Gold returns to volatility

In our opinion the gold price has reverted to what it was like pre-producer hedging, which was not just 5 or 6 years’ ago, but actually more than 15 years’ ago. The GFMS Gold Surveys record the net new forwards as shown in Table 1.

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.

BEE – Is the market over-reacting?

At the Indaba Conference in Cape Town from 18-20 February 2003, a very sobering perspective of the expected unrecoverable discount impact of BEE (Black Economic Empowerment) on share prices was given by a number of brokers.

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.

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.

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.

Approaching FSR Likely to Affect ALL Mining and Exploration Companies

Most members of the public should by now be aware that brokers and advisers are concerned about the SOA contained in the FSR (Statement of Advice in the Financial Services Reform Act of 12 March 2002), that is in its transition period before being formally fully implemented from 12 March 2004.