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Tagged with: 2008

Jan 2008 - China Consuming

China Continues Steady Consumption of Metal

This column is based on observations made during our (ERA) 2-week visit to China in November 2007 when we attended the China Mining Conference in Beijing. Before the conference we visited the properties of Golden Tiger (GTX) in western and eastern Guangxi, so gaining experience of what is happening in some of the rural areas of China, besides Beijing and Guangzhou.

Jan 2008 - Year End & China

  • 2008 appears to be heading for a year of M & A activity, especially of the junior Australian metal producers, with possible premiums of 35% to 40% being paid.
  • The nickel sulphide producers could be prominent in the activity, and our conceptual order of value is Albidon, Sally Malay, Mincor & then Independence
  • While China would love to have lower metal prices, the developing countries are in synchronised growth mode. One of the metals to watch may be Cobalt (now ~US$45/lb) which could focus the market on ALB, SMY, MRE and VCN.
  • This comment is based on ERA’s (my) last visit to the China Mining (November) 2007 Conference in Beijing, in which I visiting Golden Tiger’s operations in Guangxi during the week before the conference, attended the conference and saw a number of blue skies over Beijing (after winds had blown away the smoke from burning-off the rice fields). It was actually even possibly to see the distant mountains (~50km away) at the end of some of the streets.
  • China realises what its metal requirements are and hence would love to have lower metal prices, by any means possible (even if it means taking over [or a blocking stake in] RIO by a consortium of companies). The mid-2008 stainless steel sabre-rattling can only be done so many times before the market becomes immune to it. It was commented at the conference that this is the first time that the developing countries are in synchronised growth mode, following in China’s footsteps. The US was expected to stumble and possibly still have a psychological impact on the market, but the reality was that it appeared unlikely to reduce the pace of world growth by more than 0.5%.
  • So, following on from INCO and Falconbridge, LionOre has gone (to Norilsk), Xstrata has acquired ~43% of Jubilee, and in a pincer movement Zinifex has offered $1/share for Allegiance (AGM). AGM closed at A$1.07 on 31 December 2007, inferring that the market is looking for more. At the recent China Mining Conference, AGM stated that it now had 3 stopes on line, was looking at possibly a 50% expansion, had a number of regional exploration targets, was on-track for MQ08 production, and had some higher grade nickel sulphide ore as shown in the presentation.

Feb 2008 - Demise of US $

The Demise of the US$

It should be emphasised that this column is based on observations, and hence may violate some standard economic theories. Having said that, the US$ looks like yesterday’s currency, now is the day of Euro as shown in Figure 1. This results in a significant impact on any metal price forecasting in that the assumed exchange rate is likely to be just as much, if not more, relevant.

Feb 2008 - Golden Tiger Mining

Golden Tiger Mining NL (GTX) – Making Steady Exploration Progress

  • During the past year Golden Tiger (GTX) has applied a systematic grass roots approach to its Central Dayaoshan exploration Area by applying stream geochem (to delineate the main anomalies), soil sampling (to verify the anomalous areas) and then drilling, which has resulted in an initial focus on the ELs of Changtian, Liaodong, Pingshuichong, Tangmian and Tonghe.
  • The more advanced Weilong Prospect (in NW Guangxi) is undergoing re-interpretation, involving a stacked lode system. Initial drilling has shown a gold/pyrite association and a best intersection of 9m @ 5.5g/t. Drilling was in progress when we visited the site in November 2007.
  • At most prospects that we visited, there were artisanal workings nearby (some old & some new), which provide good exposures to the styles of mineralisation being mined such as usually breccia, quartz veins and/or stockworks. Most mineralisation appeared to be non-refractory and amenable to gravity recovery.
  • At Baishishan in the Liaodong EL, the artisanal activity had advanced to the degree of installing electrical lighting underground and new tunnels being dug. Examination of the underground shows a sizeable brecciated/stockwork area, possibly >25m thick. Drilling started during January 2008.
  • The Shuilong Prospect in the Tonghe EL reported the extremely high sample grades up to 477g/t and 11%Cu in the old workings, with a number of other samples in the >20g/t vicinity. Shuilong is the most advanced of the three prospects at Tonghe, with the other two, namely: Liuqin and Jinkunchong to be soil sampled and mapped during 2008.
  • The Teningding Prospect in Changtian’s EL consists of three areas (two have been artisanally mined) of which probably the open-cut /underground “tunnelling” was used most recently and treated through a small plant with a large shaking table. Sampled grades have been encouraging.

Mar 2008 - Small Gold Mines

The Re-emergence of Small Gold Mines

The history of gold mining shares often follows a well-known path from artisanal mining, through to collectives and smaller mines, discoveries to larger >100,000ozpa or >500,000ozpa producers, followed by larger companies taking over smaller companies. And eventually by those larger companies dropping the small mines (usually <50,000ozpa, occasionally <75,000ozpa) as they are too small to have any impact or occupy too much management time.

Mar 2008 - Albidon Limited

Albidon Limited (ALB) –Munali Heading For Production from April 2008

  • The appointment of Byrnecut using drilling jumbos has resulted in Albidon exposing the main orebody at Munali in January 2008 (two months ahead of schedule) and it now expects to start feeding ore through the mill in April 2008.
  • The plant at Munali is expected to produce ~9,000tpa Ni (with copper, cobalt platinum and palladium credits), based on a plant design capacity of 900,000tpa. However, 1mtpa appears to be achievable, and the plant has been designed for expansion, which could result in a treatment rates potentially >1.1mtpa.
  • A resource has now been established at Voyager (adjacent west on strike to the main Enterprise orebody) and the understanding of the mineralisation and orebody infers that further extensions to the orebody are possible, especially at depth, such that Munali could still become a Tier 1 orebody (worth >US$1bn).
  • Albidon’s next most advanced Project appears to be its Njame Uranium JV, also located in Zambia and immediately SW of Munali. It appears to have a similar style of banded mineralisation in sandstones to Paladin’s Kayelekera Project further northeast, and is currently undergoing a PFS scheduled for completion in MQ08.
  • Although BHPB pulled out of the Selebi-Phikwe JV in Botswana because it did not meet their potential orebody parameters, ALB has identified a number of targets such as Sunnyside that appear to have Selebi-Phikwe type signature structures.
  • Albidon has a number of other joint ventures throughout Africa in which material progress is being made, with BHPB continuing to focus on Songea Nickel in Tanzania, and Zinifex making encouraging progress with intersections such as 8m @ 11.7%Zn within the historic Bou Aouane mining district at Nefza, Tunisia.

Apr 2008 - Mid-Tier Gold

Australia’s New Mid-Tier Gold Sector

In their presentation at Paydirt’s April 2008 Australian Gold Conference in Perth, Integra stated that the historical mid-tier of Australian gold shares that was taken over by the South African and North Americans, was now beginning to re-emerge.

Apr 2008 - Mundo Minerals

Mundo Minerals Limited (MUN) – Bringing its Engenho Gold Mine in Brazil into Production Initially at ~35,000ozpa from May 2008

  • Mundo Minerals Ltd (MUN) currently has three gold mine project areas in Brazil and Peru, being its Engenho gold mine in eastern Brazil (about to start production), its Torrecillas mine in southern Peru (in which it is establishing resources), and the Tocantins area of central Brazil (has a range of opportunities).
  • MUN is a growth story. Although its NPV is A$0.33 based on ~35,000ozpa from Engenho at US$900/oz, if US$950/oz, a higher throughput of 300,000tpa and a grade of 6g/t are achieved (~54,000ozpa), then the NPV is ~A$0.80 (assuming normal tax, if MUN qualifies for Presumed Tax, then add another ~20c). MUN’s target for Engenho is 50 to 60,000ozpa, which appears to be achievable especially with the geochem progress near Mazoca and other possible satellite sources.
  • MUN also has mid-term production targets for Torrecillas of 50 to 70,000ozpa and ~110,000ozpa from Tocantins. And there is the new project of Jaquiera, (near Jacobina, Bahai) in NE Brazil which is currently under a new option and rapid evaluation, as it also displays the preferred characteristics of an old goldfield, proximity to infrastructure and towns, and a non-malarial prone area.
  • MUN is currently driving a ramp and developing a cross-cut in the Torrecillas mine near Chala in southern Peru, to improve the production and access capability compared to the current climb-in incline. Historic average grades on small 1,500 to 2,000ozpa production were ~ 20g/t to 30g/t, although they range from 8g/t to 300g/t over different widths of 20cm to 2m both along strike, and up and down dip.
  • The increase in the width of the Torrecillas footwall vein to ~2m with grades ~2oz/t (59g/t) on the lowest level (No 12, or 2580m above sea-level, only 120m below surface), offers encouragement in the stacked lode system to achieving a 150,000oz resource target before starting a PFS to re-commence mine production.
  • At Tocantins in Central Brazil, MUN has a number of projects/prospects ranging from active and historic garimpeiro (artisan) workings, to greenfields exploration. Grades vary as do the opportunities for open-cut or underground operations.

May 2008 - Silver Lake Res

Silver Lake Resources Limited (SLR) –Building up to >70,000ozpa Gold Production by the end of 2009

  • Silver Lake Resources (SLR) has four project areas in WA, being Mount Monger (which includes Daisy-Milano : a high grade underground mine that has started production at an expected ~35,000ozpa), Murchison (being Comet, Tuckabianna & Moyagee), Rothsay (a small copper-gold mine) and the grass roots Copper Lakes.
  • SLR has a target of producing at 150,000ozpa within 3 years (2011), which could be achievable, based on possibly 50,000ozpa to 70,000ozpa from Mount Monger and a mining operation at Comet/Tuckabianna (although Mount Monger could be capable of achieving 100,000ozpa in its own right).
  • SLR appears to have significant upside potential with both of its current main project areas of Mount Monger’s Daisy-Milano, and Comet/Tuckabianna apparently capable of exceeding expectations in production and grade. Also on a market cap comparison basis to its peers, SLR appears to be well undervalued and capable of achieving a market cap > A$120m.
  • SLR poured their first gold bar on 30 April 2008, at their own 300,000tpa Lakewood plant near Kalgoorlie as part of an initial expected treatment rate of 75,000tpa at 15g/t (35,000oz to 40,000ozpa) from the Daisy-Milano lode. The remainder of the mill capacity is expected to be fed from possible open cuts followed by underground mining one of the >10 other lodes that have shallow workings.
  • At Comet and Tuckabianna, SLR are evaluating re-opening the mines as underground operations, which was considered prior to their closure in 1997, but not undertaken due to the weakening gold price and other distractions. SLR has started a PFS on its Murchison assets (Comet, Tuckabianna and Moyagee) which it expects to complete in the December Quarter 2008.
  • SLR are also evaluating the old Rothsay copper-gold mine that closed in 1991, after limited underground operation, and their Copper Lakes prospect.

Jun 2008 - Iron Ore Bubble

When is the Iron Ore Bubble Going to “POP!” ?

We have been through a number of popped bubbles in the past year such as nickel, most of the base metals, uranium and possibly even gold and are currently in the iron ore, coal and oil bubble, which like the previous ones that have burst has the media and some analysts predicting ever greater heights.

Jul 2008 - Boom Not Over

The Commodity Boom is NOT Over Yet!

Returning from China on 22 June 2008, we read in the FT that the Brits had sold out of commodities because they believed that the commodity boom was over. The following day, RIO announced iron ore price increases of 79.9% to US$144.66/t for its Pilbara fines and 96.5% to US$201.69/t for its Pilbara lump ore and RIO’s share price fell because even higher price increases had been expected.

Aug 2008 - Panoramic Res

Panoramic Resources Limited (PAN) – Establishing a Company with a life of 10 to 15 years producing ~15,000tpa to 20,000tpa Nickel, that has Significant Upside Potential

  • With both Lanfranchi (LNM)’s Deacon and Kimberley (KNM)’s renamed Savannah orebody both open at depth and growing in width and on strike, the renamed Panoramic Resources appears to have the capability of establishing a company with a life of at least 10 to 15 years, producing ~15,000tpa to 20,000tpa Nickel.
  • The orebody at Savannah appears to be significantly changing and improving at depth with higher widths (possibly >30m thick), different nickel mineralisation styles, and often higher grades (nickel, copper and cobalt) than the Upper Zone of the orebody. Which could result in production of ~0.9mtpa from Savannah alone, a longer life, and at higher grades.
  • The potential size of Savannah has been aided by the delineation of the Northern Ore Zone at the western end of Savannah making a T-bone shape with the Main Zone, which increases the potential strike length of the Lower Zone (there was a non-JORC resource of up to ~80,000tNi in the Lower Zone [below the 500 fault]).
  • Savannah currently receives significant by-product credits of ~A$4.00/lb to A$4.20/lb, which should increase with the higher copper grades towards the west and at depth, especially if KNM also needs to produce a copper concentrate.
  • There is also significant exploration upside potential at Lanfranchi, based on a number of target areas to be EM tested, plus the possibility of replication under the northern dome, having established a “hangingwall” position of ~2m @ 7%Ni.

Aug 2008 - Fly Away in May

Fly Away in May...

The old stockmarket adage of “fly away in May – return in August” based on a mix of the FA Cup, Wimbledon and the Northern Hemisphere holidays usually meant that due to a lack of traders on desks, the market usually drifted sideways, if not slightly down.

Sep 2008 - Diesel Fuel

Diesel Fuel Alternatives

The rising price of diesel fuel at one stage raised the cost of diesel power stations to the 35USc/Kwh to 38USc/Kwh region, prompting remote company operations to seek (where possible) alternative fuel sources to reduce power costs.

Sep 2008 - DnD - SLR, NGF, IGO

Silver Lake (SLR), Norton Goldfields (NGF) & Independence (IGO)

  • Post Diggers last year we wrote “This Comment started out based on the visits we (ERA) took during the Diggers n Dealers Aug 2007 Conference. However, it has been extended following the recent decimation in share prices due to trading on money that did not exist, and requests for our nickel & gold favourites”. That comment applies just as easily for 2008 too, except that this time around the “money that did not exist” has mainly been in different forms of sophisticated shorting.
  • It is often commented that the market likes a story and hates reality, that’s why the old model of the share price rising when a company starts production has gone out of the window. Now companies rise before production and fall when they go into production as reality hits, unless they are still in “story” mode. Our current Australian based and operated favourites are all appear to be debt free, generating cash with cash in the bank, and significant upside potential being for nickel : Panoramic (PAN @ $1.45); in gold : Silver Lake (SLR @ $0.16) and in other (iron ore) : Territory (TTY @ $0.52). – And all of them have PERs in the 2 to 4 x area. (PAN : 194m x $1.45 = $281m, less $130m cash = $151m/$73m = 2.1 x; SLR : 153m x $0.16 = $24m less ~$3m = $21m/$12m = 1.8 x; TTY : 265m x $0.52 = $138m less $1m (check financials when reported) = $137m/$45m = 3.0 x) Our (ERA) current favourites are :
  • Panoramic : Recent August 2008 report, and stacks of upside both at Lanfranchi (due to Deacon) and at Kimberley Nickel due to Savannah. PAN recently reported some more of those thick high grade (double current grade) intersections, indicating further upside potential. Our report had a life of 10 to 15 years at ~15,000tpa - 20,000tpaNi (whereas it could be 15 to 20 years at up to 25,000tpa [which more resembles a portfolio stock]). The NPAT is about $70m per year at prices of A$9.47/lb Ni (US$9/lb and an 0.95US$ exchange rate, currently the nickel price at US$8.3/lb and a 0.81US$ exchange rate equates to 10.25A$/lbNi)
  • Silver Lake : We accept that the share price has fallen to as low as 15c, but how many gold mines are debt-free, treat at ~14g/t (July 2008), encounter 10m @ 6kg/t (6,000g/t in a development drive), have a development face averaging 57g/t, have the capability to double their mill size and could exceed our forecasts of 70,000ozpa by possibly up to 50% more in their first year, potentially generating profits of $1m to $2m per month.
  • Territory : Yes we accept that it lost heaps ~$50m or more last year investing in Monarch etc etc. But at Diggers it was selling its lump at ~A$110/t, fines at A$90/t, say A$100/t on a 50/50 basis. Costs are A$70/t falling to A$60/t (and targeted to go lower), say a margin of A$35/t, which at 2mtpa = $70m less tax = ~$50m NPAT less exploration etc = $40m (and revenues may be US$/t and not A$/t, so the figures could be higher).
  • At Diggers, we also visited Norton Goldfields (NGF) and Independence (IGOs) operations, viz :
  • Norton Goldfields : Being overlooked because of the Paddington history by Pancon. We were surprised by the upside potential seen on the visit (ahead of Diggers) with the old Padd I & II pits to be used as tailings storage (20 years at ~3.5mtpa).
  • Independence Group : Remains a favourite, despite its share price collapse to under A$3/share. Long-Victor and Tropicana could continue as low cost operations until the “cows come home”.

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