The opportunity to develop a neglected yet potentially exceptional copper-gold-silver project has momentarily shifted the focus of Perth-based Australian-American Mining Corporation.

AusAmerican was founded in 2006 on a suite of advanced United States uranium projects in New Mexico and Nevada.

AusAmerican United States project portfolio

It’s no secret the world uranium market has been under some duress of late; however AusAmerican could not consider divesting itself of, what it considers such a strong package of projects.

“We have a genuine belief in our uranium assets and the broader US uranium story,” AusAmerican chairman Mark Ceglinski told The Inside Story.

“Unfortunately the market is not there currently so we took the decision to put them aside for now.

“We know they will have significant value in the future. We are currently considering the alternate strategies for delivering the optimal value for our shareholders and believe the best option may be to spin them out into another entity at some stage.”

That decision opened the door for the acquisition of new projects and to introduce new blood around the Boardroom table.

The company’s founder and executive director Jim Malone approached Ceglinski and Richard Holmes to join the company.

Ceglinski brought with him over 25 years’ experience as a corporate finance executive and company director, working extensively within the natural resources sector.

He was previously a partner with international accounting firms Ernst & Young and Arthur Andersen and was chairman of Tangiers Petroleum from 2010 until 2012.

Holmes’ pedigree is also impressive. A highly- respected geologist, Holmes brings to the table a wealth of experience having managed global business development of major mining companies Anglo Gold Ashanti and Aditya Birla.

“Richard has worked as a geologist for over 20 years, on innumerable mines and exploration projects around the world,” Ceglinski said.

“His most recent position, with Anglo Gold, entailed visiting pretty much every geologically interesting country, other than Australia, looking for company making gold assets.

“His role previous to this was with copper giant Aditya Birla where he did the same thing but with a copper emphasis.

“Richard’s great skill is that he brings a business development mind to a geologist’s approach to things.

“He has the ability to take an early view, ‘that’s going to be a mine’ or, ‘that’s not going to be a mine’.

“That is perfect for AusAmerican as a company; because we have no intention to spend money drilling something unless we consider it to be a company-maker.”

Working with AusAmerican has allowed Holmes to unleash his creative juices, so to speak, as he performs the same global-company role, only this time for a junior exploration play.

Mandated to find brownfield projects with proven exploration that are manageable for a small company, the newly-formed AusAmerican team commenced their search.

The company concentrated on projects with potential to be developed quickly using modern exploration techniques while spending limited amounts of capital.

It quickly compiled a list of around 40 possible projects, two of which – the Bluebell and De Soto mines, two historical mines located about 100 kilometres from Phoenix, Arizona – ticked the appropriate boxes.

 

Location map Bluebell and De Soto projects

“They are situated within a very well-known historical mining camp renowned for high-grade copper, particularly VMS (volcanogenic massive sulphide) deposits,” Ceglinski said.

The Bluebell mine was operated from 1906 to 1926 producing approximately 1.2 million tonnes at 3.2 per cent copper, 1.7 grams per tonne gold and 42 grams per tonne silver.

The operation consisted five operating shafts with a main shaft sunk to around 420 metres.

In all, just over nine kilometres of underground workings were developed to selectively mine high-grade lenses, some measuring up to 4m wide, using a shrink stoping mining method.

“It is a VMS deposit with seven lenses identified – six were undercover with only one outcropping,” Ceglinski explained.

The cut-off grade used by the old-time miners varied between, what would be considered today, extraordinary grades of 2 to 3 per cent copper, depending on the copper price of the time, and silver grading at 34 grams per tonne.

“They were focusing on the high-grade massive sulphide mineralisation and ignored, what they called, the stock work, which was the halo of the mineralisation,” he said.

“They mined it down to around 350 metres and did not continue mining when they hit one per cent copper.”

An interesting aspect of the project is that it is situated on ‘patented land’, which means AusAmerican will not only hold the mineral rights it will also have claim to the project’s surface rights.

“That means we will own the entire land, which assists in accelerating such things as permitting, drilling and other exploration activity,” Ceglinski said.

To further enhance its exploration prospects AusAmerican recently acquired a historical geological data package covering both Bluebell and De Soto.

The package contains data compiled by the original operators of the two mines and includes the original underground mine plans, underground sampling information and operational memos and reports.

The package also contains geological data from limited recent exploration conducted during the 1980s and 1990s.

AusAmerican is now assessing all the data to plan its first drill program, which it anticipates will commence in the first quarter of 2013.

It will also use the information to re-examine its recently-announced exploration target for the Bluebell mine of 15 to 20 million tonnes at 0.6 to 0.8 per cent copper, 0.2 to 0.4g/t gold, and 15 to 30g/t silver.

“What we have built up is an exploration concept we have described as our ‘Initial Open Pit’ concept,” Ceglinski said.

“This would entail mining an open pit to around 300 metres targeting the balance of all the high-grade zones and the lower grade stock work, which combined is probably still one to 1.5 per cent copper equivalent.

“We can’t say that for certain as yet, but we hope to be able to soon.”

On the basis of this target AusAmerican believes Bluebell could contain up to about 300,000 tonnes of copper contained metal.

Second stage activity at Bluebell will gain further understanding of four of the seven lenses, which had previously identified to be open at depth and of very high-grade.

AusAmerican anticipates this will enable it to increase the current resource target there.

The third stage will move the company’s attention to the De Soto project.

De Soto practically mirrors Bluebell except it is not as quite as big with fewer lenses; however these have been shown to possess exceptional grades.

Finally, AusAmerican is staking a parcel of land surrounding the two projects where other areas of conductors were identified by Newmont in the 1980s.

The company considers these provide potential to locate any undiscovered lenses.

“We think this target could increase quickly based upon the work we are planning,” Ceglinski said.

“What we are going to be doing in the next couple of months – now have all this data – is reviewing, interpreting, and digitalising.

“We have also just completed a field campaign where we have taken over 400 samples which are now being assayed.

“The former owners never assayed for precious metals – they took them out and got good recoveries but they only ever assayed for copper mineralisation.

“What we hope to have achieved by the end of the first quarter next year is to have some drill results with intersections proving the potential of the mineralisation around the open pit concept enabling us to put some meat around the bones of the concept we have.”

Australian-American Mining Corporation Limited (ASX: AIW)
…The Short Story

HEAD OFFICE
572 Hay Street
Perth WA 6000

Ph: +61 8 9481 0799
Fax: +61 8 9481 1927

Email: jim.malone@ausamerican.com
Web: www.ausamerican.com

DIRECTORS
Mark Ceglinski, Jim Malone, Richard Holmes, Donald Falconer

MAJOR SHAREHOLDERS
Management approx. 16%
GXB Pty Ltd 5.05%
Peninsula Investments WA 4.86%

SHARES ON ISSUE
144 million

MARKET CAPITALISATION

$6.8 million (at 8/11/12)

 

THE BOURSE WHISPERER: Talga Gold (ASX: TLG) has updated the JORC Mineral Resource estimate for the company’s 100 per cent-owned Nunasvaara graphite deposit in northern Sweden.

 

Talga tenement locations, graphite projects and established transport infrastructure, Sweden.

 

The Indicated and Inferred estimate for Nunasvaara now totals 7.6 million tonnes at 24.4 per cent graphitic carbon when a 10 per cent graphitic carbon cut-off is applied.

The new estimate also represents a 110 per cent increase in size (tonnage) over the previous estimate, with 5.6 million tonnes at 24.6 per cent graphitic carbon in the Indicated category.

The growth in the resource and upgrading of the majority of the tonnes to Indicated status comes on the back of a maiden drilling campaign Talga carried out in July and reflect additional mineralisation defined along strike and down-dip of historic drilling.

Total contained graphite at Nunasvaara has increased 123 per cent to 1.85 million tonnes, more than double the size of the previously estimate of 3.6Mt at 23 per cent graphitic carbon containing 828,000 tonnes the company reported in February this year.

“Our targeted upgrade in size and status of this major graphite resource to support a 20 year open-cut mine life has been exceeded by a considerable margin,” Talga Gold managing director, Mark Thompson said in the company’s announcement to the Australian Securities Exchange.

“The deposit represents a significant new source of graphite not only for Europe, which in 2011 had to import approximately 170,000 tonnes natural graphite, but is one of the largest amounts of contained graphite defined by JORC or NI43-101 codes anywhere in the world.

“The increased status and size of the resource will be utilised in preliminary economic studies due to commence in December.”

Talga indicated the graphite mineralisation remains open along strike and at depth, with geophysical data and mapping suggesting potential for further expansion.

The company is now waiting to receive the assay results from a recent rock geochemical program, which it said will be reviewed with the aim of defining drilling extension targets in conjunction with geotechnical drilling for mining studies.

Resource development and infrastructure constraints in Africa and other emerging markets: A tale of two sectors.

 

Reflecting on infrastructure development in Africa and other emerging markets, Conrad Marais from specialist projects and emerging markets firm Hunt & Humphry, looks at the historic structural shortcomings of the relationship between resource and infrastructure investment and development and how these are being addressed to open up new opportunities for investors and mining companies (including juniors) to access infrastructure.

As Africa and other emerging markets position themselves to exploit their vast mineral and petroleum resources – in the case of Africa, it is believed to hold 30 per cent of the world’s mineral reserves and 10 per cent of its reserves of oil – the issue of the lack of infrastructure continues to frustrate governments, investors and developers.

Although the construction of roads, railways, ports, airports and power infrastructure in emerging markets has increased over the last decade, the contemporaneous explosion of interest in mining and petroleum in these markets has exacerbated the shortfall.

Under-investment and mismanagement is partly responsible for this, as is the inherently difficult nature of developing infrastructure such as railways or hydro power which have high capital costs and are invariably highly politicised.

The problem has been ameliorated by the proliferation of comprehensive host government agreements entered into between governments and sovereign investors or multi-nationals, imposing significant obligations on those developers to construct infrastructure.

However, the financial necessity for the developers of these projects to secure priority access means that it has been difficult for small mining companies and other industries to gain access to that infrastructure.

The burden for a bulk commodity producer, for example, to share rail lines with agricultural users or small producers is likely to outweigh the necessary financial investment required and therefore single-use and single-purpose infrastructure becomes an eventual prerequisite in negotiations with government.

As a result, the vast majority of resource developers – juniors and mid-tier companies included – and other industries have found it increasingly difficult to access infrastructure required in order to make their projects commercially viable.

It’s a common story amongst developers and a difficult message to sell to investors; great project but there’s no power, no rail and no port.

To compound matters for resource developers in particular, it has historically – for a number of reasons – been very difficult to get the attention of the traditional financiers of infrastructure in Africa, development finance institutions (DFIs) such as African Development Bank, Industrial Development Corporation, IFC, Development Bank of Southern Africa, Proparco of France, DEG of Germany, FMO of Holland and the European Investment Bank.

Although there are many positive examples of DFI involvement with Australian resource companies operating in Africa – Equinox’s Lumwana project in Zambia being one of them – DFIs have often cited environmental concerns and management issues associated with resource projects.

The availability of private investment for these projects has also tended to exclude DFI involvement.

Equally, the Australian resource sector’s understanding of infrastructure development in emerging markets is not extensive, particularly in relation to the financing structures required and the risks involved in DFI funding.

Many junior explorers in Australia also have a negative view of these institutions, noting uncontrollable due diligence exercises, lengthy credit approval processes and burdensome environmental conditions.

There are also few forums, certainly with respect to Africa, where the parties can meet on a meaningful basis by incorporating the resource and infrastructure sectors.

 

None of the larger African mining conferences, including Indaba in Cape Town and Africa Down Under in Perth, actively incorporate infrastructure as part of the program.

The same can be said about infrastructure conferences such as the Africa Energy Forum (in Europe), which are not generally attended by mining companies.

There are very few (if any) forums where resource and infrastructure players can confer on integrated solutions.

As a result, the resource and infrastructure sectors have tended to operate independently with the consequence that each sector struggles to understand the drivers, players and risks of the other.

More fundamentally, there has been very little cross pollination of projects or integration of long term goals between resource and infrastructure developers.

For two sectors that so heavily depend on each other for progress, this has not been helpful for Africa’s development needs.

Don’t forget about us

So, where does that leave the vast majority of resource developers and other industries struggling to get their product to market?

As lamented above, the answer some years ago may not have been good news but with the increased activity in mining and petroleum exploration throughout Africa, there are signs that infrastructure developers and investors (particularly DFIs) are increasing their focus on resources projects as a way to progress infrastructure in Africa.

The attention of DFIs has moved to resources projects as a means of progressing (and importantly, funding) infrastructure development.

To the DFIs the developmental benefits are clear.  Resource projects, particularly those involving bulk commodities can transform local economies (because of the sheer size of the projects) and can open up mining and other industry enclaves (such as agriculture) through infrastructure development.

In addition to the direct developmental benefits a resources project can deliver (for example, employment and accommodation), from a financing perspective these projects can mitigate many risks that have troubled infrastructure projects in emerging markets.

These risks include, for instance, revenue concerns/offtake.

An integrated power project which has as its key offtaker a robust mining project goes a long way to alleviating DFI (and commercial lender) concerns regarding the creditworthiness of state utilities.

The increased interest in resource development has been aided to a large extent by the proliferation of Australian companies now operating in Africa – some say over 250 Australian companies are currently working on some 650 projects – bringing with them Australia’s high standards of environmental and corporate social responsibility; something particularly dear to DFI hearts.

It also has not gone unnoticed that apart from the obvious environmental discipline and corporate social responsibility that is being built into mining projects, the down-to-earth approach of Australians has had a significant impact on the way in which mining is viewed in Africa.

The more inclusive approach has arguably had a marked impact on the way the industry is viewed by investors and, most importantly, Africans.

Opportunity knocks

The increased interest by DFIs opens up opportunities for resource companies, especially smaller developers, to facilitate, encourage and even participate as third party developers of infrastructure, relying on their resource projects to form the backbone of infrastructure development, using DFI (and possibly commercial lender) limited-recourse debt.

The DFI message remains clear; there will always be an interest in well-structured projects with developmental benefits and in the case of resources and infrastructure projects, the synergies for DFIs are potentially significant.

Of course, the task for resource developers to put together a supporting infrastructure project should not be underestimated.

Questions arise as to how to get involved, whether as investor, offtaker or simply a promoter in the infrastructure development.

Again, the fact that there is little leadership or cohesion between resource and infrastructure development makes it difficult for smaller players to envisage how to put together significant infrastructure around their relatively small projects.

There are also significant issues inherent in sharing infrastructure such as rail and ports which have confounded governments and sponsors.

In his article Building an African Infrastructure, Professor Paul Collier notes a number of these issues in the context of rail infrastructure including the weighty subjects of operations and maintenance, regulation, access and pricing.

Another obvious issue is the trans-jurisdictional and political nature of rail networks ultimately requiring co-operation and agreement between states on those issues of access and pricing.

For investors who have barely managed to get comfortable with the sovereign risk in one country, taking further risk over two or three additional countries may be a step too far.

But, Professor Collier concludes that these issues are not insurmountable and can be solved, for example, by putting in place contracts that are subject to dispute settlement boards and relying on price discrimination between, say, resource and agricultural users to address concerns about having to subsidise high fixed costs. The solutions exist.

As already noted, the role of DFIs in leading the charge to put forward those solutions is critical but it’s a two-way street.

The challenge is there for resource companies to also show leadership by engaging with infrastructure developers and those financing these projects such as development finance institutions to better understand who they are, how they operate and what they need.

Although there is little doubt that solutions are potentially complicated (politically and structurally) and will take time to put in place, the boom in the resources sector has given rise to a unique opportunity for the sectors to better co-operate to fully unleash the potential of Africa and other emerging markets.

Conrad Marais
cmarais@huntandhumphry.com.au

+61 8 9321 0200

 

Conrad Marais is a projects lawyer specialising in project development, corporate and commercial transactions (including M&A) and project finance across a wide range of sectors including resources (mining and petroleum), ports, power, renewable energy, infrastructure (projects, roads, airports, rail), construction and agri-business.  Conrad has extensive experience in emerging markets, particularly Africa.  He is individually rated by Chambers Global for his projects and energy work in Africa, the only Australian-based lawyer with that recognition.
Hunt & Humphry has an extensive track record in all the major economic centres in Africa, Asia and other emerging markets.  The firm provides project development, project finance, corporate/commercial, construction and general support across a range of sectors and offers a one-stop solution for setting up and doing business in emerging markets.  Members of the team have worked on some of the largest projects in Africa in power, resources (mining and petroleum), transport and general infrastructure, advising on the full spectrum of project work.  

THE DRILL SERGEANT: International Goldfields (ASX: IGS) has received assay results of one-metre re-sampling of reported mineralised zones in an additional eighteen RC holes for the recently completed RC drilling program at the Ana prospect located within the Latin gold project in Mato Grosso, Brazil.

 

Latin gold project tenement map, prospect locations, and regional summary geology. Source: Company announcement

 

“Assay results for the Ana drilling continue to demonstrate strong continuity of the PF quartz vein zone in RC holes AR019 through AR023, while results received on holes AR024 through AR036 on initial drill tests of targets at Ana prospect demonstrate the significant growth potential to define additional mineralisation at the Ana prospect area,” International Goldfields said in its ASX announcement.

The main discovery zone at Ana – recently named the PF Quartz Vein zone – returned increased gold grades from one-metre sampling located with favourable four-metre composite samples.

Better intercepts include:

–    11 metres at 3.03 grams per tonne gold from 22 metres, including 4 metres at 6.98 grams per tonne gold;

–    16m at 1.97g/t gold from 34m including 4m at 4.17g/t gold;

–    3m at 5.23g/t gold from 39m;

–    1m at 6.94g/t gold from 30m; and

–    2m at 3.6g/t gold from 45m and 2m at 1.4g/t gold from 54m.

“Further significant intercepts highlighted are located on additional structural targets and indicate the potential for multiple high grade mineralized structures with the 2.5km by 4km gold surface geochemistry zone that has limited drill testing,” the company said.

IGS has recently completed an additional eleven diamond drill holes at the Ana Prospect, with ten holes testing potential extensions to the PF Quartz Vein zone.

The first four holes of the diamond drilling targeted down-dip extensions to the PF Quartz Vein zone mineralisation to the south on the east-west trending mineralised zone.

These intersected additional intervals of high-grade gold mineralisation up-hole of the main target zone, with better intercepts including 1m at 36g/t gold and 2m at 14.3g/t gold.

The company considers these narrow high-grade intercepts indicate potential for a parallel mineralised structure located 80m north of the PF Quartz Vein zone and will require further work to assess mineralisation potential.

Drilling carried out on the main PF Quartz Vein zone lode indicated continuity of grade to over 120 metres depth for over 300m of strike with better intercepts including 3m at 3.51g/t gold and 10m at 3.3g/t gold.

Additional diamond drilling conducted in a subsequent six holes to test further strike extensions near surface along the PF Quartz Vein zone are pending analysis.

An eleventh and final diamond drill hole was drilled as follow-up work to test beneath disseminated sulphide mineralisation intersected in the final four RC holes at Ana that targeted better copper-molybdenum surface geochemistry anomalism.

Results of all diamond drilling and the final RC drill holes are pending assay analysis results.

THE DRILLL SERGEANT: Cove Resources (ASX: CVE) has commenced the next phase of drilling at the Quartz Circle volcanogenic massive sulphide (VMS) project (80 per cent CVE), located in the Pilbara region of Western Australia.

Cove said it had been encouraged by the previous phase of drilling it had conducted at the project.

According to the company the results from this drilling have been further confirmed by recent electromagnetic (EM) geophysical modelling, which has identified a large EM target, at the Royal prospect.

The Royal prospect has become a priority drill target for Cove and is a key component of this next phase of drilling.

“The first phase of the RC/diamond core drill-hole program will be a three hole drilling program followed by select downhole electromagnetics to further define the mineralisation envelope,” Cove Resources said in its ASX announcement.

“The second phase of the core drill-hole program, pending results from the electromagnetic modelling, will include drilling to a total depth of more than 300 metres.

“Cove’s previous drilling at Quartz Circle confirmed numerous prospects within the project area contain open zones of mineralisation, and these will also be tested during the drilling program.”

 

A 3D representation of the Royal prospect EM anomaly at Quartz Circle. Source: Company announcement

 

The EM anomaly at the Royal prospect lies to the south of the main zones of mineralisation at Quartz Circle, and is over 1,000m wide and extends to 500m depth.

The Royal prospect anomaly is larger than the EM anomaly at the Igloo prospect, which hosts the existing JORC Indicated Resource at the Quartz Circle project of 93,000 tonnes at 2.92 per cent copper.

The Royal prospect also has several drill holes above and to the west of the main anomaly’s predicted source, that have delivered noteworthy silver results.

Cove’s VMS model for Quartz Circle predicts that silver mineralisation could occur as a halo around a copper-gold rich core.

Cove’s exploration at the Quartz Circle project is aimed to delineate clusters of gold-copper VMS deposits, spatially related to the very large complex EM anomaly, coincident magnetic features and multiple gravity anomalies.