ONE OFF THE WOOD: Travelling home from the recent RIU Resources RoundUp in Melbourne, Peel Mining (ASX:PEX) managing director Rob Tyson dropped in to tell us the latest on the company’s Mallee Bull story.

Peel Mining has been creating quite a bit of interest with the drilling results emerging from the Mallee Bull project. Where is it, what is it and why is it causing such a fuss?

Mallee Bull is our main project, located in western New South Wales, near Cobar, which is eight hours west of Sydney, half way to Broken Hill.

I tell anybody I meet that it is, in my mind, one of Australia’s great mineral provinces.

We all know of Mt Isa, Broken Hill and Olympic Dam, I would rate Cobar in that league.

The Cobar region has a pretty well documented history of mining through the CSA copper mine?

The CSA Mine ore body has been mined since the late 1800s. It was originally mined for around 50 years then after a hiatus began operation again in 1960.

It has pretty much been mined consistently since then producing average grades of around 5.5 per cent copper in recent times.

We’re 100 kilometres south of that mine.

What is it you have found?

Mallee Bull is a greenfields discovery. We were initially drawn to the area by another prospect called May Day.

Looking over the historic reports we had access to, we saw there had been hits of high-grade massive sulphides at depth.

We drilled some holes there hoping to see more of the same and only came up with one skinny intercept that didn’t excite us too much.

What shifted your focus to Mallee Bull?

MMG were flying a VTEM survey in the area so we tacked onto that and flew over the May Day area, as well as another area to the northeast, which was covering an historic magnetic anomaly, called G5.

The southern end of the magnetic anomaly was in the historic four mile gold field.

The survey highlighted a coincident EM and magnetic anomaly sitting smack bang in the middle of the old goldfield.

It almost sounds like it found you instead of you finding it?

I spoke to our geophysicist after we had conducted the survey and told him we had some data we thought was worth looking at.

He said if we had run the idea of the VTEM past him before we did it he wouldn’t have been too keen on the idea.

After looking at the data he agreed we had located something saying it was good as anything he had previously seen in the district.

Once you had identified the conductor you set about drilling. When did all that kick off?

We commenced drilling at Mallee Bull in March last year, initially conducting three RC holes.

We got a few sniffs that kept us interested, the best being 10 metres at 24 grams silver and 1 per cent lead and 2 per cent zinc.

We saw hints of copper and a bit of gold, but there was nothing in those first three holes to explain the conductor the VTEM had identified.

We conducted some downhole EM work that showed we hadn’t hit the conductor, so we stepped back and drilled two more RC holes, one in front and one behind. Nothing again.

That dance went on for some time, didn’t it until you struck through?

Drilling hole six we anticipated hitting the conductor at 200m downhole and at 240m we hadn’t hit it and the hole was lifting and the rods were looking like they were about to get jammed.

So we pulled that one up and at this stage I was thinking – this is the last roll of the dice – so we moved to halfway between hole four and hole six – and hole seven hit.

What did it hit?

It returned 10m at 2.41 per cent copper equivalent comprising 1.70 per cent copper, 46 grams per tonne silver and 0.27 grams per tonne gold and 4m at 2.31 per cent copper equivalent comprising 1.49 per cent copper, 59 grams per tonne silver and 0.18 grams per tonne gold.

We knew at that point that we had something pretty exciting and we also realised that we had pulled up that other hole too soon.

So we went back and put a diamond tail on the drill and that was the hole that really excited the market.

You say that was the hole that excited the market. What was the result of that excitement?

We began to attract the attention of the industry, particularly those with a sound knowledge of the area we are operating in.

I noticed some well-known directors and geologists of exploration and mining companies familiar with Cobar, appearing on our share registry.

What sort of affect has that change had on the company?

We reached a point where we really needed to raise more money to keep drilling. And the market was rubbish.

Throughout the first exploration campaign CBH Resources managing director Stephen Dennis had called a couple of times, as well as few other interested parties.

The CBH deal was the only one that suited us; we really wanted to maintain at least a 50 per cent ownership.

They were valuing the project at the time we did the deal at twice our market cap.

Their 50 per cent earn-in at $8.33 million put more value on Mallee Bull than the market was putting on Peel, so it was a no-brainer deal really. Plus they are miners.

It basically comes down to somebody familiar with the region has recognised the potential of the project and is willing to help you get the project up and running?

That’s right; they have that local knowledge, they know the district.

The Jury is still out on Mallee Bull at this stage, it is still too early to really know if it is going to be a real boomer of a project or not.

But the prize is worth hunting for. If you do find a boomer here, history tells you that they’re usually pretty good.

So you have the bull by the tail so to speak?

It’s an exciting time for us. We kept plodding away and kept exploring and I guess we just got lucky.

That’s more than a throwaway line as you have really made you own luck?

We persevered; it was systematic. We did everything that you should do in exploration.

It is hard to walk away from a project when you haven’t tested it properly. Some people may have walked away after those first three holes.

Where do you go from here?

We’re still waiting on some assay results to come through from the drilling as well as some geophysics. We still have a couple of holes to go as well.

I think we have proven this system is quite significant.

It’s not a company maker right at this second, but if we can have another couple of good hits, it’s probably not far off.

CONFERENCE CALL: The market bottom for nickel has most likely been reached with an upswing pending, according to Australia’s third largest nickel producer.

Speaking in Perth at the 2012 Paydirt Australian Nickel Conference, Western Areas (ASX:WSA) managing director Daniel Lougher, said that while the base metals’ current price made it uneconomic for many mines, it simultaneously was choking any new supply potential and that would drive the upswing,

The more positive price outlook was also enhanced by the pending limited sources of good quality nickel future supply for smelters, as there was now emerging margin compression on nickel pig iron, which is a poorer nickel substitute relied on by some smelters.

“In addition, the huge laterite nickel projects continue to be serial underperformers with capex blowouts, failure to meet production targets and high energy demands,” Lougher told the conference.

“Indonesia also recently added to the changing market outlook, imposing nickel ore export bans and tax hikes.

“There had also been no major new discoveries in conventional nickel sulphide, with maturing nickel camps still servicing 45 per cent of global nickel production.”

Lougher said most analysts were tipping the pickup over the next three to six months – which would coincide with pickup in seasonal demand.

Western Areas produces around 31,000 tonnes of nickel mined and 25,000 tonnes of nickel in concentrate, ranking it the country’s third largest producer behind BHP-B Nickel West and Glencore.

Its operations are heavily centred on the Wiluna to Ravensthorpe corridor of Western Australia, but the company has expanding operations located in Canada and Finland.

The Finland operation is the possible subject of a listing on London’s AIM, although Lougher did indicate this was, “dependent on market conditions.”

“What the market needs to recognise more fully is that nickel is a very cyclical commodity,” he said.

“In the past 12 years, Western Areas has had to deal with nickel prices ranging from US$3.00 a pound to US$23.00 per pound.

“Yet throughout these cycles, we have still managed to raise $300 million in development capital, commission two mines, grow resources, reserves and production and construct then expand our nickel concentrator.”

Also speaking at the conference was Sydney based resources analyst AME Group senior nickel analyst Piers Montgomery.

He warned conference delegates that planned new nickel production in China may not ever eventuate as the country’s economy struggles to balance its ore sourcing requirements.  

Montgomery said the basis of the problem was increasing restrictions on the lesser feeder stock, taking nickel pig iron to a point where, “nickel pigs won’t be flying”.

“There are a number of ‘possible’ nickel production scenarios facing China,” Montgomery said.

He indicated that total Chinese finished nickel production capacity could be as high as 900,000 tonnes by 2015 if all large-scale new projects are delivered, at which point China could then be a net exporter of nickel.

New capacity under construction in China overwhelmingly relies on medium to high-grade saprolite nickel ore as feedstock.

“Due to falling grades, these ore types have already become difficult to source in large volumes,” Montgomery explained.

“And if you look at where China sources its ore – 53 per cent of its imports last year came from Indonesia – a large producer of nickel pig iron – but fast forward to this year and these same import flows reduced by 65 per cent between May and July – and – Indonesia is currently imposing export bans.

“Replacement sources from the Philippines are lower grade and highly seasonal.

“Take Indonesia ore out of the equation and Chinese finished nickel production may peak as early as next year and it is entirely plausible that some new capacity may never enter production.”

Montgomery said the slowdown in the Chinese Indonesian nickel link was evident as recent as August with Chinese imports of Indonesian ore remaining at 1.5 million tonnes.

“After consistent builds for the past year, stocks of nickel ores at Chinese ports have also begun to decline so that puts further pressure on China’s ore sourcing capacity going forward,” he said.

THE DRILL SERGEANT: Venturex Resources (ASX:VXR) has reported some positive drilling results from an ongoing exploration program at the company’s Sulphur Springs copper-zinc deposit in the Pilbara region of Western Australia.

Sulphur Springs project location. Source: Company announcement

The company completed six hole RC drilling program at the main Sulphur Springs deposit targeting potential high-grade extensions to the Western Lens copper-zinc mineralisation at depth.

Vetnurex said the RC drilling had intersected significant widths of massive and stringer sulphide mineralisation in all drill holes with geological logging and preliminary Niton (XRF) readings indicating extensive zones of high grade zinc and copper mineralisation.

Details of the drill hole intersections include:

–    26 metre zone of massive and disseminated sulphides from 210 metres depth including 10 metres of massive sulphide from 210 metres depth plus an additional 8 metres of massive sulphide from 232 metres depth;

–     15m zone of massive sulphide mineralisation from 174m depth plus a 7m zone of massive and disseminated sulphide mineralisation from 232m depth;

–     11m zone of massive sulphide mineralisation from 215m depth plus a further 7m zone of massive and disseminated sulphide mineralisation from 234m depth; and

–    7m zone of massive sulphide mineralisation from 188m depth plus a 2m zone of disseminated sulphide mineralisation from 242m depth.

Venturex said the intersections recorded in these first four holes were considerably thicker than it had anticipated and extend the mineralisation beyond the current resource model into this area.

Subject to final assays, it is anticipated that the proposed mine design will be extended to include this area as part of the current Feasibility Study.

Further results included:

–    6m zone of disseminated and stringer sulphides from 229m depth; and

–    6m zone of disseminated and stringer sulphides from 217m depth.

Venturex explained these two holes have extended the zone of footwall stringer mineralisation to the west of previous intersections and indicate a possible connection with similar mineralisation intersected previously at the Bledisloe prospect located 600 m further west.

“These new intersections at Sulphur Springs have the potential to extend the area of high-grade mineralisation at the base of the Western Lens,” Venturex Resources managing director Michael Mulroney said in the company’s announcement to the Australian Securities Exchange.

“We anticipate that it is highly likely the underground mine plan can be expanded into this area and potentially extend the life of the planned underground mining operation at Sulphur Springs.”

Venturex said assay results are pending for all mineralised intersections and are expected to become progressively available over the next few weeks.

The company anticipates commencing work on upgrading the Sulphur Springs resource model and the underground mine design as soon as the final assay results are received.

OUT AND ABOUT: Opening the RIU Melbourne Resources RoundUp, Victorian Minister for Energy and Resources Michael O’Brien paid homage to the state’s mining history by informing those present of the state Parliament’s decision to establish a Victorian mineral emblem.

“It will not shock you to hear that we, as a Parliament, unanimously decided to appoint gold as the mineral emblem of this state,” O’Brien said.

Gold would be a sensible choice given it practically put Victoria on the map through the gold rush days that set the scene for much of what the modern-day industry endures.

The miners’ strike at the Eureka Stockade railed against taxes of the time that were focussed on allowing the sticky fingers of the government at the time to find their way into the pockets of those lucky enough to make a strike.

The stand also, in an ironic twist, gave us the flag of the Southern Cross, which has been adopted by the union movement and waved by workers in many struggles with today’s mine management.

Many Melbourne landmarks, including Parliament House, the Supreme Court, and the Exhibition Building are testament to civil legacy that mineral resources have delivered to this state.

“That is an appropriate reflection of our history, but it is also a reflection of our future,” O’Brien said.

“It is also a reflection of the fact that we regard Victoria as still being a very prospective state.

‘The Government is determined to make sure that it is easier to do business in this state, in the mineral resources area.”

In its bid to achieve this, the Victorian Government is establishing the foundation membership of a new body called the Earth Resources Ministerial Advisory Council.

This new council will be charged with the responsibility to bring a range of views to the table in support of the sustainable development of the state’s resources sector, and consequently its economy by identifying both emerging issues and potential solutions.

“Through this, and other forums, we will be encouraging industry to work with us to better explain the benefits of mining and work closely to deal with the genuine concerns that sometimes arise in communities as a project develops,” O’Brien explained.

“Whether it is early exploration or production, businesses do need to bring local communities with them; government has a role in facilitating that.

“Through this new Earth Resources Ministerial Advisory Council we want to ensure Victoria is leading the way in terms of making sure the community is very much on side when it comes to these projects.”

O’Brien pointed to his record as Minister for Energy and Resources, relating one of his first achievements in the chair was to launch a parliamentary committee to explore greenfields development in Victoria.

The committee was asked to find out why the state was lagging in that particular area, the barriers the industry was encountering and how other states were dealing with the same challenge.

The committee returned with a list of 25 recommendations, which O’Brien indicated was made richer by enjoying bi-partisan support.

“I’m sure that as people involved in the industry you are as sick as anyone of being used as political football,” he said.

“What we don’t want to see are short-term, knee-jerk reactions, policies implemented one day – policies reversed the next; or policies changed by an incoming government if they’re going to hurt the industry.

“So we have worked very hard to deliver a series of major recommendations to changes of policy and regulation.”

As these recommendations have support on a bi-partisan basis, O’Brien stated they can endure beyond any future change in government.

He outlined the ambition would be to now respond to those 25 recommendations by the end of the year, saying he expected them to usher in an exciting time for those companies actively involved in the development of resources in Victoria.

“We know what your concerns are,” O’Brien said.

“We have heard them. We know that instead of dealing with different agencies and different departments you want to see a lead agency approach.

“You want to see a government actually shepherding you through the process and showing you how you can comply, rather than just saying yes or no and leaving you to your own devices.

“Victoria is very much open for business and wants to see business flourish here in this state.”

ONE OFF THE WOOD: Blackthorn Resources (ASX:BTR) managing director Scott Lowe called in to discuss a recently completed scoping study at the company’s 100 per cent-owned Mumbwa project.

You’ve enjoyed consistent news flow over the past year, culminating in the positive scoping study results for your flagship Kitumba project. You must be happy with your progress?

It has been a really important year of achievement for us, at the Mumbwa project in Zambia.

BHP Billiton exited Mumbwa last year and about September we started drilling our first hole into the project.

In the past year we have achieved three major milestones. In February we announced some, truly world-class results, with the most outstanding hole being 230 metres of an average of 4.5 per cent copper.

In June we announced a JORC Resource upgrade to approximately 180 million tonnes at just under 1.2 per cent copper.

Now we have achieved our third major milestone with the release of our recently-completed scoping study.

So, it has been a very busy year, but it has also been a very successful one for the company.

You were originally involved in the project with BHP Billiton?

The project commenced life being wholly-owned by BHP Billiton. We farmed in to earn 60 per cent, which we did between 2005 to 2008, by fully-funding and managing the project.

In 2008 BHP Billiton exercised an option to ‘claw back’, which resulted in them fully-funding and operating the project up to 2011.

They spent three years and around $40 million looking for a tier-one deposit.

They gave up the search around August 2011 and we took over. They retain a two per cent Net Smelter Royalty but they have no other ‘back-in’ rights.

Have the results been what you expected after BHP walked away from the project?

If anybody had have asked me when BHP Billiton left, ‘what would you like to achieve in the next 12 months?’ I couldn’t have asked for more than what we have.

My wish list would have consisted of world-class copper results, a great Resource upgrade, and a positive scoping study; tick, tick and tick, thank you.

It may have been a different story had they drilled the hole you drilled after they had gone?

We will never know, but I can’t help wondering sometimes if they had drilled that hole whether they would still be there looking for the giant deposit we now hope to find.

It’s not an unfamiliar exploration tale for a company to drill close to where a previous explorer may have drilled only to find something exciting?

I’m a mining engineer by trade, which means I don’t choose where to drill the holes.

We have a number of experts working with us including non-executive director Derek Carter who people will know from his involvement with the Prominent Hill discovery.

We also employ a great geologist as our principal consultant on the project, a fellow called Tom Whiting, who happens to be the former head of exploration for BHP Billiton.

He’s one of our secret weapons. He has a very good knowledge of the project; he is a real believer in its potential.

So what has the scoping study told you about the project?

We know the industry is cautious when it comes to scoping studies, as they are completed to a lower level of accuracy than the more in-depth studies that follow.

However, we can say with confidence we have not found any fatal flaws and we can also say, with the usual scoping study caveat of accuracy, all the economic indicators are very positive; $1.50 per pound is a good cash cost and a sub-US$400 million capex is also very competitive.

The project compares favourably with our peers and I can’t think of too many other early copper projects with our scale of potentially being able to produce 50,000 tonnes ramping up to 70,000 tonnes of contained metal.

It also has a healthy Mine Life of around 14 years?

It has, and beyond that the upside can come from a bigger Resource from drilling we currently have underway of step out holes we think have the potential to grow the current Resource from a bigger open pit providing longer mine life.

Another potential upside is the underground element of the project. We haven’t done any underground work yet but looking at the current modelling we know there is copper mineralisation below the 400 metre mark with potentially more to be discovered.

So either an underground extension or an underground project could possibly extend the mine life or deliver improved economics.

Obviously the Kitumba project is getting most of the attention at this stage. What else does the Mumbwa project have in store for you?

We have three business objectives at Mumbwa: one is to take Kitumba and push it through the project development pipeline of pre-feasibility and feasibility studies along the path to production.

The second priority is to drill the Resource out, not only for increased confidence but also some step out holes with the aim of potentially increasing the size of the deposit and the size of the JORC-compliant Resource.

The third objective is to find new discoveries, greenfield if you like, on these leases. There are plenty of untested targets BHP Billiton left behind that did not fit their scale criteria.

Is your plan to get Kitumba up and running to generate cash flow in order to fund this greenfield exploration?

We completed a capital raising recently, resulting in a healthy bank balance of just over $40 million.

We can afford to spend some of that on greenfield exploration straight away, but it is the lowest of our current priorities.

What are you hoping to find at Kitumba?

The BHP Billiton dream is still alive. There just maybe a tier-one deposit here that BHP Billiton left behind.

I’m not saying there is definitely a tier-one deposit here. I’m just saying it’s far too early to conclude there is not.

The beauty for our shareholders is that it doesn’t really matter if there is one or not, we get to have our cake and eat it too.

The scoping study shows us there is already very god potential for an economic mine to be had here.

Your shareholders have plenty to be happy about in terms of your share price performance compared to some of your peers?

We’re always working on what we can do to enhance value and grow our share price.

There are eight different firms writing research on us as we speak with valuations varying from around $1.30 through to over $2.00.

According to the recently released Gresham Group 150 for financial year ending June 2012 we were the fifth best performing stock on the ASX for companies of any size for share price appreciation and the eighth best stock for market cap appreciation.

Would you say that is an indication of the consistency of the news flow you have released throughout the year?

We pride ourselves on high-quality and regular communication with the market, which has been underlined by the fact we have had some really good news to tell.

I think the combination of great results and delivery of tangible progress at Mumbwa, along with the fact Blackthorn owns 39.9 per cent of the soon to be commissioned Perkoa silver lead and zinc project with JV partner Glencore, which is beginning to be recognised by the investment community.

We are very excited about the future.