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2002

Feb 2002 - Aquarius Platinum

Aquarius Platinum Ltd (AQP) – A Buying Opportunity based on potentially significant profit growth

  • The share price of AQP has drifted sideways up to about 900c for most of the past year since January 2001, despite a number of very positive fundamental improvements amidst ongoing uncertainty over Russian deliveries impacting on the pge prices, especially platinum.
  • During 2001, AQP increased the holding in its main operation (Kroondal) from 45% to 95%, and In mid-2001 upgraded the Kroondal mill by 50% by installing a regrind circuit, with production attaining that higher level before December 2001. The regrind circuit also expected recoveries to improve by about 10%. •
  • The increased holding in Kroondal was made using a placement and some Rand-denominated loans (about R629m) which with the 50% fall in the Rand against the A$ and US$ during 2001 reduced the loan by approximately one-third, from US$79m to US$52m. Operational costs have similarly fallen with the rand’s value, enhancing profitability too.
  • Marikana has started construction, and could be in production by very late 2002, while the more profitable Everest South is still in feasibility study.

Apr 2002 - Gympie Gold

Gympie Gold Ltd (GYM) – Undergoing a Dramatic Transformation

  • Gympie Gold Limited is a gold and coal company that is undergoing a dramatic transformation, resulting in increased gold and coal production, higher profitability and growth in earnings for its shareholders.
  • The old-timers failed to recognise the significance of the ore shoots in the Inglewood structure and their relationship to the Gympie Veins which are all recent breakthroughs in understanding GYM’s gold mineralisation. This is already reaping benefits resulting in a sudden spate of discoveries of stockworks, ore shoots and Gympie Veins, which with the new 1mtpa decline and move towards rubber-tyred mechanisation all point to production growth at its QLD operation
  • One of the first conclusions that we made on completing a valuation of Gympie is “where is the mistake”, because the valuation using a 7% NPV or constant money cashflow (the norm for gold is 5% and for coal is possibly 7%) was more than double its share price of A$1.07, so we “hacked” the model, and yet the valuation was still more than double its share price of A$1.07 (since risen to A$1.18).

May 2002 - Golden Cross Res

Golden Cross Resources Ltd (GCR) – Gaining a Step on the Production Ladder

  • Golden Cross is in the process of making the transition from a pure exploration company to a gold producer through re-opening the Adelong goldfield in NSW, with initial production targeted at up to 35,000ozpa.
  • GCR has a number of prospects all in NSW, and has moved to farm-out a number of them in the past 4 months as it focuses on Adelong, such as with MIM in February over Copper Hill, Triako in April over Yellow Mountain and Sipa in May over its Broken Hill properties. In most cases the farm-out is for up to 70% of the prospect.
  • GCR is currently in the process of negotiating its financial arrangements to enable it to move into construction and development of the Adelong goldfield. Although there are 3 styles of gold-in-quartz mineralisation that we observed, based on the different wallrocks and strikes of the lodes, the old Challenger mine is the first that is planned to be re-opened.
  • The recently completed feasibility study showed that payback of the $3m to $3.5m required to re-open the mine and commence plant throughput could be achieved within 1 year depending on the treatment rate through the plant.

Jun 2002 - Pan Aust Resources

Pan Australian Resources NL (PNA) – Advancing its Laotian Gold Project Towards Feasibility and Production

  • On 14 June 2002, PNA shareholders are to vote on a number of steps that have the capability to materially enhance their company resulting in gold production possibly by December 2004, by approving the acquisition of the Phu Bia coppergold project in Laos from Newmont.
  • The results of initial scoping studies suggest that Phu Bia could be capable of producing 70,000ozpa of gold from a 3mtpa heap leach operation advancing into 25,000ozpa of gold and 25,000tpa of copper from a concentrate in a 3mtpa conventional plant, that could later be expanded to 5mtpa.
  • Further infill drilling is currently required to complete the pre-feasibility study on Phu Bia and assess the initial processing route as heap leach and/or CIL, with a combined CIL/heap leach route potentially capable of materially higher gold production. The treatment alternatives depend mainly on drilling higher grade targets of 4 to 5g/t at Ban Houayxai and 8g/t at Long Chieng Track, plus the 3 to 12g/t gossans, and deeper copper-gold mineralisation at Phu Kham.
  • PNA also still has its Puthep copper project in Thailand on which it is waiting for Cabinet approval in order to advance it to the next stage having completed a viable pre-feasibility study.

Jul 2002 - Elkedra Diamonds NL

Elkedra Diamonds NL (EDN) – Encouraging Signs in the First Drilling programme

  • Elkedra is already seeing encouraging signs (or potential indications of diamond bearing formations) from the geochem analysis of its first drilling programme at Mt Ultim.
  • The initial success consists of individual drillholes containing a darker red sandy unit, a micaceous chip, and a thick clay zone, which are all regarded by EDN as possibly anomalous, and could potentially indicate highly weathered kimberlite. These units or zones and others are to be subjected to second-stage heavy mineral analysis to identify possible diamond indicator minerals (results possibly by end July 2002).
  • While the initial geochem results continue to be assessed from both Mt Ultim’s 7 drillholes and Central Craton samples, the second drilling program commenced in the last week of June 2002 in the Central Craton focusing on at least 15 high priority anomalies, consisting of aeromag and photo-feature anomalies.
  • Manganese was also found in two grab samples in the Central Craton prospect. Although it has to be acknowledged that they were grab samples, one of the manganese values was relatively high at 42%Mn along with lower percentages than usual of deleterious elements such as iron (Fe) at 0.16% and silica at 5.8% SiO2.

Jul 2002 - Abelle Limited

Abelle Ltd (ABX) – A Neat, Very Profitable 75,000ozpa or so Gold Mine

  • Abelle is operating the old Gidgee mine (that used to belong to Australian Resources (ARS) before that company went into receivership in early 1999), and is currently producing about 75,000ozpa at a cash cost of US$215/oz and total cost of US$260/oz (at an A$ exchange rate of US57c).
  • Our initial impression on visiting the mine in mid-November 2001 was that it was capable of generating annual after-tax profit of A$2m to A$10m per year, depending on how well the visible gold in quartz underground was “running”.
  • Gold production has the capability to increase materially since about one-third of current production is coming from extremely low 0.8gpt stockpiles which could be replaced by oxide ore (when found) or from increased underground production.
  • In our opinion there is in fact significant upside potential for both gold production and life. However, it is more a case of where to start, and which order to take the targets in, and consequently we have used scenario analysis in pages 6 & 7. For example, the current underground life is conservatively 6 years, excluding reopening either Kingfisher or Omega, and a decline is being sunk in Butcherbird.
  • Currently the exploration direction is being made towards the potentially more prospective Gidgee anticline, by focusing on already delineated oxide targets and a number of classic exploration “gaps”, before the mill runs out of “soft” ore in about 2 years’ time. An alternative could be to spend possibly $10m more capex and increase underground production so as to replace both the surface sources.
  • We have provided profit and cashflow estimates for the scenario range (pages 6 & 7), with ABX’s share price (on a 5% NPV) capable of being between 40c and 105c.

Jul 2002 - Tanami Gold

Tanami Gold NL (TAM) – Bringing Prospects into Fruition in Elephant Country

  • Tanami Gold are first and foremost a gold company, focusing on gold with the view that should base metal prospects emerge within their tenements, then TAM may consider possible joint ventures or other options to fund or divest such assets. TAM does not intend to use their gold assets to finance diversification into base metal assets.
  • Over the past 8 years, Tanami Gold has built up a tenement package of 64,000sq km focused in 4 regions of the Tanami-Arunta Province (essentially all within the Northern Territory), which has become the envy of virtually all the world’s major resource companies as they have gradually realised that the NT is “elephant country”.
  • The NT has become elephant country partly because it was classified as too hard to explore in and its restrictions on mining and royalties were regarded as archaic and insurmountable. Whereas, TAM has shown that they are not insurmountable, and more importantly there are structures on a mega scale that cause geologists to salivate, and yet have still not had one drillhole into them.
  • TAM has established farm-in jvs with some of the gold majors such as Newmont and Barrick, and appear to be centred within a “land grab” with Anglogold even pegging “postage stamp” blocks probably because Callie’s (>10moz resource) surface footprint was only about 40m by 20m.

Jul 2002 - Independence Gold

Independence Gold NL (IGO) – Long Nickel Acquisition is part of the Aim to Create Substantial Shareholder Wealth

  • The Southstar Database is offering IGO a plethora of opportunities for the creation of individually focused companies.
  • The purchase of WMC’s Long nickel mine for $15m under the separately managed Lightning Nickel Pty Ltd is part of IGO’s aim to create substantial shareholder wealth.
  • Based on mining only Long and Victor South’s ore reserves of 750,000t at 3.6%Ni for 27,000t of nickel, at a rate of 150,000tpa, IGO’s Nickel management team (headed by Tim Moran) has estimated a 10% NPV of $46m for their attributable nickel. This was based on $60m in after tax cashflow over 5 years, using a nickel price of US$3.15/lb (US$6950/t), and an A$ exchange rate of US55c.
  • In our opinion, the 27,000t of Ni should be capable of being exceeded since it excludes almost the same again in the Long orebody’s resources, additional recoverable ore from the pillars (even allowing for geotech), and any possible exploration discoveries.
  • Lateral thinking by the IGO team following conceptual viewpoints outside of standard theory has resulted in evaluating two promising 100% owned gold prospect areas called Jeerinah (near Paulsen’s) and Yalgoo West, where initial results have been encouraging.

Oct 2002 - Aquarius Platinum

Aquarius Platinum Ltd – Quadrupling Production to 135,000ozpa by June 2003 at its Zimbabwean Mimosa operation

  • Aquarius acquired a 50% interest effective from 1 July 2002 in Zimasco Consolidated Enterprises Platinum Ltd, who own 100% of the Mimosa Platinum operation in the Wedza complex of The Great Dyke in Southern Zimbabwe for 6.86m AQP shares at GBP3.89/share or GBP26.7m (approximately A$74m).
  • The move is strategic with Mimosa having an expected life of far in excess of 30 years, currently quadrupling its production to about 135,000ozpa of PGE, and being one of the lowest cost platinum producers in the world.
  • In our opinion, after visiting the Mimosa operation in July 2002, the expansion should be achievable and if anything be conservative. Further upside potential appears possible in costs, recoveries, and throughput in addition to the gravity oxide testing, following up historic granite riffle tables that recovered Pt in 1926.

Oct 2002 - Zimplats

Zimplats / Makwiro Platinum – Profitably Commissioning Ngezi

  • By the end of the June Quarter 2002, following several modifications to the plant (as it had never run as Hartley at full capacity), the concentrator was operating at its 6000tpd design capacity of 2.2mtpa and ZIM was in positive cashflow, its 70% held Makwiro Platinum having produced and sold 18,680oz Pt in the quarter or 38,400oz PGE .
  • Given ZIM’s vast landholding containing delineated ore resources, there are significant upside scenarios for Zimplats and its resulting share price. In our opinion, there are 3 key factors influencing ZIM’s future, namely the success of the underground trial at Ngezi, the decision on a new plant probably in 2003, and the integration of Mwakiro and Impala into a simpler corporate structure.
  • A study appears likely to occur in 2003 to decide on the scope of the first expansion which could involve a doubling of production. The first expansion may be influenced by the progress of the trial underground mine, as to what mix occurs with possibly a new open-cut further north.
  • The underground mining at Ngezi has the advantage of having time on its side to develop a mining method since the open-cut is currently supplying the mill requirement of 2.2mtpa, and it can base its design on the (AQP/IMP) Mimosa mine to the south which has spent 6 years refining its underground mining method.

Nov 2002 - Apex Minerals NL

Apex Minerals NL (AXM) – Moving Into the Drilling Phase

  • Apex Minerals has made material progress since its inception only one year ago in October 2001, and IPO primarily as a platinum exploration company in June 2002. It owns 80% of two significantly sized projects in WA namely the Windimurra Superproject focusing on PGE, nickel and gold, and the Jillawarra Project focusing on copper – gold mineralisation.
  • Apex is run by Stephen Stone who favours lateral thinking and the use of the latest geological exploration techniques in combination with tried and tested methods, which resulted in one of his previous companies discovering the Weld Range PGE mineralisaton which apparently had not been recognised before.
  • This viewpoint has resulted in Apex going “back to basics” on its two projects while using up-to-date technology, and has highlighted areas of these projects that were apparently not considered prospective and have been little or poorly explored. While fieldwork is still continuing at Windimurra, drilling is expected to commence early in 2003.
  • The southernmost intrusion of the Windimurra Superproject is called Narndee and has been farmed out to a 50/50 JV between Falconbridge and Impala Platinum, in which the Falconbridge JV can earn 70% of Apex’s 80% by spending $4m over 5 years, or 80% of 80% of any specific areas it selects to take through to a BFS. The Falconbridge JV have completed their fieldwork following their recently completed aeromag, and also expect to commence drilling in the March Quarter of 2003.

Dec 2002 - Hill End Gold

Hill End Gold Limited – Expecting to Generate Cashflow by mid - 2003.

  • The IPO Offer : Hill End Gold Limited (HEG) is offering a subscription of 17.5m shares at 20c to raise $3.5m (minimum subscription 13m shares raising $2.6m) to reopen the old Hill End goldfield in NSW. As part of the offer, 1 free option (exercisable at 25c before 30 June 2005) is to be issued for every 2 shares subscribed.
  • HEG is very aware of the pitfalls that some of the later 1980 or so syndicates were trapped under, and hence intend to generate cashflow as soon as practically possible, aiming by Mid - 2003, should the IPO attain its minimum raising (and preferably closure) by the end of December 2002.
  • HEG has an extensive line of strike of old workings (about 27km or so) on which to explore, so it has the potential to have a very long life. Although it is focusing on the old workings and the stope fill and unmined areas for its initial production, it has to be remembered that the veins are “open” at depth.
  • It has to be recognised that this is a nuggetty distribution in which it is extremely difficult to determine expected grades before the plant has been in production for as long as a year or so, at the same time it also has to be noted that nuggetty distributions can produce spectacular results, as have occurred in the past.
  • The grade of the stope fill is thought to be in the region of 4 to 6gpt, but could be much higher since extraction techniques were fairly archaic, as illustrated by Silver Orchid mining Golden Gully (which lies north of the Hill End township) and reputedly only achieving a 50% recovery treating 300t of 2oz/t ore using its stamp battery in 2000.

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