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Tagged with: Michelago Limited

Aug 2003 - Michelago Limited

Michelago Limited (MIC) – Advancing towards Gold Production in China

  • The approval of a number of resolutions on 16 July 2003, has paved the way forward for MIC to acquire a 60% interest in two joint ventures with 40% held by the Laizhou Jincheng Gold Mine Group (Laizhou Gold) in the Jinya Gold Mine and nearby Exploration tenements located in the Guangxi Zhuang Province of southern China.
  • A Chinese feasibility study was completed on the Jinya Gold Mine following 304 diamond drillholes, exploration level and shaft development, and minor mining of the near surface ore in 1995. The mine closed in 1997 (due to the ore’s refractory nature), after producing 380,000t at 5g/t. The Jinya ore was tested in early 2002 (as part of the feasibility study) and bacox recoveries were a very acceptable 95%.
  • However, a revised study and review of the data is being undertaken by Michelago. MIC have a conceptual schedule of commencing construction in January 2004, with trial underground mining starting in December 2004, and process plant commissioning in June 2005 for concentrate sales at 39,000ozpa from August 2005. MIC then intends to complete a feasibility study in April 2006 based on installing a bacox plant in Guangxi for production from November 2006.
  • The development of the Jinya Gold Mine is being driven by the 40% JV partner Laizhou Gold which is doubling the size of its Bacox plant (in the Shandong Province) to 200,000ozpa in November 2003 and needs refractory ore.
  • The Jinya gold ore mineralisation has been classified as Carlin-type by the US Geological Survey in a recent open-file. It has the potential to develop into a significant gold district, and has the advantage that it does not need to find a bacox plant to treat its ore, it already has an offtake agreement for a 95% recovery.

Oct 2003 - Michelago Limited

Michelago Limited (MIC) – Producing >120,000zpa of Attributable Gold from About June 2004

  • The signing of a Letter of Intent (LOI) in Laizhou City, Shandong Province, PR of China on 23 September 2003, paves the way for Michelago (MIC) to acquire 51% of Shandong Tarzan Bio-Gold Co Ltd’s (BioGold) treatment operations. Which enables MIC to potentially produce >120,000ozpa of attributable gold from about June 2004 (depending on the timing of signing the Sino Foreign Joint Venture).
  • In addition, MIC signed an LOI with Laizhou Jincheng Gold Mining Company Ltd (Laizhou Jincheng, the parent company of BioGold) for an exploration JV in which MIC may earn a 51% interest in any gold resources below 500m from surface in an area of 10 sq km in the Jiaodong Peninsula of Shandong. The area includes the 3 small underground Jincheng mines that produce a total of ~25,000ozpa at a gradeof ~4.7g/t to 5.0g/t, and some strike extensions.
  • BioGold’s current treatment operations consist of an expanding biox plant that is currently producing about 70,000ozpa from refractory ore, a cyanide-leach plant producing about 130,000ozpa from non-refractory ores, and a 51% owned refinery that also produces about 100,000ozpa from dore, or a total of about 250,000ozpa currently attributable to BioGold for which MIC’s 51% should be >125,000ozpa.
  • MIC is still progressing with its SFJV to acquire a 60% interest in two joint ventures with 40% held by Laizhou Jincheng in the Jinya Gold Mine and nearby Exploration tenements located in the Guangxi Province of Southern China. Initial indications are that indicated and inferred resources to a depth of 280m could be 0.5moz at 5g/t. However, MIC appears likely to undertake further drilling with a view to extending the resources based on ideally producing 60 to 70,000ozpa and a higher ROI instead of 40,000ozpa.

Nov 2003 - MIC - Prod Forecast

MIC - Production Forecast to 300kozpa at AGM Gold – US$425/oz next ?

  • This comment is based mainly on our attendance at Michelago’s AGM at 3.30pm on 19 Nov 2003 in Sydney, and an update on our viewpoint of the gold price.
  • Michelago (MIC) : Rated as a Spec Buy
  • MIC gave a calendar year production forecast in its 2003 AGM presentation, in accordance with its target of attaining gold production of 300,000ozpa within the coming 5 years or so, as shown below :
  • In response to questions on cash costs, MIC stated that they expected BioGold’s production costs in 2004 to be about US$220/oz to US$230/oz, being based on purchasing concentrates from producers at 55% to 75% of the gold price (depending on what state and type the concentrate is sourced from).
  • The driver for MIC’s share price is probably the signing of the SFJV’s. At this stage, the exploration JV’s are expected to be signed before Christmas, and the production such as BioGold after Grant Thornton has completed its due diligence by the end of 2003. Biogold could be approved in March (after the Chinese New Year and the Summer festivals) or May 2004, and any subsequent required financing in JQ04, which has resulted in the production estimate shown in the above figure from about mid-2004 for an attributable 51%. It should be noted that MIC does not have to have the SFJV signed in order to start exploration, from what we can see, a number of other Chinese exposed gold companies are not waiting.

Aug 2004 - Michelago Limited

Michelago Limited (MIC) – Approaching BioGold Plant Acquisition Final Approval

  • The approved restructure of Laizhou Jincheng Gold Mining Company (the primary vendor of the BioGold Facility) into a private company by the Laizhou City Government in June 2004, has advanced MIC into the final approval stages.
  • The submission of the final financial audit to June 2004 by Deloitte, Shanghai in mid-August 2004, infers that final approval (MOFCOM and SAFE) at the Shandong Province level to acquire 82% of the BioGold SFJV and hence the BioGold Facility is expected to be attained within the next 3 months to the end of November 2004.
  • The required acquisition cost of ~A$12m for 82% of the BioGold Facility is being met from a combination of MIC’s own cash, the almost $4m BacTech agreement at $0.13 per share and a $6m Convertible Note facility (expected to be at least $0.13 per share) with the LinQ Resources Fund (prev Rothschild Golden Arrow Fund).
  • On attaining final approval, MIC becomes entitled to up to 20% of the spot gold price for 82% of the ore being treated through the bacox and cyanide leach circuits, currently of 140,000ozpa to 160,000ozpa, but increasing to a rated 200,000ozpa, and expected to expand further beyond that.
  • MIC can also attribute 51% of 82% of the 300,000ozpa in dore treated at the refinery (on which it only receives a marginal profit), received from processing through the bacox and cyanide leach circuits and ~100,000ozpa purchased dore.
  • Virtually nothing currently appears to be being ascribed in MIC’s share price to the Shandong Exploration SFJV with Laizhou Jincheng in which MIC has an LOI to earn a 51% interest in any JV areas below 500m from surface. Based on a visit to Dongji (one of the current four mine properties), the mineralisation (which can be significant) appears capable of continuing deeper there from the last intersection of 5m @ 18.2g/t, already about 480m below surface.

Nov 2004 - Michelago Limited

Michelago Limited (MIC) – Heading for Attributable Gold Production of 215,000ozpa based on 50% ownership of Gold Ridge and its BioGold SFJV (once approved) in China

  • On 29 November 2004, MIC announced that it has become a 20% shareholder in a consortium to acquire the Gold Ridge mine in the Solomon Islands from the American Home Assurance Company (AIG), with a strategy to acquire an additional 30% in the ASG consortium and fund 50% of the acquisition.
  • As part of the funding, MIC has placed 200m shares at 10c (with a 1-for-2 free option at 15c to December 2006) to raise A$20m subject to shareholder approval in late December 2004. The A$20m is to be used to pay the first funding requirement of A$13m (US$10m), $6m as part of the entry into the BioGold SFJV and A$1m for general working capital.
  • The ASG (Australian Solomons Gold P/L) consortium estimates that up to US$90m could be required to purchase the Gold Ridge mine and return it to production of 150,000ozpa for 10 years from the second half of 2006, based on 2.3moz of resources and 1.7moz of reserves as at June 2000.
  • Gold Ridge operated successfully for almost 2 years before it was suspended in unrest following a coup in June 2000. However, the intervention of the Regional Assistance Mission to the Solomon Islands has since restored sovereign stability, and aid has been injected to significantly improve the Islands’ infrastructure.
  • With 75,000ozpa for 10 years and 82% (after SFJV approval) of BioGold’s 170,000oz (ahead of the expansion), MIC could be able to attribute 215,000ozpa of production from 2006. There is a further 51% of 82% of 90,000ozpa from the gold refinery, although margins on dore are almost negligible at 1%.
  • Conceptually Michelago’s market cap could increase to over $200m representing an almost doubling of its current share price of about 10 to 11c. Our target of >20c for MIC remains, rating it as a SPEC BUY.

July 2005 - Michelago Limited

Michelago Limited (MIC) – MIC Finally Receives its BioGold Approval!

  • On 4 July 2005, MIC announced that it had received its BioGold SFJV approval from the Chinese Government, and expects to transfer and take over 82% of the BioGold assets within the next 30 days (by the end of July 2005). The approval process ultimately occurred, but there were more steps and time to complete the transaction than originally envisaged. MIC has consequently now received all of its approvals, for BioGold and for the acquisition of 47.5% of Gold Ridge and transfer of its ML to the Australian Solomon Gold (ASG) consortium.
  • Michelago currently appears to be well undervalued in the market at 5.6Ac, and with an NPV (at 5%) of A$0.21 at a gold price of US$425/oz and A$/US$ exchange rate of 77USc. This is based on assuming that MIC exercises its option to increase its equity in BioGold to 99% by October 2005 for Rmb10m, and that the 15Ac options are converted in 2007, (which results in 864m shares in issue in 2007).
  • With an attributable 70,000ozpa for 10 years from 47.5% of Gold Ridge and 99% of BioGold’s 170,000ozpa (omitting the refinery production as too marginal). MIC could attribute ~240,000ozpa of production by the end of 2006. Should the 80,000ozpa expansion of BioGold be completed in 2006, then production could increase to ~320,000ozpa, with the potential to achieve higher production levels when BioGold attains its rated capacity and/or Gold Ridge treats higher grade ore.
  • The ASG consortium’s acquisition of Gold Ridge has been based on 2.3moz of resources and 1.7moz of reserves as at 30 June 2000 (at a gold price of A$450/oz), with initial production commencing in the second half of 2006 at an average production rate of 150,000ozpa for 10 years with cash costs of US$235/oz.

Nov 2005 - Michelago Limited

Michelago Limited (MIC) – A Leveraged Gold Play

  • On 19 September 2005, MIC announced that (subject to shareholder approval) it had made a placement of A$8.2m in the form of 164m shares at 5Ac to settle A$2.1m associated with the purchase of 82% of BioGold in outstanding loans (apart from the concentrate credit facility), purchase the remaining 17% of BioGold for A$1.6m (to increase MIC’s holding to 99%), pay A$1.3m for the BioGold Technology Licence and other financing fees, and have A$3.2m to cover working cap and the completion of the BioGold expansion.
  • Michelago represents a classic leveraged play on the gold price because its profits are based directly on marginal percentages of the gold price, accruing up to ~20% of spot gold revenue from the gold ores that it treats, less treatment costs. MIC’s NPV appears to increase by about 1.6Ac per US$25/oz increase in the gold price.
  • No further funds are being provided to the ASG (Australian Solomon Gold) consortium to complete the feasibility study on Gold Ridge and any required finance before ASG’s expected IPO in perhaps March - June 2006. Consequently MIC are diluting down their holding in ASG and depending on ASG’s required finance, before its IPO, and the IPO itself, MIC could have possibly 29% to 30% post IPO.
  • MIC intends to decide post ASG’s IPO whether to continue to hold its position in ASG, make an in-specie distribution of its holding to MIC shareholders, or make a combination of the two namely, part held, partly distributed. Theoretically MIC’s post IPO 30% holding could be worth ~A$30m or so.
  • The expansion of BioGold’s Bacox© circuit from 100tpd to 200tpd (currently equivalent to 50,000ozpa to 120,000ozpa) is expected to be completed by December 2006 and should gradually increase the current production (including ~100,000ozpa or so from the cyanide leach) to a capacity of ~230,000ozpa by 2007/2008.

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.