Issue 11 October 2013
Australiaâ&#x20AC;&#x2122;s leading investor-focused publication
cauldron Energy LTD
pan african minerals
Gold production in Mozambique Oil and gas opportunities Accelerating production
Closing in on cash flow
Positioned for the uranium rebound High-grade assays build confidence
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Contents OTC Markets Group
The Dragon Returns
Trading in the US
Strength returns in China
state one group
New platform for raising capital
tangiers Petroleum Ltd
pan african minerals
Near-term upside in Africa The Timis touch
kupang resources LTD
kaboko mining ltd
Auroch minerals NL
cauldron Energy LTD
Positioned for the uranium rebound Closing in on cash flow
New oil and gas opportunities
Gold production in Mozambique
intierra RMG Resource Sector Intelligence
der gold report
Last-minute news from the bourse
European interest in Australian gold
Ready to roll
Launch party booked
EDITOR: Denice Rice email@example.com
A publication by
WRITERS: Wayne Cant, Colin Hay, Danielle Howson, Colin Jacoby, Luke Sizer
Professional Public Relations 1 Altona Street West Perth, WA 6005 Ph: +61 8 9388 0944 WEB: ppr.com.au
DISCLAIMER: PPR has taken care to collect and publish this information in good faith but makes no warranties or representations as to the accuracy of any facts or representations, and has relied upon information provided to it in doing so. PPR does not accept any responsibility for the accuracy of any facts or representations published, or for any opinions expressed. PPR is not a financial adviser, and nothing within the publication is financial or other advice whatsoever. Subject to any terms implied or expressed by the law, PPR does not accept any responsibility for any reliance, loss, damage, cost or expense incurred by any reliance upon this information or anything published by PPR herein, or by acting upon it or for any error, omission or misrepresentation conveyed. The information published is general only and does not take into account any individual objectives of investors.
THE RIG 2013
OTC Markets Group down under Executive Director of OTCQX International Andy Kyzyk explains the OTC Markets Group’s three marketplaces and their processes, benefits and attractions for Australian companies. Can you explain briefly the three marketplaces offered within the OTC Markets Group platform? OTC Markets Group organises companies into three marketplaces based on the quality and quantity of the information they provide to investors. OTCQX, our best marketplace with qualified companies, is designed for the largest, most liquid and investorfriendly companies, ranging from global blue-chip companies like Roche, Adidas and Australia’s Fortescue Metals Group, to successful US and global growth companies like Computer Services Inc. in the US and Australia’s Starpharma Holdings. Companies must qualify for OTCQX by meeting certain financial and qualitative standards and obtaining sponsorship by a professional third-party advisor. Our middle marketplace, OTCQB, is our venture stage marketplace for US reporting companies. Companies on this marketplace must be current in their reporting to the US Securities and Exchange Commission (SEC) or a bank or insurance regulator, however, since it has no minimum financial standards or management qualifications, it also includes penny stocks, shells and financially distressed companies. OTC Pink, our bottom marketplace, is our open marketplace for variable reporting companies. With no minimum financial standards, this marketplace includes foreign companies that limit distribution of their disclosure to their home market, penny stocks and shell companies, as well as distressed, delinquent, and dark companies that are unable or unwilling to provide adequate information to investors. As we say, OTC Pink requires the least in terms of company disclosure and the most in terms of investor research and caution. Which group would be applicable for Australian resource-sector companies wanting exposure to investors in North America? Australian resource-sector companies that qualify should choose to trade on OTCQX, our highest marketplace, to ensure optimal exposure to US investors. For companies that don’t qualify for OTCQX, we provide several value-added services to help them efficiently share information and drive US investor engagement.
What type of Australian companies are typically attracted to listing with the OTC Markets Group? There are over 300 Australian companies trading on our OTCQX, OTCQB and OTC Pink marketplaces ranging from global blue-chip companies like Fortescue Metals Group to global growth companies like Starpharma Holdings and Silex Systems Ltd. They come from all over Australia and cover a variety of industries ranging from metals/mining to biotechnology and pharmaceuticals. Many of these companies trade here in the form of American depositary receipts (“ADRs”), securities that represent shares of a foreign company traded in the US. ADRs offer the easiest way for international companies to tap the US investment market without the cost of a US stock exchange listing. Executive Director of OTCQX International Andy Kyzyk
What are the requirements for an Australian company to trade with the OTC Markets Group? To be traded on OTCQX, our highest marketplace, non-US companies must be listed on a qualified international stock exchange like the Australian Securities Exchange. They must also be current in their disclosure either to the US SEC or in their exemption from registration under Exchange Act Rule 12g3-2(b) and be sponsored by a third-party investment bank, depositary bank or securities attorney. What sort of costs and time frames do companies wanting to trade with the OTC Markets Group face?
If it qualifies, a company that wishes to trade on our OTCQX marketplace can be approved and begin trading within a few weeks. OTCQX has an annual fee of US$15,000 and a one-time application fee of US$5,000. There are also separate fees for the Standard & Poor’s and Mergent corporate manuals, which allow for brokers to sell a company’s securities in various US states and are necessary to qualify for OTCQX. There are no fees for trading on the OTCQB and OTC Pink marketplaces.
What are the advantages for Australian companies listing on the OTC Markets Group over the more traditional US exchanges? Our OTCQX marketplace offers most of benefits of the NYSE and NASDAQ – visibility and access to US investors– without the high cost and duplicative regulatory burden of a traditional stock exchange listing. Australian companies that trade on OTCQX can leverage their existing stock exchange listing and disclosure standards to inform the US markets and media, avoiding the need for two separate reporting requirements. From an investor perspective, how does the trading experience on your marketplaces differ from that of the more traditional US exchanges? OTC Link ATS, our SEC-registered alternative trading system, is a fully electronic, modern trading platform that directly connects a diverse network of broker-dealers that provide liquidity and execution services to investors in OTCQX, OTCQB and OTC Pink securities. The same major electronic broker-dealers that trade NYSE and NASDAQ securities trade securities on our marketplaces and investors can buy and sell these securities through the broker of their choice, making the trading experience nearly identical to trading a NYSE or NASDAQ security. OTC Link ATS is operated by OTC Link LLC, a wholly owned subsidiary of OTC Markets Group and FINRA/SIPC member.
For more Information contact Andy Kyzyk on +1-212-896-4450 or firstname.lastname@example.org
THE PICK October 2013
the dragon returns Three core questions are consuming retail investors exposed to the resources sector. These questions revolve around risks in China; if and when the sector will see some relief; and how to adjust investing strategies accordingly. Of key concern to resources investors since mid 2012 has been whether or not China’s economy will endure a “hard landing”. Perceptions have improved significantly between June and September. In July, China Purchasing Manager’s Index (PMI) and trade data saw strong rebounds after six months of decline. Recent commitments to RMB 660 billion in infrastructure programs and additional tax incentives by the Chinese Government is also translating into higher productivity and trade. Adding fuel to the fire, Chinese industrial output surged in August showing factory production rose 10.4 per cent year on year, outperforming softer consensus expectations. This has led to a raft of upside revisions to market expectations for Chinese GDP growth. So what does this mean for equities? There is broad market agreement that mining producers are cheap on
fundamentals, but are oversold due to key concerns around: 1. doubts around Chinese growth; 2. a tepid short term outlook for commodities; and 3. a lack of catalysts to change the status quo. China’s positive economic data gives us comfort in the resilience of commodities demand, and that the current malaise really is all about supply. We believe that supply/demand (i.e. price) fundamentals will normalise in time, and that investor confidence and risk appetite will similarly improve. We think the recent rebound for resources stocks off the late June lows can continue as concerns over the Chinese economic outlook continue to ease. We should see the large diversified miners continue to close their discounts to valuations and improved sentiment slowly
filter toward higher risk stocks. It’s this uptick in confidence that could provide a trigger for money that has been hiding in lower-risk, higher-yield assets – at fundamental premiums to valuations – to again start seeking value in hard commodities and resource equities. Iron ore has been a contentious market to forecast after steel prices tested 12-month lows in June. Market expectations were again for the worst. Chinese steelmakers were simply managing working capital and probably attempting to rebalance market pricing. Steel prices duly recovered, seeing steelmakers again scramble for product importing a record 74Mt in July, which drove up iron ore prices to their highest level in five months catching many market participants by surprise. Such is the ebb and flow of the Chinese steel cycle, which is unfolding over shorter and shorter timeframes. Chinese end-user demand (via manufacturing data) supports a healthy economic picture seeing 11.8 per cent growth in the year to July for ferrous metals processing. This suggests real activity and real demand for steel rather than the shifting of inventories between steel producer and consumer. So this positive picture really suggests that, overall, 2013 looks like a year where investors have capitulated, rather than commodities. We see recent market activity as a positive lead indicator to ongoing stability in the sector. For these reasons we are happy to continue accumulating the major diversified miners led by BHP.
Is China confounding market expectations of a hard landing? THE PICK October 2013
The broker of change It’s probably just a coincidence that Perth-born Alan Hill was working in South Africa when then President PW Botha made his famous “adapt or die” address, but it’s an adage that’s provided clear guidance in Hill’s chairmanship of independent financial services group, State One. In a decade that has seen the stockbroking landscape change dramatically, State One has adapted and thrived. Current markets are challenging all stockbrokers, especially the traditional “bricks and mortar” brokers that failed to see the on-coming train of internet-based share trading. State One not only saw the lights of the train in the distance but hitched a ride in the lead carriage. In 2002, it established its non-advisory broking service, Amscot. Initially established as a phone service, Amscot then expanded online and is now one of Australia’s fastest, most reliable and cost-effective equities trading platforms, boasting an average brokerage charge of less than 0.1 per cent. “In terms of value, we offer the most competitive brokerage rates in Australia,” Hill said. “This is consistently borne out by the awards we’ve received and by surveys of both our internet and phonebased services. More recently, Amscot developed its innovative white-label platform interface for Australian Financial Services Licence holders and financial planners. The service offers authorised representatives, AFSL holders and financial planners a self-branded, secure and professional trading interface via which their clients can access the full functionality of the Amscot platform. Despite being a relative minnow among the whales of Commsec and Etrade, Amscot has a swag of state and national broking awards under its belt. AmscotOnline most recently won the West Australian Capital Markets 2012 Innovator of the Year award in recognition of its development of “a product and service that goes above and beyond standard offerings and adds value to Australian equities markets”. AmscotOnline manager Sean Nofal said the recognition by industry peers reinforced the company’s mandate to design and deliver a quality experience and efficient service for its clients. “We are most proud to add this distinction to our recent success, including five stars from Cannex for three years in a row, multiple AFR Blue Ribbon awards, and continual recognition within online trading surveys,” he said. Hill said the awards reflected the vision behind Amscot, which embodied the principles of value, service and performance. “In terms of value, we offer the most competitive brokerage rates in Australia,” 4
THE PICK October 2013
Current markets are challenging all stockbrokers, especially the traditional “bricks and mortar” brokers that failed to see the on-coming train of internet-based share trading.
he said. “Importantly, our pricing is highly competitive across all contract values, not just at the price points used for award ratings. We also offer two very attractive online brokerage plans. “When it comes to service, Amscot is nonadvisory, but not non-service. If you pick up the phone to Amscot you speak to a person, not a menu. “Discounted brokerage should not equate to discounted service. Whether you are trading online or on the phone, we understand that traders require a very high-quality service, with immediate response being critical at all times. “At a performance level, Amscot aims to be totally trader friendly. We aim to satisfy the needs of the most sophisticated equities traders; offer extremely good value to clients for all products delivered and provide the best trading opportunities for our clients. “Not only do we trade all markets but we claim the best speed and fill rates of any broker around. While we offer a degree of technological expertise and support indicative of a major industry player, our focus is on offering straightforward investment products, rather than those involving higher risks which may not be readily apparent to the private client.” Hill says that while the amscot no-advice model has, after a steady build-up, become a runaway success, the concurrent success of State One Stockbroking, the group’s full-service advisory business, proves there is still a place for the more traditional broking businesses. In addition to client advisory broking services, State One Stockbroking also offers corporate fundraisings – seed capital, sponsoring initial public offerings and managing equity placements. State One has a record of carefully targeting its corporate clients: “It’s a rifle shot approach, not the shot gun approach used by some of our peers,” Hill said. “Being a full trading, clearing and settlement participant of ASX, and trading also through Chi-X, really assists us in delivering value for money to our clients.” State One is currently actively supporting Australia’s leading independent composites manufacturer Quickstep Holdings Ltd, which is making a global name for itself in the aerospace and auto sectors. Another client is emerging east-coast bauxite producer, Australian Bauxite Ltd.
Capital raising choices: ASX BookBuild raises interest Issuing new shares needn’t be a headache. If cost, and accessing more potential investors are important, then ASX BookBuild, a new platform for raising capital, deserves your attention. So you are a resources “With ASX BookBuild, the on-market nature of where price is set by bids from only a small sub-set company that needs to raise capital. The next the facility means you’re tapping the greatest of the market. You don’t know who might have question is how? What number of potential investors.” wanted to bid, but hadn’t method should you use? been invited into the book. While you’ll be familiar with the three existing offStock allocation is also market methods—placement, entitlement offer and share largely under your control. Under ASX BookBuild, you set the purchase plan—there is a new alternative. allocation parameters. You determine how much stock will ASX BookBuild is a new on-market capital raising platform be allocated to existing shareholders and new cornerstone that builds on the best features of existing methods, whilst investors (those that you invite to bid) and those who bid on-market. There are further allocation controls such as overcoming their limitations. While ASX BookBuild is an initiative of the ASX, it isn’t the ability to limit the allocations to any bidder and their mandatory. Nor is it mutually exclusive of existing methods. associates, and minimum size allocations. It can be used to reach greater demand for placements, sell Access the entire market of investors entitlements that aren’t taken up in a renounceable rights Having access to the entire pool of potential investors is a issue, or it can be used for an initial public offering (IPO). distinct advantage. In entitlement offers and share purchase plans, you can only tap demand from your existing shareholder Control over price and stock allocations Where ASX BookBuild’s superiority becomes unmistakable base. With the traditional off-market placement you’re limited is in pricing the issue. Because the raising takes place on- to demand from clients of your lead manager and perhaps a few market, investors see a live, transparent price. This encourages selected sub-managers. investors to bid with confidence, and enables the company Under ASX BookBuild, the raising takes place on-market to set the issue price in light of potential demand from the according to defined rules, so it’s more transparent. This mix entire market, not just a small selected sub-set. All-of-market of transparency, fairness and additional demand is a powerful demand brings more pricing tension, giving you a better price combination to maximise the price. Shareholders that are legally ineligible to participate will know that dilution has and less dilution. Importantly, ASX BookBuild still enables you to appoint been minimised. Directors know that they have tapped all the a lead manager, to control both the issue price and stock available demand in the market, using a facility where their allocation policy. You will know what price the investors that company has control over price and allocations. you select are willing to pay, and how much investors from All these factors make ASX BookBuild unique, as the most the market are willing to pay. You can amend key pricing and efficient, transparent, and fairest way to raise capital, without allocation controls during the bookbuild to respond to bids as losing control. Isn’t this the message you want to send to your shareholders and the market? they come in. Contrast this with the traditional placement or entitlement ASX BookBuild will be available for listed companies offer, where you often have less control over the price, and to use from October 8, 2013.
THE PICK October 2013
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THE PICK October 2013
African growth for Tangiers There’s plenty of near-term upside news in the pipeline for oil and gas explorer Tangiers Petroleum Ltd (ASX:TPT/AIM:TPET) with the farm-out agreement with Galp Energia close to finalisation and preparations under way for the maiden exploration well, TAO-1, on its Tarfaya offshore block in Morocco. The farm-out agreement will assign Galp, as the operator, 50 per cent of the Moroccan permits, the Moroccan government will retain 25 per cent and Tangiers a healthy 25 per cent as well as a free carry for the first well. The maiden well is targeting 758MMbbl (P50 prospective resource) with Galp planning to spud the well in the first half of 2014. The Tarfaya block of eight permits is located in an area where a hydrocarbon system associated with Jurassic carbonates has already been proven by the Cap Juby discovery made by Esso in 1968. The area is still relatively unexplored with only one well drilled Registered Office for every 10,000sq km compared with the global average of 80. Level 2 The Jurassic carbonate source in the Cap Juby discovery geologically matches the Panuke field in Canada, providing a direct link between the Moroccan offshore and its twin basin Nova Scotia Canada where material discoveries have been made.
5 Ord Street West Perth WA 6005 AUSTRALIA
Fosters Stockbroking recently reported that with an unrisked upside of greater than 50 times, it believed investors would not ignore the risk/reward proposition for too long and anticipated that in the lead up to drilling the share price would correct sharply. In Australia, Tangiers has two exploration permits in the Bonaparte Basin, south-west of Darwin. These have been farmed out to CWH Resources which will fund $35 million on 3D seismic data acquisition and drilling. The permits contain 14 oil-prone leads in the Milligans Formation and the large Nova Contact gas prospect (prospective resource of 3.5Tcf). Tangiers will retain a P: + 61 (0) 8 9485 0990 significant 27 per cent post farm-out. F: + 61 (0) 8 9321 8990
In Australia, tenders for the acquisition of 500sq km of 3D seismic data closed on September 13 and a contract is expected to be awarded in the coming weeks.
Tangiers current cash position will be greatly improved with the imminent finalisation of the Moroccan farmout when it will receive more than US$10 million in cost reimbursements. A further A$7million is expected to come from outstanding 16c options which expire on October 31.
A 10-well drilling program is expected to start in the area this year with some of the major companies involved including Galp, Cairn, Kosmos, Chevron, Plains and Genel. Four of these wells will target the carbonate play with the Galp/ Tangiers well having the largest potential of the four. Tangiers executive chairman Eve Howell said there was currently nowhere in the world that she knew of that was having the amount of exploration drilling activity at different geological levels, and with various operators, as offshore Morocco. Tangiers’ well will be drilled in shallow waters (approximately 110m), which provides relatively cheap drilling and development costs compared to the majority of the other target areas.
The Tangiers board has been very open about its plans to grow an African-based asset portfolio, based on shallow-water and onshore projects, and, according to Howell, is continuing to evaluate potential additions. “Over the past six months, Tangiers has rigorously assessed many growth opportunities in Africa,” Howell said. “Although some have been quite attractive, none have satisfied all the criteria the company has set for its next project. The board believes it is important to take the time needed to secure the right growth asset.” THE PICK October 2013
timis trains his talents on burkina faso When Frank Timis puts his expertise behind a project in Africa, seasoned investors generally sit up and take notice. And his latest plan, to bring the world’s largest manganese deposit – located in Burkina Faso – to market for Pan African Minerals Ltd, has all the hallmarks of replicating the success he had with the African Minerals Ltd Tonkolili iron project in Sierra Leone. Timis has been dubbed “the Emperor of the Resources Industry” by the West African press and governments have an open-door policy when he visits, all of which adds credential to his plan to upgrade 1,400km of railway between Cote d’Ivoire and Burkina Faso to connect the dots and bring the Tambao manganese project in Burkina Faso into production. Like the 30-month turnaround for Tonkolili to come online, Pan African is pursuing an aggressive timeline to production, aiming for Q3 2014. In August, the Tambao project was sanctioned by President Ouattarra of Cote d’Ivoire and President Compaore of Burkina Faso, allowing for the transport of manganese ore from northern Burkina Faso down to the Port of Abidjan, Cote d’Ivoire. It is no small task and will include construction of a spur line of 238km of rail from the Tambao mine site to the existing railway at Kaya and refurbishment of 1,249km of existing rail into the port. Starting off as a 1Mtpa DSO operation, the thirdparty port access can accommodate up to 750,000tpa of shipments until Pan African moves to a 3Mtpa plus operation and develops its own port area. While the port component is much smaller than the 25Mtpa facility established at Tonkolili, the rail aspect is nearly seven times longer than the 220km of rail built in Sierra Leone. 8
THE PICK October 2013
Initially, the product will be moved via a combination of road and rail before going through the third-party port; by the time the project transitions to the 3Mtpa operation, Tambao manganese will be moved by rail to port and exported out of Pan African’s own port facility. Assessing the economics, Tambao has an NPV of $3.4 billion, an internal
are expected to drop down to $US46.73/t when operating at 3Mtpa. The governments of Burkina Faso and Cote d’Ivoire are not only excited by the macroeconomic effects this large-scale mining project will bring, but also the regional benefits that will flow through from the railway corridor. It is expected that the railway will support growth in livestock and agriculture, job creation
It is expected that the railway will support growth in livestock and agriculture, job creation and an improvement of socioeconomic conditions. rate of return of 122.2 per cent, and it is expected that shareholders will be protected from funding dilution with early cash flow from operations to pay for all capital costs to ramp the project from 1Mtpa to over 3Mtpa. Capex for the first stage is $US93.13 million, with the 3Mtpa ramp-up operation capex calculated to be US$764.1 million – all to be funded from operating cashflow. Operating costs are anticipated to start at US$85.25/t, and as the project grows and operations are brought in-house, they
and an improvement of socioeconomic conditions. Needless to say, Timis’s reputation is underpinned by his and the Timis Corporation’s commitment to corporate social responsibility and philanthropic values. From African Minerals involvement in Sierra Leone, over 10,000 jobs for locals were created, improving conditions and bringing stability to the former conflict stricken nation. The Timis Corporation stands by its commitment to support the regions
it operates in through community projects, which include schools, health clinics, infrastructure projects and scholarships. The expectation is that the same benefits will be rolled out in both Burkina Faso and Cote d’Ivoire, despite the divide between mine and port.
While Timis might be the visible spearhead of the organisation, the Pan African board carries a wealth of experience commensurate with the challenge ahead. CEO Alan Watling was most recently the CEO of African Minerals and in charge of getting Tonkolili off the ground and operational.
In Australia, Watling is synonymous with many well-known mining infrastructure achievements, including 20 years at Rio Tinto Ltd, which included tenure as head of railways for Hamersley Iron, and the main driver of Fortescue Metals Group Ltd’s 45Mtpa greenfields operations at the Chichester Hub in the Pilbara. On the team with Watling are Victoria Sherwood, Karl Sinko, Marcus Reston and Guy Blakeney in executive leadership roles – with all except Blakeney previously working at African Minerals. Attention is now fixed on the final stages of development at Tambao to make sure the project is ready for first shipment in 2014. Technical documents are in the process of being signed off by Pan African management and road and rail upgrades are set to begin. Pan African have a JORC compliant resource of over 100Mt with average grades of over 50 per cent
manganese over a 30-year mine life with 3Mtpa production and with 55 per cent manganese for the first 10 years. African mining intelligence stated in July 2013 that this is some of the best grades in not only Africa, but globally for manganese. Geophysics suggests that there is a high prospectivity for lateral extensions at the outcropping Tambao deposit in addition to depth extensions, which have recently been confirmed by drilling. The valley floor Canga ore sits on the surface of the manganese cap, grading at around 4050 per cent manganese for 1-2Mt. Underneath the Canga ore is the high-grade 55-58 per cent manganese mineralisation, from which Pan Africa expects to define 20-25Mt of ore – suitable for DSO. The transition ore below the oxide is considered to hold the same tonnage, but at a lower grade of 45-50 per cent manganese before moving in to carbonate ore bodies, the deepest with a grade of 40-45 per cent manganese and a large resource target of 80-120Mt – still open at depth. Pan African estimated its high-quality manganese oxide grading at 54 per cent manganese could command prices of US$506/t, a premium price comparable with lower-grade products. Manganese grade and price per tonne do not have a linear relationship, with steel mills prepared to pay more for higher-grade products, as it reduces input costs, produces less slag and increases the grade of the steel. According to Pan African, Tambao’s ore will allow steel mills to produce at a faster rate and at a lower cost.
THE PICK 2013
Cauldron set for the new dawn of uranium With market watchers predicting a rebound in global demand for uranium in 2014, Cauldron Energy Ltd’s (ASX:CXU) recent funding wins of $1.8 million will allow the company to position itself with a strong final quarter of exploration in 2013.
Executed via converting loan agreements with their two major shareholders, Cape Lambert Resources Ltd and Cauldron Energy Ltd director Derong Qui, Cauldron raised $1.5 million – and a further $300,000 through the Western Australian Exploration Incentive Scheme – to keep pushing exploration activities at its Yanrey and Marree uranium projects. Results just in from the Bennet Well deposit on the 100 per centowned Yanrey project, where drilling is continuing, adds further to the body of evidence to support the company’s belief that the ground holds a uranium play of significant scale. The project has already exceeded the company’s expectations, with a significant 300 per cent increase in the inferred uranium resource from 4.8Mlb to 15.7Mlb earlier this year. Located 85km south of Onslow, the Yanrey project covers 1,930sq km of land rich in Mesozoic sediment, which is highly prospective for sandstone-hosted uranium mineralisation. Drilling in 2012 identified two new uranium resources at the project, Bennet Well South and Bennet Well East, both host roll-front uranium mineralisation within palaeochannels – the desired mineralisation for in-situ recovery mining (ISR). Cauldron sees ISR as a unique opportunity to beat the current crippling effects of low global uranium prices. The style of mineralisation at Yanrey is similar to the Beverly and Honeymoon deposits in South Australia’s Lake Frome Basin, which means the project can benefit from ISR mining. Cauldron Energy head of operations Simon Youds said ISR mining presented a low-cost, high-margin and low environmental impact mining option. “Normally you would look at a rock-moving cost-per-pound at mine gate of between $30-40/lb but with in-situ leach it is around the $15-20/lb, not including capital expenditure,” Youds said. “If the price of uranium is $35-40/lb, you can still put an in-situ operation into production, and pay off your capex, even at the current low uranium prices. 10
THE PICK October 2013
“The high grades seen in the Bennett Well region show similarities with current producing ISR-type uranium mines that have ore located within unconsolidated sand dominated geological units.” The uranium found at Bennet Well is at a much shallower horizon than other Australian ISR mines, pointing to further improved efficiency of production. The resource is located around 40m in depth, in contrast to the Beverley Uranium Mine which has a resource at a depth of 100m to 150m. “We have proved there are multiple areas of uranium mineralisation along the paleo coastline of the Gascoyne, and obviously we’re establishing the resource with the view to building enough confidence to go to a project status at Bennet Well,” Youds said. “But we believe that there is multiple potential to the north and south of us adjacent to the Gascoyne hot granite.” It is at the front of the “wave” of these sandhosted roll fronts where the highest grade mineralisation exists at Yanrey – drilling has intercepted close to the nose of the wave which returned a peak grade of 1.3 per cent (13000 ppm) uranium oxide – nearly 100 times greater than the resource cut-off grade of 150ppm. Drilling continues to identify further roll fronts in the multiple channels in the Bennet Well complex to dramatically boost the resource as well as supply key metallurgical core to start the feasibility project process towards potential production. “Our uranium is pretty high-grade which improves costs, but more importantly our mineralisation is very gravelly,” Youds said. “Cash costs go up for in-situ when clays are present in production as they interfere with the flow. We are drilling core at the moment for testing purposes and with near 100 per cent core recovery it appears to be eminently suitable for ISR.” Globally, similar operations to that envisaged at Cauldron’s Yanrey region have C1 cash cost of $8-$16/lb for a Yanrey type in-situ operations; depending on plant size, with capital costs pushing total costs up to $15-$25/lb. Discussing production would have been considered a pipe-dream
as little as three years ago when Western Australian was anti- drilled over 289 holes for over 300,000m and penned an inferred uranium mining like most Australian jurisdictions. But the and indicated resource at Bennet Well. Diamond drilling is granting of approval to Toro Energy for its Wiluna uranium under way at Barradale and Bennet Well, aimed at lifting the project has sparked a wave of renewed optimism for exploration inferred resource to an improved indicated status suitable for in the sector – even if the uranium price and demand remain the project production pathway to be initiated. Results were expected at the time of print but due to unseasonal rain were stubbornly low. “Until Toro’s approval earlier this year, there had been no delayed. The diamond drilling program is designed to test the uranium mining in WA,” Youds said. “With no exploration there Barradale channel, a large target with favourable geochemical and geophysical indicators was no chance of getting a mine and multiple opportunities for up. Now you have a huge land area uranium mineralisation. DIRECTORS and Cauldron happens to be in a Youds believes that once resolved, prime position within that land area. antony sage qui derong the current disconnect between Cauldron is also working to expand Executive Chairman Non-Executive Director miners and power utilities, will its footprint in what it considers will brett smith release pent up demand within be a significant, emerging uranium Executive Director the sector. province. “The problem – and this is a Paladin Energy Ltd’s Manyingee problem for the world – is that uranium project is 20km north of it takes six years minimum to Registered Office Contact Bennet Well, and Energia Minerals bring a project from exploration, Ltd owns Nyang uranium project 32 Harrogate Street to production,” he said. “The along strike to the south. P: + 61 (0) 8 6181 9796 West Leederville interesting thing is it takes the F: + 61 (0) 8 9380 9666 WA 6007 Cauldron has already made an offsame time to build a new nuclear AUSTRALIA market takeover bid for Energia in reactor. The issue here is that new an attempt to consolidate and build a nuclear reactors continue to be E: email@example.com dominant land position. built, but the uranium price isn’t The takeover has twice been refused by bringing any new mines online.” ASX:CXU Energia management and Cauldron Youds echoed recent comments by is weighing up its options on how to www.cauldronenergy.com.au Paladin Energy managing director proceed. Energia is expected shortly John Borshoff about an impending to roll out a resource upgrade program spike in the uranium price. to elevate its 16.7Mlb uranium oxide “There was a lot of low-cost uranium in the system after resource to an indicated status. Fukushima which was stockpiled by the utilities, the drivers of Regardless of how the takeover unfolds, the work Cauldron the uranium price, and they have the biggest inventories they has done over its 3,200sq km in the past three years – which have had in a long time,” he said. “The price of uranium doesn’t coincided with the uranium market’s lowest ebb – has put the really affect the utilities. The only thing that affects them is if company in a strong position when sentiment returns. there is no supply – and that is a situation we are heading into In three years, the company has rolled out six drill programs, now. We are looking at an extended period of no supply.” THE PICK October 2013
Kupang closes in on cash flow After wrapping up a $2 million share placement in September, Kupang Resources Ltd (ASX: KPR) is set to begin exporting from its manganese project in the Nusa Tenggara Timur region of West Timor (Kupang) in Indonesia, within weeks.
THE PICK October 2013
The two-tranche placement of 22.2 million shares at 9c a share was offered to institutional and sophisticated investors in July to generate general working capital for the advancement of the Kupang project as well as supply and production costs. With the capital raising closed, attention has now turned to progressing supply negotiations and advancing from plant commissioning to first production and maiden export from the Port of Tanau, Kupang, scheduled for early Q4 2013.
Since the company signed a joint operation agreement with PT Pelabuhan Indonesia III Tenau Kupang branch in February this year, the focus has been on getting its low-cost, highgrade manganese concentrate operation ready to export. This agreement allows Kupang to export up to 80,000t a month of manganese feed from the deep-water port at Tanau.
The region of Kupang – also known as West Timor – has been regarded in geological circles as a fertile region for manganese for many years, however for the entrepreneurs who have tried, the region’s potential has been capped by the absence of infrastructure, experience and expertise in getting the manganese to the hungry smelters of South East Asia. Kupang Resources went into the region with the strategy and resources to make this happen.
Working with the Manganese Society of Kupang, Kupang Resources is building the capacity of the local community’s mining industry through the Kupang Joint Venture, in which the company
has a 55 per cent stake, with local ownership making up the remaining 45 per cent.
Kupang Resources head of operations Simon Youds says that in all his years of experience as a mining engineer, he has never seen manganese grades as high or prolific as what he is working with at Kupang.
“Theoretically the most manganese possible in manganese oxide is 63 per cent metal,” he said. “Our metallurgy is reporting grades around 55 per cent manganese and the next best grades of manganese being sold into the market sit around 48 per cent manganese.” A former managing director of Consolidated Minerals Australia, which operated the Woodie Woodie manganese mine in Western Australia, Youds said the peculiar geology of the region had, in addition to the high grades, low levels of deleterious elements, which could technically produce a directshipping material, although this is not the plan for Kupang.
“The resources on the island are too inconsistent for smelters,” Youds said. “That is why the Kupang JV will crush, screen and blend the ore to produce a concentrate from our processing plant so we can get the highest possible grade. That way, we maximise the value of what is a unique manganese geology.” The Kupang JV acquired the processing plant in January and received final approvals for mining, processing and exporting from the Governor of Kupang in March 2013. The 30,000t a month plant, currently
being commissioned, is on a 5 hectare site only 3km from the port. “The Port of Tanau is a deep-water port that can accommodate 100kt ships, with a potential 80,000t a month capacity. Previously, the port has not had a ship-loading facility, which meant that while Kupang was a region full of high-grade manganese deposits, there was no way to get the ore off the island – in effect they were stranded assets,” Youds said. “The Kupang JV bought a ship-loading facility from Jakarta and installed it at the port and that combined with our production facility gives us the pipeline to get that asset to market.” In July, supply contracts were signed with the Manganese Society of Kupang, which formed the Mn Supply Agreement MoU. The contracts will see 15,000t a month of raw manganese (at a locked price) delivered to the Kupang JV’s processing plant at Bolo. An additional 30,000t a month has also been secured from the Manganese Society at no fixed price or quantity. In total, 52 miners, who are members of the Manganese Society, have signed up to supply, with more to follow. Youds said negotiations were continuing with the Manganese Society to draw up contracts that fixed the price to the grade and quality of the manganese ore. The relationship with the Manganese Society is strengthened by the President of the society having an equity stake in the Kupang JV. The company estimates that current stockpiles are sufficent to allow the local miners to ramp up
for continuous supply. Trial marketing from pilot production has so far been positive for the Kupang JV; the company is intending to direct market to ferro-manganese smelters and send 25kg samples to interested parties, which Youds says are “very interested in large quantities of this new high-grade product”.
Kupang’s processing plant is just 3km from the deep-water Port of Tanau.
As it stands, Kupang does not currently have a resource on its project, but the plan is to kick-off exploration at the end of the CY 2013 when cash flow is expected to step up in line with the export of concentrate and trial marketing. Youds said that althrough initial examination of the geology on the island of Kupang had given a new understanding of the primary manganese mineralisation, further qualitative data collection was required. The company intends to roll out a series of geophysical surveys, followed by a regional wildcat handheld drilling program. Youds said it was early days yet but the possibility existed for a truck-and-shovel operation. With a projected incoming cashflow from concentrate exports, Kupang Resources is considering joint ventures to access existing resources on the island, which will boost product blending and quality control, unlocking otherwise stranded assets. Youds said that many of the stranded assets could benefit from a barging solution to the Kupang deep-water port facility. Cashed up and commissioning, Kupang Resources will soon be turning the tap on its manganese pipeline to the world.
DIRECTORS Jason Brewer Non-Executive Director
Ben Elias Non-Executive Chairman Antony Sage Executive Director
Registered Office 18 Oxford Close West Leederville WA 6007 AUSTRALIA
Contact P: + 61 (0) 8 6382 5500 F: + 61 (0) 8 9388 2304
ASX: KPR www.citation.net.au
THE PICK October 2013
New team to accelerate production for Kaboko Kaboko Mining Ltd (ASX:KAB) has appointed new directors to oversee the acquisition of $US1.16 million in plant and equipment to accelerate production at its flagship Mansa manganese project in Northern Zambia to fulfill its contract with Singapore-listed commodities conglomerate Noble Group. The miner recently announced the appointment of Noble Group nominee, Andrew Simpson, to chair the company as it enters the exciting production phase of its development.
foundation for continued production and cashflow growth,” he said.
Mr Simpson, who boasts more than 30 years experience in the marketing and distribution of minerals and metals, will be joined on the board by mineral processing expert Nigel Goodall, who recently travelled to Zambia as an executive director to assist management with the ramp up of mining activities.
The miner will acquire a scrubber trommel and jig circuit, to be used in conjunction with a semimodular crushing plant, to process material during the wet season and recover the highgrade manganese nodules contained in alluvial overburden.
Funding for the investment will be drawn down from tranche B of a $US10 million prepayment debt facility and long-term manganese ore off-take agreement with Noble Resources, a subsidiary of Noble Group. Kaboko’s CEO, Tokkas Van Heerden, said he welcomed the further investment of Noble in Kaboko some 12 months in advance of the schedule anticipated in the company’s original agreement. “This delivery of ore and acceleration of funding cements the partnership between the company and the Noble Group and provides a strong
Kaboko has already received a US$4.5 million advance under tranche A of the funding facility.
Kaboko has confirmed this material contains substantial manganese mineralisation with testing demonstrating that its manganese content can be processed as fines with a 30 per cent recovery to produce a 50 per cent plus grade product. “Where we have exceeded expectations of 50 per cent plus manganese grade is in the manganese mineralisation of the overburden and the much wider main vein reef than previously targeted,” van Heerden said. Processing of this “potato” manganese was not previously part of the short-term mining plan and will allow the company to increase its production target to 8,000t a month by the fourth quarter of 2013. In turn, this is expected to decrease overall production costs of manganese ore from the main vein and produce an additional 3,000t of saleable ore per month. The originally estimated financials for production remain sound. Full CIF costs (production and logistics) are in line with previous estimates of $190-$210 per tonne made by Minxcon, while manganese prices remain at US$5.80/dmu or US$285 a tonne. Kaboko has moved quickly to bring the Mansa Mine into operation since the completion of the Noble Agreement in March 2013. In August, the company sold the first 2,000t of high-grade manganese ore from its Mansa mine to Noble. The company said, with the acquisition of the additional equipment, it aims to double its current level of production to 120,000t a year, achieving targets deliverable under an agreement with Noble Group, by the first quarter of 2014
THE PICK October 2013
Initial testing of the first delivery, undertaken by independent laboratories, returned results in line with expectations of 50 per cent plus manganese from grab samples. Further testing will be undertaken as part of the completion of delivery. A second shipment of 2,000t of high-grade manganese will be loaded for delivery from the existing stockpile on site. “We are extremely excited as we have achieved the target set in May and the initial indications are that we will be able to continue our production of 5,000tpm of main vein production in line with budgeted costs,” van Heerden said. In addition to current monthly production, Mansa boasts a current on-site stockpile of 10,000t of high-grade manganese. Van Heerden, said that in order to mine the
DIRECTORS Andrew Simpson Non-Executive Chairman
Dr Paul D’Sylva Non-Executive Director
Tokkas Van Heerden Executive Director/CEO
Malenga Machel Non-Executive Director
Nigel Goodall Executive Director
Shannon Robinson Non-Executive Director
Registered Office Ground Floor 1 Havelock St West Perth WA 6005 AUSTRALIA
Contact P: + 61 (0) 8 9488 5220 F: + 61 (0) 8 9324 2400
ASX: KAB www.kabokomining.com
homogenous vein, 25,000t of manganese-carrying overburden had been removed.
“The company now has a 10,000t stockpile of sellable product and a further 25,000t to process once all of the new equipment arrives on site.” An additional front-end loader, dumper truck, excavator, spare parts and other key equipment items will be purchased with funds from the recent draw down.
An initial scoping study was completed by independent consultant, Minxcon, which included an indicative high-grade manganese resource estimate and mine plan for operations based on an initial seven-year mine life.
The Mansa Project license area covers approximately 625sq km and the scoping study focused on the known mineralisation area which represents less than 5 per cent of the total Mansa Project area, emphasising the significant exploration potential of the project. Kaboko has committed a further AU$170,440 from a recent options issue to exploration and development in Zambia.
An exploration program to drill approximately 24 holes (1,200m) targeting extensions of the existing mineralisation zone is currently under way.
The results of this program will be used in conjunction with the results of the scoping study to provide the foundations for a JORC resource statement at the Mansa Project within months. Completion of project infrastructure is expected by the fourth quarter of 2013.
Kaboko has also identified several acquisition opportunities in other parts of Africa and South Africa and is considering a number of projects with synergistic high-grade ore bodies that are in or near to production. THE PICK October 2013
AZIANA Advances near-term cash opportunity in the gulf ASX-listed minerals explorer Aziana Ltd (ASX:AZK) is poised to capitalise on what it says are exciting opportunities emerging outside its traditional sphere of operations following the recent acquisition of unlisted public oil and gas company Eternal Resources. In addition to its significant bauxite, copper, gold and graphite projects in Madagascar, Aziana has added Eternal’s Gulf of Mexico oil and gas properties to its portfolio.
Aziana executive director Neil Rinaldi said the company had in no way abandoned it’s hard-rock assets, however the newly acquired oil and gas properties off the coast of the US were exciting because of their potential to provide near-term cash flow.
“We are moving the company towards drill-ready status in the Gulf of Mexico and aim to be producing from these assets during the 2013/14 drilling season,” Rinaldi said. “The revenue stream from these properties has the capacity not only to support Aziana’s current diversified portfolio of minerals assets but also to further grow our interests in the oil and gas industry in the Gulf of Mexico and onshore USA.
“The oil and gas properties show significant near-term production potential that has been identified by previous exploration drilling on our leases. Our current efforts are designed to capitalise on that earlier work. We are close to infrastructure and have significant exploration upside potential, which has been illustrated through Collarini and Associates reserves and prospective resources assessment efforts – all of which means it makes perfect sense to prioritise their advancement.”
THE PICK October 2013
Through the Eternal acquisition, Aziana acquired a 60 per cent working interest in the Sleeping Tiger project. An initial assessment over just one of the Sleeping Tiger leases identified net 3P oil reserves of 4.5MMbbl and 3P gas reserves of 4.9Bcf. Further upside potential has been identified by Collarini and Associates, with net prospective resources of 4.5MMbbl of oil and 50Bcf of gas.
Aziana also acquired a 10 per cent working interest in the Raging Bull oil field, production well and platform, located adjacent to the Sleeping Tiger project. The Raging Bull well has produced over 135,000 barrels since production began and is currently producing between 40-50 barrels of oil a day.
However, Rinaldi says the real potential for Raging Bull is the ability for Aziana to tie-back a new production well drilled updip of the current well or by accommodating early production from successful drilling on the adjoining Sleeping Tiger leases. “At the time of acquisition, Eternal had only completed an initial assessment over the one lease, Aziana has already commenced a complete work program over the entire acreage,” he said.
“This will identify prospects and leads over our entire acreage position that will lead us to identify the most appropriate targets for this first campaign of drilling. We also expect to add reserves as a result of these efforts.”
www.openbriefing.com.au/OB/Aziana-Limited/2013/9/16/Aziana-Adds-Oil-and-Gas-with-Eternal-Merger/1213.aspx Click here to view our video
“We are past the exploration stage with these assets. Aziana has an appraisal and development project in Breton Sound.” The existence of historical exploration data, combined with “None of it used modern 3D seismic, which is what we now have the prolific nature of neighbouring acreage in Breton Sound, and are re-evaluating and assessing to create our prospects and give Aziana a high degree of confidence in the potential of the leads inventory. up-coming drilling campaign. Breton Sound has a long and “In one case, we’ve identified a historic well that was drilled prolific oil-and-gas-producing history. off flank and down dip of a structure that still remains intact “Our properties have excellent prospectivity and are in a and is showing some 200 to 350 feet of up-dip relief. highly desirable neighbourhood, among both historic and “We expect to be able to tie that back in to production through currently producing fields,” Rinaldi said. available infrastructure during the same drilling season. “Saratoga Resources has just completed two wells, some 11km to the north east of us in an area which is depositionally “We are past the exploration stage with these assets. Aziana has similar to where the Sleeping Tiger and Raging Bull assets an appraisal and development project in Breton Sound. and leases are located. “We’re in a more advanced position than people think we “Their ‘Rocky’ well came on at 600 barrels of oil per day and are and we’re simply going about this in a very professional, is tied back into production. Production from the second well, methodical and technical way to get to the point where we which was announced on September 11, 2013, has tested at de-risk shareholders as much as we possibly can before we some 330 barrels of oil equivalent. actually apply their capital.” “Within the space of just one month, drilling in Breton Sound Rinaldi said that in spite of the exciting developments in the Gulf has produced two wells that, cumulatively, are producing at of Mexico, Aziana was maintaining its exploration efforts on its or near 1000 barrels of oil per day.” Madagascan projects. Rinaldi said that immediately to the south of Aziana’s lease “These assets represent a significant investment on behalf of area was the Main Pass Block the company and retain exceptional 35 field, which was drilled out by value.” he said. “Aziana remains Chevron and Shell in the 1950s and DIRECTORS focused on achieving commercially 60s, and had already produced over 100 million barrels of oil and was recognisable outcomes in Peter Cook Warren Hallam Non-Executive Chairman Non-Executive Director still producing. Madagascar.” John Morris Phillip Laskaris “Our acreage abuts that field so, all Aziana’s Manantenina bauxite Executive Director/CEO Non-Executive Director in all, we’re in a very prolific area project has a maiden inferred Neil Rinaldi for production, both with recent Executive Director JORC resource of 10.09Mt with an drilling activity and drilling activity exploration target size ranging from of a significant nature in the past,” Registered Office Contact 400-500 million tonnes of in-situ he said. product (120-160Mt @ 30-40 per cent Level 3, Some of the targets Aziana plans to P: + 61 (0) 8 9220 5750 123 Adelaide Tce Al2O3 and < 2 per cent SiO2. East Perth drill have been intersected previously F: + 61 (0) 8 9220 5757 WA 6004 At its Anosivola copper, gold, moly by companies such as Chevron, AUSTRALIA project, Aziana has identified a strike however, due to the outdated area several kilometres long with survey techniques used at the time, E: firstname.lastname@example.org the location of that drilling wasn’t widths of identified mineralisation of ASX:AZK optimally positioned. 6-10m, while the company’s Belanitra graphite project continues to hold “Previous drilling on our acreage was www.aziana.com.au all done on 2D seismic,” Rinaldi said. exploration upside. THE PICK October 2013
Gold production for Auroch in mozambique There’s plenty of exciting news around gold explorer and developer Auroch Minerals NL (ASX:AOU) as the company closes in on production at its 3Moz gold project in the Manica Province of Mozambique. Near-term production has become the As part of the company’s near-term parallel during first half 2013 at the immediate focus for Auroch at Manica, production strategy and ongoing Mutambarico and Boa Esperanza where exploration to date has indicated feasibility studies, further infill drilling Project sectors (data capture). The that mineralisation follows two distinct at the Guy Fawkes and Dot’s Luck combined scout drilling and data lateral structural trends within the projects was undertaken during July to capture at Mutambarico and Boa highly prospective and relatively September 2013. This data, compiled Esperanza were used to identify unexploited Odzi-Mutare-Manica gold with the scout drilling campaign further targets on the Northern belt, which extends 160km from the undertaken at Guy Fawkes, will be Shear. Access to significant historical Save River in Zimbabwe eastwards. used to upgrade existing resources data from cornerstone shareholder Auroch recently completed a deal during the fourth quarter of 2013 at the Pan African Resources PLC, which to expand its footprint in the highly Guy Fawkes and Dot’s Luck projects. initially acquired the project in 2002, prospective belt. further bolsters the exploration upside In addition, airborne VTEM and potential of the project. A recently completed scoping study at aeromagnetic survey trenching Manica provided Auroch with a clearly and mapping were undertaken in The Manica Gold Project was granted a defined development strategy and mining concession in March 2011, route to production by the first which is valid until March 2036. quarter of 2015. DIRECTORS Pan African spent $25 million on The scoping study assumed a exploration expenditure focused Glenn Whiddon Jan Nelson throughput rate of 720,000tpa, on the Southern Shear, which Non-Executive Chairman Non-Executive Director processing ore at an average head included 35,000m of diamond Dean Cunningham grade of 2.23g/t gold, producing and reverse circulation drilling, Managing Director 40,000oz a year. and comprehensive geological modeling. Total cash cost of production, excluding capex and before Auroch is also currently finalising Registered Office Contact depreciation, tax and royalties, due diligence on a binding joint was estimated at US$642 an venture heads of agreement Level 2, Office J ounce with an assumed long-term with Capitol Resources, the P: + 61 (0) 8 9486 4699 1139 Hay St average gold price of US$1,200 an Mozambique subsidiary of AIMF: + 61 (0) 8 9486 4799 West Perth, WA 6005 ounce. listed Baobab Resources PLC. AUSTRALIA In addition, the company Under the terms of the JV, Auroch E: email@example.com completed scout drilling at its Guy will make a two-stage investment Fawkes Project Sector (refer to fig), of US$1.5 million in exploring for ASX:AOU comprising a total of 7,445m from gold on Capitol’s mining concession 33 drill holes during the first half to earn an 80 per cent interest in www.aurochminerals.com of 2013. the project. 18
THE PICK October 2013
The two-stage investment gives Auroch access to an 18sq km license area situated adjacent to its existing mining concession within the Odzi-MutareManica Greenstone Belt. Elevated gold in soil anomalies within the JV area have been interpreted to correlate to the continuations of structures hosting Auroch’s gold resource and are expected to add an estimated 7.9km of strike length to the company’s existing 27km of prospective strike. Stage one of the transaction will see Auroch invest not less than US$500,000 on a work program to earn a 51 per cent
participatory interest in the concession upon completion. Following the first work program, Auroch will have the exclusive right to invest a further US$1 million in a second work program to earn the remaining 29 per cent participatory interest available under the terms of the agreement. Auroch also has the option to purchase Capitol’s remaining 20 per cent interest in the JV area in an all scrip deal or a co-funding of further exploration on a pro-rata basis. The company boasts an experienced
management team and focused board, the majority of whom transferred to the company from Pan African when Auroch acquired the 3Moz project in January 2013. Managing director Dean Cunningham, an Africa-based mining engineer and corporate financier, said the announcement of the JV represented the company’s first step in establishing itself as the major gold camp in the Manica Province. “Auroch’s clear cut path to production strategy, announced in July 2013, sees an immediate focus on nearterm production with future material exploration expenditure coming from cash flows,” he said. “Gaining access to further potential resources at the JV prospecting license is important to bolster Auroch’s firstmover advantage in what is already a significant gold camp. “With a resource upgrade expected to result from drilling to date, this JV is intended to provide the company with flexibility and critical mass for the future.” Cunningham said Mozambique had a favourable political and legal environment based on established mining law and good infrastructure. The company’s operations are in central Mozambique, 270km from the port of Biera, and are well connected by established road and rail links through from Biera to Zimbabwe.
THE PICK October 2013
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Between a rock and a hard place Commodity prices lower, drilling still falling, new resources declining, deal-making quiet and industry financing collapsing. A recent edition of the quarterly State of the Market report by IntierraRMG described the international mining industry as being already “between a rock and a hard place”, and the situation has deteriorated significantly in the three months since then. It seemed unlikely, three months ago, that market conditions for the mining industry could worsen, but they have. As the IntierraRMG report outlines, the business environment reached a new low in the June quarter and there are very few signs of improvement. Almost all commodity prices have been falling this year (and most have been declining since early 2011). This has contributed to yet another fall in exploration activity. According to IntierraRMG’s online database, IntierraLive, cumulative drilling reports for the quarter just ended amounted to only 1,053 prospects, compared with 1,479 in the March quarter, 1,741 in the quarter to end-December 2012 and 2,072 prospects in the three months to endSeptember 2012. This malaise extended into the Boardroom. According to the Raw Materials Database, the value of metal-mining deals announced in the June quarter slumped to under US$5.4 billion (and almost US$1.9 billion of this was for iron-ore assets). This contrasts with deals valued at almost US$12 billion during the previous quarter, which was itself a quiet period by historic standards. The falling metals prices, nervous bankers and risk-averse investors all contributed to a slump in funds raised in the mining sector. As the Table (right) shows, only US$2.3 billion was received in the three months to end-June, compared with US$5.2 billion in the March quarter and US$6.1 billion in the second quarter of 2012. Total cash held by the almost 3,500 listed companies has fallen to under US$138 billion. The industry now faces
a severe capital drought, and the highest debt levels ever experienced. Any cause for optimism? Yes there is, although it offers scant short-term comfort. Fears of an end to the “commodity supercycle” are surely exaggerated. The rate of economic growth in China is certainly slowing but it is still growing, and so the nation requires ever more metal. Moreover, even if the country’s economy was stagnant, China (and most other populous emerging markets) has a rapidly urbanising population. As has been proven, the consumption of metal (especially copper and iron ore) increases as populations grow and/or move into cities. According to the United Nations, urbanisation levels in China, India and
Indonesia were 52 per cent, 32 per cent and 51 per cent last year, respectively. These economies will be consuming significantly more metal when, as seems certain, they eventually reach the 80 per cent levels of urbanisation of the UK and US. Indeed, if we all consume as much as the average American over our lifetime, according to the US-based Mineral Information Institute, by 2100 the world’s expanded population will require each year some 1.6 times as much bauxite as produced at present, 2.4 times the zinc, 3.6 times the copper and 5.1 times the amount of coal that is currently produced annually. Statistically, the current level of global ironore production should be sufficient for the world’s 10 billion ‘Americans’ in 87 years (citizens of the US consume relatively little iron ore at the moment, whereas many populous nations are already conspicuous consumers of the metal). Hope then, but not yet.
Fre at w e rep ww ort s .int ierr umma aRM ries Quarterly reports on global mining, finance and exploration activities. G.c om Special features for Edition 4, 2013: • Metal prices, grade and tonnage predictions for 2014 • Summary of analysts’ market expectations
State of the Market Reports
Topics coverage: ► Mining Market ► Mining Finance ► Mergers and Acquisitions
► Driller’s Log ► Assay Highlights ► Exploration hot spots and results
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THE PICK October 2013
Euro interest in aussie gold Hannes Huster is publisher and editor-in-chief of the stock letter “Der Goldreport”. Founded in 2003, this stock letter analyzes promising, high-growth resource companies. This investment strategy is reflected by fantasy trading portfolios for a variety of risk categories. www.dergoldreport.de Investments in precious metals are not new to European investors. German investors especially have either experienced themselves, or have learnt through others, what it means when a currency is wiped out in the wake of high public debt and the government’s decision to print new money. Such historic events cause an increasing number of investors to turn to precious metals, particularly to protect themselves against inflation. Another commodity to add to the portfolio, either for diversification or simply to draw a short-term speculation benefit, are resource shares. In this area, German investors are pretty much left alone. Unlike Australia or Canada with their myriads of brokerage and research firms specialising in the resource sector, Germany has no companies that are exclusively focused on resources, no useful data material on foreign resource companies and no domestic banks that can provide information on resource shares. In 2008, against this backdrop, I therefore decided to focus the stock letter DER GOLDREPORT on the Australian mining sector. The reasons why I chose the Australian mining sector over the North American mining business were manifold. One reason was the currency exchange rate between the Australian dollar and the euro, which at that time was AU$2 to €1. This provided us with a favourable entry opportunity – just shortly after the financial collapse. Not only the share prices, but also the currency had come down to an extremely low level. Another argument supporting my choice of Australian mining companies was, and has been, the transparency of Australian security laws. The stock exchange has set up stringent rules for companies which they must adhere to in their announcement of quarterly reports, news releases, and insider transactions. This level of transparency is unique and at times not even matched by the stock exchanges in Germany. What we still have difficulty with is the Australian mentality in terms of share dilution, share structure and low-priced stocks. German investors prefer a tight share structure and a higher share price. Australians, in contrast, go for the lowvalued “penny shares” (where the share price is in the cent range). Europeans tend to shy away from such shares; we believe that a share only worth 10 cents is a “penny stock” and that there is no serious 22
THE PICK October 2013
business behind to back it up. To raise awareness and a better understanding of these facts, much effort was spent on communication programmes in recent years, and luckily these were rewarded with well-performing investor portfolios. As the editor-in-chief and owner of the GOLDREPORT, I truly believe that the right pick is the alpha and omega of a successful trading portfolio. The mining business and especially the exploration industry, bear many inherent risks, and our aim is to rule out any additional risks right from the start. This will not always be achieveable, but a good opportunityrisk ratio is still a key element in mining share investments.
“Oftentimes, these are the best medium-term opportunities to pick up ‘shattered’ producer shares. ” When picking our shares, we focus on a solid financial position, an experienced management with a proven track record and a clean share structure, as long as this is justifiable by our own standards. Especially with smaller companies, we feel it is important that the management holds a high interest. We look for active leaders, not for “salary earners”. Another increasingly important factor is the minimisation of political risks. The deprivatisation of mining projects or uncertainties in mining jurisdictions have already driven some companies to the verge of bankruptcy. Over the past few weeks, we have taken a number Australian gold producers into our portfolio - partly as a trading opportunity and partly with a view to long-term profits. After the long period of drought which the gold sector has had to put up with, it makes sense to draw benefit from good short-term profits (not only because
it soothes our soul). We scooped a profit of over 40 per cent with gold producer Kingsgate Consolidated (KCN) in only a few trading days, and bought shares of Senegal-based gold producer Teranga Gold at a very low price level. In the early phase of recovery, it is important to go for high-liquidity producers as they are the first ones to draw benefit when a market recovers. It also needs to be noted that many analysts have seen their hopes thwarted during the downward trend and have therefore significantly reduced their share ratings. But the Australian dollar has been coming down in recent weeks as a result of interest rate cuts, and this has led to a relatively high gold price in Australian dollars. A similarly positive trend is seen in the base metal sector, especially among iron ore companies. Unfortunately, analysts tend to go with the mainstream. When a tonne of iron ore is traded at US$150, they cannot push their price targets up fast enough. But when there is a correction in the iron ore market, such as was the case in August 2012, they immediately jump to a worst-case scenario and predict another price slump. Currently, the trading price of a tonne of iron ore is US$130, which sweeps more than AU$140 in earnings into the coffers of Australian producers. Most surveys have not even taken these changes into account. It is also exciting to look at the wellpositioned nickel, copper and zinc producers. Investors have only a modest interest in these companies at the moment – a trend quite similar to that after the financial crash in 2008. But companies that survived the past months remarkably well are now drawing benefit from the weaker Australian dollar and the cost reduction measures instituted. Oftentimes these are the best mediumterm opportunities to pick up “shattered” producer shares. A fine example is Perilya Ltd. Following the Lehman breakdown, when resource shares were going through their darkest phase, the Chinese company Zhongjin Lingnan appeared on the scene and acquired the majority interest in the business. Now, in early September 2013, the Chinese are preparing for a second leap to take over what’s left, and earn a 100 per cent interest in. If they are right now, as they were in 2009, this is the perfect time to invest in well-positioned base metal producers.
Quick Picks . . . IMX inks deal with MMG Iron ore producer IMX Resources Ltd (ASX: IXR) has signed a $US60 million JV with the exploration arm of global resources house MMG over the company’s Nachingwea nickel project in Tanzania. MMG can earn up to a 60 per cent interest in the Nachingwea JV by spending US$60 million over three stages within five years. MMG will become the manager of the JV and its initial focus will be on deep drilling at the Ntaka Hill deposit, whilst pushing forward regional assessment. Under the agreement, IMX has retained the right to continue to aggressively pursue exploration at Nachingwea that doesn’t conflict with MMG’s sole funded program. The deal provides IMX with a funding solution that prevented a dilutive corporate capital raising.
Finbar finishes St Marks Finbar Group Ltd (ASX:FRI) has completed construction of both the St Marks and the Knightsgate projects in Western Australia, with first settlements expected in October. St Marks in the suburb of Highgate and the Knightsgate precinct in Currumbine ,have a combined value of $89 million and will contribute to the company’s revenue in the first half of FY2013/14. October will be busy with Finbar set to complete its Pelago East project in Karratha and establishing a new office in the regional hub at the precinct in conjunction with the opening. “With our current cash position and cashflows anticipated from settlements in these projects over the next few months, our company is well positioned to support the commencement of new projects this coming year and to continue to have capacity to benefit from new growth opportunities as they are suitably identified,” managing director Darren Pateman said.
Brazil calling BC Iron BC Iron Ltd (ASX:BCI) has confirmed its interest in Brazil iron ore with its alliance partner Cleveland Mining Corporation Ltd (ASX:CDG) and converted a memorandum of understanding over three projects in to
binding option agreements. The agreements states that the BC Iron/Cleveland Alliance can earn up to an 80 per cent interest in three iron exploration states in the Bahia and Minas Gerais states of Brazil. “Greenfields exploration projects are an important component of a balanced project pipeline and compliment BC Iron’s interest in the NJV operation and the Pilbara, which remains our key focus for growth opportunities,” mananging director Morgan Ball said. The company’s flagship Nullagine iron ore joint venture with Fortescue Metals Group Ltd (AS:FMG) has shipped more than 10mt of Bonnie Fines product since first export in February 2011.
Silver shines at Texas Alcyone Resources Ltd (ASX:AYN) is pouring silver again, having announced its first 4,000oz silver pour in August after the restart of mining operations at the Texas silver mine in Queensland. The company expects conditions to keep improving with further increases in production, a proposed silver purchase agreement and scheduled plant upgrades under way in September. Margins from silver spot sales to the Perth Mint are on the mend with the Australian dollar well under parity and silver spot prices above the US$20/oz. South African coal producers
Wolfsberg sampling starts Global Strategic Metals NL (ASX: GSZ) engaged contractors Grafitbergbau Kaisersberg to cut two 500t bulk samples at the 80 per cent owned Wolfsberg lithium project, Austria. The extracts will be taken from the Mica Schist and Amphibolite hosted pegmatite ore bodies on the project located 270km south of Vienna in the town of Carinthia. It is expected that the bulk sampling will be finished by the end of November. Following the completion of bulk sampling, Global Strategic Metals expects to have satisfied the necessary conditions to be granted the mining leases for the project for a two-term period of 30 years from the Austrian Mining Authorities.
Ten new targets for Latin Latin Resources Ltd (ASX:LRS) has identified ten new target areas prospective for IOCG mineralisation across the company’s 100 per cent owned 110,000 hectares landholding. Extensive cover has hidden the potential from historical explorers, in a region home to porphyry systems which hosts deposits such as Tia Maria (30km along strike to NW). One of Latin’s target is the El Yaral project, an ex-Rio Tinto project drilled in 2000, which turned up evidence of copper oxides at surface. Over 125 billion pounds of copper is contained in the ground in resources and reserves – all within 100km of Latin’s concession areas.
Blackham builds backers Great Central Gold Pty Ltd has converted $2 million Tranche 1 convertible notes in to 8 million ordinary shares of Blackham Resources Ltd (ASX: BLK) at a conversion price of $0.25 per share. Blackham recently returned to drilling at the Matilda gold project, aiming to identify new oxide resources and extend high grade lodes. An RC drilling program will test targets at the Matilda and Williamson gold mines, including the high-grade lodes at M1 and oxide extensions at M4. The program aims to build confidence and increasing the 1.5moz resource estimate.
Conti partner in Botswana Continental Coal Ltd (ASX: CCC) entered in to a binding term sheet with a third party to earn-in up to 80 per cent in two of the company’s prospecting licenses in Botswana. As part of the deal, the third party must fund all exploration activities and costs up to November 2014. Continental retains a 20 per cent free carried stake up to the completion of a bankable feasibility study – subject to the right for the third party to acquire the remaining one-fifth ownership for an independently determined fair market value. THE PICK October 2013
China’s showcase ready to roll With just a month to go before the opening of the world’s largest mineral investment, co-operation and trading platforms, China Mining Conference and Exhibition organisers say preparations are on track for an exceptional show. China Mining covers the whole value chain, including geological surveying, exploration development, mining investment and financing, smelting and processing, technique and equipment, mining services, mining rights, trading and more. China Mining, now in its 15th year, plays an important role by creating communication and co-operation opportunities for relevant domestic and international industry communities. Last year’s event achieved tremendous success, with 429 exhibitors and 6000 delegates from 57 countries attending and agreements for 89 projects, worth a total of RMB 13.2 billion, signed during the conference. In the same way as last year, China Mining 2013 will consist of three parts: Conference, Exhibition and Coherent Events. During the Conference,
government officials, industry leaders and experts from both Chinese and foreign mining industries will have indepth mining talks on issues related to the mining industry. These talks will include summits with keynote sessions, the Global Mining Development Forum and several stream sessions, including policies and financing, prospecting and exploration, country investment and mining commodities as well as Mining Sustainability and others. China Mining Exhibition 2013 will further strengthen the mining and exploration sectors, as well as open up the development of new technologies for mining mineral resources, the development of new equipment, precision instruments, as well as major projects. The number of standard exhibitor’s booths is expected this year to reach more than 1400; the exhibition has an area over 26,000sq m. In addition to standard displays, China Mining will also feature a Mining Country Area, and a Special Construction Area, for demonstrations and displays of equipment.
November 2-5, 2013
Contact: Tel: +86-10-64466855 Fax: +86-10-58857006 Email: email@example.com Web: www.china-mining.org/en
The Miners ready for release The Miners - Stories from the industry that drives modern Australia the coffee-table style book by mining journalist Barry Avery that tells the story of the Australian mining sector will be officially released this month. Containing over 200-pages with more than 90,000 words and over 200 images and maps, The Miners will be officially released at a function at Black Tom’s restaurant, bar and café in West Perth on Wednesday, October 16. Avery said he’d previewed an advance copy of the book and it looks truly fantastic. “Everyone who has seen it has had nice things to say about it,” he said. The Australian mining industry has a great story to tell, one which is inextricably linked to the progress and development of modern Australia’s status as one of the world’s leading democracies. The Miners was born out of the belief, shared by many within this multi-faceted industry, that the role of mining in nation-building
has over the years been substantially unacknowledged at best and, at worst, derided. What The Miners hopes to do, quite simply, is tell some of the stories of challenge, risk, reward, failure, hopes and dreams through the voices of those in the industry from mining company managing directors and a broad spectrum of other stakeholders, including drillers, unionists, politicians and financiers. The Miners is not a history book; neither does it offer saturation coverage of every commodity and company; nor does it pretend to be a definitive work on the subject and it most certainly contains gaps and omissions which knowledgeable industry insiders might easily identify. It is a story of the industry told by the people who drive it, who have lived it, who dream it and create nation-building wealth through it. Proceeds from The Miners will go to the Starlight Children’s Foundation, which celebrates its 25th anniversary in Australia in 2013.
More information about The Miners, and a pre-order form, may be found at: www.theminers.net.au
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THE PICK October 2013
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