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

Empire Resources (ASX: ERL)

Empire’s flagship Yuinmery project currently hosts the Just Desserts deposit with a JORC (Indicated and Inferred) resource of 1.07 million tonnes at 1.82 per cent copper and 0.8 grams per tonne gold.

The nearby ‘A Zone’ prospect, located approx. 1.3km north of Just Desserts, has recently been the subject of a drilling campaign where intercepts include 10m at 1.8 per cent copper and 0.87g/t gold from 222m and 19m at 1.8 per cent copper and 0.3g/t gold from 240m with mineralisation still open at depth.

A new six diamond hole drill program is set to commence imminently ahead of the estimation of a maiden JORC Resource.

Reinterpretation of geophysical data over the Yuinmery project has identified an additional two ‘extensional targets’ between A Zone and Just Desserts which appear on the same horizon and may well link the two deposits.

The identification of mineralisation in this area would have major positive implications, significantly enhancing the economic viability of the project.

Empire also recently acquired a 70 per cent interest (under highly attractive terms) in a prospective gold exploration project at Point Kidman, 40km east of Laverton, WA.

 

Tenement Location Map and Local Geology. Source: Empire Resources

 

No previous drilling or old gold workings exists over the licence area, however recent prospecting has identified a 2.5km anomalous gold zone where numerous gold nuggets have been found.

The anomalous zone demonstrates similar geological characteristics to that of the nearby and world renowned 4 million ounce Granny Smith gold mine.

Penny’s Find, WA – Gold
60 per cent interest – seeking to divest from this project

The Penny’s Find gold project already hosts a near surface JORC compliant resource of 314 thousand tonnes at 5.2g/t gold for 52,500 ounces.

The project is located on a granted mining lease and is in close proximity to the mining ‘hub’ of Kalgoorlie.

Empire recently entered into a staged sale agreement with JV partner Brimstone Resources (40 per cent interest) whereby Brimstone can either acquire 100 per cent of the project by payment of $2.5 million by June 30 2013 or earn up to a 75 per cent interest by continuing exploration and development.

An eight hole RC and diamond drill program has recently been completed at Penny’s Find which was designed to upgrade the current resource in both size and JORC category as well as to aid mine planning and provide samples for metallurgical test work.

Drilling highlights include:

–    3m at 8.89g/t gold from 173m;

–    3m at 17.41g/t gold from 66m; and

–    8m at 5.16g/t gold from 155m.

Opportunity exists for a small scale, open pit operation which could potentially be followed up with an underground mining operation.

Currently, the resource does not justify a stand-alone plant and toll treatment would be the likely processing route.

Empire has stated that they expect some form of transaction on the Penny’s Find project in 2013.

Recommendation: Speculative BUY

Rio Tinto Ltd (ASX: RIO)

Rio’s risk-reward ratio no longer looks attractive enough after:

1) A 33 per cent rise in the iron ore price since December;

2) A much lower earnings impact from cost efficiency programs than headline figures suggest;

3) Limited tangible changes from its sharpened focus on capital efficiency.

Renewed focus on cost and capital discipline.

Rio launched several new cost initiatives and increased its focus on capital discipline in 4Q12. Its aim is to turn around underperformers like aluminium/coal and provide assurance that it will re-invest the free cash flow from iron ore with care. However, not all savings are new and the dividend policy remains unchanged so far.

Only US$1.75 billion of US$3.25billion group savings is “new” we estimate, the rest reflecting savings from existing programs, unit cost savings rather than YoY declines in cash opex, or reversion of one-off effects.

Higher prices needed to get aluminium to cost of capital.

The US$1.25 billion EBITDA improvement program is not enough to cover the cost of capital by 2015, we estimate. This, in turn, prevents potential strategic steps as part of Rio’s step-up in portfolio management in 2013.

Iron ore unit cost target of US$35.5 too ambitious.

Either Rio assumes too much depreciation in AUD/USD or too little underlying cost inflation until 2012, we think. Achieving its target adds A$6.80/sh in our £57 bull case.

Commitment to capital efficiency needs visible steps.

We see a move to a counter-cyclical investment policy with a better balance between re-investment and distribution of cash as key to a re-rating. Each PE point adds A$6 per share. Unfortunately, so far Rio’s dividend policy is unchanged and portfolio management is hampered by poor profitability at certain assets.

Rating: Overweight to Equal-weight
Price Target: A$64.60 to A$69.70

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

ONE OFF THE WOOD: After chaining his bike outside The Roadhouse, Atlas Iron non-executive chairman David Flanagan entered the bar clad in the cyclists’ garb of lycra and wearing those annoying click-clack shoes, then ordered a coffee.

David, that hardly seems the proper attire befitting a corporate mover and shaker. Why are you dressed like that?

I’m in training, Wal so I can complete a 700 kilometre bike ride from Albany to Perth to raise money for a charity.

Sounds like a reasonable excuse. What is the ride called and who is it raising money for?

It is the Hawaiian Ride for Youth and all funds raised by the ride go to an organisation called Youth Focus, of which I have been a Board member for some years.

This year I am actually participating in the ride.

What is Youth Focus and what does it do?

A lot of people think it is akin to a crisis help line but it is different to that.

It’s actually about reaching kids who are at risk and teaching them to deal with challenging situations.

It’s about getting kids who may have attempted suicide, self-harm or are depressed and building a support network around them as well as communicating with schools and identifying those kids that may be in need of help.

The organisation provides support networks not only for kids, but also their families and it does so by going out into regions to do that.

How did you get involved with Youth Focus?

When I was first looking at getting involved with a charity I decided it would be one that dealt with an issue I deeply cared about.

You could almost say everybody has been affected in some way, either directly or indirectly by youth suicide.

We all have kids and they’re going to have kids and statistically, youth suicide is an issue that demands awareness and attention.

Money doesn’t buy happiness, but a little bit of money donated to Youth Focus can help a lot of kids realise how they can be happier and how families, and communities, can better support those kids.

Is the fact the ride covers a lot of regional WA an indication of where a lot of that support may be needed most?

As it turns out there is just as big a problem for young rural kids as there are for those based in the city.

Particularly for young blokes in the country – the statistics are woeful.

The cold reality is that there are nearly twice as many people killed by suicide each year as there are on the road.

So you haven’t done the ride before, how did they convince you to do it?

No I haven’t, and there is a bit of a story to tell – as there always is in these situations.

Last year was the tenth year of the Ride for Youth and being on the Youth Focus Board I went down to Albany for the start.

You have to appreciate, at this stage, I was not a cyclist and had never worn lycra and I didn’t really appreciate what it was these people were really doing.

The night before, we had all been at an event where I had got to know some of the riders a bit better.

The morning of the ride they found a spare bike and convinced me to put on some lycra and some riding kit and I rode with them for the first section from the hotel to a school.

I can’t really explain what happened but I immediately felt the camaraderie of the peloton.

It was as though I was really a part of this group, who all took off riding with the one purpose in mind – raising money for what they all believe to be a great cause.

As a first time rider and new to the sport, what does your training regime entail?

Apart from my introduction at the start of last year’s ride this is the first time I have ridden a bike and worn lycra.

So far I have ridden around 5,500 kilometres – at the moment I am riding 250 to 300 kilometres per week.

Do you find it to be a solitary activity?

No, not at all – It’s all about riding in a group and meeting some really good people.

There’s a constant reminder about riding safely as well as why we are all doing it – it’s not a race for any team to win, it’s all about raising money for a charity that does a wonderful job in centres all throughout the state.

Having said that – there is a healthy competitiveness amongst the teams as to who is going to raise the most money.

Do you have a target figure in mind that you want to raise?

Last year the total group targeted $1.2 million – and they raised over $2 million.  It would be great to meet that or go better.

For the Atlas Iron team – I would like to think that we could hit in excess of $150,000.

Do you view those pesky lycra brigades at cafes in the morning in a different light now?

Yes I do. When I first started riding I didn’t realise lycra doesn’t come in standard sizes. I pulled the zip up on my outfit but it had other ideas and just popped open.

I’ve still got another ten weeks to go before the ride and I have lost 13 kilos.

I’m the healthiest I’ve been since…I can’t remember.

Have you reached the stage where you have shaved your legs?

Not yet, but I have been told that if you go on the ride without having done it, not only will you be fined a hefty sum, you will also be ceremoniously held down on the bar of one of the pubs along the way and they will be waxed for you.

How can people not participating in the ride get involved?

The easiest way is via the http://www.rideforyouth.com.au web page, just follow the links and they can donate using their credit card.  It would be great if it could go via me and the Atlas team via http://www.rideforyouth.com.au/riders/atlas-iron-ltd/david-flanagan

There will also be plenty of fund raising events around town leading up to the ride so they can keep an eye out for any of those as well.

THE DRILL SERGEANT: Papillon Resources (ASX: PIR) has announced an updated JORC-compliant Mineral Resource Estimate for the company’s Fekola project, located in south western Mali.

 

Project location map. Source: Company announcement

 

The updated Resource Estimate is for 54.97 million tonnes averaging 2.38 grams per tonne gold for a contained 4.21 million ounces of gold at a lower cut-off grade of 1g/t gold.

The Estimate comprises 44.31 million tonnes averaging 2.46g/t gold for a contained 3.5 million ounces of gold classified in the Measured and Indicated Resource categories, which represents approximately 83 per cent of the Mineral Resource Estimate.

The Inferred Resources consist of 10.7 million tonnes averaging 2.1g/t gold for a contained 0.7 million ounces of gold.

The MRE incorporates the most recent set of results from the 2013 drilling campaign, which has been conducted over a strike length of approximately 3.8 kilometres.

Papillon said this represents only a small portion of the strike extent of the Fekola Corridor.

Mineralisation is said to remain open at depth and along strike to both the north and south.

“The updated Mineral Resource Estimate is another significant milestone in accelerating the development of the Fekola project, again highlighting the world class attributes of the project,” Papillon Resources managing director Mark Connelly said in the company’s announcement to the Australian Securities Exchange.

“We believe that it provides an excellent platform for future growth as well as greatly enhancing Papillon’s ability to fulfil its strategic objective of becoming a West African gold producer in the near term.”

Papillon indicated the ongoing 2013 drilling campaign at Fekola will continue to focus on aggressively expanding the MRE with intentions of extending the mineralisation along strike and at depth as well as testing the numerous priority targets within the Fekola Corridor and the surrounding area.

The company will incorporate the updated MRE into a Pre-Feasibility Study, which the company expects to be completed during the second quarter of 2013.

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

Rox Resources (ASX: RXL)

Rox Resources (ASX: RXL) could well have hit the jackpot having received encouraging preliminary results from first pass reconnaissance reverse circulation (RC) drilling at its Mt Fisher project targeting nickel sulphide mineralisation.

This success comes after extensive target generation work that included structural analysis, geophysical techniques including Versatile Time Domain Electro-Magnetic (VTEM) and ground electro-magnetic (EM) surveys, and rotary air blast (RAB) and aircore (AC) drilling.

We expect that laboratory assay results due in mid-late January 2013 will confirm the highly promising preliminary indications.

The RXL share price has increased fourfold since it announced that RC drilling had discovered disseminated and semi-massive nickel sulphide mineralisation at its Mt Fisher project in WA.

Assay results are pending but preliminary scans with a portable XRF analyser indicate approximate nickel grades of 1 per cent to 2 per cent in four of the five holes drilled, with the other indicating 4 per cent to 5 per cent nickel.

Intersection widths are between 1 metre and 7 metres and lie between 130m and 213m below surface and have occurred over a 300m strike length along an identified electro-magnetic (EM) conductor.

We await confirmation of these results after laboratory assay analysis but we are sufficiently confident to class the potential nickel discovery as highly encouraging and meritorious.

This is based on visual inspection of the RC chips and discussions with RXL management and the senior geologist.

Pending confirmation of the preliminary analysis with laboratory assay results, we envisage that the next phase of exploration will be diamond drilling to assist with the understanding of geology, structure and mineralogy as well as to achieve depth penetration and to better handle water flow issues.

To achieve this we would expect RXL to raise additional funds to aggressively yet systematically drill out the initial discovery area known as the Camelwood Prospect, before testing numerous other targets defined by VTEM.

Despite an impressive share price jump since the discovery announcement of 19 December 2012, we see significant value in RXL shares, on the proviso that results are confirmed.

As an indication of potential value, a direct comparison with Sirius Resources (ASX: SIR) suggests substantial short-term upside with RXL’s current enterprise value (EV) of $32.8 million comparing favourably with Sirius’ fully diluted EV of $127 million, at the time just before its first capital raising after the discovery of its Nova nickel-copper deposit.

Less than six months on from the initial Nova discovery announcement, Sirius now has an EV of around $540 million due to continued positive results and its strong balance sheet.

Recommendation: Speculative Buy

Target Energy (ASX: TEX)

Target Energy (ASX: TEX) has established meaningful acreage in historic producing regions, with the objective of steadily growing production via the application of modern oil field technology.

Following on from the drilling success at the BOA 12 #1 well (drilled in 2011) and the Darwin #1 well (drilled in 2012), Target Energy and its partners are continuing to exploit oil and gas rich shales and carbonates within the prolific Permian Basin.

The operators of the Darwin #1 well estimate 200,000 barrels of recoverable oil (plus additional high value wet gas) from the Fusselman formation with potential for up to 400,000 barrels of recoverable oil.

Darwin #1 is currently being tied into local infrastructure and should commence production imminently at an initial estimated rate of 160 barrels of oil per day (BOPD) and 300 thousand cubic feet per day of liquids rich gas.

Opportunity exists for significant production increases during Q1 2013 from six wells which are either awaiting completion or are scheduled to be drilled imminently.

The Darwin #2 well has reached total depth (TD) and will soon flow test prospective Wolfberry section (strong oil shows were encountered in the Wolfberry section of the nearby Darwin #1 well, increasing the likely hood of an economic well).

The Sydney #1 is also set to reach TD imminently.

Breakaway expects positive news flow as flow testing results from both wells are released to market.

A further two wells (Darwin #3 and Pine Pastures #3) are also scheduled to be drilled this quarter, further adding to the potential production upside.

Recommendation: Speculative Buy

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

THE BOURSE WHISPERER: Venturex Resources (ASX: VXR) has received results from a Definitive Feasibility Study (DFS) of the company’s 100 per cent-owned Pilbara copper-zinc project in the Pilbara region of Western Australia.

 

Project location. Source: Company announcement

 

The DFS results have confirmed the potential for a robust Project with an average payable metal production profile of 16,500 tonnes per annum copper, 30,000 tonnes per annum zinc and 200,000 ounces per annum of silver for at least 8.5 years.

Venturex claimed the result has defined the Pilbara project as one of the largest emerging base and precious metals projects in Australia.

The project has a reported total Mineral Resource inventory of 26.37 million tonnes grading 1.2 per cent copper, 3.4 per cent zinc, 0.3 per cent lead and 18.9 grams per tonne silver.

The current DFS Ore Reserve estimate for the Project has significantly increased to:

–    8.37 million tonnes at 1.8 per cent copper, 4.0 per cent zinc, 0.3 per cent lead and 21.5g/t silver.

“The DFS has confirmed the robust economics of a significant new copper-zinc operation centred in the mining heartland of the Pilbara region,” Venturex Resources managing director Michael Mulroney said in the company’s announcement to the Australian Securities Exchange.

“The Pilbara copper-zinc project is globally competitive against other forecast new sources of copper-zinc production with excellent cash costs and attractive capital intensity in an area with abundant mining and transport infrastructure.”

Venturex said the DFS result had supported its decision to locate the project at Sulphur Springs with approximately 85 per cent of the DFS Ore Reserve being drawn from the Sulphur Springs deposit.

The DFS provides for all operations to be totally focussed at the Sulphur Springs deposit for the first 6.5 years of the project transitioning to a blended ore supply from the Whim Creek area in the later stages.

The DFS incorporates only three of the six known mineral resources currently controlled by the company in the Pilbara region.

Venturex identified the proximity of the recently acquired Kangaroo Caves resource as an ideal brownfields exploration target and potential future ore supply for the processing hub at Sulphur Springs.

Preliminary modelling indicates the additional resources could produce a potential project life in excess of 11 years at the currently planned throughput rate.

“The growth in the Sulphur Springs Ore Reserve is an excellent result and there remains considerable additional value upside to be unlocked,” Mulroney said.

“The evaluation of Venturex’s other Resources, particularly at the recently acquired Kangaroo Caves area, will provide long term potential to further enhance the value of the Pilbara copper-zinc project and extend the mine life of the project.

“We will be advancing permitting and financing options over the next six months.”

Venturex indicated it has commenced work on project approvals and the financing strategy for the Pilbara copper-zinc project.

The company anticipates the required WA Government approval documentation will be completed and submitted in late February 2013, with Government project approvals expected in mid-late 2013.