On the Ground  – Lady Annie copper mine

Hong Kong-listed resources house CST Mining vice-chairman Owen Hegarty stopped by to invite Resources Roadhouse to check out how rapidly the company was advancing the reborn Lady Annie copper mine outside Mt Isa in Queensland.

First off a brief history.

The Global Financial Crisis of 2008 hit many mining operations hard. Few more so than the Lady Annie copper mine.

A lot of people and a lot of banks were very nervous about this time as they considered how they were going to survive.

All favours and debts were called in, which basically resulted in the Lady Annie mine, operated at the time by CopperCo, being closed down and put in the hands of receivers.

On 6 February 2009, a subsidiary of Perth-based entrepreneur Tony Sage’s Cape Lambert purchased CopperCo’s secured debt from Macquarie Bank Limited and LinQ Capital Limited.

Sage attempted to IPO a company called Q Copper as a vehicle for Lady Annie. Unfortunately for him his timing was off and a market downturn at the end of 2009 meant he was unable to get the IPO across the line.

A second attempt with a revised prospectus in January 2010 met with another market slump and shared a similar fate.

“Five minutes after that failure was when I rang him and said, ‘we’ve got the money, we’re interested in copper, by coincidence, and we’re very happy to take it off your hands’.”, Hegarty told Resources Roadhouse.

“Within a couple of weeks we were able to put a deal together and it came from Cape Lambert across to CST Mining.

“It was a bit of a coincidence that we were looking for copper assets, he had just failed to get it up in the IPO, and we were able to deal.”

As former head of copper/gold play Oxiana, which he turned into OZ minerals with Zinifex, Hegarty was familiar with Lady Annie’s history as an oxide ore body with sulphide potential.

The region surrounding Lady Annie has seen a lot of rough mining activity for the best part of 50 to 70 years consisting underground workings, open pits and so on but the first serious attack on the whole area was launched by CopperCo, which worked to bring all the different ore bodies in together.

“And the people who did it,” Hegarty exclaimed, listing off names synonymous with copper mining and the Lady Annie project.

“Brian Rear, Milan Jerkovic, Barry Deans, Brian Wyatt; The full team is as good as it gets on the whole planet – there’s nothing that group doesn’t know about heap leach solvent extraction electrowinning (SX-EW).

“The examples being Giralambone (NSW), Whim Creek (WA), Nifty (WA), and now Lady Annie (QLD).

“That’s a better track record than most people around the planet and was one of the reasons that I was very confident about getting involved in Lady Annie because I knew that with people like Barry Deans, Brian Wyatt and Brian Rear, the whole team, the technical work would have been very well done and the plant will work.”

Lady Annie is a heap leach SX-EW operation with a capacity of 30,000 tonnes per annum, which is producing LME Grade A copper cathode through one central processing plant from ore mined from multiple pits.

As of October 2010 Measured, Indicated and Inferred Resources at Lady Annie totalled 65.16 million tonnes at 0.71% copper for 460,000 tonnes of copper.

Before the ink was dry on contract to acquire the project CST Mining had achieved its first production from the mine by November 2010 with first spots sales realised in December.

In a move to increase resources and extend the life of the mine the company has earmarked a massive $US20 to $US25 million dollar drilling program for 2011, which will comprise 95,000m of reverse circulation (RC) drilling, 28,200m diamond drilling and 28,500m of rotary air blast (RAB) drilling for a staggering total of 155,000m.

“We have three drill rigs on site at the moment and we are just holding our breath waiting for another two, with the sixth one due in July,” CST Lady Annie Operations exploration manager Jay Klopper told Resources Roadhouse.

“Last year we drilled close to 44,000 metres of RC and Diamond. The diamond drilling was focused mainly on metallurgical test work and resource extension.

“Not so much the resource conversion but stepping out trying to find new areas that we can step into and start working on this year to come up with new resources to add to the resource base.”

“We did a very big airborne magnetic survey, which was very detailed. It took us about two and a half months to do 24,000 line kilometres and it is a fantastic data set.”

The potential Klopper and his exploration team hope to unlock could very well lie in the large ground tenure the company holds around Mt Isa that has never been explored systematically in the modern sense.

CST Mining holds 1640 square kilometres of granted tenure with a further 1600sqkm currently under application.

A lot of tenure the company does have under its control at the moment had previously been in the hands of a consortium of companies.

“Their focus in the last 10-15 years has been on Lady Annie and Mt Kelly just trying to get the oxide resources up and running,” Klopper said.

The Mt Kelly area contains a number of historic mine workings that produced small quantities of high-grade copper oxide ore, and the Mt Clarke, Flying Horse, Mt Kelly Workings and Swagman deposits.

The Lady Annie and Lady Brenda deposits are located within the Lady Annie Area, approximately 18km northwest of the Mt Kelly process plant.

Another target of particular interest is the Anthill deposit located 40km south of the central processing plant within the Buckley River area.

In 2010 some 10,600m of RC drilling was carried out at Anthill with the aim of moving it towards a mineable resource.

This program was successful bringing Anthill from a pre-2010, mostly inferred resource, of 3Mt oxide at 1.1% copper for 33.4,000 tonnes copper metal to a 2010 re-estimate of 4.8Mt at 0.76% copper oxide, global estimate, mostly inferred for 36,400 tonnes copper metal.

The company is certain this is a pretty good indication that regional exploration is the key to expanding the project.

“There has been very little regional, systematic exploration in that time,” Klopper continued.

“There is a massive historical data set out there, which has never been revisited. So we are in the position to go out and assimilate all that data and put it together with a well-funded budget.

“In all we have three key objectives. The first objective is our Life of Mine. Currently LOM is around three and a half to four years.

“We want to get that to eight years, or eight years plus, in the oxide mine.”

The other opportunities presenting themselves are in the form of transitional material and sulphide.

Klopper explained that transitional material has always, historically, been bridesmaid to oxide because it has been perceived as difficult to treat.

“But with new ideas and new people it is now seen as an opportunity,” he said.

“There is sulphide sitting underneath all of our pits and also under the regional tenure. It has never been systematically explored.

“There are probably half a dozen deep drill holes into the sulphide outside the current mining areas.”

The plan for 2011 is to pursue this sulphide mineralisation at Lady Annie as well as other target areas at Mt Kelly, Anthill and McLeod Hill.

The company is confident the sulphide resources at these locations could underpin a 10 to 20 year plus LOM.

“Each one of our pits has significant sulphide potential and that’s one of our priorities at the moment, looking at that potential.”

Resources Roadhouse travelled to Lady Annie as a guest of CST Mining
    

Located on the Information Superhighway, on the outskirts on Mining
Town, the Resources Roadhouse is a popular hangout for members of the
resources industry community.

All roads leading to all the mining projects scattered around the
country pass by our front door making the front veranda of the Roadhouse
the perfect position for visitors to sit and observe all that is
happening in the resources industry.

The main feature of the Resources Roadhouse is The Inside Story, which
offers our loyal regulars a comprehensive look at a particular resources
company.

The Inside Story provides visitors to the Roadhouse with an insightful
snapshot of what that company is up to and where it is in regard to
developing its project be it greenfield exploration or redevelopment of
an existing project.

Many small-to-mid market cap companies tend to sneak under the radar of
the Australian Securities Exchange market place and subsequently can be
overlooked by potential investors.

The Inside Story provides readers with an introduction to these
companies from where they can, and should, begin their own homework to
decide whether or not they may be a good investment fit for their
portfolio.

The Roadhouse provides the ideal place for industry-people-watching with
its clientele including a veritable mining who’s-who either in
clandestine conversation at its many tables and booths or propped up at
the bar enjoying a cold beverage Off the Wood, ready to tell anybody
who’ll listen all about their recent activities.

The ethos of the Resources Roadhouse is sharing information. Roadhouse
regulars include an assembly of respected analysts, brokers and
journalists from around Australia who will be providing coverage of all
aspects of the resources industry from the first rocks kicked in
exploration anger, through feasibility studies and construction to the
point of production.

Other regular contributors include our own galloping gourmand Sir Lunchalot.

There’s an old adage that says, “The quickest way to a journalist’s
notebook is through the door of a good restaurant”, and Sir Lunchalot is
never shy of climbing aboard the gravy train to bring his readers the
latest crumbs on offer from the junior mining sector.

The Roadhouse also encourages its journalists to get Out and About to
bring you all the latest news from conferences around the country as
well as getting On the Ground to visit different exploration plays and
mining operations.

The Resources Roadhouse is brought to you by the team from Word 4 Word
Media, which is led by experienced resources sector journalist Wally
Graham.

Wally has written for some of the resources industry’s leading
publications including Australia’s mining Monthly, PetroleumNews.net,
MiningNews.net and Mining Journal.

He has most recently been editor of Australia’s foremost resources
investment magazine RESOURCESTOCKS where he built an industry-wide
reputation as a respected journalist.

Step inside the Resources Roadhouse take a seat and have a god look around. You could be here for a while.

At a recent lunch briefing Sir Lunchalot was entertained by the very English and extremely well mannered team of GGG Resources.

London-based AIM-listed GGG Resources recently decided that if its main project was located in Australia it might as well “Australianise” itself by listing on the local bourse.

The company’s major focus is on developing the Bullabulling gold mine located just outside Coolgardie in Western Australia with its 50:50 joint venture partner Auzex Resources.

The current JORC compliant inferred resource at Bullabulling is 41.5 million tonnes at 1.48 grams per tonne gold, for 1.98 million ounces of gold.

“The project has gone up now to (almost) two million ounces,” GGG Resources managing director Jeff Malaiholo told a table of hungry journalists.

“It was 400,000 ounces when we picked the project up initially.

“Two million ounces really covers the southern, 2.5 kilometre strike, of a six kilometre strike zone.

“It is artificially cut off at 120 metres depth simply because the density of historical drilling is not there.”

A lack of quality assurance or quality control data for historic drill holes meant GGG was unable to estimate the resource with any higher degree of certainty.

A current drilling program including some 5,000m of twin drilling parallel to the historic drilling is hoping to validate the historic data, which the company hopes to use in order to upgrade the current inferred resource to measured and indicated.

Three drill rigs, one diamond rig working on metallurgical testing and two RC rigs infill drilling to the east of the existing Bacchus and Phoenix pits, are currently operating at Bullabulling.

The RC drilling is testing the limits of the resource to the east as well as following up high-grade intersections that have shown up in the historic drilling.

Results of the drilling so far have corresponded with the historic data.

The joint venture is confident of being able to announce an updated JORC compliant measured, indicated and inferred mineral resource in the first half of 2011.

“The key thing about it is that it is a brownfields project,” Malaiholo continued above the clinking cutlery.

“It was mined before by Resolute Mining, which mined the oxide too.

“They took out about 350,000 ounces and effectively have pre-stripped the fresh material.

“The fresh material is at least 90% recovery, from historical data. It was mined for two years, so we know what the recovery is.

“We’re doing some additional metallurgical test work to check that – to check the variability, if you like, along the ore body.”

By listing on the ASX GGG hopes encourage Australian shareholders as well as providing access to two capital markets should it ever need to rattle the tin in order to raise additional funds.

“We are going to be a dual listed company,” Malaiholo said.

“The reason for that really, is that we want financial reach, both into London and into Australia.

“Obviously Bullabulling is a large low-grade deposit. It is already at two million ounces and we can see that expanding considerably.”

The company is expecting that in order to reach a satisfactory level of economies of scale the building a fairly large throughput plant will be required.

“At the moment we’re talking three million tonne per annum,” Malaiholo explained.

“That may increase as our drilling goes forward but at the moment our working hypothesis is three million tonnes per annum.

“To build that we are going to need financial reach…so it is important to get a few shares into a few institutions and that is why we raised $9 million in Australia and why we raised just over ten million pounds in the UK; to get set to take this project forward.”

GGG is eyeing completion of a feasibility study at Bullabulling by the end of this year.

Should that indicate the project to be economically viable the intention for GGG is to then push on in order to get into production as soon as it is able.

Despite being at the centre of what is arguably the country’s largest resources hub – a situation it has been in for over three decades – the Western Australian Pilbara town of Karratha still does not have a political presence. (read more)

This strange fact of life was recently highlighted by Future Directions International’s Gavin Briggs, who raised the fact that the town did not a permanent electoral office.

This, he noted, was in a period characterised by the political speak of a “new political paradigm”, and language that emphasised “regional Australia”.

Meanwhile, the other economically significant town in the local government municipality which oversees Karratha – the Shire of Roebourne – is Dampier.

Situated on the Burrup Peninsula, it is home to the Dampier Port Authority (DPA).

By tonnage, the DPA is responsible for one of Australia’s largest ports, shipping from its two terminals at Point Parker and East Island Intercourse, and Withnell Bay, commodities such as iron ore, liquefied natural gas and salt.

In the WA parliament, Karratha is located within the electoral district of North West

Its current Member of the Legislative Assembly is Vince Catania, who was originally elected to the Legislative Council in February 2005 before running for the newly created seat of North West at the September 2008 state election (as a representative of the Australian Labor Party).

Having won that seat, he quit the ALP within a year and changed his political allegiance to the Nationals WA in July 2009. His electorate office is located in the Gascoyne town of Carnarvon.

Further north, at Port Hedland, the MLA is Tom Stephens. A long-serving member of the WA parliament and former state minister, his parliamentary electorate office is in South Hedland.

In the case of Federal parliamentary representation, Karratha is within the seat of Durack held by the Liberal Party’s Barry Haase.

Durack covers an area which sits between Kununurra in the north to Geraldton-Greenough in the south.

The world’s largest electorate, its population centres include the City of Geraldton-Greenough as well as the towns of Broome, Carnarvon, Dampier, Derby, Exmouth, Kalbarri, Karratha, Newman, Port Hedland, Wiluna and Wyndham.

To cover this enormous area, Briggs noted, Haase had two electorate offices located in Geraldton and Broome.

“For those with larger seats, such as Durack, MPs are entitled to two parliamentary electorate offices which ultimately better serves the interests and needs of its sparsely spread electors who would otherwise have even less contact with an MP or their office,” he explained.
 
“Many State and Federal MPs are tireless in their advocacy for the people they represent,” Brigg said.

“This report does not seek to question their ability, commitment or dedication.

“It is more about questioning their choice of location when it comes to providing a direct political presence for their constituents.

“Furthermore, any one of WA’s 12 senators could locate their electorate office anywhere in the state.

“All, however, can be found within the Perth metropolitan area. Only two are located further than a 10 minute drive from Perth’s CBD – the ALP’s Senator Glenn Sterle (Canning Vale) and Greens Senator Scott Ludlum (Fremantle).

“Politics dictates that these senators also have a party-political role that includes ‘duty-Senator’, which has them involved in representing, holding or winning marginal lower-house seats.

“While the public remains loathe spending more funds on electorate expenses, its remains to be seen why there is no permanent electorate presence in Karratha within current resources.

“The question remains – are adequate resources being provided to the state’s regional MPs?

“Also, is enough really being done for an on-the-ground electorate presence for the North West?”

Although it is one of Australia’s most strategic regional hubs, the people of Karratha have no direct political voice.

Mining and exploration companies listed on the ASX are required to report in line with the JORC code, but what is the JORC Code?

The Joint Ore Reserves Committee (JORC) Code sets the minimum standard for public reporting of Exploration Results, Mineral Resources and Ore Reserves in Australia and New Zealand.

Also known as the Australasian Code for Reporting of Exploration Results, Minerals Resources and Ore Reserves, the JORC Code provides a system for classifying resources and reserves.

It does this in terms of tonnage/grade estimates according to geological confidence and technical/economic considerations that are subsequently published in reports prepared by companies to inform investors, or potential investors and their advisors.

JORC was originally established in 1971 and several reports containing recommendations for the classification and public reporting of ore reserves were published until the first edition of the code was eventually published in 1989.

The main purpose of the Code was to establish consistency in reporting of the resources and reserves of Australian projects.

According to the 2004 edition of the Code it has been, “Adopted by The Australasian Institute of Mining and Metallurgy (‘The AusIMM’) and the Australian Institute of Geoscientists (‘AIG’) and is therefore binding on members of those organisations.

“It is endorsed by the Minerals Council of Australia, and the Securities Institute of Australia as a contribution to good practice.

 “The Code has also been adopted by and included in the listing rules of the Australian (‘ASX’) and New Zealand (‘NZX’) Stock Exchanges.”

The JORC Code is used by mining companies to tell the market place what they have been able to find out about their respective projects in a uniformed manner.

As a company carries out any exploration activity that provides it with any bearing as to how it may be progressing, it must continually disclose any knowledge it learns concerning what may or may not be held in the ground within its tenements.

“Public Reports concerning a company’s Exploration Results, Mineral Resources or Ore Reserves should include a description of the style and nature of the mineralisation,” the Code says.

“A company must disclose any relevant information concerning a mineral deposit that could materially influence the economic value of that deposit to the company.

“A company must promptly report any material changes in its Mineral Resources or Ore Reserves.”

For the purposes of this reporting Mineral Resources are divided into three different categories according to their geological confidence, which is based on the location, quantity, grade, geological characteristics and continuity.

Once this geological evidence and knowledge has been ascertained a Resource can be estimated or interpreted to be classified to be in either the Inferred, Indicated or Measured category.

Each of these categories pretty much live up to their titles.

An Inferred Resource, for instance, is exactly that. It is a resource that infers a company is reasonably certain mineralisation exists, but it has yet to do enough drilling to obtain the appropriate information to be able to say how big it is or if it is economically viable to justify the construction of a mine.

“An ‘Inferred Mineral Resource’ is that part of a Mineral Resource for which tonnage, grade and mineral content can be estimated with a low level of confidence,” the Code tells us.

“It is inferred from geological evidence and assumed but not verified geological and/or grade continuity.

“It is based on information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes which may be limited or of uncertain quality and reliability.”

The next target for a mining company is to take its resource from the Inferred stage to become an Indicated Resource.

After enough work has been carried out on the Inferred Resource a company reaches a point where it has a much better idea as to the nature, quality, amount and distribution of whatever commodity it may be looking at.

At this stage the company is able to confidently interpret the geological framework of the project and perhaps to also be able to assume continuity of the mineralisation.

The company should now also be able to apply technical and economic equations to the resource to provide an evaluation of its economic viability.

“An ‘Indicated Mineral Resource’ is that part of a Mineral Resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a reasonable level of confidence,” according to the Code.

“It is based on exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes.

“The locations are too widely or inappropriately spaced to confirm geological and/or grade continuity but are spaced closely enough for continuity to be assumed.”

When the company is finally reaches the point where there is “no reasonable doubt”, in the opinion of the Competent Person [Another article for another time], overseeing the project that the nature, quality, amount and distribution of the data means the tonnage and grade of the mineralisation can be estimated to within close limits without any slight variations affecting its potential economic viability, it may then be categorised as a Measured Mineral Resource.

“A ‘Measured Mineral Resource’ is that part of a Mineral Resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a high level of confidence,” the Code says.

“It is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes.

“The locations are spaced closely enough to confirm geological and grade continuity.”

Of course this is just the beginning of the reporting process. Ore Reserves, “the economically mineable part of a Measured and/or Indicated Mineral Resource”, are also subjected to stringent reporting parameters.

Understanding the difference between Indicated, Inferred, and Measured Mineral Resources, is vitally important for any investor but it is just the tip of the iceberg when it comes to fully understanding what companies are reporting and what it actually means.