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2003

Jan 2003 - Lodestone Expl

Lodestone Exploration Limited – Targeting Gold and Copper Mount Morgan Look-alikes in Queensland

  • The IPO Offer : Lodestone Exploration Limited (LODE) is offering a subscription of 12.5m shares at 20c to raise $2.5m (minimum subscription 12.5m shares raising $2.5m) to find hidden gold and/or gold-copper Mount Morgan look-alikes southeast of the historic Mount Morgan mine in QLD. As part of the offer, 1 free option (exercisable at 20c before 7 December 2004) is to be issued for every 2 shares subscribed.
  • LODE’s underwritten offer (by ABN AMRO Morgans) is on a project that is actually relatively very advanced, having already flown three surveys since 1998 including aeromag and TEM in a joint venture/exploration alliance with BHP Billiton, and delineated a series of targets that are ready to be drilled.
  • The rationale behind the project is that Mount Morgan (which produced 9.4moz of gold and 360,000t of copper before it closed in 1990) has been classified as a VHMS (volcanic-hosted massive sulphide) deposit, and in other parts of the world where these types of orebodies exist (such as Noranda) they usually occur in clusters or multiple deposits. Hence this project to find the other orebodies possibly associated with Mount Morgan, which may be hidden, but can be exposed using the latest advanced exploration techniques.
  • Using a geological theory of LODE’s Chief Geologist with knowledge of VHMS deposits, a concept for the project was made and has been verified in the field by observation of the rock structures and the airborne electromag surveys. Initially 17 targets have been identified and ranked according to their prospectivity. Now those targets await drilling.

Feb 2003 - Cons Minerals

Consolidated Minerals Ltd (CSM) – Extending its Life Beyond 10 Years at Higher Rates of Production

  • CSM has already established an ore reserves/resource life of 10 years at Woodie Woodie Manganese and is extending Coobina Chrome’s life towards 10 years. In the current exploration programme, CSM is aiming to extend the lives of both operations beyond 10 years and enable Coobina to consider doubling its chrome production to 500,000tpa (our modelling factors in an increase to 350,000tpa).
  • CSM’s annualised manganese production appears to be capable of increasing closer to 580,000tpa of lump and fines, of which the lump component could be >380,000tpa based on the progress that has been achieved in the 6 months to December 2002, and the new reporting disclosure.
  • CSM appears to be fairly valued, however, its products are in a poorly understood “area” of the market in which product sales and prices realised are not easily identified (like precious or base metals). Consequently, CSM’s share price appears likely to rerate according to its profit results and resulting P/E ratios, Price/cashflow ratios, and relatively high dividend yields (currently of about 8%).

Feb 2003 - Kanowna Lights

Kanowna Lights Limited (KLS) – Reviewing Mount Carrington in NSW

  • In November 2002, KLS acquired an option from Virotec (VTI) over the historic Mount Carrington epithermal polymetallic field (primarily gold and silver, with minor copper and zinc) in northern NSW. The requirements of the option are for KLS to raise about $1m to complete a feasibility study by 15 March 2004.
  • The feasibility study requires a mining operation capable of producing 200,000ozpa of gold equivalent for at least 5 years (there is already a resource of 280,000oz gold and 10.3moz silver), and if the option is exercised VTI is issued with 19.9% of KLS’ ordinary shares and an equivalent number of options.
  • Mount Carrington has been mined at various times since 1886 and parts have been joint ventured with most of the major companies at one stage or other. The last mining was a series of shallow open-cuts between 1989 and 1990 by Mt Carrington Mines (MCM) who closed their operations citing lower grades than expected and poor metallurgical recoveries, which appears to have mainly
  • resulted from a geological misinterpretation of probably steeply dipping veins.
  • A joint venture with CRA from 1990 to 1994 resulted in a completely different interpretation and a new stratigraphy with 75% more intrusives than those previously recognised. However, CRA did not have access to the entire field and after they withdrew, little work was undertaken as MCM passed through various guises before becoming Virotec focusing on cleaning acid mine drainage water.
  • Although the MCM open-cuts focused on the central area of the field, there were significant mines outside of the central area which appear to have been barely explored such as Lady Jersey which produced 25% of the field’s wealth from gold, and possibly Pioneer, White Rock etc. KLS intends to take a two pronged approach focusing on the old open-cuts and the other historic mining areas.

Feb 2003 - Independence Gold

Independence Gold NL (IGO) – Long Nickel Mine Acquisition Could be Significantly Profitable for IGO

  • IGO’s wholly owned subsidiary Lightning Nickel Pty Ltd bought WMC’s Long/Victor nickel mine for $15m on 17 Sep 2002. This was based on IGO’s estimated return of $60m in after tax cashflow, from producing 27,000t of nickel over 5 years (treating 750,000t of 3.6%Ni ore reserves at 150,000tpa) and receiving a nickel price of US$3.15/lb (US$6950/t), and an A$ exchange rate of US55c.
  • IGO ramped up beyond their targeted production rate of 12,500tpm (150,000tpa) inonly 3 months (by January 2003), and are also achieving 10% to 15% highergrades than expected of >4% nickel (due so far to less dilution than expected).
  • Long’s life appears likely to be at least 7 years all probably at greater than an average annual grade of 4%Ni. This is based on our site visit observation of progress to date, the driving towards Gibb South and new extensions there, probably a favourable decision on Victor South in 2003, the current mining rate of 34% in resources (outside of reserves) and additional remnant mining,
  • The geology appears to be so complex that it is virtually impossible to put strike limits on the orebodies, resulting in a strong probability of extensions to them within the lava channels. There also appears to be at least 3 possibilities of finding new unmined orebodies : either within the existing channels, below the Long lava channel, or there could be a link between the Durkin orebody (to the northwest) and Long as shown in figure 6 on page 4.

Apr 2003 - Zimplats

Zimplats (ZIM) – Turning the Vision into Reality

  • The Hartley complex’s 170moz of platinum resources have been incomprehensible in terms of actually being mined, yet Implats in their February 2003 half-yearly presentation in Johnannesburg stated that Zimplats could increase its current platinum production from 85,000ozpa to 440,000ozpa within 10 years using 100,000ozpa modular units.
  • The transformation of the vision into potential reality has been due to the initial success of the Ngezi open-cut followed by encouraging early development signs from the Ngezi underground. These early indications and signs are probably what is behind the IMP remarks that ZIM is the jewel in IMP’s crown and is of strategic long-term importance to Implats.
  • The initial progress at the Ngezi underground has resulted in Zimplats starting a BFS on the first expansion phase to double production by about 200,000ozpa 4E (platinum, palladium, rhodium and gold) to attain nearly 400,000ozpa 4E by Dec 2005 with about 2mtpa from the Ngezi open-cut and 2mtpa from underground.
  • The platinum price rose by 45% or US$210/oz to peak at US$700/oz in the past year before falling back towards US$600/oz, however demand still appears to be favourable, driven by 3 previously overlooked factors such as Chinese jewellery demand (higher than IMP’s mine production), increasing Chinese autocatalyst demand, and accelerated American development of the fuel cell.

May 2003 - Aquarius Platinum

Aquarius Platinum Ltd – Overcoming its Operational Issues

  • Aquarius’ share price has more than halved in the past year to a low of A$5.00 due to the Rand’s strength, and lower non-Pt PGE prices, while possibly overreacting to BEE (Black Economic Empowerment), the expected Money Bill’s royalty rates, the perceived forex exposure/money pipeline (due to accounting the sale of pges 3 months before they occur, and booking the difference), Zimbabwe’s financial influence on Mimosa, and operational restrictions at Kroondal and Marikana.
  • The strengthening Rand is materially increasing the costs on the South African operations, (a R125/t cash cost at Kroondal becomes US$17.90/t at ZAR7/US$, compared to US$13.90/t at ZAR9/US$). The Rand corrected slightly to 7.5/US$ on Friday 2 May, but remains volatile as the US$ continues to weaken against the Euro (reputedly from the oil nations switching currency, and the US financing Iraq)
  • The operational restrictions being encountered by Kroondal in the form of potholes and other geological disturbances were being rectified during the March Qtr 2003, since face availability had risen to over 80% on one of the shafts in February, while only 67% is required to attain a 250,000tpm throughput rate.
  • Marikana is being commissioned on low recovery oxide and transition ore for the period to May 2003 when it is expected to begin increasing its blend of sulphide to about 75% by September 2003, with production gradually building up to an expected 130,000ozpa 4E, and possibly an expanded 160,000ozpa.

Jun 2003 - Heritage Gold NZ

Heritage Gold NZ Ltd (HTM) – Given An Unexpected Opportunity to Potentially Achieve Gold Production

  • Heritage is a North Island NZ gold exploration company that was established in 1984 by Peter Atkinson and has the opportunity to toll treat ore through Newmont’s Waihi Gold (or Martha Mine), following the discovery of the Favona mineralisation and extension of Waihi’s life to ~2015 at 300,000t and >100,000ozpa.
  • Newmont’s expected >1moz Favona gold mineralisation was discovered using geophysics, following up the relationship between vent breccias and gold mineralisation that HTM had proven at its Onemana project. HTM are applying similar geophysical techniques (and the same consultant) at its Waihi North project, located almost on the edge of the Waihi open-cut and extending through to the old Golden Cross mine.
  • Heritage initially uses an inverted aeromag technique to target potential gold mines in its main project areas of Waihi North and Karangahake, before following up with geophysics. The inverted aeromag technique highlights epithermal alteration that can be shown as identifying the historical gold mining districts (adjacent to HTM’s projects) of Waihi and Golden Cross.
  • Apart from Onemana, all HTM’s exploration projects are located within about a 10km radius of the Waihi gold mine. At Karangahake, Heritage are using the inverted aeromag technique and a recently completed 3-D perspective of the old workings, development and stopes, so as to prioritise where to explore with a view to attaining early cashflow.
  • At adjacent Rahu, HTM have identified a hidden potentially mineralised system through applying geophysics, that can now be drilled with a focus on attaining early cashflow by potentially using the spare capacity in Waihi’s 1.3mtpa mill.

Jun 2003 - Perth Mint Gold

Perth Mint Gold (PMG) (ZAUWBA) – At Last, the Ability to Buy Gold on the ASX

  • On the 16 May 2003, the Gold Corporation (a statutory authority of the WA Government ) issued a new AAA rated tradeable gold product called PMGs (Perth Mint Gold Quoted Product) where 1 PMG = 1/100th of an ounce of gold, with the ASX Code : ZAUWBA.
  • Investors can buy on market through any stockbroker (with the settlement being made through CHESS, T + 3) at the same charges applicable to shares. Being 1/100th oz, the individual PMGs would currently trade at about A$5.40 each, which should encourage healthy trade as the product achieves market penetration.
  • Deutsche Bank has been appointed as market maker for PMGs to ensure that the trading value is close to the spot gold price (based on the US$/oz gold price and A$/US$ exchange rate). Gold Corporation can also support the market in PMGs.
  • In order to satisfy the ASX, the product is classified as a call warrant with a closing date of 6 May 2004. Theoretically that means that the original allowed issue of 100t of gold or 321.5m units (or 3.215moz) cannot be increased beyond that date, and remains at that number until 31 December 2013, when it is likely to be rolled into a similar product. If a trading volume of more than 100t of gold is required after 6 May 2004, then another series can be issued.
  • The PMGs are guaranteed by the Perth Mint. They can be converted into cash at a cost of $0.50/oz plus $100 (settlement T + 5). They can also be converted into gold that can either be stored at the Perth Mint or physically delivered in various specified forms with typical delivery charges.
  • Although there is risk due to the strength in the A$, an investment in PMGs is not subject to issues that can affect gold shares such as falling gold production, rising cash costs or lower grades than expected which has affected some shares in the past year, such as Kingsgate (KCN) down from A$3.79 to A$2.96 between 28 May and 2 Jun 2003 when A$ gold was little changed from A$554/oz to A$556/oz, or Gympie (GYM) down from $0.73 to $0.43 between 2 Jan and 5 Feb 2003 when A$ gold rose from A$610/oz to A$647/oz.

Jly 2003 - LionOre Mining

LionOre Mining International Ltd (LIM) – Developing Into A Premier Nickel & Gold Company

  • LionOre Mining (LIM) has had a staggering growth record in terms of gold and nickel discoveries and converting them into producing assets within only the past 2 years, to become a major nickel and gold company focused on Australia and Botswana with a market cap exceeding A$1bn.
  • LIM currently has three operating mines, being two nickel (Emily Ann in Australia, and Tati’s Phoenix in Botswana) of which both are in phases of expansion, and one gold (Thunderbox in Australia). LIM is aiming to convert some of its exploration prospects (like the Waterloo/Amorac nickel prospect) into mines too.
  • On 3 June 2003, LIM announced its intention to list on the ASX in July 2003 and merge with Dalrymple (DRE) on the basis of 1 LIM –for- 2.92 DRE shares requiring about 25m new LIM shares to be issued. The merger was expected to be completed in September 2003, and result in LIM holding 100% of Thunderbox, Waterloo, and the North Eastern Goldfields, plus Dalrymple’s other exploration assets, in addition to LIM’s existing holdings at Tati and the Emily Ann area of WA.
  • In its latest 2002 Annual Report, LIM stated its 3-year strategic targets as doubling attributable nickel production to at least 30,000tpa, and increasing the Thunderbox asset in WA to achieve sustainable gold production of more than 200,000ozpa.

Jul 2003 - Pan Aust Resources

Pan Australian Resources NL (PNA) – Phu Bia Gold Project Approaching the Completion of its Pre-feasibility Study

  • The current focus for PNA is the completion of its pre-feasibility study which is on schedule for September 2003. Perhaps not surprisingly, Phu Kham (which literally translated means “mountain” of gold) is shaping up as the most prospective area with spectacular intersections such as GRC58’s 30m at 3.7g/t in the oxide gold cap ending in mineralisation and showing fairly regular grade continuity throughout the drillhole.
  • PNA provided targets in a presentation in late July 2003 of potentially commencing production from its Phu Bia Gold Project in late 2004, increasing to an annualised rate of 50,000ozpa gold from 2005, and then rising to 110,000ozpa gold and 50,000tpa copper as the Phu Kham copper-gold orebody (beneath the gold cap) comes into production from 2007.
  • The pre-feasibility study appears to be heading towards a combined 1.5mt to 2.0mtpa CIL and heap-leach plant located at Phu Kham (PK), possible trucking from Long Chieng Track (LCT) and a heap-leach at Ban Houayxai (BH).
  • Although the infrastructure is already reasonably good, it is being dramatically upgraded by the new south to north power line from the hydro-power station through to Phonsavan, which bypasses about 8km east of Phu Kham and is scheduled for completion in December 2003. A partly sealed road parallel to the power line is also scheduled for completion some 2 years’ later.

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.

Aug 2003 - Independence Gold

Independence Gold NL (IGO) – Hitting the Jackpot !

  • On 7 August 2003, we visited IGO’s Long Nickel mine and its new underground development at Gibb South, with a small group of brokers, analysts, fund managers, and the media.
  • Initial grades had been regarded as relatively disappointing in the 5% to 6%Ni vicinity, compared to the drillhole intersections at about 7% to 10%Ni, but IGO had recently encountered a horizontal “seam” or lode of massive ore averaging 21%Ni (some samples are ~27%Ni). This seam was observed (by us) to be about 10cm to 2m thick, overlain by up to 1.5m of disseminated 4%Ni, as shown in Figure 1.
  • This latest nickel mineralisation is clearly bonanza, jackpot-style. However, the prize is perceived to be Victor South which has widths of massive ore up to 30m of 3% to 7%Ni, and a number of 10m at 10%Ni drillhole intersections. Development production could start by June 2004 after completing the remaining 1.8km to be driven in the improving ground conditions towards the south, by April 2004.
  • The budget forecast for 2003/04 is 150,000t at 3.3%Ni and should be the worst case scenario since the grade has been reduced by 10% from the 3.6% expected (based on the feasibility study of an average ~3.45% from Long, plus sweeteners). There is 2,000t of Gibb South on the ROM pad at 6% to 7% Ni, and the production tonnage may also have been reduced by 10% with 41,000t treated in JQ03.

Sep 2003 - Abelle Limited

Abelle Limited (ABX) – Innovation, Logic and First PNG Production possibly by 2005

  • Abelle’s PNG assets essentially consist of two regional, volcanic mega-complexes about 70km apart, and three significant mineralised systems, being Hamata- Hidden Valley (HHV), the Wafi Gold Complex (Wafi) and the Golpu Porphyry Copper-Gold Complex (also at Wafi). HHV is the most advanced, and is targeted to commence gold production during 2005, after about 12 months’ construction.
  • The 5% NPV for Abelle at current gold prices is almost A$2.80/share. However, it must be emphasised that this is only one of a number of possible scenarios, and there is significant potential for this valuation to be exceeded, simply through attaining slightly higher grades, or including Golpu, or success from any of the other promising adjacent prospects amongst the complexes of HHV and Wafi.
  • The scale of the complexes is huge, Wafi has a newly recognised >6g/t high grade Link Zone with potentially greater than 3.9moz, plus an existing ~4moz gold resource, and a number of gold orebodies within an inner radius of about 500m. Golpu has a delineated >90mt at 2.1% (cu-equivalent) copper-gold porphyry that extends beyond a depth of 1km from surface, & HHV consists of Hamata providing 350,000oz in early cashflow, followed by Hidden Valley / Kaveroi’s resource of >2moz gold and >37moz silver, amongst an overall resource base of ~4moz.
  • The 3 projects have a market stigma attached to them for their previous failure to be developed, but Abelle has made major innovative conceptual differences to previous feasibility studies, that dramatically improve their economics. Abelle has also re-interpreted Wafi as near horizontal mineralisation (and is verifying it through drilling), instead of the near vertical previous interpretations.
  • ABX is moving fast to bring HHV into production, scheduling completion of the feasibility study by the end of October 2003. Our site visit in August 2003 was part of a team examining where to construct the conveyor, access roads, plant etc.

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.

Oct 2003 - Minotaur Resources

Minotaur Resources Ltd (MNR) – Bringing Prominent Hill into Production possibly by 2006

  • After acquiring 100% of the Mt Woods Joint Venture areas, MNR has farmed out the area to Oxiana Resources (OXR) such that OXR can acquire a 65% interest in the tenements that contains the Prominent Hill copper-gold discovery for $34m. The staged farm-in includes an initial $3.5m for infill drilling to result in a resource, followed by a $5m pre-feasibility, and then full feasibility study, which could result in Prominent Hill being in production by the end of 2006.
  • The effective Strategic Alliance between MNR and OXR is a good “combination”, leaving MNR to focus on exploration with OXR taking over the mining aspects of Prominent Hill assuming that it is viable to some degree.
  • The haematite breccia zone of the orebody appears to be consistently mineralised, for the northernmost limb, and a mineralised block can be estimated as containing about 70mt (our figures) (based on a conceptual block about 120m wide by 350m high by 1000m long) that allows for possibly a 30% reduction due to an apparent plunging grade distribution and assumes ~70% of the resource may be mineable.
  • At this stage, it is too early to estimate grades and model MNR until the resource has been determined after the infill drilling. Possibly, Prominent Hill could be a selective 1mtpa to 2mtpa producer initially mining higher grade >2.5%Cu-equiv areas, which were observed in the detailed drillhole 1m sampling as in DP005’s intersection of 209m @ 1.54%Cu & 0.9g/tAu including lengths of 7m to 8m at about3.0%Cu & 4.5g/t Au.
  • However, its actual throughput rate, be it 3mtpa sub-level open-stoping method or capex of ~A$200m depends on the feasibility study. A mine life of 20 to 25 years conceptually appears to be achievable and probably the target of the OXR farm-in.

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