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AUD $12.00 JANUARY/FEBRUARY 2013 UK£8.00/CAD$12.90


New Legend’s dire prediction for juniors

African Indaba special Who will save South Africa?

West African wonder A gold and iron ore giant in the making

Marriage made in heaven East African petroleum boom to boost mining

Big deal

China’s shale reality check

Sunrise at Mallee Bull – the most significant copper discovery in the Cobar region in recent times

 A leading copper-focused exploration company operating in the mineral-rich Cobar region of New South Wales.  A major landholding in one of Australia’s most prolific mining regions.  Leveraging experienced management team, and the backing of an established regional player in CBH Resources Ltd.  Fully funded at Mallee Bull and focused on maximising the exploration return on investor dollars.  Aggressive 2013 drilling program planned. Unit 1, 34 Kings Park Rd, West Perth WA 6005, Australia PO Box 849, West Perth, WA 6872, Australia Telephone: +61 8 3982 3955 Facsimile: +61 8 9388 1025



Published by: Aspermont Limited (ABN: 66 000 375 048) MANAGING EDITOR: Michael Cairnduff EDITOR: Anthony Barich CHIEF SUB-EDITOR: Gerald Bradley SUB-EDITORS: Melanie Jenkins, Maxine Brown JOURNALIST: Alex Paull CONTRIBUTOR: Ben Creagh

From the Editor’s chair


Market Watch


Taking Stock



Digging Deeper


Top 5


ADVERTISING SALES DIRECTORS: Australasia – Angela Smith UK/North America – Gareth Hector INTERNATIONAL ADVERTISING SALES: Saithu Nair –

Nickel Update


Coal Update


Oil & Gas Update



Gold Update


Copper Update


SUBSCRIPTIONS: 9 issues per annum: $A108.00 (GST included); Regional (PNG, NZ, SE Asia) $A202.00; International $A212.00 USPS No: 024-682 The 2011 US Institutional subscription price is $A184.00. Airfreight and mailing in the US by agent named Air Business, c/o Worldnet Shipping USA Inc, 155-11 146th Street, Jamaica, New York, NY 11434. Periodical postage pending at Jamaica NY 11434. US POSTMASTER: Send address changes to RESOURCESTOCKS, Air Business Ltd c/o Worldnet Shipping USA Inc, 155-11 146th Street, Jamaica, New York, NY 11434. Subscription records are maintained at Aspermont Limited, 613-619 Wellington Street, Perth, Western Australia 6000 CIRCULATION: Approximately 11,500 EXECUTIVES: Colm O’Brien – Chief Executive Officer Trish Seeney – General Manager John Detwiler – Chief Financial Officer HEAD OFFICE: Aspermont Limited 613-619 Wellington Street, Perth, Western Australia 6000 PO Box 78, Leederville, WA 6902 Australia Ph: +61 8 6263 9100 Fax: +61 8 6263 9148 Email: Website:







Gavin Wendt is a research analyst specialising in junior stocks and founding director of www.minelife. com

Peter Strachan is an analyst and author of the online newsletter www. stockanalysis.

Allan Trench is a professior at the University of WA and Curtin University, and director of several resource companies

Ursula van Eck is natural resources leader for Africa at audit, tax and business advisory firm BDO

FEATURES 32: East Africa Rises Offshore oil and gas boom a bonus for struggling mining industry

ASPERMONT UK: Albert House, 1 Singer Street, London EC2A 4BQ, United Kingdom Ph: +44 (0) 20 7216 6060 Fax: +44 (0) 20 7216 6050

40: Who will save South Africa? The world’s unquenchable thirst for resources may just do it


54: Not so scary Reform in Latin America is soothing investor fears

All editorial copy and some advertisements in this magazine are subject to copyright and cannot be reproduced in any form without the written permission of the editor. Offenders will be prosecuted.

DISCLAIMER: Aspermont Ltd (ABN: 66 000 375 048), publisher and owner of RESOURCESTOCKS (‘the publisher’) and each of its directors, officers, employees, advisers and agents and related entities do not make any warranty whatsoever as to the accuracy or reliability of any information, estimates, opinions, conclusions or recommendations contained in this publication and, to the maximum extent permitted by law, the publisher disclaims all liability and responsibility for any direct or indirect loss or damage which may be suffered by any person or entity through relying on anything contained in, or omitted from, this publication whether as a result of negligence on the part of the publisher or not. The publisher does not hold itself out as an investment adviser, nor is it in the business of providing investment advice or any other advice whatsoever. Reliance should not be placed on the contents of this magazine in making a commercial or other decision and all persons are advised to seek independent professional advice in this regard. Some company profiles have been commissioned by the featured company.

60: Checking London’s pulse Dividends the new focus as companies learn from mistakes


Newest RESOURCESTOCKS Legend inductee has dire warning for Aussie junior mining sector

76: Up there Cazaly Victoria’s stalled mining industry needs community focus

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Company Profiles


22: Botswana Metals The inking of a new joint venture with an industry heavyweight has the potential to fast-track the operations of ASX-listed Botswana Metals. 28: Peak Resources Last year put Peak Resources on the rare earths map, but 2013 will be crunch time for the junior as it gears up to fill the looming critical commodity gap. 35: World Titanium Resources World Titanium Resources investors may have bought in for the Ranobe mine in the Toliara Sands project, but they’re in for a treat as the company reveals its “main game”.



52: Orinoco Gold Bigger is definitely better for Orinoco Gold, which is seeking a bigger bulk sample to shore up a resource from its deposit that is full of gold clusters. 72: Middle Island Resources Middle Island Resources has

headed into the new field season with a full kitty of cash in west Africa, as it looks to build on its portfolio of promising gold projects. 74: Gryphon Minerals A successful exploration program at the Banfora gold project in Burkina Faso has taken Gryphon Minerals to the verge of developing the prospect. 88: Hodges Resources Sitting on a massive coal resource in a market crying out for energy, Hodges Resources is flourishing in Botswana. 90: Siburan Resources Locking on to a potentially sizable tungsten project in New Zealand may prove the making of Siburan Resources. 94: Wolf Minerals With a funding package in place, Wolf Minerals is set for the rapid development and construction of its world-class Hemerdon tungsten and tin project.




Photo courtesy of G Hartshorn


Mt Kare Gold/Silver Project, Papua New Guinea Drilling bonanza gold zones 100-450 g/t gold (5-20m) Identical setting to adjacent 28Moz gold mine 150,000 oz/yr production targeted < 3 yrs Major global fund support




Indochine Mining Limited ASX:IDC

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from the editor’s chair



hile the ticking over of the financial year is always a frantic time for companies, the turn of the calendar year often finds people emerging from their caves bleary eyed. So too have gold companies been suffering a hangover over the past year from what they did in the first half of the past decade, as Randgold CEO Mark Bristow and BlackRock’s top dogs told investors and miners at Mines and Money London 2012. While that conference was way back in December, what analysts had to say was instructive for what the immediate future holds, as companies learn from their mistakes from the past and focus on dividends for a change, rather than growth for the sake of growth, which was a common indictment made on the mining industry – major gold companies in particular – at the conference. The London focus is also a nice segue into Africa – our focus for this special African Mining Indaba edition – which the Old Dart has a long history with, whether you’re talking colonialism or the heavy investment it makes in Africa with its similar time zone etc. The past few years have seen a flood of investment into west Africa, despite its history of violence, while east Africa is just starting to come into its own in terms of minerals investment, and its oil and gas industry is going gangbusters at the moment with some massive discoveries. Then there is the home of African Mining Indaba itself, South Africa. Our feature points to a way forward for the troubled former heavyweight of the global mining industry. Things got rosier in December when news leaked out that its ruling African National Congress would likely implement a mining tax or higher royalties after ruling out the possibility of nationalising the industry. According to Bloomberg, the ANC removed any reference to nationalisation in its policy recommendations as it tabled the possibility of an unspecified “resource rent” tax. I think it’s safe to say they can blame Julia Gillard for that one, not that we’re prone to the Aussie mining industry’s national sport of bashing the feds for the fun of it. Speaking of Africa, a quick glance at the chart below, prepared exclusively for RESOURCSTOCKS by, shows how much money you would have made since 2005 investing in mining compared to oil and gas, though nationalisation is a common danger to foreign investment. Amid all this, our cover story has South Africa native and the latest inductee to the RESOURCESTOCKS Legends award, Mincor Resources chief David Moore, giving some dire predictions about the junior end of the mining industry. All grist for the mill, as they say, as we dive into a 2013 that miners hope will see an improved capital raising market, but which analysts doubt very much. Then again, as Bristow noted, analysts haven’t historically been the most reliable fortune tellers, so best to just read RESOURCESTOCKS and up your knowledge base. Anthony Barich Editor RESOURCESTOCKS magazine



GLOBAL research and consulting group Wood Mackenzie has flagged demand growth in iron ore and copper for 2013. Europe’s total energy demand has fallen 5% since 2008 and this structural shift downward is expected to remain through to at least 2030. Wood Mackenzie senior economist Ed Rawle said while the financial situation might seem less severe, Europe was not out of the woods yet. “The acute threat posed by a Eurozone banking crisis has receded, but 2013 remains risky for Europe and its impact on the rest of the world,” Rawle said. He pointed to the Italian general election, scheduled for April, as a major event to watch. If a coalition is returned on a strong anti-austerity mandate, the fragile collective agreement that holds the Eurozone together may be threatened. In China, 2013 will determine if the slowing of the economy is effectively managed through a new phase of development. Mandated by the 12th Five-Year Plan (2011-2015), the investmentdriven boom of China’s last decade is moving from the prosperous south and east of the country towards the relatively undeveloped western interior. Chinese imports represented 60% of global iron ore trade in 2012 and despite slower growth, imports would rise to 70% of global trade over the medium term. • A version of this article first appeared on

The chart to the left – prepared exclusively for RESOURCESTOCKS by – illustrates a market-weighted index of 27 ASX-listed stocks engaged in development or production in Africa, selected at random from the 108 stocks. Mining developers and producers (blue line) have been in a steep downtrend for two years and show only a tentative sign of bottoming. Mining explorers (yellow line) and oil and gas companies (red line), on the other hand, appear to have bottomed some months ago led by the latter. Both these sectors have outperformed mining developers by a wide margin, with oil and gas being the most stable and consistent.



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market watch


Hyde Looks beyond west africa hype Stock research is a tough game, which is why Gavin Wendt does the hard work for readers every edition in Market Watch.


est African Resources is a highly credentialed gold exploration play. The most crucial aspect with regard to the company’s activities is that it maintains a dedicated and highly experienced exploration team with a long operational association with Africa. While many ASX junior companies over the past 10 years have simply jumped aboard the west African bandwagon as a result of broker and speculative hype, the key identities associated with West African Resources (including managing director Richard Hyde) have a track record of success in west Africa and understand its potential. The company has, in fact, been operating in Burkina Faso since 2007 and this has allowed it to assemble a portfolio of large-scale gold prospects that rank it as the largest ASX-listed landholder in the country. The company’s Boulsa Gold project encompasses a massive landholding, which in turn hosts a whopping 200km of strike length of early Proterozoic Birimian greenstone belts. This is significant, because these are the hugely prospective and primary gold-bearing rocks within the region. Over recent months, the company has generated a steady stream of highly encouraging exploration results that have been generated by the company’s recent drilling programs at Boulsa. Encouragingly, the company is now beginning to generate some serious market traction and attract recognition with respect to its results, which is reflected in its strong share price performance since early August, in what has been a particularly difficult market environment for west African resource plays. In particular, the company has

reported further assay results from diamond drilling at its Sartenga copper-gold discovery, which is part of its Boulsa project. Strong gold, copper and molybdenum results have been returned from further drilling on Section 7, with hole SDH007 returning several mineralised zones, including 26m at 0.7% copper equivalent (0.3% Cu, 0.3gpt Au and 297gpt Mo) from 122m end of hole. Primary sulfide mineralisation on Section 7 is now at least 150m wide, at 130 vertical metres. Strong potential exists to expand this width beneath recent air-core drill holes, which ended in significant coppergold mineralisation. Exploration has been ongoing at a considerable rate at Sartenga since early October 2012, with up to six drill rigs in operation. In total, 13 diamond holes have been drilled for a total of 2400m, encompassing a strike length of 1.2km. In addition, more than 17,000m of air-core drilling at 100m spacings in the main zone, and on 200m sections on the southwest and northeast extensions, has been completed. Recent drilling work has also extended the Sartenga main zone by 1.6km – comprising a 1km extension to the southwest and a 0.6km extension to the northeast, at the 600ppm copper contour level. The majority of the main zone gold and copper auger anomalism is coincident. However, the company also highlights the fact that copper targets persist outside of the area that has so far been targeted by air-core and diamond drilling. Interestingly, a new parallel zone has also been discovered 500m southeast of the main zone, covering a strike length of 2.5km and a width of 400m, grading 600ppm copper. This new zone has recorded the highest copper-in-auger samples to date, with 0.5% copper (4,514ppm Cu) returned


“West African Resources continues to represent a hugely attractive exploration play that is highly leveraged to success.” Gavin Wendt founding director MineLife Direct +61 2 9713 1113 mobile 0413 048 602

from the southern portion of the zone. A further new zone has been discovered 2km west of the main zone, comprising a 1.5km strike length and width of 0.6km, grading 600ppm copper with a peak result of 0.4% copper (3992ppm Cu), and will naturally be targeted in the upcoming air-core drilling program. Both of the newly discovered copper zones have significantly enhanced the exploration appeal of the Sartenga prospect and represent exciting priority drill targets. In terms of the bigger picture, the company’s Boulsa project is situated within central Burkina Faso’s MangaSebba belt, a prolific geological structure that plays host to numerous gold deposits. The company has tested a 30km strike length of highly prospective Birimian greenstone belts in the southwest portion of the Boulsa project area, but this represents less than 13% of the overall current strike extent. This work alone has identified 25 robust exploration targets. West African Resources continues to represent a hugely attractive exploration play that is highly leveraged to success through its 100% stake in its Boulsa project, which contains multiple high-quality prospects situated within a stone’s throw of major multi-million ounce gold discoveries. We anticipate the release of an initial JORC-compliant resource for its Sartenga prospect during early 2013. 7

taking stock


“In most parts of the OECD, more people now rely on government for financial support than are contributing to net tax payments for the upkeep of government services.”

five more years of pain to go Taking Stock looks at the macro forces behind market movements, as well as global trends that have an impact on the resources industry.


here has never been a more difficult time to make a sensible comment on the outlook for equities. StockAnalysis expects that after a shaky start, which could see a sharp fall in global markets during the early months of 2013, the year will prove to be stronger for equity than 2012. Over the past two decades the Western world has voted itself into a seemingly insurmountable volume of debt. Five years after the great fiscal contraction and deleveraging started, StockAnalysis estimates that it will take at least another five years to fully work through the mess of debt and poor governance at many levels that has been created by cheap money, urged on by Wall Street’s shenanigans. In most parts of the OECD, more people now rely on government for financial support than are contributing to net tax payments for the upkeep of government services. Notionally, one would expect that a healthy ratio should be stable at about the old 80/20 split, with 20% needing support while 80% of any community were able to fend for themselves. Political systems in the West have been largely taken hostage by rentseekers who vote for taxpayers to continue to support them. This is no clearer than in Greece, where unsupportable welfare and wasteful public spending moved well beyond the ability of recurrent tax income to support. With the help of a few “banksters” from Wall Street, Greek government spending had moved into the realm of ever more debt funding of service delivery with no possible chance of repayment from additional tax income. Around the Mediterranean and in the United States, all sides of the debate are angry. 8

peter strachan independent analyst and author of

Taxpayers are generally supportive of the weaker within their communities but don’t want to see their taxes wasted on ill-founded or feather-bedded programs and fat bureaucracies. On the other side, welfare recipients and government employees are up in arms. They see their cherished “entitlements” and their often inflated wages being cut and just as importantly they are unhappy about a loss of social status in their community. These issues will take time to fix and there will be several wrong turns taken over the coming years. What is certain is that restoration of public support and faith in the taxation system requires totally transparent and accountable administration of public funds. Weaker economic growth over the past four years, which has, for instance, seen the Greek economy contract consistently for four-anda-half years, has delayed the onset of further physical scarcity of raw materials. Inventories of base metals have been somewhat restored and new oil and gas projects have been able to catch up with relatively subdued global demand growth. But this is only temporary. Global population continues to rise at 80 million annually and commodity demand is still rising strongly in the developing world as affluence rises like a fog. Poor harvests resulting from the effects of global climate change on crops have reduced grain stockpiles to what can only be described as dangerously low levels. Further crop disruption from ongoing drought in the US, where the Mississippi River is running at historically low levels and hindering river transport, or in Western Australia, which had a very dry

winter in 2012, would put further upward pressure on soft commodity prices. A patchy grain harvest in Australia has been offset by prices that have risen by about 40% over the year. There is a strong likelihood of short-term disruptions to the equity market during January and February as the US works through government debt authorisation. Equity prices are likely to receive support from high levels of cash holdings by investors and accommodating (ie low) interest rates as the year rolls on. A lack of competition from primary issuance will also support the secondary equity market. Resurgent merger and acquisition activity could also play a part as companies seek growth among their smaller peers that have been marked down because of their lack of access to new capital. China’s economy appears to have performed a perfect low swoop, as it was directed to do from Beijing, and now looks set to continue along a steady growth path through 2013. A steadying US economy and moderate expansion in China will support metal prices. However, there appears to be growing potential for the price of copper to fall 30% during the year, bringing its price back to the marginal cost of production.


digging deeper

Words by allan trench

developing Africa: the economics Digging Deeper looks at Africa’s resources development future in light of its economics and geology, and comes up with some surprising conclusions.


idespread minerals-led activity is the clear pathway for Africa’s developing nations to achieve sustainable economic growth. Oxford University economist Professor Paul Collier* suggests that the first step in accelerating this process is to maximise the discovery potential of Africa’s many underexplored areas. How is that done exactly? The provision of new regional geophysical and geological datasets at the “pre-competitive” stage of exploration is one key element in the equation. The economic returns from such datasets are not yet well understood, even following a track record of their implementation in well-developed jurisdictions such as Australia – but are suggested to be of the order of 30:1. That is, for every million dollars spent on the acquisition of new airborne geophysical datasets, for example, a further $30 million is then attracted to a region in terms of follow-up exploration activity and mineral investment. That’s even before the advent of a sizeable mineral discovery. So, are there significant new mineral deposits waiting to be found in Africa? Any exploration geologist or mining executive would answer strongly in the affirmative. But mineral economists would answer in the affirmative, too – without any requirement for a detailed geological understanding of each country’s geology across the length and breadth of Africa. How is that? To explain, you need to ask yourself this simple question: What is the average Organisation for Economic Cooperation and

Development (OECD) country mineral endowment value per square kilometre? No idea? Well, how about asking yourself whether the OECD average number is higher or lower than the equivalent mineral value per square kilometre in Africa? Those readers who believe that Africa has more minerals than the OECD on this metric would be wrong. On a square kilometre basis, Africa’s average value comes in at about $US23,000, whereas the OECD average endowment is over five times that number at about $125,000. So the economic numbers – even without the prospective geology – suggest that Africa’s riches still lie largely undiscovered beneath the ground. Therein sits the great opportunity for economic development across the continent. So how should African countries create and share in that latent wealth? Establishing a clear, consistent, stable mineral policy is the answer here. Africa’s economies will create the opportunity to grow faster if the politicians of developing states can resist the easy temptation for creeping resource nationalism. That is difficult to achieve, of course – but at least in the likes of Botswana there is a poster child of what success may look like. Sharing out the revenues from mineral developments to the broader community is another key step in the economic development process – in the process building buy-in and infrastructure for future mine development. Examples of the powerful few stealing from the deprived many are, unfortunately, well-known across the developing world. In Africa and elsewhere.The economic leverage


“So the economic numbers suggest that Africa’s riches still lie largely undiscovered beneath the ground. allan trench is a professor at the University of WA(Centre for Exploration Targeting) and at the Graduate School of Business, Curtin University, the Perth representative for CRU Strategies and a director of several resource companies.

comes from the reinvestment of minerals revenues by African states in the domestic economy, with investments selected to benefit not only today’s population, but future generations. Governments need not tread this path alone. Empirical analysis of the returns on private investment in Africa reveal that such ventures can deliver impressive returns, even when accounting for the increased business risks of developing countries. Public-private partnerships such as better roads (public investment) with better trucks (private investment), for example, can kick-start other business activity. The economic opportunity for both Africa’s public and private sectors is therefore very clear. No doubt all the exploration companies gathering at Cape Town’s Indaba conference this year can help accelerate Africa’s economic development by finding the “missing” $100,000 per square kilometre of African mineral endowment compared to the OECD countries. As yet in exploration terms, we have only just scratched the surface of Africa. Watch that space. * Paul Collier 2011. The Plundered Planet – How to Reconcile Prosperity with Nature. Penguin Books, London, 271pp. 9


AFRICA Africa is no stranger to Aussies and with an emphasis in this special edition for African Mining Indaba 2013, RESOURCESTOCKS has asked its panel of experts to rate their top five ASX resource stocks operating on the continent. DAMIEN WARNER FINANCIAL ADVISER Morgan Stanley Wealth Management


Number 1: WHL Energy (WHN) Offshore oil and gas minnow. Market cap of about $47 million, trading at 3.2c. Large acreage offshore surrounding the Seychelles with a strategic 17,345km position. Number 2: Intra Energy Corporation (IEC) The only coal producer in east Africa, operating in Tanzania. Should benefit greatly from east Africa’s expanding oil and gas industry. With any infrastructure to be developed in Tanzania, Kenya and Mozambique, this company is well placed to help power the inevitable forthcoming investment. Number 3: Gryphon Minerals (GRY) This west African gold explorer has suffered a dramatic fall from grace. Cashed up after completing a placement at 60c recently, it would be a potential takeover stock at these levels. Number 4: Resolute Mining (RSG) The second-biggest gold producer listed on the ASX, with Tanzania and Ghana. Forecast production of the current financial year of 450,000oz. Current cash cost of $700725/oz. Has no hedging and $150 million in net cash. Has recommenced paying dividends with a recent payment the first since 1999. Number 5: Cradle Resources (CXX) Shell has raised money at 10c to pursue an aggressive growth strategy. Has 33 million shares on issue with about $4 million in cash. Good promoters and a speccy stock to watch.

Number 1: Perseus Mining (PRU) Assets in west African gold belt capable of producing up to 10Mtpa and converting 6Moz into reserves. Outside exploration potential. Its principal asset, the Edikan Gold mine in Ghana, should give good organic growth and cash flow. Number 2: Paladin Energy (PDN) Uranium producer operating Langer Heinrich mine in Namibia and Kayelekera in Malawi. Production volumes set to grow over next few years and African operations capable of achieving cost efficiencies and improved returns. Number 3: Resource Generation (RES) Assets in South Africa’s Waterberg region. Boikarebelo project has 3Bt of coal resources and 745Mt of reserves. Initially planning an open pit producing 6Mtpa of washed coal with a 50:50 split between domestic and export. Number 4: Ausdrill (ASL) Provides contract mining services in Africa as well as minerals analysis, supply and logistics to the mining sector with strong reputation and long-established presence in Africa, including the new Syama contract in Mali. Number 5: Pura Vida Energy (PVD) Recently listed oil and gas explorer with 75% working interest in large Mazagan permit offshore of Morocco. Development and farmout of this core project forms the basis of its plan to build a diversified portfolio of African-focused projects.

FACTS AND FIGURES – AFRICA ASX held Resource Values (P&P +M +I +I) Metals $1,526,859,358,590 $355,662,501,314 $125,779,110,998 $7,154,508,100


Coal + Iron ore + Fertilisers $3,743,465,370,056 $114,319,700,000 $730,018,000,153 $30,668,500,000

Southern Western Central Eastern



300 250 200 150 100 50 0



Grass Roots




• Calgary, Canada +1 403 202 8683 • Toronto, Canada +1 416 203 0655 • Vancouver, Canada +1 604 647 0016 10




Number of Active Projects

Region Southern Western Central Eastern

African Mining Project funnel, ASX vs Non ASX






Construction – Operating






Number 1: Discovery Metals (DML) Botswana Boseto copper project was on time, in line with original budget. First ore now being crushed; a $1.70 takeover from Cathay Fortune rejected as inadequate by DML board. Number 2: Ampella Mining (AMX) Market perceived risks around metallurgy of the Battie West project in Burkina Faso has seen its price plummet, providing a relatively low entry. Recent drill results have been encouraging. Number 3: Perseus Mining (PRU) This is shaping up to be a big year. Expected production of 245,000-255,000oz and potential acquisitions in west Africa. Construction decision expected soon for the Sissingue gold project in Ivory Coast. A new government royalty/tax is a concern. Number 4: Elemental Minerals (ELM) Sintoukola potash project in the Democratic Republic of Congo is awaiting results of more studies into project economics, but there is no doubt of the value of potash projects that are successful. Price is low. Number 5: Paringa Resources (PNL) Two hundred million years ago the super continent Pangea had South America and Africa joined. Looking for the geology of a west African gold play but in a different political jurisdiction? Consider Paringa.


Number 1: Apollo Consolidated (AOP) Intercepts, including 42m at 7.75gpt, were drilled on its Kalgoorlie prospect, though the main focus is on west African prospects of on key structural trends. Drilling will hopefully start before the next wet season. It presents good value with an EV of about $2m. Number 2: Xceed Resources (XCD) Secured a cornerstone investor, the transaction valuing their share of South African Moabsvelden project at $17.5m. Has a diluted market cap of $8.7m. Financing of the $30m capex estimated by the BFS is pending approval from two banks. Number 3: Papillon Resources (PIR) Maiden resource of 3.14Moz gold, which is still open at depth and along strike. A recent scoping study has indicated the sound potential economics of the project, with opex of $596/oz. Number 4: Kogi Iron (KFE) The Nigerian explorer has announced a maiden 488Mt iron resource at 42.7%. Current resource area represents just 13% of prospective exploration licenses with further resource definition expected in February 2013. Number 5: Erin Resources (ERI) Focusing on early exploration in Senegal, has right ingredients with good management and a tenement package in proximity to Papillion, Randgold and others.

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142 ASX companies focused on Africa for A$12B Market size


Africa focused, A$12.17 Billion

9000 8000 7000 6000 5000 4000 3000

Focused Elsewhere

2000 1000 0 2008





• Perth, Australia +61 8 9486 1111 • London, UK +44 0 20 7253 4126 • Stockholm, Sweden +46 8 744 0065 JANUARY/FEBRUARY 2013 RESOURCESTOCKS 11


Words by Abel Myburgh

african indaba special

10 lessons

on africa A recent survey conducted by Silk Invest has concluded that most investors view Africa as a more attractive destination than some of the other emerging markets. But there’s a catch – at least 10 of them, it turns out.


bel Myburgh (pictured above) is audit, tax and business advisory firm BDO’s Africa Desk coordinator. He is based in Johannesburg and has been involved in coordinating the start-up of a large number of local and foreign companies in Africa. Myburgh agrees with former governor of the Reserve Bank Tito Mboweni’s comments that although Africa is an exciting place to do business in, it is also fraught with many obstacles and constraints that need to be carefully navigated. In light of this, Myburgh addresses 10 of the most common mistakes companies make when starting up in Africa: 1. Lack of knowledge and planning. The common mistake many investors, particularly foreign investors, make is that they regard the African continent to be a single business regime, not taking into account that there are over 55 countries, including the surrounding islands, each with its own rules and regulations. Some regions in Africa have tried to introduce uniform regulations, but in practice the applications are different. At BDO 12

we have experienced instances where companies tendering for work in Africa have won the tender, only to realise that conducting business in the country is more difficult than expected. As such, we recommend that planning begins before the tender documents are even filed as there are a number of issues that can influence pricing, deliverability in terms of the contract and extracting profits from the specific country. 2. Lack of knowledge of the business culture in the host country. It is not unusual to find a total disrespect for local culture by foreign investors in African countries. To avoid this, an in-depth study of the business culture is one of the most important steps a company should undertake when operating in a specific country or region. A number of problems and misunderstandings can be avoided if a new investor understands the perceptions and actions of their counterparts in Africa. The language barriers also form part of this problem for companies operating in both Franco and Anglophone countries. It is important to realise that English is not always the only – or the main – business language. 3. Unrealistic expectations. This


is one of the most common mistakes a number of new investors make when they plan to move into Africa and can have a major impact on their deliverables in terms of a contract. The World Bank’s Doing Business guide can be used as an indicator, but in-country information must be obtained in order to establish the exact procedures to follow. 4. What type of business entity to set up. Many companies may be under the impression that they can just begin operating in a country, only to find that in certain places it is mandatory to register an entity, for example in the Democratic Republic of the Congo. Another important consideration is the length of the operations, as most African countries apply some sort of permanent establishment regime, and a company can end up paying tax in that specific country on its worldwide profits. 5. Minimum share capital. In some cases companies do not take into account any statutory minimum share capital requirements, which can vary from $US500 to $1 million. 6. Local participation. In a number of African countries it is mandatory to introduce local shareholders and directors to a newly established company. A company

then has to source local residents and the risks are numerous. This is when proper planning is crucial in order to find reputable local shareholders or to opt for a different entity, for example a company branch. 7. Foreign exchange regulations. BDO has found that a number of companies stumble over this specific hurdle in that they cannot repatriate all of their profits and investments during, or after, the project has come to an end. 8. Direct and indirect taxation. Taxation is one of the biggest cost factors that companies have to take into account when operating in Africa. Many African countries are known to have some of the highest tax rates in the world and in some cases, very aggressive tax authorities. As such, it is vital for companies to do their homework when it comes to indirect taxes, particularly import duties. 9. Taxation of employees. This is often a major area of concern as some companies do not consider this issue to be a factor when they conduct planning or pricing for a tender. The length of an employee’s presence in a country is important because in a number of them, if this extends beyond 183 days it triggers tax


“In most cases, these mistakes can be avoided if proper planning is done in order to obtain as much knowledge and information about a country and region beforehand.” ABEL MYBURGH BDO residency issues for the employees. 10. Work permits. It is important for a company to understand the latest requirements and regulations concerning foreign workers in an African country. In the past, BDO has come across occasions where foreign employees have unknowingly operated in a country illegally due to incorrect visas. “Our experience dictates that the mistakes companies make when operating in African countries are not only limited to the 10 mentioned above. In most cases these mistakes can be avoided if proper planning is done in order to obtain as much knowledge and information about a country and region beforehand,” Myburgh concludes. Turn to Page 14 for more expert advice from BDO: Africa’s mining outlook for 2013 13


WORDS BY Ursula van eck

Africa’s 2013 mining outlook


challenge If there is a silver lining for the South African mining industry in 2013, it is likely to be found in other African countries where more investor-friendly conditions prevail. For the rest, the outlook will remain challenging, says Ursula van Eck, BDO’s head of mining in South Africa.


or foreign investors and South African companies willing to take the risk and try something new, going up into Africa may provide the growth opportunities that are currently lacking locally. I believe conditions in the mining sector will continue to be difficult, especially in terms of input costs, commodity prices and the fallout from last year’s wage strikes. The challenges besetting the mining industry stem from a combination of global and local factors. Internationally, commodity prices are still under pressure as a result of the Eurozone crisis and are not likely to recover in the short term. The one potential bright spot is China, which is reportedly planning to boost its economic growth by pushing infrastructure investment. If that materialises, it may have a positive impact on the prices of metals such as copper and iron in 2013. 14

However, mining companies should not bank on an early price recovery, nor should they rule out the prospect of further downgrades of South Africa by international rating agencies. Nationalisation in another guise? Concerns about the risks of investing in this country have not necessarily gone away since the ANC’s Mangaung conference. As everyone predicted, the focus of the conference was on leadership politics and not policy decisions. Yet again, investors were left without clarity on the issues that have been fuelling anxiety about the future of the mining industry – and that includes nationalisation. On the face of it, nationalisation was rejected as ANC policy at Mangaung. Yes, nationalisation as defined by the ANC Youth League is off the cards but there are some indications that another form of nationalisation may be considered. Specifically, there is talk of increasing the government’s interest in strategic minerals.


Strategic minerals are minerals regarded as essential to the national interest, such as uranium, the supply and price of which is controlled by the state. Now there is talk of classifying coal as a strategic mineral as well, with the aim of securing Eskom’s coal supply after 2018. Depending on how it is done, declaring coal a national asset could amount to nationalising it. There is a very fine line between nationalisation and managing the supply of a strategic mineral. The Mangaung conference also barely debated another highly contentious issue – the introduction of a super-tax on mining companies. Bear in mind that the idea of this tax was proposed in June 2012 and there are still no concrete proposals on the table. Mangaung did little to provide the clarity that investors are seeking, adding to the ongoing uncertainty in an already fragile industry. Full impact of strikes to unfold Meanwhile, the industry is apprehensively awaiting the outcome of the Farnham Commission’s inquiry into the Marikana shootings. Marikana will be with us for much of 2013. A lot of “legacy” issues are coming out, such as the hostel system and migrant labour, and the resulting tension may prolong the uncomfortable relationship between labour and employers. Similarly, I do not believe that we have yet felt the full impact of last year’s labour strikes and subsequent wage increases. The effect of lost production and higher wages will likely be felt in the first half of 2013 at least. Unless higher wages are coupled with higher productivity, I anticipate closures at marginal mines. In the wake of credit downgrades, mining companies might struggle to raise capital for new projects or for operational improvements. Raising capital is likely to be very challenging, and may become more so if the ratings agencies announce further downgrades for South Africa, of which there is a strong likelihood. All in all, the outlook for mining companies in 2013 is extremely challenging – but by no means hopeless. There is a lot that companies themselves can do to improve their position, including recapitalising their businesses and strengthening their risk management. Operational and strategic risk management, focusing on high-impact and high-probability risk, could enable companies to put

appropriate plans in place to mitigate their risk. And as I’ve said, companies that are willing to take the risk and try something new may well find that other African countries offer the silver lining currently lacking in South Africa. Companies with South African mining experience have a wealth of expertise that may prove invaluable beyond the country’s borders – and not just in the mining industry. Some of our existing clients are being extremely creative in exploring new avenues. There are mining supply


“I do not believe that we have yet felt the full impact of last year’s labour strikes and subsequent wage increases.” URSULA VAN ECK BDO and technical support companies that are moving into power station development and even farming. Innovative companies with an eye on future growth are not allowing themselves to stagnate. They are finding opportunity in chaos. 15


Words by jacques van rhyn, Manal Shehabi

african indaba special

why aussies should care about The new dawn in africa

Deloitte international tax and transfer pricing partner Jacques van Rhyn, and global transfer pricing manager Manal Shehabi, reveal why Australian companies should care about the dawn of the UN transfer pricing manual in Africa.


urveys of tax executives in recent years working for leading global multinationals have identified transfer pricing as the number one global tax issue facing their businesses. Despite the lack of officially published surveys in Australia, our extensive experience with taxpayers of varying sizes depicts this to also hold true among Australian tax and corporate executives. Australian companies are increasingly investing abroad. This is particularly so in emerging markets and developing countries, where natural resources are abundant and commercial opportunities are high. Investments into Asia are a prime example, along with new trends of rapidly increasing investments into the African continent and, to a lesser degree, into the Middle East and South America. Noteworthy are Australian investments in Africa.


They offer vast natural resources, attractive investment opportunities and lucrative markets, which will boost companies as important players in Australian and global markets. Nevertheless, Australian companiesâ&#x20AC;&#x2122; expansion and investment in Africa are not without challenges. Transfer pricing is emerging as more relevant than ever to Australian companies and host countries. At one end, globalisation has facilitated international trade and investments among countries. This trend has been expedited by increased competition among multinationals and technological advances affecting the commercial landscape. In the past decade, government policies in developing countries have been more open. Theyâ&#x20AC;&#x2122;ve moved beyond foreign investments to involve more incentives â&#x20AC;&#x201C; and adopted more focused and selective promotion strategies. Historically, Asia has been one of the most rapidly liberalising host regions. Participation in double tax


Endeavour Mining’s Nzema gold mine in Ghana.

agreements, as well as investment and trade agreements, has increased. On the other hand, multinationals face increasing tax and business compliance requirements. There are also higher costs of investing in foreign countries and higher risks, including double taxation. Tax compliance in particular has been used by governments as a tool to secure their appropriate tax base and ensure a share in profits from multinational investment in their countries, and transfer pricing is one of the main tools used. Since 1999, advanced economies such as Australia have gained experience in introducing local transfer pricing rules. With these rules being continuously amended, Australian companies with foreign-related party dealings must comply with local transfer pricing provisions. Australia is undertaking reforms of its transfer pricing provisions, which the Australian Treasury calls a modernisation.

Unlike advanced economies, the majority of African (and developing) countries have not historically had transfer pricing regimes. This trend is likely to change soon and will result in implications for Australian companies operating abroad. On October 5, 2012, the United Nations (UN) issued a final draft of its first comprehensive practical transfer pricing manual for developing countries (UNTPM) after a series of various drafts. The manual was presented for adoption at the eighth annual session of the UN Committee of Experts on International Cooperation in Tax Matters and approved on October 15. This was the first practical manual of its kind to specifically address developing countries. While the UNTPM is not final, it reflects developing countries’ serious consideration of adopting transfer pricing rules domestically, which will have implications for Australian companies with current or intended operations in developing countries.


“Apart from South Africa, no African countries have double tax agreements with Australia. Therefore, there is no relief for Australian companies operating in those jurisdictions in the event of double taxation or a tax dispute arising.” This article introduces the UNTPM and its implications with a focus on Africa, given the spike in Australian investments there. The lowdown on transfer pricing Transfer pricing is often wrongly expressed in popular media as a means by which multinationals avoid taxes and shift profits. But in reality, it is the pricing of company transactions occurring between related parties that operate in different tax jurisdictions. 17

Wildebeest, the most abundant big game species in Africa, whose resources are also big game for ASX companies.


Governments introduce transfer pricing provisions, which often require financial disclosures along with preparation of documentations and other analyses, in order to ensure that multinationals operating in their jurisdictions transact with their related parties according to the “arm’s length” principle. This is where they price their inter-company transactions as though the related parties were independent. The arm’s length principle should ensure that each tax jurisdiction receives a fair share of taxable income from activities performed in each country. Multinationals often have transfer pricing policies that achieve commercial, operational and tax strategies, and also attempt to ensure avoidance of double taxation. If an Australian company operates in another country that has transfer pricing rules, the company will need

to comply with local rulings as well as those of the other country. Therefore, inconsistent transfer pricing rules around the world can be cumbersome and costly to taxpayers and tax authorities. The Organisation for Economic Co-operation and Development (OECD), a forum for various advanced economies including Australia, introduced the arm’s length principle. It is the international standard that OECD member countries such as Australia have agreed should be used for determining transfer pricing for tax purposes. Subsequently, the OECD Transfer Pricing Guidelines (OECD Guidelines) were issued. They have since been accepted and adopted to varying degrees by the OECDmember and non-member countries. The current reforms in Australia’s

transfer pricing rules aim at aligning Australia’s domestic provisions with those of the OECD Guidelines. Because most developing nations are not OECD-member countries, they often do not adopt OECD Guidelines in setting local policies. Some developing nations have established transfer pricing regimes, such as China, South Africa, and India. But they have inconsistencies with the OECD Guidelines. The UN, which has been offering a platform for assisting in the development and capacity building of developing nations in numerous facets (including tax), has only recently addressed transfer pricing for developing countries in a formal manner, which has been welcomed by developing nations. The advent of the UNTPM creates opportunities and assistance to developing countries, particularly


Developing countries could rely on the UNTPM to develop transfer pricing regimes that differ from the accepted standards, in which case Australian companies operating in those countries would have additional compliance layers and costs. The UNTPM addresses general concepts of transfer pricing, but also provides guidance to developing nations on various practical, administrative, and capacity building issues to help them implement transfer pricing regimes. These areas include: business and legal environments for developing countries to consider when introducing a transfer pricing regime; which transfer pricing method to adopt and how these work in practice; building audit practices and enforcement resources; adopting transfer pricing documentation requirements that developing countries can apply; and guidance for taxpayers on how to comply with transfer pricing requirements. A notably unique feature of the UNTPM is its highlight of four countries’ transfer pricing regimes: South Africa, Brazil, China and India. By general standards, those jurisdictions exhibit fairly aggressive transfer pricing regimes which diverge from those of the OECD Guidelines. Emulation of these jurisdictions’ transfer pricing rules by any African (or developing) country may result in aggressive regimes for Australian companies to contend with.

“Australian companies will now need to add an additional layer of consideration not only for local transfer pricing requirements, but also those of African jurisdictions.”

companies operating in those jurisdictions in the event of double taxation or a tax dispute arising. An increasing number of African countries are relying on transfer pricing to protect their tax base and ensure multinationals’ profits are allocated correctly between the source and resident country. Historically, formal transfer pricing legislation in Africa has been limited, with only a handful of African countries with transfer pricing regimes: South Africa, Egypt, Kenya, Namibia and recently Ghana. Most African countries do refer to the arm’s length principle in their tax law and have expressed interest in incorporating transfer pricing regimes into their tax law. The advent of the UNTPM provides opportunities and guidance to developing nations to adopt transfer pricing regimes with the help of the formal UN guidance. Africa is the second largest and second most populous continent globally, and it offers Australian companies vast opportunities for expansion, investment, and commercial markets and growth. Australian companies operating Implications to Australia of in Africa navigate the continent’s adopting the UNTPM in Africa divergent cultures, legal and those in Africa, to develop transfer Evaluating the UNTPM confirms that commercial requirements, tax pricing regimes which will affect developing countries have acquired regimes, and intricate political local and international corporations independent views on transfer environments. Additionally, operating in those countries. pricing, which is in line with their Australian companies will now efforts to protect their tax base and need to add an additional layer of The UN Transfer Pricing Manual receive a “fair” share of profits from consideration not only for local In 2009, the UN instituted the multinationals operating in their transfer pricing requirements, but also Subcommittee on Transfer Pricing – jurisdictions. those of African jurisdictions. Practical Issues which had a mandate These efforts are manifested Adopting transfer pricing policies to develop a practical manual on in numerous African examples, that are in line with the OECD transfer pricing for developing nations where governments introduce new Guidelines and Australia’s transfer by considering the arm’s length withholding taxes, super profits taxes pricing provisions is paramount to principle. or anti-avoidance provisions to protect achieving effective and compliant In practice, the UN had historically their tax base. tax strategies and minimise exposure adhered to the arm’s length principle, Namibia, for instance, recently to double taxation and penalties; but has publicly indicated that it will introduced new withholding taxes Australian companies will now have not necessarily continue to agree and is considering applying new to also consider the UNTPM in with the OECD Guidelines. In fact, windfall tax on mining profits, while setting its transfer pricing policies as the UNTPM adopts certain general Ivory Coast has just approved a new the manual forms the basis of future concepts which in the context of windfall tax. transfer pricing regimes in Africa, as developing countries would be applied Further, apart from South Africa, well as other countries. differently than in Australia. The no African countries have double tax Getting this wrong can be a costly UNTPM also has elements that differ agreements with Australia; therefore, mistake for Australian companies from Australian law. there is no relief for Australian investing in Africa. JANUARY/FEBRUARY 2013 RESOURCESTOCKS



Words by Anthony barich

inside watch

reading the play key to healthy returns A new book by RESOURCESTOCKS contributor and resources veteran Allan Trench urges companies to give shareholders the best bang for their buck by thinking more laterally about what drives the industry.


N HIS BOOK, Strictly (Mining) Boardroom, resources veteran, prolific author and mining professor Allan Trench urges resources companies to think laterally to solve their problems in light of historical lessons he hopes have been learned. The book is essentially a “best of” compilation of nearly 350 Strictly Boardroom columns he has had published on, one of Aspermont Limited’s online products, over the past few years. Trench is an associate consultant with analysts CRU Group, a mineral and energy economics professor at Curtin University’s Graduate School of Business and a research professor at the University of Western Australia’s Centre for Exploration Targeting. He is also on the board of several Australian Securities Exchangelisted resources companies, which allows him to take an insider’s view to proceedings. Trench believes understanding what really goes on behind the scenes and drives value in the industry is helpful in working out a way forward in these difficult fiscal times. “We’ve called the book Strictly (Mining) Boardroom because it’s Strictly Boardroom in MiningNews, but what I’d love to have called the book was something like ‘Things they don’t teach you about mining at mining school’, which would’ve been a play on Mark McCormack’s book What They Don’t Teach You at Harvard Business School,” Trench told RESOURCESTOCKS. While the book is split into seven chapters with varying subjects, the overarching theme, Trench says, is to encourage companies to think laterally and learn not to be so confrontational with governments, be it in Australia – where governmentbashing has become something 20

of a national sport among mining executives – or overseas. “Certainly, some things that governments do don’t make much sense but there’s a section in the book that tries to explain why governments act the way they do,” Trench said. “It hasn’t happened yet, but one day there will actually be a mining company or two that actually work out that if they get on the right side of government – particularly in developing countries – and work well with them early on, then they’ll actually get ahead, rather than have an adversarial relationship with government. “A lot of the articles in the book really end with questions as much as answers. If it succeeds, people will pick up the book thinking about whatever challenges are in their business now, read some of the little articles in there and get something useful that would help them now. “Then they might pick up the book in 12 months time and they may find different articles in the book that speak of the historical lessons that will help them with a new set of challenges.” In selecting his articles for the book, Trench, who also writes the regular Digging Deeper column for RESOURCESTOCKS, has discarded many that simply addressed commodity trends at the time but some, though set in a particular time and place, provide useful historical lessons. “We left an article in on lithium because it was a nice little story from some time ago about how one has to be careful in lithium about expanding production too quickly in these smaller metals,” he said. “So hopefully there are some lessons there for people. “Hopefully there are some useful articles in there that address whether

we have a real capability in this company – whichever company it is – that actually can create value for shareholders. “It’s a really tough question to answer and from the outside you often can’t answer it but from the inside I think you can; and I think we have to be realistic with ourselves that there are probably two out of every 10 companies that actually have a real capability to do something to add value over and above the assets that they have in front of them.” Trench finishes the book with 10 predictions about global commodity trends, which RESOURCESTOCKS won’t reveal here. In the foreword, advisory service firm Optiro director Ian Glacken says the book has concise articles on leadership and management – which are not the same thing. As Trench reveals: various aspects of setting and sticking to a strategy for growing a successful minerals company; insights into and droll observations on picking commodity prices and exchange rates; and investment in the mining sector at the junior end of the market.




PNG STARTS NICKEL EXPORTS A Chinese-built nickel-cobalt mine has started loading its first shipment after some delays and mishaps.


HE CHINESE-BUILT $US1.5 billion Ramu nickel-cobalt mine in Papua New Guinea has finished loading its first export shipment since construction was essentially completed about two years ago. While one Chinese worker was killed and others were injured in various accidents during the construction phase, the mine’s deepsea tailing placement infrastructure triggered a wave of legal challenges that only ended in its favour about 14 months ago. Commissioning work for the three high-pressure acid leach autoclave circuits has continued throughout the

year, with the wet nickel laterite mine focusing on an intermediate mixed nickel-cobalt-hydroxide product for its first exports. Mine partner Highlands Pacific revealed that the first shipment of 576 dry tonnes of this material was being exported to a Chinese customer and it amounted to 217 tonnes of nickel and 19t of cobalt. “This is a major milestone for the project and will be the first of many shipments to follow,” Highlands managing director John Gooding said. “This maiden shipment from commissioning is only a relatively small amount. However, as the project builds to its full capacity the

shipments will increase.” The mine is expected to hit full production of 31,150 tonnes per annum of nickel and 3300tpa of cobalt in mid-2013. For the 2012 calendar year, it produced about 9465t (dry) of the intermediate product, which equates to about 3563t nickel and 332t cobalt. Located 75km west of the provincial capital of Madang, the Ramu operation is 85% owned by China Metallurgical Construction Company. Most of the mine’s exports are destined for China. • This article first appeared on

Smooth sailing in tough times  Don’t miss these upcoming March 2013 features: • • • •

Mines & Money Hong Kong Special South Australia Special Mongolia Feature Russian Investment Focus

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company profile


botswana metals

lots of market love for giant alliance The inking of a new joint venture with an industry heavyweight has the potential to fast-track the operations of ASX-listed Botswana Metals. Alex Paull reports


n November, central Africa-based explorer Botswana Metals Limited (BML) inked a deal with BCL Limited, a worldclass Botswana mining and smelting operation owned by the government and Norilsk (one of the world’s largest nickel producers), to progress three of BML’s key projects located along the Limpopo Belt. BML chairman Patrick Volpe said the deal with BCL was one of the company’s most significant agreements. “It provides the company with direct funding into our three recent discovery projects instead of raising capital and diluting shareholders substantially at the current low market value for BML. Current global financial and economic events have caused an undervalued market capitalised value for not only BML, but for many exploration companies in general,” Volpe said. “By agreeing to the joint venture with BCL, we’re diluting our direct interest in the prospecting licenses where the three discovery projects have been made, but the joint venture agreement gives BML the potential to take these projects into production, with BCL funding that process to the completion of a bankable feasibility study.” The market’s reaction to the news of the joint venture was remarkable and reflected the enormity of the agreement, as BML’s announcement after a two-day trading halt was followed by its share price jumping almost 30%. The joint venture will see BCL spend an initial $US4 million in an exploration and drilling program to earn a 40% interest in the Maibele North nickel-copper, Airstrip copper 22

and Dibete copper-silver discovery projects. Following the results of the drilling program, which is expected to start in the second quarter of this year, BCL has the option to continue to fund the projects to the completion of a bankable feasibility study to earn a 70% interest. BCL has two world-class projects in Botswana: the first is the Tati nickel mine, 80km north of the BML projects; the second is just 55km to the south of BML’s tenements at the Selebi Phikwe nickel-copper mine, with the BCL’s smelter close by. Volpe said the agreement was set to fast-track the BML discovery projects and also allow access to BCL’s substantial infrastructure. “BCL has the infrastructure through their existing mine operations, including their milling plant. BCL operations are only 55km south of our projects, which had a substantial influence on the potential economics of the three projects and our board’s decision to partner with BCL,” Volpe said. The agreement is a prime example of a win-win situation for both parties, with BCL also obtaining the off-take rights to any ore mined. Volpe said the mining process should be quite simple, with the primary ore planned to be trucked to BCL’s mining and smelter operations in Selebi Phikwe for processing. “Strategically, BCL is looking for ore to extend the current mine life at Selebi Phikwe and our partnership fits within BCL expansion plans,” he said. “BML has the potential to supply ore to the BCL mines, contributing to the longevity of these operations. “If we can truck our ore to the BCL plant then the potential

economics for both parties makes good sense. “BCL has got the infrastructure and has invested the capital on mining and processing plants as well as owning their own smelter. “BML has the potential resource and our ore is very compatible to that currently mined by BCL, so we think the logistics and the synergies will make this operation potentially economical. “Given the existence of the BCL operations for over 50 years, the cost to process our ore at BCL would be much cheaper than BML could manage as a stand-alone.” The agreement is subject to the Department of Mines in Botswana approving a retention application made by BML over three prospecting licences with the department’s advice expected toward the end of the first quarter of 2013. As Volpe indicated, the potential of the three key discovery projects was the reason why BCL showed considerable interest in the BML operation. “The three licenses cover from a total of circa BML’s exploration portfolio and the three licenses are where we have spent most of our exploration energy. Maibele North was especially attractive to BCL because of the similarity to its own nickel ore that has been mined from Selebi Phikwe for over 50 years,” Volpe said. “I think our partnership can fasttrack our efforts towards potential mining. In terms of additional potential, our past drilling has been shallow, with drilling to depths of circa 50m at Dibete and around 100m at Airstrip with the discoveries showing further mineralisation


“BML has now signed up with a world-class partner who operates a major mining operation in Botswana looking to expand its business.” pat volpe botswana metals

potential being open at depth, width and alone strike.” With the ink drying on the joint venture, BML is now looking at “ripening up other drill targets” outside the joint venture prospecting licenses for the new year. Volpe said it was pivotal that other targets identified and ready for extensive work started exploration in early 2013. “It’s high-risk and high-reward, but it just provides us with more opportunity to increase the total mineralisation potential of the company within its portfolio. It’s critical for us to do that if we want to become a sustainable and potentially profitable mining operation in Botswana,” Volpe said. “There are several other areas within the portfolio where we’ve recently had good greenfield exploration success, with several new targets identified. This is very positive moving forward and is exciting for BML as we endeavour to prove that the Limpopo Belt has the potential to host several mineralised areas. “These new targets can only add value to the company’s exploration portfolio. “We see the potential for a new discovery zone along the central east side of Botswana on the Limpopo Belt as well.” On the west side of Botswana, several companies have enjoyed success along a recently discovered copper belt, with major copper and silver discoveries being made by companies such as ASX-listed Discovery Metals, MOD Mining and TSX-listed Hana and New Hana Mining. Volpe said that as of November, the company had about $800,000 in cash required for the company’s working capital requirements, with an allocation of this money to

provide funding for exploration at the company’s other prospecting licenses. “In respect to the joint venture projects, we’re working with BCL to plan our next year’s exploration program with the objective of advancing the inferred resource towards a scoping and feasibility study,” he said. “The results of these studies will determine the speed at which we can move these projects, in particular Maibele North, into potential production.” Despite the market downturn, Volpe said, the deal was done subject only to the granting of retention licenses. “We anticipate to upgrade the resource estimate after BCL has spent $4 million on exploration and drilling, focused on those three discovery areas,” Volpe said. “With the signing of the joint venture, there could be some good upside when the market absorbs the potential of these projects.” BCL also has the first right of refusal in respect to all of BML’s exploration licenses outside the joint venture area. “BML has now signed up with a world-class partner who operates a major mining operation in Botswana looking to expand its business,” Volpe said. The planned drilling program is expected to test the potential at depth, width and length of the joint venture areas with the objective of producing an economic mining model. With BML’s premier exploration portfolio focused on the prospective Limpopo Belt, 2013 is shaping up as an active year for BML. Any positive results will not only advance the three known discovery projects, but further confirm the Limpopo Belt as a new nickel-copper and silver province in Botswana’s east.


Drill core shows 1.28m of massive sulfides containing nickel and copper at one of BML’s prospects in Botswana.

botswana metals at a glance

Head Office Suite 5, Level 1 310 Whitehorse Road, Balwyn, Victoria 3103 Australia Ph: +61 3 9830 7676 Fax: +61 3 9836 3056 Email: Web: Directors Pat Volpe, Massimo Cellante, Paul Woolrich Market Capitalisation $A4.1 million (at press time) Quoted shares on issue 188.1 million Major Shareholders Vermar Pty Ltd 15.7% Polarity B Pty Ltd 7.8% Bell IXL Investments Ltd 5.8% Michael Hsiau Yun Lan 2.5% Peter and Marie Young 2.4% 23





EXTINCTION The latest inductee into RESOURCESTOCKS’ Legends in Mining Awards, Mincor Resources managing director David Moore, has a dire warning for Australia’s mining industry.


Mincor Resources founder and managing director David Moore addresses last year’s Diggers and Dealers forum in Kalgoorlie, Western Australia. Photo: Anthony Barich 24

NCREASING regulatory burdens are contributing to rising costs that are killing Australia’s mining boom and will see juniors extinct within 20 years, says the winner of the RESOURCESTOCKS Legends in Mining 2012 Award, presented at Mines and Money Australia in Sydney. Appropriately, as this is the special edition for African Mining Indaba, David Moore, who was born and educated in South Africa, made the comments as miners and explorers geared up for the Capetown conference. Moore, who trained as a geologist at the University of the Witwatersrand in Johannesburg, spent 13 years with Billiton in Africa and South America. He worked in various disciplines related to mineral exploration, target generation, exploration and project management, new business development and strategic planning. He won the award

having been managing director of Mincor Resources since October 1999, successfully steering the nickel producer through some of the most tumultuous times for that commodity in the past five years. The editorial staff at RESOURCESTOCKS gave him the award because he has taken a disciplined but innovative approach to Mincor’s multiple operating mines, exploration projects and corporate activities. Mincor has successfully mined the historic Kambalda dome and its surrounds for the past 11-plus years and is currently debt-free with an exceptionally strong balance sheet. It has paid regular fully franked dividends since 2003, despite a highly depressed current nickel price. Mincor has diversified its interest to include a joint venture in Papua New Guinea in a world-class copper-gold mineral province, is active in New South Wales and recently picked up some tenements in South Australia.


Though his company continues to expand in Australia and overseas, he said people like himself persisted in the industry despite increasing regulatory burdens because “one gets used to it; it’s kind of like being the frog in the slowly warming up cup of water”. Such is the candour of this veteran of the Australian and international mining scene, but while he’s certainly not the only industry head to make such comments about Australian governments, he has a unique take. Though he joked that he’d probably be “retired on a beach on the Bahamas” by the time Australia’s mining industry was “completely buggered” in about 20 years – if he makes some huge discovery above and beyond his very profitable Kambalda nickel business - he’s not exactly an oligarch worth billions who makes a habit of publicly taking on the nation’s top hierarchy. Having founded Mincor through the Australian Securities Exchange listing of the exploration assets of

Iscor Limited, whose Australasian exploration portfolio he established, he built the company up from nothing to have a market capitalisation of $A224.9 million at time of writing. Though his company is pushing into new frontiers, preferring to own exploration assets outright rather than piggy-back onto someone else’s asset, he sees massive problems for the industry on a number of levels, which he suspects is due to the widespread community ignorance and misconceptions about mining itself. “We just see a growing level of regulation across the industry,” he said. “I’m pretty sure that the mining industry in Australia is on the decline, and I think that it will go the same way as the rest of the developed world, so that, in the end, the cost becomes so high because of the regulatory burden that only the very richest and highest-grade mines can operate. “That’s the way it’s gone almost


“The mining industry in Australia is gradually being strangled, but it’s a slow process. It’ll take another decade or so, or maybe two.” DAVID MOORE MINCOR RESOURCES everywhere else – all the other developed nations in the world except Canada and Australia – but we’re heading in that direction pretty fast.” Though the demand for Australia’s resources is still strong and will remain so for the foreseeable decades, it hasn’t stopped costs from rising. “With the mining boom, if anything prices have come off, but they’re still quite high. It is costs that are killing the boom, and the regulatory burden is one element of those costs,” he said. “The mining industry in Australia is gradually being strangled, but it’s a slow process. It’ll take another 25

Shades of David: Mincor Resources MD David Moore addresses the Diggers and Dealers forum last year.

decade or so, or maybe two. There will always be mines, but they will only be the biggest and richest mines. Small, more marginal, less profitable mines will be squeezed out of existence. That’s already happening. “Every government at every level in Australia loves to regulate. The economy is getting increasingly regulated. I don’t know why, there just seems to be a natural tendency of governments to do that. Maybe they have to be seen to be doing something.” Moore said the reason for this increasing regulatory burden came from inner-city folk who “don’t even know what the country looks like, but they hear of a mine and think, ‘god, we can’t have that, let’s stop that’,” he said. By way of analogy, he used the example of the Australian federal government suspending all live cattle exports to Indonesia in 2011, which left thousands of cattle and their owners across Australia’s north in limbo. “There’s a lot of ignorance in the cities about the country, and it’s just a fact of life – human nature,” he said. “Look how easily they killed the export trade of live animals and things like that. For people who have no financial interest in it at all, it’s very easy for them to say ‘ooh, it’s ghastly, let’s not do that’, when it’s

“There’s a lot of ignorance in the cities about the country, and it’s just a fact of life – human nature.” DAVID MOORE MINCOR RESOURCES 26

actually the livelihood for thousands of farmers across the country.” Moore’s assertion reflected the comments made by Joni Liano, the executive director of the Indonesian Meat Producers and Feedlot Association, who said in 2011 that “the Australian government itself is in a weak condition, they are pressured by only a handful of NGOs’’. “It’s the same with mining,” Moore said. “People can say ‘it’s far away in the country somewhere, it doesn’t affect us’. So it’s very easy to be anti-mining, and most people are. There is an extraordinary amount of anti-mining feeling in Australia. It always knocks me sideways when I see it; less so in Western Australia, but certainly in inner-city Sydney and Melbourne.” While the political risk of outright nationalisation, as seen in Indonesia in the past year and Kenya more recently, is not really the case in Australia, Moore said he had identified what he described as “creeping nationalisation” in the form of the Minerals Resources Rent Tax (MRRT) implemented last year by Australia’s federal government. He said that the original Resource Super Profit Tax put forward by thenprime minister Kevin Rudd in 2010 was “almost a form of nationalisation, very close to nationalisation of the mines, if that had ever got through. So the risk is not zero, but it’s very low”. However, he maintained that the regulatory risk was “quite high”. “They’ve just put in place the MRRT, for example, which is a form of creeping nationalisation, and the regulatory burden is pretty real and rising. A lot of it is driven by the

environmental lobby, absolutely,” Moore said. He apportions some of the blame to the mining industry itself, which he said had not historically been good at educating the public on the practicalities or science of the industry. “The mining industry never seems to have been able to do that (educate the public) effectively and I’m not the only one who’s ever said that. We’ve got a terrible name among the average man in the street. It’s quite extraordinary,” he said. “It always boggles my mind that it’s like that. “It is sheer ignorance, you’d have to say, this concept that ‘mining is this low-tech, low-skill business where you just dig holes in the ground and shovel it off to China’, I mean, that’s literally how it’s characterised when you listen to folk over east talking about it. “It’s a perception that (mining) is money for jam, that these guys are just ripping out the country’s resources. There’s not the recognition that you make mines, you don’t find them. Just to find minerals takes an awful lot of skill and incredibly highrisk expenditure, and once you find it you should have the right to exploit it. Then once you exploit it there’s no laid-down guarantee you’re going to make money out of it. Just look at all the mines that have failed. “Mining is bloody hard work. Every time you have a boom, suddenly your margins go through the roof and you’re making good money, but you’re just making up the money that you haven’t made for the last 10 years. “Then every time, as regular as clockwork, the government steps in and says, ‘oh well, time for a super tax’ and takes away all those extra profits.” This belief, he said, was not just regarding one particular side of politics, it was just the nature of politicians to change regulations every now and then. Yet the developing world still had more obvious risks, like political coups, uprisings and outright nationalisation, so wouldn’t Australia still be one of the best places to operate? “It is easier and cheaper to work in Australia, if you are an Australian company, than to work offshore, because you don’t have an ocean to cross,” he said. “Many offshore countries have the romance of the unknown because they are much less explored, while Australia is well explored. That’s not to say there’s


“Mining is bloody hard work. Every time you have a boom, suddenly your margins go through the roof and you’re making good money, but you’re just making up the money that you haven’t made for the last 10 years.” DAVID MOORE MINCOR RESOURCES nothing left to find, as we can see with the discoveries that are still being made, it’s pretty amazing really. “But the increasing regulatory burden doesn’t exactly make it easier to stay in Australia, because you’ve got the push and the pull. You’ve got the higher costs happening here that’s pushing you out and what’s pulling you into South Africa (for example) is the less explored nature of that continent, or those other countries where potentially it’s easier to make a discovery in the first place. “But pushing back is the fact that there’s no question that the risk of outright nationalisation is much higher (in some developing economies) than in Australia.” This increasing risk, however, is a slow process – so slow that miners accommodate it, sometimes begrudgingly. But he warned that it’s getting to the point where, “just to test one resource theory, it can take years to get an exploration licence granted, then three months to drill a hole that you wanted to drill two years ago, you find there’s nothing there and you move on”. “Years ago that whole process would have happened in six months,” he said, using rough numbers. “In Tottenham, for example, we have an economic ore body, but the process of turning that into a mine in an area with no surrounding infrastructure in NSW, in an area where people have told me it can take two years to get your mining licence, that’s a pretty exhausting thought – endless rounds of environmental stuff and regulatory hurdles to cross. It can take a long time just to get the mining licence.” Barely a month after Moore made these comments, another Aussie mining veteran, Minotaur Resources

chairman Derek Carter, echoed his confrere, telling his company’s annual general meeting in November that junior explorers were under solvency threats as equities markets remained “in a time warp”. He echoed many of his fellow miners’ and explorers’ sentiments when he acknowledged that 2011 was a year of uncertainty and stock market volatility – what he termed at the time a “worrisome environment” for all investors. “Little did I think that a year on we would be still stuck in that mode,” he said. However, the implications for investors and juniors alike is worse than that. Carter, who was a key figure in Minotaur, finding Prominent Hill, arguably the best greenfields discovery in the past two decades in the copper-gold space, said the doom prophecies could become a clear and present sooner than expected. “Sadly, many of the 700 ASXlisted companies with a market capitalisation under $10 million are struggling with, or may soon confront, solvency issues in an investment environment not at all disposed towards equity injections,” Carter said. “Early next year (2013) will see a


mass of share purchase plans come to light as boards look for survival capital in the absence of appetite for equity placements.” While this scenario doesn’t so much apply to Minotaur, which finished October 2011 with $10.3 million of cash plus some $4 million of listed company investments, “Minotaur’s market capitalisation of $15 million barely reflects cash plus investment backing, giving no value at all for the suite of excellent project assets we hold and are steadily developing.” While cries of being undervalued are not uncommon among junior execs, Carter also saw a silver – or, perhaps more appropriately, a gold lining in the current sentiments. While prudent in its application of “precious” cash resources, Carter said his company was evaluating a number of new joint venture projects in gold and copper settings where entry costs were low and exploration potential was high. “We see upside in the gold price as Europe and the USA totter, as the Australian economy cools and the federal budget surplus objective miraculously evaporates in the new year,” he said.

Hard work: Underground drilling in Mincor’s WA operations. MD David Moore says mines are “bloody hard work”, only to have profits taken away by meddling governments.


company profile


peak resources

crunch time looming for perth junior Last year put Peak Resources on the rare earths map but 2013 will be crunch time for the junior as it gears up to fill the looming critical commodity gap. Anthony Barich reports


Ngualla village school that Peak Resources helped renovate.


ast year was a big year for Peak Resources, hitting three major milestones. This year it will finalise products, cornerstone investors and strategic partners, along with a prefeasibility study that will put the company in good stead to fill the market gap looming in 2017 when the majors swoop. The scoping study was the latest big announcement, which put some encouraging numbers – built around a 35% variable – behind the Ngualla project’s commerciality. It was especially encouraging on the capital expenditure front – $400 million was its estimate, lower than the $600 million expectation that

was already much cheaper than the $1 billion to 1.2 billion average cost of rare earth projects these days. Operating costs will be just over $10/kg of product produced for the first five years, which also puts Ngualla at the bottom end of the world’s rare earth producers, which is very important strategically for Peak. Production is due to start in the first quarter of 2016. There is still more beneficiation and molecular sieve testwork to be done. The beneficiation targets cheaply lifting the head grade to the acid leach circuit, reducing the size of the downstream facilities to improve operating and capital costs.

The molecular sieve work is designed to remove sodium ions from the solution so they don’t build up in the sulphuric acid recycle process in the front end of the plant – leading to a huge reduction in Peak’s costs since it won’t need to build as big a sulphuric acid plant or import as much sulphur because the acid it needs will be recycled. The August 23 announcement of the development of the metallurgy – its first rare earth concentrate at 50% – demonstrated a proof of concept which was done in a quick process of nine months. It normally takes a rare earth company 3-5 years to develop to that position. It demonstrates the world-class


“Robustness is what this business [Ngualla] is about and the ability to develop it in an appropriate timeline.” richard Beazley peak resources

peak resources at a glance

nature of the orebody in terms of the ease of extraction due to the mineralogy and metallurgy. So while it is large and has fantastic grades, the extraction and metallurgy is proven to be simple and cheap in comparison to the rare earth field, so commercially it will prove to be very significant in terms of other investors coming in. Peak is now engaging a cornerstone and strategic partner to take Ngualla through to production. The scoping study revealed Ngualla’s strong economics, with a base case pre-tax net present value figure of $US1.571 billion over the 25year life of the mine, with an average cost of $11.05/kg over that mine life, with annual average revenues of $361 million at 10,000 tonne equivalent rare earth oxide production. However, there is also significant opportunity and available resource to upscale production to 40,000 tonnes per annum and to extend the mine life, as the base case scoping study mine plan exploits less than 10% of the total mineral resource. The internal rate of return of 53% is also quite high. The payback at this rate is a rapid three years, which presents an attractive investment proposition for the potential cornerstone investors and strategic partners.

Ngualla site visit, Peak managing director Richard May 2012. Beazley told RESOURCESTOCKS that while the NPV was in part driven by price, which his company could not control, it could control costs to be a sustainable operation. As for some of the recent negative press about the rare earths price coming down, Beazley was philosophical. “The price is still higher than the long-term trend,” he said. “I have a very strong view that current prices aren’t necessarily sustainable, they must come down. Once China settles down and gets on with its consolidation and sorts out what it’s doing environmentally and internally with its mines, I think we’ll see some stabilisation in the price. “Robustness is what this business [Ngualla] is about and the ability to develop it in an appropriate timeline. “I truly believe there is a race to production, so there’s a bit of pressure. “The question of who will get into production depends on whether the project is economic – and we tick all those boxes and I don’t see that changing – and can we get there in the right time frame which, again, the answer is yes because the metallurgy is allowing us to do the R&D at a far quicker rate than our competitors. “With the low capex and operating costs and the scoping study done,


share price as of January 10, 2013 $0.17 Head Office Level 2, 46 Ord Street West Perth WA 6005 Australia Ph: +61 8 9200 5360 Fax: +61 8 9226 3831 Email: Web: Projects Ngualla Market Capitalisation $A42 million (at press time) Quoted shares on issue 254.7 million Shares at Time of Float 213.1 million 52-Week High $0.63 52-Week low $0.15 YTD Change % 6.45% 29

View of Ngualla Hill looking southeast.

Geologists at an RC rig analysing the chip trays.


we’re now seeing a lot of interest from downstream strategic investors engaging in discussions with us to help find a solution to develop the project.” This is where it really gets intriguing. Peak is the beneficiary of a genuine fear around the European Union, Japan, South Korea and even the US around the ramifications of China’s market monopoly. Peak plans to engage a strategic partner in the back half of 2013, having been working with various strategic investors out of China, South Korea, Japan and Germany to date, from which interest is “fairly high and competitive”. China is cracking down on illegal mining activities and ridding itself of the ionic clay process which renders large plots of land useless

products that it will produce from the Ngualla mine as the company works with ANSTO in Sydney to do the separation testwork on the rare earth concentrate using solvent extraction techniques. The plan is to have those products ready by July, which will then help Peak finalise those discussions with strategic partners, most of whom will be interested in an offtake agreement. It will also help Peak finalise the prefeasibility study, due in August, which will include details of metallurgical processes and end product specifications and the sulphuric acid leach pilot plant results from the front end, which is being built in Perth. The pilot plant will also be finished in July. All of which is is working to get the operating costs down, along with the beneficiation and molecular sieve work. for generations by percolating an Drilling results released in ammonium sulphate solution through December have also been very soils and subsoils and picking it up at exciting for the company – part of the bottom of the slopes and valleys. the infill drilling of the Southern If China gets rid of this process, rare earth zone it is focusing on it means reducing the amount of commercially – to get the capital and rare earth products coming out of operating expenditure down. the country, which is where Peak The 2012 program of 130 holes for comes in to fill the gap. Removing the 13,600m of reverse circulation and damaging ionic clay process will also diamond drilling in the high-grade force up the price which, to Beazley’s area of the SREZ defines a continuous best information, is notionally at a zone of high-grade mineralisation national level about $5.80/kg, which from surface defined by several holes is cheap and driven by the poor averaging over 5% REO down their environmental practices. entire length, extending to vertical Last year, Peak’s February 28 depths of more than 100m. They resource statement of 170 million include individual 2m composite tonnes at 2.24% rare earth oxide from samples grading up to 9.53% REO. its Ngualla project lifted the company’s The high-grade zone extends over profile in the rare earth industry. a strike length of 350m and width of This year will also be an exciting more than 100m. Last year’s drilling year as Peak will develop the final season wrapped up in November when the camp was closed down. Last year’s drilling results also extend the SREZ a further 300m to the south at least and at depth in several areas through deeper drilling in the weathered zone. It will all lead to a resource upgrade in March, after more drilling results from the remaining 13 holes were announced later in January. Data from the recently completed drilling program will support a revised mineral resource estimate and move more of the high-grade rare earth mineralisation in the priority area of the deposit targeted for first production from inferred and indicated into the measured mineral resource classification. “The drilling results reaffirm our view of the high-grade nature of that zone,” Beazley added. JANUARY/FEBRUARY 2013 RESOURCESTOCKS

The Boardroom The Firm Peak is pursuing an aggressive exploration, development and mining growth strategy that seeks to capitalise on its rare earth discovery containing significant grades of critical rare earth elements. The company’s 100% owned rare earth mineral resource at Ngualla is the world’s fifth largest and is the highest grade of the seven largest deposits outside of China. The development of the Ngualla resource is the best rare earth project in the

The Strategy market today. The exploration focus is clearly in eastern Africa, Tanzania in particular, as the company moves to the next stage of development with the Ngualla project and it expands its gold exploration portfolio and operations.

The Shareholders JP Morgan Nominees Aus 6.49% National Nominees Ltd 3.85% Citicorp Nominees 2.09%

To deliver shareholder value by aggressively developing the Ngualla rare earth project at both the project and corporate levels. The focus is on having the right resources at the right time – people, materials and financing to support the principal objective of delivering an operational mine producing rare earth products. The key to unlocking the potential value is the finalisation of our discussions with the right strategic partner to take the project to production.

The Directors Dave Hammond technical Director With an MSc in mineral exploration from the Royal School of Mines, London, Dave Hammond is a geologist with over 23 years of technical and management experience in Africa and Australia in a range of commodities and geological deposit styles. He was previously exploration manager with De Grey Mining Limited, working on projects in the Pilbara and new project acquisitions globally. His previous experience also includes exploration manager for Sons of Gwalia in the northeast Goldfields Alastair Hunter of Western Australia and project Non-executive Chairman geologist with Billiton in South Africa and Zambia. He has more than 38 years experience in the management Jonathan Murray of resource projects Non-Executive Director in Australia, Africa Murray is a partner and North America. at independent He has played a corporate law firm significant role in Steinpreis Paganin, a number of gold and base metals based in Perth, discoveries. Hunter was formerly Western Australia. a director of Peninsular Minerals He specialises NL and a former managing director in equity capital of Matlock Mining NL and Anglo raisings, all forms of acquisitions Resources NL. and divestments, governance and Hunter is responsible for providing corporate compliance. He graduated strategic advice to the executive on from Murdoch University in the group’s Tanzania exploration 1996 with a Bachelor of Law and projects. Commerce (majoring in accounting). He is also a member of FINSIA (formerly the Securities Institute of Australia). He is currently a nonexecutive director of Hannans Reward NL, Laguna Resources NL and Kalgoorlie Mining Company Limited.


Richard Beazley Managing Director Mining engineer with more than 25 years’ experience in the resources sector who holds a Bachelor of Engineering (Mining) from the University of New South Wales and a Master of Business Administration. Has previously held management and executive roles with a range of companies operating throughout Australia, including Consolidated Minerals, St Barbara Limited, Aditya Birla Minerals Limited, Henry Walker Eltin Contracting Pty Ltd and Sons of Gwalia. He is a member of the Australasian Institute of Mining and Metallurgy, where he has previously served as the chairman of the southwest branch for a number of years. It is through this organisation that he maintains his status as a chartered professional. He is also a member of the Canadian Institute of Mining, Metallurgy and Petroleum.

Core trays on the rack at Ngualla camp.



Words by Anthony barich

east african promise

Africa’s east

rises East Africa’s recent oil boom can only mean good news for its onshore mining industry, which is also enjoying a surge in interest from Australian companies. However, the infrastructure required to bring its blue sky potential to fruition could take decades.


lto Capital investment manager Peter Hayes has a theory regarding getting things done in Africa: it’s a bit like riding your bike around Western Australia’s offshore tourist mecca, Rottnest Island – just when you think you’ve made a major achievement labouring your bike over one big hill, another one looms up on the horizon. In east Africa it’s no different, but governments are amenable at the moment, boosted by what is nothing short of an oil and gas boom, which can only have flow-on effects for an onshore mining industry struggling with poor infrastructure. Global petroleum giants BG Group, Anadarko, Shell, Statoil, Exxon, Ophir, Apache and ENI all have prospective acreage along the east African coast off Tanzania and Kenya to its north and Mozambique to its south. Anadarko opened up the Rovuma 32

Basin, offshore Mozambique, with its Windjammer discovery in February 2010. Several discovery wells later, Anadarko has found two huge gas complexes, one with estimated recoverable resources of 17-30 trillion cubic feet of gas and the other with 10-30Tcf. London brokerage RFC Ambrian estimates that 60-100Tcf of recoverable gas resources have been discovered to date in Areas 1 and 4 offshore Mozambique. Ophir/BG have made a string of “small” Tanzanian discoveries over the past two years that RFC estimates to be 10-15Tcf of recoverable gas resources. Kenya is also “hot”, though limited wells have been drilled, while Ophir, Pancontinental and Australian Securities Exchange-listed FAR Limited also have exposure to this region. “The ramping up of oil and gas investment will be compatible with minerals investment, rather than [stealing] investment from the


Traditional houses in Tanzania’s rural areas.

minerals sector. Though there is still a lot of potential [in the oil and gas space], I still think they will be married together,” Hayes said. This is already having bigger ramifications for the region. Alhaji Aliko Dangote, who has been dubbed “Africa’s cement king” and is believed to be Africa’s richest person, is reportedly building a $US1 billion cement plant in Tanzania’s southern region of Mtwara, which analysts believe could be in anticipation of the oil and gas boom continuing to snowball. His company is the largest on the Nigerian Stock Exchange. By attracting such investment, this supports the government’s 2011 integrated industrial strategy that promotes diversification, productivity and competitiveness driven by technology, innovation and human skills. It also supports the government’s implementation of the nation’s five-year development plan which seeks to achieve

industrialisation and increase “We’re talking about a country employment and foreign direct making the transition from a investment to the country. However, even for oil companies subsistence-based economy to a Hayes’ anecdote has a ring of truth developing economy.” to it. RFC notes that, while different fiscal terms are offered by different PETER HAYES governments, in general “the more oil ALTO CAPITAL that has been recently discovered in a region the worse the terms” in the region. “Thus, the terms of production majors aren’t backing off and neither sharing contract agreements are the miners. While west Africa negotiated with governments get has been the more public darling of worse/better over time depending on the investor market, a rising flow recent exploration success,” RFC said. of Aussie miners have made their “Anecdotal evidence suggests way into east Africa and don’t mind that the contractor share of gross the lack of infrastructure, amid oil for the Jubilee field in Ghana is other struggles that are typical about 50% but that in new Ghanaian of Africa, because many of them contracts that percentage is now cut their teeth in their own desert only ~25%. Many governments in WA or elsewhere in the Great have confidentiality clauses in South Land. their agreements that prevent the London-based Peter Rose, head of companies showing them [to western Fox-Davies Capital’s mining research, brokers and investors].” noted that foreign explorers were in Regardless of the hassles, the Tanzania primarily looking for



“We’re used to having no state grid for power, so we generate our own power and manage it all ourselves. We’ve got all those core skills.” RICHARD BEAZLEY PEAK RESOURCES

gold, uranium and nickel. Tanzania is also prospective for coal but it is Africa’s third-largest producer of gold. Rose said this illustrated that its government was educated in the world of mining as far as foreign investment went. Rose told RESOURCESTOCKS that none of its politicians had been making any noises hinting at or threatening nationalisation, as had occurred in west Africa, which let in plenty of foreign investment. Yet a growing number of explorers with well-established projects in west Africa are now finding governments want to place demands on them whereby the governments’ free-carry has been increased and companies find they can’t argue back. While Rose believes one of the biggest things holding east Africa back is the lack of infrastructure, Perth-based Peak Resources managing director Richard Beazley says his company exemplifies the type of experience and spirit needed to get the job done in a place like Tanzania, where its Ngualla rare earths project is on track for production by 2016. “As Australians, the bulk of this office has worked up north in Western Australia where it’s all dirt roads, it’s monsoonal ... we deal with it,” Beazley said. “We’re used to having no state grid for power, so we generate our own power and manage it all ourselves. We’ve got all those core skills.”

The Tanzanian government has been unchanged in the past several years and Beazley believes it is likely to be returned to power in this year’s elections. While he says foreigners need to develop and adopt the local mentality, Australians, with their strict government-mandated laws against corruption by Australians operating overseas, can also help developing countries in these areas. “The government is keen to develop the country so is willing to get investment in there and support infrastructure,” he said. “But it’s Africa. They work differently to us, they don’t have the same level of technology, so things are done face to face. You think an email will suffice, it won’t. You need to develop relationships over time, everything has to be in original documents and signed. “It’s really going in there with a mindset that’s not Australian, it’s Tanzanian and you need to develop their mindset to get things to work. “It’s the same rule anywhere in the world. When you’re in Rome, do what the Romans do – though I wouldn’t take that literally, I wouldn’t do some of the things [that are done], like the ‘big C’ – corruption. “We’re legislated that we can’t – as employees of the company or even our contractors – deal in that kind of activity, which is fine. “On a broader social responsibility scale, if you want a country like Tanzania to develop, you’ve got to eradicate all their issues, like corruption.” Beazley says it takes a strong presence to help reduce corruption in Africa through its own good conduct because of the potential opportunities being lost to competitors that are willing to behave inappropriately. “You’re also up against investment competition,” he says.

“Capital is hard to come by. When it comes to infrastructure, it overlaps – roads, bridges, port facilities, land – capital for that becomes competitive from outside the resource business. “But that’s where we need to play to our strengths. So we come with a brand that we’re very transparent, straight up and down, honest and that’s stood us well for the test of time.” Hayes agreed that foreign investment in resources was competing with local factors it wouldn’t easily consider. “Though there is a stable government in Tanzania, there are always competing interests for investment and other people don’t want you to push in on what they already have a cosy relationship with, like gas companies or wood companies,” Hayes said. “Even firewood – they burn firewood for energy over there. We’re talking about a country making the transition from a subsistence-based economy to a developing economy. “It will be hard for it to make that transition. The infrastructure will be the biggest issue. It depends how much money gets thrown at it. But if they keep getting big discoveries like these big Tcfs they’re talking about, then it will happen but I reckon it’ll be 10-20 years before it really starts to get infrastructure that’s quite serious, because it’s remote, just like the LNG projects up north of Western Australia. It depends on the political will.” It seems there’s political will coming from more than just the east African governments. A Qatar-based political delegation visited Seychelles late last year, while a group of Qatar investors also visited the Seychelles’ State House to meet Vice-President Danny Faure, expressing a particular interest in the east African country’s oil, hospitality, healthcare and housing industries.


StockAnalysis Your weekly market report Sound investment advice and indepth market analysis from Peter Strachan (internationally recognised market analyst) Weekly market brief Concise research with clear BUY, HOLD or SELL recommendations and weekly audio Q&A session Subscribe now – call 1300 661 553 or visit our website


company profile


world titanium resources

Grabbing the tiger by the tail World Titanium Resources investors may have bought in for the Ranobe mine in the Toliara Sands project, but they’re in for a treat as the company reveals its “main game”. Anthony Barich reports


orld Titanium Resources chief executive officer, resource veteran Bruce Griffin, loathes the common habit of mining companies selling investors on the long-term upside of a project they haven’t even built yet. It’s a bit different, however, if you have already defined a 959 million tonne resource at an impressive 6.1% average grade (3% cut-off) of total heavy mineral as WTR has done at its Ranobe mine in southwest Madagascar. When you take into account the entire Toliara Sands project, the total exploration target of more than 4 billion tonnes is five times the resource and 29 times the starter pit reserve of 161Mt grading 8.2% THM, which is higher than most other mineral sands mines. So in reality, with this total mineralisation, even tripling production of the high-grade starter pit would still be a drop in the ocean. The proposed Ranobe port and road can easily handle a tripling of production. The mine and processing equipment would need to be duplicated twice to support the same tripling. This would only reduce the mine life from more than 100 years to about 30, which is a lot different from reducing a 20-year mine to about six. “Conceptually we could triple the mine for less than the initial development capital, which is pretty interesting,” resources veteran Griffin told RESOURCESTOCKS. “If, once we have established the initial mining operation, we triple the mining rate, it would still only require 10 front-end loaders, which is not hard to get your head around. “It doesn’t turn it into an unwieldy

beast. From an infrastructure perspective it’s still only 1.2Mt of product, which is big for a mineral sands operation but it’s not an iron ore operation – we’re not building and operating Port Hedland here. “So you get a scale which is significant from a mineral sands perspective, generating a lot of free cash but from what is still a relatively simple operation. “We still have to do the work on identifying the actual expansion cases but conceptually, it seems like a bit of a no-brainer that you would grow the asset. “The starter pit is just that, a starter pit. It is attractive but it’s not the main game. “The main game is, having successfully delivered the starter pit, you have created the option to readily execute capital-efficient expansions. “It’s taking the tiger by the tail. “There are a lot of commodities out there. If you had a 100-year asset by the tail we’d be talking about billions of dollars even for the initial development, whether it’s a pushback for an open pit, sinking shafts or a massive infrastructure development. “For Ranobe, we’re talking about $216 million in initial development capital for the starter pit. “It’s a very do-able scale for a small company and even though that’s a multiple of our current capitalisation, the value of the project is such that we think it can attract investment. “We are in active discussions with both strategic investors at the asset level and banks for debt finance and we expect to raise the majority of the $216 million from non-equity sources. “$200 million is a feasibility study in some other commodities.”


It is also worth bearing in mind that more than $30 million has already been spent in the ground on the project, between all the drilling programs, engineering and other studies.

Sample preparation for Ranobe drilling, December 2012. 35

“The starter pit is just that – a starter pit. It is attractive but it’s not the main game.” bruce griffin world titanium resources

In November, the Tier 1 Toliara Sands project received a boost in its internal rate of return from 27% to 29% and increased its net present value from $US257 million to $310 million on the same price assumptions – thanks to WTR determining that the corporate tax would be 21% rather than 25% and the withholding tax on dividends would be zero instead of 10%. This boosts the free cash it will generate a year from about $50 million to $55 million, making the project more robust, as the saying goes. Total free cash over the life of the project will be well over $1 billion, with the start of production still on track for the second half of next year. About 18,000m has been drilled previously on the entire resource and WTR has just completed an additional 8000m program, mostly in the initial mining area but also elsewhere at Ranobe. Due to the massive resource already defined, WTR has not needed to go after additional resources. The drilling program completed last December could well lead to a resource increase but that would just be icing on the cake, just like the 36% resource upgrade that WTR published in August last year. “It’s like last time – we didn’t go looking for the extra 36% but we got it when we updated the resource model,” Griffin said. In November, when Griffin was talking to RESOURCESTOCKS, 36

a six tonne ore sample was being processed. The processing was completed in late 2012 and confirmed the project’s process design and product specifications, enabling WTR to dispatch product samples to potential customers. At the same time, trial mining supervised by an experienced dry mining contractor started. One pit has been completed and a second will be finished early this year. The front loader and excavator used for the trial have had no problem extracting the sand and the pit walls are stable, indicating that a simple and safe mine can be designed using benches. “Some of the ore from the trial mine will be processed into additional customer samples and used to further validate the process design,” Griffin said. “We have a pilot plant onsite that allows you to process the ore, take out the 85% which is sand, put it back and take the other 15% as concentrate. This concentrate can then be sent offshore for processing to final product samples. “We will be raising money for the initial development but when people are thinking about value, they have to think about what you’re actually unlocking. “The main objective is to de-risk the expansion options. The value proposition is not just to build the initial mine with 21-year mine life – it is to secure an option to at least triple the mine size while still retaining a multi-decade mine life.”

Employee recruitment for the drilling and sampling program.

world titanium resources at a glance

Head Office 15 Lovegrove Close Mount Claremont WA 6010 Australia Ph: +61 8 9286 1219 Fax: +61 8 9284 3801 Email: Web: Directors Wayne Malouf, Bruce Griffin, Norman Roderick Baker, Tristan Davenport, Darren Morcombe, Ian Ransome, Richard Valenta, Jeffrey W Williams Market Capitalisation $A56.7 million (at press time) Quoted shares on issue 298.4 million Major Shareholders Boulle Titanium 20.7% Mineral Deposits 15.9% HSBC Custody Nominees (Australia) 6.6% National Nominees 5.5% JP Morgan Nominees Australia 4.3% JANUARY/FEBRUARY 2013 RESOURCESTOCKS

First mover in an emerging gold district of Cambodia  Independent JORC resource estimate of 720,000ozs at the Okvau Gold Deposit  Resource growth | Okvau Gold Deposit outcrops and remains “OPEN”  Numerous high priority, untested targets  Multi-million ounce gold potential  Major (~25,000m) drilling program underway

ASX code: RNS Freemasons Hall | 181 Roberts Road Subiaco Western Australia 6008 T: +61 8 9286 6300 | F: +61 8 9286 6333 E:





HEAL THYSELF Speaking exclusively to RESOURCESTOCKS ahead of his African Mining Indaba address in Cape Town, Magnus Ericsson, co-founder of pioneering mining data compilation and analysis firm RMG, highlights the critical need for greater geological knowledge at government level.


NFRASTRUCTURE AND improving knowledge of geology are the key to unlocking Africa’s potential as a mineral powerhouse, according to Raw Materials Group (RMG) co-founder Magnus Ericsson. The Swede joined the board of directors at Intierra Resource Intelligence when it bought out his Stockholm-based RMG – a pioneer in mining data compilation and analysis - in 2011, creating a powerhouse of “business intelligence” to the global 38

resources sector. Speaking exclusively to RESOURCESTOCKS prior to his appearance at African Mining Indaba, Ericsson said his presentation would address the future of African exploration and development. He said that while Africa was prospective for a number of commodities, a lack of infrastructure was holding it back. “A lot of the problems in Africa so far have been dependent on the fact that some governments and local communities have seen mining development mostly as benefiting only

the mining company, and not local communities or the country. “Part of the problem is that African countries don’t have the infrastructure,” he said, referring to mining ministries and geological surveys, which Africa seemed to lack due to what Ericsson described as a number of barriers. “In the 1960s, there was nationalisation of mines in Africa in many countries, like the Congo and Zambia. “In the 1990s, we had all the changes in South Africa with the first


Improving mining knowledge could help bring more explorers to the table in Africa, according to RMG co-founder Magnus Ericsson.

democratic election. So it has been a period which coincided with the general drop in mining/exploration activities in that period. “Metal prices reached a peak in the mid-1970s and they had been declining until about 10 years ago. “So those two trends coincided and made it difficult. “On the political side, I think the interesting and important thing is that finally the many mineral-rich African countries have come to understand that even if they have a lot of geological potential they must also offer good conditions.” According to Ericsson, the formation in 2007 of an international study group to review Africa’s mining regimes (ISG) was a critical step towards improving the attractiveness of Africa as an exploration destination. Ericsson said one of the initiatives to help improve infrastructure was the establishment of the African Mineral Development Centre, which is due to start in the second financial quarter of 2013. “The purpose (of the centre) is to make African countries better prepared to take on exploration. “They don’t have the people at the geological survey or in the mining ministry that can actually be the counterparts of investors,” Ericsson said, adding that this process would help some countries serve as models for others. “There are civil servants and there is less corruption and simply a better

setting for investors to come.” Ericsson said the infrastructure in terms of railroads and telecommunications could be easily overcome because it only required funds, but to deliver the infrastructure in terms of mining ministries and training was more time consuming. “It’s a combination of those two. But on the other hand, such infrastructure, whether it’s a railroad or a port or more electric power can also be used by other sectors of the economy. So mining can then contribute to economic development in general,” the Swede said. He said the rise of iron ore as a prominent commodity in Africa particularly demanded better infrastructure. While the infrastructure could be the missing piece of the puzzle, Ericsson said Africa’s competitive advantage was that it was not as well studied as many other regions and was one of the most underexplored regions in the world, making it an attractive prospect. Historically, gold is a major play in areas of western Africa, but Ericsson said there were a number of interesting areas to be considered, and he forecast a refocus on southern Africa. “Countries such as Zambia and Namibia, which are politically more stable, are attracting more interest, but it is southern Africa and central Africa that are being focused on now,” Ericsson said. “West Africa is getting moving and more exploration is coming into that area as well. Gold is a little less difficult in the sense that


“On the political side, I think the interesting and important thing is that finally the many mineral-rich African countries have come to understand that even if they have a lot of geological potential they must also offer good conditions.” MAGNUS ERICSSON INTIERRARMG you don’t talk about huge volumes and the high-valued product, the price for gold looks very good into the future.” He said iron ore was soon to be a major play in Africa and, despite concerns over its price, he was confident that demand would remain high. “Particularly, deposits in west Africa could become very attractive because they are high quality and some of them are not so far away, so transport issues are not that bad, (unlike) in countries like Sierra Leone and Liberia,” he said. While he also outlined the potential for copper and cobalt in central Africa, Ericsson was quick to reiterate that a solid geological base was only part of the puzzle. “While the geological basis is excellent, it’s not so well studied. “So gradually there can be a development of skills in the countries to make investment and we can see development into the future,” Ericsson said. 39


Words by Anthony barich

african mining indaba special

saving south africa The continuing global demand for resources may just be the saving grace for South Africa, which has turned into something of a basket case after dominating in so many commodities.

Cape buffalo seen at the Addo National Park, South Africa. 40



outh Africa’s Bushveld Complex is still the envy of the world, with Australian geologists referring to it lovingly as a “freak of nature”, yet investors won’t touch the country with a 10-foot pole. Black Economic Empowerment (BEE) mandating a 26% stake in all projects in the land of the Proteas is not in itself a bad thing, but the influential ANC Youth League hinting at nationalisation is a worry. Yet there are upsides. It’s still the place to go for mining and resources professionals, with labour costs a fraction of what they are in Australia, where professionals can demand some of the most exorbitant rates in the world. Australian mining services companies and others are still basing themselves in Johannesburg because it’s a key port for thoroughfare via the southern end of the continent. Mining services company CSA JANUARY/FEBRUARY 2013 RESOURCESTOCKS

“It’s very well endowed geologically and its production history has been huge, but the government/ regulatory environment is not helping at the moment.” JEFF ELLIOTT CSA GLOBAL Global – which has been operating right across Africa for more than 20 years, mainly out of its Perth headquarters and more recently its UK office – opened an office in Johannesburg last year for just these reasons, but the company still gains barely 1% of its global revenue from RSA. CSA Global’s Perth-based managing director Jeff Elliott told RESOURCESTOCKS bluntly that the opening of its South Africa office had less to do with the mining industry in that country and was more about tapping into Africa 41

Victoria and Alfred Waterfront, Cape Town, South Africa, the city which hosts African Mining Indaba.


from there as a logistics base and the transport hub of Africa. “You want to go anywhere in Africa you generally go through Johannesburg, particularly if you’re coming from the south,” he said. “It’s the biggest economy in Africa, it’s got a well-entrenched mining history there, so it has lots of mining professionals and good infrastructure. “We’ve invested there really to tap the professional mining personnel market. Here (in Australia), demand has been greater than supply for professionals and that just pushed the price up incredibly. “In South Africa it’s the opposite. The supply exceeds demand, so you can pick up really good mining professionals. “From there, we can grow a team to utilise for the rest of Africa and across the globe.” However, his assessment of RSA’s downsides was blunt. “The mining industry in South Africa is in decline,” Elliott said. “It’s very well endowed geologically and its production history has been

huge, but the government/regulatory environment is not helping at the moment. “You’ve got some political parties talking about nationalising the mines, power shortages causing production disruptions and numerous strikes which can turn violent, like the Lonmin example – all this uncertainty. If you went to a broker in Perth and said you’ve got a project in Africa they’d say, ‘great, where is it?’ If the answer is South Africa then most would say ‘forget it’. “Very few will give you money to invest in South Africa, because it’s one of the few countries in Africa where the mining industry is in decline. “Neighbouring countries are continuing to reap the benefits of foreign investment in the mining industry – Zambia, Botswana, Namibia, even some of the countries with ongoing civil uprisings, like the Democratic Republic of Congo still do okay. South Africa has a well-established mining industry and ongoing production, but it’s not growing.

“Although there are many differences with South Africa, Zimbabwe is also very well-endowed with minerals yet foreign investment is minimal due to the political situation. Investors are waiting for political change, with the hope that the sovereign risk reduces, the whole country improves and investment flows in there. But it’s a waiting game. “In South Africa it’s a bit the same, that is, sovereign risk issues are reducing the attractiveness to investors. Nationalistic talk, even if it is for cheap headlines like ‘take the mines’, scares the hell out of foreign investors. What the market is looking for is strong leadership and a firm policy to protect and grow the nation’s mining industry.” Elliott added that he thought RSA had already been successful with broad-based Black Economic Empowerment, which has worked to spread the wealth. He said the football World Cup had made a huge difference to infrastructure and the country’s economy. “Yet on the other hand, you’ve still got this exodus of people wanting


to leave, partly because of security concerns, but also uncertainty about what’s going to happen to their assets,” Elliott said. South African-born and trained Mark Le Grange, exploration director and chief geologist at Australian Securities Exchange-listed Trafford Resources, was a part of the team that took the Akanani platinum project from initial exploration drilling to a multi-billion dollar underground development that was taken over by Lonmin in 2007. In just 18 months, the team had proven up just under 30 million ounces of platinum and gold, lifting TSX junior AfriOre’s price from about C10c to the sale price of $C8.75. Prior to moving to Perth in 2007, Le Grange witnessed first-hand the minor booms in RSA’s mining industry and can point to what went wrong. He spent 12 years working on the Bushveld Complex. “What has happened in South Africa over the last 10-15 years is there’s been very little money available or projects available to sustain a boom in exploration and excitement, and drive its blue sky potential,” Le Grange told RESOURCESTOCKS. “(During) the slight boom around 1998-2005 over the Bushveld Complex ... the majors like Anglo Platinum had to get rid of some of their ground that they weren’t using. The result opened up some good projects for platinum hopefuls, including Aquarius Platinum and Robert Friedland’s Platreef project for Ivanplats, where I started my career. There was a lot of money put into that from about 1999-2005. “There were a couple of booms, but there has been very little support for exploration, aside from the established majors and producers. “There’s the Black Empowerment issues, where they must own 26% of any project, and that’s not necessarily a bad thing. But now, suddenly you get this partnership between major producers and BEE partners, and there’s very little space for anyone else to come in for juniors. There’s no excitement on the Johannesburg Stock Exchange at the moment, and it doesn’t help that elements in the government have been talking about nationalisation. “As director of an ASX company ... I’d have to think quite hard about whether I would invest in a project in South Africa, because at the moment Botswana or even Mozambique would win over South Africa. I would love

to invest in South Africa but the current situation in that country and the perception of how hard it is to do business there is a reality that we have to consider. “The answer in South Africa is exactly the same answer we have in Australia – a commodities boom is still a boom. The market is still going to be there in the next 10-20 years. Commodities need to be produced and that’s where our resources industry comes into context. It’s still very relevant.” However, there are always two sides to a story. South African Mineral Resources Minister Susan Shabangu told Australian miners in Perth last year that they had to shoulder their share of the responsibility for building a viable mining industry there. In her mid-term progress announcement in 2010 in regards to transforming the country’s mining industry, she highlighted major inadequacies in the implementation of the mining charter, with emphasis on social and labour programs. While not wanting to “point fingers”, she went on to say that the mining industry “cannot grow sustainably unless it can claim its legitimacy to its host jurisdictions, employees and host communities”. “The investment in the mining industry cannot continue to demand unrealistic and perpetual shorttermism in expected investment returns, whereas this is a long-term industry by its very character,” she said in Perth. “The continued negligible social investment in communities proximal to mines and fetid living conditions which most mineworkers are subjected to, while rushing for immediate returns, are unfortunately some of the risks to the sustainability of the mining industry all over the world and require immediate attention, in addition to all other elements of the transformation framework that was put in place a decade ago.” She proclaimed that the African continent had “begun the journey of the African century, which is focused on accelerating socio-economic development to eradicate poverty and equality, and ultimately enhance the living standards of the African people”. “The journey started with Africa cleansing herself of the ravages of war and political instability that previously characterised the continent,” she said. However, just two days later she


“There’s been very little money available or projects available to sustain a boom in exploration and excitement and drive its blue sky potential.” MARK LE GRANGE TRAFFORD RESOURCES

was forced to face the international media gathered in Perth, when news surfaced that miners had been charged with the murder of 34 of their striking colleagues. The victims had allegedly been shot by police during industrial unrest at Lonmin’s Marikana mine. Though professing to have been effectively out of the loop in the previous couple of days while in Perth, she was adamant that South Africa had a clear rule of law and said the government needed to allow space for the judicial inquiries to run their course, with the courts ultimately deciding the outcome based on the country’s law and the relevant evidence presented. “For us as government, we are indeed concerned about what has transpired, but now the Justice Department has come into the space and we must allow that space, and allow that whole process to be completed,” she said. Asked if she thought there was an appetite for re-examining the laws that allowed these charges to be laid, she said the country’s laws had been examined on a regular basis as issues had been raised in South Africa. There was a breakthrough, however, with wage increases of 11% to 22% effective from October 1, agreed to in September. Though endowed with the world’s most abundant resources and reserves of platinum group metals, South Africa’s mining sector suffered a supply-demand imbalance in 2011 due to a slowdown in demand from traditional consumers. This reached its lowest ebb last year, leading the government to task a mining growth, development and employment team to investigate short, medium and long-term “interventions” to mitigate against the demand issue. Lonmin was not an isolated case. In September, Anglo American Platinum said all of its operations in the Rustenberg area had resumed after the company halted them over safety concerns. 43

Cuesta Coal Limited ASX Listed Queensland Focussed Coal Explorer

Corporate Snapshot

West Bowen Priority Development Project The West Bowen Project is located 25km west of Clermont and covers an area of 1,000km2. The West Bowen Project incorporates the Moorlands Deposit (EPC 1738) and the recently acquired Orion Coal Project (EPC 775 and 776).

Stock Code


Current Share Price


Market Cap

$30.75 million


~235 Mt JORC Resources

Major Shareholder

Beijing Guoli Limited (30%)

 Open Cut Export Thermal Coal, thick coal seams and attractive strip ratios with potential long mine life and can be marketed into China via CQC investor base.  Mining concept will be to implement a central CHPP, central transport route and two staged open pit mines totalling ~4Mtpa ROM.

Company Transforming Project

 Coal production targeted for 2016/2017.

West Bowen Project  Recently completed a company-transforming acquisition which fast-tracks Cuesta from explorer to developer.  The Orion Coal Project will be consolidated with Cuesta’s Moorlands Deposit and West Bowen EPCs to create the West Bowen Project.  Attractive acquisition price of $18.2 million.  Acquired EPCs adjacent to Cuesta’s West Bowen Project creating large open cut thermal coal project 14km northwest of the Blair Athol Mine.  The acquisition and recent resource upgrade at the Moorlands Deposit (EPC 1738) creates total JORC resources of 136.3Mt with additional 85-150Mt exploration target.

 Initial & total CAPEX can be minimised with staged ramp up.  Close to existing coal industry infrastructure.  Coal quality is similar to well-known Blair Athol Measures.  Revised Resource estimate for consolidated projects targeted for completion early February 2013.  Scoping Study to commence Q1 2013 and to include both north and south deposits/pits.  Strategic infill drilling planned for March/April 2013 to increase resource size and confidence, primarily cored holes for coal quality.

“By combining our West Bowen Project with the Orion Coal Project, we are creating a large coal project which has the potential to contain over 200Mt of coal. Of particular note is the fact that these projects are located only 14 kilometres from Rio Tinto’s Blair Athol Mine which is currently under care and maintenance.” – Matthew Crawford, Managing Director

For more information please visit:

Head office: Level 15, 31 Market St Sydney NSW 2000

Operational office: Suite 3B, Level 2, 165 Moggill Rd Taringa QLD 4068

Tel: +61 2 9284 5900 Fax: +61 2 9284 5999 Email:


coal use to rise in the long run While carbon constraints loom large, coal will remain a key energy source in coming decades, says OPEC in its latest oil outlook.

short on coal supply. However, as of electricity generation, primarily many countries already know well, gas and nuclear, as well as the carbon constraints will be the biggest stringency of future carbon emissions obstacle. reduction policies, the price of “In terms of calorific value, there carbon permits and energy security,” are more coal reserves than the sum of OPEC said. oil and gas reserves,” OPEC said. “The contribution of carbon “At the end of 2010 the highest capture and storage to climate change level of reserves by far was in the US mitigation measures will play an which, together with Russia, China, important role in determining the India and Australia, account for three- sustainability of coal use in a more quarters of global reserves.” carbon-constrained world.” Coal, according to the report’s This was reflected in the energy authors, has been the fastest growing white paper that Australia’s federal fossil fuel over the past decade. government released in early How the world – including the November, which said carbon US, which has been crippled by capture and storage remained critical this issue of late – responds from to lowering emissions. an environmental and regulatory OPEC said coal’s threat came from perspective will decide where proven that the increasing use gas to2011 replace Coal: reserves atofend road will lead. coal in electricity generation in the tonnes) “In addition to the health of the (million foreseeable future. economy, its future prospects hinge • A version of this article first on the competition from other sources appeared on

Graphic from OPEC’s World Oil Outlook 2012.

Figure 1.10 Coal: proven reserves at end 2011

million tonnes


North America


OECD Europe 55.3

Asia Pacific


Chapter 1


S THE world’s resources industry works to determine how it will be impacted by the unstable, soft coal market, an annual publication by the Organisation of the Petroleum Exporting Countries projects a mountain may become more of a molehill in coming years. In its 300-page World Oil Outlook 2012, OPEC says fossil fuels will remain a primary energy source in coming decades, with coal leading the pack. OPEC’s findings extend through to 2035. Specifically, while demand for energy will rise 54% by 2035, fossil fuel’s share of the world’s utilisation will decrease only slightly from 87% currently to 82% in 2035. “For most of the projection period, oil will remain the energy type with the largest share,” OPEC said. “However, towards the end of the projection period, coal use … reaches similar levels as that of oil, with oil’s share having fallen from 35 per cent in 2010 to 27 per cent by 2035. “Natural gas use will rise at faster rates than either coal or oil, both in percentage terms and quantities, with its share rising from 23% to 26%.” So, while many are concerned about coal’s competition with other fuels in the short term, oil may actually be the biggest loser of the sector in the long term. For perspective, the group says long-term crude demand will rise to 107.3 million barrels per day, from 87Mbpd in 2010. Most of the increase will come from countries in Asia. In fact, by 2035 Asian demand will account for 90% of demand from developed nations of the OECD. OPEC also says the world is not

265.8 1.2

Middle East

31.7 Africa


S. & Central America

Nuclear energy consumption at end 2011 (Terawatt hours)

Source: BP Statistical Review of World Energy 2012.


Figure 1.11


oil & gas UPDATE

Words by Gomati Jagadeesan and Anthony Barich

long way to go Even as China looks to emulate the US success with shale gas, policy visions may be at odds with on-the-ground realities.


hina’s muchtouted shale gas boom is years away from the timeline the country’s authorities are telling overseas investors, according to Sino Gas & Energy chairman Gavin Harper. As well as heading up Australian Securities Exchange-listed Sino, which is developing a coal seam gas project in the Ordos Basin to supply China’s domestic market, Harper is a former Chevron career man who, in the early days of the company, was critical in deciding how to develop the massive Gorgon LNG project in Western Australia. Last November, Harper told the Australian Resources Conference in Perth that the Asian giant had “a lot of learning and understanding to go through” before it leapt into the shale gas arena as predicted. “Shale is the long-term future in China,” Harper said. “I personally don’t think it’s going to happen anywhere near as fast as 46

a lot of the Chinese pundits say it will. Shale is complex – every shale is different to every other shale [and] there’s no simple recipe. “While great things have happened quickly recently in the US, people often forget that what happened in the US actually followed about 15 years of nothing much happening in shale.” Harper has first-hand experience of the US, having been part of a handpicked “A-team” of Chevron’s project managers from around the world taken to California, from where he travelled the globe helping set up and advise its major projects, including Gorgon in its early days when it was still under West Australian Petroleum. Sino expects to be part of China’s shale gas future in the long term, but Harper says “for the time being, we’ll let others – especially the Chinese companies – take the lead on that”. Harper was involved in several crucial decisions Chevron made at the end of 1999: whether to operate in Western Australia as WAPET or as a clear-cut Chevron organisation; the


decision to develop Gorgon on Barrow Island; whether to develop the Gorgon project with the North West Shelf or independently; and the decision to re-inject carbon dioxide as part of the Gorgon project. China is set to drill for shale gas in a big way, largely spurred by growing domestic energy demand and also encouraged by the US shale story, where producers are facing overcapacity. The recently released Chinese white paper on energy calls to boost the use of natural gas, through LNG imports and bumping up domestic production. The top energy user is looking to triple its natural gas use to meet about 10% of its total energy demand by the end of this decade, and cut greenhouse gas emissions from coal use and reliance on imported oil. To boost domestic production, China has launched the second round of auctions for shale exploration blocks. To spur interest, earlier this month the Chinese Ministry of Finance said it would offer a subsidy of 0.4 yuan for every cubic metre of shale gas produced from 2012-15. Additionally, local governments can also offer further subsidies to spur development. Many in the industry see these measures as generous incentives that show Beijing’s keenness to develop domestic shale assets.

“The shale gas subsidy exceeded expectations,” a China International Capital Corp research report said, highlighting Chinese energy policy goals for commercial production. While the measures are seen as significant, there are others who underline the disconnect between production mandates and lack of progress in the ground. According to the US Energy Information Administration, China is estimated to hold the world’s largest reserve of shale gas, which could support the country’s gas consumption for the next 200 years, making it gas independent. The Chinese Ministry of Land and Resources also estimates that China had 25.08 trillion cubic metres of shale gas in its exploitable reserves. To feed the growing energy demand, China plans to produce 6.5 billion cubic metres of shale gas annually by 2015 and to commercialise production by the end of the decade. Much of that ambition may remain unrealised because analysts believe the target is too hard to achieve, given the uncertainties over geology and shale technology in China. A recent UBS research note pointed out that it would take at least a decade to get the costs down to a level where it would be economical to produce shale gas in China. It notes China’s shale gas is


suitable for commercial production only if the costs of development in the primary reserves can fall below 2.3 yuan per cubic metre. However, the country has undertaken just two rounds of auctions for shale gas exploration blocks, with the latest one concluded last month. About 83 bidders participated in the auction for 20 exploration blocks across eight provinces – totalling more than 20, – which was open to foreign investment for the first time, though not directly. Foreign entities interested in bidding had to have tie-ups with local companies and one-third of the participants were private firms. The previous round offered only two blocks and six state-owned enterprises were invited. With such a limited exploration program, analysts doubt whether the goals will be met. A China Energy Research Institute study notes that the country will need to drill 20,000 shale wells by 2020 but so far has completed only 63 wells. If the 6.5 billion cubic metre target set for 2015 is to be met, the country needs to drill for more than 100 wells a year over the next three years. The auction for the 20 exploration blocks came just before the megacity of Chongqing hosted the China International Shale Gas Summit, where the government was spruiking its shale potential.

The Great Wall of China. The superpower has high hopes for its shale gas industry, but insiders and market realities provide a dose of reality.


The day after Harper’s presentation in Perth, MLR researcher Li Yuki announced in Chongqing that the government was considering a market-based pricing mechanism, favourable tax policies and a “withdrawal system” to help lower risks in and thereby spur shale gas exploration. There are other challenges that may put a damper on China’s shale ambitions. Its reserves are buried twice as deep as American shale gas and located in remote arid regions that pose significant geological challenges. Economies of scale are also yet to be reached. A shale well can cost anywhere from 40 million to 80 million yuan to drill in China, while the costs in the US are between 17 million and 23 million yuan. Even if costs can be curtailed with better technological innovations, China’s shale ambitions can be derailed by the scarcity of water resources. Shale gas extraction typically requires 20,000 cubic metres of water to fracture each well and in China, many of the primary reserves are

located in regions where scarcity of water is a major issue. With geology and technology hindering potential shale development, China’s reliance on natural gas imports is set to stay. Harper emphasised, however, that energy was “right at the heart” of China’s plans to transform itself. Harper said gas imported from Russia or brought in via LNG to the eastern seaboard created “energy independence” and cost issues for China, adding that the government was shifting from a growth model based on exports that had been hurt by fluctuations in the US and Europe. “So the future model will most likely be based on internal demand – growth generated by the growth of the internal population,” he said. Accounting for 21% of world energy consumption, he notes China is already a large consumer of energy. “It’s gone up 150% over the last decade but it’s still got a low per-capita usage, so it still has a long way to go. “We see a continued push to grow the cities – that’s the main lever the Chinese government uses to control the rate of growth, how quickly they move those people into cities.”

The Ordos Basin, where Sino operates, currently produces about 1.5 billion cubic feet of gas per day and China is targeting an increase in production of domestic-origin gas by 250% in the next five years. The basin is located in the Shanxi Province, which Harper says has some of the worst pollution anywhere, being the centre of the country’s coal industry where much of the wealth in central China comes from. It has hundreds of inefficient coal-fired power stations that the government wants to scrap to clean up its act. However, Harper clarified that China was not scrapping coal. “Coal will absolutely be a key and growing part of the energy mix there,” he said. “The basic drive to improve the lot of the Chinese population is going to continue. “A lot of it has to do with driving living standards from east to west – generally the eastern seaboard, where most of the development has taken place so far, is much more advanced. “You see the pressure to improve the living conditions as you go further inland and to the west.”

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Words by Anthony barich

think outside box to Find hope in gold As junior and mid-cap gold stocks get trashed in a tough fiscal environment to raise cash, a major international investment research firm has posted alternative explanations to the gold price-gold equity disparity that could provide a way forward.


uniors have been beaten up by the performance of major resource companies as the whole gold market has been significantly de-rated over the past two years, the head of mining at international investment research firm Edison says. Charles Gibson, who had previously developed and marketed a “black box” model for valuing large-cap equities, told RESOURCESTOCKS that research conducted by his firm suggested that gold equities had suffered for basing their valuations on bigger fish. This had in turn resulted in poor returns as a result of rising costs and changing world dynamics linked to China’s slowed growth. In the Edison gold sector research document, called New benchmarks for old: the world turned upside down, Gibson developed a theory first propounded in April 2009 to predict the long-term price of gold with respect to the US monetary base. For the record, Edison estimated that the long-term price of gold should be $US1676 per ounce, with the potential to reach $2649/oz in the short term. However, it was the report’s comparison of trends over the past two years between the London, Canadian and Australian markets that tweaked the interest of RESOURCESTOCKS. While analysts and investors commonly calculated valuations by looking at dollars per ounce in the ground for gold, Gibson went a step further by breaking down the valuations of measured, indicated and inferred ounces of the precious metal, reflecting different valuations depending on a company’s stage of development. The three markets value each of these types of ounces differently. Two


years ago, Australia and Canada gave much better valuations to inferred ounces than London, but have since come right down and are now in line with London. “It’s probably a case of Australia and Canada having gone up too far in a bull market. Although it didn’t necessarily seem too far at the time,” Gibson noted. “Two years ago, inferred ounces in Australia and Canada were worth up to $100/oz in the ground, and the market was prepared to pay for that up front, seeing that as good investment. Now people realise there are a number of uncertainties and are not prepared to pay it. “Even with the gold price where it is now, it’s a different price environment for gold equities from where it was two years ago, and the whole gold sector has been de-rated pretty significantly. “A portfolio of shares going from exploration to production, compared to five years ago, just about breaks even. That’s actually not a bad performance compared to some of the indices, but it’s pretty terrible compared to gold the metal. “All three markets now give roughly the same value for inferred. Then, drilling up, you go to indicated, and that’s when you started to see Australia giving better valuations.” When the ounces get to the indicated stage, investors are adding the most value in the Australian market. What’s interesting, Gibson said, was when you go from indicated to measured, the Canadian value drops, the London and Australian values go up, and an Australian company would be worth 2-3 times what a London or Canadian company would be worth, on average. “One of the things that was very

noticeable in this report was the extent to which a valuation premium in Australia – certainly for exploration companies – had developed,” he said. “That was much less obvious two years ago when Australia and Canada were much closer in value and both saw a reasonable premium to London. “Now, certainly in terms of measured ounces, London and Canada have fallen back and Australia has fallen back as well, but by not nearly as much. “Anecdotally, we know valuations are down and companies are finding it hard to raise cash. “Having said that, this report shows that there is value to be added by companies exploring and then developing deposits. “In a way, the juniors have been hampered by the majors in the market, because I think the juniors take their cue in terms of valuation very much from the large companies, who, of course, have all been showing declining margins and earnings disappointments.” Q3 earnings for 2012 reflected that this was the case right across the London, Canadian and Australian markets. There were relatively few companies that had not disappointed and there were very high-profile companies that had “taken quite a dose of reality” since two years ago when the gold price went up and margins were widening. Then, costs had not really started to move. This changed recently when the gold price flattened off, costs started to catch up and companies were looking at squeezed margins and valuations, leading companies to the horror realisation that the “everupwards” scenario many predicted was not going to last forever. This was reflected in the report’s


analysis that revealed inferred of indicated ounces in Canada and Australia were both down by 90% over the past two years, and down by 50% in London; while the value of indicated was down in Canada and Australia by more than 70%. An analysis of net cash also suggested that the Canadian and Australian markets had more confidence in the future than that of conservative London. Edison’s report revealed evidence of companies acting defensively in most cases in London, while in Canada net debt was up and in Australia net cash turned into net debt. This indicated that London was “cashing up” while Australia and Canada had been moving into a net debt position, which Gibson believed should be interpreted as London being more conservative, and Australia and Canada aggressive, “possibly more confident about the future in terms of their outlook”. “Having debt across the industry is

more efficient than having cash. So if you see two markets that are moving from cash to debt, or increasing debt, then it suggests either confidence or foolhardiness, or both – and certainly it’s obvious that Australia and Canada have exhibited those traits,” Gibson said. Investors had been asking over the past year why such a great disparity had developed between the gold price itself and gold equities. Gibson had two theories to explain this: as long as the “orthodox” one prevailed (which he expected), we would see a period of outperformance, having seen gold equities underperform over the past 12 months, and beyond. The “orthodox view” is that the disparity is merely part of a trend whereby the gold price does whatever it does, and there are periods where equities outperform and underperform in a cyclical fashion. The less orthodox view is that, compared to 15-20 years ago, investors can now more easily get exposure to gold metal through


exchange traded funds and any number of other instruments which simply didn’t exist back then. “Fifteen years ago if you wanted to buy gold you had to go to the Royal Mint, hand over cash for gold bars and coins,” Gibson noted. “Now there are many ‘paper ways’ of getting access to gold, and there is the theory that this is cannibalising the market for gold equities – investors are putting their money into gold itself to get exposure to it instead of gold equities, which have suffered as a result. “I suppose time will tell which is right. One outcome is that gold equities will continue to underperform for a significant period of time. In which case you’ll probably have to conclude that there has been a fundamental shift in the market, with mining investors looking to get exposure to gold through gold metal and no longer doing it through equities. “Or we’ll see equities bounce back, in which case it’ll be the old pattern repeating itself.”

Golden angel on St Finbar’s Cathedral, Cork, Ireland - standing out like the beacon of hope that gold the commodity gives investors.


company profile


orinoco gold

Bigger is better for new player Bigger is definitely better for Orinoco Gold, which is seeking a bigger bulk sample to shore up a resource from its deposit that is full of gold clusters. Anthony Barich reports


Core sample from Orinoco Gold’s Curral de Pedra project.


hen two of Orinoco Gold’s founding geologists, who have worked with majors in Brazil, came across their lead Curral de Pedra project, they were stunned that it was one of the few times in their impressive careers they had been able to walk underground and actually see gold in the walls of the deposit. Not only that, but Orinoco knows from drilling, channel sampling and a 1 tonne bulk sample taken from the artisanal workings that there wasn’t just a bit of gold, there were considerable amounts of gold in the system. Sometimes it continued into the ceiling and floor of the underground workings. Klaus Petersen, who spent time at Anglo Gold Ashanti’s Serra Grande mine in the same central Brazilian state of Goiás, and Marcelo de Carvalho, who headed up $C15 billion

Canadian company Yamana Gold’s new projects in Brazil, knew they were onto something special, as they both have extensive knowledge of the area. The results from last year’s 3000m of completed diamond drilling at the Cascavel target have consistently hit the targeted structure that hosts the gold. Channel and bulk sampling and metallurgy have pointed to the likelihood of a large shear zone-hosted system. Drilling has proven that the Cascavel target extends for 500m along strike and 620m down dip, and there is evidence of mineralisation continuing further along strike and down dip. Orinoco managing director Mark Papendieck spent several years in Brazil as the founding chairman of Centaurus Resources before it merged with Glengarry Resources in 2010. Orinoco owns 70% of its lead project. Walaid Kahoule, managing director of Servitec, the secondbiggest drilling company in Brazil, holds the other 30%. Servitec is doing Orinoco’s drilling work. Papendieck said the geologically continuous nature of the deposit was not in doubt, determining the grade would be the greater challenge. “All the work done so far tells us that the gold in the system occurs as nuggets or ‘clusters’ of gold,” Papendieck said. “Unlike a typical lower-grade deposit, where you get disseminated gold reasonably evenly distributed, our gold is mostly course. So almost 90% of our gold is +150 mesh in size, which means it’s extremely course, not fine-grade gold.” That’s what makes Orinoco’s gold amenable to recovery from a

gravity circuit. The company told the market in November that it could get about 86% of the gold out of the rock that hosts it using just a gravity circuit, because it’s so coarse and because it’s free – not bonded to any other elements in the rock, which makes it easier to liberate. These results are not yet optimised, and Orinoco is ultimately targeting a gravity recovery of greater than 90% from the Cascavel target. The other more challenging part of a coarse gold deposit where it occurs in clusters is trying to work out where the clusters occur in the system, which is tough to do with a diamond drill core with a 5cm diameter. The well-documented and accepted methodology for exploring nuggety gold deposits says density of data is the best way to go – drilling a lot of tightly-spaced drill holes and taking bulk samples. Orinoco started life on October 25, having changed its name from Strickland Resources. It has been drilling holes in a 50m x 50m grid. It expects its next drill campaign to start in February in a 25m x 25m grid. The other way to get a better picture of a deposit full of gold clusters is by taking bulk samples. “The bigger the sample, the better representation of grade,” Papendieck said. To this end, Orinoco has applied for a licence to build an exploration decline into the ore zone to take a big bulk sample and to get underground in the ore zone and do channel sampling, which is essentially a drill hole done by hand. “It’s cheaper to drill from underground straight into the ore zone than having to drill through up to


70m of barren rock from the surface,” Papendieck said. “So an exploration decline will give us a view of the mineralised zone, allow us to take a large bulk sample, as well as lower our drilling costs while increasing our density of drilling that we can do from underground.” Orinoco expects to have the decline approved around June 2013, after which it will do about 600m of exploration decline work. This will include a 400m down dip and 100m either side of that along strike, which, Papendieck hopes, will give his company a representative sample of the current 500m x 620m zone. It should take 3-4 months to construct the decline. “When we have enough data from the exploration decline we believe that we can tie that data to the data we get from the reasonably closely spaced drilling we will do from surface, which will help us get resources and hopefully reserves,” he said. “Those old artisanal workings allowed us to get down underground and look at this mineralised system in situ. The diagram (pictured) shows the system from one of these underground winzes. Drilling to date, where you’re seeing wonderful intersections of almost 3.5m at more than 38 grams per tonne then in the next hole you get only 2.5gpt – well, that’s entirely consistent with what we’re seeing in the channel sampling of the winzes. The gold is unevenly distributed through this system. “Channel sampling results in October showed incredible variance of grade over a relatively small zone. These winzes only exposed 2-3m at most of this zone, and we now know that this zone is up to 10m; and this mineralised zone is structurally controlled. “It dips about 25 degrees to the southwest and it appears to be very continuous – every hole we’ve put in has intersected down dip to a vertical depth of about 280m.

“The mineralised zones are visually distinctive. They have been hydrothermally altered and contain swarms of quartz veins, which run parallel to these structures. And again, we know from our channel sampling that more than 95% of the gold is associated with the quartz veins.” Orinoco has already taken a 1t bulk sample, which graded more than 2gpt, but the company does not believe this is a big enough sample. Intersections from the Cascavel target include 3.41m at 38.29gpt, including 0.66m at a staggering 193.69gpt. Papendieck said you could walk down the artisanal winzes for 130m down dip and “we had a rock chip return 2.5kg per tonne from the end of one of these winzes”. There is some background grade outside of those quartz veins within the mineralised zones, but outside of the two mineralised zones that Orinoco has identified so far there doesn’t appear to be any gold mineralisation in the system. So the gold is confined within the structurally controlled zone and generally 90% of the gold occurs in the quartz veins. “Most of our time is going to be spent trying to better understand the distribution within these quartz veins within this zone, which will allow us to put a resource and eventually a reserve around this thing,” he said. By this time next year, Orinoco will have finished the exploration decline and removed 15,000t that can be used for bulk sampling, and attained the data it wants from bulk samples and channel sampling. It may not have done any substantial drilling from underground by that time, but will have enough data with the surface drilling it has done, the bulk sampling and channel sampling to hopefully put a resource at more than inferred standard.


Map of the wall of one of the underground artisanal workings highlighting channel sampling undertaken by Orinoco and the variability in the grade of the gold across the quartz veins that carry the majority of the gold at their 70% owned Curral de Pedra project.

“All the work done so far tells us that the gold in the system occurs as nuggets or ‘clusters’ of gold.” mark papendieck orinoco gold

orinoco gold at a glance

Head Office Suite 9, 5 Centro Avenue Subiaco WA 6008 Australia Ph: +61 8 9463 3241 Fax: +61 8 9226 2027 Email: Web: Directors John Hannaford, Mark Papendieck, Klaus Petersen, Marcelo de Carvalho, Brian Thomas, Ian Finch. Market Capitalisation $A16.1 million (at press time) Quoted shares on issue 62 million Major Shareholders Trafford Resources 18.17% John Hannaford 7.44% Westoria Resource Investments 6.13% MQB Ventures Pty Ltd 4.84% Mark Papendieck 3.98% 53





SCARY Latin America is going through a period of landmark regulatory change across its major jurisdictions, which will have significant ramifications for Australian investors and companies who have preconceived ideas about the continent.

B ‘Chan Chan’ ruins near Trujillo, Peru. Image courtesy of Nick Castle, Darkroom Illusions. 54

RAZIL, THE country with the largest landmass in South America, is something of a microcosm for the continent. After decades of frustrating underachievement, it has finally come into its own. It is also on the cusp of a resources exploration boom. This year, Brazil is due to pass resources sector reforms that will see an investment boom on top of what already is a considerable exporting country. Chile, Peru and the more troublesome Colombia are also making changes to their laws that will have an impact on miners and investors. For over a decade, the Latin America region has consistently been the preferred destination for global exploration budgets, so odds are there should be a corresponding payback in terms of discoveries. There are also a growing number of

Australian companies operating in the region. Improving credit ratings show the popular countries to be worth a shot. As of August last year, Standard & Poor’s and Fitch both gave Mexico, Brazil and Peru BBB ratings, with Colombia (BBB-) not far behind. Chile got an A+. “Those credit ratings have not happened overnight,” Spanishborn Jose Blanco, chairman of the Australia-Latin America Business Council, told the Australian Resources Conference in Perth last November. He said statistics were showing a consistent trend within key markets in Latin America to improve their fiscal position, and the ratings agencies had acknowledged the economic gains they had made with higher ratings. “That evolution should give you encouragement that the region has the solidness to maintain strong performance in coming years,” he said. “In an environment where


there is increased nervousness in the market place, having a strong country rating should be a big plus, particularly in regards to the ability to raise capital to develop projects.” Latin America has also captured more than 20% of the annual global budget for non-ferrous exploration in each of the past 10 years. Blanco said the global mining industry planned to invest $US100 billion in the continent between 2012-17, about half of its investment budget for the period. It has 40% of the world’s copper and silver reserves and is the second largest exporter of iron ore. The continent also had 19.7% of proven oil reserves as at 2011. “The importance that mining has on the GDP of individual countries varies, but in Chile it is far more significant than in the far more diversified Brazil,” Blanco said. “However, the impact in terms of mining exports as a percentage of total exports also finds the biggest

impact in Chile and Peru, but is increasingly relevant in other markets, including Colombia and Brazil.” He said one of the most “exciting developments” over the past few years was the creation of an integrated exchange – MILA (Mercado Integrado Latinoamericano), launched in November 2010 - that links the stock markets of Chile, Peru and Colombia. Mexico has agreed to join its stock exchange in the next stage. “The importance of this is that it creates an additional destination where Australians might consider going to raise capital,” he said. “Clearly, the dominant destination at the moment is the Toronto Stock Exchange, and understandably so, but I think there is an opportunity here for the ASX to develop its relationship with MILA and to explore opportunities for dual listings between Australia and MILA exchange. “In that context, Peru might be the preferred destination and I hope


“I really think we’re going to see an exploration boom in Brazil because of the size and relatively unexplored nature of many parts of the country.” ROBERT MILBOURNE NORTON ROSE

we are likely to see more Australian juniors going there in search of capital.” MILA also gives investors greater choice and diversification, brings new issuers to market and increases competition. Seventeen Canadian companies have dual listings via TSX/ MILA and raised $US220 million in 2009/10, Blanco said. Despite these positive signs, corruption and nationalisation continue to impact investor perception of the continent. Yet even on this point, Blanco brought up a world 55

Friable itabirite mineralisation at Centaurus Metals’ Jambriero project in Brazil.


map drawn up by Transparency International that revealed South America was certainly not the worst, nor was it alone and had quite reasonable ratings on TI’s index. Still, significant incidents that made headlines around the world continue to worry investors. Brisbane-based Robert Milbourne, a mining and resources corporate partner and registered foreign lawyer at international law firm Norton Rose, noted that Argentina, Ecuador, Venezuela and Bolivia have had significant challenges in the past year. “Clearly there was a major expropriation in Argentina, which, broadly, has been politically disastrous to foreign investors over the last decade, from defaulting on their foreign bonds to nationalising state-owned entities,” Milbourne told RESOURCESTOCKS. “Bolivia and Venezuela are really similar situations where you’ve got relatively extreme governments that are nationalising assets and are not very investor-friendly.” Blanco agreed, saying that investors should “use caution” in Argentina (except in San Juan, Santa Cruz, Salta and others), Bolivia, Costa Rica and Venezuela, where “mining sentiment is not as supportive as required”. He said the Dominican Republic, El Salvador and Paraguay were countries to watch where policy settings were improving for mining, with good potential for development.

He described Colombia, Ecuador, Uruguay and Panama as “emerging” in this category. Brazil, Chile, Mexico and Peru were “consolidated” countries where mining was recognised as a major driver for economic growth, with favourable policy settings and a pipeline of major projects. The Fraser Institute’s 2011-12 Survey of Mining Companies said that “Brazil realises that its mining potential and resource base is just being scratched and is attempting to boot-strap itself into the forefront of developed countries”. Of Peru, the institute noted that its mining registry of concessions was online, transparent and “more or less without extrajudicial challenges. Title is clear and rarely in dispute”. Milbourne believed the threat of nationalisation was no worse than Africa or Southeast Asia. “There is risk with respect to corrupt practices and unethical behaviour throughout the world where large funds are invested and politicians feel like they can take advantage,” said Milbourne, who worked in China and Indonesia before joining Vale SA. In Brazil he handled transactions in more than 30 jurisdictions around the world for Vale, later becoming general counsel for Vale’s Australian subsidiary. “My experience has been that there is no more likely impact of corruption in Brazil than in any other jurisdiction. I’ve seen these issues

throughout the world, but I don’t believe they are endemic in Brazil or in South America generally. The mining industry has taken a very aggressive and effective policy, and Vale, Xstrata and BHP all are understood to have adopted nofacilitation payment policies and it is now widely recognised throughout the region that these companies will not play that game and they’re less likely to be threatened by it,” he said. “Certainly the most effective avenue for countries (to raise revenue) is to revisit their taxation policies, but there are movements throughout Africa and South America to nationalise assets in light of the significant profits that these companies are achieving around the world. “My expectation is that it’s going to be a problem into the future and it’s been a problem for quite a while.” Some individual Brazilian states got on the wrong side of miners recently when the states of Para, Minas Gerais and Amapa imposed levies on mining activities that were being challenged by mining companies and associations. However, Milbourne said: “I wouldn’t say that they’ve gotten so out of hand as to make Brazil an inhospitable environment for foreign investment. To the contrary, I really think we’re going to see an exploration boom in Brazil because of the size and relatively unexplored nature of many parts of the country.” For its part, Brazil is leading the reform bandwagon. At federal level, new President Dilma Rousseff announced in 2011 a series of policy reforms in the guise of a National Mining Plan 2030, which provides new investment plans to address the growing importance of the industry. A number of bills that should be passed this year include a new mining council linked to the presidency, and reforms to bring about a centralised, regulated focus on the mining sector. Brazil also adopted a new forestry code last year that allowed mining in areas of otherwise permanent preservation, which was expanding the regions in which mining could occur. Similar land access reforms have been undertaken in Peru and Colombia. The bill to open up indigenous lands to mining affects over 680 indigenous territories that cover about 13% of Brazil, mostly in the Amazon region, which are rich in a large variety of minerals including


gold, iron ore, nickel, diamonds and rare earths, Milbourne said in his presentation to the Australian Resources Conference. The bill includes provisions that oblige mining companies to consult indigenous communities before any exploration or production, and requires each project to get specific congressional approval. “Some indigenous communities favour the opening, but most are against,” said Raul do Valle, coordinator of Instituto Socioambiental, a Brasilia-based environmental protection group. “Invasions of Indian lands by ‘garimpeiros’ (illegal wildcatters) have generally been very negative experiences.” Milbourne noted that the bill’s supporters said stricter rules could help protect indigenous communities from illegal wildcatters. They also said indigenous groups should be allowed to mine their own lands, as the bill would permit. Mark Papendieck, managing director of ASX-listed junior explorer Orinoco Gold – which has assembled a portfolio of three prospective gold projects in Brazil, including the flagship Curral de Pedra project in the central state of Goiás – told RESOURCESTOCKS that the country’s significant advantage over Australia was operating costs, as proven by majors that operate near his own project. “There’s absolutely no question of security of tenure in Brazil,” said Papendieck, who has spent the past seven years focusing predominately on Brazilian resource projects. He was the founding chairman of Centaurus Resources in 2006 before being appointed managing director in 2008 to oversee the company’s emerging operations based in Brazil. “Brazil’s mining code is a 1960s Act which they’re updating, but they’re not talking about making any changes to any existing mining leases or exploration tenements. “There is a lot of speculation about things like royalties, but we’re pretty sure that they’ll still come up to a bit less than – but more in line with – Australia. At the moment the royalty rate is much lower than Australia’s. But even the changes that are speculated in the local press will not affect the tenure that we have. “Royalties are federally controlled but some states impose their own taxes, but Goiás hasn’t had any changes to state taxes. We believe that you can operate one of these mines in

Brazil for a lot cheaper than you can in Australia. The underground mines for Anglo Gold and Yamana Gold (near Oronico’s lead project) operate for under $US650 an ounce, including taxes and royalties, so it’s significantly lower costs for an underground operation.” Despite Brazil’s legislative steps, which some regard as positive, the nation still has no bilateral investment treaties (BITs) – one of the best ways to mitigate the risk of resource nationalism – in place. Chile, Peru, Mexico, Uruguay and Argentina have BITs with Australia and many other countries. Colombia has BITs with Peru, Spain and Switzerland. Brazil has signed a number of BITs, but had yet to ratify them when Milbourne addressed the Perth conference. Even South American countries that are popular among Australian explorers and considered investorfriendly, such as Chile, have their issues, quite aside from the “informal mining” that occurs throughout the continent but is certainly not unique to it. Chile was involved in a 10-month dispute over foreign ownership restrictions and state participation concerning Anglo American and state-owned Codelco. The dispute over the Los Bronces copper mine, the world’s fifth-largest, was settled in August 2012. Chile is also working on reforms involving mining closures and environmental impact laws, and regulations on safety and improved working conditions. Peru has put forward decrees to regulate informal and illegal mining, especially stricter regulations and zoning of the Madre de Dios jungle region where informal mining is common. It has also proposed a tax structure for the mining sector where major players would have tax stability agreements. The new mining law includes a minimum 5% royalties on sales, a windfall tax of 70% and the establishment of a state mining company with preferential rights to develop properties within special mining areas. It will also see restrictions on the size of mining concessions and the duration of exploration contracts. Looking beyond the resources, however, Blanco said that South America was “likely to surprise” in terms of economic growth. This was due to the expansion of the middle class, which it has in common with all


emerging markets, keeping in mind that Latin America’s population is more than 500 million. Other factors favouring South America’s economic growth include the availability of a workingage population, which is “very significant”; the quality of human capital; the return of talented executives from Europe and even the US, which will increase the quality of management; the increasing number of Latin companies that are going beyond their domestic and regional borders to become globally active; the spread of urbanisation that is “no different to China”; and the expected increase in investment in infrastructure, which is pivotal to ensuring the increased competitiveness of the region, and particularly countries like Brazil, Blanco said. This expansion of the middle class has been dramatic. It is set to reach 255 million, or 43% of the region’s total population, by 2020. Blanco said this spread of urbanisation would see a greater concentration of the population in major cities and their surrounds – up to 80% (532 million) of the region’s total population. The region is also determined to improve its competitiveness, with regional infrastructure set to reach $US7.6 trillion by 2030. However, challenges remain. Blanco said Australia was more Africa-focused and its knowledge base about Latin America was “relatively modest”; while the perception of Canadian dominance also acted as a deterrent.

A cathedral in Peru, which has been a favourable investment destination.



Words by jose blanco

latin America focus

will ecuador come in from

the cold? Ecuador is making some positive noises about resources development, but still has a way to go to convince investors of its notorious sovereign risk.


Monument of La Virgen De Panecillo located in Quito hills, Ecuador. 58

he announcement made on October 26 last year by Codelco chairman Gerardo Jofre that the world’s largest copper producer was in early talks with the government of Ecuador to jointly develop the Junin copper deposit suggests that Ecuador is finally making progress in convincing foreign mining companies to invest in the development of its mining sector. According to Ecuador’s Mining Chamber, the Junin deposit in northern Ecuador contains enough copper and molybdenum to rival the biggest mines in Chile and Peru. If Codelco was successful in striking a deal with Ecuador’s state mining company Enami, it would secure access to its first large-scale copper deposit outside Chile. Codelco has spent $US4 million on exploration targets in Ecuador and has confirmed that it plans to invest between $10 million and $30 million in exploration over the next four years. Jofre made the announcement as he and Chile’s Mining Minister, Hernan de Solminihac, gave Ecuador’s President Rafael Correa a tour of Codelco’s Gaby mine in northern Chile.


During the tour, Correa said Ecuador had “lost too much time” tapping its mineral resources – no large project had been developed from prospecting and exploration to production in Ecuador over the last decade – and was seeking to use profits from the sale of metals to alleviate poverty. However, the jury is still out on the development of Ecuador’s mining sector. Ecuador may not be regarded as one of South America’s mining strongholds, but it does have considerable copper, gold and silver deposits. According to Ecuador’s Mining Chamber, more than 90% of its terrain is unexplored and estimates that its gold reserves may exceed 39 million ounces and those of copper to be greater than 8 million metric tonnes. The rules that apply to mining in Ecuador are not for the faint-hearted. In 2008 Ecuador annulled more than 4000 mining concessions. One of those belonged to Canada’s Ascendant Copper, which at the time held the rights to the Junin deposit. Ecuador’s new regulatory framework for mining is regarded as extremely onerous and gives the government a 50% participation in the operations of all mining concessions. Furthermore, it provides that mining companies shall pay a royalty “not less than 5% of sales, in addition to payment of 25% for income tax, 12% of net income determined in this act, 70% tax on extraordinary income, and 12% of value added tax (VAT).” These measures ensure that more than 50% of the mining profit will go to into the government’s coffers as taxes and royalties. President Correa said “we have the most demanding contracts in the world but we have to be very demanding because the opportunities are enormous”. Onerous as these provisions may be, they did not dissuade Chinese state-owned EcuaCorriente from committing in March to investing $US1.4 billion in the Cóndor Mirador project and in the process granting the government 52% of all future revenues. That EcuaCorriente is state-owned may not be an altogether irrelevant factor. That is also Codelco’s status, although it is run along very different lines to most Chinese state-owned companies. Beyond state-owned enterprises, it is interesting to note that Canada’s IAMGOLD in June elected to exit Ecuador by disposing of its advanced exploration property, Quimsacocha, which is said to contain over 3.3Moz

of high-grade gold. However, the exit has overtones of an each-way bet by the company, as the sale was undertaken in exchange for approximately $US30 million of stock in the acquiring company, INV Metals. The deal made IAMGOLD the largest shareholder in INV Metals with a 20% stake and meant that it could still profit from any future development of Quimsacocha. A more accurate litmus test of foreign appetite for mining in Ecuador is likely to be the Fruta del Norte deposit held by Kinross Gold and has probable reserves of 26.1Mt, grading 8.07gpt gold and 10.9gpt silver containing 6.78Moz and 9.14Moz, respectively. Its development has been the subject of considerable speculation as Kinross Gold has attempted to secure government approvals on terms that it considers reasonable. The most recent announcement by the company’s CEO Paul Rollison is that “we understand the government is considering legislative reforms in relation to the windfall profits tax and to enhance the mining investment climate. As a result, we expect negotiations on the exploitation and investment protection agreement to extend into 2013”. Correa’s statement that “what Kinross has asked for is reasonable, and we are preparing a legal reform so that any extraordinary gains will go towards recuperating the investment” offers some hope that an acceptable compromise will be reached on amending the windfall profits tax. It is understood that the potential “reform” will include two proposals: to postpone levying taxes until the concessionaire has recovered its initial investment, and secondly to establish a maximum on royalties. Like his Peruvian counterpart, President Ollanta Humala, Correa appears to be sufficiently pragmatic to appreciate that he needs the revenue that a buoyant mining sector can contribute to state finances in order to reduce the country’s dependence on oil exports and to fund many of the social initiatives that are essential to the well-being of the nation’s citizens. Apart from the share of the profits that the government is seeking to lock in, it is hard to fault the commitment that Ecuador has shown to putting in place a clear set of rules and regulations for everything from environmental and social licensing to royalties. The government’s search for the right framework has even taken it to Perth, which was recently visited by six government officials from


“The rules that apply to mining in Ecuador are not for the fainthearted. After all, it was only in 2008 that Ecuador annulled more than 4000 mining concessions.” Ecuador’s Ministry of Environment eager to learn from Western Australia’s procedure for conducting environmental impact assessments of mining projects. That visit resulted in WA-based Resource Development Group being chosen to assist in the development of an environmental impact assessment (EIA) framework for Ecuador’s mining industry. The new mining framework has seen the creation of regulatory agencies and an institute for geological, mining and metallurgy research. Mining companies will be required to present complete technical and environmental impact studies before embarking on extractive activities and to employ clean, cutting-edge technology. Also encouraging for foreign mining companies has been the growing willingness of Correa and key members of the mining ministry to come out publicly to defend and advocate for responsible mining to ordinary citizens. Under Ecuador’s centralised government, with the power firmly held by Correa, the government’s willingness to use its political capital to help mining companies deal with local issues is going to be just as crucial as any modifications to the windfall profits tax in attracting foreign mining companies to Ecuador. The perception of sovereign risk in Ecuador remains very high and continues to act as a major deterrent to new entrants. Among the obstacles to be overcome by any mining companies wanting to exploit Ecuador’s abundant resources are environmental or indigenous activists, enforcing legally acquired rights and dealing with artisanal and informal miners, a deficient legal system and quite a few other hidden political, economic or security issues. Whether Ecuador’s mining sector will take off in the way that Correa would like remains to be seen and will depend largely on the individual risk appetite of each company. • Jose Blanco is chairman of the Australia-Latin America Business Council. 59





MENACE Who is to blame for a ‘diabolical’ 2012? The overwhelming sentiment of December’s Mines and Money London was that the ghost is in the machine – the industry has no one to blame but itself, which includes miners and analysts. But if miners can learn from their mistakes there is light at the end of the tunnel.




IVIDENDS, dividends, dividends. The mantra of investors has become that of mining companies, funnily enough, because by definition they should ideally align. However, mismanagement and listening to the wrong people (analysts) has cost companies across the board dearly, and investors are fed up. Now, the companies are starting to listen. Despite 2012 variously described as diabolical and brutal – for majors as well as juniors – the mood at Mines and Money London was not miserable. It was what could best be described as cautious optimism that things would pick up, with the caveat that companies needed to smarten up and learn from their mistakes or the capital market would continue its flight away from them into safer things like gold. A focus on dividends was seen JANUARY/FEBRUARY 2013 RESOURCESTOCKS

“I think miners themselves have learned from mistakes in the past, where they get seriously punished now if they don’t perform.” DUNCAN HUGHES RFC AMBRIAN as the ideal end result. But how companies could claw their way back to get there was the challenge, and there was no shortage of advice from brokers and investors at the conference. The gist of it was that the companies needed to differentiate themselves from the pack to survive by a number of means, not least of which was by diversifying their financing regimes. The foreshadowed lengthening of the finance gap means that companies will need to get innovative to survive by seeking out alternative financing via sovereign wealth, private investors, streaming and even having suppliers, like equipment 61

London city. Mines and Money London in December was a place of cautious optimism.


providers, funding projects. Pursuing more than one option was seen as the best way to mitigate the risk of being at the whims of any particular market. Nolan Watson, president of gold streaming company Sandstorm Gold, told delegates that project financing as we knew it was dead, because financiers had failed mining companies – a fact he believed more important than the oft-stated mantra at the conference that mining executives had failed their investors. Debt markets are also becoming more challenging, with some banks backing away from the mining industry after being burned. Watson said before the conference that banks had such tight covenants that if juniors “sneeze or hiccup” they could force the miners to raise equity and/or could take the assets away, which was “happening at an alarming pace”.

A symptom of this was that the streaming industry has multiplied by an order of magnitude, with plenty of cash available from all the streaming companies now in operation. Sandstorm Gold’s affiliated diversified streaming company, Sandstorm Metals and Energy, makes an upfront cash payment to its partners in exchange for the right to purchase a percentage of the commodity produced for the life of the asset, at a fixed price per unit. Sandstorm has acquired a portfolio of six commodity streams in copper, oil, natural gas and coal. All this simply means is that where there is a will there is a way – and the conference’s mood certainly defied expectations given the year the mining industry has just had. RFC Ambrian’s head of research Duncan Hughes told

RESOURCESTOCKS he expected a “dreary, miserable and depressed” mood in London – but it wasn’t. “People still seem to be quite happy to look at good stories, with the expectation that things will pick up, (but) I don’t think anyone’s got a crystal ball as to exactly when they will,” Hughes said. “I think miners themselves have learned from mistakes in the past, where they get seriously punished now if they don’t perform. “We’re already seeing the situation where exploration companies that need cash can’t necessarily raise it the traditional ways through equity in these markets because of depressed share prices or just a lack of interest in the risk from risk-averse investors.” SNL Metals Economics Group founder Michael Chender said at the conference there was an “attitudinal change” occurring among companies


from what BlackRock managing director Evy Hambro scathingly referred to as “seeking growth for the sake of growth at any cost” to optimising capital and a focus on costs. Meanwhile, investors were demanding less risk or better management of risk. Hughes noted that miners had been mining more marginal assets and sometimes couldn’t meet their production performances. An example was Avocet, which fell short a few quarters with not making its production in 2012. “They still have good exploration ground and a manageable asset, but were punished and oversold by the market,” Hughes said. “The general feel is there’s a big push for dividends – and BlackRock was not the only investor to mention that. “There’s no longer this mentality from investors that ‘I’m going to buy a nice exploration story and gain capital growth from that’. There’s now the expectation that, ‘Yes, I’ll do that, but I realise I can’t guarantee I’m going to get capital growth’. So an income stream through dividends would be very much appreciated.” Exactly when things will pick up is anyone’s guess, but the overwhelming perception seemed to be that 2013 wasn’t going to see it. “A lot of it is macro-level stuff. I don’t know when Europe will sort out its problems,” Hughes pondered. “I don’t believe China has suddenly stopped buying raw materials; (nor is it) going to suddenly stop. Yes, it’s fallen back – of course it has – but I don’t think we’re out of the so-called ‘super cycle’.” Just prior to the conference, RFC Ambrian issued the report optimistically titled Mines and Money: More ups than downs, listing 45 stocks that investors could make money on now and, obviously, a whole lot more when things pick up. RFC Ambrian was also more philosophical on the recent softening of commodity prices, which it described as “merely a bump in the road”, with the “commodity super cycle” set to continue, albeit at a more subdued rate, for “many years to come”. RFC Ambrian’s report noted that risk-averse investors, underperforming producers, an increased push for dividend payments, more calls for domestic ownership of mining projects and increased merger and aquisition activity were the hallmarks of 2012.

Hughes indicated that most of this was likely to continue in the foreseeable future. “It has been a brutal year, but that’s my point. If you don’t differentiate yourself [as a company] in this market then it’s going to continue being brutal. But we have seen companies, even in the exploration space, that have done well this year,” Hughes said. While RFC Ambrian’s report offered the 45 companies, including Sirius, as a beacon on the hill, Hughes urged caution. “The worry with Sirius, perhaps, is that a lot of its investors are retail. So there is some volatility risk in the share price with the retail investors there, as opposed to the ‘sticky’ stronger institutions that you traditionally get over here in London,” Hughes said. Lee Downham, Ernst & Young’s global lead partner of its mining and metals advisory, expected another slow capital raising market for mining equities in 2013. But he hopes for a gradual improvement on 2012, with potentially a few largecap offerings in London and a host of smaller mid-cap offerings across Hong Kong, Australia and Canada as macro-economic issues slowly resolve themselves. He told RESOURCESTOCKS that, structurally, debt had “real problems”. “I can’t see project finance coming back any time soon to the masses,” he said. But he said it would still be there for the high-quality, low-risk projects. By diversifying their financing models, resource juniors can create a bit of competitive tension between the different forms of finance to help the companies get better returns. While this would be time consuming for management, Downham said, it was the only real way to guarantee success at the moment. As the first keynote speakers, Hambro and BlackRock World Mining Fund director Catherine Raw gave a joint presentation that laid the blame for falling returns in the gold space and the gaping disparity between gold companies and the surging gold price squarely at the feet of senior management of the companies. The duo pointed to mid-cap gold miners as those providing hope – ones where management still owned much of the stock. McEwen Mining chief executive Rob McEwen rammed home this message immediately after


“One of the key factors in senior management’s short-sightedness is their lack of meaningful share ownership and, as a result, their ability to feel pain is almost non-existent.” ROB MCEWEN MCEWEN MINING BlackRock’s presentation by noting that the CEOs of Barrick Gold, Osisco, Agnico-Eagle, Goldcorp, Kinross, Yamana Gold and Newmont owned very little of their companies’ stocks. “I believe one of the key factors in senior management’s short-sightedness is their lack of meaningful share ownership and, as a result, their ability to feel pain is almost non-existent because they have no money at risk,” said McEwen, who founded Goldcorp, which he took from a market capitalisation of $US50 million to over $10 billion. “Senior management believed that the market would always reward growth with higher share price and were willing to pay almost any price for it. Senior management’s lack of financial constraint has cost their shareholders dearly. They ignored their shareholders’ interests, paid too much for their growth – and bigger is not always better.” Raw said the cutting of grades in 2005-06, where average gold grades fell by half after five years of gold stocks outperforming the gold price, was the crushing blow that caused today’s equities to lag badly. “Since 2005 we have seen serial underperformance of the gold sector – and not just because of the financial crisis. It had started prior to the (global financial crisis) and continued afterwards,” Raw said. “The first ETF was launched in 2003, but real liquidity didn’t start until post-GFC, so I don’t think we can blame just the ETFs [for the gold equities-price imbalance]. “It was this decision to cut grade that has significantly changed the cost dynamic of the industry, with operating and capital costs being damaged by the drop in reserve grade. The size and scale of the projects you’re having to build means your costs have been appreciating across the board.” She noted that with C1 cash costs, plus both sustaining cap-ex and growth cap-ex, total costs for 63

London’s Royal Exchange.


industry were up at nearly $1400 an ounce. Thus, margins that gold producers have provided have been flat over the past five years, despite the gold price rising, and investors have not had the operating leverage they would have had 10 years ago. Hambro said: “We would like to put return to shareholders ahead of many of the M&A strategies that have taken place over the last few years; we want consistent and reliable operational performance.” He noted that there had been a “fantastic bull market” in the price of gold, yet cash flow growth had been “absolutely appalling”. He showed a graph of the performance of unnamed large-cap gold producers – the “goto” gold stocks – which revealed “an appalling track record of value destruction by managements’ decision to reinvest their money in the way that they have done”. He said there had been “continual over-promising and under-delivering”, which could be a function of chasing growth for the sake of growth or misleading investors by talking about cash costs and not the total costs of sustaining production within a company. “We understand that weather can interrupt supply, that sometimes equipment suppliers can let you down and the challenges of workforces in remote locations, all of which we can contend with, but when we are misled in volume aspirations and costs, we can’t tolerate that in terms of the way we invest our money,” he added. However, he saw a positive future if gold company managers refocused on dividends. “If we can achieve these goals we will see gold stocks return,” he said. “There’s plenty of room for income to grow, with payout ratios very low. The oil sector has about a 45% payout ratio; the gold sector’s is less than 25%, so ‘show us the money’. “If we stop doing the bad things of the past we should avoid repeating those mistakes and that should leave room for better returns for shareholders.” Randgold chief executive Mark Bristow said the gold industry was heading down the same route as the troubled platinum industry due to mistakes made over the past 15 years and would not recover for at least 10. Given that Ivanplats founder Robert Friedland had said the previous day that the platinum industry was “living on borrowed JANUARY/FEBRUARY 2013 RESOURCESTOCKS

time”, Bristow’s words were a dire warning, to say the least. Friedland said his company’s Platreef platinum-palladium-goldnickel-rhodium-copper project was one which would be “transformative” for the platinum industry on a safety and operational level – for starters. He used the analogy of “canal stocks”, the most prominent stocks in America in the 1830s, so named because they used to move goods by canals. However, canal stocks did not do very well after railroads were invented, Friedland noted. Similarly, he said, “the platinum industry as we know it is living on borrowed time, because it is wildly labour-intensive mining in those conditions, and I would challenge anybody here to go there and live like that underground. You might do it for a day or a week, but you wouldn’t want to go down there for the rest of your life”. Bristow, who leads one of the few gold companies whose stock has outperformed the gold price in recent years, reminded delegates how Gold Fields chief executive Nick Holland told the Melbourne Mining Club in July 2012 that the top eight gold companies ranked by production had spent 40% of their market cap in the past five years on capital projects, without achieving any increase in production. As major and second-tier gold producers’ operating cash flow had not even covered capital expenditure over the past 10 years, they have had to resort to debt and equity raising, which diluted their shareholders and left the companies $14 billion in the red. “So they weren’t just raising and spending money to run on the spot, they were actually sliding backwards,” Bristow said. The picture gets worse. Bristow

added that, not only had the industry not managed to increase production, it had seen costs rise by 37% over the past two years against a gold price increase of 31%. While cost inflation was a factor in this, he said the key driver was the deteriorating quality of the industry’s asset base. The average reserve grade has slipped from above 2.5 grams per tonne to 1.2gpt – and it’s this, not input costs, that had a major impact on gold companies’ cash costs per ounce and, more importantly, on capital expenditure, he said. “It’s also worth noting that the industry is currently mining above its reserve grade, which implies that the reserve grade will continue to decline,” Bristow said. “The harsh fact is that because many gold companies did not invest in the future they are being forced to use the higher gold price to access lower grades simply to stay alive at the cost of producing better margins.” He also agreed with BlackRock’s view that the gold industry’s decision to cut grades in 2005-06 was the key mistake that contributed to the current malaise in gold equities. But he said trouble had been brewing earlier than that. “In the back end of the 1990s and even into the 2000s, exploration expenditure dried up completely and people literally started mining their reserves,” Bristow recalled. In the early 2000s the gold price was very low, so companies mined higher and higher grades without replacing them. And with the gold price going up the easy option was to just start mining the low grades of the ore bodies “and we never caught up”. Since the collapse of the Bretton Woods System of fixed exchange rates in the early 1970s there has always been an excess amount of gold supply,


“There has been a fantastic bull market in the price of gold, yet cash flow growth has been absolutely appalling.” EVY HAMBRO BLACKROCK driven by the South Africans then the discovery of the big open pits on the back of CIL technology, then the mining industry supplied the extra gold in the form of hedging, he said. “But in 2001-02, everything stopped and suddenly things tightened and pushed the gold price up, on which he industry was able to survive, and by 2006-07 there were absolutely no discoveries,” Bristow said. Majors bragged about their plans of becoming multi-million ounce producers through M&A-driven strategies, but with no exploration plans – which is fine to clean up some lower-grade ore bodies, Bristow said. But the lack of feed and lack of opportunity to access better grades forced the major drop in grades. “This is not too dissimilar to what happened to the platinum industry,” he said. “In fact, my view is that the gold industry is going down the same route as we’ve seen in the platinum industry from the early 1990s with the big jump in the platinum price; then that comfort in just mining your already defined reserves and coping with the lower grades by being helped with the higher platinum price. “In fact, it’s almost impossible to see the industry recovering in the next 10 years, as it takes 5-10 years to find a mine and then build it. The grades are going to continue to decline and if the gold price stalls it’s going to be a tough time for gold miners.”



Words by alex paull

west africa focus

containing the plague The Australian government’s Mineral Resource Rent Tax has been unpopular with the country’s mining industry, but talk of similar legislation spreading like a plague across Africa, especially west Africa, may threaten foreign investment in some of the most prospective regions in the world. Locals from Pouni village in Burkina Faso take part in the opening ceremony of a water reticulation system that was commissioned as part of Middle Island’s community development programs. 66



N THE WAKE OF THE introduction of the contentious Mineral Resources Rent Tax (MRRT) in Australia there was a great fear among its mining industry that it would drive investment away from the Great Southern Land. Last year, iron ore giant Fortescue Metals Group took it upon itself to challenge the MRRT in court and, even in the MRRT’s infancy, FMG chief financial officer Stephen Pearce lamented in November 2011 that the tax would drive investment away from Australia. “The whole mining tax process has been shambolic and destructive,” Pearce said. “From the moment the Rudd government proposed the initial version of the tax in May 2010, Australia’s high sovereign reputation for international mining investors has been compromised.” But while the impact of the tax is still under the microscope close to home, what Julia Gillard, Kevin Rudd and the other Australian Labor Party heavyweights did not count on was the impact on Australian miners investing in other parts of the world. Regions such as Africa have seen resurgences in the past decade, JANUARY/FEBRUARY 2013 RESOURCESTOCKS

“It’s going through Africa like a plague at the moment, there’s no question about that, and it is extremely concerning.” RICK YEATES MIDDLE ISLAND RESOURCES specifically in gold, as the lure of securing ground in one of the most prospective areas in the world becomes too large to ignore. Almost 20% of the world’s gold is found in Africa. Ghana, in the west of the continent, is the 10th most prolific gold region in the world, with 101,173 ounces at its disposal. Furthermore, west Africa can also lay claim to possibly being the world’s next major iron ore play. Speaking in Perth last year, Equatorial Resources managing director John Welborn said that with the global demand for iron ore rising, questions were being posed as to where the extra supply would come from. “Increased production from the traditional iron ore regions will not fill the gap and so it is a certainty that projects in central and western Africa will be developed to fill 67

Ghana’s 1000 Cedis banknote showing an image of gemstones, one of the country’s main industries, which is indicative of Ghana’s resurgence as a result of mining.


the demand gap,” he said. Welborn said this had generated a “race to production” along the western African coastline, with companies from all over the world racing to develop a range of iron projects in that province, both as stand-alone projects or as part of iron ore clusters. “Central and west African iron ore offers the upside of massive scale, high-quality resources, coarsegrained ore bodies and low cost of production,” Welborn said. While this paints a picture of a flourishing new region, it is juxtaposed by the reality that governing bodies in Africa have applied the ALP’s MRRT blueprint to their own jurisdictions as part of their quest for a slice of the mining pie. Australian gold explorer Middle Island Resources has based itself in the prospective west African regions of Niger, Burkina Faso and Liberia. The company’s managing director, Rick Yeates, told RESOURCESTOCKS that while the

region was well-endowed for gold, there were certainly increasing calls for governments to be able to reap greater rewards from the extraction by industries. “It’s going through Africa like a plague at the moment, there’s no question about that, and it is extremely concerning,” Yeates said. He said the rise of African governments looking for a slice of the pie was becoming more ominous for Australian explorers looking to reap the rewards of a prospective environment. “There’s plenty of opportunities for discovery right throughout west Africa, so I can’t see that recent escalation in gold endowment changing, I think it will continue to rise,” Yeates said. “I still rate it as the most, if not one of the most, prospective gold terrains on the planet. But the example set by the Australian government in establishing the minerals rent tax and the super profits tax has certainly

sponsored a global phenomenon.” It is true that the Australian government’s decision to implement the Minerals Resource Rent Tax has not gone unnoticed in other countries. RESOURCESTOCKS has heard claims from ASX companies operating in countries in places as far flung as South America, as well as Africa, where nations and even smaller provinces have seen what’s being done in Australia and have attempted to impose more taxes on the resources industry, noticing its profit-making potential. This was reinforced by Swedenbased Raw Materials Group co-founder Magnus Ericsson, who told RESOURCESTOCKS of a case in Europe where a government wanted high free-carried interest, a third of the shares and high royalties in a project. “It’s completely out of touch with reality and if governments continue to push for such unrealistic objectives they will get nothing because there


are other opportunities out there,” Ericsson said. He believes it may deter explorers from going into Africa if governments fail to understand that there are two parties; the investor and the host community. “There has to be a balance of profit or revenue, and both parties have to be satisfied, and I think there is a risk from some of the governments that they overestimate the value of their deposit,” he said. With west Africa as an emerging, yet undeveloped, iron ore region, Ericsson said, iron ore was one example where in countries like Guinea, governments had overestimated the value of the deposits. He said political problems in Guinea were severe and some of the iron ore projects in that country demanded extensive infrastructure, railroads and investments and, if there was too much uncertainty, the companies could be at risk. “West African iron ore deposits are the most undeveloped in the world, there’s no doubt about that,” Ericsson said. “They have some attractiveness, but on the other hand companies must see a balance if they don’t think future profits outweighs the risks. They won’t make an investment. “Both parties have to gain from this and I think we’re going to see a period when investment into Africa will increase again.” However, London-based Bruce Griffin, chief executive of ASX-listed, Madagascar-focused World Titanium Resources, said that when it came to Africa, investors needed a strong “news filter” to sift what was true and what was hype, especially with all the talk about nationalisation. Just like in Western democracies, where what politicians promise

doesn’t always eventuate, so too is the truth a sometimes slippery commodity in less sophisticated countries. Diversification is the key, he said, because the chances of something like a political coup occurring simultaneously in all the countries you’ve invested was low. But, he added, “diversification is no excuse for ignorance”, so investors still needed to keep a keen eye on what’s going on. Griffin, a chemical engineer, who has spent 16 years with Shell and BHP Billiton, acknowledged that there was a “natural tension” that must be addressed. “The resource belongs to the people of those countries,” he said. “There should be a fair sharing of the benefits between the risk capital, but it also has to recognise risk and reward.” The similarities between the west African and the Western Australian mineralogy have made west Africa a real focus for WA explorers. The age of the predominant Birimian series host rocks in west Africa is slightly younger than the Archean in WA. But while the age and the lithology are different, the same general scenarios can be applied. But Yeates said governments in Africa were looking for a larger take, which made exploration less attractive. “What African governments missed is the fact that in Australia the government has no right of direct participation in projects,” Yeates said. “The government doesn’t have direct free-carried right to project equity, whereas in most of the legislation throughout Africa the government has a free-carried right to at least 5%, and in many cases 10-15%, and in some cases even more than that.”

“It’s completely out of touch with reality and if governments continue to push for such unrealistic objectives they will get nothing because there are other opportunities out there.” MAGNUS ERICSSON INTIERRARMG What Yeates described is essentially an African representation of the resources rent tax, or the super profits tax, but he said that what many governments were doing was “double dipping”. “It takes various forms: it can be as increased taxation on mining companies or greater free-carried equity participation by governments, or increased royalties, or some sort of combination of the three,” he said. While African governments are demanding a super profits tax, Yeates said they were also looking to take a larger slice of free-carried equity in a project. “That will spell doom for the industry in Africa if it persists in an unreasonable way,” he said. Although Ericsson thinks “doom and gloom” is overstating the situation, he admitted that it was an inherent problem not just confined to Africa, but globally. “That’s a bit exaggerated, there are two parties in this. On the one hand, if the rewards to the host country are not sufficient then countries can’t develop and the mining companies need infrastructure, so in the long run it is in both parties’ interest that they are both happy,” Ericsson said. “It’s not only in Africa, it’s in many parts of the world where it is like that, and some countries have


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A community meeting at Middle Island’s Dassa prospect in Burkina Faso.

a better understanding of this than others, and it depends very much on what type of mining history the country has.” However, Griffin has often warned ministers in such countries, especially in Africa, that by increasing taxes or creeping towards nationalisation, they’re shooting themselves in the foot. “I often tell (African ministers) that you’re taxing the successes, but what about all the failures? And if you reduce the value of the success too much then there’s no point doing it, because the pay-off for success doesn’t compensate for the money blown on failures,” Griffin said. “So the message I always tell them is that you can’t nationalise something that doesn’t exist. “In Madagascar, for example, there are only two existing mines, both very newly started up, we’ll be number three. If you were to take dramatic action in somewhere like Madagascar around ownership the problem with free-carries is that you’re reducing the reward for success and you’re taking none of the risk of failure. So you’re making it less likely that people will make those investments in the first place.” “To use an example, when you started exploring for Pilbara iron ore you didn’t know it was going to be a 600 million tonne a year iron

“The risk is you kill the goose that lays the golden egg. Not laid, lays. You’ve killed it before it lays any. That’s the problem.” BRUCE GRIFFIN WORLD TITANIUM RESOURCES 70

ore province,” Griffin said. “If that rule (that imposes more taxes or nationalises mines) was there at the exploration phase, is the guy going to go and drill and spend the first $10 million on exploration with the tension of only having 50% of the takings? Maybe the equity market goes somewhere else, and maybe they don’t bother.” The critical thing that countries need to remember is that exploration money is risk money. “Let’s be honest: what’s the success rate for exploration leading to an actual profitable mine? Is it 10-1? That’s probably being generous. If the incentives at the ‘1’ are too low then you don’t spend the money up front,” he said. “The risk is you kill the goose that lays the golden egg. Not laid, lays. You’ve killed it before it lays any. That’s the problem.” But the fortunes of Ghana, Namibia and Zambia are examples of what can be done in terms of mineral development in west Africa and Yeates, a veteran in west African exploration, said that Ghana in particular was a prime instance of a country embracing mining and exploration. “I can understand governments wanting to make sure that their people benefit from these things but in the case of Ghana, without having any of that in place, Ghana has benefitted significantly from investment in the gold sector,” Yeates said. “If you go back to the late 1980s, early 1990s, Ghana was still pretty backward. Infrastructure was poor, logistics were challenging but, fortunately, they’re very wellendowed in gold and you saw the

birth of a gold industry. “The advantage there was a strong colonial history of gold mining. So there was a mining culture there; 50% of the gross domestic product was derived from gold. “It wasn’t just about the development or the discovery of new mines or the redevelopment of old mines, it was also about the service industries which followed that wave of investment. And a lot of Australians have been a major part of that exercise, but establishing their bases – not just for Ghana but the whole of west Africa – and using that for a springboard into other countries in the region. “The employment that generated led to the emergence of a very bright, well-educated middle-class, and that really is the first definite sign of political stability in any country. And they’ve just gone from strength to strength since then. So certainly Ghana is the shining example in the west African context of what can be done in terms of mineral development in those developing countries.” But despite the political drawbacks, Ericsson said, the lure of the unknown would always be a factor for explorers in Africa, and the reward could outweigh the risk if due diligence was performed. “There will always be investors or junior explorers, who will consider; on the one hand, you have prospectivity, on the other the political situation or the political risk,” Ericsson said. “The more other parts of the world are explored and studied the less likely it is to find new, good deposits unless they’re very remote, and the prospectivity of Africa is always there and when other parts of the world are well-studied the attractiveness of Africa increases.” Despite fears of nationalisation and governments hell-bent on gaining more from projects, Ericsson believes that time works to the benefit of Africa, simply because other parts of the world are dealing with similar issues. “The resource tax was introduced here in Australia, which created some doubts, and Indonesia has almost stopped foreign investments, which makes it very difficult, so the next couple of years will be very interesting for Africa,” Ericsson said. The message, it seems, is that while reward may offset the risk, it heightens the need for due diligence in potentially politically unstable environments.


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company profile



Cashed up and raring to go Middle Island Resources has headed into the new field season with a full kitty of cash in west Africa, as it looks to build on its portfolio of promising gold projects. Alex Paull reports


The Middle Island management team at the K4-K5 prospect in Burkina Faso


s the new field season kicked off across west Africa in November, gold-focused junior Middle Island Resources was quick to restart operations at a number of its prized projects in Niger, Burkina Faso and Liberia. With $A11.3 million in its pocket as of September, as well as a series of promising targets, Middle Island was in a nice situation, said company director Rick Yeates. In November, Yeates told RESOURCESTOCKS that the company had adopted a slight shift in strategy that resulted in a significant reduction in the budget and a strong focus on key assets. Regional surveys, including airborne geophysics and regional geochemistry, have largely been completed, permitting all targets with all projects to be identified and prioritised. The first six of these targets were drill-tested last field season, five of which generated positive results. While it was still early days in

the new field season, Yeates said the focus on a couple of key targets had the potential to generate a stand-alone resource. “We need to maintain statutory expenditure commitments in the first instance and we’re keen to make sure there’s a good pipeline of targets coming through the system,” he said. “But it’s really all about focusing on a couple of key targets this year. “We’ve changed our strategy to some extent, in that we’ve reduced our budget for this field season and that’s in recognition of the difficult capital raising environment and obviously where the share price is at the moment in terms of equity raising.” Middle Island kicked off the new field season with diamond drilling on its prized K4/K5 target at the Reo prospect in Burkina Faso, which Yeates said showed some real promise. “Significant alteration has been identified in all five holes, and some of the holes were kilometres apart,” he said. “It’s a big target, it’s 6-7km in diameter and we’re drilling five holes in five different mineralised zones that we’ve identified within that target.” Yeates said that all of the holes were intensely altered in what looked to resemble a large zoned alteration system. “We’ve identified silicification, sericite alteration, chlorite alteration and carbonate alteration in that rough order extending from the centre out, and that tells us there has been a significant volume of hydrothermal fluid through rocks comprising the anomaly and it’s really just a matter of nailing down the controls on and sites of gold mineralisation,” he said. With drilling now underway,

Yeates is optimistic that the new season will be a fruitful one. “Our hopes are very high, and we’re very confident that we’ll lock onto a company-maker over the course of this season,” he said. Middle Island’s operations in Liberia have also shown some potential, with the second-half results from the Big Hill prospect within the Nuon River project proving encouraging. “The second-half results were more consistent with what we had anticipated, comprising a series of very high-grade, albeit relatively narrow, stacked mineralised zones consistent with very strong visible gold in the quartz veins,” Yeates said. Some of the highlights included 2.6m at 5.43 grams per tonne gold, including 1.1m at 11.20gpt gold, 4m at 12.7gpt gold, including 1m at 49gpt gold, 1m at 19.9gpt gold, 3m at 11.7gpt gold and 1m at 15.6gpt gold. Yeates said the results were encouraging and they pointed towards the possibility of a satellite resource. Another important development for Middle Island from a corporate standpoint was the farm-in agreement it signed with Vancouver-based explorer AMI Resources in October, which consolidated the Sirba gold project in Niger. Yeates said that while the initial inking of the agreement was important, it could pave the way for other opportunities in the area. “Having the luxury of being reasonably cashed up, we’re getting a lot of opportunities coming across our desk,” he said. “However, we’ve got a pretty stringent filter on that.” While the AMI deal was a clear consolidation of an existing project,


“Our hopes are very high, and we’re very confident that we’ll lock onto a companymaker over the course of this season.” Yeates said it was a key agreement as Middle Island looked to strengthen its foothold in the area. “It represents the consolidation of an entire greenstone belt surrounding the Samira Hill gold operation in Niger. So we’ve really tied up the remainder of the Sirba Belt as part of that deal and that gives us a lot of optionality,” Yeates said. “Should we find nothing more than a series of satellite targets, we’ve got the potential to toll-mill those or sell the ore to Samira Hill in the first instance.” One of the primary targets that is set to become a priority is the Tialkam South prospect, which was acquired as part of the AMI farm-in. Yeates said it was set to become a key focus, with historic intercepts of 18m at 4.89gpt, 18m at 3.01gpt, 18m at 2.41gpt and 8m at 4.57gpt gold. “We’re looking to adopt a similar approach to that we employed at K4/ K5 on Tialkam South, with some diamond drilling first up as a means to resolve the geometry of the system in the first instance,” he said. “In the second instance, it’s to get some primary mineralised material for preliminary metallurgical testing, before we go and spend too much on infill RC drilling on the target.” With some obvious promise in Niger, exploration at the Nassile permit within the Sirba project generated positive results, which had allowed Middle Island more reason for optimism. “There is one zone within the Nassile permit, at the Forbemi prospect, that is broader and higher grade and there is certainly potential there to put a resource together. But again it is more likely to represent a satellite than a stand-alone,” Yeates said. “Forbemi is a high-grade, laminated quartz vein, and we certainly validated that by extending

that vein with some fairly high-grade intercepts.” While Yeates admitted that Forbemi was always to be supplementary to the neighbouring Songonduari prospect, there was definite scope between the two prospects to put together a satellite. On top of that, Middle Island generated a new 10km long target in the Nassile permit – dubbed the Kimba prospect – which has tongues wagging. “We’ve commenced infill auger drilling over that prospect, with a view to again completing initial RAB drilling later in the season next year,” Yeates said. “There are several results over 3gpt, which is pretty high for auger geochemistry, and provided it does hold together once we infill it, then we’ll look to do some reconnaissance RAB drilling over the course of the season.” Middle Island is relishing its cashed-up status, as Yeates said the company’s operations are attracting plenty of interest from various suitors in West Africa. “It’s absolutely imperative to be well-cashed up in a market like this,” he said. “Not only does it give a huge amount of flexibility in terms of our approach to exploration this season and beyond, but it also means that we attract opportunities from others who are less fortunate.” Yeates remains very confident that the company will be able to deliver for shareholders in spades. “We’re certainly conscious that the shareholders have been patient to date, and we would hope that they would continue to be patient,” he said. “We have been very systematic in our approach, and while that doesn’t necessarily guarantee shortterm gains for shareholders, in the longer-term I remain very confident that it will be to the benefit of all shareholders.”


An employee logs core from one of Middle Island’s west African projects.


middle island resources at a glance

Head Office Unit 2, 2 Richardson Street, West Perth, WA 6005 Australia Ph: +61 8 9322 1430, Fax: +61 8 9322 1474 Email: Web: Directors Rick Yeates, Peter Thomas, Beau Nicholls, Linton Kirk, Dennis Wilkins Market Capitalisation $A15.6 million (at press time) Quoted shares on issue 125 million Major Shareholders Quenda Investments 12.80% JP Morgan Nominee Australia 9.78% National Nominee Ltd 8.55% Newmont Capital PL 8.12% 73

company profile

burkina faso, Mauritania

Gryphon Minerals

making aussie history in burkina faso A successful exploration program at the Banfora gold project in Burkina Faso has taken Gryphon Minerals to the verge of developing the prospect. Ben Creagh reports


Michael Fox, Douda and Paul Stenhouse from Gryphon Minerals’ exploration team.


ryphon Minerals has a clear path in place to become the first Australian resources company producing gold in Burkina Faso. The Perth-based company has moved to the next stage of its development this year after delivering a bankable feasibility study (BFS) for the Banfora gold project, which is regarded as one of the most promising prospects in the emerging west African gold sector. Banfora is part of a world-class region that also hosts deposits such as Randgold Resources’ Tongon project, Resolute Mining’s Syama prospect and AngloGold Ashanti/Randgold’s Morila deposit in Burkina Faso. After listing on the Australian Securities Exchange in 2004 on the back of gold and nickel properties it owned in Australia, Gryphon evolved into an African-focused company when it identified and acquired the Banfora project.

Following years exploring the asset, Gryphon is now aiming to pour first gold at Banfora by the end of 2014 and has set an aggressive timeline to meet this target with the release of the BFS. Gryphon has operated purely as an explorer since the Banfora acquisition, but that has changed with the BFS release. Managing director Steve Parsons explained to ResourceStocks that Gryphon was now ready for its next stage of growth after making the decision for the initial development of a staged 2 million tonnes per annum start-up operation at Banfora. Through an initial 2Mtpa mine the company found it would benefit from significantly lower initial capital costs at an operation that would have the ability to be readily up-scaled to at least 4Mtpa at a later date. “The BFS is going to propel us into the development stage and ultimately into production,” Parsons said. “The coming year will be about delivering on the BFS, but also about permitting, which we have now made a start on as well. “We will be expecting permitting to be in place by the middle of the year, which means we would be starting development by then as well. “Burkina Faso has a great track record of fast-tracking projects through the development pipeline with its permitting process and with that we expect to become the first Australian company with a producing gold mine in the country.” In early 2013 the company also completed the environmental and social impact assessment for the initial operation. Gryphon is anticipating the development phase of the project

to take 16-17 months, positioning the company to start production at Banfora by the end of next year. Once producing, Parsons said, the company would then look at a decision of when to up-scale the mine to a 4Mtpa operation, but added it would still produce about 130,000 ounces a year through the initial 2Mtpa start-up mine. Ultimately, if the mine was upscaled following an early injection of cash flow it would have output of about 200,000-220,000oz of gold a year, Parsons explained. In the meantime, Gryphon is continuing infill drilling as part of its 2013 exploration program at new targets that have been identified at Banfora. Results from the current program are expected to be released throughout the first half of the calendar year. To partially fund Banfora’s early development activities, Gryphon raised $31.3 million in November by issuing more than 52 million shares at $0.60/share to existing and new Australian, European and North American investors. The company plans to use the funds to primarily advance activities at Banfora as it works towards completing the project’s major studies. Gryphon will also use the funds to advance the initial development of Banfora through the order of long lead items, including an initial SAG mill payment, while also applying funds to preliminary site and earthworks, and to continue with resource and reserve definition drilling. The company has already secured the supply of a single-stage SAG mill for Banfora after issuing a “formal notice of intention to award” to manufacturer Outotec.


Under the agreement, Outotec has conducted the critical detailed engineering works for the specifications of all SAG mill components and secured key manufacturing contracts with its sub-suppliers. The company intends to use the remaining funds from the raising to continue pre-feasibility studies on a potential heap leach operation, exploration work at the company’s Mauritania gold projects, and to meet working capital requirements. “Next year is all about development for us and the markets have been pretty tough for all resource companies looking to raise funds in recent times,” Parsons said. “The capital raising was quite a small one to beef us up to make sure we could secure the long lead items at the start of 2013, early site works at the property and just to make sure we are funded before the debt side of development comes through.” Gryphon, which following the raising has around $90 million in cash and liquid assets, expects the development of Banfora into a mine to cost between $200-220 million. The company was supported in the raising by a global shareholder base that features a strong list of recognised resource investors and gold funds. “Many of these investors are spread around the world, with about 50% of them in Australia and 25% out of Europe and London, and 25% out of North America,” Parsons explained. “A good thing about this spread is that if a certain jurisdiction or region isn’t performing well economically we can look to other areas that are doing well; this can de-risk what we are looking to achieve.” Banfora, which has an independent global resource estimate of 4.5Moz of gold, comprises 56.4Mt at 2.0gpt for 3.6Moz gold and 49Mt at 0.6gpt for 0.9Moz of potential heap leach material at the Nogbele gold deposit. Parsons said it was a great achievement for Gryphon to reach the 4.5Moz resource estimate during 2012, making Banfora one of the largest undeveloped gold projects in west Africa, while also growing its stature on the world stage. The company was able to increase the resource at Banfora from 2Moz to 4.5Moz in a little over 12 months, which Parsons said demonstrated the enormous growth potential of the project as part of a major multimillion ounce gold district. When releasing the upgrade, the

company said it was encouraged by the shallow nature of the deposits, with more than 90% of the resource at less than 150m vertical depth from surface and mineralisation continuing to be open along strike and at depth. “Banfora, with its grade, oxide component and excellent metallurgical gold recoveries, is certainly shaping up to be one of the standout gold projects in west Africa,” Parsons said. The company has continued with its shallow infill and step-out drilling programs at the Nogbele deposit into 2013. Highlights from drilling already conducted at the deposit have included 13m at 69.9gpt gold from 19m, 14m at 36.5gpt gold from 56m and 20m at 15.06gpt gold from 80m. Supporting Gryphon’s progress at Banfora has been Burkina Faso’s stance as a stable jurisdiction to operate in for foreign companies, with the country maintaining a strong reputation globally as a destination to invest. Parsons said the company remained optimistic about the future of the industry’s development in the country, along with the future of the gold sector in general. He said the country was “a great place to be” for Gryphon, a belief backed by the number of foreign mining companies targeting a presence in the west African nation. “There are now about 20 Australian companies and when we started we were the first and only Australian company,” he said. “The country has achieved a lot with its mining regime and continues to be supportive of what we are doing.” Parsons said the company’s expectation was that the value of gold would continue to rise in the coming years despite the sideways movement experienced in recent times. “We remain very bullish on gold; it has been a great 11-year upward trend,” he said. “Our view is that gold has some way to go and we are in the gold game for the prices to go up.” Elsewhere, Gryphon is working on its first major drilling program at the Tijirit gold project in Mauritania, where it has established a solid exploration budget for in 2013. The company has already completed first-pass drilling on initial targets at Tijirit with promising drill chips. Tijirit, owned 100% by Gryphon, is located in northwest Mauritania and covers about of contiguous licenses, just 10km from Kinross Mining’s 21Moz Tasiast gold mine.


“The coming year will be about delivering on the BFS, but also about permitting, which we have now made a start on as well.” steve parsons gryphon minerals

gryphon minerals at a glance

Head Office Freemasons Hall 181 Roberts Road, Subiaco WA 6008 Australia Ph: +61 8 9287 4333 Fax: +61 8 9287 4334 Email: Web: Directors Mel Ashton, Stephen Parsons, Andrea Hall, Didier Murcia, David Netherway Market Capitalisation $A219.3 million (at press time) Quoted shares on issue 400.5 million Major Shareholders Van Eck 11% IFC World Bank 5% Colonial 5% Management 5% 75






FOCUS The Victorian government’s attempt to lure explorers is working, but the state’s perception as a state not wanting to be rediscovered is hampering its considerable exploration potential.




ESPITE THE FACT that its capital city and the state itself was almost solely built on the discovery of gold in 1851, the perception around the mining industry in Victoria is that it has gone backwards as an exploration destination. Victoria boasts an abundance of brown coal in the Latrobe Valley in the state’s southeast, which is regarded as one of the largest brown coal resources in the world. On top of that, the Victorian gold industry is still a vibrant sector. Its oil and gas reserves in the Gippsland, Otway and Murray basins are considered world-class. Furthermore, its Department of Primary Industries (DPI) labels the state’s mineral sands area as another emerging world-class province. Amid the height of the Victorian gold rush from 1851, Melbourne’s population grew from 30,000 to JANUARY/FEBRUARY 2013 RESOURCESTOCKS

“It’s about the community accepting mining and understanding that mining isn’t a taboo industry; it supports the community and it wants to work within the community, and it works within the environment, too.” ANTHONY GRAY OCTAGONAL RESOURCES 500,000, lending weight to the argument that mining, and in particular gold, was the base from which Melbourne emerged as one of the leading cities in the world. Yet fast forward 150 years and the state government has seen fit to introduce initiatives such as Rediscover Victoria, which was completed in 2011, to lure investors and explorers back in a move to ultimately change the perception 77

“There is a view that prospectivity may be better in other jurisdictions, and there are better opportunities to explore interstate and overseas.” VICTORIAN DEPARTMENT OF PRIMARY INDUSTRIES of Victoria by the resources industry and investors. In this case, perception is the reality, and by the DPI’s own admission, despite the array of world-class provinces, “Victoria is underexplored and underdeveloped”. It begs the question: if Victoria is being touted as a world-class exploration destination, why is it underexplored? Anthony Gray, the managing director of gold explorer-turnedproducer Octagonal Resources, said there was a number of reasons why Victoria’s world-class provinces were unable to attract the same traffic as their highly touted state counterparts. “Victoria doesn’t have a whole series of commodities located close to each other,” Gray said. “If you look at Western Australia, and currently we’re exploring in the Kalgoorlie region, there’s worldclass gold, nickel, uranium and iron ore deposits all in the same general region, but not so much in Victoria.” But while the perception that Victoria is underexplored is somewhat a reality, it seems that some Victorian communities regard any exploration – no matter how small – as too much exploration. Gray said that in some cases mining was considered almost taboo in Victoria. He said some communities viewed exploration as a possible threat, but the perception was improving and it could still prove to have a positive impact on gold exploration in Victoria. “I think gold has the potential to deliver some reasonable revenue for Victoria in the coming years,” Gray said. “But it’s about the community accepting mining and understanding that mining isn’t a taboo industry; it supports the community and it wants to work within the community and it works within the environment, too.” Gray said dealing with the public perception was a challenge, but the public needed to realise that the operations did not leave a big footprint. “The public perception in Victoria is improving, and we work very hard to maintain an open communication 78

with the local community, and we work hard to support the community through various sponsorships and activities,” Gray said. Despite the Victorian mining sector’s world-class reputation and rich mining history, the perception is that it is underexplored. An example of the Victorian government’s ambitious ploy to attract more investment into the state was its spending of $5 million in the resources sector as part of the Rediscover Victoria initiative from 2007. Surveys by the DPI revealed there was a negative perception about increasing red tape and the cost of doing business in Victoria. “There is a view that prospectivity may be better in other jurisdictions, and there are better opportunities to explore interstate and overseas,” the department said. “Limited exploration and mining success in recent times has been feeding these negative perceptions, with an example being Ballarat and Bendigo gold projects having what appears to be limited returns on investment to date.” Initiatives such as Gold Undercover, Rediscover Victoria, Legislative Review and Coal Development Opportunity were designed to attract new earth resources development to the state. On May 22, 2012, the Victorian parliament’s Economic Development and Infrastructure Committee (EDIC) tabled a report of its inquiry into greenfields mineral exploration in Victoria, which is set to embody a key government initiative. It could also provide another opportunity for the Victorian government to reinvigorate interest in the earth resources sector and encourage new investment to the state. The inquiry examined several key issues relating to the earth resources sector in Victoria, including: • The regulatory environment; • Perceptions of Victoria’s prospectivity and regulatory environment; • Approaches and programs in other jurisdictions to increase investment in greenfields exploration; • Opportunities to increase the net benefits from Victoria’s minerals and energy earth resources; and • The economic, social and environmental cost/benefit of greenfields exploration, and opportunities to improve how land use conflicts are managed.

The EDIC report made 25 recommendations for Victoria’s resources sector. These addressed the industry’s legislative and regulatory framework, finance and taxation arrangements, geo-scientific research and education, land management and environmental protection. The inquiry highlighted the value of the earth resources sector to Victoria, with a contribution of $7.3 billion to Victoria’s gross state product (GSP) in 2010/11. “The value of gold produced in 2010/11 was $254.9 million, heavy mineral sands amounted to $376.8 million (sold), and the extractives industry witnessed sales in excess of $760 million,” the department said. “Despite this, the earth resources sector’s contribution to GSP has fallen from 4% to just over 2% over the past 21 years. Victoria’s share in Australia’s capital expenditure and exploration has also been declining.” Gray was involved in a government co-funded drilling program a couple of years ago, and while it only lasted two rounds, he felt it was successful. “I would say it is working. The success is at a gestational period but it’s certainly encouraging other juniors to look further afield,” Gray said. “There seems to be an increase in the number of juniors active in the area and it’s certainly a bit easier now to be able to turn over ground, so it’s easier to get a hold of ground and explore it.” According to Gray, one of the ways the government was making life easier for juniors was by trying to improve the regulatory approval process, which he said was working to some degree. “Also, I would argue that it’s got the best database of historic exploration records in Australia. So when you go into an area and you thoroughly research it, you’re not repeating historical exploration, you’re able to learn from the historical exploration and plan for the work based on that,” he said. He said that a few years ago there was a big rush for mineral sands deposits in western Victoria and now there were more companies rushing to establish themselves out there, to the point where mineral sand is now considered one of Victoria’s leading commodities. Astron Limited owns the Donald mineral sands project in the southern corner of the Murray Basin in Victoria’s northwest. Its chairman


Gerard King said that while the emergence of mineral sands in Victoria was quite recent, the interests of giants such as Rio Tinto in the area stretched back to the 1970s. “CRA Limited (which Rio was under at the time) discovered that mineral sands were there in the ’70s and I guess geologists have always known that some were there, they just didn’t know the extent,” King said. CRA continued to extensively drill and map the area, but King said that at the time there was a lot being mined in other parts of the world and it was not economic to get involved with it in Victoria. “But that changed completely with the rising prices of both of titanium and zircon, but particularly zircon in the 1990s and early 2000s. Now zircon sands is a very highly soughtafter commodity,” King said.

“These deposits, such as the ones we hold, were pretty rich in zircon sands. So I think those are the reasons why it’s suddenly developed in Victoria, and it’s developed in other parts of Australia and the world as well.” Explorers are starting to take notice of Victoria’s mineral sands potential, with King noticing a number of newcomers in the area, as juniors look to cash in on the short global supply. There is an abundance of mineral sands deposits housed within the Murray Basin and Astron’s tenements at the Donald project equate to a 4 billion tonne Tier 1 resource at 4.8% total heavy mineral sands, sufficient to mine for more than 100 years. However, King warned that there were associated risks with exploring mineral sands in Victoria, just like


any other commodity. “It’s a volatile market and it goes up and down,” he said. “At the moment it is going down a bit, which is causing people to hesitate. “But there is limited world supply, so as soon as the general conditions improve the prices will rise again.” The other issue that could prove to be a deterrent is the mining process, which King described as “full-on”. “You dig up the dirt, sift it all through to get the 4% mineral sands out of it and put the rest back in the hole,” King said, adding that the complexity of the mining process can throw up other obstacles, such as landowner issues. “You have to buy most of the land that you want to mine. You have to buy a bit at a time. “But then you can restore it and

Core drilling at Greenpower’s Korumburra project in the Latrobe Valley.


Octagonal’s primary crusher and ore stockpile at its Porcupine Flat gold processing plant in Maldon.

sell it back to the farmers and so forth. “But obviously it puts some land out of action for a while for farmers in the area, and that can be a difficulty.” Problems with landowners are something King is more than aware of, as he is also the executive director of Greenpower Energy, a brown coal supplier in the abundant Latrobe Valley in the state’s southeast. Greenpower recently signed a landmark agreement with global giant General Electric to develop its coal-to-liquid process for Australian use, but the company has been on the receiving end of many protests in the Latrobe Valley, forcing Greenpower to withdraw its operations in one case. “We attempted to peg an area in one part of Victoria and there were huge local protests and meetings and goodness knows what else,” King said.

“We attempted to peg an area in one part of Victoria and there were huge local protests and meetings, and goodness knows what else.” GERRY KING GREENPOWER ENERGY 80

“They didn’t want us, so we actually withdrew. “So even where we are in the Latrobe Valley, if we start mining we would have to deal with protests.” King said most of Victoria was pretty much developed for farming and other activities, unlike Western Australia, which had vast terrain that was largely untouched. King is certain there was a perception in Victoria that “miners are the bad guys” and he said a campaign of information was necessary to change that view. “I think there needs to be a campaign to explain to people that, firstly, it’s a resource that the state and the community needs to ultimately have the benefit of, and you’re not going to get that benefit until someone mines it,” King said. “Operations take a certain period of time, after which it can then be restored to whatever it was before. “So you perhaps need a campaign of information for people to realise that it’s not all as bad as they might think.” King said the state government should also be involved in the promotion of mining to the community and, given its propensity

to luring back explorers, it was not a bad idea at all. He said the protests within the community had deterred explorers in the past. DPI director of prospectivity and exploration Paul McDonald said the community issues revolved more around coal seam gas rather than the other leading commodities in Victoria. “All the miners in Victoria’s northwest and northeast have got huge community support, so it’s more around the coal seam gas areas that the community has got concerns about,” McDonald said. “As part of our work with the National Partnerships Agreement and the National Harmonisation Framework, and also our Economic Development and Infrastructure Committee response, we will be looking at how we can address those concerns.” McDonald noted that the National Partnerships Agreement and the National Harmonisation Framework were efforts to look at science to determine the possible impact mining might have on water resources. He said most of the concerns


centred around the community not knowing what mining, or exploration, actually entailed. “Sometimes you’ll get someone who finds out that an exploration licence is over their property and just immediately think that there’s going to be a huge open pit in their back yard,” McDonald told RESOURCESTOCKS. ‘“It’s just not the case. “A lot of their initial concerns are they just don’t know. “So the onus is on the companies to actually talk to the locals and tell them what they’re up to.” That said, in some cases the community perception has not deterred explorers from investigating the vast quantities of brown coal in the region, and King admitted that the introduction of initiatives such as Rediscover Victoria had resulted in an increase of explorers in the region. “Certainly, all the people who have technologies for using the coal will be out in force and there are some in other states which will come over. I’ve already had one conversation with people from Queensland who are investigating the possibility of getting a hold of Victorian coal to power their

processes. So I think there will be a bit of attention paid,” he said. King believes the coal sector is vitally important to the overall resources sector in Victoria. He pointed out that the Victorian government and the federal government had collaborated on the Advanced Lignite Demonstration program, which looks at technologies that are being developed for better use of lignite, to ensure it is more environmentally friendly and to encourage other industries to look at it. But King said the quality and the sheer abundance of coal in the Latrobe Valley would last hundreds of years if it was handled properly. “If that is the case, you could have employment for miners, and all flowon employments such as transport and so on, for years and years, but that’s if you can find an industry that will be accepted,” he said. Therein lies the conundrum that appears indicative of Victoria’s resource potential, for it is undeniably a largely underexplored resource across a host of different commodities. The problem is not a lack of riches,

“All the miners in Victoria’s northwest and northeast have got huge community support, so it’s more around the coal seam gas areas that the community has got concerns about.” PAUL MCDONALD VICTORIAN DEPARTMENT OF PRIMARY INDUSTRIES rather explorers have trouble feeling welcome in Victoria. The juniors in Victoria have been impressed with the mineralogy and many are reaping the rewards for taking a bold step into underexplored territory. But while some are enjoying their new footholds, others may need more coercing into Victoria, as the community perception continues to hamper the industry itself. Although the state government is taking steps to help ensure exploring is easier, Victoria will remain an underachieving exploration destination until local communities can accept the mining industry.

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copper UPDATE

Words by Anthony barich

copper gives hope amid turmoil Investors worried about juniors struggling in the current capital raising market can still find hope in copper.

OZ Minerals’ Prominent Hill mine in South Australia.



opper is still a worthwhile long-term investment, despite the fact that the equity market is unlikely to improve greatly in 2013, according to the man who discovered the past decade’s standout greenfields discovery in Australia. Derek Carter, who founded Adelaide-based Minotaur Exploration – which discovered the Prominent Hill copper-gold deposit in South Australia before it was taken over by OZ Minerals in 2005 – said that while the difficult capital raising market had no commodity darlings, copper was one that gave hope to investors, especially if a company had a stellar project. “The equity market for juniors in terms of raising funds is a really hard task at the moment. Lots of juniors are short of cash and 2013 will be quite tough,” Carter said. “If you’ve got the right project you’ll get the money, but the junior who’s into straight grass-roots exploration is going to have difficulty raising funds (in 2013) if they wanted to – and there are many who will want to. “Even grass-roots gold ... unless you’ve got something that’s quite nice and of interest to the market, it will be difficult to raise funds. If you have a good intercept in base metals or precious metals I think you’ll get the money. The right project will get the money, and whether it’s copper or nickel doesn’t really matter.” Proof of this is that base and precious metals developer Blackthorn

Resources raised $40 million last year to accelerate its Mumbwa project in Zambia, which was previously held in a joint venture with BHP Billiton but is now 100% owned by Blackthorn. Earlier last year, Blackthorn, on whose board Carter is a non-executive director, announced a 160% increase in contained copper from the Kitumba deposit to a total of 187 million tonnes, grading 1.14% copper for a contained 2.13Mt of copper using a 0.5% cut-off grade. Another copper-focused company, Hot Chili, completed a $35.5 million equity raising in December for an aggressive push to develop its Productora project in Chile. “There is plenty of money out there for projects and I don’t think the commodity is that important. If you’ve got a world-class project you’ll most likely get funding,” Carter added. However, the fact remains that copper is Minotaur’s – and OZ Minerals’ for that matter – bread and butter, though, aside from Hot Chili, there are few companies which restrict their portfolio to copper, unlike gold. For this reason, Cater said, it was difficult to see a link between the copper price and companies that focused on copper, though analysts did tend to relate OZ Minerals to the copper price. This is unlike gold again, where Mines and Money London saw lots of such talk by investors and miners who discussed

the large disparity between the gold price and gold stocks at length (see Phantom Menace feature in this edition). Carter said copper was on his “fave-rave list”. He described copper as an “enduring” industrial commodity, like iron ore, and told Minotaur’s annual general meeting last year that the company was evaluating a number of new joint venture projects in gold and copper settings where entry costs were low and exploration potential was high. “Copper is a commodity that people will always need and there’s a huge growing market in China,” Carter said. “All of this is dependent on China – if China has a massive downturn the US will have a downturn and everything will go down. But copper is one of the commodities that is always in demand and I think it will continue to be so. “You’ve got a good market for copper – it’s traded on the London Metal Exchange, unlike tungsten and graphite, so you can do forward sales and it’s a very well-regulated market, so you know what the stockpiles are, you know who’s buying it. So it’s a relatively transparent market, same with gold. You can forward-sell gold, you can hedge your production ... these are commodities that you can sink your teeth into and get your finances sorted out right from the beginning. I’d be very happy to have a producing copper mine in my portfolio.”



Words by Anthony barich

junior market


against the deluge

When Australian juniors knocked back the ASXâ&#x20AC;&#x2122;s suggestion of a second board to better cater for them, the next bright idea was a conference to fill a gap that had developed amid the deluge of resources conferences. But thereâ&#x20AC;&#x2122;s plenty more work to be done to help the small end of town in a struggling market.




Niagara Falls - not a bad metaphor for the ASX’s efforts in the market in some regards, by its own admission. JANUARY/FEBRUARY 2013 RESOURCESTOCKS

T ALL STARTED IN 2010. Australia was still reeling from the global financial crisis that hit with full force in 2008-09, and equities were being hammered across the board. But for juniors, it was especially brutal. Mindful of the “long tail” – the smaller resources companies on the Australian Securities Exchange – the ASX consulted about 80 of them on the footpaths of West Perth over large amounts of caffeine. They wanted to know how one of the world’s largest exchange groups could improve the juniors’ value propositions in this hostile environment, where they were struggling despite the much-touted “mining boom”. The ASX even suggested to the plethora of juniors that a secondary board, not unlike London’s Alternative Investment Market (AIM), but the response was basically: “No, a second board is second rate, we like the one size fits all of the ASX. We see the real value proposition as being this hybrid exchange that works just as well for BHP as it does for Western Areas or companies of much smaller size”, William Wilson, ASX general manager of customer sales and marketing, said. The ASX proceeded with other initiatives to help them, like switching from the anonymous trading platform for stocks outside the top 300, among other changes to capital raising rules. “We looked at the primary market – ie: how people raise capital in the small of the market; and the secondary market – how people trade those stocks; and thirdly how we might facilitate smaller companies’ engagement with investors,” Wilson said. “That’s where we thought of the Perth conference. Some of these companies are so small that it would be difficult to take them offshore, but in fact, we could add value to their listing to bring some international and national investors to Perth to engage with them.” Thus was the genesis of the Australian Resources Conference and Trade Show (ARC), which Perth hosted on November 12-14, involving four platforms in an attempt to emulate the most attractive parts of what the ASX regards as some of the world’s best-run conferences – Mines and Money (run by Beacon Events, also under Aspermont’s umbrella), African Mining Indaba and PDAC International Convention Trade Show and Investors Exchange.

“When considering the job we need to do, given our place in the market, some could say the sales efforts are akin to shovelling water over Niagara Falls.” WILLIAM WILSON ASX The ARC included plenary sessions (which Wilson said he was happy with, especially the “quality and breadth of speakers over the two days”) and a trade show (“we were happy with the exhibitors we attracted but we’d like to get more”). Within the trade show was the investor exchange, “one of the major reasons for putting on this event, where small to mid-cap companies were given the opportunity to speak for 15 minutes then engage with an investor audience. That could’ve been a stronger piece for the conference, but it was important to run that to see how we’d go”, was Wilson’s assessment. Running concurrently with the plenary sessions were technical workshops, where the ASX and some of the world’s leading financiers and mining services companies discussed resources and capital markets, the new framework for oil and gas company petroleum reserves and resources reporting; the JORC code and resources valuation. Despite all this, catering for the junior market in a city – and, for that matter, a nation – that already hosts a flood of resources events was a tough call, but the ASX had identified a gap: events like APPEA’s moving annual conference (held this year in Brisbane, the home of a well-established but under siege coal industry and billions of dollars of liquefied natural gas projects fed by coal seam gas) and Western Australia’s annual Diggers and Dealers conference were impressive in their own right, they catered for somewhat blinkered markets. Companies had no shortage of conferences to spruik their wares. Ever since Resourceful Events (now part of the Aspermont family, publisher of RESOURCESTOCKS) broke new ground with the 20:20 Resources Investor Series, which 85

A panel addresses the Australian Resources Conference in Perth in 2012: L-R, Nicole Lockwood, Infrastructure Australia; Stephen Gorner, McKinseys; Jon Carson, Clifford Chance; and Ken Lewsey, QR National.

the ASX was happy to be involved with, the ASX later got involved in another similar forum, Resources Roundup, which hosts six annual forums: two each in Hong Kong and Singapore and one each in London and New York, where up to 16 small to mid-cap companies present to a 200-strong investor audience and oneon-one meetings are organised with those investors throughout a day. Still, a conference which hosted energy and mining in the same venue was not easily visible on the radar. Enter ASX’s ARC, which had as its theme, “Digging Deep: Prolonging the Boom”. “When I first joined ASX five years ago, the previous CEO said to me that when considering the job we need to do, given our place in the market, some could say the sales efforts are akin to shovelling water over Niagara Falls,” Wilson said. “That said, where ever you are, education and information are always important, and while it’s fair to say everyone knows about the success of Western Australia as a resource state, there are people who want to understand that story in more depth than perhaps has otherwise been told at other events. “I do think there is still a place for an event in WA, but the branding of our conference shows we always intended it as an Australian event and one doesn’t want to take away from the Queensland story with Australian coal and LNG, for example. We

“It didn’t feel right that there wasn’t a major all-encompassing event in Australia given our place at the global resources table.” WILLIAM WILSON ASX 86

were always going to move the event around. “One of the things that got me in the door to government or companies when we’re trying to tell the story was that it didn’t feel right that there wasn’t a major all-encompassing event in Australia given our place at the global resources table.” Still, it was easier said than done. The majors still needed to be enticed, because at the end of the day, the juniors often base their valuations on the performance of the resources giants – which, some leading global analysts say, is why the juniors’ stocks have been savaged just as the majors’ have been. Discussions with “the top end of town” – Rio Tinto, BHP and Woodside – revealed that their registers had become top-heavy over the past 10 years with Europeans and North Americans, so they would be more likely to attend if some highlevel Asian investors rocked up. The heavy hitters came – Rio Tinto Australia managing director David Peever, Chevron Australia general manager operations Brian Smith, BHP Billiton iron ore president Jimmy Wilson and Shell Development Australia’s vice-president finance and strategy Michael Carey addressed the forum – but ARC still struggled to attract the Asian investors, due largely to horror timing. “We could have done a lot better in this regard and there were a number of reasons why didn’t get as many Asian investor delegates as we would have liked, but it was an inaugural conference and we’re hoping we can build on the platform we achieved in 2012,” Wilson said. “We did have a number of delegations that we were engaging with in China, and the timing of our event and the government changeover really worked against us. It

seemed that none of their officials that we were talking about who were going to bring out these delegations were keen to leave China at the time. “Secondly, we were engaged with a number of organisations in India who were looking to a similar thing, but unfortunately we put the conference on the dates of Diwali, one of the most significant religious holidays on the Indian calendar. So if we’d had our time again, we would’ve perhaps chosen different times.” Hindsight, of course, is always seen in 20:20 vision – pardon the pun. “When you’re looking at a year it seems like a long time, but there are so few areas of clear air for these sorts of conferences,” Wilson said. “But we did feel there was a niche for an event that looked at both the small and big ends of town that included a government piece and looked to attract a quality international investor audience with a focus on Aussie investors from the Asia Pacific region. “We knew our first year was going to be tough and we knew we weren’t going to get the sorts of success as the offshore events we were looking to emulate, like PDAC, Mines & Money Hong Kong and African Mining Indaba had got to because they’ve all reached the stage they have over a number of years. But it was important for us to try all different facets of an event. “I do think there is still a place for an event in WA, but the branding of our conference shows we always intended it as an Australian event. The Australian resources story is big enough for an event to move from city to city.” While Wilson was expected to leave the ASX by the end of the first quarter this year, it will not hinder the ASX’s plans to pursue its current direction in assisting the junior end of the market.



Expert led conferences 10% for the resources sector in 2013


AFRICA MINING AUSTRALIA 30 April - 2 May 2013, Four Points by Sheraton Perth

Creating opportunities and overcoming risks, for exploration & production in Africa n

Exploring equity and investment drivers for Africa mining projects


Africa mining – Business and operational risk mitigation strategies


Practical ideas for enabling a win-win solutions for all stakeholders


Updates on legislative regimes in various African mining jurisdictions


Tenement insecurity – Key practical solutions for explorers and producers


Social license and community engagement in Africa – realities, pit-falls


Exploring more effective ways of getting access to geophysical and geological data


Understanding the employment issues in development of mining projects in Africa

and opportunities n

Insight into African economic and increasing prospects for mining

CAPITAL RAISING FOR EXPLORERS, JUNIORS & MIDCAPS 30 April - 2 May 2013, Four Points by Sheraton Perth Accessing equity and adopting successful capital raising strategies n

Reviewing the current economic and investment climate of the junior


mining and exploration market

Accessing funds for exploration and development activities with Australia and offshore


Structuring capital raising in the current investment climate


Raising capital through strategic acquisitions and JV’s


Attracting offshore foreign investment for juniors & midcaps


Understanding Australian Asian and North American exchange listing


Choosing the right investment vehicle to increase your working capital requirements

and disclosure requirements n

Examining emerging markets for junior and midcap investments TO REGISTER

Phone: Fax:

02 9279 2222 02 9279 2477


Email: Online:

Please contact: Adam Coverdale on 02 8252 9403

company profile


hodges resources

Botswana story continues to grow Sitting on a massive coal resource in a market crying out for energy, Hodges Resources is flourishing in Botswana. Alex Paull reports


aving accomplished all of its goals over the past year, Hodges Resources is hoping for a fruitful 2013 for its emerging Morupule South coal project in Botswana. Although the Botswana coal industry is still relatively undeveloped, there is a burgeoning demand for coal. South Africa is the largest consumer of the southern African power pool grid and Hodges finds itself perfectly located and poised to rise to the top of the Botswana coal industry. On top of the fervent demand, Morupule South has the resources to supply that demand, with Hodges establishing a maiden measured resource in November 2012. Hodges managing director Mark Major said the milestone was critical for the company in two ways. “It has proven that we have a significantly large resource and it allows us to now go into the

One of the local coal power stations neighbouring Morupule South. 88

next phase as we move towards development,” he said. At Morupule, the resource stands at 110 million tonnes of measured resource, and 170Mt indicated and over 2 billion tones inferred. Major said that the measured and indicated was more than enough to take the company to the next level. “We don’t need to prove up the entire inferred resource just yet in order to build a power station or any other initial stage operation at this site. At the moment we’re happy with our resource numbers and don’t see the purpose of wasting money on another drilling program to specifically increase the tonnages,” he said. Morupule South is adjacent to Botswana’s only coal mine, the Morupule Colliery, which is currently operating at around 3-4Mtpa from underground. “It’s mining the Morupule main seam at around the 80-100m level with the primarily use of the coal being for the local coal-fired power stations, Morupule A and Morupule B,” Major said. “We’re located right next door to the sole existing coal mine and coal-fired power stations. We have rail within 4km and a 400 kilovolts transmission line directly on top of our project.” He added that the location of Morupule South was one aspect of the project that set it apart from its counterparts. “That transmission grid links into the southern African power pool grid, which goes into South Africa and Zimbabwe, as 400Kv. This allows us potentially to get into the export market for power either using the current line or its infrastructure, which will be cheaper

than building it ourselves. We are undertaking the power station and power infrastructure studies at the moment to confirm our options going forward,” he said. “It’s got great potential because we are located in an area where power requirements are needed, so there’s a direct demand, and we are close to those power markets.” But another key aspect to Morupule South, and one which makes it so attractive for shareholders, is the abundance of potential export level coal resource. “The Morupule Basin has higher yields than most others in Botswana from what we know. We know we can achieve coal calorific values of over 6000 kilocalories by washing, with our indicative yields on average being over 50% for the Morupule main seam, whereas a lot of other coal basins in Botswana are lucky to get 5000kcal at those yields,” Major said. “What that does is allows us the flexibility as we go forward to enter the export markets easier. With having low-cost open pit mining options and the higher wash yields we should be able to bring a higher spec coal to the markets at a cheaper cost than others in Botswana. “The added benefit is that the coal quality will be higher and therefore gain a higher price on the market, which could be a $20-$30 difference. So that’s already allowing us that extra profit or margin.” Hodges is currently waiting for the scoping studies for the mining and conceptual studies for the power development studies. “Once we’ve got the scoping studies and associated operational and capital numbers on the project we will be able to see more clearly just


how economically viable the project could be, and then the doors will be open for us to start looking at other investments.” Looking into 2013, Major said there was still plenty to be done at Morupule South. “Right now, we’re at the final stages of scoping and conceptual studies and we’re looking at those over various production rates, whether it be for export market washing or domestic market or a mixture of both,” Major said. If the studies stand up, the company is set to consider a minimum 1.5Mtpa mine, which will be solely processed for a mine-mouth power station in the short term. “After we finish the scoping studies the board will make a decision on the project’s progression. However, right now it looks to be standing up well and we will be looking to progress the technical studies on the coal and power sides into the first half of 2013,” Major said. “We have identified an area where we have even shallower coal, which will drill out to bring our initial strip ratios down and therefore make the initial development economics better. So it might be justifiable to do that also, but if not we will pretty much continue our progress into feasibilitylevel studies.” Hodges announced in August that it was not going to pursue its nearby Moiyabana coal project, which Major said freed the company up to focus on Morupule South. “We did get a big resource here, which we expected, but the problem that we have with this resource was the insufficient yields obtained when we tried to beneficiate the coal and its lack of infrastructure currently,” Major said. “But to concentrate on Morupule South, because of its location, the benefit of its coal quality will bring the Hodges story into production faster.”

The other upside of Hodges’ shift in focus is that because the company did not take up its option as part of the Moiyabana project the $3 million option fee with the shareholders of Jaguar Ventures is set to be refunded, boosting Hodges’ coffers. With $730,000 already in the kitty at the September quarter and completion of a $800,000 convertible note with shareholders, Hodges’ cash reserves will be boosted further with the sale of Hodges’ interest in its noncore assets, such as the Salman South and Mame gold projects in southern Ghana. This will be enough capital to fund operations for at least the next 12 months. “As the saying goes, ‘cash is king’. And I think that’s one of the reasons why we’re undervalued at the moment, as people realise that we don’t need to increase our cash reserves in 2013,” Major said. In another triumph for the company at a corporate level, Hodges appointed the former inaugural chief executive of the Oakajee Port and Rail project, Christopher Eves, as chairman. Major said Eves had particular expertise in the development and financing of resources infrastructure, which made him the perfect replacement for outgoing chairman Peter Mullens. “The appointment of someone of Chris’s calibre to the role of chairman is a significant step as we seriously shift our focus from exploration to project development and operations,” he said. “His experience in developing infrastructure solutions is a significant gain for the company.” The appointment caps off a whirlwind 2012 calendar year, and Hodges is primed to capitalise on its abundance of coal at Morupule South, combined with its location which is no doubt the envy of its southern African counterparts.


Hodges’ geology superintendent Owen Makovore assesses drill core from Morupule South.

“It has proven that we have a significantly large resource and it allows us to now go into the next phase as we move towards development.” mark major hodges resources

Hodges Resources at a glance

Head Office Level 2 Richardson Street, West Perth WA 6005 Australia Ph: +61 8 9322 6412 Fax: +61 8 9322 6398 Email: Web: Directors Christopher Eves, Mark Major, Nathan McMahon, Bryan Dixon Market Capitalisation $A8.4 million (at press time) Quoted shares on issue 80.3 million Major Shareholders Kingsreef Pty Ltd 11% National Nominees 10% Citicorp Nominees 7.5% Widerange Corporation Pty Ltd 3.6% Sino Portfolio International Limited 2.7% 89

company profile

new zealand

siburan resources

Awakening a tungsten colossus Locking on to a potentially sizable tungsten project in New Zealand may prove the making of Siburan Resources. Alex Paull reports


IVEN THE LACK of sizeable tungsten deposits outside of China, it is important for companies to make the most of any tungsten opportunities available, and junior Siburan Resources is doing just that. It is now powering ahead with its potentially large Kirwan tungsten project in the west coast of New Zealand’s South Island. There is a chance that Kirwan could potentially host the next major tungsten deposit, given the possible size of the mineralisation, and Siburan jumped on the opportunity by kickstarting drilling in January. Siburan managing director Noel Ong said the company was beyond the discovery stage of exploration and, with historical data and high-grade rock chip samples pointing to a large ore body, its prospects were strong. “Past rockchip samples have been identified as high grade, up to 18%, and the actual discovery is in the past.

Drilling at Siburan’s Kirwan project in New Zealand. 90

So we are at the stage where we would look at hoping to define the source and outline the resource over the next 12-18 months,” Ong said. Siburan listed in May 2010 on the back of a gold and uranium project which Ong said was to be tested. But after it fell through, Siburan actively sought a potential company-making project. “We looked at some of the tungsten, and we were looking at tungsten projects down further south, and we were even in the process of negotiating but that didn’t happen,” Ong said. “We were in the space of tungsten and a search came up that this was vacant. We pegged the ground and I guess that’s how we came across the project.” And the rest, as they say, is history, for Ong believes the potential for Kirwan could be very significant. “Immediately, we have an area which is about 1500m by 800m which we deem as our core area, and a lot of this is based on historical data, and what we’ve done in terms of our own mapping and our on ground prospecting,” Ong said. “There’s a shear that’s about 33km, the Drysdale Creek shear. Along this alignment we’re seeing anomalism of a large and a small scale. We like to think that this shear could be something similar to that seen in the Hunan province in China, where you see a myriad of these tungsten prospects.” A reinterpretation of historical geophysical data was conducted, which highlighted what looked like two dilational zones in the area. One zone is where the Globe mine is located and houses mineralisation of 1.2 million ounces and the other is

where Kirwan is located. “Although we don’t know if we’ve got a deposit there or not yet, it does show that there is some mineralisation which has come up, but hopefully, with our next phase of drilling we can match something up there,” Ong said. With such high hopes for Kirwan, Ong said it was a relief to finally commence drilling to test the project’s full potential. “We’ve been working very hard to get this happening,” he said. “I think Kirwan has great prospects and a lot of people who understand the west coast geology and know this area are really awaiting our drilling results, because the only missing element here is probably some drilling results,” Ong said. “Anyone who has seen what we have put up there can see that there’s a lot of smoke. We’re just trying to find the fire.” The project laid relatively dormant for a number of years, with only five drill holes in the past 20 years until Siburan picked it up. But Ong said it was imperative to test the project’s company-making qualities. He said there were several factors that made a company-making project, and the fact that tungsten was a very rare and sought-after mineral was one major component, with probably only one or two working mines outside of China delivering strong output. Another factor that highlights Kirwan’s company-making qualities is its size. “As we speak, we’ve got mineralisation running in line for about 4.5km. We’ve got an area which has got 1.8km in strike length, where you are seeing tungsten mineralisation and gold in certain aspects, in a fairly dominant way. So without a doubt it’s


“The fact that, first and foremost, when we look at the geological map and we combine all the historical data and the consistencies, it’s simply a huge project and this could potentially be worth billions.” noel ong siburan resources

got all the facets of being a companymaking project,” Ong said. Siburan is not the only company to recognise Kirwan’s quality. In 2008, Auzex Resources made the comment that it saw Kirwan as potentially the third largest bulk mining-type style deposit, and Ong said only time would tell as to how true that would prove to be. On top of its tungsten potential, Ong said, local history pointed to the possibility of gold as well. “There’s an area called the Kirwan’s Reward, which has historical scavenging of gold in high, doubledigit kind of grades. And there were soil samples performed by Anglo American gold in the 1980s which found an anomaly just north of Kirwan Hill, and there’s a very strong association with tungsten and gold in New Zealand,” Ong said. Kirwan and the west coast mining area is bounded by the Alpine Fault, which runs effectively northeast/ southwest along the south island. It attracted the likes of CRA, which did an extensive search for tungsten in the 1970s and 1980s. Ong said there was a lot of known tungsten in the area, so prospectively Siburan appeared to be in the right address. On top of the local mineralisation, Kirwan is situated 10km from Reefton, a small town with a strong mining background. “It’s got everything you need there in terms of an operation, including power and water, and when this becomes a sizeable mining project it’s probably the best place you want to

be,” Ong said. “You’re in a mining area. Everyone understands exploration and mining. I believe this is prime real estate in terms of infrastructure and mineralisation.” Ong admitted that junior exploration was primarily an exercise of trial and error, but given the large potential for both tungsten and gold, this was the type of project which could transform the company. “The fact that, first and foremost, when we look at the geological map and we combine all the historical data and the consistencies, it’s simply a huge project and this could potentially be worth billions,” Ong said. However, with $3.5 million in the bank, Ong knows it is a drop in the ocean for future costs, and he said it was important to maximise Siburan’s current funds and its future funding. “It is critical that we maintain our focus on what we want to achieve, and having it as a lifeline is very important,” Ong said. The Kirwan story continues to grow, with the discovery of three historical adits late last year, which are near a possible source of mineralisation. “These are very important. One of them is about 90m long, so it allows us to get in there and have a look at the geology and map the geology, and almost do surface sampling, but underground,” Ong said. Plenty of work has been done to fire up Kirwan, and if Siburan receives the right drilling results it will be a platform to show the investment world that it is a very bankable project.


One of the historical adits discovered by Siburan at Kirwan.

Siburan Resources at a glance

Head Office Suite 9, 18 Stirling Highway, NEDLANDS WA 6009 Australia Ph: +61 8 9386 3600 Fax: +61 8 9386 3900 Email: Web: Directors Noel Ong, Kah Hui Tan, Guang Wei Zhang, Hao Ming Peng, Anthony Ho, Chiong Ong Tiong Market Capitalisation $A7.3 million (at press time) Quoted shares on issue 103.9 million Major Shareholders Hunan Australia Mining 19.83% Silver Capital 12.74% Joefield Investments 12.51% RH Resources 9.63% 91




the race is on

for tungsten

traffic As global demand for tungsten continues to grow and with the price forecast to rise over the next 12 months, the race is on for companies to uncover the next major tungsten deposit.


espite the tungsten price tailing off at the end of 2012 to $A45/kg for the first time since 2011, it also saw the price peak at $55/kg for the first time, meaning that the time is nigh for a major breakthrough. With the tungsten price forecast to increase over the coming months, the managing director of New Zealand-focused tungsten explorer Siburan Resources, Noel Ong, said that whichever company made the next large discovery would reap massive rewards. Siburan’s Kirwan tungsten project in New Zealand has plenty of regional potential, with almost 5km of prospective mineralisation with historical occurrences of both tungsten and gold. Speaking to RESOURCESTOCKS in January, Ong said that rising global demand meant that companies would 92

be clambering to find that elusive discovery. “When I was at Mines and Money London in December I met with a lot of German manufacturers and after discussions with them, I reached the conclusion that without a doubt whoever can find the next tungsten deposit that proves to be economical will be laughing all the way to the bank,” Ong said. “Fingers crossed that’s us, assuming that we make a discovery or a resource at our Kirwan projects.” Ong said his gut feeling was that because there was no steady mine outside of Russia and China, and China was still an importer of the concentrate, the price of tungsten could only go one way in the coming months and years. He’ll have plenty of competition, though. Emerging developer Wolf Minerals is on the cusp of becoming a world-class tin and tungsten mining operation with its flagship Hemerdon project in the United Kingdom, and

managing director Humphrey Hale forecast a strong year for tungsten. “With a new China and a new president, people feel more comfortable,” Hale told RESOURCESTOCKS. While China supplies around 85% of the world’s tungsten, it prohibits the export of tungsten concentrate, but Hemerdon is expected to account for approximately 3.5% of the global tungsten supply when in full production. Hale said the resources powerhouse was conserving its supply, which in turn placed Western companies under pressure. “Supply and demand is a problem, as there is no large-scale global supply and China is conserving its supply, which puts pressure on Western companies,” Hale said. “With there being no real source of supply in the world market, the price increases because demand is increasing and the Western companies are looking to supply that.”


The tungsten market is becoming increasingly tight and there are a host of companies scrambling to secure an economic deposit, with both Wolf and Siburan among the suitors. Another company looking to cash in on the increasing global demand is north Queensland-focused tungsten explorer Vital Metals, a company that is expecting a definitive feasibility study, a reserve announcement and the finalisation of capital costs on its Watershed scheelite deposit in the first quarter of 2013. Watershed is one of the top 10 undeveloped tungsten deposits outside China, and Vital inked an agreement with the Japanese government (JOGMEC) last year, which will be crucial to bringing the project into production. Managing director Mark Strizek said in December that the price forecasts were pleasing for Vital, as they were tied to the growth in China, which was astronomical but slow by

China’s standards. With process flow designs complete, Vital is in a position where it should have an idea of what the project will cost. Meanwhile, TSX-listed Woulfe Mining’s South Korean Sangdong tungsten and molybdenum project has been buoyed by the signing of two significant financing agreements with the International Metal Working Company and Korea’s largest bank, Shinhan. At its peak, Sangdong was one of the largest mines in South Korea. Following its closure in 1992, Woulfe acquired the mine in 2006. Woulfe chief executive Brian Wesson forecast 2013 as a watershed year for the company, as it looked towards project development, commissioning and full-scale production by early 2014. But Wesson told RESOURCESTOCKS in December that while the tungsten industry could be “tough to crack”, a high-class


project was a pivotal component of success. Hale and Ong both forecast a rise in specialty metals in 2013, with Ong pointing to the rise of tin as an indicator. “It had been floating between $18,000 and $21,000 per tonne, but around the new year it rose to $24,000/t, so these things are a clear indication that price rises are a thing of the future,” Ong said. One the major contributing factors to the increased global demand is the rising need for steel and cutting tools as a result of the growth of construction and infrastructure around the world, and Ong expected the price of tungsten to steady by the end of Q1 2013, before rising. But while other commodities reel from an indifferent 2012, the fortunes of tungsten look quite bright, and the onus is on the explorers to capitalise on what is historically a tight and opaque tungsten market.

Siburan Resources managing director Noel Ong on site at the Kirwan project in New Zealand. He believes that with tungsten prices rising, the discovery of the next large tungsten deposit will prove very important.


company profile


wolf minerals

hemerdon takes shape for dual-listed junior With a funding package in place, Wolf Minerals is set for the rapid development and construction of its world-class Hemerdon tungsten and tin project.


View towards Dartmoor from Wolf Minerals’ Hemerdon pit, showing Sibelco’s operating clay mines and waste dumps.


ince completing a highly positive definitive feasibility study (DFS) for the Hemerdon project in May 2011, dual-listed Wolf Minerals (ASX: WLF, AIM: WLFE) has been focused on securing funding to bring the mine into production. The feasibility study produced an extremely robust set of numbers, which reinforced the company’s commitment to developing the project. But even with one of the largest undeveloped tungsten deposits in the world and a compelling financial business case, funding a large-scale mining operation in difficult market conditions is a challenging exercise. Against this backdrop, Wolf has been successful in securing total funding of about $A211.8 million for the development and construction of the Hemerdon mine, with first production expected in 2014. In November last year, Wolf locked in the senior debt component of Hemerdon’s funding package when it secured credit approval for £75 million ($A114 million) in senior debt finance from a consortium of leading, globally recognised mining project financiers: UniCredit Bank AG, ING Bank NV and Caterpillar Financial SARL. In December, Wolf completed

its project financing with a $US82 million funding package from its major shareholder, Resource Capital Fund (RCF), and a $A20.3 million equity placement. The RCF package is comprised of a $US75 million 12-month bridge finance facility plus $US7 million, which is consideration for the purchase of a 2% royalty by RCF on gross revenues from all metals and minerals produced from the Hemerdon project. Wolf managing director Humphrey Hale said he was delighted to secure the funding package with RCF to further progress the Hemerdon project. “We welcome the continued support of RCF in our goal to develop the project into a globally significant new source of tungsten supply, and we now look forward to moving forward with our mine development and construction plans,” he said. RCF is a mining-focused private equity fund which is headquartered in Denver. It has provided financial support to more than 112 mining companies across 27 different commodities, and currently manages assets of approximately $US1.7 billion. The equity placement is a key milestone for the company, as it satisfies a key condition of the bridge

finance facility provided by RCF. The placement was supported by RCF and another of Wolf’s major shareholders, Traxys Projects LP. It also saw the introduction of a new strategic investor, TTI (NZ) Limited, which will acquire a 19.9% interest in Wolf. TTI is a wholly owned subsidiary of major diversified, private New Zealand company Todd Corporation Ltd. TTI will be entitled to nominate a director to join the Wolf board. Wolf views the completion of the placement as a strong vote of confidence by its major shareholders in the strength and robust financial viability of the Hemerdon project. The placement funds will be used to commence construction at the project and to purchase properties around the Hemerdon site, plus repay an existing $6 million facility provided by RCF. The Hemerdon project is located near Plymouth, in Devon, in the southwest of the United Kingdom, and is poised to be developed into a largescale, low-cost, open pit tungsten and tin mining operation. It will deliver significant economic benefit to the region and provide major employment opportunities. It is expected that the project will generate




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230 direct jobs, plus many more indirect jobs, when fully operational, which will inject millions of pounds into the local economy and promote the development of new skills. Hemerdon is ranked the world’s fourth largest tungsten deposit, in terms of contained tungsten metal, by the British Geological Survey, and when in full production it is expected to account for approximately 3.5% of global tungsten supply. Beyond the parameters of the DFS, there is also significant scope to expand the project. The company has planning permission to mine at Hemerdon, valid until 2021, and the initial operation will be a two-stage open pit, with a 10-year life and 3 million tonne per annum capacity. Wolf will then seek to extend the existing planning permission to access resources which lie outside the current approved pit design. It will also aim to steepen the pit walls, which will unlock additional mineable reserves. Mineralisation at the project remains open at depth to 400m, and also along strike, and in the longer term the company will aim to further expand the pit design to incorporate these extensions, which would potentially extend the project’s mine life by many years. The development timeline for the project coincides with a forecast strong outlook for tungsten. The largest end-use is in the manufacture of hardmetals (cemented carbides), followed by use in steel alloys, and demand is closely linked to economic growth. Figures show that China is the largest consumer of tungsten. It provides around 85% of world supplies, but is also a net importer. This situation has led to a growing demand for tungsten supply from

The Hemerdon other sources, and Wolf is wellLink Road. positioned to bring the next major tungsten mine into production. The importance of tungsten has not been lost on governments. The EU has ranked tungsten as one of 14 “critical” minerals and the British Geological Survey ranks it No.1 in its list of supply-risk materials. With project funding requirements now in place, Wolf is focused on accelerating development at the Hemerdon site. The company has secured a number of key environmental approvals for the project, with seven water licences being granted by the Environment Agency, which cover the entire operation of the mine. In July last year it completed the first major component of construction at the project, with the completion of the Hemerdon Link Road. It is a 600m long public access road, which Wolf was required to build as part of the project’s planning permission. The road is designed to remove a long-term constriction in the local traffic network and will also benefit other mining operations in the area. In November the company established a new UK head office at Tamar Science Park in Plymouth. It is an ideal base for the company and is located near the project. The project also has an offtake agreement in place for the mine’s tungsten output with two of the world’s largest tungsten producers; Wolfram Bergbau und Hutten AG, Austria, and Global Tungsten and Powders Corp, Pennsylvania, United States. With a world-class project, a strong demand profile and project funding in place, Wolf Minerals is well-positioned to deliver a major new global source of tungsten supply.


“We welcome the continued support of RCF in our goal to develop the project into a globally significant new source of tungsten supply, and we now look forward to moving forward with our mine development and construction plans.” humphrey hale wolf minerals

wolf minerals at a glance

Head Office Level 3, Suite 25, 22 Railway Road, Subiaco WA 6008 Australia Ph: +61 8 6364 3776 Fax: +61 8 6210 1872 Email: Web: Directors John Hopkins, Humphrey Hale, Adrian Byass, Chris Corbett, Jonathan Downes, Don Newport, Jim Williams Market Capitalisation $A33.6 million (at press time) Quoted shares on issue 114.1 million Major Shareholders Resource Capital Fund V LP 30.9% Computershare Clearing 10.14% Traxys Projects LP 9.52% RMB Capital 3.03% Kevin Barry Building Services S/F A/C 2.43% 95


Words by Anthony barich

smart investing

a surfer’s guide to futures market The volatile global commodities market has led a career trader and surfer to write a how-to book on futures trading to give investors portfolio diversity.


n between surfing THE breaks on Australia’s eastern Central Coast, financial markets trader Kel Butcher has written yet another book, this time primed for traders who deal in stocks but are looking for portfolio diversity in a volatile global market. Futures Made Simple provides detailed analysis on many of the major globally traded contracts, including contract specifications, along with the factors that impact on price and how to use this knowledge to successfully trade in future markets. Butcher, 47, has made a living out of trading, which is perhaps why he has time for his other passions, snowboarding, mountain bike riding and of course, surfing – “the reason why I live” at McMasters Beach, just north of Sydney. “Globally, the markets have been pretty flat for the last 2-3 years and I think a lot of people have been struggling trying to make half-decent returns in those markets, so I just think that with all of your trading and investing things that you’re doing, you should be diversifying and having a look at what else is out there,” Butcher said. “It’s targeted at people who are already in the market who may be trading stocks or even trading FX, and are interested in getting involved in more diversified markets – diversifying their trading strategies.” The key take-away of the book, he says, is for readers to have a greater appreciation of the importance of “diversifying your trading and investing portfolio, so you’re not just restricting yourself to just one market, you’re learning about what else is out there in the world that you can benefit from”. The book includes a glossary at the end for those who need to flesh


out the more fundamental parts of their understanding, along with a list of useful websites to help in futures trading. Butcher would not go so far as to say that Future Made Simple is a sequel to any the many other books he has thus far authored, but does go “hand in hand” with Forex Made Simple, which was published in 2011. His other books include A Stepby-step Guide To Buying and Selling Your Shares Online and 20 Most Common Trading Mistakes. Butcher, who has had over 20 years’ experience in all aspects of trading, CFDs, warrants, options, futures and shares, is also a consultant to a managed fund, a boutique trading company and a share-trading software developer. He also acts as a mentor and coach to fellow traders. While some of his previous books, including Forex Made Simple, have been described as “for the purists”, heavy on the technicalities, Futures Made Simple gives more of a mix, even going so far as providing illustrations of simple hand signals used in pit trading. He starts off with a brief history and evolution of futures exchanges and descriptions of the fundamentals of how futures work, who trades futures and why, trading mechanics, and risk and management, thereby learning his lesson after he waited until page 95 for the chapter on “The Mechanics of Trading Forex” in Forex Made Simple. Butcher then delves into natural commodity futures contracts, including an emphasis on energy markets and metals, before Part III focuses on interest rates futures and equity index futures. In metals, Butcher looks at three of the most liquid and actively traded contracts – gold, silver and

copper, going through even these commodities’ histories briefly going right back to the Stone Age, before proceeding with various tips. Covering the other critical part of the resources sector, he also assesses the four main futures contracts in the energy sector: crude oil, RBOB gasoline, heating oil and natural gas – again going back to basics describing their fundamental nature and uses. More broadly, the book has information on trading in a global market, types of futures contracts, factors affecting contract price, hedging and speculating, trading both rising and falling markets, order types including stop and limit orders, choosing and using a broker, and money and risk management. Commodity trader and author Larry Williams, who first met Butcher at one of Williams’ Million Dollar Challenge workshops in Sydney in 2002, describes Futures Made Simple as “the book I wish I had written – it presents a concise history of this business and an understanding of how it continues on a day to day basis”.


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Resourcestocks Magazine - January-February 2013  

RESOURCESTOCKS has been delivering valuable information to resources sector investors for more than a decade. In today’s global market, it i...

Resourcestocks Magazine - January-February 2013  

RESOURCESTOCKS has been delivering valuable information to resources sector investors for more than a decade. In today’s global market, it i...