What the Brokers Say
WHAT THE BROKERS SAY: Interesting news and views from across the Resource Analyst universe.
Tungsten Mining (ASX: TGN)
Tungsten Mining (ASX: TGN) is advancing assessment of its flagship Kilba project (100 per cent) in the Gascoyne region of Western Australia, with the aim of making a rapid transition to production.
To that end, the company expects to define a JORC compliant resource during the June quarter 2013 and has already commenced feasibility studies that will continue through to Sept quarter 2013.
TGN expects to be in the position to make a final investment decision (FID) in first quarter of 2014, which could result in first tungsten concentrate production as soon Sept quarter 2013.
The Kilba project represents a high-grade, near-surface exploration target of 1.2-1.4 million tonnes (Mt) at 0.6-0.8 per cent tungsten, based on historic exploration conducted in the 1980s.
After listing in December 2012, raising $5.1 million in the process, TGN commenced Phase 1 of its reverse circulation (RC) and diamond drilling program.
Phase 1 returned some promising high-grade, wide intercepts at shallow (open-pit) depths, including 14.5 metres at 0.80 per cent tungsten (from 42.5m).
These results replicated the historic drilling results across the same cross sections. With the completion of the Phase 2 and 3 drilling programs, TGN is aiming to define a JORC-compliant resource by April 2013.
The company plans to undertake feasibility studies over the next four to six months, with the aim of defining an operation capable of producing up to 100,000 million metric tonne units (MTU) tungsten per annum for a low capital expenditure (CAPEX) in the order of approx. US$30 million.
Such an operation could generate $28 million per annum in revenue at the current tungsten concentrate price.
Kilba is one of the few high-grade undeveloped open-pit tungsten deposits outside of China, the world’s largest producer (approx. 87 per cent global output in 2010).
Historic drilling has outlined a shallow, high-grade target that could potentially be developed into a mine before the end of next year.
Given the strong outlook for tungsten and the lack of supply security for tungsten end-users, TGN should be well positioned to secure finance.
Furthermore, with the managing director’s track record of bringing tungsten projects to production, we believe TGN has the unique combination of high-quality assets in a buoyant market, and an ability to deliver on ambitious targets.
Recommendation: Speculative BUY
Exterra Resources Limited (ASX: EXC)
Gold explorer Exterra Resources Limited (ASX: EXC) listed in May 2011 with a focus on achieving first production in 2013 from its brownfield high grade Second Fortune gold project in Western Australia.
Following a positive Scoping Study, the company believes it can leverage the positive cash flow from the 20,000 to 30,000 ounces per year operation to further explore and develop resources at its other key projects – Zelica, Eucalyptus, Egerton and Malcolm, all of which have established JORC resources and exploration upside.
The five gold projects in Western Australia now have a combined gold resource of 309,000 ounces, with orebodies open at depth and along strike.
The company is in a good space in having a brownfield project with current mining leases and some existing infrastructure, in close proximity to existing milling operations.
The potential for a very low capex entry into mining relies upon gaining a toll treatment contract, and the company is expected to announce a deal shortly.
Solid margins are indicated with the gold price around US$1580 per ounce and with a broad consensus that the price may go much higher in the short term with continuing headwinds from Europe.
Key Points
Total gold Resource of 309,000 ounces in five projects.
Second Fortune (Linden) project (131,900oz) has existing Mining Leases and some infrastructure in place from prior operations supporting an initial underground operation producing greater than 20,000 ounces per year from 2013.
Second Fortune Scoping Study indicates a low capex (less than $5m), low opex $700 per ounce operation using off-site toll treatment of ore.
Strong margins are indicated with a gold price at US$1580 per ounce.
Drilling is planned for improved resource definition and extension – Exterra have exploration expenditure of $1 million per year.
Near-mine area is lightly explored and indicating high potential for resource extension.
We recommend the company as a SPECULATIVE BUY, offering potentially low capex access to near term gold production, access to existing infrastructure, strong exploration upside and focussed management.
Vital Metals (ASX: VML)
Vital Metals (ASX: VML) has historically been a tungsten-focused company, with 100 per cent ownership of one of the world’s most advanced, undeveloped tungsten deposits – the Watershed project in far north Queensland.
Watershed is being fully funded through Definitive Feasibility Study (DFS) at a cost of $5.4 million by Japan’s JOGMEC group.
The company has actively diversified its exploration focus by farming-into an exploration project in southern Burkina Faso, West Africa, where gold is the primary target.
Drilling has so far returned highly encouraging results, with the company returning for an aggressive follow-up campaign in 2013.
The Watershed project is amongst the top-ten undeveloped tungsten resources outside of China and is well positioned as a potential new ore supply as demand for the metal continues to grow.
The Watershed deposit was originally identified and explored by Utah Development Company Limited during the early 1980s, with some additional work conducted by Peko-Wallsend during the mid-1980s.
Vital acquired the project in 2005 and has since been actively appraising it.
The Watershed project hosts an undiluted, JORC-Compliant Indicated Resource of 20.66 million tonnes grading 0.25 per cent tungsten for 50.7kt contained metal at a cut-off of 0.1 per cent.
The resource comprises 997 mineralised intercepts, including 304 intercepts exceeding 5 metres at 0.5 per cent tungsten (of which 160 exceed 5m at 1.0 per cent tungsten).
The average length of the mineralised intercepts is 5.4m.
Vital’s tenure position encompasses an area of more than 600 square kilometres.
Vital’s geological team believes that there is significant scope to extend the limits of the known scheelite mineralisation at depth – having observed a trend for the mineralisation to continue – demonstrated by MWD119, which intersected 20m at 1.27 per cent tungsten from 302m (reported to ASX 17 February 2007).
Japan Oil, Gas and Metals National Corporation (JOGMEC) can earn a 30 per cent stake in Watershed by spending $5.4 million to fund completion of a Definitive Feasibility Study (DFS) for the project, which is on track for completion during Q1 2013.
Excellent progress is also being made on the metallurgical front, with whole-of-ore (WOO) flotation test-work in China generating outstanding results.
Concentrate grades of 65 per cent have been achieved, with scheelite recovery of more than 80 per cent.
JOGMEC and Vital have had meetings with five Japanese companies that have declared an interest in the project as potential partners and off-take buyers.
Vital has enhanced and diversified its exploration interests to include gold and base metal projects in Burkina Faso, West Africa.
The gold projects are located in favourable geological settings at, or in close proximity to, the intersection of the Markoye Fault Corridor (host of Essakane, Tarpako, Bombore, Kiaka and Youga gold deposits of greater than 16 million ounces combined resource/reserve) and the 1,200km long Bole Shear Zone (host to Castle Minerals’ and Azumah Resources’ exciting gold projects).
Previous drilling on the company’s Burkina Faso gold projects exciting results, with intercepts including 5m at 60.36 grams per tonne gold from 75m depth (including 2m at 128.50g/t gold from 76m) in hole KRC260 and 44m at 6.39g/t gold from 8m depth (including 4m at 58g/t gold from 24m) in KRC 210.
Exploration activity resumed during early 2013, with the company completing an initial 2,300-metre RC drilling program that targeted the limits of known gold mineralization at the Kollo prospect.
Results are expected within the coming weeks.
Recommendation: Speculative BUY
Disclaimer: The above is intended as a guide only. The Roadhouse accepts no responsibility for investments made from this advice, successful or otherwise.