THE INSIDE STORY: Junior exploration play Cassini Resources (ASX: CZI) recently caused a minor tremor on the boards of the Australian Securities Exchange.
The excitement followed the company’s announcement it had executed a Sale and Purchase Agreement to acquire 100 per cent of the West Musgrave project in Western Australia.
While the acquisition of such a project by a junior company is fairly common, what cast this particular deal into the spotlight was the identity of the vendor.
Cassini secured the property from BHP Billiton Nickel West and BHP Billiton Minerals, two subsidiaries of global mining powerhouse BHP Billiton (ASX: BHP).
The West Musgrave project contains the Nebo and Babel sister deposits, commonly referred to as Nebo‐Babel, the Succoth copper exploration prospect plus a number of prospective exploration targets.
The crucial element of the deal for Cassini is all these deposits and targets come under the company’s control with a great deal of exploration and development work already completed.
Nebo‐Babel, the project’s pivotal prospect, was first discovered by Western Mining Corporation (WMC) in 2000, when drilling intersected mineralisation of 26.55 metres at 2.45 per cent nickel, 1.78 per cent copper, 0.74 grams per tonne platinum group elements (PGE) plus gold.
BHP arrived on the scene by swallowing up WMC in 2005, after which time Nebo‐Babel was subjected to a healthy amount of exploration activity, which mainly focused on developing the deposits as a large‐scale, low‐grade production model.
Nebo‐Babel currently has an Inferred resource 446 million tonnes at 0.33 per cent nickel and 0.35 per cent copper (0.2 per cent nickel cut‐off) for 1.47 million tonnes of contained nickel and 1.56 million tonnes of contained copper.
“Because of the way BHP originally approached the project, the high-grade ore body within the deposits was never really domained,” Cassini Resources managing director Richard Bevan told The Resources Roadhouse.
“They intended it to become a large large‐scale, low‐grade production model.
“We intend looking at the project differently, as a high-grade opportunity – as a smaller project than what BHP originally envisaged.
“So we have some work to do over the next six to twelve months to really get in there and define that high-grade ore body.”
Cassini is confident Nebo‐Babel has the characteristics necessary for it to become a smaller, higher‐grade operation.
This confidence stems from the results of the due diligence the company carried out over the deposit, which revealed its substantial production potential.
Cassini’s due diligence demonstrated the existence of discrete higher‐grade zones within the Nebo‐Babel deposit, which have yet to be fully delineated by drilling.
Both deposits are suitable for openpit co‐development as they are very close to the surface, with the Babel deposit outcropping.
Nebo‐Babel also revealed favourable ore‐body geometry as a flat dipping deposit, which Cassini considers shows potential for an openpit operation with a very low stripping ratio.
Another vital aspect of the acquisition is the reasonably small consideration of $250,000, ten per cent of which has already been paid by Cassini as a deposit.
BHP will be paid a two per cent net smelter royalty, which will apply to the net proceeds from future production from the tenements within the project.
Cassini will also pay a production milestone payment due 12 months after production from the project commences, amounting to $10million in cash.
Cassini considers such a minimal up-front cost de‐risks the project considerably and allows it to focus on assessing future development options.
“It is better than drilling the discovery hole in many ways,” Bevan said.
“BHP has spent a significant amount of money on the deposit to bring it to where it is now, which means we don’t have to.
“For us that means we are moved a considerable way along – a lot of the risk is gone – in the sense that we are not out there trying to find something – it’s already been found.
“For the cost of a drill program [the $250,000 consideration] we have got a project with high-probability for an economic deposit.
“However, there are a couple of things we need to do in order to confirm that is the case.”
Using what it has learned from the extensive work already undertaken on the project, and the $10 million proceeds from a subsequent share placement, Cassini proposes carrying out resource definition drilling to infill known higher‐grade zones to build a higher‐grade subset to the overall Nebo ‐ Babel Mineral Resource.
It will also conduct metallurgical testing to ensure it can achieve acceptable recoveries within higher‐grade ore at Nebo‐Babel.
“BHP has already conducted a fair bit of metallurgy testing,” Bevan explained.
“However, they approached that in a similar way to which they approached the project itself – by taking bulk composite samples.
“They didn’t actually look at the recoveries for the higher grade, or the recovery for the different types of ore present.
“That’s the work that needs to be done. That’s the opportunity for us – to approach it as a junior company would – and within that greater project area is a smaller valuable subset.”
Cassini’s acquisition of the West Musgrave project demonstrates that, even though the market may currently be experiencing some tough times, when a junior mining company is prepared to take a chance it can still be handsomely rewarded.
The overnight success of the deal started some 18 months ago when Cassini boldly approached BHP to gauge whether it may be interested in divesting the projects. As it turned out BHP was interested.
There was also a great deal of interest in the projects from a number of Cassini’s contemporaries in the junior sphere, all of which were just as eager to augment their own projects in the West Musgrave region.
“One of the criteria BHP had was that the project would go to a company with existing relationships in the area and would develop the project so the communities in the region would actually see some benefit from the project,” Bevan said.
“Fortunately we have worked hard developing an existing relationship with the communities and the traditional owners in the region.”
Another differentiating factor that shouldn’t be overlooked is the personnel who sit around Cassini’s Boardroom table.
The company’s chairman Mike Young with his exploration to production experience with BC Iron, demonstrates the ability to take an asset and bring it through to production in a reasonably short time frame.
John Hronsky has been consulting to Cassini through his consulting group Western Mining Services and was previously with BHP Billiton Minerals Exploration and WMC Resources.
He was a key member of the targeting strategy and exploration team that led to the discovery of Nebo‐ Babel, which does qualify him to be a very handy man for Cassini to have on its team at this time.
“We consider the West Musgrave project to be a truly significant set of assets, and being able to acquire them is a great result for Cassini,” Bevan said.
“Nebo‐Babel is widely regarded as a world‐class deposit and, as a smaller company, we look forward to applying a different, innovative approach to these assets, focussing on higher‐grade opportunities, with the aim of progressing their development to production as a priority.
“We are confident we can hit a number of major project milestones within the next six to twelve months.”
Cassini Resources Limited (CZI)
…The Short Story
945 Wellington Street
West Perth WA 6005
Phone: +61 8 9322 7600
Fax: + 61 8 9322 7602
DIRECTORS and MANAGEMENT
Mike Young, Richard Bevan, David Johnson, Dr Jon Hronsky, Phil Warren, Greg Miles
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