Vantage Goldfields Limited (VGO) –Increasing Production to ~50,000ozpa

• In April/May 2010, Vantage Goldfields Ltd (VGO) expects to raise A$30m in an IPO (led by Shaw Corporate) for its wholly owned subsidiary, Eastern Goldfields SA, resulting in 224m shares on issue at a nominal price of A$0.40c for a market cap of A$89m.
• VGO’s main assets are all in the Barberton region of Eastern South Africa, and comprise of the operating Lily underground gold mine (that is undergoing a mill expansion to ~400,000tpa), recommissioning the Barbrook mine and plant complex, and exploration over ~165sq km of the Barberton Greenstone belt (including the old Worcester gold mine).
• The Barberton Greenstone Belt is comparable to the typical greenstone gold mine deposits of WA, yet it has not been subjected to standard Australian geological exploration techniques. For example, although it supported ~350 mines in its heyday and produced >10moz, no one has ever flown aeromag there, which is 101 basic geology in Australia. VGO intends to fly helicopter aeromag in JQ 2010.
• VGO initially mined Lily as an open-cut at ~2.2g/t and ~10,000ozpa for ~5 years, before declining underground in June 2007 and switching to full underground production in January 2009. Recognising the need to upgrade the plant, Barbrook was acquired providing greater production potential to ~50,000ozpa.
• VGO had intended to expand earlier, but were caught in the GFC limiting the ability to raise finance, until now. During that period VGO undertook studies and examined the capability of bringing Barbrook back into production, while exploration found depth extensions to the old Worcester gold mine (NW of Barberton, on a classic NW/SE structure).
• There appears to be significant upside potential for VGO in the Barberton Greenstone Belt of South Africa.

Kingsgate Consolidated Limited (KCN) –Receiving renewed BOI incentives for the new Chatree North Plant, paves the way to a very profitable future Kingsgate

• Kingsgate should score a double-premium for having no RSPT payments (because its operations are not in Australia) and receiving the BOI investment incentives (the same as before : 8 yrs’ tax-free, then 5 yrs at 15% tax, as Thailand moves ahead in encouraging mining investment). Receipt of the BOI, means that production from the second train of the Chatree plant could occur during SQ2011.
• KCN’s Chatree gold mine in Thailand was a hive of activity in April 2010, initially aiming to increase gold production by ~50% to >200,000ozpa, and then using satellites and underground to reach ~300,000ozpa. Kingsgate is still exploring for possible stand-alone operations; following up epithermals that it has identified; and using its extensive database to find orebodies in other parts of Thailand.
• Chatree was examining increasing the mine’s life by : deepening the pits using US$950/oz or US$1150/oz pit shells (compared to the existing US$750/oz pit shell of June 2009), extending Chatree on strike NNW or SSE, and delineating higher grade epithermal lodes that can be economically mined underground.
• KCN intends to capitalise on its perception as an established, proven developing Asian gold producer while it leads the emerging mid-tier Australian listed gold producers into the A$1bn to A$2bn market cap category (following the takeover of Lihir by Newcrest).
• The Thailand IPO float of 51% of Chatree under Akara Mining Ltd (the preference shares are redeemed for common stock in one movement) is expected to occur during DQ2010/MQ2011, and could raise ~A$400m to A$500m (being ~50% of Kingsgate’s current market cap, plus some capital for ~50% of the mill expansion plus ~50% of the exploration). (It should be noted that Akara may receive an Asian trading multiple and have a higher market cap than Kingsgate).
• Kingsgate effectively retains mine management control with regional and near mine exploration under KCN’s Issara Mining (exploration) company. KCN/Akara’s Chatree controls an area of ~7kmN x 5kmE including the Chatree mine and MLs, while KCN’s Issara has the rest of the SPLs and SPLAs . Should Issara make a discovery, Akara Mining has first right of refusal in acquiring it for Chatree.

• I must admit that even after all this time, the recent falls (mid/late January 2010) in share prices and commodities on the basis of a China slowdown still comes as a surprise – as if China could suddenly grind to a halt. The market has yet to accept that China has a planned vision of where it wants to be and how it is going to get there for the next 20 years. The main beneficiary should be Australia because of its proximity and relatively high grade orebodies. We re-iterate what we have said before, if anyone gives a China view, ask them when was the last time they were there?
• The market’s behaviour implies that the share prices are going down because China is slowing, but commodity prices appear to be ignoring LME stockpiles & the major producers are struggling to expand as fast as possible to meet demand that has pushed spot prices of iron ore and coal well above their benchmarks. In September 2009, the brokers were forecasting gold to fall and drop to ~US$900/oz in 2010, whereas instead it rose to ~US$1300/oz on physical (an increasingly wealthy growing middle class in China, plus India and the central banks), and currency demand.
• As it turns out, the 9.5% expected increase in China’s GDP for 2009 (at the time of the China Mining Conference in Tianjin TEDA in October 2009) was in fact ~10.7% (according to the latest statistics [21 Jan 2010]). In fact the last quarter of 2009 may have been at the blisteringly unsustainable pace of 13%pa (the official figure for the first half of 2009 was 7.1%). So it is no surprise that credit is being reined back, to an expected 7.5trnRMB (US$1.1trn at 6.8RMB to 1US$) compared to 2009’s 9.6trnRMB (US$1.4trn). Has the market already forgotten that in early April 2009 it looked like China was heading for a growth rate of < 6% compared to the long-term target rate of 7%pa to 8%pa?
• April 2009 was actually the turn, when a number of construction sites in a number of cities in China moved to double-shifting and almost overnight, there was an immediate shortage of copper wire and copper piping. [Note : as per our comment last year, China only produces ~15% to 20% of its annual copper requirements, or 0.9mt with 4.5mt imported in 2008]. ERA business wise, we restarted marketing at the Paydirt Gold Conference at the beginning of April and by the end of April 2009, our forward book was back to normal (ie booked about 1 year ahead, [it had been booked up to 2.5years’ ahead], when the crunch hit we lost everything from Sept08 to Dec08 & other spots).
• We (ERA) did in fact state on ABC TV [7.30 Report on 12 Dec 2008] that we expected the turn to be about Mar/Apr 2009 (while some thought 2nd half 2009 was a possibility, most appeared to be expecting 2010 or 2011). Our estimate was made on the basis of China slowing down ~6 months ahead of the August 2008 Beijing Olympics and then at least 6 months to recover afterwards, allowing for Chinese New Year and China’s new regulations on emissions), whereas timing wise, kick-starting China’s economy appears to have been the main reason for the recovery.

Do Epithermals Usually have at Least 2 Trends?

It may be sheer coincidence but we could not help noticing a number of similarities between some epithermal deposits after visiting NQM’s Pajingo in September 2009, NCM/CAH’s (Newcrest/Catalpa’s) Cracow (also in Queensland) in January 2010, attending Paydirt’s NewGen conference in November 2009 and see Andean present Cerro Negro, followed by Exeter Resources presenting Cerro Moro.

Paste Failures Provide a “Wake-Up” Call

I must admit that when I first encountered paste being used to fill stopes instead of concreted tailings and the way it behaved, I thought “WOW this is fantastic, looks like rock, fills the void perfectly, can be cable bolted, can be mined against, etc”. So it is understandable how complacency occurred, and why failures in the past year have been met with surprise.

Avoca Resources Limited (AVO) – Becoming a >$1bn Mid-Tier Gold Company at >350,000ozpa gold with a life of >10 years

• The recent intersections of ~50m @ 3.5g/t and 29m @ 5.0g/t in Apollo-style mineralisation ~200m north of the Trident orebody on the ~400RL have a significant impact on AVO’s life at Higginsville, inferring a life (when combined with Chalice and regional orebodies) of 180,000ozpa to ~200,000zpa for >10years.
• At this stage, Chalice appears likely to commence production in 2H2011, following completion of the dewatering of the pit (by end 2010), and then declining down to the Olympus mineralisation. Timed to come into production as Trident moves deeper, Chalice provides increased production flexibility in the 1.3mtpa plant.
• Following its acquisition of Dioro, Avoca announced in July 2010, that it is starting a feasibility study aimed at doubling South Kal’s Jubilee plant to ~2.4mtpa through cutting back the HBJ (Hampton Boulder – Jubilee) pit and using satellite open-cut/underground sources such as the Mt Marion (West lode) and Barbara-Surprise/Noble areas, resulting in production of >90,000ozpa for at least 10 years (Note : based on 2mtpa at 1.5g/t & 92% recovery, although grades could be higher, and also note 0.4mtpa is for treating AVO’s 49% of Frog’s Leg).
• Avoca acquired 49% of Frog’s Leg as part of the Dioro acquisition, and Frog’s Leg appears to have a life of at least 10 years, treating ~800,000tpa (or possibly higher) at ~5.0g/t to 5.5g/t for attributable gold production of >60,000ozpa.
• AVO is gradually working its way through the recently acquired vast South Kal assets which extend arc-like south around Kalgoorlie from the defunct Golden Ridge mine in the SE through HBJ, Mt Marion and Barbara in the SW, and which appear to contain significant upside potential.

PDU fires up the West African Golds

Any doubts anyone may have had about Burkina Faso being the current world exploration “hot-spot” were quickly dispelled by the behaviour of the West African gold shares in the week of PDU (Paydirt Down Under) in early September 2010.