mines, being the 100% owned Kimberley Nickel Mines (KNM) and 75% owned Lanfranchi Nickel Mines (LNM) has settled down and blossomed, and could achieve an attributable ~13,500tNi in the year to June 2007 and ~18,000tNi attributable in 2008 according to our (ERA) estimates.

The Commissioning Chickens Are Coming Home to Roost

During the coming 3 to 4 months to the end of February 2007, a number of gold companies are going to experience the commissioning phase of their plants, hopefully much better than those that have gone before them so far during 2006.

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.