Ever Wondered How Do The Analysts, Analyse? Part 1

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WHAT ANALYSTS SAY: Breakaway Research provides an insight into the thought processes behind Resource Industry Analysis.

How often have you heard a company representative say ‘we are undervalued with respect to our peers’?

It is a comment we hear a lot as analysts, and the company may well be undervalued as compared to its peers – but there often is a reason for this and more often than not the market is correct.

You may notice we usually include a peer group in our research, with this comparing various metrics of the selected companies.

How we compare companies will depend upon the stage of development that they are at, such as:

Exploration companies, with no defined resources;
Exploration and development companies with defined resources; and
Producers.

In this piece we will concentrate on the first two cases as producers bring a different level of complexity to the analysis!

You will also note there is usually a disclaimer, basically saying ‘take care with comparisons’, and ‘that they are to be treated as an indicative guide only’.

This is important – there are a number of uncertainties in these comparisons.

These reasons for differences include, but are not limited to (with all other things remaining equal):

Location and prospectivity of the company’s activities;
Grade of mineralisation;
Potential size of a deposit;
What other projects a company may have in its portfolio;
Perception of management;
Cash in the bank (when the market realises that a company needs to raise cash the price is commonly discounted); and
Marketing and exposure – there are cases of companies flying under the radar, and thus not getting the exposure to potential investors that would lift their share price.

Exploration Companies – No Resources

Really the only way to compare and rank these companies is by market capitalisation, or else the enterprise value of their projects.

Even then there is room for confusion and grey areas, and as already mentioned, this is an indicative comparison method only and could almost be considered more qualitative rather than quantitative.

The first of these relates to the market capitalisation – this can be calculated in a number of ways:

Undiluted – the market capitalisation based on quoted securities only – shares, escrow shares and listed options;
Partially diluted – as above, but including those unlisted options (and in the case of the ASX, options) that are in the money; and
Fully diluted – market capitalisation taking into account all quoted and unquoted securities.

We tend to use the latter case in comparing market capitalisations; however this will vary from analyst to analyst.

The second measurement of a company’s value is the enterprise value. This is market capitalisation less cash (and cash equivalents) plus debt (including convertible notes).

Again this can be undiluted, partially or fully diluted, and gives an idea of the value of a company’s projects.

A way to think of enterprise value is as a takeover price – to take over a company, the acquirer will need to buy the shares, assume the debt and keep the assets.

An example of comparative valuations was with Rumble Resources (ASX: RTR).

This was a comparison of companies operating in the Fraser Range. We also cover PLD Corporation (ASX: PLD), which is included in the following table.

Not included in the following table is Sirius Resources (ASX: SIR), which is now a developer having discovered the Nova-Bollinger deposits and also Sheffield Resources (ASX: SFX), whose current market capitalisation of around $100 million is largely backed by the world-class Thunderbird mineral sands project.

The graph we used in the Rumble note is below. Here using the undiluted market capitalisation, and also shown current cash positions.

Rumble Resources Peer Comparison

 
Source: IRESS, company reports

You will notice the wide range of market capitalisations. This shows fundamental differences between the companies, even though they are considered as a peer group.

These reasons include, amongst others:

A number of companies, in addition to their Fraser Range properties, hold other properties, although they may be concentrating their activities on the Fraser Range; and
Some are operating in what is currently perceived as the most prospective part of the Fraser Range (there is a discussion of the perceived prospectivity of the Fraser Range in the Rumble research note), and there-fore may trade at a premium to companies outside of this central ‘Fraser Zone’.

Herein lies a difficulty – how do you value, say, just each company’s Fraser Range projects where a company has other projects?

This is generally beyond the scope of a note, with exploration property valuation being a rather inexact science – it is in effect an educated estimate!

However, what this does show is the relative leverage that can be gained from a discovery – if, say Rumble and Matsa (which has a large, diversified portfolio of projects) both made the same discovery, you would get much better leverage with Rumble.

As a final point, at the time of the Nova-Bollinger discovery, Sirius had a similar enterprise value to that of Rumble now, and it is now a +$1 billion company.

This article originally appeared in

Ever Wondered How Do The Analysts, Analyse? Part 2

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WHAT ANALYSTS SAY: Breakaway Research continues its insight into the minds of Resource Industry Analysts.

The next case to discuss is comparing companies with defined resources.

Exploration and Development Companies with Defined Resources

Here we will look at two recent notes – Anova Metals (ASX: AWV), a pure gold play, and Avalon Minerals (ASX: AVI), a copper/iron developer.

The main method used here is the enterprise value per unit of metal in the relevant company’s resources.

Here again there are uncertainties, and figures need to be treated with care. These include (and yet again are not limited to):

Do you use the diluted, partially diluted or undiluted enterprise value, either total resources, measured and indicated resources or reserves can be used; or
Do you include resources over all the companies’ projects, or just their key project in the comparison?

Tending to use total resources over the whole of a company’s portfolio on a fully diluted basis.

An example of this below is Chesser Resources (ASX: CHZ), which had 100 per cent of the Kestanalik project (12.47 million tonnes at 1.86g/t gold) and 50 per cent of Sisorta (14.55 million tonnes at 0.67g/t gold).

Also equity ownership of a project needs to be taken into account in the comparatives.

Below is the example used for Anova Metals. This includes ASX and TSX-listed companies at various stages of devel-opment – please be aware of the notes at the end of the table.

Anova Metals Peer Comparison

Source: IRESS, Company reports
* Papillon merged with B2Gold,
with the shares suspended from trading on September 23, 2014 – The EV
represents that as of the time of suspension Chesser is in the process
of selling the 746,000oz Kestanelik deposit for US$40 million, or
US$53/oz
*Gascoyne has entered into a HoA with Monument Mining
(TSX.V: MMY) to form a 50:50 exploration and development JV – this is
yet to be finalised

The key things that will effect valuations here include grade, size and metallurgy of resources (e.g. quality and hence economic potential of the resource) and project stage.

In the current market funding is also critical – companies that are funded towards development will trade at a significant premium over those that are seeking funding.

Location can also play a part here, with more remote locations commonly adding to capital and operating costs, and hence adversely affecting project economics.

The above table shows a broad trend of increasing EV per ounce with project stage, grade and resource size, but does show anomalies, however which can be explained.

One clear anomaly is Victoria Gold – it has a similar resource to Midway Gold’s Pan project, however on an EV/ounce value is only at around 3 per cent of that of Midway.

Is this due to the project stage (permitting vs construction), location (Nevada vs the Yukon), some other factors, or most likely a combination of all?

This is something potential investors would need to look at.

Another point raised in the above table is one of companies trading at below cash backing, as shown by Chalice Gold (ASX: CHN), with a market capitalization of $37 million and cash of $44 million.

In the current market we have seen a number of examples of companies with large cash reserves being valued at or below cash, with no value ascribed to projects, even if the projects have merit.

The same may apply partially to Victoria Gold, with cash of C$32 million and a market capitalisation of C$40 million.

The next case is where a company has polymetallic resources, and below is the peer comparison table as used in our recent note on Avalon Minerals.

All points raised above are still valid here – this case throws up a few more factors to be considered.

Avalon Minerals Peer Comparison

Source: IRESS, Company reports

You will note in the above table quoted grades as ‘CuEq%’. This reflects the in-ground value (IGV) of the mineralisation expressed as an equivalent copper grade.

This is calculated by summing the values of each potentially economic metal in the mineralisation to get the in-ground value per tonne of resource, and then calculating the copper grade that would give this value.

In carrying out calculations, for the purposes of an indicative comparison, potential metallurgical recoveries are not taken into account.

This contrasts to the requirements of public releases by listed companies, where metallurgical recoveries do need to be taken into account when reporting equivalent grades.

Here we have used copper as the comparison metal, given that the potential majority of each company’s cash flow (with the exception of Northern Iron) will be from copper.

Another key metric in the above table is ‘EV/IGV’. This reflects the proportion of the in-ground value of mineralisation reflected in the share price.

It is important to remember that the in-ground value is significantly higher than the expected cash flows from a project.

A starting point rule of thumb is that the NPV of a project (which may or may not be similar to a company’s EV) will be around 10 per cent of the in-ground value.

This allows for recoveries, operating and capital costs.

Operating and capital costs will also be dependent upon the resource type. For example, bulk commodities will generally have higher operating and capital costs per unit of in-ground value, and hence a lower NPV.

This is particularly relevant to the peers for Avalon, where magnetite is thrown into the mix in a few of the peers.

As can be seen in the above table there is general trend in increasing EV/IGV with project stage and in-ground value per tonne of mineralisation, however again the table does throw up anomalies.

Conclusions
I hope we have explained the rationale and processes behind the peer comparisons and relative valuations between generally non-producing companies in notes that we write.

Some clear points arise from the discussion:

There are general trends in comparative valuations, with increase in value driven with project stage and potential economics of a project;
Such trends and comparisons are indicative only – these need to be treated with care, and there are usually reasons for the discrepancies and anomalies from the general expected trends in values;
No two companies are identical, again reinforcing the indicative nature of comparative valuations; and
These methods however are a valuable tool in company and market analysis.

This article originally appeared in

German deal enriches Potash West aspirations

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THE INSIDE STORY: When Potash West (ASX: PWN) listed on the Australian Securities Exchange in 2011, its key focus was production of phosphate and potash products from the company’s Dandaragan Trough project, located north of Perth in Western Australia.

Potash West had identified a growing market was emerging for fertiliser, not only within Australia, but also into Asian markets.

With statistics showing the amount of arable land per person worldwide decreasing (currently around 0.25 hectares per person and expected to be approximately 0.15 by 2050), the company believed the fertilizer market had a potential global reach rather than regional.

On a regional basis Western Australia has no domestic production of potash, while south-east Asia currently imports nearly all of its phosphate and potash needs.

Western Europe is also a net importer of potash and with that in mind Potash West entered into an agreement with private interests to earn 55 per cent interest in a German Joint Venture with East Exploration Pty Ltd, which is developing high-grade potash deposits in Germany.

The attraction for Potash West was the application by East Exploration’s 100 per cent-owned subsidiary, East Exploration Gmbh, (EEG) for two exploration licences Küllstedt and Graefentonna, for potash in established potash producing areas in South Harz, Thuringia, Germany.

These licences, covering approximately 450 square kilometres, were granted to EEG earlier this year by the Thuringian Mining Authority for a period of five years, with the option to renew for a further three years.

A review of available geological data for the Küllstedt licence was conducted by consultancy ERCOSPLAN, an internationally recognised potash exploration company that was associated with exploration drilling in the South Harz region in the 1970s and 80s and has access to most of the summary exploration data.

The results of the review indicated large tonnages of high-grade potash material present in the Küllstedt licence area, allowing for the calculation of an exploration target of between four and five billion tonnes at 7 per cent to 25 per cent potassium oxide, to contain between 292 and 1,285 million tonnes of potassium oxide.

There were two potash mines established on Küllstedt in the 1910s that were subsequently shut down in the 1920s, only to be rehabilitated in the earlier part of this century.

 

“There are around 35 existing holes drilled on this tenement, which for potash is quite a large number,” Potash West managing director Patrick McManus told The Resources Roadhouse.

“The data chain is, however, incomplete, so there is some twinning of these holes required in order to calculate a JORC 2012 compliant resource.”

The next stage for this project is to plan and permit two or three exploration drill holes, this will be completed over the coming months”.

“We are excited by the potential of the South Harz project, it shares similar attributes to the Dandaragan Trough, with great infrastructure in place, low sovereign risk and located in a region that is a nett importer of our products,” McManus said.

“But our main focus will remain on our domestic projects, in particular the Dinner Hill project in the Dandaragan Trough, its phosphate potential and its ground-breaking extraction technologies, the 100 per cent-owned K-Max technology and the 25 per cent-owned Li-Max technology.”

The 22 square kilometre Dinner Hill prospect, which is just one of several mineralised areas Potash West has identified within the Dandaragan Trough tenement package, has emerged as the front runner for development.

Potash West recently announced a substantial increase to the potash and phosphate resources at the wholly-owned prospect.

Using a cut-off grade of 1.45 per cent phosphate, the company established an Indicated Mineral Resource of 250 million tonnes at 2.9 per cent phosphate.

One important aspect of the recent increase in the Dinner Hill Resource is that the phosphate resource increases in grade to the north within an area that had not been drilled previously.

The new Resource will form the basis of pit design and mine scheduling studies Potash West will conduct as part of a feasibility study into phosphate production at Dinner Hill, which is scheduled for the third quarter of 2015.

Of particular note is that the principal potash (K-Max) mineralisation occurs within Molecap Greensand, which is now estimated to contain 175 million tonnes at 4 per cent potassium oxide, representing a 43 per cent increase in tonnes.

 

Apart from delivering the Resource upgrade, the recently-completed drilling program achieved further objectives, including:

•    Identification of the extent of mineralisation to allow the definition of the deposit in order to delineate a mining area, for permitting purposes; and

•    To obtain samples so the company can complete metallurgical and process development testwork, for future feasibility studies.

These were all achieved while leaving a substantial area of the Dinner Hill tenement to be explored.

Potash West updated its development plan for the Dinner Hill project in January, using the previous Resource, which looked at integrating the K-Max potash and phosphate projects that had been considered as independent operations.

The integrated project recognised synergies of using a common mining and beneficiation plant and lower operating costs associated with a larger scale operation.

The financial evaluation was based upon a mining rate of 4.2 million tonnes per annum for a 20-plus year life-of-mine operation.

In the first five years only the phosphate-rich part of the ore sequence would be mined to produce single superphosphate (SSP) while the potassium-rich glauconite layer will be exposed, but not mined initially.

The study assumed the K-Max plant and an upgraded phosphate plant will be constructed after five years, providing benefits of:

Lower Capex of $136 million to start Stage 1, using well known technology, so reducing financial and technical risk.

Areas of exposed K-Max ore will allow low mining costs for first few years of Stage 2; and

Free cash flow from Stage 1 operations can contribute to the feasibility study for stage 2 and the equity component of an anticipated $590 million Stage 2 capital cost.

By the time Stage 2 kicks in, operating costs move from Stage 1 of US$19 per tonne of ore to US$44 per tonne with revenue shooting up from US$35 per tonne to US$110 per tonne respectively.

“We have two Resources in the K-max potash and the phosphate, which overlap,” MacManus said.

“We can start off with the phosphate project, operate that for five years, which will help fund the commencement of the K-Max potash project.

“It’s a good, strong project with a very strong operating margin.”

Recent development work by Potash Wests’ technology partners, Strategic Metallurgy, has established an innovative process to extract lithium from micas. Potash West owns 25 per cent of this IP.

“We are committed to working with Strategic Metallurgy to demonstrate the strong value of these technologies and their potential to exploit micas with high contents of lithium and potassium” McManus said.

Potash West (ASX: PWN)
…The Short Story

HEAD OFFICE
Suite 3
23 Belgravia Street
Belmont WA 6104

Ph:     +61 8 9479 5386+61 8 9479 5386
Fax:    +61 8 9475 0847

Web:    www.potashwest.com.au
Email:    info@potashwest.com.au

DIRECTORS
Adrian Griffin, Patrick McManus, Chew Wai Chuen, Gary Johnson

MAJOR SHAREHOLDERS
Venture Frontier Ltd    15.97%
Choy Thai Yap        6.51%

Uob-Kay Hian Pte Ltd    4.77%

 

 

Hi Ho, Hi Ho, it’s off to work we go

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THE DRILL SERGEANT: This week’s drilling is internationally focused with Pacifico Minerals drilling in Fiji and Carnavale Resources in Nevada.

Drilling to commence at Borroloola West

Pacifico Minerals (ASX: PMY) is preparing a combined diamond drilling and reverse circulation (RC) program at the Coppermine Creek and Bing Bong prospects in the Northern Territory.

Pacifico has a farm-in agreement with Sandfire Resources (ASX: SFX) on the Borroloola West project, consisting of 15 exploration licences, one mining licence and one exploration licence application.

Drilling is expected to commence within two weeks.

Pacifico has secured co-funding from the Northern Territory Government through the Territory’s Geophysics and Drilling Collaborations program, which will cover 50 per cent of the planned direct drilling costs at the Bing Bong prospect.

“We are pleased to be getting the drilling program underway at our Borroloola West project,” Pacifico Minerals managing director Simon Noon said.

“In particular, we are extremely excited by the potential at Coppermine Creek with previous drilling having already intersected high-grade copper with several drill holes within the alteration zone.”

Drilling is expected to take three to four weeks to complete with assay results expected over the next eight weeks.


Drilling approval received for Red Hills

Carnavale Resources (ASX: CAV) has received approval for a Notice for Exploration (NOE) covering a planned diamond drilling program at the Cobra and Rattler prospects, on the company’s Red Hills project in Nevada USA, from the Bureau of Land Management (BLM).

The NOE is a regulatory requirement that must be submitted to and approved by the BLM prior to carrying out any ground disturbing activities, such as drilling and access track preparation.

The BLM approval is subject to completing a number of standard regulatory processes, which Carnavale expects to have completed by the end of June and anticipates commencement of the diamond drilling program in early July 2015.

The planned diamond drilling program comprises an initial three holes beneath the encouraging high-grade gold-silver-copper-zinc-lead mineralisation sampled in historic underground stopes at the Cobra prospect and a further two holes beneath larger underground workings at the Rattler prospect.

“In mining, the saying is ‘Grade is King’ and we are about to drill two exciting high grade gold-silver-copper-zinc-lead targets in Nevada, one of the most mining friendly states in the USA,” Carnavale Resources managing director Andrew Beckwith said.

“These are relatively low risk ‘brownfield’ targets as we will be drilling immediately below old mine workings.

“Initially, we expect to successfully confirm the high grade nature and true width of the zones and then look to build a significant resource with further drilling.”

What the Analysts Say

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WHAT THE ANALYSTS SAY: Interesting news and views from across the Resource Analyst universe.

Website: www.breakawayresearch.com

Company: Rumble Resources Limited (ASX: RTR)

Rumble Resources (ASX: RTR) is an Australian junior mineral exploration company whose main focus is on nickel-copper exploration in the highly prospective Fraser Range Nickel Province of Western Australia.

The company has a large 3,260 square kilometre landholding in this underexplored region, one of the largest of any explorer in the area.

Work to date has included comprehensive geophysical surveys and an initial drilling program, which has returned very encouraging results.

Rumble Resources has made substantial progress on its key Fraser Range properties since October 2014.

Work completed subsequent to October has included:

Mud rotary/diamond drilling at the Big Red Project (4 holes for 1,504m), testing a 2km long ground EM conductor;

Downhole EM surveying on three of the holes;

Petrological studies of drill core;

Ground gravity survey over the entire Zanthus Project area; and

Granting of approvals for drilling at the Zanthus eye feature.

The work has returned very encouraging results, with drilling now imminent on targets at Zanthus, and future drill targets defined at Big Red.

On the corporate side the company has had two oversubscribed capital raisings – a $1.15 million placement in November last year, and a $1.68 million placement in late April, leaving the company with over $2 million in the tin.

There are also around 44 million eight cent listed options due for expiry at the end of June, and given that we have recently seen prices above the conversion price we see potential for some of these to be exercised, providing additional cash.

Nathan Tinkler has been appointed as a strategic corporate advisor concentrating on the lucrative Asian markets, followed by the appointment of New York based EAS Advisors LLC (“EAS”) to target the large North American market.

Website: www.beerandco.com.au

Company: Pilbara minerals (ASX: PLS)

Tabba Tabba works approval expected in May

PLS stated that the works approval is expected in May.

Beer & Co expects first product in about six weeks from the date of works approval.

In our view, PLS’s share price has languished as first product has been delayed.

The delays will soon be over.

More, thick, high-grade intercepts from drilling at Pilgangoora

In April, PLS announced further, high-grade intercepts at Pilgangoora, with grades slightly higher than around resource grade for tantalum oxide and about 50 per cent higher for lithium oxide.

The drilling appeared to intercept three mineralised shoots, so the average waste to ore ratio across these four holes is less than half of the strip ratio assumed in our modelling.

This suggests significant further upside potential to Pilgangoora due to lower mining costs from the reduced strip ratio.


Disclaimer: The above is intended as a guide only. The Roadhouse accepts no responsibility for investments made from this advice, successful or otherwise.

The views, opinions or recommendations of this article do not in any way reflect the views, opinions, recommendations, of The Resources Roadhouse.

The Roadhouse makes no representation or warranty with respect to the accuracy, completeness or currency of the content. The content is for educational purposes only and does not constitute financial advice. Independent advice should be obtained from an Australian financial services licensee before making investment decisions.

Lithium Australia’s disruption leading to lithium eruption

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THE INSIDE STORY:     Lithium Australia (ASX: LIT) makes no apologies for developing a new, disruptive hydrometallurgical process for the production of lithium carbonate from micas.

Lithium Australia managing director Adrian Griffin prides himself on his good manners; however, his enthusiasm for the disruptive qualities of the company’s technological breakthrough might just result in more than a few industry toes being stepped upon.

The company’s new lithium focus is reflected in its recent name change from Cobre Montana to Lithium Australia.

As Cobre Montana, the company struck a technology agreement with Strategic Metallurgy to commercialise extraction of battery-grade lithium from lithium micas, ores that, until now, have been pretty much ‘forgotten’ by the mining industry.

The agreement with Strategic Metallurgy provides Lithium Australia with:

– Exclusivity within Western Australia for up to 25 years (an initial period of 5 years, then an extension of 20 years if a plant is commissioned in WA within that first 5 years), plus exclusivity at the company’s choice of two other national or international locations; and

– A gross product royalty of 2 per cent.

The partnership recently claimed a world-first for continuous production of lithium carbonate.

While lithium carbonate has been produced previously, it hasn’t been done in the way this partnership devised, nor from the type of ore it’s using.

The innovative lithium extraction technology is both a major scientific breakthrough and a simple solution to lowering the costs of production of lithium carbonate.

A key ingredient of the innovation is removing the energy-intensive processing step of roasting, which historically rendered processing of micas uneconomic.

 

 “For micas, the roasting step has been problematic, as mica ores generally don’t have a grade higher than about 4 per cent lithium oxide,” Griffin told The Resources Roadhouse.

“Conventional lithium producers – hard-rock producers – mine spodumene or petalite, and those spodumene and petalite concentrates have a grade of about six per cent lithium oxide.

“If that grade drops to two or even four per cent, you simply can’t afford to pay for the energy, so the process doesn’t work – you can’t achieve a commercial outcome if you have to roast first.

“We’ve designed a process flowsheet that removes the roasting step and makes the process self-sufficient with respect to energy requirements.”

Recent testwork on lithium mica ore samples from the Lepidolite Hill deposit near Coolgardie in WA (80% Lithium Australia and 20% Focus Minerals (ASX: FML)) demonstrated the new technology’s ability to produce lithium chemicals from mica, on a continuous basis, without the need for roasting.

Those results followed production of lithium carbonate from froth flotation and leaching testwork carried out on tin tailings from the Cinovec project in the Czech Republic, where the company has an agreement with European Metals Holdings (ASX: EMH) to process lithium mineralisation on a 50/50 joint venture basis.

 

The Cinovec tests achieved excellent flotation yields and good recoveries of both lithium and potassium, the latter being a significant by-product credit, in the form of potassium sulphate, for marketing directly into the fertilizer industry.

The results impressive the JV partners, which have since recovered bulk samples to be used for continuous testing and production of lithium carbonate for market evaluation.

Accessing ore from tailings dumps and other, similar areas, has advanced Lithium Australia towards production by completely circumventing one of the most fundamental, and time-consuming, aspects of any mining operation – the actual mining itself.

“By removing the energy step, you get a process with an operating cost that’s significantly less than the price of the product you’re selling,” Griffin continued.

“It means too that all the deposits which are available – the ones people haven’t used in the past because they weren’t economic at the time – are suddenly back in the game.

“There are any number of lithium mica-rich mine tailings, mine dumps and deposits that simply haven’t been mined, or even explored, because people didn’t know what to do with the stuff.”

Lithium Australia has strategic alliances with ASX-listed companies Pilbara Minerals (ASX: PLS) and Tungsten Mining (ASX: TGN), to scrutinise lithium and rare metals in prospective locations within WA, and has acquired lithium exploration assets near Greenbushes and Ravensthorpe, also in WA.

Recently, a Memorandum of Understanding with Pilbara Metals was extended, to evaluate potential for developing a lithium mica processing operation in the Pilbara region of WA.

The extension of the MoU followed geological results Pilbara Minerals achieved from drilling at the Pilgangoora project, located 150 kilometres southeast of Port Hedland in WA, where it has calculated a JORC 2012 Inferred Resource estimate of 8.6 million tonnes at 1.01 per cent lithium oxide for 87,000 tonnes of lithium.

“Following Pilbara Minerals’ Resource upgrade, and our successful steady-state lithium production tests, we agreed to extend the evaluation term for assessing the lithium mica potential,” Griffin said.

“Under the terms of the agreement between the parties, Lithium Australia will evaluate the commercial potential of the lithium micas and provide Pilbara Minerals with a proposal to develop them.”

If the company can repeat the success achieved to date at Cinovec in any of these domestic locations, then it looks set for an interesting ride.

When European Metals approached the company late last year, seeking ideas on what to do with the substantial lithium mica credits within its Czech tin and tungsten deposit, it ran some samples through the lab and produced the results mentioned above.

“All the principal building blocks were there and, having proved we could extract lithium carbonate, we went back and looked at the ore body – instead of modelling it for tin and tungsten we modelled it for lithium,” Griffin explained.

“At Cinovec we’ve taken something that wasn’t considered a lithium deposit of any significance and, by simply knowing how to process the material, converted it – in the space of three or four months, without drilling a single hole – into the fourth largest hard-rock lithium deposit in the world.”

Based on drilling carried out during the 1970s and ’80s, European Metals has reported a JORC Inferred Resource estimate for Cinovec of 514.8 million tonnes at 0.43 lithium oxide (0.1% lithium cut-off) for 5.5 million tonnes lithium carbonate equivalent (LCE), plus a further exploration target of 350 to 450 million tonnes at 0.39 to 0.47 per cent lithium oxide for 3.4 to 5.3 million tonnes LCE.

Lithium Australia is confident of hitting full-scale lithium production at current ‘brine-like’ cost levels from its global portfolio of lithium mica deposits.

It estimates operating costs for production of lithium carbonate at the world-leading Cinovec project will come in at well less than US$2,000 per tonne after potassium credits.

The Czech project is ideally situated in terms of its proximity to infrastructure: there is a sealed road adjacent to the deposit; two rail lines are located nearby, and an active 22-kilovolt transmission line is already in situ at the mine.

Studies by European Metals have demonstrated Cinovec’s suitability for bulk underground mining, with more than 400,000 tonnes already trial-mined as a sub-level open stope.

“Whether people realise it or not, the lithium industry as we know it is about to undergo a dramatic transformation,” Griffin enthused.

“The whole thrust of that transformation is disruptive technology”.

“We don’t just intend to lead that charge, we aim to control the largest lithium resource base in the world.”


Lithium Australia NL (ASX: LIT)
…The short story

HEAD OFFICE
Suite 3, 23 Belgravia Street
Belmont WA 6104

Ph: +61 8 6145 0288
Fax: +61 8 9475 0847

Email: info@lithium-au.com
Web: www.lithium-au.com
 
DIRECTORS
George Bauk, Adrian Griffin, Bryan Dixon

MAJOR SHAREHOLDERS
Dennis Bell         8.23%
Directors         4.9%

Nick Giorgetta: Diggers & Dealers

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Nick Giorgetta: Diggers & Dealers

ONE OFF THE WOOD: Diggers & Dealers kicks off a new era this year with industry luminary Nick Giorgetta taking over the role of chairman, vacated by big, bad Barry Eldridge last year.

Nick has a long history in the industry and in Kalgoorlie where he began his career over 40 years ago, going on to establish his own metallurgy consultancy, which designed and commissioned a number of gold treatment facilities.

He stopped by The Roadhouse to provide some insight into this year’s conference.

Nick, you have taken the Diggers & Dealers reigns from Barry Eldridge, who left some big shoes to fill – how do you feel about stepping into those shoes?

Fine. I’ve been attending Diggers & Dealers for 21 of its 23 years, so it’s not as though I don’t know what I’m getting myself into.

The conference is a good way to keep an eye on the industry and to see what’s happening.

I’m a mining person, so I’m just looking forward to see what I can bring to the conference.

Barry’s done a great job over the past seven years and when they approached me to take his place I thought it sounded like an interesting challenge to get involved with.

So you must be looking forward to your first Diggers sitting in the big chair?

Very much so, absolutely. I’m looking forward to the whole experience. Diggers & Dealers is an important part of the whole mining conference season – it is probably the most important one to be held in Australia.

This will be the 23rd Diggers and Dealers conference and everybody involved – presenters, organisers, and delegates – are all very professional and know what they have to do to make the conference a success.

What highlights can we look forward to this year?

It’s going to be an interesting year – it’s no secret the market has been in the doldrums for the past 12 months and we have seen some stocks and some commodities sold down – but that creates so very good opportunities for those attending to find some serious value.

We have some new companies presenting – we have a very good mix of presenters – we do every year, but given the current state of the industry we are very happy with the response we have received this year.

There has been a lot happening this year – the iron ore price for one has been front and centre – and you have some big players present, in particular Rio Tinto presenting on the first morning?

Not just Rio Tinto, but other majors, such as Newmont are also presenting. It is very good to be having these companies participating this year.

Do you think the fact the majors are having a presence this year is not just to do with the flat iron ore price, but a reflection of the market as a whole, and they’re attending as a show of support for the junior sector?

I think the conference is getting more and more recognition each year and has developed into being a very significant event.

I think people really have to come to understand that the more time that goes by, the more professional the conference has become and it now attracts some serious industry attention.

That’s probably no more personified than your Keynote Speaker this year in Gene Sperling – is that something of a coup getting him to present the opening address?

It is. For that particular spot, we are always looking for somebody with a significant profile in the world of economics.

We did deliberately seek out an American this year, because of the way the US economy has picked up and responded to recent market problems.

He has been an adviser to American President Bill Clinton, so he does have a pretty good idea about what’s going on.

I am really looking forward to hear what he thinks about the state of play and where he thinks we may be heading from here.

The Keynote Speaker always guarantees a full Day One auditorium, followed by some interesting discussion around the coffee machines in the forecourt?

Absolutely. Obviously everybody always wants to hear what people such as Mr Sperling have to say, he has been involved in US economic policy making.

That’s why we endeavour to attract high-calibre speakers for that spot – it is important to be able to hear what these people think and what they have to say.

On a personal note: what are you hoping to take away from Diggers & Dealers this year?

I hope that when everybody leaves they take away with them a renewed insight into the importance of how important the mining industry is to Australia.

We have seen the remarkable effect the fall in the iron ore price has had – this doesn’t just affect one or two sections of the community – it affects the whole country and you can see some of the problems we are facing now with the Federal Budget and the Budget in Western Australia.

Because I am a mining person myself I want to present the position that the mining industry doesn’t get the recognition it should.

A lot of people criticise what we do, but they don’t understand the important role we play.

This is such an important part of our economy and people need to understand that because the consequences of a drop in the industry – as we are currently experiencing – are bad for everybody.

 

Diggers & Dealers will be held from August 3 to 5 at the Goldfields Art Centre, Kalgoorlie.

For more information about the conference CLICK HERE.

Rox drives exploration triple

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THE INSIDE STORY: Rox Resources (ASX: RXL) is fast becoming the ‘Triple Threat’ of the Australian exploration sector developing three separate projects focusing on three different commodities.

It’s little wonder then that when attending industry shows, Rox becomes a star attraction as punters line up to glean information on the company’s Fisher East nickel project, its Reward zinc Joint Venture with Teck Australia – a subsidiary of Canadian major Teck Resources, and its emerging Bonya copper project.

The Fisher East nickel project is part of the company’s larger Mt Fisher project, located in the North Eastern Goldfields region of Western Australia 150 kilometres northeast of Leinster, where Rox has made four substantial nickel deposit discoveries over the last two and a half years.

A JORC Code 2012 Mineral Resource has been established covering two of these prospects, Camelwood and Musket, of 3.6 million tonnes at 2% nickel (1% nickel cut-off) for 72,100 tonnes of nickel.

This includes an Indicated Mineral Resource of 1.8 million tonnes at 2.2 per cent nickel and an Inferred Mineral Resource of 1.9 million tonnes at 1.8 per cent nickel.

Rox anticipates releasing a Resource covering the Cannonball prospect where drilling has confirmed nickel sulphide mineralisation, including:

MFED057
5.3 metres at 2.7% nickel from 255.3m;

MFEC082
9m at 2.8% nickel from 154m;

MFEC102
5m at 3.4% nickel, including 2m at 6% nickel from 114m;

The most recent discovery at Fisher East is the Sabre prospect, which was confirmed when follow-up RC drilling proved an earlier aircore intersection of 5m at 1.1% nickel from 74m was no orphan.

 

Just two years since the first discovery at Fisher East, Rox has progressed the project by completing a Scoping Study, which found it to be financially robust and technically low risk.

Two conceptual development options were examined:

Build a 500,000tpa process plant on site (Base Case); or Toll mill at a nearby processing facility (Toll Case).

Up-front capital requirements were relatively low at $73 million for the Base Case and $20.8 million for the Toll Case.

“At this stage toll milling certainly looks to be the preferred option,” Rox Resources managing director Ian Mulholland told The Resources Roadhouse.

“We need to strike a deal with a third party – and fortunately there are options within economic proximity to the project.

“The Scoping Study came through unscathed as far as technical issues go and there are no environmental or Aboriginal heritage issues.

“We also carried out some metrics, based on mining 350,000 tonnes per year for cash flow of $38.9 million (before taxes and finance costs), which means the up-front capital costs of $20.8 million are paid off within the first year of production.

“Admittedly this is only for a short period – initial life-of-mine of three years – but once we get into the production phase and start generating cash, then we can carry out deeper drilling.”

Rox’s strategy entails getting the Fisher East nickel project into production quickly in order to fund future expansion of Resources and ongoing exploration and to provide a way of allowing the company to maintain its 30 per cent interest in the Reward JV with Teck Resources, which is earning 70 per cent by funding exploration to $15 million ($10M spent to date).

The main target at Reward is the Teena prospect where a new program of drilling has commenced targeting points within the mineralised basin.

Previous drilling at Teena intersected high-grade zinc-lead mineralisation over a strike length of 1.9km, including:

TNDD009
26.4m at 13.3% zinc and lead from 1060.1m;

TNDD010
20.1m at 15% zinc and lead from 944.3m;

TNDD011
20.3m at 13.9% zinc and lead from 901m; and

TNDD017

14.7m at 13.3% zinc and lead from 801m

 

Rox expects further drilling at Teena will demonstrate the large size and strong continuity of the deposit, its confidence stemming from results the JV has already achieved, which have provided no reason for it to think otherwise.

“We have had no shocks at all,” Mulholland said.

“Every hole we have drilled has returned pretty much what we expected to see.

“Having said that we certainly didn’t expect to hit 26 metres at 13 per cent zinc with the first hole.

“The style of mineralisation was classic stratiform zinc, it’s just beautiful stuff.”

Although the JV is yet to establish a Resource at Reward, Mulholland is confident a mine will be developed at the project.

“The primary goal for any small company is a Resource so you actually have something people can look at and see what you have and what it is worth,” he explained.

“Big companies don’t think that way, and Teck is not overly concerned about calculating a Resource, as they are satisfied there will be a Resource established there.

“What Teck is endeavouring to establish is, whether or not the project is actually mine-able.”

Teck will be conducting much of the work this year focused on the metallurgy and geotechnical aspects of the Reward project in terms of mine-ability.

“It is theoretically at the stage before a Scoping Study, because we don’t have a Resource as yet,” Mulholland continued.

“The grade is there, the size is there, and an exploration target of 60 to 80 million tonnes – that’s at least as good as a number of other deposits around that are currently being looked at for development.”

More drilling is also the mantra for the company’s Bonya copper project located 350km east of Alice Springs in the Northern Territory.

This will be conducted on the back of results achieved at the deposit last year, which included:

BYRC008
11m at 4.4% copper from 30m, including 3m at 6.1% copper from 33m; and

BYRC009
38m at 4.4% copper from 60m, including 6m at 8.8% copper from 60m, and 8m at 7.9% copper from 82m. (ended in mineralisation with last sample returning 6.8% copper)

An exciting aspect of the Bonya discovery is the high-grade zone of massive copper sulphide mineralisation remains open at depth and along strike.

Rox considers this to be of significance, especially as the discovery was made in an area where no drilling had previously been undertaken.

“We are looking forward to getting in and conducting more drilling at Bonya, as well as a number of other prospective targets,” Mulholland said.

“Exploration at Bonya is still at an early stage, however from what we have already seen there is evidence of mineralisation in numerous outcrops of copper oxide, which give us confidence of encountering more copper sulphide mineralisation at depth.”

Mulholland believes the strategy Rox is adopting – using Fisher East to fund its expansion – has similarities with story of Independence Group.

“For a long time they were an exploration company, then they bought a nickel mine at Kambalda – suddenly there was cash flow – and they ran on the back of a really good nickel price at the time, which really kicked them along,” he said.

“They had the Tropicana project in their portfolio for a very long time, and we refer to the Reward zinc project as our ‘Tropicana’.

“This meant they were able to fund their interest in Tropicana and we can see parallels in what we are doing.

“For the rest of this year – we will be conducting some more drilling – but we are focused on bringing Fisher East into production.”

Rox Resources Limited (ASX: RXL)
…The Short Story

HEAD OFFICE
Level 1, 30 Richardson Street
West Perth WA 6005

Ph: +61 8 9226 0044+61 8 9226 0044
Fax: +61 8 9322 6254

Email: admin@roxresources.com.au
Web: www.roxresources.com.au

DIRECTORS
Jeff Gresham, Ian Mulholland, Brett Dickson

MAJOR SHAREHOLDERS
Drake Private Investments   4.7%
Rox Directors        2.8%

The Key Factors Driving Gold: Part 2

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GAVIN WENDT: Part two of Gavin’s look at the positive factors are driving gold’s resilience.

China Remains the World’s No 1 Gold Purchaser

The latest GFMS data shows China maintaining its No. 1 position in terms of gold purchases for 2014.

Significantly, GFMS notes that Chinese imports of gold and deliveries from the Shanghai Gold Exchange (SGE) considerably exceeded the quoted consumption figure, owing to growth in gold leasing, increased holdings by commercial banks to back paper products and possibly some double-counting of gold due to round-tripping to Hong Kong.

Altogether the 20 nations included in the global Top 20 table account for almost 85 per cent of total global gold consumption and, interestingly, no less than 13 of them can be classified as being in Asia and the Middle East, with China and India between them accounting for 47.3 per cent of GFMS-calculated global consumption.

What’s also interesting is GFMS data with respect to the Top 20 gold consuming nations on a per-capita consumption basis.

India is only in 19th place, whilst mainland isn’t even in the Top 20.

The natural conclusion is that there is the strong potential for a huge percentage increase in gold consumption in both these nations, as per-capita wealth grows.

Official sector gold purchases during across the world amounted to 466 tonnes net, which was up 14 per cent from 2013 – and the second highest level since the end of the gold standard.

The Russian central bank was the biggest such gold purchaser during 2014 with 173 tonnes, while several CIS countries also increased their gold holdings.

GFMS expects this sector to remain a source of demand for gold over the medium-term.

Something else worth conjuring with from the Chinese perspective is its accelerated efforts to make its currency, the yuan, a viable competitor to the US dollar.

This situation has in turn renewed speculation that the Chinese government has stockpiled gold as part of a plan to diversify $3.7 trillion in foreign-exchange reserves.

Bloomberg Intelligence suggests that The People’s Bank of China could have tripled its holdings of bullion since it last updated them during April 2009.

Its estimate of 3,510 metric tons is based on a combination of trade data, domestic output and China Gold Association figures.

To put this figure into perspective, a stockpile of this size would rank second only to the US on 8,133.5 tons.

Speculation has been growing that China could be preparing to update its disclosed holdings, as its policy-makers are currently pushing to add the yuan to the International Monetary Fund’s (IMF) currency basket – known as the Special Drawing Right – which includes the dollar, euro, yen and British pound.

The issue might come before the IMF’s meetings on the SDR, either during May or October.

The theory is that the Chinese believe that even a partial gold backing of the yuan will hugely enhance the global financial credibility of its currency in moving it to the next level in global trade.

Its inclusion in the SDR basket would be a part of this and, with the size of its economy set to overtake that of the US, its un-pegging from the dollar would further improve its global convertibility and help make it a de facto reserve currency as far as global trade is concerned.

The IMF still holds 2,814 tons and most central banks have some on their balance sheets, with Russia more than tripling its holdings since 2005.

China is the world’s largest gold producer and purchaser, however, the volume of metal held by its central bank when it last reported back in 2009 accounts for just one per cent of its foreign-exchange reserves.

These same foreign exchange reserves have surged more than fivefold within a decade – and are currently the biggest in the world – driven by China’s enormous export volumes over the past decade.

The natural concern for China is that most of its reserves are held in US dollars – and adding gold and other assets to its reserves would ease its reliance on the dollar.

Typically, the nations with the world’s most liquid currencies tend to hold a wide range of foreign-exchange reserves.

China’s capacity to expand its gold reserves has been reinforced by comments by Ashish Bhatia, the World Gold Council’s director, central banks and public policy, in New York.

His view is that it’s ideal for central banks to hold between 4 per cent and 10 per cent of their assets in gold, which compares with China at one per cent based on its last published figures.

If China continues to increase its gold purchases then this will naturally be hugely supportive for the gold price.

Russia Aggressively Expanding its Gold Reserves

The Russian central bank added one million ounces of gold (31.1 tonnes) to its holdings during March after a two-month hiatus, bringing its total reserves to 39.8 million ounces (1,237.9 tonnes).

Russia’s central bank’s strong gold buying pattern over recent years (which saw it purchase 150 tonnes during 2014 and 77 tonnes during 2013), is being seen by some as a potential geopolitical weapon and a way of adding credibility to its currency position.

Gavin Wendt is the founder of MineLife, publisher of the MineLife Weekly Resource Report

 

This article originally appeared in

Down came a Jumbuck

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THE INSIDE STORY: A merger of ASX-listed stalwarts Trafford Resources and IronClad Mining has resulted in the creation of Tyranna Resources (ASX: TYX)

In project terms, Trafford Resources brought a great deal of value to the merged entity, in the form of a portfolio representing some nine years of exploration prospect accumulation, boasting an independently-rated value of around $30 million.

The task of getting the affairs of the new mining/exploration house in order fell to the Board of IronClad Mining until a recent ratification by a shareholder meeting for the change of name to Tyranna Resources.

IronClad Mining almost pushed the start button on its Wilcherry Hill iron ore project, located on the Eyre Peninsula of South Australia.

Even though it had received all major approvals for the mine in October 2013, IronClad found raising the $23 million capital required to commence stage one of the project difficult, which was exacerbated by the iron ore price crash.

“Had we pressed the button we would have been committing to a capital outlay, which would, in all probability, now be left as a debt,” Tyranna Resources executive chairman Ian Finch told The Resources Roadhouse.

“What that means now, for the new company, is that we have emerged debt-free with a fantastic asset waiting for its time to come.”

With a new name comes a new focus for the company, which has shifted its gaze from iron ore to gold.

Tyranna Resources sees its future resting on the back of its Jumbuck project located in the Western Gawler Craton of South Australia, covering approximately 7,100 square kilometres of highly-prospective and under-explored ground surrounding the million ounce Challenger gold mine operated by Kingsgate Consolidated (ASX: KCN).

Part of the Trafford legacy is a 53 per cent interest in a Joint Venture with Kingsgate for gold exploration surrounding the Challenger mine, which has so far identified over 300 gold anomalies that have yet to be fully investigated.

“The Jumbuck project is our way forward, even when we have so many other good projects such as our tin and manganese projects, elsewhere in South Australia” Finch said.

Jumbuck’s place at the top of the project pile resulted from five months of review and research that has increased the company’s knowledge and appreciation for the potential of the area.

“We have been a bit like a duck on water, appearing to be sitting calmly while we have been doing a lot of research work that has piled a great deal of new information into our data base,” Finch explained.

According to Finch the Gawler Craton is similar to most cratons world-wide, which are circled by what are called mobile zones.

 

“In short these are the areas where you get major plumbing systems – areas where you can find really big mines like Olympic Dam, Carapateena, and Prominent Hill,” he continued.

The three big mines identified by Tyranna have one important thing in common: they were all discovered on one side of Gawler Craton mobile belt.

Not much work has historically been carried out on the other side of the belt, simply because it was the Woomera prohibited Area, under the Federal Defence Force, and therefore off limits to earlier explorers.

The area was opened up around five years ago, which is when Trafford made its move taking out a large landholding and subsequently purchasing its part of the Joint Venture with Kingsgate from a company called Southern Gold.

“We are convinced the Challenger deposit does not just sit out in the middle of the craton on its own,” Finch declared.

Historic exploration work reviewed by IronClad identified over 300 targets, which are about the same or greater than the single point anomaly on which Challenger was discovered (185ppb gold).

Tyranna aims to bring a number of these targets into production, processing ore through the mill at Challenger as part of the JV with Kingsgate.

 

The field of 300 targets been narrowed down to eight – four Tier 3, Three Tier 2, and one Tier 1.

Third tier prospects include: Mainwood (4m at 9.5g/t gold), Atlantis (1m at 1.32g/t gold), Breakaway Bore (1m at 8.96g/t gold), and Black Knight (1m at 7.85g/t gold).

Second tier targets include the Campfire Bore prospect, which has been earmarked as the likely second prospect for production.

Intersections recorded at Campfire Bore include: 14m at 4.17g/t gold; 6m at 4.97g/t gold; 1m at 25.29g/t gold; 2m at 9.5g/t gold; and 8m at 3.5g/t gold.

“Campfire Bore is the only project that has had any drilling below 65 metres,” Finch said.

“That is why we feel the potential is greater there as some of that drilling encountered higher grade deeper ore.”

The second Tier 2 prospect is Typhoon – just to the south of Challenger and another that is yet to be drilled deeper than 65m.

Intersections recorded at Typhoon include: 7m at 6.01g/t gold; 8m at 5.5g/t gold; 1m at 33.67g/t gold; and 12m at 2.2g/t gold.

“Again, the economic intersections at Typhoon, as at Campfire Bore, are cohesive – they stick together – there is just not enough drilling here, which is something we intend to rectify,” Finch said.

The third Tier 2 deposit, Monsoon, is another prospect not drilled to any great depth – only 50m, however it has also returned cohesive intersections, including: 12m at 2.2g/t gold; 15m at 1.39g/t gold; and 3m at 3.03g/t gold.

The first deposit expected to be mined will be Golf Bore, another prospect to attract the attention of various explorers over time.

The company’s review of historical data suggested that  a 77,000 ounce gold resource for Golf Bore had previously been established, however, not enough information could be found to support bringing that up into a JORC Code-compliant Resource.

The only Resource the company does have for Golf Bore is one Southern Gold defined of 3.26 million tonnes for 102,600 ounces.

“What we intend doing here is to strip away all the preconceptions about this prospect,” Finch declared.

“We are deconstructing it and then we are going to reconstruct it as a viable Resource.

“Whilst it has had a lower-grade boundary drawn around it, there are very clear high-grade areas – they are very discreet – and we believe those to be the shoots – similar to Challenger – coming through and coming close to surface.

“That is our prime target”

The next 12 to 18 months will be extremely busy for the new Tyranna Resources as it embarks on a determined drilling and exploration program designed to bring its pipeline of projects through to achieve a two million ounce inventory of gold.

“The first target is to get the near-surface ore mined and through the mill to pay for the rest,” Finch said.

“Under agreed circumstances we do have access, through the JV with Kingsgate, to the centrally-located Challenger mill, which is very important, as it brings all our costs down massively.

“As there has been very little drilling carried out deeper than 50 metres, we can see massive potential here and we have an area of some 7,000-plus kilometres in which to work.

“I believe this is potentially another Tropicana and we will be exploring to prove that because this area is polluted with gold – there is no doubt about that.”

Tyranna Resources (ASX: TYX)
…The Short Story

HEAD OFFICE
Level 2, 679 Murray Street
West Perth, WA, 6005

PH: +61 8 9485 1040
Fax: +61 8 0485 1050

Web: www.tyrannaresources.com

DIRECTORS
Ian Finch, Neil McKay, Peter Rowe, Bruno Seneque

MAJOR SHAREHOLDERS
Admark Investments PL         7.63%
New Pages Investments Ltd     3.17%
Ian Finch                 2.91%