Stockresource Resource Hotspot 338

Sovereign debt concerns in the Eurozone have been steadily mounting during 2011 and, when combined with the slow pace of economic recovery in the U.S., have severely eroded investor confidence.

The wave of negative news in recent months (financial, political and natural disasters) has culminated in a collapse in global equity markets during the past week as fears of a global recession escalate – with the S&P downgrade of the USA’s AAA status being the catalyst, but not the cause.

Coming close on the heels of the GFC the current correction phase started with a base of fragile investor sentiment and as a consequence the equity market reaction has been dramatic.

However, the GFC did result in many companies and investors repairing their balance sheets and reducing leverage – and this is likely to form a better foundation for creating low risk investment opportunities this time.

However, we caution that the potential for large public sector spending initiatives to stimulate economic activity in the major western economies is somewhat reduced at this time compared to the GFC period.

Equity, bond and gold markets have all captured the headlines in recent days, and oil prices have also been quick to fall.

Ironically, lower oil prices will act as a significant broad based stimulus that will be important as markets enter the recovery phase.

Equally importantly, the lower energy prices will also translate directly into lower inflation – providing governments with a critical weapon when setting policy.

However, the situation for the broader commodity complex is more opaque – and to a significant degree highly dependent on the actions of China.

Clearly any slowing in economic activity in the U.S. and the Eurozone will lead to softer demand for base metals and bulk commodities, creating near term pricing pressure – albeit global industrial production is tracking above pre-GFC levels even after the Japan tsunami / earthquake disruption.

At the same time many commodities have been experiencing significant supply challenges and disruptions in 2011 (creating tight market balances in many markets) and China has been depleting inventories during the first half of the year (due to credit tightness, high commodity prices and seasonal behaviour).

This creates a potential buying opportunity for Chinese participants now that prices are falling.

Exacerbating this feature is the growing importance of China as a consumer of resources – currently accounting for around 40% of global base metal and steel demand, and almost 60% of iron ore consumption.

These figures are well above level experienced leading into the GFC.

Having establishing the increasing importance of Chinese demand for commodity markets and their potential to rebuild inventories during the balance of the year, we examine its historic actions.

This indicates that in fact Chinese purchasers tend to be a stabilising influence in commodity markets due to their marginal-buying attributes (i.e. re-stocking inventories during periods of price weakness), as well as the policies of the government.

Indeed during the GFC China undertook a massive stimulus program that saw substantial infrastructure investment, construction activity etc. – essentially propping global commodity demand virtually on its own.

However, this time around China doesn’t have the same level of firepower.

In particular, inflation continues to run at above target levels (circa 6.5% pa driven by high food prices) limiting the scope for monetary easing to support domestic growth.

On a more positive note the Chinese economy is steadily becoming less dependent on vulnerable exports to support its economic growth – with exports currently running at around 28% of GDP, compared to a level of around 38% ahead of the GFC.

Overall, we anticipate strong support for commodities from China on any further price weakness, as well as increased credit availability once inflation figures start to ease – albeit the easing of inflation may still be a few months away.

Turning to the equity markets, the U.S. equity risk premium (pricing of equities relative to bonds) has already blown out to levels comparable to period following the collapse of Lehman in September 2008.

Accordingly, despite the risks associated with the escalating European sovereign debt crisis, investors with a longer-term outlook should view the current equity market selloff as a buying opportunity – particularly for stocks that have significant defensive attributes (including strong balance sheets, diversified earnings etc).

 

THE BOURSE WHISPERER: Burkina Faso-focused gold explorer Canyon Resources has entered into an agreement with a local vendor to purchase a new project.

The Wilier project is made up of two granted exploration permits, Tibaari and Boudangou, with a combined area of 490 square kilometres.

Canyon’s existing mineral exploration projects in Burkina Faso cover an area of 2,520sqkm over 10 permits in the Birimian Greenstone Belts of the West African craton.

The addition of the Wilier project expands Canyon’s exploration permits in Burkina Faso to 3,010sqkm covering four separate project areas; Taparko North, Tao, Derosa and now Wilier.

“We have had the opportunity to view a number of project areas for potential acquisition in Burkina Faso and the Wilier project exceeds our criteria for early stage projects,” Canyon Resources managing director Phillip Gallagher said in the company’s announcement to the Australian Securities Exchange.

“It is a testament to our team on the ground in Burkina Faso, managed by our exploration manager Chris Connell, that we are able to secure projects with such high exploration potential at a reasonable purchase price.”

Canyon will acquire 100% of the Wilier project via an initial payment on signing of the Agreement and a series of payments over a three year period.

The payments are to be made at Canyon’s election,, however, if Canyon elects not to make one of the payments it will relinquish ownership of the tenements.

To gain 100% ownership of both tenements Canyon is required to pay the following:

– US$120,000 upon the signing of the Agreement;

– US$100,000 on the 1st anniversary of the signing of the Agreement;

– US$100,000 on the 2nd anniversary of the signing of the Agreement; and

– US$ 80,000 on the 3rd anniversary of the signing of the Agreement.

The Wilier permits are located approximately 200 kilometres to the east of Burkina Faso’s capital city Ouagadougou, and occur within the Fada N’Gourma Greenstone Belt.

The northern extension of the Fada N’Gourma Greenstone Belt hosts Niger’s largest gold deposit, the 2.5 million ounce Samira Hill gold mine.

The Fada N’Gourma Greenstone Belt also represents the north eastern extension of the Youga Greenstone Belt that hosts the one million tonnes per annum Youga open pit gold mine.

The Wilier project has no previous geochemical or drilling data available, so Canyon is planning an immediate, comprehensive first pass exploration program to test its prospectivity.

The project will be subjected to extensive auger geochemical drilling, rotary air blast (RAB) drilling, field reconnaissance mapping and rock chip sampling.

While on tour at Diggers & Dealers, The Roadhouse was the guest of Gold Road Resources to visit its Yamarna Belt project, located 140 kilometres east of Laverton on the eastern edge of the Yilgarn Craton in Western Australia.

The company’s executive chairman Ian Murray called into The Roadhouse on his way home for a quick chat and to have One Off The Wood.

It’s hard to miss your South African accent Ian, how long have you lived in Australia?

I moved to Sydney with DRD Gold in 2005 and was there for six months until I left them and moved to Perth.

Was the move to Perth because it is where a lot of mining action is?

No. I was born in South Africa, on the coast, so I grew up surfing and windsurfing. I moved up to Johannesburg and got involved in the gold mining sector. I was flying back and forward to Perth and I realised that it was a place where I could work in the gold mining sector and live a coastal life style. So it was a no-brainer to move here.

So how did the move into Gold Road eventuate?

Again, that was by accident. In late 2007 they asked me to join as a non-executive director. Then in January 2008, then-chairman Richard Harris resigned. I was asked whether I would consider stepping up to run the company and I’ve been in the position ever since.

That was in the middle of the GFC, which was a difficult time to raise money. In 2009 we were able to raise enough money for Ziggy Lubieniecki to drill Central Bore and that’s when he had the first big hits.

We did another raising after that to further fund the Central Bore drilling and then we came out with the maiden resource earlier this year.

It has been a pretty rapid ride so far for Gold Road to get to where it is now.

As an exploration company unless you’re active, you’re not going to find anything. If you’re not putting holes in the ground you may as well shut up shop.

Our view is to keep corporate costs low, so we have a small corporate office, and whatever money we raise goes into the field and that has proven to be successful so far.

With the amount of drill holes you have put down in that time, the number with which you haven’t hit anything you could pretty much count on one hand.

Central Bore is a stand-out deposit, with virtually a 100 per cent strike rate with hitting mineralised structure.

I hope Ziggy has the same success rate on all of our targets. We will no doubt have plenty of hits but we will also have some misses.

Ziggy practically lives and breathes this project.

He is very passionate about what’s out there and about its potential.

He sets a great example for the young team we currently have. We are in the process of recruiting senior field geologists and an exploration manager, but for now Ziggy is spending a lot of time mentoring the guys and showing them what to do.

So how do you intend progressing things from here?

We will carry on drilling out Central Bore and Justinian. From an economic perspective they will be treated as one project. We need to see how big they are. As soon as the rate of increase of the resource slows down, that’s when we will look at entering the development phase.

In parallel with the drilling we are carrying out a scoping study. What we want to end up being is a self-funded explorer. We want to take the advanced projects, get them into development, and get them into production generating cash flow to fund exploration of the rest of the belt.

Has winning the Emerging Company Award at this year’s Diggers & Dealers conference raised your profile?

We had a very good Diggers & Dealers conference. A lot of larger brokers, who wouldn’t normally follow an exploration story, approached our booth wanting to know more information about us and the project.

A major benefit of winning that award was that about half the people attending the gala dinner hadn’t heard of us before then.

Does the new industry recognition place Gold Road as a potential takeover target?

I think, given the strategic position we have, controlling the majority of the Yamarna Belt; at some stage we will be on the radar of the larger companies wanting to obtain more resource ounces to replace what they are mining.

My vision is that I want to keep running this company, develop it to become a producer and have a whole pipeline of exploration, development and production.

So with all the recent success and notoriety of the company do you get time to get down the beach to surf these days?

It’s winter. I do have a yacht moored at the Fremantle Sailing Club and during the school holidays I take my family out and we enjoy life.

Last April we sailed up around Malaysia, but it’s not as nice as Rottnest Island.

It sounds as though Perth has been very kind to Ian Murray.

It’s a good place. It’s a big city, but it’s not a big city, which is something only people who live here truly understand.

THE DRILL SERGEANT: Australian tin exploration and development company, Consolidated Tin Mines has received assay results from a recent drilling program carried out at the Windermere project.

The Windermere project is located within the company’s Mt Garnet Tin project near Cairns in northern Queensland.

The Mt Garnet Tin project is Consolidated Tin’s core project. It is made up of three main project areas; the Windermere, Gillian and Pinnacles projects.

The current total JORC Resource at the Mt Garnet project is 7.3 million tonnes at 0.60% tin.

The ironstone of the Windermere deposit occurs over a strike length of 2.9 kilometres and includes strike extent to an area known as the Deadmans Gully.

According to Consolidated Tin’s announcement to the Australian Securities Exchange the Deadmans Gully deposit is a faulted offset from the main Windermere ironstone.

“To the north of the Deadmans Gully deposit, the better graded tin mineralisation of the main Windermere ironstone occurs within four individual sections, each of 400 metres of strike length,” the company said.

“The drilling to date has tested strike extent of mineralisation and confirmed each as a dipping, tabular shaped mineralised lens.

“The depth extent of each of these four lenses has not been tested to date and ongoing drilling is planned to provide information for a more confident estimation of the shallow, openpittable mineralisation.”

Consolidated Tin said it is pleased with the latest Windermere drilling results as it considers them to provide validation of the company’s plan to develop the Mt Garnet Tin project into a large scale, near-surface, open pit tin mining operation.

The Windermere project currently has a JORC Inferred Resource of 2.1 million tonnes at 0.55% Tin.

This latest Windermere drill program drilled a total of 49 holes across 4,132 metres. The program was designed to target and extend the higher grade zones identified from the company’s previous drilling at Windermere.

Consolidated Tin is now waiting on further assay results from recent drilling from the Gillian deposit where 1,615 metres of RC drilling across 17 holes was carried out at the southern extension of mineralised area in conjunction with 585m of diamond drilling across 12 holes.

The Coolgarra project was subjected to 1,816mtres RC drilling across 28 holes.

The company said the assay results from this drilling will be released once they have been received.

Consolidated Tin now plans to undertake further drilling programs as part of its 2011 explorations season.

This will see:

– A drilling program at the Pinnacles project designed to increase Resource base;

– Further drilling at the Gillian project to follow up native copper intersection; and

– Further drilling at the Coolgarra group of projects to follow up better intersections.

THE DRILL SERGEANT: Gold producer Tanami Gold continues to expand the Groundrush deposit at its 100%-owned Central Tanami Project in the Northern Territory.

“The Groundrush deposit continues to exhibit all the hallmarks of being a very extensive gold system with the main ore zone now extending more than 700 metres, two footwall zones extending more than 200 metres, all of which remain open, and indications of repeat structures at depth,” Tanami Gold managing director Graeme Sloan said in the company’s announcement to the Australian Securities Exchange.

“When you combine the exploration potential surrounding the Groundrush deposit, including the Ripcord prospect, you can see why we rate the Central Tanami project so highly as a long term production centre and the vehicle to transform Tanami to a mid-tier gold producer.”

Assay results received from the recent drilling have all returned strong gold intervals including:

– 15.4 metres at 5.3 grams per tonne gold from 261.0 metres;

– 5.0m at 7.8 g/t gold from 312.0m;

– 4.1m at 8.0 g/t gold from 307.3m;

– 6.4m at 5.2 g/t gold from 331.5m; and

– 19.6m at 3.0g/t gold from 289.5 including 3.5m at 7.1g/t gold from 294.5m.

Tanami said visible gold had been logged in six of the remaining fifteen holes that are still awaiting assays.

An in-pit diamond drill program has also tested a small section of a secondary zone of mineralisation referred to as the High Grade Vein Lode.

Results from the initial drill program to test the High Grade Vein Lode include:

– 1.0m at 32.9 g/t gold from 9.0m;

– 2.5m at 5.6 g/t gold from 63.1m; and

– 0.3m at 15.5 g/t gold from 88.9m.

Tanami has now completed a total of 38 holes at Groundrush, however, only half the assays have been received for the holes drilled to date.

The company cited an industry-wide backlog of samples in offsite contract laboratories as a reason why assays were still to come in, although it did say it expects this situation to improve in the short term.

The company’s drilling focus is now set to shift to its southern tenements to test additional targets until all outstanding assays from Groundrush are received and assessed.

The company said it will carry out a follow up drill program Groundrush based on the assays results it receives.

“The consistency of the drilling intersecting the main zone of mineralisation and the identification of a series of flat high grade zones of(previously reported) mineralisation, provides further evidence that Groundrush is a mineralised system which clearly has the potential to support the company’s transition into the ranks of mid-tier gold producers,” Tanami said.