What the Analysts Say
WHAT THE ANALYSTS SAY: Interesting news and views from across the Resource Analyst universe.
Website: www.breakawayresearch.com
Company: Metallica Minerals Limited (ASX: MLM)
Metallica Minerals has a diverse portfolio of projects in Queensland.
The company is concentrating on its 66.66 per cent (reducing to 50 per cent) held Cape York heavy mineral sands (HMS) and bauxite project, where it expects to soon commence HMS concentrate production at Urquhart Point, and is carrying out exploration and delineation drilling over nearby bauxite mineralisation, adjoining Rio Tinto’s South of Embley deposit.
The other core project is the SCONI scandium-cobalt-nickel tri-metal project, located near Greenvale in North Queensland, for which JV partners are currently being sought.
With the current difficult market conditions, Metallica is following a strategy to avoid going to the equity market to fund ongoing activities (and hence not dilute shareholders) – it still has a relatively tight capital structure for an Australian junior (167 million shares) despite having been listed for over 10 years.
As part of this strategy the company has recently disposed of shareholdings in a number of companies that started life as spin-outs of Metallica – Metro Coal (ASX: MTE) and Cape Alumina (ASX: CBX).
Current HMS and bauxite activities in Cape York are focussed on assessing deposits that can be developed with relatively small capex requirements, and then can return reasonable cash flows to fund ongoing exploration, development activities and potentially returns to shareholders.
In order to fund the Cape York HMS and bauxite activities Metallica’s wholly owned subsidiary Oresome Australia entered into a JV agreement with Ozore Resources, whereby Ozore can earn 50 per cent of the tenement portfolio by contributing $7.5 million towards development of the Urquhart Point HMS project, and funding nearby bauxite drilling.
Ozore has thus far earned a 33.33 per cent interest through contributions of $5 million.
The Urquhart Point HMS project is the most advanced, with first production expected in mid-2015.
Surprisingly, this is the first deposit of its type to be developed on Cape York Peninsula. The all-up capital cost is expected to be $6.5 million, which has been fully funded by Ozore.
Site establishment works have commenced, and a modular treatment plant is being fabricated in South Africa, and is expected to be delivered to site in May/June 2015.
The project feasibility study envisages a free cash flow after capex of $7.3 million over the estimated 4.9 year, 87,000 tonnes HMS concentrate mine life, with the majority (approx. 80 per cent) in the first two years of operation.
With Metallica being free carried for the estimated $6.5 million capex, 50 per cent of the operating cash flows will be attributable to the company.
Total operating cash flows were estimated to be around $14 million in the feasibility study; however subsequent falls in rutile and zircon prices will reduce this.
At the time of the feasibility study in mid-2014 forecast average life of mine concentrate values were attractive, estimated at US$250 to $US330/tonne FOB Weipa by independent industry expert TZMI.
Website: www.breakawayresearch.com
Company: Talisman Mining (ASX: TLM)
Talisman Mining has a quality portfolio of Australian based exploration projects prospective for nickel and copper-gold mineralisation.
Recently the company completed the acquisition of the Sinclair nickel project from Glencore for total consideration of $8 million, plus a further $2 million contingent upon first nickel production.
The acquisition includes a modern 300,000 tonnes per annum processing plant, significant surface infrastructure, the existing open pit and underground workings and numerous exploration targets.
Noteworthy widths of ore grade nickel mineralisation have been identified down plunge for at least another 1km beyond the end of the existing underground development.
The potential for extensions to the Sinclair deposit are augmented by elevated EM values, known to have a high correlation to nickel mineralisation in the area.
Two nearby and largely untested nickel prospects named Skye and Stirling offer further near term exploration potential.
Both prospects display similar characteristics to that of the Sinclair deposit.
Talisman also has exposure to quality copper-gold exploration projects, the most advanced being the Springfield project, located adjacent to and along strike of Sandfire’s high-grade copper-gold Degrussa deposit.
Talisman has entered into a farm-in agreement whereby Sandfire can earn up to a 70 per cent interest in the project by spending $15 million over 5½ years.
The Sinclair Extension, Skye and Stirling prospects are likely to become Talisman’s focus in the near term, all of which can be fast-tracked into production upon exploration success.
Significant earlier stage exploration opportunities also exist within the broader 300 square kilometre tenement package, providing a quality project pipeline for the longer term.
The acquisition of Sinclair is testament to first class effort by management and it is fitting that control of the project, originally discovered by Jubilee Mines in 2005, is returned to ex-Jubilee Mines executives.
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.