THE INSIDE STORY: Aspiring base metal developer Metalicity (ASX: MCT) has added a clutch of highly-prospective lithium projects to the company’s Admiral Bay zinc deposit, located in the Kimberley Region of Western Australia.

Metalicity managing director Matt Gauci raised a few eyebrows when the company’s former incarnation, PLD Corporation, acquired the project with a deal totalling $7 million that entailed an initial outlay of $500,000 cash, a $500,000 convertible note with $1 million, in cash or shares, payable on completion of a Scoping Study.

Forthcoming payments subsequent to the Scoping Study completion involve $2.5 million on first production and $2.5 million after the third anniversary of first production.

The zinc market in particular has attracted a great deal of spectators of late, due in no small part to the recent closure of some of the sector’s major suppliers, including the Century mine of MMG (500,000 tonnes per annum), which shipped last ore in late 2015, and the Lisheen mine of Vedanta (160,000 tonnes per annum) in Ireland in early 2016 reason.

In January, CRU Head of zinc market research Graham Deller said, “Excess concentrate stocks are already almost exhausted, and metal inventories will soon start to fall quickly too, as price-induced mine cutbacks add to the effects of last year’s ore exhaustions.”

With that in mind, the Admiral Bay deposit is shaping up to be a worthy replacement to these – and other anticipated closures – as it is considered to be the largest undeveloped pure zinc project in Australia, and ranking as the tenth largest in the world.

The Admiral Bay project comprises two granted Mining Licences, M04/244 and M04/249, and one Exploration Licence E4/1610.

Metalicity has taken advantage of around $50 million of previous exploration conducted by the project’s former owners Kagara Zinc and CRA with work to date identifying a flat-lying structure over a mineralised trend of 18 kilometres.

This currently includes an Inferred Mineral Resource over a strike length of 2.1km of:

111.3 million tonnes at 5.7 per cent zinc equivalent (ZnEq) (2.3% zinc, 2.7% lead, 15 grams per tonne silver).

Metalicity may have been one of the early movers in recognising the potential of the project, but it was quickly followed by international mining-focused private equity firm Resources Capital Funds (RCF), which came on board for a one per cent Net Smelter Return (NSR) to the tune of US$5 million plus the subscription of 9.9 per cent of the company’s shares.

A favourable exchange rate meant the company was able to bank around $7 million without diluting its current shareholders.

The money has been put to good work with the company obtaining the majority of the previous operators’ drilling data, which is currently being reviewed as part of a comprehensive Scoping Study that is near completion.

“We recently conducted a review of the Scoping Study with our consultants SRK Consulting and CSR Global, from which we identified the chance to enhance the project’s value, with particular reference to the Mineral Resource Estimate,” Gauci told The Resources Roadhouse.

“Before we finalise the study we want to take a look at applying a new geological model, which we have updated by re-logging historical drill core from drilling carried out by CRA and Kagara between 1968 and 2008.

“The new geological model is an important step for us when it comes to understanding the high-grade zones occurring within the system to enable us to target them for future Resource upgrades.”

Metalicity describe the new geological model being compiled as a modern approach to assessing the Admiral Bay deposit.

The methodology consists of the acquisition, compilation and interpretation of data that, has until now been unavailable, and is now being evaluated for the first time by experts with considerable experience in Mississippi Valley-type (MVT) systems.

The company anticipates the modelling will deliver greater understanding of the mineralisation and its continuity as well as generating new drill targets.

The modelling has already identified thick, higher-grade zones of zinc and lead mineralisation within the existing MRE.

In December 2015, Metalicity again provided the market with an obtuse conversation point when the company lodged three Exploration Licence Applications (ELAs) covering an area of over 450 square kilometres.

The reason for the market interest was the company’s decision to diversify with the three ELAs (E45/4675, E45/4676 and E45/4677) being prospective for lithium, tantalum and tin.

The prospects are located in desirable addresses for each commodity, namely the Pilgangoora district of Western Australia, just five kilometres south west of Pilbara Minerals’ (ASX: PLS) Pilgangoora lithium deposits –touted as the world’s second largest spodumene deposit – and adjacent to Global Advanced Metals’ Wodgina tantalum mine, which is one of the world’s largest tantalum deposits.

Earlier this year Metalicity demonstrated its allegiance to its portfolio diversity by lodging a further 11 ELAs across seven prospects – all in WA – and considered to be prospective for lithium, tantalum and tin, covering a combined area of approximately 2017sqkm.

The first of these to come to prominence was the lithium tenements at Pilgangoora South, where the company identified high-priority targets (L1 and L2) within the Stannum project in E45/4677, adjacent to the Wodgina Mine.

Recent rock chip sampling work on the L1 and L2 targets at Stannum confirmed the presence of lithium bearing rare metal pegmatites at the prospects, returning results up to 24,544ppm lithium oxide and up to 22ppm tantalum.

“Being able to confirm – so early on – high lithium assays within the spodumene from only one kilometre of the five kilometre area was very important for the project,” Gauci said.

“It immediately elevated Stannum to become one of the most lithium-prospective new areas sitting in Pilgangoora District, which is rapidly emerging as a world-class region for lithium discoveries.”

Three of the later ELAs (E70/4809, E70/4816 and E70/4817) cover 870sqkm to make up the Greenbushes Regional lithium project and are located with 35km of the world’s largest and highest grade deposit of spodumene (hard rock lithium), the Greenbushes lithium deposit of Talison Lithium.

First pass field work at Greenbushes surpassed expectations with the collection of a healthy number of pegmatoidal veins and greisens for chemical analysis.

Although outcropping pegmatities are common in the Pilbara, it is a different story in the southwest of WA where the Greenbushes project is located.

In this region exploration requires a more systematic approach involving sensing surveys to identify drill targets.

“Our first pass results at Greenbushes were a pleasant surprise as we thought the amount of lateritic cover would prevent us from identifying any outcropping pegmatites,” Gauci explained.

“Our applications cover similar geological settings to the Greenbushes deposits so our field work was aimed at mapping geological structures, and taking rock chip samples.

“Now we intend getting our hands on radiometric data set we know to be available to assess the area for potassium alteration haloes that are usually associated with pegmatites.

“We also hope to acquire hyperspectral data over the project are to help define further detailed exploration programs.”

Metalicity (ASX: MCT)
…The Short Story

HEAD OFFICE
6 outram Street
West Perth WA 6005

Ph: + 61 8 9324 1053
Fax: +61 8 9388 3006

Email: info@metalicity.com.au
Website: www.metalicity.com.au

DIRECTORS
Andrew Daley, Matthew Gauci, Christopher Bain, Mathew Longworth, Mike Hannington

MAJOR SHAREHOLDERS
Founders 22.5%
RCF Fund VI 9.9%
Associates 9%
Management 4%

THE DRILL SERGEANT: Windward Resources (ASX: WIN) has claimed to have identified a new exploration opportunity within the Western Margin prospect, part of the company’s 70 per cent-owned Fraser Range North project in the Fraser Range province of Western Australia.

The new area of interest is located approx. 3.5 kilometres due east of the Nova nickel-copper deposit, currently being developed by Independence Group (ASX: IGO).

Windward explained the new prospect had been delineated following a reassessment of the project’s exploration potential and through the application of new state-of-the-art exploration methodologies.

The company said the new area includes a large residual gravity feature in an area below a paleo-channel, which has not previously been drill tested.

Previously collected soil geochemical samples show nickel and copper values that are indicative of the presence of mafic and possibly ultramafic rocks.

Windward consider this opportunity represents a priority area for follow-up exploration activities and as such will form the focal point of a proposed new phase of exploration activity by the company at the Fraser Range North project.

“The size and location of the new gravity anomaly – within the newly identified structural corridor at the Western Margin – are the key characteristics of this prospective new exploration opportunity identified by our exploration team, and clearly warrants follow-up exploration,” Windward Resources executive chair Bronwyn Barnes said in the company’s announcement to the Australian Securities Exchange.

“The next steps are to undertake ground geophysics and commence targeted aircore drilling with a view to refining targets for possible deeper drilling, in order to establish whether this previously untested location has the potential to host a sizeable nickel-copper system.

“It is important to note that this is a completely different area to the previously drilled WMA1 conductor.”

Email: admin@winres.com.au

Website: www.winres.com.au

THE CONFERENCE CALLER: Opening the inaugural Paydirt 2016 Australian Graphite Conference in Perth, Paterson Securities resource analyst Jason Chesters warned graphite explorers to rethink their marketing strategies.

Chesters told Australia’s graphite hopefuls it would prudent for them to, “cool their heels”, and to not participate in what has become a boast fest about flake size and grade in recent times.

He said it would be a much wiser move for all players if they were to instead, concentrate on and prioritise whether or not the mineralisation in their respective deposits can actually be used in products a customer wants.

According to Chesters the global graphite market is currently experiencing a period of transition.

This is being driven by demand from traditional industrial applications slowing while the prospect of rapid growth in newer high-tech applications offered more promise.

“There are a growing number of graphite hopefuls chasing the perceived opportunity and hoping to land a lucrative sales contract in a total graphite market of approximately two million tonnes per annum,” Chesters said.

“However, the reality is that expectations of a required supply response to meet the additional demand may fall short of expectations and almost certainly not be sufficient to accommodate all newcomers.”

With this in mind, Chesters cautioned his audience that the current rapid growth of graphite hopefuls is pretty much likely to result in a whole lot of disappointment across the boards.

“The recent project and corporate failures in the graphite sector have given investors pause as the market comes to better understand the added complexity and additional attributes required in a good graphite project,” he advised.

“Customer relationships and product qualification is essential.

“Ultimately, the opportunity exists for a number of new graphite projects producing a required range of products, to be successfully developed to fill a future demand growth.”

Chesters defined his ideal for a successful new graphite project, describing it as being less about just size and grade (although higher grade helps the economics of a project) but more about – for a flake graphite deposit – flake size distribution, product purity (average concentrate purity), deposit location and infrastructure, timeframe to production and above all, customer relationships.

“There is just one real question and that is, can you sell what you produce,” Chesters said.

“Can your project actually produce a range of graphite products to a required specification and sell these to “long-term” quality customers for a reasonable market price.

“Simultaneously, the project owner must achieve a cost of production lower than most other competitors but the real critical focus needs to be on end use.

“Graphite project owners must, at their earliest feasible time, conduct testwork on the graphite product samples produced to determine its suitability of use and potential value for end-users.”

Chesters said, by nature, graphite projects require a slightly different approach to advancing a project when compared to other non-industrial mineral projects.

Additional considerations including, skills, and market intelligence are required to be successful, particularly as investor interest and, just as importantly, understanding in the sector is low.

“Graphite as an investment opportunity is generally not well understood,” he said.

“Although knowledge is improving and the combined stated scale of production of graphite companies has led to a perception of potential oversupply.
  
“While raising capital under the current market conditions is challenging, a quality project correctly managed and communicated, should continue to attract investor interest.”

ROADHOUSE REGULAR: Gavin Wendt says that the recent decision by the Federal Reserve to raise interest rates in the face of a rapidly weakening global economy has given a new lease of life to gold.

A year ago, oil and other commodities signalled that potential turmoil was coming to the global economy. Now the signal is starting to come from gold.

We’ve commented consistently that we expected gold to firm in the wake of the US rate rise – not fall – contrary to what so many other market-watchers had predicted.

In formulating our views we’d looked at the underlying health of the US economy, along with actual evidence from previous rate-rising cycles over the past 50 years.

At the end of the day it’s about negative real interest rates, where the rate of inflation is still well above the underlying rate of interest.

As we’ve previously written, “The Dow Jones at record levels does not necessarily reflect a robust economy – it’s in many respects a reflection of an equity market that’s been pumped full of Fed-administered hot air.”

The Federal Reserve made a big mistake when it raised interest rates in December.

It wasn’t the mixed economic data that caused the change in policy, it was a desire to ‘normalise’ monetary policy.

The data makes it seem like the US economy is on a roll, when it clearly is not.

Firstly, the US labour force participation rate is averaging four per cent less than it did a decade ago, prior to the Great Recession.

This means 10 million unemployed people are categorized as having given up looking for work and not in the labour force.

They are therefore unemployed – and if properly accounted for – the unemployment rate would be reported as being a little over 10 per cent.

Secondly, the unemployment rate is determined by a survey of 60,000 people each month.

It’s like a giant poll. If a person says they have started a business they are counted as employed. If they lost their job and can’t find one, but start up an E-bay business selling stuff from home, they are counted as fully employed – no matter how little their business makes.

Many people who can’t find work try to pick up what they can by starting some sort of small service business. This little known fact makes a mockery out of the headline numbers.

Other data also paints a less than glowing picture of the US economy, as recently released US 2015 fourth quarter GDP was just 0.7 per cent.

To demonstrate how worried the markets are, the Japanese 10-year government bond fell to negative interest rates recently.

The rate has never been negative before and this movement is not confined to Japan.

Rates on debt instruments perceived as safe are falling everywhere. It is possible the yield on the German 10-year bond may also fall below zero.

10-year Japanese Bonds, Source Bloomberg

Markets’ Loss of Fed Confidence

Markets are expressing a loss of confidence in the global economy and a loss of confidence in the Federal Reserve, as Chairman Yellen commented this week that the Fed may pause on expected additional rate rises this year based on outcomes in the economy.

What’s intriguing is that The Fed has consistently ‘talked tough’ with respect to interest rates, seemingly recognising the dangers of keeping rates too low for too long. It has also pointed to economic growth in the US as clear evidence that its ‘easy money’ policies have been working.

Yet it seems to now be admitting what we’ve been saying for some time – that all isn’t well.

Something the Fed hasn’t previously been prepared to directly acknowledge for fear of spooking markets.

One lesson here is that the Fed’s great monetary experiment since the recession ended in 2009 looks increasingly like a failure.

Recall the Fed’s theory that quantitative easing (bond buying) and near-zero interest rates would lift financial assets, which in turn would lift the real economy.

While stocks have soared, as have speculative assets like junk bonds and commercial real estate, the real economy hasn’t.

The Wall Street Journal recently commented that, “This remains the worst economic recovery by far since World War II, and we’ll be watching to see if financial assets now fall to match the slow real economy.”

The table above is courtesy of The Wall Street Journal and compares GDP growth projections by the Fed’s governors and regional bank presidents to actual results.

What it highlights is how optimistic the Fed has been with its growth forecasts, with actual growth rates falling well short.

Fed policy was also supposed to raise inflation to its target of 2 per cent a year, but it has failed even that test.

The same monetary also lesson applies to the rest of the world. Bond buying and near-zero rates have been implemented worldwide, but the global economy has to this point failed to respond with faster growth.

The European Central Bank’s bond has so far prevented a recession, but European growth remains sluggish.

Meanwhile, the emerging-market economies that benefited from capital inflows during the height of QE are now seeing those flows and economic growth recede.

China is trying to clean up its stimulus excesses without going into recession.

However the far bigger concern lies in the fact that financial markets have become so dependent on QE and artificially-suppressed interest rates that it will be very difficult for the Fed to reverse these policies without major repercussions.

Markets of course have typically been comfortable with the ‘easy money’ scenario continuing, as it will help maintain the value of already-inflated share and property investments.

For now the game of musical chairs continues, but the day of reckoning seems to be getting closer.

Gavin Wendt



www.minelife.com.au

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