What the Brokers say

THE BOURSE WHISPERER: Every now and then The Roadhouse obtains research notes from different broking establishments. Here’s a couple that hit our inbox this week.

 

 

Jacka Resources (ASX:JKA)

Recommendation: Speculative Buy

The Most Undervalued African Explorer on the Market.

Scott Spencer (chairman) and Richard Aden (executive director) from JKA gave a highly impressive company update to our dealing desk on 11 April 2012.

African focussed junior explorers have generally outperformed the market in CY2012 on the back of corporate activity and large discoveries within the region.

Our preferred ASX-listed exposure in this space is JKA which is up around 26 per cent (YTD) outperforming the Energy 200 which is up around 8 per cent over the same period.

JKA has all the key attributes that we look for in quality oil and gas companies which include high calibre management with a strong track record of delivery, a high quality asset portfolio, a fully funded 2012 activity program and near term cash-flow generation potential.

We believe JKA is an outstanding Speculative Buy and our price target is $0.51/sh.

 

 

 

MacPhersons Resources (ASX:MRP)

Recommendation: Speculative Buy


We see good potential for resource growth at the Nimbus project given strike and depth extensions from the recent drilling program.

The current resource envelope is based on one of six known mineralized lenses that MRP is exploring.

Optimisation work done on the deposit so far has demonstrated a positive NPV of $124 million using a silver price of $35 per ounce.

With ongoing significant intersections in most holes MRP management is now entertaining the potential for merging the Discovery and East pits into a big pit scenario to produce silver and a zinc/lead concentrate which would vastly improve the economics and scale project.

Drilling under the East pit is part of a six hole program which will be completed in four to six weeks.

Target depths of the holes is plus-300m and designed to determine lens repetitions at depth.

The aforementioned XRF results from around 160m down hole confirm the likely hood of mineralisation at depth.

On completion of the program MRP have indicated a resource upgrade in the June Q. We expect this could add another 5 to 8 million ounces of silver to the current resource.

The zinc aspect of project the is becoming increasing interesting with a number of significant mine closures around the world in the next couple of years set to constrain supply and increase prices for the metal.

Consensus forecast have the prices rising from around $0.90 per pound to $1.25 per pound beyond 2014.

The increase is timely and coincides with MRP’s proposal begin producing a zinc/lead concentrate early 2015.

The current plan for processing is to have a silver circuit up and running in Q1 CY2013.

Mill feed will be sourced from two exiting tailing stockpiles which should produce around one million ounces of silver in CY2013.

Cash flow will be used for further resource development and introduction of a parallel gold circuit to treat ore from the MacPhersons gold project.

Assumed in-situ value for the current resource is around $35m based on $3.20 per ounce and $0.15 per pound for in the ground silver and zinc.

A good return considering the asset was acquired for $3m cash and around five million shares approximately nine months ago.

Hawkley Oil and Gas (ASX:HOG)

Recommendation: Buy

Is this the Best Value Stock on the ASX?

Hawkley Oil and Gas was recently re-rated after Board and Management changes and the award of a 20 year production license at its Sorochynska permit.

The stock is now experiencing a period of consolidation, which we consider a strong buying opportunity.

Increased newsflow is about to begin, starting with an updated resource report (due this month), followed by results from 3D seismic at Sorochynska, completion of the Sorochynska #202 development / appraisal well, a possible AIM listing, acquisition of 3D seismic at Chernetska, construction of a gas plant and spud of an additional development or exploration well at Sorochynska.

In our last report, we indicated that our analysis showed that HOG was the best value oil and gas stock on the ASX when combining metrics based on reserves, revenue, cashflow and resource potential.

These will be detailed more fully later in this note but to give some context, Hawkley is the only company in the top 15 cheapest that has high visibility on near term production growth and increased cash flow (Sorochynska #202 should reach target in Q3 and be on production by the end of the year).

 



Ironbark Zinc (ASX:IBG)

Recommendation: Speculative Buy

 
Attention grabbing asset with upside leverage to zinc

Ironbark Zinc is a zinc focussed developer. The main project is the world-class Citronen project in Greenland.

The company has several other early stage projects and is searching to acquire a new, near to production, project or company.

Citronen has a total resource (Measured, Indicated and Inferred) of 132 million tonnes at 4.1 per cent zinc and 0.4 per cent lead and contains a high grade resource (Measured & Indicated) of 52 million tonnes at 5.3 per cent zinc and 0.5 per cent lead.

It is located on the edge of a fjord in northern Greenland and can be accessed by sea for three months a year when the ice melts.

The current estimated capex is large at US$502 million although this may be reduced in the final feasibility study as the company recently executed an MOU with China Nonferrous (NFC). The plant will be manufactured as three barges in China.

IBG owns 100 per cent of the Citronen project. Glencore and Nyrstar are both significant shareholders of IBG and have negotiated off-take agreements.

Glencore recently provided IBG with a US$50m convertible note facility to acquire base metal projects. The company is yet to draw down the facility.

In our valuation we assume the notes are drawn and converted to equity.

In addition to Citronen, IBG has five early stage base metal exploration projects. In particular, Captains Flat (JV with Glencore), Peakview and Washington have had recent early stage encouraging results.

Thursday, May 10, 2012

THE BOURSE WHISPERER: While we were attending the RIU Sydney Resources Roundup The Roadhouse caught up with its old buddies from Breakaway Research which passed on a couple of its recent company research notes.

Matsa Resources (ASX: MAT) has a diverse portfolio of projects at various stages of assessment. The most advanced is the Norseman gold/magnetite project which hosts a JORC resource of 26.5 million tonnes at 1.7 grams per tonne gold for a total of 1.47Moz of gold.

Negotiations of a joint venture for the Norseman project are well advanced with the final terms expected to be agreed imminently. Once completed, further exploration programs, feasibility studies and ultimately development of the project (targeting 2 million tonnes per annum by 2015) are likely to follow.

 

Norseman Project Tenure. Source: Company

Matsa has a strong project pipeline of earlier stage projects. Approximately 5 kilometres north of the Norseman project, the company has identified large widths of magnetite iron ore at Dundas. A further drilling program is required to define a JORC inferred resource, although the company has established an exploration target of +300Mt. Production synergies may exist with the Norseman project.

Matsa is also awaiting further licence application approvals from the Thailand government over tenure prospective for iron ore, copper and gold.

Recommendation: Speculative Buy

Olympus Pacific Minerals (ASX, TSX: OYM) is an established gold producer with two operating gold mines located in Vietnam.

The company produced 42,868 ounces of gold in 2011, at a cash cost of US$715 per ounce, and is on track to increase production to 65,000oz in 2012 at reduced cash costs.

 

Olympus Pacific – Project Locations. Source: Company

With the Vietnam operations now running smoothly, the focus is shifting to the Bau goldfield in East Malaysia.

Bau is a ‘company maker’ and currently hosts a total gold resource in excess of 3 million ounces with significant further exploration potential. Recent drilling at Jugan (one of eight central Bau Trend sectors) has intersected additional large widths of ore grade mineralisation yet to be included in the current resource.

Highlights include 52 metres at 4.64 grams per tonne gold from 3 metres below surface.

A feasibility study is currently underway based on the initial development of the Jugan Hill and Young’s Hill (Bekajang) deposits with the remaining six sectors phased into production in due course. The company envisage a 3 million tonnes per annum plant, employing either an Albion or pressure oxidation circuit to treat the refractory component of the ore, to be commissioned in 2014.

Once in full production, Olympus Pacific have targeted 100,000 to 150,000 ounces of gold per annum from Bau, which when coupled with the Vietnam operations, would bring total gold production to more than 200,000ozpa.

Comparative analysis by Breakaway research indicates that Olympus is cheap relative to its peers based on its established resource base. This creates an opportunity for a strong re-rating as its growth plans are quantified and achieved.

Recommendation: Speculative Buy

Sheffield Resources (ASX: SFX) has a portfolio of mineral sands, iron ore and talc projects, all located within Western Australia, however the principle focus for the company is the development of the Eneabba and Dampier mineral sands projects.

The Eneabba project is the most advanced and was recently the subject of a scoping study completed by mineral sand industry experts TZMI.

Eneabba hosts a 161 million tonnes at 2.5 per cent VHM (Valuable Heavy Minerals) resource comprised from three closely spaced deposits.

Further opportunity exists to extend this resource with infill and extensional drilling on other nearby, already defined prospects. The outcome of the scoping study showed the project to be technically sound and economically attractive under various commodity price assumptions. Sheffield is now progressing with a pre-feasibility study with the goal of first production by 2015.

Stage two in the company growth profile envisages advancing the potentially high grade, large tonnage Dampier project in northern WA. Dampier has an exploration target of 450 to 840Mt at 5 to 10 per cent VHM, more than twice the size and grade of the Eneabba project, and is viewed as the ‘company maker’.

A 12,500 metre drilling program is about to commence with a maiden JORC resource expected in early in Q4 2012.

Mineral sand prices remain at elevated levels and are likely to advance on these levels in the medium term with supply and demand fundamentals underpinning the upward trend.

Sheffield is now advancing the Eneabba project through the feasibility stages with first production slated as early as 2015. Encouragingly, one of the deposits, West Mine North, already sits within a granted Mining Lease.

Recommendation: Speculative Buy

 

Reed Resources’ (ASX : RDR) Meekatharra gold project (100 per cent), located in the Murchison region of WA, is expected to start producing gold during Q4 2011.

 

Project location map. Source: Company

Given the successful completion of the BFS, Reed is aiming to start producing gold from its flagship Meekatharra gold project, by mining open pit sources, in the fourth quarter of 2012, subject to financing. The plan is to ramp up production to 95,000 ounces per annum by the end of 2014 and increase production to 160,000 to 180,000 per annum under Stage 2 (planned to commence in 2015).

Reed has defined a substantial reserve base of approximately 0.75 million ounces of gold, estimated by the respected geological consultants Snowden Mining.

The company has three primary open pit ore sources, Bluebird, Mickey Doolan and Prohibition, that will provide the ‘base load’ ore for the plant in the initial years of operation. Total reserves could support a production rate of 100,000oz per annum for over six years.

We like the fact that Reed could start producing gold before the end of the year at average (C1) cash costs of A$1,076 per ounce. Reed’s existing plant can be refurbished for a relatively low capital expenditure of A$35.5 million.

Recommendation: Speculative Buy

 

 

Thursday, May 17, 2012

THE BOURSE WHISPERER: Every now and then The Roadhouse obtains research notes from different broking establishments. Here’s a few that hit our inbox this week.

 

Blackham Resources

Recently acquired the Matilda gold project located in the Wiluna region of W.A. The projects assets include previously operating mines, some infrastructure and a JORC resource of 12.5 million tonnes at 1.9 grams per tonne gold for 757,000oz of gold, made up from four nearby deposits.

Blackham has a near term exploration target of plus 1Moz gold with significant exploration potential at depth and along strike of the existing deposits.

A recent 4,000m RC drill campaign confirmed the prospectivity of the targets by intersecting wide zones of ‘ore grade’ mineralisation. Further opportunity exists to identify additional deposits hosted along 40km of strike over the Wiluna Mine Sequence and 10km strike along the Coles Find Mine Sequence.

The Wiluna plant, owned and operated by Apex Minerals, is located in close proximity to the Matilda project and has both oxide and sulphide treatment circuits. Potential exists to toll treat oxide ore through the plant providing Apex with additional revenue and operational efficiencies (as the plant is underutilised) while Blackham has the opportunity for early cash flow to fund additional exploration and development costs.

Blackham is also evaluating the potential of coal export and a Coal to Liquids facility to process lignite from the 1.4 billion tonnes Scaddan and Zanthus deposits located near the port of Esperance. The project is well serviced by infrastructure and may warrant a standalone mining operation for the export market should an appropriate lignite market be identified.

Recommendation: Speculative Buy

 

Tiger Resources

Tiger Resources is a copper producer with high-quality assets in the Katanga copper belt of the Democratic Republic of Congo.

It can add significant value in the near term by increasing copper production to plus 50,000 tonne per annum and by potentially buying out its 40 per cent JV partner. Katanga Province is currently a focus of corporate activity, so M&A potential is considerable.

Key Points:

–    Copper producer: Kipoi project (DRC) output is 35ktpa of copper in concentrate  with offtake by Trafigura at the mine gate.

–    Low operating cost: Stage 1 opex target $0.42 per pound copper with open pit mining of oxide and concentration by Heavy Media Separation (HMS).

–    Plans to expand production: DFS expected late 2012 for 50ktpa copper cathode (up to 100ktpa) by solvent extraction and electrowinning (SX-EW).

–    Strong forecast EBITDA: CY2013e is US$106m (P/E 1.9) based on current operation; CY2014e is $196m (P/E 1.4) after SX-EW expansion.

–    Potential to add value by acquiring remaining 40 per cent project share held by JV partner, Gécamines (DRC miner).

–    A likely takeover target: Katanga copper belt is a focus of M&A activity by majors (e.g. Minmetals/Anvil – C$1.3bn; Jinchuan/Metorex – US$1.4bn).

Our 12-month target for the stock is $0.85, based on current 35ktpa copper HMS production and a plus $150 million expansion to 50ktpa copper by SX-EW. This could increase to $1.18 if Tiger acquires the 40 per cent of Kipoi held by Gécamines.

The DRC is a challenging place to work but in our view, operational risks are outweighed by the quality of the Kipoi asset, the potential for plus 50ktpa copper production, and the possibility of corporate action.
An approximate 1 per cent sell-down by shareholder Fidelity from Nov 11 to Apr 12 affected the share price, which has now started to recover.

 Recommendation: Buy

 

 


Altona Mining

 
AOH has successfully made the transition from developer to producer at the Outokumpu project and will produce 8,000 tonnes per annum copper, 8.4k ounces per annum gold and 1.6ktpa zinc (approx. 10ktpa copper equivalent) in concentrate for approximately 9yrs at the Kylylahti underground mine via conventional flotation at the 550ktpa Luikonlahti plant.

Cash costs will average US$1.38 per pound (FSBe) which will result in operating cashflow of approx. $50m p.a. to be re-invested back into exploration at both Finland and Queensland. We also highlight the potential upside at Outokumpu with the plant fully permitted and capable of being increased to 750ktpa (to deliver approx. 15ktpa copper equivalent) for capex of $8m.

Roseby to be a large scale operation: The recently released DFS has outlined economics based on a large tonnage (7Mtpa), low grade (0.6 per cent copper) operation with ore sourced predominantly from the Little Eva open pit.

Cash costs of US$1.73/lb (previous FSBe US$1.40/lb) and capex of $320m (previous FSBe $250m) are both higher than what we had previously modelled however the project remains robust based upon our long term copper price forecast of US$2.75/lb, delivering annual average EBITDA of approx. $120m (FSBe).

We reiterate our BUY recommendation and have reduced our price target to $0.60/sh (from $0.80/sh) following a refinement to our modelling.

Recommendation: Buy

Thursday, June 14, 2012

THE BOURSE WHISPERER: The team at Breakaway Research provided a couple of resource company notes this week. Here we take a quick look at the highlights.

ZYL Limited (ASX:ZYL)

ZYL’s objective is to become a leading producer of anthracite for both South African and export markets.

It has prioritised development of its Mbila project in KwaZulu-Natal province for the delivery of high-grade anthracite, primarily to South African industrial consumers.

Over the medium-term, the company also plans to develop its Kangwane project, consisting of the Kangwane South and Central areas, in Mpumalanga province, which will produce anthracite for export markets.

Mbila is ZYL’s most advanced project and is on track to commence producing anthracite in Q3 2013. An interim Feasibility Study outlined a project with high operating margins between A$82.2 per tonne and A$59.2 per tonne.

The project is located close to critical infrastructure, minimising up-front capital costs to A$84.5 million.

A shortlist of preferred debt providers has been selected.

Current reserves of 33.4 million tonnes support a long life operation, as well as providing potential for expansion.

ZYL Limited is an ASX-listed metallurgical coal exploration and development company with two advanced anthracite projects in South Africa.

All of ZYL’s projects host large anthracite resources and are in close proximity to key infrastructure, including ports and rail.

ZYL is well placed to take advantage of a growing shortfall in South African and international anthracitic coal markets.

Recommendation: Speculative Buy

 

 Blackham Resources (ASX:BLK)

Blackham Resources recently acquired the Matilda gold project located in the Wiluna region of Western Australia.

The project’s assets include previously operating mines, some infrastructure and a JORC resource of 12.5 million tonnes at 1.9 grams per tonne gold for 757,000 ounces of gold, made up from four nearby deposits.
 
Blackham has a near term exploration target of plus one million ounces of gold with significant exploration potential at depth and along strike of the existing deposits.

A recent 4,000m RC drill campaign confirmed the prospectivity of the targets by intersecting wide zones of ‘ore grade’ mineralisation.

Further opportunity exists to identify additional deposits hosted along 40km of strike over the Wiluna Mine Sequence and 10km strike along the Coles Find Mine Sequence.

The Wiluna plant, owned and operated by Apex Minerals, is located in close proximity to the Matilda project and has both oxide and sulphide treatment circuits.

Potential exists to toll treat oxide ore through the plant providing Apex with additional revenue and operational efficiencies (as the plant is underutilised) while Blackham has the opportunity for early cash flow to fund additional exploration and development costs.

Blackham is also evaluating the potential of coal export and a Coal to Liquids facility to process lignite from the 1.4 billion tonne Scaddan and Zanthus deposits located near the port of Esperance.

The project is well serviced by infrastructure and may warrant a standalone mining operation for the export market should an appropriate lignite market be identified.

The Matilda gold project already hosts a sizable resource however significant exploration potential still exists along strike and at depth of the known deposits and resource upgrades are likely.

Blackham has potential to develop sufficient resources to justify its own operation or for early cash flow via the toll treatment of ore through the nearby and underutilised Wiluna gold plant, providing additional funding for exploration and development.

Recommendation: Speculative BUY

Thursday, June 21, 2012

THE BOURSE WHISPERER: Japan has hinted at reopening a couple of nuclear power reactors and we receive a couple of Broker’s notes on uranium plays; Coincident?

BLACK RANGE MINERALS

We see Black Range Minerals as a quality investment opportunity that offers exposure to the growing domestic uranium demand of the US market. We believe the company has significant upside and will re-rate on the back of positive PEA expected in 3QCY12 and commencement of permitting applications.

Black Range is currently advancing the high-grade Hansen/Taylor Ranch uranium project, located in Colorado, USA, toward production.

The project contains JORC Resource of 90.9 million pounds uranium at a very robust grade of 600 parts per million (ppm) (250ppm cut off), making it the 3rd largest uranium resource within the USA.

The Hansen deposit, which is the focus of a PEA study, is the most advanced of the deposits and hosts a JORC resource of 19.7Mlbs (750ppm cut off) at an exceptionally high grade of 1290ppm.

Historic feasibility studies were based on underground and open pit mining, however a recently completed Scoping Study identified Under Ground Bore Hole Mining (‘UBHM’) combined with ablation and off site milling as the preferred development approach.

In addition to the capital and operating cost benefits, the proposed use of UBHM and ablation is likely to streamline the permitting process given the approach does not involve onsite processing of uranium, and should lead to a significant advantage in the permitting process.

Black Range is trading at an EV/Resource of $0.29/lb, a steep discount to the ASX and TSX peer group average of $1.14/lb for both explorers and developers.

We believe such a steep discount is unwarranted given its exceptional high grade, high tonnage resource located in a uranium friendly mining jurisdiction and we expect the stock to re-rate and trade closer to the peer group average as key permitting milestones are achieved.

RECOMMENDATION:

We initiate a SPECULATIVE BUY recommendation and a price target of $0.07/share.

 

AURA ENERGY

Aura Energy has released the results of its 2012 drilling program at the Häggån uranium property in Sweden.

This drilling intercepted mineralisation up to 148m thick and a new area of near surface mineralisation.

This was the third phase of Häggån drilling, comprising 14 holes totalling 2,226m.

Nine holes were part of the exploration programme designed to extend the area of mineralisation outside the current resource boundary.

The second set of five drill holes were larger diameter holes that were drilled as twins of earlier holes to provide samples for metallurgical test work.

It was an excellent set of results and they are expected to support a substantial increase to the existing JORC resource when the expanded resource is released in the September quarter.

A new area of near surface mineralisation was identified with an intersection of 147m grading 170ppm uranium only 15m from the surface.

This near surface mineralisation is expected to provide additional options for the mining studies currently underway.

The results of the metallurgical test work will be reported separately when complete.

RECOMMENDATION:
We have retained the Buy on Aura Energy, with an unchanged target price of
A$0.80/share.

Tuesday, June 26, 2012

THE BOURSE WHISPERER: We received a diversified group of research notes this week looking at companies exploring for commodities ranging through molybdenum, gold, uranium and tungsten.



Dart Mining (ASX:DTM)

Dart Mining has announced highly encouraging drilling results from its 20-hole resource upgrade drilling program at the Unicorn molybdenum-copper-silver porphyry project in Victoria.

The latest drilling results have highlighted the potential to extend the boundaries of the Unicorn deposit to the south and east beyond the current conceptual pit boundary.

The latest drilling returned impressive intersections of up to 30m at 0.18 per cent molybdenum equivalent and significant copper mineralisation (20m at 0.7 per cent copper) was identified in the northern part of the deposit (overall this hole intersected 186m at 0.06 per cent molybdenum equivalent from surface).

We expect there is significant potential to expand the existing resource of 105 million tonnes at 0.07 per cent molybdenum equivalent.

These drilling results have confirmed that the surrounding brecciated material is strongly mineralised (not waste) and can be included in the upgraded resource estimate.

We note that with the inclusion of this material, DTM’s conceptual pit design could have a very low strip ratio to significantly improve the economic viability of the project.

Drilling intersected 252m at 0.06 per cent molybdenum equivalent including 54m at 0.08 per cent molybdenum equivalent within the breccia.

Drilling will likely be completed by July and with one more batch of assay results to be announced in coming weeks, DTM is well placed to announce the resource upgrade for the Unicorn project in August/September.

DTM is targeting initial production of 5 million tonnes per annum (approx. 25-30 thousand tonnes per annum of metal-in-concentrate).

There is strong support for the project by the local community and a ready workforce.

DTM has significant infrastructure advantages and would benefit from significant cost savings during development as the Unicorn project is located 100km from Albury and is supported by power, water, sealed roads and community housing plus existing logistics infrastructure to transport concentrate to smelters in Asia.

The latest drilling at Unicorn has demonstrated the potential for a significant upgrade to the existing JORC resource in Q3, CY12.

DTM will likely outline a Scoping Study for Unicorn in Q4, CY12.

RECOMMENDATION:

We reiterate our Buy (Speculative) recommendation for DTM with a 12 month target price of $0.18/sh.

 



Alligator Energy (ASX:AGE)

Alligator Energy is a cashed-up, aggressive uranium exploration company with a large strategic acreage position in one of the world’s best uranium provinces, the Northern Territory’s Alligator Rivers region.

The company’s singular focus is the search and discovery of uranium mineralisation in the region and the reasons are simple: firstly, it’s a proven uranium location, hosting both large and high-grade deposits; and secondly, the Northern Territory welcomes uranium exploration and development.

Alligator’s principal assets areit interests in the Tin Camp project, located within the Alligator Rivers Uranium Province (ARUP) in the northern Territory.

Alligator has secured a prospective land holding in the region and a potential pipeline of quality projects.

In total, Alligator holds 283 square kilometres under three granted tenements and 1,025sqkm under 15 tenement applications.

The Tin Camp project area has been explored intermittently since 1970, resulting in the discovery of the Caramal deposit, the South Horn prospect, the NE Myra prospect, the Two Rocks prospect and the Gorrunghar prospect.

The Caramal deposit and prospect is one of the more significant occurences of uranium mineralisation in the ARUP outside of the Ranger-Jabiluka mining camp.

Given the prospectivity of the Tin Creek project area, it’s no surprise that the company was recently able to announce a maiden JORC-compliant resource estimate for its primary Caramal deposit comprising 944,000 tonnes at 31 per cent uranium for 6.5 million pounds uranium (at a 0.1 per cent uranium cutoff).

Drilling has confirmed high-grade Ranger-style uranium mineralisation, which remains both open along strike and down-dip.

RECOMMENDATION
Speculative BUY

Vital Metals (ASX:VML)

Vital Metals has historically been a tungsten-focused company, with 100 per cent ownership of one of the world’s most advanced, undeveloped tungsten deposits – Watershed in northen Queensland.

The project is now being fully funded through DFS, at a cost of $5.4 million, by Japan’s JOGMEC (Japan Oil, Gas and Metals National Corporation) group.

The Watershed project hosts an undiluted, JORC-compliant Indicated Resource of 15.1 million tonnes grading 0.46 per cent tungsten oxide for 69.3 thousand tonnes of contained metal at a cut-off of 0.1 per cent.

The Resource comprises 997 mineralised intercepts, including 304 intercepts exceeding 5m at 0.5 per cent tungsten oxide, of which 160 exceed 5m at one pe cent tungsten oxide.

The average length of the mineralised intercepts is 5.4m.

The company has actively sought to diversify its exploration focus by farming-into a 450 square kilometre exploration project in southern Burkina Faso, West Africa, where gold is the major target.

Recent drilling has returned the best results yet, including 5m at 60.36g/t gold from 75m, including 2m at 128.5g/t gold from 76m and 15m at 7.75g/t gold from 105m.

The new drilling results are a strong follow up to assay results from previous drilling at Kollo, which have included 18m at 2.95g/t gold from 37m, 31m at 3.19g/t gold from 34m, and 44m at 6.39g/t gold from 8m which included 4m at 58g/t gold from 24m.

The particular importance of these results is that they have extended the limits of known gold mineralisation (still open along strike and at depth) on the Kollo trend.

The team is now working to complete the interpretation of the gold mineralisation with the objective of defining a maiden JORC-compliant resource.

RECOMMENDATION
Speculative BUY

Thursday, September 13, 2012

A couple of interesting research reports arrived at The Roadhouse this week.

Here’s some edited highlights.

 

Continental Coal (ASX:CCC)

Continental Coal is an established coal producer with an increasing production profile.

The company is in the advanced stages of development at the 68 million tonne Penumbra mine which should deliver first coal 2H 2012.

The much larger De Wittekans project has potential for plus 30 year mine life at 3.6 million tonnes per annum (Mtpa) Run Of Mine.

The potential acquisition of a 50 per cent interest in a Colombian coking coal asset and the highly prospective Botswana licences provide welcome diversity.

Continental Coal (74 per cent) and its Black Economic Empowerment (BEE) partner (26 per cent) have exposure to a portfolio of coal assets totalling 600 million tonnes of coal resource, located in the highly productive Witbank/Ermelo coal fields of South Africa.

 

Continental Coal – South Africa project locations. Source: Continental Coal

Continental, in its own right, also has exposure to highly prospective tenements in Botswana (two billion tonnes JORC inferred with further four billion tonnes exploration target) and a recently announced option to acquire a 50 per cent interest in a producing coking coal asset in Colombia.

Continental Coal (ASX: CCC), via a 74 per cent interest in its South African subsidiary Continental Coal Limited (CCL), has a portfolio of established producing assets delivering coal into the domestic and more lucrative export market.

The company currently produces approx. 1.8Mtpa saleable from two open cut mines (Vlakvarkfontein and Ferreria) for  approx. 1.2 million tonnes of domestic coal sold at the mine gate and a further +500,000 tonnes per annum of export quality coal, which is sold out of the Richards Bay Coal Terminal.

Continental is currently advancing the Penumbra coal project which hosts approx. 68 million tonnes of export quality thermal coal and is set for first production in 2H 2012.

Total development costs are estimated at approx. US$40 million, which is being funded from existing cash and a debt facility provided by ABSA Capital.

A fourth project, De Wittekrans, hosts a total JORC resource of 250 million tonnes and has potential for a +30 year mine life.

Continental envisages producing 0.8Mtpa (saleable) of export coal and a further 1.7Mtpa of domestic coal for total saleable production of 2.5Mtpa.

Preliminary results from a Bankable Feasibility Study completed in 2011 indicated an economically attractive project with a capex requirement of approx. US$220 million.

Optimisation studies are underway to assess whether existing wash plants and rail sidings can be utilised to (significantly) reduce the initial capex and accelerate first production.

A development decision is expected in 2H 2012 following the results of the optimisation study.

Recommendation: Speculative BUY


 

Blackham Resources (ASX:BLK)

Blackham continues to make steady progress at its flagship Matilda gold project since the acquisition in late 2011.

The project currently hosts +1 million ounce (Moz) of gold with a further 2Moz exploration target.

Now over the 1Moz mark, Blackham has ‘critical mass’ to potentially justify its own processing plant or, if a deal can be reached, toll-treat ore through the nearby Wiluna gold plant.

Blackham has an EV/Resource oz of approx. $10, which appears significantly undervalued relative to its peers.

Blackham Resources recently reached a significant milestone in its aspirations of becoming a self-sufficient gold producer by increasing its Matilda resource to over 1Moz of contained gold at an average grade of 1.8g/t gold.

 

Matilda gold project. Source: Blackham Resources

The resource has increased by 41 per cent since our last update in May 2012, largely as a result of an upgrade to the Regent and M10 deposits, as well as a maiden resource at the M4 deposit.

Additional short term opportunity exists for a further increase with the M1 and M3 prospects currently under assessment.

While the +1Moz mark is significant in giving Blackham ‘critical mass’ to consider building their own processing plant, it is just the beginning in the overall exploration program.

The vast majority the current resource is hosted within 150 metres from surface and significant opportunity exists to extend the resource at depth, as well as along strike at multiple deposits.

The Williamson project area remains the most prospective with a plus 2Moz exploration target.

The under-utilised 1.1Mtpa Wiluna plant, owned and operated by Apex Minerals (ASX:AXM), has two circuits capable of treating both oxide and sulphide ores.

Potential exists for Blackham to initially toll treat oxide ore through the plant, providing Apex with additional revenue and operational efficiencies while providing Blackham with the opportunity for early cash flow to support additional exploration and development costs.

A sizable resource is already in place and there is significant opportunity to increase this still further.

Both the Williamson and Matilda deposits are within granted mining leases and have existing haul roads linking the deposits to the plant.

Accordingly, relatively small capex is required to become operational.

Recommendation: Speculative BUY

 


Northern Star Resources (ASX:NST)

West Australian gold producer Northern Star Resources has reported a strong financial results for FY2012 with a profit before tax (PBT) of $31.4 million (up 57 per cent), for net profit after tax of $21.96 million (up 35 per cent), exceeding our full year net profit forecast of $18.8 million.

Off the back of this financial result and solid cash position (approx. $75 million cash and gold bullion at the end of June), NST declared a maiden fully franked dividend of 2.5 cents per share (dividend yield of 3 per cent).

Northern Star produced 67,206 ounces of gold at cash costs (including royalties) of $713 per ounce for total cash costs of $1,017 per ounce from the Paulsens Operation.

Revenue of $99.4 million was received from gold sales of 61,614 ounces.

The company remains on track to meet CY2012 production guidance of 75,000 to 80,000 ounces at cash costs (including royalties) of $650 per ounceoz from the Paulsens Mine for forecast surplus cash of $35 million.

The Paulsens resource estimate has increased approx. 27 per cent to 403,000 ounces of gold (up from 318,000 ounces) at an overall resource grade of 5.0 grams per tonne gold (up from 4.3g/t gold).

The main Voyager 1 lode has decreased from 161,000 ounces to 123,000 ounces, after mine depletion but the Voyager 1 extension lode has added another 83,000 ounces at an impressive grade of 25g/t gold.

The resource growth and deep drilling results not included in the updated resource estimate, underpins Northern Star’s five year mine life for Paulsens but importantly the Voyager 1 and 2 lodes remain open at depth, providing encouragement to further mine life extensions.

 

Paulsens gold mine. Source: Northern Star Resources

Northern Star’s production guidance for CY2013 is now 100,000 to 115,000 ounces of gold at cash costs (including royalties) of $610 to $690 per ounce for forecast surplus cash of $65million to $85million.

We continue to recommend Northern Star as a Buy, with an updated sum of parts Valuation of $1.05 and 12-month Price Target of $1.19.

Recommendation: Buy

Thursday, October 11, 2012

Interesting news and views from across the Resource Analyst universe.

Excelsior Gold Ltd
(ASX:EXG)

EXG is a gold exploration and development company with tenements along the Bardoc Tectonic Zone to the north-west of the four million ounce Paddington gold mine.

Exploration and reinterpretation of historical data resulted in global resource growth of plus 105 per cent to 952.6koz at 1.7 grams per tonne gold over the past two years.

At the Zoroastrian deposit resources have expanded plus-120 per cent to 286.3koz at 2.8g/t gold in eight months.

Drilling re-commencing at Zoroastrian in early October, targeting strike and depth extensions, as well as these parallel loads ignored by previous operators.

Potential for Excelsior Gold to triple the Zoroastrian resource over the next 6 to 12 months.

Extensional drilling at Zoroastrian has increased potential to develop a standalone plant on the site of the old Bardoc mill.

Delivery of an expanded Zoroastrian resource will, in our view, enable Excelsior Gold to develop a 1 to 1.5 million tonnes per annum capacity plant, producing in excess of 85koz gold per annum.

Excelsior Gold is due to complete a PFS in JQ13.

The cash position of the company, as at September 2012 was $5.8m (expected expenditure for DQ12 is $2.9m).

The company is funded to progress exploration and development studies for the next 6 months; however acceleration of Zoroastrian exploration, which we would view as positive, may require further capital.

Recommendation: BUY and place a 12 month price target of 24 cents per share on a $ per resource ounce basis.

Price target contingent on delivery of a Zoroastrian resource of 700koz gold at a grade of 2.5 to 3g/t.

A preliminary DCF valuation based on completion of a BFS targeting a 1.5Mtpa operation producing plus-85koz per annum to provide a valuation guide of 40 cents per share.

Greenland Minerals and Energy Ltd
(ASX:GGG)

Rare earth and uranium giant moves towards mining

Following recent metallurgical breakthroughs and a gradual pro-uranium political shift in Greenland, Greenland Minerals and Energy’s Kvanefjeld Rare Earth Elements (REE) – uranium project (in-ground resources approx. $450 billion) is likely to be operating within the next five years.

Key points:

Kvanefjeld: the world’s second-largest deposit of rare earths (RE-oxide 10.33 million tonnes) and fifth of uranium (575 million pounds), with significant zinc (2.25 million tonnes) and calcite.

Metallurgical breakthroughs mean simple, low cost processing by flotation and  atmospheric leach.

PFS updated Aug 2012: processing 7.2 million tonnes per annum for 36 years, producing 51.9 thousand tonnes per annum rare earth oxide (REO) as carbonate and 2.6 million pounds per annum uranium, OPEX $3.07 per kilogram REO with uranium credits at $70 per pound.

CAPEX is US$1.3 billion with likely further reductions due to metallurgical improvements. Project is scalable, so potential to start smaller and expand.

Greenland Minerals and Energy moving to 100 per cent ownership from 61 per cent, Joint Venture legal problems resolved.

Moratorium on mining uranium in Greenland; however, Greenland Minerals and Energy has approval to investigate uranium potential up to DFS. Mining Licence possible in 1H14.

Kvanefjeld is one of the few Tier 1 mineral projects held by a small cap that has a real chance of being built in the next five years.

With post-tax NPV (15 per cent) of $2.4 billion, its economic potential is indisputable.

The main challenges for Greenland Minerals and Energy will be obtaining a mining licence, funding, and generating confidence among investors in the REE and uranium markets.

Price target over 12 months is a speculative $2.32/sh, contingent on a near-term shift in Greenland’s anti-uranium stance.

If the uranium moratorium stands, Kvanefjeld will be hard to develop.

A binary outcome if ever we’ve seen one.

Recommendation: Buy (Speculative) 12 month target $2.32/sh

 

Dourado Resources Limited
(ASX:DUO)

Exploration recommences at Yerrida Basin-Goodin Dome

After a quiet 2012 over which the market experienced an aggressive sell down of risk assets, we are more confident of renewed market interest in ASX-listed junior explorers such as Dourado Resources as it recommences exploration at its Mooloogool-Diamond Well tenements covering around 2,400 square kilometres in the Yerrida Basin Goodin Dome region of Western Australia.

The tenements are situated south of Sandfire Resources’ (ASX:SFR) DeGrussa project (14.6 million tonnes at 4.6 per cent copper, 1.6 grams per tonne gold) and cover prospective lithologies and cross cutting regional structures that are potential hosts for copper / gold mineralisation.

14 copper / gold geochemical anomalies identified to date appearing to overlap on to neighbouring tenements held by Enterprise Metals (ASX:ENT), Great Western Exploration (ASX:GTE) and Thundelarra Resources (ASX:THX).

A soil geochemical program is planned over 10 tenements together with 11 Aircore holes in the south-east of the Mooloogool-Diamond Well tenements.

A HELITEM survey is also planned for the southern tenements.

Impressive results from neighbouring properties including Ventnor Resources (ASX:VRX) with high-grade copper results from Thaduna-Green Dragon and Enterprise Metals who recently reported high-grade gold intercepts from the Vulcan gold prospect including 4 metres at 3.9g/t gold from 84m
downhole.

2012 RC program extended gold mineralisation further north, east and south at Sabbath gold project (145,000t at 2.21g/t gold).

Results from second phase of RC drilling are awaited.

Recent soil geochemical sampling at Garden Gully (Mistletoe tenement) identified gold mineralisation in the south of the tenement (close to Doray Minerals (ASX:DRM) Andy Well project, 717,000t at 11.4g/t gold for 262,000 ounces)– a follow up RAB program is planned.

A further 10 targets have been identified in the southern tenements.

Price Catalyst

Exploration success at the Yerrida Basin-Goodin Dome tenements still represents the best opportunity for Dourado to stimulate market interest.

The recent discovery of elevated gold mineralisation by Enterprise Metals has further underlined the regions’ prospectivity.

The imminent publication of a maiden JORC copper resource at Ventnor’s Thaduna/Green Dragon in the order of 150 million tonnes at greater than 2 per cent copper should also boost market sentiment.

Recommendation: accumulate under 6 cents.

What the Brokers Say

Thursday, October 18, 2012

Interesting news and views from across the Resource Analyst universe

Hastings Rare Metals (ASX: HAS)

 

Hastings Rare Metals Limited (ASX: HAS) is an Australian company headquartered in Sydney,  focused on the exploration, development and production of Heavy Rare Earth Oxides (HREO) from its world-class deposit located in the North West of Western Australia.

The company recently completed a Scoping Study on its 100 per cent-owned 36.2 million tonne Hastings deposit.

The base case study returned a mine life of plus-25 years, Net Present Value (NPV) of $1.9 billion, Internal Rate of Return (IRR) of 26 per cent and a payback period of 3.6 years.

The Hastings project contains significant quantities of dysprosium and yttrium, both considered critical strategic materials by the US Department of Energy.

Hastings also owns 60 per cent of the Yangibana rare earths project located near Carnavon in the North West Western Australia.

Key Points:

Hastings Rare Metals has a JORC Resource of 36.2 million tonnes grading 2,100 parts per million total Rare Earth Oxide (TREO), containing 65,000 tonnes of Heavy Rare Earth Oxides (HREO) (85 per cent ratio of HREO to TREO);

The deposit contains significant quantities of dysprosium and yttrium, two critical HREO required in the manufacture of hybrid cars, wind turbines and several clean energy technologies. Both are considered critical materials by the United States Department of Energy, with supply shortages expected over the coming decade;

Recently completed a scoping study on the Hastings deposit confirming metallurgical flow sheet at bench scale (100kg) and financial viability of the project;

Base Case economics of NPV $1.9 billion, IRR of 26 per cent, payback 3.6 years, and total capital costs of $720 million excluding contingencies;

Hastings is progressing with a Pre-Feasibility Study, with operation of a pilot plant forecast to commence in the March quarter 2013 with the treatment of 30 tonnes of ore;

The Hastings project is significantly more advanced than many of its peers, with metallurgical flow sheet test work often takings several years to refine (ANSTO confirmed Hastings metallurgical flow sheet as part of the Scoping Study);

Recommendation:

We have maintained our Speculative Buy recommendation and a 12-month price target of $0.30 per share.


TNG Limited (ASX: TNG)

 

 

TNG Limited (ASX: TNG) has a large vanadium-titanium-iron resource at the company’s 100 per cent-owned Mount Peake project located close to existing infrastructure in the Northern Territory.

A patented processing flow sheet, called TIVAN, provides TNG with a significant competitive advantage allowing for high recovery rates of vanadium whilst also achieving high recovery rates for titanium and iron, which can be sold as a by-product.

The company is now well funded to advance the project through the DFS stage and continue exploration within its diverse portfolio.

TNG’s principle focus is the advancement of the 100 per cent-owned Mount Peake vanadium-titanium-iron project located 235 kilometres north of Alice Springs.

The project currently hosts a JORC resource of 160 million tonnes at 0.27 per cent vanadium pentoxide, five per cent titanium dioxide and 22 per cent iron with significant opportunity for resource upgrades as drilling continues.

TNG has a conceptual exploration target for an additional 500 to 700 million tonnes in the surrounding area at similar grades to the current resource.

The recently completed Mount Peake PFS indicates an economically robust and lucrative project.

The economics have been enhanced by a revolutionary processing route, called TIVAN, which has been developed and patented by the company.

Using TIVAN, TNG is able to achieve high recovery rates of vanadium whilst also achieving high recovery rates and purity for titanium and iron which can be sold as a by-product providing the company with a significant competitive advantage.

Following the positive outcomes of the PFS, TNG will commence a Definitive Feasibility Study.

TNG recently completed a $13 million placement with two cornerstone Chinese investors at 11 cents per share.

The company is now well funded to advance the Mount Peake project through the DFS.

Recommendation:
Speculative BUY


AusQuest Limited (ASX: AQD)

AusQuest Limited (ASX: AQD) recently announced an agreement with major shareholder Cliffs Australia to sell 70 per cent of its interest in the Stanley manganese project in Western Australia, in exchange for the buy-back and cancellation of Cliff’s 29 per cent shareholding in AusQuest.

AusQuest will retain up to 30 per cent in the project and under the proposed agreement will sole-fund exploration of up to $1 million over 2 years.

After the $1 million exploration expenditure Cliffs may elect to sole-fund further exploration up to $3 million to earn an additional 10 per cent project interest, with the final joint venture (JV) form being AusQuest 20 per cent and Cliffs 80 per cent.

The Stanley manganese project is still in the early stages of exploration with manganese horizons identified but to date, no economic zones have been delineated.

AusQuest’s main commodity focus is on gold and copper, so it is a sensible move to sell a majority interest in a non-core (manganese) asset in exchanged for a reduced number of shares on issue.

The consideration for the project interest sale is approx. 68 million AusQuest shares, which is approx. 29 per cent of the AusQuest ordinary shares, which (if approved and successful) implies that after the transaction AusQuest will have approx. 160 million shares on issue.

Existing shareholders will have an increased interest in the company but a decreased project interest at Stanley.

AusQuest has a diversified portfolio of base and precious metal projects across Australia, Peru and Burkina Faso.

Recent exploration focus has been advancing gold and base metals prospects in Burkina Faso, through activities over the 100 per cent-owned Comoé project.

The project is located within the under-explored Banfora greenstone belt, to the east of Gryphon Minerals (ASX:GRY) 4.5 million ounce Banfora gold resource.

AusQuest has also been active with the Cliffs Peru JV, in which it holds a 30 per cent interest in a project area covering approx. 45,000 square kilometres.

The ground in Peru is largely under-explored and is considered prospective for large copper-gold mineralised systems (IOCG and porphyries).

Recent reconnaissance mapping and sampling by AusQuest has identified anomalous copper (up to 1.7 per cent copper) and some gold (up to 2.7g/t) in some of the targets investigated with exploration activities now set to increase until the end of the year.

With a current estimated cash position of over $4 million, and with approx. $750,000 to come in from other asset sales in mid-January 2013, the company remains well funded for budgeted exploration programs in 2012 and early 2013.

Recommendation:

We continue to recommend AusQuest Limited as a Speculative Buy.

What the Brokers Say

Thursday, November 15, 2012

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

 

Rox Resources (ASX: RXL)

Rox Resources’ exploration efforts are currently focused on the Mt Fisher gold and nickel exploration project, located in WA.

A small JORC resource of approx. one million tonnes at 2.75g/t gold for around 86,000 ounces of gold has already been identified, and is likely to grow with ongoing exploration.

Teck Australia has entered into a JV with Rox for the exploration and development of the Myrtle zinc-lead project which already hosts a sizable JORC resource of 43.6Mt at 5.04 per cent zinc and lead.

Significant opportunity exists to extend this resource and for the delineation of new nearby deposits.

As per the terms of the farm in agreement, Teck will earn 51 per cent of the project by sole funding exploration up to $5 million.

Teck may then elect to spend a further $10m to increase its interest to 70 per cent.

Rox also has an interest in two earlier stage exploration projects. Marqua hosts 30km of strike along a highly prospective limestone unit where drilling has intersected ‘ore grade’ phosphate. At Bonya, Rox is earning into the project by funding $500,000 of exploration.

Rock chips recently assayed as high as 30.7 per cent copper, 34.1g/t silver and 0.52g/t gold, highlighting the prospectivity of the project.

A recently announced Share Purchase Plan (SPP) will seek to raise a maximum of $1.8m at 1.5 cents per share (a historically low share price) which will be used to advance the Mt Fisher gold and nickel project and the Bonya copper project.

Teena Prospect
Between 1976 and 1978, Mount Isa Mines (MIM), then operators of the exploration licence, drilled numerous deep diamond holes at the Teena prospect, located west of the McArthur River mine.

For reasons unbeknown, the assay results from these holes were never released.

Teck tracked down the original core and the associated assay results.

So as to check the integrity of the historical assays, random sections of drill core from the Teena 4 and the Teena 6 holes were re-assayed.

Encouragingly, these sections demonstrated a close comparison to the original results.

Highlights from the assays include:

–    11.3m grading 10.9 per cent zinc and lead, 14g/t silver from 908.8m;

–    8.6m grading 9.84 per cent zinc and lead, 23g/t silver from 789.6m;
 
–    3.8m grading 7.98 per cent zinc and lead, 4g/t silver from 629.2m; and
 
–    13.1m grading 6.02 per cent zinc and lead, 5g/t silver from 599.2m.

Teena is shaping up to be a significant zinc-lead prospect with ongoing exploration likely to identify additional thick intersections of mineralisation.

Teck will soon commence a surface geochemical sampling campaign over the prospect and is also expected to commence a diamond hole drill program early in the 2013 field season.

Rox and Teck have an exploration target for Teena of 100 to 200 million tonnes at 10 to 12 per cent zinc and lead.

Breakaway has been highly encouraged by the uncovering of the historical drill hole data as it demonstrates the potential for a large zone of higher grade zinc-lead mineralisation over an area of at least 1.0 by 1.5km with a cumulative thickness of between 5 and 40 metres.


Recommendation: Speculative BUY

 

 Avalon Minerals (AVI: ASX)

Avalon Minerals has completed a placement of 119.3 million shares at 7 cents per share to institutional investors, raising a total of $8.4 million.

The placement has broadened the register with institutions including Acorn Capital who have become a substantial shareholder with a 12 per cent holding and diluted the existing substantial Malaysian shareholders from 35 per cent to 25 per cent.

Following the completion of the placement, AVI will have approx. $10 million in cash and hence be fully funded to complete a planned 25,000m drill program at Viscaria.

Further scoping study analysis has been completed by mining consultants Xstract on the Discovery Zone prospect, which is currently subject to due diligence and is to be acquired from Hannans Reward for $4 million.

The economic assessment has indicated that the existing resource at Discovery Zone has the potential to add US$140 million to the base case project NPV of approx. US$60 million to an updated NPV of approx. US$200 million on a stand-alone basis (i.e. excluding resource growth from planned drill program).

Based on the ‘Development Case D’ scenario which assumes resource growth at the A and D Zones following the upcoming drill program and completion of the Discovery Zone acquisition, the NPV increases to approx. US$350 million with a production profile of 29,000 tonnes per annum copper and almost 1Mtpa iron over a 9 year mine life.

AVI is fully funded to complete an aggressive 25,000m drill program, expected to deliver significant resource growth and value creation.

A 25,000m drill program is scheduled to commence in coming weeks targeting both the A and D Zone deposits at Viscaria, prior to further resource upgrades in H1 2013, DFS commencement in mid-2013 and ultimately first production in early 2016.

Recommendation: BUY with a price target of 20 cents per share.

 

Pura Vida Energy (ASX: PVD)

Moroccan Prospects – Huge Potential

Pura Vida Energy has performed seismic inversion analysis, utilising local well results, to further confirm the prospectivity for hydrocarbons within the Mazagan permit.

The recent analysis will be added to the data room currently set up to assist the company in the farmout process of the Mazagan permit.

Seismic inversion analysis is a process of identifying the response of seismic acquired over oil or gas shows in other nearby wells and comparing that seismic response to the seismic acquired over the Mazagan permit.

The seismic inversion analysis follows the encouraging recent and ongoing drop core analysis.

5.3 billion barrels in prospective oil targets

DeGolyer & MacNaughton’s (D&M) independent report estimates net resource potential of 5.3 billion barrels of oil (Pmean) in the Mazagan permit.

D&M’s estimate includes the giant Toubkal prospect which has a Pmean potential of 1.5 billion barrels of oil (1.1 billion barrels net to PVD).

The Direct Hydrocarbon Indicators, which have been previously identified and supported by the recent analysis, support a probability of success (POS) of 31 per cent for Toubkal. We have a risked value of $140m for the Toubkal prospect which is based on a rule of thumb NPV of $10/ barrel of oil (bbl) assuming Pura Vida retains a 30 per cent interest in the permit and a probability of success of just 3 per cent.

Plenty of pre-spud upside

Investing early in oil and gas explorers is highly speculative and comes with many risks. There are general rules that we believe can be followed that will limit risk exposure.

The key to early stage exploration investment is to wait for a giant prospect to be identified (PVD tick) in a region of growing popularity (PVD tick), derisked through desktop analysis (PVD tick) and where well timing is known (next to be ticked).

When assessing the likelihood of upside, we believe that the market will focus on the next well to be drilled and not the potential of the whole permit.

As such, we assess the rule of thumb value of the most current prospect (in this case we assume Toubkal will be the first prospect drilled) to be the key driver in share price appreciation.

The common industry POS is 10 per cent and we assume this is the common value that could be reached pre-spud on the assumption that investors will pay 10 per cent of a prospects’ value to take the risk of a 10 per cent POS.

In the case of Toubkal, Pura Vida’s diluted market cap currently implies a 1.3 per cent POS and D&M have attributed a 31 per cent POS.

As such, we believe the share price pre-spud should reflect at least 10 per cent POS which is a 7 times uplift from current prices but could potentially reflect a 31 per cent POS.

Current risks surround the farmout process being successful (which we consider a low risk), Pura Vida’s ability to negotiate a carry on at least the first well and the Toubkal prospect being selected as the first target (some potential farminees might prefer to drill the prospect with the highest POS first).

Recommendation: Buy with a price target of $1.50.

Thursday, November 22, 2012

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

 

 

Potash West (ASX: PWN)

Potash West recently released a maiden JORC resource of 244 million tonnes of potassium rich greensands at the Dinner Hill prospect.

Encouragingly, only 20 per cent of the Dinner Hill prospect area (and none of the other nine high-priority targets) have been drill tested to date.

The mineralisation displays strong geological continuity providing scope for additional resources to be delineated with ongoing drill campaigns.

Significant progress has also been made on the processing flowsheet (currently patent pending) which has been developed to extract value from the glauconite within the greensands.

The straight forward process design is a major breakthrough and has major implications on the overall viability of the project.

The extraction of potassium from glauconite contained within the greensands appears to be relatively robust and well supported by over 1,000 bench scale tests undertaken by ‘Strategic Metallurgy Pty Ltd’.

However, processing is yet to be tested on a meaningful scale outside of the laboratory.

 

The proposed flow sheet is based on the leaching of the glauconite to produce potassium in the form of potassium sulphate.

The other components of the glauconite are also used to advantage and recovered as valuable by-products.

The flowsheet, which is in the process of a patent application, produces the following products from the glauconite:

–    Sulphate of Potash;

–    A mixed potassium/magnesium sulphate;

–    Aluminium sulphate;

–    Iron Oxide; and

–    Superphosphate.

The ability to produce numerous valuable by-products in addition to the primary sulphate of potash is a significant breakthrough which is likely to greatly affect the economics and overall attractiveness of the project.

A scoping study is currently underway and is due for completion in Dec 2012.

Following the likely positive outcomes of the study, Potash West intends to embark on a more comprehensive feasibility study with the ultimate aim of production by mid-2016.

Breakaway has been further encouraged by the recent unsolicited approach by a private Chinese company seeking to make a strategic investment in Potash West.

Under terms agreed (and yet to be finalised), Potash West will raise A$3 million via the issue of shares at a 35 per cent premium of 33 cents per share.

The funds raised will primarily be used for the upcoming feasibility study.

Recommendation: Speculative BUY

 

 


Wolf Minerals (ASX: WLF) (AIM: WLFE)

Wolf Minerals is an ASX and AIM-listed emerging tungsten producer focused on the development of the world class Hemerdon Ball tungsten and tin project, located in Devon, SW England.

Hemerdon currently hosts a JORC resource of 401 million tonnes at 0.13 per cent tungsten and 0.02 per cent tin, placing it as the third largest (known) tungsten deposit in the world.

A Definitive Feasibility Study (DFS), completed in May 2011, indicated robust economics based on a 3 million tonnes per annum (Mtpa) operation over a 9.25 year life of mine.

Production is estimated at approx. 350,000mtu [1mtu=10kg] per annum of a 65 per cent tungsten concentrate and a further approx. 450 tonnes per annum of tin in concentrate at C1 costs of US$105/mtu (after tin credits) versus the 2012 average APT price of US$400/mtu.

The current mining reserves of 26.7 million tonnes at 0.19 per cent tungsten and 0.03 per cent tin are bound only by the constraints of the open pit limits as per the parameters of the granted ‘Planning Permission’.

Significant opportunity therefore exists to extend the mine life should approval for a larger open pit be sought in due course.

Breakaway estimates the total funds required to advance Hemerdon into production to be approx. £130M (A$200M).

Wolf recently secured £75 million though a senior debt facility and retains full flexibility with respect to all of its funding options in terms of funding the balance.

The consensus outlook from respected tungsten commentators suggests ongoing supply side issues are likely to lead to an increase in tungsten prices over the longer term, further enhancing project economics.

Wolf ahead of most peers

The cornerstone of the robust economics outlined in the DFS, is the low estimated C1 costs of US$105/mtu.

This feeds directly into whether a project can attract senior debt to fund (in most cases) significant CAPEX, and thus rules out many of Wolf’s peers.

Meeting the CAPEX hurdle is a major accomplishment and provides confidence for the near term.

Preparing a peer comparison can be troublesome as many of the known projects also host other recoverable minerals such as tin, fluorine and molybdenum as well as additional projects within the portfolio.

Breakaway has compiled a peer comparison for projects with completed DFS’s and has converted the current market cap, and anticipated CAPEX and C1 costs to A$ (at current exchange rates). C1 costs take into account ‘credits’ received for additional recovered minerals.

 

Source: Breakaway Research.

As demonstrated, Wolf compares favourably.

Recommendation: Speculative BUY

Wednesday, November 28, 2012

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

 

 Celamin Holdings NL (ASX: CNL)

Celamin Holdings NL is focused on the exploration and development of resource projects in North Africa, initially in Tunisia and Algeria.

The company’s immediate focus is the advanced Chaketma phosphate project (CNL 80 per cent, reducing to 50 per cent at development stage) held in partnership with local company, Tunisian Mining Services SA (TMS).

Celamin is advancing the Chaketma project with a Definitive Feasibility Study and has production targeted for early 2015.

Celamin has also acquired rights to several base metal tailings projects in Tunisia with TMS and is farming in to an Exploration Permit with base metal (lead-zinc) targets in Algeria.

The Chaketma phosphate project has quickly advanced to become a potential ‘company maker’ for Celamin and was recently the subject of a positive scoping study completed by experts Direct Mining Services Pty Ltd.

The success of this study led Celamin to proceed immediately to a Definitive Feasibility Study (DFS).

The maiden JORC-compliant Inferred resource containing 37 million tonnes at 21.0 per cent phosphate covers just one of seven prospects at Chaketma.

Earlier investigations estimated the potential for a substantial “Pre-Resource Mineralisation” of approximately 229 million tonnes at 20 per cent phosphate.

The Chaketma scoping study indicated an economically robust and viable project with a (pre-tax) US$605 million NPV, IRR of 28 per cent, capex of US$364 million, a payback of 3.5 years and a potential mine life of over 50 years on maximum output of 1.5 million tonnes per annum phosphate concentrate.

The project is located in a mature phosphate mining province and is close to existing infrastructure and Euro markets.

Strong demand for fertiliser commodities, such as phosphate, is expected to continue as a result of global population growth and the shortage of arable land for increased food needs.

Recommendation: Speculative BUY

 



Monadelphous Group Limited (ASX: MND)

Monadelphous Group Limited provided revenue guidance for FY13 to “be about 25 per cent” but “margins are coming under pressure in this more competitive environment.”

The company also said that 1H revenue was 40 per cent above pcp [prior corresponding period].

Guidance implies 1H revenue of $1.23 billion and 2H revenue of $1.15 billion.

Given the history of conservatism and the building momentum in oil and gas construction, we believe the guidance of 25 per cent revenue growth for FY13 is too conservative, and we have revised our estimates to approx. 30 per cent growth.

We have lowered our FY13 EBITDA margin estimate to 9.7 per cent and our NPAT estimate is now $152.3 million.

We expect a dividend of 140 cents per share (upside risk).

We expect 1H13 NPAT of $77.6 million and an approx. 65 censt per share dividend.

For FY14, we assume approx. 9 per cent revenue growth, NPAT of $156 million and a dividend of 150 cents per share (payout ratio approx. 88 per cent).

The simplicity and consistency of the MND accounts make them relatively simple to analyse.

The high returns (approx. 56 per cent ROE, 20.4 per cent ROA), low capital intensity, track record of earnings delivery, established and meaningful maintenance and infrastructure divisions (ie recurring revenue) give us confidence in near term earnings performance.

We have a fundamental valuation for MND of $23.11, which is based on MND growing top-line by 9 per cent per annum for the next five years to approx. $2.9 billion by FY17 and then maintaining that level into perpetuity.

Our Gordon growth model valuation is $28.50 including value for franking credits suggesting there is decent value for long term holders (we have reduced our DDM cost-of-equity assumption to 8 per cent).

We have a $25.44 twelve month price target which puts a large emphasis on the dividend stream from MND.


Recommendation: We are upgrading to a Buy (from Accumulate).


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

Wednesday, December 05, 2012

THE BOURSE WHISPERER: Every now and then The Roadhouse obtains research notes from different research establishments. Here’s a couple that hit our inbox this week.

Sovereign Gold (ASX: SOC)

Sovereign Gold (ASX: SOC) is focused on exploration of the Rocky River-Uralla Goldfield, located in north eastern New South Wales near Armidale.

Historical workings in the area produced approx. 167,000 ounces of gold from high grade deep workings between 1856 and 1967.

Limited modern exploration has since been carried out to determine the source of the alluvial gold.

In 2003, the NSW Geological Survey conducted an airborne geophysical survey that revealed the gold workings in the Rocky River-Uralla Goldfield may potentially be derived from magmatic fluid and as such could represent a much larger Intrusion-Related Gold System (IRGS).

Martins Shaft, located within EL 6483, is the most advanced prospect but is just one of the numerous targets identified.

An initial drilling campaign carried out in 2011 intercepted broad widths of shallow gold mineralisation including 22 metres at 3.2 grams per tonne gold and 18 metres at 3.5 grams per tonne gold, highlighting the potential of the region.

In November 2012, Sovereign entered into a JV agreement with a Chinese state owned company Jiangsu Geology and Engineering Co. Ltd (SUGEC).

Under the terms agreed, SUGEC will contribute A$21 million of funding to earn a 30 per cent interest in 10 exploration licences surrounding (but excluding) EL 6483 whilst also providing significant technical capabilities.

In November 2012, SUGEC and Sovereign agreed to broaden the scope of the JV agreement to include a further 8 tenements (now totalling 10) and increase funding to a total of A$21 million to be spread across tenements owned by Sovereign Gold and Precious Metal Resources (ASX: PMR).

At the completion of the agreed expenditure, SUGEC will be entitled to a 30 per cent interest in each of the respective tenements.

Securing funds earmarked for ‘riskier’ exploration projects in the current economic climate can be challenging.

Breakaway is encouraged by the recently announced JV as it not only brings significant capital to fast track exploration; it also brings a technical team of up to 14 geologists, geochemists and geophysicists to work with the company.

The JV also removes the need for Sovereign to contribute any funds to exploration on the 10 designated EL’s over the next two years, thus defraying risk while retaining a majority interest in all the tenements.

Breakaway is further encouraged by SUGEC’s involvement (a geology and engineering company) as it validates the IRGS model in the region.

Numerous other high priority targets exist within the exploration portfolio. To get a better understanding of the geophysical features at play, Sovereign Gold has already completed a 5,008km Geophysical Survey covering a large part of the tenure.

This magnetic and radiometric data has provided a detailed structural image for identifying potential conduits for gold bearing fluids.

In particular, the company will be looking for signatures similar to those associated with Martins Shaft.

Sovereign Gold represents an opportunity for investors to partake in a fully funded gold exploration company with exposure to quality exploration targets which have the potential to host significant deposits (million ounce potential) with shallow, ‘ore grade’, intercepts already identified.

All of the tenements within the portfolio are well serviced by existing infrastructure, with sealed roads, rail, water, power, airport and labour all nearby.

The most advanced and attractive project is hosted within EL 6483 which is excluded from the JV, further enhancing the potential upside for Sovereign Gold shareholders.

Recommendation: Speculative BUY

 

 


Venturex Resources (ASX: VXR)

Venturex Resources (ASX: VXR) is aiming to commence producing copper and zinc, in concentrates, at its flagship Pilbara copper-zinc project (100 per cent VXR), located close to Port Hedland in Western Australia during the 2H of 2014.

VXR has established a substantial JORC‐compliant Resource base containing in excess of 550,000 tonnes of copper‐equivalent within a number of high‐grade Volcanogenic Massive Sulphide‐type (VMS) copper-zinc deposits.

Preliminary results from VXR’s Feasibility Study suggest a low (C1) cash cost of A$1.15 per pound copper‐equivalent.

While VXR already has a substantial Resource base, there is exploration potential within and external to the identified deposits, in particular at the 35 kilometres of prospective, near‐surface  mineralisation at the Whim Creek, Salt Creek and Liberty Indee Joint Venture (JV) areas.

VXR is currently developing a drilling program to test down‐plunge extensions of the Evelyn deposit at Liberty Indee, the Salt Creek deposit and the Balla Balla prospect.

VXR is also planning to drill test more regional targets within the broader Mons Cupri area.

The company recently finalised a strategic 15 per cent share placement with an ASX 300 gold producer that is operating in the Ashburton‐Pilbara region of WA, Northern Star Resources (ASX: NST).

Northern Star invested $6.5 million and underwrote VXR’s recent $4.5 million capital raising.

The companies have also entered into a Memorandum of Understanding (MoU) to explore potential options for the joint‐development of the Pilbara project, which could result in significant costs savings for VXR.

In addition to the Pilbara project, the company is exploring for large gold deposits in Brazil through its wholly‐owned subsidiary CMG Mineracao Ltda (CMGM).

Out of the recent capital raisings, VXR has allocated A$1 million to explore its Brazilian assets.

The most‐advanced project in Brazil is Serre Verde (100 per cent VXR), which is currently awaiting the grant of exploration licences.

Serre Verde hosts VXR’s highest priority exploration targets.

Recommendation: Strong Buy

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

Thursday, January 24, 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.

Thursday, January 31, 2013

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.

Thursday, February 07, 2013

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



Altona Mining Ltd (ASX: AOH)

Outokumpu performing well, Roseby development-ready but requires finance

Outokumpu copper project (Finland):

– Record quarter of production, exceeding feasibility design.

– Plant throughput of approx. 144,000 tonnes (FSBe 138kt) represents 104 per cent of nameplate (550kt per annum).

– Copper recovery was 91 per cent (FSBe 91 per cent) with concentrate grade of 21 per cent (FSBe 21 per cent). Milled copper grade was 1.6 per cent versus our estimate of 1.25 per cent copper.

– Production for the quarter totalled 2kt tonnes of copper (FSBe 1.6kt), 2.3koz goldu (FSBe 2koz) and 444t zinc (FSBe 400kt).

– Copper production increased almost 30 per cent on the September quarter and was 25 per cent above our estimates, which was predominantly a function of grade (1.6 per cent v 1.3 per cent) and throughput.

– Cash costs of US$1.61 per pound for the quarter were in line with FSBe of US$1.60 per pound.

– Outokumpu is now operating at an annualised run rate of approx. 8ktpa copper, approx. 9.2kozpa gold and 1.8ktpa zinc. Management have provided updated guidance for FY13 of 6.5 to 7.0kt copper and 6.5 to 7.0koz gold at cash costs of US$1.40 per pound to US$1.60 per pound.
 
Roseby copper project (Queensland):

– Xstrata notified Altona that it will not exercise its option to acquire a 51 per cent interest in the majority of the tenements which comprise the Roseby copper project.

– The project is now fully permitted following the granting of three mining licences during the quarter.

Altona’s position is $19 million and the Credit Suisse debt facility of US$20 million has been fully drawn down.

Outokumpu exceeding expectations: We are impressed by management’s performance and delivery at Outokumpu to date, having steadily increased output since commissioning the Luikonlahti mill in early 2012 to now be producing at an annualised rate of approx. 8ktpa copper.

FY13 guidance has been lifted to 6.5 to 7.50 tonnes copper (FSBe 7.0kt copper) and, at forecast cash costs of approx. US$1.60 per pound, the operation should be generating approx. $30 million EBITDA per annum moving forward.

Management have also commenced studies to investigate the potential to expand output by 30 to 50 per cent, with results expected mid-2013.

Xstrata overhang now removed, JV or ‘go it alone’ scenario most likely development pathway for Roseby: Following Xstrata’s advice to Altona that it will not be exercising the option on Roseby, the company is now in a position to actively pursue a development pathway for the asset.

A number of development scenarios are being considered including a JV/asset sale with another corporate/strategic or a ‘go it alone’ scenario potentially based on a smaller scale or staged operation (and in turn refined/manageable capex).

With the copper price remaining strong and financing expected to be more readily available for projects of decent scale in 2013, we believe it is may be feasible for Altona to seek to raise finance (debt/offtake/equity) and retain majority exposure to the project.

A DFS was completed for Roseby in 2012 and highlighted a NPV of approx. $250 million based upon an approx. 39ktpa copper and approx. 17kozpa gold operation with capex of approx. $320 million and cash costs of US$1.73 per pound.

RECOMMENDATION: We retain our BUY recommendation and price target of 45 cents per share.

Image Resources (ASX: IMA)

Image Resources (ASX: IMA) is now advancing towards development of its high-grade mineral sand assets delineated within the North Perth Basin in Western Australia.

A resource upgrade at the key Boonanarring deposit (due in Feb 2013) is likely to further enhance the already robust economics outlined in the scoping study.

Image has now embarked on a ‘bankable’ feasibility study with first production targeted for late 2014.

After five years of exploration, Image Resources has now created a significant portfolio of high grade mineral sands projects within the North Perth Basin.

Following the successful outcomes of a scoping study completed in 2011, the company is now implementing a clear strategy to develop these assets with first production from the Boonanarring deposit possible by early 2015.

The recent $6.7 million capital raising (subject to shareholder approval) will be more than adequate to complete the necessary technical studies (as part of a broader feasibility study), the planned resource expansion drilling campaigns at Boonanarring and all company operating costs through to July 2013.

Initially, Image envisage construction of a 3.3 million tonnes per annum single mine and wet plant operation at Boonanarring.

This initial, relatively low capital cost project should then provide the operating platform and cash flow for the staged development of parallel mining operations at Atlas and the other projects, together with the construction of a more capital intensive Dry Mill, capable of producing finished products.

This strategy is not only attractive in terms of project economics, but will provide a quicker path to production at lower risk, with a significantly lower up-front capital requirement than would be the case if a Dry Mill is constructed initially.

North Perth Basin project

Image has a major land holding in the North Perth Basin (NPB) which comprises of a total JORC resource of 289 million tonnes at 2.9 per cent heavy minerals (HM) (for approx. 8.4 million tonnes of valuable Heavy Minerals).

Within this resource, the company has identified a ‘high-grade’ resource made up from seven nearby deposits which host a total of 52.9 million tonnes at 6.6 per cent HM for approx. 3.5 million tonnes of Heavy Minerals with over 90 per cent of the resource in the Measured and Indicated categories.

The seven North Perth Basin projects are:

Boonanarring (existing ML on part of the prospect) – First to be mined;

Atlas and Atlas South (MLA on part of prospect) – Second to be mined;

Hyperion;

Helene;

Red Gully (existing ML);

Gingin North (existing ML); and

Gingin South (existing ML on part of the prospect).

Recommendation: Speculative BUY


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

What the Brokers Say

Thursday, March 07, 2013

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

Luiri Gold Limited (ASX: LGM)

The current management team gained control of the Luiri Hill gold project in early 2011, following the Zambian Government cancelling the previous operator’s licence due to non-performance.

In order to satisfy the Government, Luiri Gold has warranted that it will achieve three key milestones by November 2013.

These are completion of a development plan, arranging project finance and commencing site works.

Against a backdrop of challenging markets for project finance, Luiri Gold is implementing a low risk strategy of commencing gold production at a small scale of 10,000 to 13,000 ounces per annum.

This should limit the initial capital cost to a relatively modest US$20 million.

Luiri Gold Limited (ASX: LGM) is focused on gold exploration in Central South Zambia where the company holds two Mining Licenses, 8074-HQ-LML and 14948-HQ-LML, that together cover 277 square kilometres.

The historical Dunrobin and Matala mine workings are within 8074-HQ LML that covers 31.6sqkm.

The company has a strong management team, supported by Coffey Mining for mining studies and resource estimation.

They are implementing a staged growth strategy, with low cost development of a modest sized operation at Dunrobin followed by incremental expansions supported from operational cashflow.

Infill and step-out drilling is expected to add to existing resources at Matala and Dunrobin of 568,000 ounces and 193, 000 ounces respectively.

A resource inventory of 10.53 million tonnes at average grade of 2.2 grams per tonne gold is a respectable start and provides a solid platform on which to build.

Luiri Gold has a Market Capitalisation of around $5.9 millio.

It has no debt and over $2 million cash, giving Luiri Gold an EV of around $4 million.

This appears very cheap given the company’s exploration success and proposed near term transition to producer status.

Recommendation: Speculative Buy

 

 

 

Rox Resources (ASX: RXL)  

Assay results from the first diamond hole at Camelwood delivered 11.4 metres at 2.93 per cent nickel from 282.6m, which included 6.4m at 3.8 per cent nickel including 2.9m at 4.66 per cent nickel.

The assay results compare favourably to the preliminary indications, which were 3.1m of massive to semi-massive sulphides from 282.8m followed by 2.9m of strongly disseminated sulphides.

The next four diamond holes have assay results pending.

Preliminary indications are promising, although the widths of semi-massive sulphides are relatively thin.

The best indication is in the most recent hole (MFED005) which intersected 1.7m of massive sulphides and 2m of disseminated sulphides from 384.6m.

Assay results from RC drilling were also reported with 1m at 2.48 per cent nickel from 126m and 3m at 1.82 per cent nickel from 118m.

RC drilling has been suspended for a week due to a rig breakdown whilst diamond drilling is ongoing but hampered by not being able to step out to the east because of an ungranted exploration license application, which should be sorted out within the next few weeks.

The assay results from the first diamond hole have exceeded expectations and displayed a nickel grade at the high-end of what we anticipated whilst the width of mineralisation is broader than initially indicated (11.4m versus visual indications of 6m).

Whilst follow-up diamond drilling has encountered lesser widths of semi-massive to massive sulphides, there is sufficient encouragement to suggest that Camelwood is a significant discovery.

We believe that the granting of the exploration license application to the east will facilitate the drilling of deeper and more targeted diamond holes.

This should also result in an additional diamond drill rig being deployed.

We retain our speculative buy rating with further assay results due in the next 2 to 3 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.

What the Brokers Say

Thursday, March 14, 2013

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

 

Lamboo Resources (ASX: LMB)

Lamboo Resources has a quality portfolio of graphite projects with significant exploration potential.

Newly acquired South Korean projects host existing JORC Resources, a ‘Mining Right’ and established infrastructure while at the company’s Australian based McIntosh project, a maiden JORC Resource is expected imminently, with substantial upgrades likely in due course.

The South Korean projects cover three different project areas, each of which were historically mined by open cut operations.

The three deposits have a combined JORC Resource estimate of 0.57 million tonnes at 7.5 per cent TGC (Total Graphite Content) and offer significant exploration potential.

Processing of the graphite ore is relatively straight forward as demonstrated by the historical operators who employed a simple flotation processing route to produce a large flake carbon-graphite concentrate on site.

A ‘Mining Right’ was recently granted over the Samcheock project paving the way for further exploration and potential early start-up of mining operations.

The McIntosh project (WA) has been assessed by over 12,200 metres of drilling and is set to imminently deliver a maiden JORC Resource estimate (targeting a 5 to 6 million tonnes at 5 to 6 per cent TGC) at just one of the five targets identified.

At ‘Target 1’, Lamboo has identified a 3.7 kilometre electromagnetic (EM) anomaly which has a strong correlation to the known areas of mineralisation.

Encouragingly, Lamboo has only drill tested approximately 10 per cent of this anomaly, highlighting the potential for substantial increases with further drilling.

Additional nearby targets demonstrate similar mineralisation characteristics and contribute to a combined 10km of prospective strike.

The outlook for graphite remains robust, buoyed by the growth in electric vehicle fuel cells and lithium ion batteries.

Demand from these sectors will likely keep graphite prices on an upward trend for the foreseeable future.

 Recommendation: Speculative BUY

 

 

 Wolf Minerals (ASX: WLF)

Wolf Minerals is in the final stages of securing finance to advance the Hemerdon Ball tungsten and tin project into production.

This is a major achievement and is testament to sound management and a quality project.

The EPC contract has now been awarded to GR Engineering with the expected time of construction and commissioning scheduled for 24 months.

Wolf Minerals is an ASX-listed (ASX: WLF) and AIM-listed (AIM: WLFE) emerging tungsten producer focused on the development of the world class Hemerdon Ball tungsten and tin project, located in Devon, SW England.

Hemerdon currently hosts a JORC resource of 401 million tonnes at 0.13 per cent tungsten trioxide (WO3) and 0.02 per cent tin, placing it as the third largest (known) tungsten deposit in the world.

A Definitive Feasibility Study (DFS), completed in May 2011, indicated robust economics based on a 3 million tonnes per annum operation over a 9.25 year life of mine.

Production is estimated at approximately 350,000 metric tonne units (mtu) per annum of a 65 per cent tungsten concentrate and a further approx. 450 tonne per annum of tin in concentrate at C1 costs of US$105 per mtu (after tin credits) versus the 2012 average APT price of US$387 per mtu.

The current mining reserves of 26.7 million tonnes at 0.19 per cent WO3 and 0.03 per cent tin are bound only by the constraints of the open pit limits as per the parameters of the granted ‘Planning Permission’.

Significant opportunity therefore exists to extend the mine life should approval for a larger open pit be sought in due course.

Based on the outcomes of the DFS, Breakaway estimates the total required CAPEX is approx. £130 million ($200M).

Wolf is completing documentation and conditions president for approx. $212M (raised through debt and equity) which should be sufficient to commission the mine.

Wolf will however be required to repay a US$75 million ‘bridging facility’ within 12 months of first draw down.

This would likely be accomplished via an equity placement with the top 2 shareholders already indicating support.

 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.

Thursday, March 21, 2013

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

Aus-American Mining Ltd (ASX: AIW)

New project and new direction

AIW has been given a new lease of life through an option to purchase a highly prospective volcanogenic massive sulphide (VMS) copper-gold-silver project in Arizona, USA.

New managing director Richard Holmes was instrumental in bringing the project into the company and will drive the company forward on this flagship asset whilst simultaneously divesting non-core assets to streamline the company.

AIW are currently undertaking their maiden drilling program on the project and so far have a very high success rate in intersecting both low grade halo and high grade massive sulphide core with grades up to 11 per cent copper, providing support for the exploration thesis.

We believe this is the start of a major change in the company and expect to see positive results from the maiden program leading to a maiden resource estimate later in the year.

Key Points
AIW are clearing the decks with respect to their diverse project portfolio, which until this point, has been dominated by USA based uranium assets augmented by an eclectic mix of Rare Earth Elements, speciality metals and gold. A new Managing Director and a new acquisition of a brown-fields, (mined on the early 1900 s) VMS style copper-gold-silver project sets the stage for a new direction.

In August 2012, AIW entered into an option to purchase agreement on two VMS (volcanogenic massive sulphide) copper-gold-silver projects in Yavapai County, Arizona. The option agreement was finalised in September 2012 and consists of a low up-front option entry payment with $2 million in payments over 3 years to get 100 per cent of the project.

AIW acquired an extensive data package on the two projects in October 2012. The package consisted of 83 drill holes (75 underground, 8 regional), geochemical, geophysical and geological data. The data package also included the original underground mine plans, underground sampling information and operational reports. This data has been used to help plan drilling and gain an early understanding of the geology and mineralisation.

AIW has set an exploration target at between 15 million and 20 million tonnes at a copper grade of between 0.6 per cent and 0.8 per cent and gold and silver credits of between 0.2 grams per tonne to 0.4 grams per tonne, and 15 to 30g/t respectively. This is based on the concept of lower grade open pittable resources. The higher grade massive sulphide lenses are seen as an upside case on the model.

So far seven holes from a 5,000m, 30-hole RC drilling program have had results returned, six of which have hit mineralised intervals, the best so far being 17m at 4.5 per cent copper equivalent in a down-dip, massive sulphide lens. The exploration model appears to be robust on the results published at this stage.

We believe there will be several catalysts in 2013, which will drive share price appreciation.

We will see the completion of the maiden program by April 2013 with follow up drilling leading to a maiden resource estimate. New anomalous areas have already been discovered leading to further potential and open ground pegged now gives AIW a 5 kilometre strike of prospective geology. AIW has a current market capitalisation of just $7.3 million.

Recommendation: Speculative Buy

Bannerman Resources Limited (ASX: BMN)

Ready, set, go! (just waiting for uranium prices to rise)

Bannerman Resource Ltd has a large (500 million tonnes) uranium deposit in Namibia called Etango.

The deposit is low grade (approx. 200 parts per million (ppm)) but has been extensively drilled and last year BMN completed a robust Definitive Feasibility Study (DFS) (reserve 280 million tonnes at 194ppm for 119 million pounds).

The management team is solid; with both the managing director and general manager qualified engineers and each with involvement at the nearby Rio Tinto Rossing uranium mine.

The DFS determined a 20 million tonnes per annum heap leach operation (recoveries approx. 87 per cent) and a sixteen year mine life.

Cash costs were estimated in the DFS to be US$45.70 per pound (closer to $40/lb in the early years).

Our model assumes LOM total cash costs of approx. $53/lb. However, capex is large. The DFS estimated capex of US$870 million (including owner operated mining fleet).

Time to production could fill market supply gaps

The uranium procurement procedures for nuclear utilities have long time horizons. Although there is a spot market, most traded uranium is via off-take because of product specifications, lead time to convert U308 into fuel, risks around securing supply (geopolitical and environmental) and costs if supply is disrupted.

This means utilities ensure they have multiple years of inventory visibility. Because of the immense forward planning, if a shortage of uranium eventuates, it is unlikely to be in the spot market. But, there is a very strong desire to secure outer year supply.

As an indication of this dynamic, Paladin Energy (ASX: PDN) recently needed to raise cash to repay convertible notes. PDN negotiated a $200 million pre-payment from EdF (a French utility) for delivery of approx. 14Mlb between 2019-2024 (with a cap & floor prices).

The fact that EdF pre-paid a significant proportion of the current implied contract value (approx. $650 million) six years ahead of delivery, to a partially distressed seller, indicates the importance utilities place on securing outer year supply.

The Etango project is well advanced with most of the work required to enter construction already complete. The lead time from decision-to-mine (which in theory could be made soon) to production is around 2.5 years and significantly ahead of other listed developers. This means that BMN could easily deliver uranium into the supply window that utilities focus on (3-5 years into the future) and hence is strategically attractive (the estimated lead time for typical mines is greater than 6 years).

Bannerman trades on an EV/resource lb of 12cents, diluted for capex it is approx. $4.70/lb.

Early to production + low grade + long mine life = U308 leverage

The DFS (24 May 2012) estimated a pre-tax NPV8 of $238 million and post-tax of $68.7 million (based on $75/lb U3O8).

We use a higher discount rate and therefore have a lower valuation.

The real upside for shareholders of BMN is based on rising U3O8 prices, particularly as the advanced stage of Etango means it can enter construction quickly. Using a long run price of $85/lb, we have a BMN valuation of approx. 100 cents per share.

Bannerman’s all-time high share price was $4.14 in 2007. Despite dilution since then, under very aggressive (but plausible) long term price assumptions (approx. $130/lb), a recovery to those levels is possible.

We initiate with a $0.18 price target with the speculative aspect emphasising U3O8 price risk.

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.

What the Brokers Say

Thursday, April 04, 2013

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

Troy Resources Ltd (ASX: TRY)

Troy’s friendly scrip-bid for Azimuth Resources (ASX: AZH) shows a degree of pragmatism that should hopefully be increasingly replicated in the small resources sector in our view.

Whilst prima facie the implied offer (approx. $188 million upon announcement) appears substantial, the market should recognise Troy’s track-record of value creation through frugal development of acquisitions.

Further, and in the context of the exploration upside potential offered by Azimuth’s tenure, it is reasonable to expect that this deal can realise substantial upside in time.

Troy brings a development skill set, cash and cashflow to realise development of Azimuth’s existing 1.6 million ounce at 3 grams per tonne West Omai resource.

We acknowledge that prima facie, the offer implied seems substantial; we believe that – particularly in the context of weak gold sentiment – Troy faces a “hard sell” to its existing shareholders.

However, we believe that this deal should ultimately be recognised for what it can realise for the company: It materially extends Troy’s group production profile and provides significant long term exploration potential.

In addition, we feel that the market should acknowledge Troy’s management has an excellent track record of realising substantial value from frugal capital developments.

We cite US$20 million paid for Casposo that should generate A$30 million in AT operating cash flow this FY, increasing to circa A$80 million next FY with the advancement of the underground development.

Similarly, Troy’s Brazilian operations – Sertao and Andorinhas – have both been profitable operations that have contributed to free cash flow that has maintained an annual dividend stream for the past 11yrs.

In addition, in-fill drilling in the short term should realise a maiden reserve (we anticipate circa 500koz) at West Omai.

As the Pre-feasibility Study unfolds, the market will have clearer optics on the economic parameters of a potential development of West Omai.

Noting Troy’s track record of low cost development execution, coupled with good exploration potential, we would expect upside value to the current share price to impute over the course of the year.

In assessing the valuation impact of the Azimuth acquisition, we have assumed staged development of West Omai, commencing from FY’15 at 1mtpa increasing to 1.5 million tonnes per annum from FY’17.

We assume staged capital expenditure of US$160 million on that basis, producing one million ounces over seven years at an average of 130,000 ounces per annum at US$720 per ounce.

It is reasonable to anticipate that Troy can achieve lower realised capex and may yet pursue a smaller initial stage 1 development (say 750ktpa) at a commensurately lower headline capex number.

On our numbers – depending upon timing – Troy has the capacity to self-fund development of West Omai.

Thus any requirement for additional debt or equity finance should be relatively small.

Our pro forma valuation of $2.75 (prev. $3.60) does not include any nominal exploration value for the remaining Azimuth exploration tenure.

Note that we have lowered our Casposo asset valuation by $30 million as a function of anticipated longer negative impacts of the prevailing in-country inflation.

Continued share price weakness represents a good medium to long term investment opportunity in a soundly run, profitable, dividend paying gold producer.

Recommendation: Buy
Price Target: $2.75/sh

Forge Group Ltd (ASX: FGE)

The recent sale of Clough’s shares in Forge has seen the latter’s share price fall by 10 per cent.

We believe it has presented an attractive buying opportunity into Forge.

The company reported one of the better mining service results last month, with an ensuing strong rally despite general nervousness concerning the markets and mining exposed stocks.

The market may think Clough’s decision means that it believes the best is over for Forge, and/or that any takeover premium that may have existed has now evaporated upon its exit from the register.

However, valuation and the balance sheet remain attractive.

Even assuming flat growth in FY14 vs FY13, the company is trading at 7.3 times PE.

 We think given the significant net cash position of $162 million (end December 2012) bodes well for Forge to undertake astute capital management.

Only about 25 per cent of the order book is exposed to iron ore, with two-thirds predominantly power sector work.

We believe a PE of 8 times on forward earnings is more appropriate which yields a valuation of $6.57, on which we base our price target.

Recommendation: BUY

Price Target $6.57

Goldminex Resources (ASX: GMX)

Goldminex Resources has a large and highly prospective portfolio of copper-gold exploration projects located in Papua New Guinea (PNG).

Exploration completed to date continues to highlight the potential for numerous targets to host large scale mineral deposits.

Goldminex Resources’ exploration portfolio has approximately 9,000 square kilometres of exploration tenure principally focused on the Owen Stanley Ranges in the south east of Papua New Guinea.

In July 2011, Goldminex signed a farm-in agreement with Vale, a wholly owned subsidiary of the second largest global mining company in the world, Vale S.A.

Under the Farm-in Agreement, Vale may earn a 51 per cent interest in copper and gold rights of six selected tenements within the Owen Stanley Range by sole funding US$20 million of project expenditure over a four year period.

The flagship project is Liamu which hosts 12 high priority prospects within an extensive intrusive complex and has significant potential to host large porphyry copper-gold deposits.

Geological and geochemical exploration to date has outlined an area in excess of 15sqkm shedding anomalous gold and copper in drainage samples.

A recent 3,292m (6 hole) diamond drill program intersected broad widths of low grade copper mineralisation.

While the grades intercepted are sub-economic, they do however indicate the system is mineralised and extensive.

The Kiki prospect (within the Liamu project area) is a high priority target which has been broadly defined by an airborne magnetic anomaly, geological mapping, alteration and elevated copper-gold geochemistry.

An IP survey was recently carried out over the Kiki prospect (results still pending) which will be used to define drill targets ahead of a likely drill program later in the year.

PNG is situated on the Pacific Rim and hosts numerous world class gold and copper projects including OK Tedi, Porgera, Lihir, Wafi and Hidden Valley as well as hosting some of the world’s largest mining companies such as Barrick, Harmony and Newcrest.

The Owen Stanley region is considered to be highly prospective and although exploration is at a relatively early stage, Goldminex has multiple prospects with large scale potential.

With an EV of just $0.9 million, Goldminex is significantly leveraged to exploration success.

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.

What the Brokers Say

Thursday, April 11, 2013

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.

What the Brokers Say

Wednesday, April 24, 2013

WHAT THE BROKERS SAY: This week we take a look at a Triple research treat from Seismic Research.



Carrick Gold (ASX: CRK)

Carrick Gold is aiming to commence mining gold ore during January 2013 from its Kurnalpi project (100 per cent CRK), within the larger KalNorth Field, which consists of four main projects that are all located within 50 kilometres of the gold mining town of Kalgoorlie in Western Australia.

Carrick has established a JORC‐compliant Reserve base of 103,000 ounces of gold across two open pits, from a global JORC-compliant Resource Base of over one million ounces of gold.

Carrick’s strategy is to commence the toll treatment of shallow oxide and transition ore, through one or more of the three nearby mills, to generate the cash needed to finalise a Feasibility Study on a Carrick‐owned‐and‐operated plant.

This plant would be strategically located to optimise the economics of a regional operation that would process ore from a number of deposits within Carrick’s projects.

This regional approach would be similar to the nearby Mount Monger project, owned and operated by Silver Lake Resources (ASX: SLR).

In addition to Carrick’s substantial Resource base of over one million ounces of gold, there is significant exploration potential within and external to the identified deposits.

The previous management even went so far as to release a Carrick global Resource of over 4 million ounces of gold.

This was before the recent addition of the Mt Jewell tenements, which increased Carrick’s Resources by 186,000 ounces of gold and added a significant amount of prospective exploration tenure.

Carrick’s current target is to increase its Resource base by 0.5 million ounces of gold per annum and to triple its Reserves by the end of 2012.

John McKinstry, Carrick’s relatively new managing director, is a specialist in mine development; with over 25 years’ experience with major companies including Normandy and Newmont.

John has also brought smaller gold mines to production before. In his previous role, as managing director of North Queensland Metals (ASX: NQM), John successfully developed, commissioned and operated the Pajingo mine in North Queensland, until NQM was taken over by Conquest Mining (ASQ: CQT).

Pajingo now forms part of the suite of assets held by Evolution Mining (ASX: EVN).

Recommendation: Speculative Buy



Venturex Resources (ASX: VXR)

Venturex Resources is aiming to commence producing copper and zinc, in concentrates, at its flagship Pilbara copper-zinc project (100 per cent VXR), located close to Port Hedland in Western Australia during the 2H of 2014.

Venturex has established a substantial JORC‐compliant Resource base containing in excess of 550,000 tonnes of copper‐equivalent within a number of high‐grade Volcanogenic Massive Sulphide‐type copper-zinc deposits.

Preliminary results from Venturex’s Feasibility Study suggest a low (C1) cash cost of $1.15 per pound copper‐equivalent.

While Venturex already has a substantial Resource base, there is exploration potential within and external to the identified deposits, in particular at the 35km of prospective, near‐surface mineralisation at the Whim Creek, Salt Creek and Liberty Indee Joint Venture areas.

Venturex is currently developing a drilling program to test down‐plunge extensions of the Evelyn deposit at Liberty Indee, the Salt Creek deposit and the Balla Balla prospect.

Venturex is also planning to drill test more regional targets within the broader Mons Cupri area.

The company recently finalised a strategic 15 per cent share placement with an ASX 300 gold producer that is operating in the Ashburton‐Pilbara region of WA, Northern Star Resources (ASX: NST).

NST invested $6.5 million and underwrote Venturex’s recent $4.5 million capital raising.

The companies have also entered into a Memorandum of Understanding to explore potential options for the joint‐development of the Pilbara project, which could result in significant costs savings for Venturex.

In addition to the Pilbara project, the company is exploring for large gold deposits in Brazil through its wholly‐owned subsidiary CMG Mineracao Ltda.

Out of the recent capital raisings, Venturex has allocated $1 million to explore its Brazilian assets.

The most‐advanced project in Brazil is Serre Verde (100 per cent VXR), which is currently awaiting the grant of exploration licences.

Serre Verde hosts VXR’s highest priority exploration targets.

Recommendation: Strong Buy



Estrella Resources (ASX: ESR)

Estrella Resources is a junior copper‐gold explorer primarily focused on developing its flagship Agustina copper‐gold project (100 per cent ESR).

The project covers an area of 18.5 square kilometres that is located approx. 90km northeast of the mining town of La Serena, in the prolific copper producing belt of central northern Chile.

Agustina is an advanced exploration‐stage project with ‘drill‐ready’ exploration targets.

The company is aiming to release a maiden JORC‐compliant resource at Agustina by the first quarter of 2013.

By developing a portfolio of copper‐gold projects in northern Chile (close to La Serena), Estrella is looking to emulate the success of other ASX‐listed companies, like Hot Chilli (ASX: HCH), but on an accelerated time frame.

By the point at which HCH had defined a resource, its share price had more than trebled.

This took over 16 months for HCH, while Estrella plans to get there in less than 9 months.

Estrella boasts a strong management team and Board. Dr. Jason Berton, the company’s managing director, is a specialist structural geologist with over 12 years’ experience.

On the ground in Chile, Estrella will be managed by Juan Pablo Vargas de la Vega, a Chilean national with over 10 years’ experience with Santos (ASX: STO), Rio Tinto (ASX: RIO) and BHP (ASX: BHP).

Julian Bavin, on Estrella’s Board, is a Chilean resident with over 30 years’ experience in mining, including eight years as Rio Tinto’s former Exploration Director for South America.

Juan Pablo’s and the Board’s local networks afford a sound position for Estrella to expand its asset portfolio on favourable terms.

Second in the development pipeline is the Venus project (100 per cent ESR), where the company has secured 46 exploration concessions, covering an area of 85sqkm immediately to the south of Agustina.

This area, where copper is currently being mined and processed on‐site by small‐scale artisanal (informal) miners, is seen by Estrella as a regional extension of the known mineralisation at Agustina.

The company is planning to start a field program at Venus in Q3 2012.

Recommendation: Strong 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.

What the Brokers Say

Thursday, May 02, 2013

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

 

 

Base Resources Ltd. (ASX: BSE)

Base is on track to begin commissioning the US$298 million Kwale mineral sands project in Kenya on schedule in Sept 2013.

Some US$196 million has been spent and funds are available for completion.

Key Points:
Base reported very good progress on construction at Kwale which is 71 per cent complete and rated one of the best undeveloped mineral sands projects in the world.

Its projected revenue to cost ratio of approx. 3.0x is amongst the very best and we assume commodity prices close to current levels.

Some US$196 million of the projected US$298 million capex has been spent and Base has US$108 million cash on hand and US$46 million yet to draw on its US$170 million debt facility.

We project $16 million cash at the low point in June 2014.

Commissioning is the next key hurdle and risk, in our opinion.

This risk can be significant for mineral sands but Kwale is planned as a simple dozer push mine like J-A and not a large-scale wet dredge project.

Timing:
Kwale is on schedule for production to commence in Q3 2013 with initial shipping in the Dec Q 2013.

We include a three-month buffer in our forecasts that may not be required.

We make no changes to our timing or forecasts at this time.

The dam wall was closed ahead of the wet season as planned and this was important because the wet season has begun and adequate water is required to run the process plant.

Funding:
Base is fully funded for its US$298 million spend but a US$20 million extension of the debt facility was added – to be sure.

We include some working capital in our total capex spend of US$308 million.

Cash of A$108 million as at March 2013 was down from A$94 million at Dec and debt drawn was US$124 million (US$52 million at Dec) with US$170 million total available in the facility.

Thus, a further US$46 million remains to be drawn in June and US $61m was spent in the March Quarter.

Recommendation: Speculative risk – price target AUD0.60

 

Aus-American Mining Ltd (ASX: AIW)

New high grade zones discovered

Key Points
Aus-American has released the latest batch of assay returns from its maiden drilling program at the Blue Bell VMS copper project in Arizona.

The results continue to show wide, high grade polymetallic intersections that build on the mineralisation discovered in the first seven holes.

The latest results better the first release and importantly, have potentially discovered a new, previously unrecognised high grade lens, with grades that better the historical mining grades from the 1920s.

The best intersection from the project so far – 17m at 4.6 per cent copper equivalent – has been returned in this second batch of assays.

Results from a further nine holes are expected in May. This will complete the program.

Aus-American is also about to start a VTEM geophysical survey over their entire land holding.

A Canadian based VTEM specialist has been contracted for this work.

The VTEM data collection and interpretation will be made simultaneously and we therefore expect a very quick turnaround once the VTEM has been flown.

We believe the VTEM survey could quickly establish the potential of the landholding.

The survey will utilise the existing mineralisation as a calibration aid in identifying new areas of mineralisation not exploited by mining in the early part of the 20th century.

Aus-American has set an exploration target at between 15 million and 20 million tonnes at a copper grade of between 0.6 per cent and 0.8 per cent and gold and silver credits of between 0.2g/t to 0.4g/t, and 15 to 30g/t respectively.

This is based on the concept of lower grade open pittable resources.

The higher grade massive sulphide lenses are seen as an upside case on the model.

Intersections reported so far support this model with DJC calculating that the weighted average grade of all reportable intersections is now at 1.1 per cent copper, up from 0.8 per cent copper before the release of the latest results.

Aus-American has stated its intention to strengthen the board through a search to find an executive chairman.

Jim Malone, who has been acting-chair, will step down from the position on the company securing a suitable candidate.

We believe there will be several catalysts in 2013, which have the potential to drive share price appreciation.

Aus-American has a current diluted market capitalisation of just $6.7 million and $1.5 million in cash.

We maintain our Speculative Buy on the stock.

What the Brokers Say

Thursday, May 09, 2013

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

 

NRW Holdings Ltd (ASX: NWH)

NWH has won a new contract for RIO Tinto (ASX: RIO) to provide earthworks on the Nammuldi project worth $180 million over 37 weeks and a $67 million contract (subject to FID) on the Roy Hill project.

These contracts help revive a depleted order book. The RIO work, whilst welcome, is later than we were anticipating (refer research March 25) and we are pulling back our 2013 forecasts to the lower end of guidance or $80.5 million.

2014 continues to be difficult to forecast and is very much leveraged to Roy Hill proceeding, which will not be news to anyone.

On balance we see 2014 earnings in the range of $70 million to $80 million provided Roy Hill proceeds and closer to $50 million if it doesn’t.

Nevertheless, NWH is now trading approx. at NTA, on a PE of 4.3x (low end) 2013 guidance.

Consequently, in our view, all but a catastrophic downgrade (refer below) is well priced.

Key Points:

• NWH has recently won a $180 million contract for RIO on its Nammuldi project, commencing May 2013 and lasting for 37 weeks.

• In addition, NWH won a $67 million contract to provide various earthworks around the Roy Hill mine (subject to FID).

• The market has responded consistent with its general lack of enthusiasm towards the mining services sector, and based on all but the most severe of sensitivities, NWH offers significant value.

• That said, delays in the award of the RIO work, together with possible further delays on a Roy Hill green light have resulted in us pulling back both 2013 and 2014 NPAT forecasts by approx. 7 per cent to $80.5 million in 2013 (from $86.7 million) and $73 million in 2014 (from $79.3 million).

• 2014 continues to be difficult to forecast, and without Roy Hill 2014 will prove a scramble, but the idea there is nothing to do seems overly pessimistic, particularly as by our estimation there is circa $600 million locked away as is (excluding Roy Hill entirely).

• Based on the current overhead structure, $600 million revenue wouldn’t generate much 2014 NPAT profit, however with depreciation running at circa $50 million per annum, still generates plenty of cash.

• That said, NWH, even in a challenging environment, will win further work in the normal course.

• In the meantime NWH trades around NTA and if it pays another 8 cents at the full year, will yield 13 per cent during 2013.

Recommendation: Buy

 Consolidated Tin Mines (ASX: CSD)

Consolidated Tin’s major shareholder Snow Peak Mining has now completed the acquisition of the ‘Kagara Central Region project’, which includes a one million tonnes per annum (Mtpa) processing plant and a highly prospective land package.

CSD is well advanced with a PFS assessing the economics of modifying the plant to process tin ore (sourced from the CSD’s flagship Mt Garnet tin project) at the plant.

Consolidated Tin (ASX: CSD) continues to make steady progress in its ambition of becoming the next Australasian tin producer, boosted by a strong relationship with Snow Peak Mining.

Snow Peak Mining recently paid $40 Million for the Kagara Central Region project, which includes a 1Mtpa processing plant and a highly prospective land package.

CSD has agreed to manage the re-commissioning of the 1Mtpa Mt Garnet processing facility (scheduled to re-open Sept. 2013) with ore to be initially sourced from the existing Baal Gammon and Balcooma/Surveyor mines, in return for a 10 per cent free carried interest in any short term profit made.

A pre-feasibility study is well underway (due for completion in Sept. 2013) assessing the economics of processing ore from Consolidated Tin’s Mt Garnet tin project at the Mt Garnet concentrator.

In its current configuration, the plant is not set up to process tin ore and as such, modifications to at least one of the existing 0.5Mtpa circuits will be required (at a fraction of the cost of constructing a stand-alone plant).

On the basis of a positive PFS, a JV company will likely be formed with Snow Peak and CSD each contributing their relative assets.

Each company will then contribute to funding on a pro-rata basis for any plant modifications and upgrades.

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.

 

What the Brokers Say

Thursday, May 23, 2013

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

Swala Energy Ltd (SWE: ASX)

Exposure to the prolific East African Rift System

Investment Highlights:

Early mover, partnered with quality operators. SWE is an oil and gas exploration company with a particular focus on Sub-Saharan Africa. SWE’s portfolio of assets consists of a 50 per cent interest in one onshore block in Kenya (12B), in which Tullow are partner and operator and an indirect 32.5 per cent interest in two onshore licenses in Tanzania (Pangani and Kilosa-Kilombero), partnered with ASX-listed Otto Energy (OEL: ASX).

Importantly, the Permits were secured well before the recent unprecedented level of industry activity. There are no available licenses along the tertiary rift in Kenya and Tanzania, with the only way for majors to enter the play being transactionally via M&A or farm in.

Leverage to the East African Rift System (EARS).

East African Rift System (EARS) is attracting significant industry attention and investment, with an estimated total of greater than  two billion barrels of oil discovered since 2006 by UK-listed Tullow Oil plc (TLW: LSE) at Lake Albert in Uganda exemplifying the potential of the region.

More recently 3 wells drilled for 3 discoveries in Kenya by Tullow have raised expectations that Kenya could potentially host billions of barrels of untapped reserves.

Unprecedented level of investment and exploration to provide news flow.

With an increase in industry interest and investment, the next phase of exploration in Kenya and Tanzania, consisting of 13 wells to be drilled in CY13, is predicted to lead to a significant increase in activity and discovery rates which could result in a sea change in valuation for companies with exposure to the EARS.

Early stage exploration indicators look promising.

All three of SWE’s permits exhibit early stage exploration indicators which have us excited about the company’s prospects.

Basins have been delineated on all three permits via aeromag; sedimentary basin depths have been identified to exist at an optimal level for oil source generation and potential hydrocarbon seepage have been identified coincidental with fault boundaries on each block.

Highly experienced and proven management with frontier exploration experience.

SWE’s board and management will consist of technical personnel with significant experience in onshore EARS. Members of SWE’s management have a proven track record having had success with Black Marlin Energy, which listed on the TSX in March 2010 and was taken over by Afren PLC in May 2010 for C$106.5 million.

Catalysts for CY13 include:

– Seismic survey at Tanzania commences June;
– Prospective resource at Tanzanian assets Q3CY13;
– Seismic Block 12B Kenya Q4CY13;
– 11-13 regional wells to be drilled, ongoing and
– Awarding of new licenses, ongoing

SWE has all the key attributes that we look for in a quality oil and gas exploration company which include a play type which has been relative de-risked, significant “blue sky” potential, high calibre management with a proven track record of delivery, an aggressive work program and tier one JV partners.

With an EV of approx. $10 million SWE is extremely leveraged to success and therein lies the opportunity for investors.

Recommendation
We initiate on SWE with a SPEC BUY recommendation and a price target of 40 cents per share .



Northern Star Resources (ASX: NST)

Northern Star Resources (ASX: NST) is producing gold from its flagship Paulsens underground mine in the Ashburton-Pilbara region of Western Australia. In the March quarter NST produced 24,633 ounces and remains on-track to reach its FY 2013 target of 100,000 to 115,000 ounces of gold, given its financial YTD output of approx. 75,000 ounces of gold.

Background: Paulsens acquisition

NST acquired the Paulsens mine for $40 million in July 2010 – a price that was repaid from the mine’s cashflow in less than seven months. Upon acquisition, the mine had a life of under a year.

The company has since increased the mine life to over 5 years, while increasing production and processing capacity.

Paulsens JORC-compliant resources have grown 485 per cent in two and a half years, from 129,000 ounces to 550,000 ounces, even after allowing for 200,000 mine depletion (grade has also increased 14 per cent to 5.7 grams per tonne gold).

Reducing costs and generating cash

At the start of 2011, NST moved Paulsens from a contractor-run to an ‘owner-operated’ model through its own mining services division. As a result, mining costs fell 36 per cent from $98.8 per tonne mined in Q1 2011 to $63.5 per tonne mined in Q4 2012.

This cost reduction, along with an increase in the tonnes mined and processed, has resulted in substantially increased cash flow.

The company expects to generate $65 to 85 million in surplus cash this calendar year – not bad for a company with an enterprise value (EV) of $243 million.

Due to these cost-cutting measures and low overheads, Paulsens had cash costs (C1) of $601 per ounce in Q1 2013 and total costs of just $935 per ounce (including royalties, sustaining CAPEX, mine exploration and corporate costs).

Even at the current spot price ($1424 per ounce) these low costs result in margins of $489 per ounce, or approx. 34 per cent.

Earnings growth and yield support

In line with its strategy of creating a business first, miner second, NST has made capital return to shareholders its priority.

In September 2012, the company paid a maiden fully-franked dividend of 2.5 cents per share, and has since declared an interim dividend of 1 cent per share.

At a share price of 72.5 cents, these dividends equate to a fully-franked yield of 4.82 per cent or 6.9 per cent, including 1.5 cents in franking credits.

With strong free cashflow and a substantial cash balance of $58 million, NST has scope to increase dividend payments; an outcome we view as likely.

Will the good times continue?

Paulsens has sufficient JORC-compliant reserves (204,000 ounces gold) to support a +2 year mine life and JORC-compliant resources to support a +5 year mine life.

Recent drilling has substantially increased the Paulsens resource, while step-out drilling has identified numerous targets to follow up outside the current mining area.

We expect the resource upgrades and mine life extensions at Paulsens to continue.

And now for the blue sky…

In addition to Paulsens, there is the potential to develop the Ashburton, located around 200km southeast of Paulsens, as a stand-alone project.

Ashburton, which produced 340,000 ounces gold at 3.3g/t gold between 1998 and 2004, hosts a 1.7 million ounce gold resource. Studies are well underway for a stand-alone 100,000 ounce per annum gold operation.

In our opinion, the current share price assigns little value to the Ashburton project, but considering management’s track record of finding underpriced assets and developing them into cash generating mines, we feel it should be ascribed more value.

The recent drop was overdone

With the recent drop in the gold price, it is justified that NST has come off, but we feel that the drop was overdone.

At the current spot price, NST is still running at an operating margin of around 34 per cent ($489 per ounce).

Based on our analysis, NST’s earnings this year have already surpassed last year’s by 30 per cent, with a quarter in hand.

Despite this, NST still trades at a price-earnings (P/E) multiple of less than 10, putting the company firmly in undervalued territory.

Given the potential for further earnings growth, mine life extensions and higher dividend payouts, we believe NST has a very positive outlook for the rest of the year.

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

What the Brokers Say

Thursday, June 06, 2013

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



Adelaide Resources (ASX: ADN)

Adelaide Resources is currently advancing exploration at the Alford West prospect within the Moonta project area.

Broad widths of high grade copper and gold mineralisation have been intersected at shallow depths, highlighting the prospectivity of this target.

Follow up drilling is now underway and with only 10 per cent of the anomaly drill tested, significant opportunity exists for further high grade results.

Adelaide has an EV of $13.2 million and is highly leveraged to exploration success.

In a market where exploration companies are receiving little attention, Adelaide Resources (ASX: ADN) stands out as delivering material exploration results with all the hallmarks of discovering a significant copper/gold deposit.

Adelaide’s recent focus has been on the Moonta region which has a rich history of mining with an estimated 355,000 tonnes of copper and approx. two tonnes of gold extracted by the old-timers.

Some of the world’s more significant mining houses have since undertaken extensive exploration in the area looking for major copper/gold deposits, and while unsuccessful in this endeavour, numerous high priority (smaller) prospects where identified.

Adelaide Resources has an extensive exploration data base from the early explorers and is undertaking shallow drilling campaigns to test the historical prospects.

The most exciting of these prospects is Alford West where the company’s first drill program recently intersected 20m at 4.2 per cent copper and 0.27g/t gold from 32m and 45m at 1.55 per cent copper and 1.81g/t gold from 15m, with mineralisation present to the end of the hole.

Breakaway is highly encouraged by these high grade shallow intercepts, and the fact that every traverse of the Alford West drilling campaign has intercepted ‘ore grade’ copper/gold mineralisation.

With only 10 per cent of a three kilometre geochemical anomaly now drilled, significant opportunity exists along strike and at depth to establish a significant ore body.

Breakaway recommends Adelaide as one of the better explorers with early but promising results.

Recommendation: Speculative BUY



Cabral Resources (ASX: CBS)

Cabral expanded its footprint in the Sincora area to approximately 1,195 square kilometres with the lodgement of sixteen new tenement applications lifting its total landholding in Brazil to 1,782sqkm.

Low-contaminant, high-grade direct shipping ore (DSO) hematite iron occurrences have been identified in the newly-named Queixada and Coral Zones from assays of surface samples, raising the prospect of near-term production and cash flow generation.

Queixada and Coral Zones – positive assay samples

Exploration work at the recently pegged Sincora Area has identified a new high-grade hematite zone to the north along the Tombador formation, namely the Coral Zone; and additional new high-grade DSO hematite iron ore occurrences at the central zone, named Queixada, which now spans an area of 3km by 2km.

Dual infrastructure option available

Cabral’s Sincora Area is well situated to the currently operating FCA rail line, which passes directly within the tenement holding en route to Port of Aratu on the coast near Salvador.

Sincora is also in close proximity to the FIOL rail development, 30km away, which is scheduled for completion in 2015/16.

Valuation: Focusing on DSO hematite

Cabral’s shares are currently trading at 2.3 cents per share which equates to an enterprise value of $0.12 million, based on cash of $6m (2.4 cents per share) as at 31 March 2013.

This compares with a net asset value (NAV) per share of 7.9 cents, based on financials reported for the interim period end December 2012.

Although a JORC-compliant resource has yet to be reported, Cabral is well positioned in terms of proximity to existing and planned infrastructure.

Initial surface samples now from two sites on the newly pegged Sincora Area augur well for the potential delineation of a high-grade DSO hematite resource.

Using a subgroup of peers focused on DSO hematite generates an average EV/t multiple approaching 12 cents per tonne, which, when applied to our three hypothetical resource scenarios, generates an implied share price for Cabral of between 5 cents and 7 cents.



Venturex Resources (ASX: VXR)

Venturex Resources has validated its recent strategy change to focus on exploration in 2013 with positive results from Kangaroo Caves.

This confirms that exploration upside may provide further Reserve scale as part of the ongoing assessment of the feasibility study.

VXR remains highly leveraged to exploration success.

Kangaroo Caves drilling results validate exploration strategy: A shift of strategic focus towards exploration in 2013 has yielded positive results from Kangaroo Caves (KC) with the extension of copper and zinc mineralisation.

KC provides upside for a future revision of the Sulphur Springs (SS) feasibility study given its proximity to SS and the improving grade trend.

Grades of up to 4 per cent copper and 9.3 per cent zinc have been defined within discrete zones and structural offsets which present an opportunity to identify additional mineralisation.

Key results include:

• KRC007 6m at 0.6 per cent copper, 9.3 per cent zinc, 7.3g/t silver from 137m from 154m;

• KRC007 4m at 2.6 per cent copper, 0.8 per cent zinc, 2.8 g/t silver, 0.02 g/t gold from 165m; and

• KRC008 5m at 4.0 per cent copper, 0.2 per cent zinc, 3.3g/t silver, 0.01 g/t gold from 143m.

$4 million earmarked for exploration in 2013: Proceeds of the current $6.4 million capital raising (together with current $2.2 million cash) will be weighted towards brownfields and greenfields exploration at both SS and Whim Creek (WC).

This forms part of the enhancement program to increase the modest Resource/Reserve base that underpinned the 2012 feasibility study.

VXR has identified near-term targets which include geophysical targets at Liberty Indee, Salt Creek and additional exploration at KC.

Enhancing the feasibility study: The study provided a ‘base case’ for a production scenario moving forward.

Argonaut’s valuation confirms that increasing the current mine life beyond approx. 8.5 years (based on a one million tonnes per annum operation) is a key lever to NPV accretion.

Whilst SS is the current ‘centre of gravity’ based on existing Reserves, new discoveries at SS or WC may change this outcome.

Brazil exploration remains measured, without being a distraction: Whilst VXR’s Brazilian gold exploration projects offer a second angle for VXR’s strategy, exploration will be limited in 2013 with a budget allocation of around $200,000.

The assets offer strategic appeal and joint venture partners are being sought to continue exploration.

Recommendation: Speculative buy maintained.

Argonaut’s valuation has been reduced to 3.5c (was 4.5c) based on a pre-production peer average EV/Resource pound metric of US3.1 cents per pound.


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

What the Brokers Say

Thursday, June 27, 2013

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

 

 

Great Western Exploration (ASX: GTE)

Great Western Exploration recently executed a 50:50 Joint Venture agreement with Kazakhstan’s state owned mining company Tau-Ken Samruk (TKS).

This Joint Venture paves the way for a period of active exploration in a highly prospective, previously explored region.

The Joint Venture encompasses the 12,500 square kilometre Spasskaya project which hosts 120 historical copper prospects.

In the 1970’s, the Soviets conducted extensive, albeit incomplete, exploration on eight ‘high-priority’ sites.

Wide zones of ore grade and predominantly oxide mineralisation were intersected at all eight locations with widespread outcropping mineralisation evident at four locations.

Based on historical exploration results, just these eight projects have an exploration target of between 69 to 173 million tonnes grading approx. 1.10 per cent copper for approx. 750,000 tonnes and 2 million tonnes of contained copper.

Under the terms of the JV agreement, Great Western will earn its 50 per cent interest by sole funding the exploration phase and 50 per cent of the Bankable Feasibility Study.

Great Western has commenced a 2,500m maiden drill program aimed at testing the reliability of the historical Soviet exploration data.

Should the historical work be deemed reliable, resource definition drilling campaigns will then commence.

Great Western also has a quality portfolio of early stage, Australian based, exploration projects including the newly formed JV with Xstrata Glencore.

This JV incorporates the Cunyu project with Great Western’s existing Doolgunna project, creating a prospective tenement package of approx. 3,300sqkm.

Recommendation: Speculative BUY

 

 

Corazon Mining (ASX: CZN)

Top Up Rise – Copper Mineralisation Intersected

Corazon Mining Limited has intersected copper sulphide mineralisation (chalcopyrite) in the first diamond hole drilled into the Top Up Rise (TUR) gravity anomaly, Gibson Desert, Western Australia.

The copper exists in form of disseminated sulphide blebs over a drill interval from approx. 229m to 275m (approx. 46m).

The presence of copper mineralisation is potentially significant given the drill hole is located on the margin of the primary target (main part of the gravity anomaly).

However, the copper mineralisation intersected (to date) makes up less than 1 per cent of the overall rock mass (visual estimate), which implies generally low grade mineralisation.

The mineralisation is hosted in highly altered and deformed rocks (potentially mafic sediments) or volcanic origin.

The gravity anomaly (high) is still yet to be explained and more priority targets are now being drill-tested.

On current timing we would expect assays in late July 2013.

Large Gravity Anomaly Still Yet to be Explained

Corazon has an option to earn up to 75 per cent interest in the TUR project.

The project covers a large amplitude gravity anomaly (TUR anomaly) which has the characteristics of an iron oxide copper gold (IOCG) system, covering an area of 10 kilometres by 6 kilometres.

When comparing the TUR gravity anomaly to the gravity anomaly over Olympic Dam (IOCG deposit) it has similar size dimensions but TUR has a higher residual gravity response.

Due to the physical size of the TUR anomaly we are certainly encouraged by the reports of copper mineralisation so early into the exploration drilling program.

We remain hopeful that higher grade mineralisation will be encountered as higher priority targets within the gravity anomaly continue to be systematically tested.

Priority One Target now Being Drill-Tested

The drill information collected by Corazon will be used to reprioritise and adjust target ranking and drill hole positions as the program progresses.

The rocks intersected (to date) have not explained the gravity anomaly, but significant alteration and sulphide mineralisation (minor copper) within the bedrock is promising for more mineralisation to come.

Corazon is now drilling a diamond hole to test a ‘priority one’ target located some 3km to the southeast of the first completed diamond hole.

The target depth of the anomaly is interpreted to be closer to surface than the completed hole and RC drilling has now been completed to a depth of approx. 283m and a diamond tail is planned to be drilled to a depth of approx. 350m.

Cheap Option on Potentially Significant Upside

The TUR project is a highly speculative ‘greenfield’ play that could have massive upside.

The intersection of copper mineralisation, so early into the first-pass drilling program is a great result, though at this stage we would expect only low copper grades to be reported.

It is ‘proof of concept’ that mineralisation (copper) is present within the system.

The company is funded for the current drilling campaign.

With drilling ongoing to explain the gravity high, we continue to recommend Corazon as a Speculative Buy.

Disclaimer: The Roadhouse holds shares in Corazon Mining

 

 

 

Ascot Resources (ASX: AZQ)

Ascot Resources is an ASX-listed, Colombia-focused coking coal developer.

The company’s flagship asset is the Titiribi coal project in western Colombia.

Ascot Resources has completed a first phase drilling program at Titiribi; this returned some encouraging coal quality data that indicates coking coal at the project.

Preliminary results indicate that a semi-soft, high volatile coking coal could be mined at Titiribi.

The coal is likely to be relatively high in sulphur (although this is likely to be confined to certain seams), but exceptionally low in phosphorous; the latter quality is likely to be desirable to customers.

Drilling intersected some 25 coal seams with thicknesses varying from 0.3m to 13m.

Coal is reported to show good continuity across the project, with three seams (the thickest at 5m) likely to form the bulk of any future resources.

The seams are steeply dipping and likely to produce a profitable 250,000 to 750,000 tonnes per annum.

The project is located close to a sealed highway that is linked to both Atlantic and Pacific ports.

The coal is likely to be in demand in Brazil and/or Peru as well as domestically.

Management has done this before: MD Andrew Caruso and project director John Malysa have experience in mining steeply dipping coal seams.

Titiribi looks set to be a low capital project in a region with few barriers to entry in the junior coal space.

Ascot does not plan to wash the coal and this has resulted in relatively low capex.

Anticipated margins are expected to provide a healthy operating profit.

Titiribi is likely just a foothold in the country, with Ascot having plans to grow through future acquisitions in Colombia.

We see Colombia as a good mining investment environment.

The country is the fourth largest coal producer globally, and was recently ranked the seventh most attractive country in the world for mining investment.

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.

What the Brokers Say

Thursday, July 04, 2013

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

Tungsten Mining (ASX: TGN)

Tungsten Mining is a tungsten-only explorer that is primarily focused on developing its high-grade Kilba project (100 per cent), located in the Gascoyne region of Western Australia.

Kilba represents a high-grade, near-surface exploration target of 1.2 to 1.4 million tonnes at 0.6 to 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 0.8 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 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 p.a. in revenue at the current tungsten concentrate price.

Recommendation: Speculative BUY

Decmil Group Limited (ASX: DCG)

Earnings risk now skewed to the upside

Decmil Group announced it has won a $137 million contract for the construction of a village on Manus Island in Papua New Guinea (PNG) for the Australian Department of Immigration and Citizenship.

Commencement on site is due this month, with anticipated completion by 31 January 2014.

The contract brings the FY14 construction order book to a solid level, such that no more work needs to be won for FY14 to meet implied market expectations, in our view.

Visible contracting revenue for FY14 of $390 million

We estimate that the FY14 construction order book is now approx. $250 million (excluding the $71 million Roy Hill contracts).

We still expect EDE to contribute at a minimum $140 million of revenue, and hence we believe there is visible revenue for contracting of $390 million. Hence we are very comfortable with our contracting revenue estimate for FY14 of $440 millon.

As a reminder, we assume increasing EBITDA margin assumptions for construction. While this could sound counter intuitive to some, there is sound reasoning. Our gross margins assumptions are approx. 15 per cent, but we expect a considerable reduction in divisional overhead expenses (from a peak of aprox $28 million per annum back to approx. $9 million per annum – more akin to FY07 levels).

The divisional overhead had been rapidly increasing as a result of skills shortages (ie carrying the expense of a latent pool of project managers) and the rising tendering costs (cost inflation, the number of tenders and the complexity/size of tenders).

With the lower industry pipeline of projects, we expect the divisional overhead to fall significantly and, in the short term, DCG should be able to retain this margin improvement.

Hartleys expects FY13 EBITDA of $67.5m, FY14 $77.4m

Our headline earnings estimates barely changed. For FY13, we expect NPAT of $43 million (reported NPAT $63.9 million) and have increased our final dividend estimate to six cents per share (from four cents per share).

We are more conservative on our debtor assumptions though and have reduced our net cash estimate at June 2013 to approx. $35 million.

We expect FY14 EBITDA of $77.4m and NPAT of $47.3m.

Maintain Buy recommendation

We value the Queensland village at approx. $1.20 to $1.60 per share (depending on one’s EBIT multiple assumptions and the depreciation in the village).

We value the combined construction and EDE contracting business at $1.58 (based on approx. $440m of perpetual revenue and a 6x EBIT multiple).

Combined with annual estimated overheads of approx. $11 million per annum and the cash on the balance sheet, we value DCG at approx. $2.76 on a multiple basis.

We see an additional approx. 50 cents of upside from better than expected contracting and another approx. 80 cents if the company secured another owned and operated 1,000 man village at cost (for example the final stage of the Gladstone village).

We have a twelve month price target of $2.96 and maintain our Buy.


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

What the Brokers Say

Thursday, July 25, 2013

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

Auroch Minerals (ASX: AOU)

Auroch Minerals has now bedded down the acquisition of the 3 million ounce Manica gold project and is steadily advancing towards its first production target of early 2015.

A recently completed scoping study indicates attractive economics centred around initially mining the non-refractory and transition zones of the deposit to produce approx. 40,000 ounces of gold per annum.

 The Manica gold project is an advanced gold exploration play with an established JORC Resource of approx. 50 million tonnes at 1.83 grams per tonne gold for approx. 3 million ounces of gold at three deposits with mineralisation reported to be open at depth and along strike.

Approx. 85 per cent of the resource is hosted within sulphide ore zones (refractory) while the remaining approx. 15 per cent of the resource is hosted within free milling, transitional or oxide ore zones (non-refractory).

The 42 square kilometre granted mining licence is valid for 25 years and is well serviced by existing infrastructure such as telecommunications, local airport, roads, rail, power and water.

Auroch Minerals recently completed a Scoping Study assessing the technical economic viability of initially mining and processing the non-refractory and transitional component of the resource (approx. 5 million tonnes at 2.23g/t for 380,000 ounces of gold).

The Scoping Study indicates robust economics based on a 720,000 tonnes per annum plant processing ore at an average head grade of 2.23g/t gold for approx. 40,000 ounces per annum.

Cash operating costs have been estimated at approx. US$643 per ounce (excluding CAPEX and before tax, depreciation and royalties) against a current gold price approx. US$1,220.

The company is now set to embark on a Definitive Feasibility Study and is targeting first production as early as Q1 2015.

Red Mountain Mining (ASX: RMX)

Established resources with immediate high grade upside.

While the appetite for speculative investment has waned over the past 12 months, Red Mountain Mining (RMX) possesses many of the key ingredients for a highly-leveraged investment.

The company’s Batangas gold project is located in a prospective region of the Philippines and will be the developmental focus for RMX going forward.

The project has a current JORC resource of 5.8 million tonnes at 2.2 grams per tonne gold for 408,000 ounces of gold and with a number of high grade, near-surface targets identified, the potential to grow the resources base is high.

With the market currently attributing little value towards the company’s asset portfolio we see potential upside for risk tolerant investors.

Batangas – a number of high grade targets.
Considering the modest drilling budget, we see it as prudent that RMX drill its highest grade targets in an effort to garner new shareholder enthusiasm about the story.

The Lobo project (194,000 tonnes at 7.2g/t for 45,000 ounces of gold) offers a number of extensional and parallel drilling targets that look highly prospective.

We expect the next phase of drilling to target the Pica and Japanese Tunnel prospects that collectively possess an Exploration Target of 45 to 120,000 ounces of gold equivalent.

Archangel could be the base load.
With a current resource of 5.5 million tonnes at 2g/t for 363,000 ounces of gold the Archangel project is a larger scale development opportunity.

In the near term, RMX is aiming to complete a scoping study demonstrating the Bantangas project as a viable development proposition.

Conceptually we envisage Archangel serving as the base load ore supply topped up with higher grades from Lobo.

Philippines a solid jurisdiction to operate.
The Philippines has a well-established history of mining and is governed under a US based democracy.

The country was recently upgraded to investment grade by Standard and Poors from BBB- to BB+ which will make future financing of development projects more competitive.

Pending outcomes of the Executive Order 79 will likely increase royalty rates but should also improve the regulation and sustainability of mining in the country.

Funded – for now.
The recent rights issue has seen RMX’s cash balance increase to approx. $1 million, which is enough to fund a modest drilling campaign and potentially a scoping study.

We believe securing additional funding is the biggest challenge facing the company in the near term.

Alternative routes to further equity placement include selling down at the project level or a JV, either of which may be favourable outcomes for RMX.

Cheap on an EV/Resource metric.
With a 408,000 ounce JORC resource RMX is trading on an EV/Resource of $3.70 per ounce compared to a peer average of $25 per ounce.

Catalysts.
1) Successful upcoming drilling campaign.
2) Resource upgrades at Lobo.
3) Scoping study outcomes.
4) Clarity on future funding.


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

What the Brokers Say

Thursday, August 01, 2013

Interesting news and views from across the Resource Analyst universe.

Wolf Minerals (ASX: WLF, AIM: WLFE)

Wolf Minerals has secured finance and development of the Hemerdon Ball tungsten-tin mine is now underway.

GR Engineering Services has been awarded the fixed term, fixed price contract which should see the 3Mtpa processing plant ‘production ready’ within 24 months.

Wolf Minerals continues to make steady progress towards the redevelopment of the world class Hemerdon Ball tungsten and tin project.

The company has now secured a $212 million funding package and has engaged GR Engineering Services to commence development of a 3 million tonnes per annum processing plant, plus associated infrastructure.

The plant will be delivered as a fixed term (24 months), fixed price (£75 million) contract with first production scheduled for mid-2015.

The $139 million (£85 million) mining contract was also recently awarded to CA Blackwell who are expected to commence pre-strip and mine development by March 2014.

Hemerdon hosts a JORC resource of 401 million tonnes at 0.13 per cent tungsten and 0.02 per cent tin, placing it as the fourth largest (known) tungsten deposit in the world.

A Definitive Feasibility Study (DFS), completed in May 2011, indicated robust economics based on a 3 million tonnes per annum operation over a 9.25 year life of mine.

Production is estimated at approx. 350,000 metric tonne units (mtu) per annum of a 65 per cent tungsten concentrate and a further approx. 450tpa of tin in concentrate at C1 costs of US$105/mtu (after tin credits) versus the current APT price of US$417/mtu.

The current mining Reserves of 26.7 million tonnes at 0.19 per cent tungsten and 0.03 per cent tin are bound only by the constraints of the open pit limits as per the parameters of the granted ‘Planning Permission’.

Significant opportunity exists to extend the mine life should approval for a larger open pit be sought in due course.

Papillon Mining (ASX: PIR)

A world class asset where the gold mid-tiers play
The Fekola project’s 4.21 million ounce resource at 2.38 grams per tonne meets the American Geosciences Institute’s definition of a world class gold deposit (i.e. greater than 3.2 million ounces).

Fekola has a 10 to 12 kilometre strike length in a 25km corridor with thick mineralisation open along strike and at depth.

Papillon has 1,460 square kilometres of tenements within the Birimian gold belt in SW Mali bordering Senegal.

Whilst gold grade of around 2 to 3g/t has been discovered to date recent drill results have shown potential of 4g/t at 75 metres.

The project has ready access to water and is within proximity to established infrastructure (i.e. 50km south of the Millenium Highway with Dakar 700km to the west and Mali’s capital, Bamako, 400km to the east).

Conventional mining and processing
The Fekola project purports to be delivered cost effectively via an open pit mining and conventional gravity gold-CIL processing method.

The PFS supports production of over 300,000 ounces per annum at low C1 cash costs of US$580 per ounce (all-in sustaining costs of US$725/oz) and an initial mine life of 9 years.

Leading with relevant West African experience
Mark Connolly (CEO) has experience in building and operating an initial 100,000 ounce mine in Ghana for Adamus Resources as its CEO, and later as group COO after its sale to Endeavour Mining in November 2011.

We value Connolly’s prior West African experience given Fekola is a start-up in a relatively high risk country.

 


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

What the Brokers Say

Thursday, August 15, 2013

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

Peel Mining (ASX: PEX)

Peel Mining is an exploration company focused on projects located within Australia and New Zealand.

The most advanced project is Gilgunnia (PEX 50 per cent, CBH Resources earning 50 per cent) which is located within the Cobar Superbasin in central New South Wales.

The project encompasses two licences areas; ML 1361 which hosts the historic May Day polymetallic deposit and EL7461 which hosts the ‘Mallee Bull’ polymetallic deposit and the ‘4-Mile’ goldfield (comprising approx. 60 historic shafts).

At Mallee Bull, recent drilling has intersected multiple broad widths of high grade mineralisation including 84 metres at 4.42 per cent copper, 38 grams per tonne silver, 0.14g/t gold.

The orebody is interpreted to be open in multiple directions with ongoing exploration set to test possible extensions of the known mineralisation whilst also targeting the immediate area for potential new discoveries.

Peel also has a 100 per cent interest in approx. 3,000 square kilometres of exploration tenements within the Cobar Superbasin.

Two early stage prospects; Mundoe and Sandy Creek, exhibit similar geochemical and geophysical characteristics to Mallee Bull when it was at the same stage of exploration.

Polymetallic mineralisation has already been intercepted at both prospects with follow up drilling campaigns planned for the near future.

Peel Mining also has a strong pipeline of exploration projects prospective for silver, tungsten and gold, all at various stages of advancement, bringing welcome diversity to the portfolio.

The Cobar Superbasin project encompasses approx. 3,000sqkm of highly-prospective tenure and hosts numerous early stage and developed prospects.

The most advanced is the Mallee Bull prospect which is a shear hosted, steeply dipping ‘shoot like’ polymetallic deposit where recent drilling has intercepted some impressive results including 84m at 4.42 per cent copper (including 26m at 11.39 per cent copper) and 53m at 4.08 per cent copper.

Encouragingly, the grade of the mineralisation appears to be increasing at depth as well as still being open in multiple directions.

The Mallee Bull prospect is located within EL 7461 and together with the historic ML 1361 form the Gilgunnia project.

In May 2012, Peel entered into a staged farm-in agreement with CBH Resources where by CBH could earn up to a 50 per cent interest in Gilgunnia by spending a total of $8.33 million.

CBH has spent $5 million to date and recently agreed to spend a further $3.33 million (over the next 12 months) to move to a 50 per cent interest.

The CBH cash injection will provide the necessary funds to continue exploration around the Mallee Bull deposit.

Ore bodies of this nature are often ‘stacked’ and as such, Peel (and CBH) aim to concentrate exploration (geophysics/geochemical/RAB drilling) within the immediate area of the deposit.

Peel will also continue the testing of a large and highly prospective ‘off-hole’ EM anomaly identified at Butchers Dog (approx. 1km north of Mallee Bull).

 


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

What the Brokers Say

Thursday, August 22, 2013

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


Aurizon Holdings Limited (ASX: AZJ)

FY13 result in line–with dividend surprise.

On Monday 19 August 2013 Aurizon management announced FY13 underlying EBIT of $754 million, up 29 per cent on the pcp, and largely in line with our expectations of $756 million.

The FY13 underlying NPAT was $487 million against our forecast of $485.2 million.

A final dividend of 8.2 cents per share was declared (pcp 4.6cps, forecast 7.0cps).

Investment case

While the result was largely in line with expectations, the higher dividend and commitment to a higher payout ratio were key positives. With increasing confidence in the transformation of the business, we see the next key catalysts for the stock as being the delivery of further growth initiatives, coupled with the potential partial sell down of the CQCN.

Outlook

Management has provided coal haulage guidance of 200 million tonnes to 205 million tonnes, or an increase of 3.2 per cent to 5.8 per cent on FY13. While modest, this growth is despite the loss of some Rio Tinto contracted tonnes to Asciano in November 2013. Consequently, we consider this a solid volume growth. Management also confirmed they have seen coal volumes continue to improve in August, following strong growth in July.

Commitment to timing of cost saving delivery

Management have given guidance of $90 million of cost savings of the $230 million total will be delivered in FY14, with the remaining $140 million-plus to be achieved in FY15. We see the market as increasingly confident in the delivery of the 75 per cent operating ratio, particularly with the scope to materially reduce labour costs, which is the largest contributor to the $230 million cost savings.

In our view, the announced timings are positive as they give further confidence in the delivery by management.

Earnings changes and valuation

We have made minor composition changes to forecasts in the forecast period. Consequently, our valuation and 12 month target price remain unchanged at $5.00 per share, giving a Neutral rating.

 

Citation Resources Ltd (ASX: CTR)

Citation Resources has an approx. 60 per cent working interest in block 1-2005, located onshore Guatemala in the prolific South Peten Basin.

The company recently flowed 37 degree API oil from its Atzam #4 well at an equivalent rate of greater than 1,000 barrels of oil per day.

Current production is restricted to 140 barrels per day due to storage constraints.

Several prospective zones remain untested.

Resource potential for Atzam is estimated at 20 million barrels (gross).

Fiscal terms in Guatemala are favourable, with operating netbacks of approx. 50 per cent of WTI.

The company is scheduled to spud a follow-up well, Atzam #5, in September 2013 and may also work-over two wells at the Tortugas Salt Dome, which flowed at historic rates of greater than 1,500 barrels of oil per day and proven 2P reserves of 0.6mmbbl have been certified.

Atzam – 20mmbbl Potential:

The 600bopd achieved on test at Atzam #4 was from a secondary target, with several other (potentially more) prospective zones remaining to be tested or behind pipe.

The implication is that the excellent result to date is just the tip of the iceberg.

An historic Independent Reserve and Resource Assessment has indicated 2.3mmbbl based on one well alone, with greater than 20mmbbl potential for the entire field.

Net to CTR’s working interest this represents value of up to $220m or $0.17.
 
Guatemala – Great Place to Find Oil:

The South Peten Basin, in Guatemala, is an extension of the prolific basins found in neighbouring Mexico; however, the region remains relatively underexplored despite a high success rate (58 of 153 wells drilled have produced oil).

Attractive fiscal terms mean that the 20mmbbl potential at Atzam alone could be worth approx. $370 million (gross NPV10 unrisked).

Tortugas – Proven Reserves:

The company has development potential at the nearby Tortugas Salt Dome where proven 1P and 2P reserves are estimated at 0.3mmbbl and 0.6mmbbl, respectively.

Two historic wells flowed at greater than 1,500 barrels per day on the field.

We estimate upside potential of approx. 4mmbbl at Tortugas.

Forward Work Program:

CTR has a busy 6 months ahead with upgrade of surface facilities and offtake likely to be completed within weeks.

Follow-up drilling at Atzam #5 is scheduled for September and two workovers are also possible by the end of the year at Tortugas.

The forward work program is now fully funded via a recent $6 million raise.


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

What the Brokers Say

Thursday, September 05, 2013

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

Evolution Mining Limited (ASX: EVN)

Evolution Mining released its FY2013 Financial Results, which were broadly in-line with our expectations. But more importantly Jake Klein and his team delivered yet again. This time it was on the previously announced dividend policy, despite a large impairment charge wiping out available retained earnings. We believe that EVN is in a good position to build on the productivity and efficiency initiatives implemented and deliver a positive free cash flow in FY2014.

Impairment
The full year review of the company’s asset carrying values, in the context of a lower gold price environment and other factors, resulted in an impairment loss of $384 million across EVN’s asset base.

Maiden dividend
Due to impairment losses, EVN had no available reserves or earnings from which to distribute a dividend payment.

However, EVN will pay an unfranked dividend of one cent per share out of 2014 financial year profits. Our modelling suggests there will be sufficient earnings in FY2014 for the dividend and for EVN to continue paying dividends in FY2014 based on 2 per cent of EVN’s sales of gold and silver, payable in cash.

Underlying Estimates
EBITDA of $211.7 million and net profit of $44.4 million were below the PSL estimates of $241 million and $96 million respectively. This is mainly explained by a $19.8 million inventory charge due to a reduction in Net Realisable Value of $311 per ounce on low-grade stockpiles and the $15 million amortisation of costs associated with the Venue Open pit at Pajingo, which is now closed. We note that 90 per cent of the inventory charge will been reversed at the current spot price of $1,570 per ounce.

Looking forward
EVN has gone past the peak in its capital expenditure program and it is looking to generate sufficient cash from all operations (based on a spot gold price assumption of $1,400 per ounce) next year to cover all capital, exploration and corporate expenditure, including interest and dividend payments.

Global Strategic Metals (ASX: GSZ)

Investment Case
This is an opportunity to invest in Europe’s first primary lithium mine. Europe consumes approximately 24 per cent of lithium produced globally but does not currently produce any.

With a growing demand for this high tech metal and a mine which is partially developed and is kept in survey, we see Global Strategic Metals as an ideal opportunity to gain an exposure to one of the highest grade hard rock lithium mines in the world.

Once the mine has been successfully established we expect that downstream processing will commence with the establishing of an integrated lithium carbonate plant in Wolfsberg.

Potential to Expand Ore Resources
The Zone 1 ore bodies are open both along strike and down dip, whilst Zone 2 has the potential to significantly increase the resource. Some of the funds being raised are to be allocated to drilling to further define the extent of the Zone 1 ore bodies so that the size of the mine and processing plant can be determined.

Highly Sensitive to the Lithium and Feldspar Price
The expected profitability of the proposed mine and processing plant are very sensitive to both the spodumene concentrate (lithium) and feldspar prices. The operation is also expected to produce silica, quartz and road base material, all of which are expected to be sold in Europe. The potential sales of these minerals have been excluded from the base case net present value.

Excellent Location
The ore body is located just outside Wolfsburg in politically stable Austria. The local infrastructure is excellent, with good road and rail connections and a main European trunk gas pipeline passing through the town.


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

What the Brokers Say

Thursday, September 12, 2013

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

Blackham Resources (ASX: BLK)

The Matilda gold project (MGP) covers a large tenement position in the Wiluna Greenstone Belt.

The global resource is 24.8 million tonnes at 1.9 grams per tonne gold (1.5 million ounces) and Blackham is steadily building confidence to transition into production – either on a stand-alone basis or by accessing the nearby Wiluna gold plant.

In a difficult market, Blackham enjoys strong financial support from its cornerstone shareholder Great Central Gold (GCG).

Blackham Resources continues to make significant progress in its aspiration of becoming a self-sufficient gold producer, having increased its MGP resource to over 1.5Moz of contained gold at an average grade of 1.9g/t, as well as steadily upgrading the confidence levels for its resources.

Overall, the MGP resource has been increased by 380 per cent since acquisition of the project in November 2011, most recently upgrading the Williamson deposit resource to 6.3 million tonnes at 1.7g/t gold for 0.35 million ounces, of which 2.7 million tonnes at 1.7g/t gold (0.15 Moz) is now in the Indicated Resource category.

Significantly, the geological interpretation associated with the updated resource model has highlighted further exploration targets and opportunities to test for extensions to the mineralisation–in both open pit and underground settings.

Excellent exploration progress has also been achieved at the M1 deposit (Matilda Mine Area) where a thick, high-grade intersection (35 metres at 5.05g/t gold) confirms the potential for a proposed deepening of the existing open pit.

Blackham Resources is well funded to aggressively advance its exploration and assessment plans, having completed $3.3 million of placements at 21 cents per share to Great Central Gold, as well as reaching agreement to raise a further $10 million from GCG via a Convertible Note facility at 25 cents per share.

Bligh Resources (ASX: BGH)  

Bligh Resources has a portfolio of five projects, predominantly prospective for gold and manganese at varying stages of advancement.

The projects of particular interest from a Breakaway perspective revolve around the Leonora Goldfields of Western Australia.

The Bundarra gold project is a relatively new addition to Bligh’s portfolio.

The company completed the acquisition during late December 2012, acquiring a 42.9 per cent interest in the project.

Bundarra is located within the historic Leonora region of Western Australia and hosts a recently upgraded JORC Resource of 7.48 million tonnes at 2 grams per tonne gold for 489,000 ounces.

The Bundarra acquisition provides near-term production and cash flow potential.

In April ’13, Bligh released the positive results of a Scoping Study which confirmed the development potential at Bundarra.

The Study was modelled on the previous resource of 318,000 ounces at 2.1g/t gold and assumed a nine year mine life based on 250,000 tonnes per annum process feed rate for 156,000 ounces of recovered gold.

Cash costs for the four deposits range between $886 to $1126 per ounce; with an average of $1036 per ounce.

Following the recent approx. 54 per cent resource upgrade to 489,000 ounces at 2g/t gold, the economics parameters of the project are being updated.

The resource upgrade also provides sufficient data for a maiden reserve estimate (expected within the coming months).

The Leonora gold project encompasses 49 square kilometres of prospective tenure and is located just six kilometres from the 3 million ounce Tarmoola gold project.

The company recently boosted its Leonora acreage position with the acquisition of the Little Wonder project, which hosts old gold workings dating back to 1894.

Exploration is at a relatively early stage however these projects augment the company’s Leonora exposure and provide numerous high-priority targets which will be followed up in due course.

The Bootu Creek Two project is strategically located 40km south of the OM Holdings’ (ASX: OMH) Bootu Creek manganese mine, which hosts a 32 million tonnes resource at 22.3 per cent manganese.

Bligh has a 100 per cent interest in a 130sqkm tenement that has been interpreted to host a similar geological and structural setting to that of the Bootu Creek deposit.

The Bootu Creek formation is the primary source of manganese mineralisation in the region.

Bligh has also recently agreed terms to earn up to 80 per cent in the neighbouring tenement, increasing its possible footprint in the area to approx. 266sqkm and ensuring access to rail is not hampered in the event of production.

The Kumarina project is highly-prospective for manganese mineralisation.

A desk-top review examining geology and recent air-core drilling results revealed that the drilling had intercepted paleochannels and supergene manganese enrichment (e.g. 15m at 17.5 per cent manganese oxide from 46m).

The supergene manganese enrichment is within the saprolitic shale zones between the Tertiary surface sediments and fresh bedrock.

The new interpretation of geology and drill results will be used to plan further exploration.

Bligh is an active explorer with a strong portfolio of projects located in well-known producing regions.

The favourable Scoping Study outcomes provide confidence the Bundarra project has sufficient merit to advance towards production.

Our view is reinforced by the recent 54 per cent increase to the JORC Resource which will likely lead to enhanced economics.

Bligh has an enterprise value of just $1.6 million and is highly leveraged to positive news flow.

The upcoming maiden Reserve estimate and revision of Scoping Study outcomes provides near term impetus for a company re-rating.


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

What the Brokers Say

Thursday, September 19, 2013

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

Sirius Resources (ASX: SIR)
 

Extension of gold anomaly at Polar Bear. First pass reconnaissance aircore drilling has extended the large zone of gold anomalism at the first of SIR’s gold targets on its Polar Bear project (SIR 100 per cent). Polar Bear is located near the gold mining districts of St Ives, Higginsville and Norseman, which collectively host approx. 25 million ounces of gold.

The gold anomaly has been extended several hundred metres in a NE direction and now has a strike extent of approx. 1.6 kilometres and max. width of approx. 800 metres with good sample gold grades of up to 3.64 grams per tonne gold.

The gold anomaly is still open NE, NW and SW. While the results are encouraging, we view Polar Bear as early stage, and note that further work and follow-up diamond drilling is required to confirm the extent of mineralisation.

Over the next few months, drilling will focus on Polar Bear; the Nova and Bollinger horizons within the Eye; the as yet undrilled Eyelet intrusion; and recently defined Conductor 7.

Nickel prospect Yardilla unsuccessful. Two diamond drillholes testing the Yardilla electromagnetic (EM) target have intersected graphite and pyrrhotite (iron sulphide) at target depth.

Exploration accounted for in our valuation. We’ve assigned a reasonable valuation of $150 million (or 55 cents per share) for all other exploration (Polar Bear, other prospects within the “Eye” etc.), with the majority of our valuation coming from SIR’s flagship asset Nova and Bollinger (SIR 70 per cent).

Should Polar Bear and/or SIR’s other exploration targets progress to a maiden resource and prove to be economically feasible, then there is upside risk to our valuation.

Upcoming news flow. A scoping study is scheduled to be released in SepQ13, followed by a BFS which is likely to be completed 1HCY14. A mining lease application has been submitted and likely to be finalised in early CY14.

 



Northern Star Resources (ASX: NST)

Northern Star Resources is producing gold from its flagship Paulsens underground mine in the Ashburton-Pilbara region of Western Australia. In the March quarter NST produced 24,633oz and remains on-track to reach its FY 2013 target of 100,000 to 115,000 ounces of gold, given its financial YTD output of approx. 75,000 ounces of gold.

Background: Paulsens acquisition

NST acquired the Paulsens mine for $40 million in July 2010 – a price that was repaid from the mine’s cashflow in less than seven months. Upon acquisition, the mine had a life of under a year. The company has since increased the mine life to over 5 years, while increasing production and processing capacity. Paulsens JORC-compliant resources have grown 485 per cent in two and a half years, from 129,000 ounces to 550,000 ounces, even after allowing for 200,000 ounces mine depletion (grade has also increased 14 per cent to 5.7 grams per tonne gold).

Reducing costs and generating cash

At the start of 2011, NST moved Paulsens from a contractor-run to an ‘owner-operated’ model through its own mining services division. As a result, mining costs fell 36 per cent from $98.8 per tonne mined in Q1 2011 to $63.5 per tonne mined in Q4 2012. This cost reduction, along with an increase in the tonnes mined and processed, has resulted in substantially increased cash flow. The company expects to generate $65 to $85 million in surplus cash this calendar year – not bad for a company with an enterprise value (EV) of $243 million.

Due to these cost-cutting measures and low overheads, Paulsens had cash costs (C1) of $601 per ounce in Q1 2013 and total costs of just $935 per ounce (including royalties, sustaining CAPEX, mine exploration and corporate costs). Even at the current spot price (A$1424 per ounce) these low costs result in margins of $489 per ounce, or approx. 34 per cent.

Earnings growth and yield support

In line with its strategy of creating a business first, miner second, NST has made capital return to shareholders its priority. In September 2012, the company paid a maiden fully-franked dividend of 2.5c per share, and has since declared an interim dividend of 1c per share. At a share price of 72.5 cents, these dividends equate to a fully-franked yield of 4.82 per cent or 6.9 per cent, including 1.5c in franking credits.

With strong free cashflow and a substantial cash balance of $58 million, NST has scope to increase dividend payments; an outcome we view as likely.

Will the good times continue?

Paulsens has sufficient JORC-compliant reserves (204,000 ounces of gold) to support a +2 year mine life and JORC-compliant resources to support a +5 year mine life. Recent drilling has substantially increased the Paulsens resource, while step-out drilling has identified numerous targets to follow up outside the current mining area. We expect the resource upgrades and mine life extensions at Paulsens to continue.

And now for the blue sky..
.

In addition to Paulsens, there is the potential to develop the Ashburton, located approx. 200 kilometres southeast of Paulsens, as a stand-alone project. Ashburton, which produced 340,000 ounces of gold at 3.3g/t gold between 1998 and 2004, hosts a 1.7 million ounce gold resource. Studies are well underway for a stand-alone 100,000 ounces per annum gold operation.

In our opinion, the current share price assigns little value to the Ashburton project, but considering management’s track record of finding underpriced assets and developing them into cash generating mines, we feel it should be ascribed more value.

Given the potential for further earnings growth, mine life extensions and higher dividend payouts, we believe NST has a very positive outlook for the rest of the year.


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

What the Brokers Say

Thursday, October 03, 2013

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

 

 Forte Consolidated (ASX: FRC)

 
Forte Consolidated has completed the acquisition of a 100 per cent interest in the prospective Johnnycake project located near the recently commissioned Mt Carlton gold/silver/copper mine in north-east Queensland.

In late 2012, Forte Consolidated entered into an agreement to purchase a 100 per cent interest in EPM 18986, named the ‘Johnnycake Project’, for total consideration of $50,000 from Adept Solutions Limited, now called Emerchants Limited (ASX: EML).

Emerchants only disposed of the tenement due to a change in business activities from the resources to the financial services sector.

The tenement is located at the northern end of the Bowen Basin, approx. 170km south of Townsville and is in close proximity to Evolution Mining’s Mt Carlton Mine, which hosts a JORC Resource of 25.2 million tonnes at 1.7 grams per tonne gold (for approx. 1.35 million ounces of contained gold), plus significant silver (approx. 30.6 million ounces) and copper resources (approx. 63,000 tonnes of contained copper).

Historic aeromagnetic and radiometric surveys have been sourced and reprocessed, and have refined the definition of important faults and dykes (which are conduits for fluids, potentially leading to the formation of mineral deposits).

A desk top review of the available ‘Johnnycake’ data has generated four distinct targets; namely Hill 345, West Rocky Creek, Mt Wickham South and CAZ.

A limited initial field program, comprising soil and rockchip/float samples, has been completed at each of the targets with some promising, albeit preliminary, results.

The company’s chairman, John Terpu, has extensive knowledge of the area having acquired the original Mt Carlton tenements with modest outlay in his role as managing director of Conquest Mining Limited (the company which discovered the nearby Mt Carlton project).

With this experience, Forte plans to apply known exploration methodology to the Johnnycake area.

Forte also holds the Kangaroo Hills project in north Queensland, which represents a secondary priority at this time.

Initial drilling included 4m at 100g/t silver and 3.4 per cent zinc at the Clarke prospect and deeper drilling is required to adequately test the target.

Forte Consolidated is currently advancing exploration at the Johnnycake project.

Four high-priority precious metal prospects have already been identified; however exploration is still at an early stage.

With an EV of just $2.1 million and $2.2 million cash to fund exploration, Forte is highly leveraged to exploration success.

 Sovereign Gold Co Ltd (SOC.ASX)

Overview: Sovereign Gold Company Ltd (“Sovereign Gold”, “the Company”) is an Australian gold explorer focused on New South Wales.

The company has made a discovery of national significance at its Mt Adrah project near Wagga, and remains free carried for exploration up to $21 million within the SUGEC JV, near Uralla.

It retains a 79.5 per cent interest in Precious Metal Resources (PMR.ASX).

Catalysts: After expanding its resource inventory by 200 per cent at a cost of $1 per ounce, Sovereign Gold has set an exploration target of 3.2 million ounces to 4.6 million ounces for the existing ‘Pipe-1’ deposit at Mt Adrah.

The company has identified neighbouring prospects which could support a mineralised camp exceeding 40 million ounces.

Further resource drilling at Pipe-1 and appraisal of neighbouring targets stand as major growth drivers.

Hurdles: The refractory nature of mineralisation at Mt Adrah may require significant project scale to overcome metallurgical and marketing risks.

Sovereign Gold’s exploration targets are conceptual in nature and there is no guarantee further mineral resources will be defined.

The company remains reliant on external capital to fund operations outside its SUGEC JV.

Investment View: As Sovereign Gold’s present market valuation merely reflects its free carried interest at Uralla and PMR shareholding, the potential significance of Mt Adrah has yet to be recognised.

Should the company successfully realise its current exploration target at ‘Pipe-1’, our base case valuation of 49 cents per share offers, a 145 per cent premium to recent trade.

Neighbouring prospects provide upside beyond our current appraisal.


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

What the Brokers Say

Thursday, October 10, 2013

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

Target Energy (ASX: TEX)

Target Energy is a rapidly growing oil and gas producer focussed on the prolific Permian Basin in West Texas. The company has increased its 2P reserves by 887 per cent to 1.2 million barrels of oil (mmboe) (and total reserves and resources by 280 per cent to 2.8 mmboe) during the past year and has achieved a 235 per cent gain in net production over the past two quarters. An active exploration program is in progress and should drive further strong uplift in production. Target Energy is dual listed trading on the US OTCQX and the ASX.

The company’s flagship Fairway Project is located in the highly productive West Texas Permian Basin, which is the largest onshore hydrocarbon basin in the US, covering 52 counties and over 75,000 square miles. Total daily production from the basin is approx. 1.3 million barrels of oil and approx. 4 billion cubic feet of gas. This equates to approx. three times Australia’s total daily hydrocarbon output.

Target Energy has established meaningful acreage positions in proven major hydrocarbon producing areas in the Permian Basin and Gulf Coast regions. From modest beginnings, production and exploration activity is now gathering momentum and creating a robust, sustainable corporate platform.

2P reserves rose strongly to 1.2 mmboe as at 30th June, largely driven by drilling successes at Darwin #1 and #2 (in 2012) and Sydney #1 (in 2013). Similarly, these wells have helped boost net production by more than 200 per cent in the last few quarters. In turn this is driving improved cash flow which is being directed at accelerating growth activities.

Opportunity exists for significant production increases during Q3 and Q4 2013 with five wells either awaiting completion (Darwin #3 and Pine Pasture #3) or about to be drilled (Sydney #2, Darwin #4 and Sydney #3). In addition, production rates will be boosted by a proposed waterflood of the East Chalkley oil-field.

In the near term Target Energy will continue to expand in a relatively low risk, low cost manner via multiple completions based on conventional carbonate reservoirs in vertical wells. In the longer term there is potential to exploit large scale resources via fracture stimulation of shale and tight oil plays in both vertical and lateral wells.


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

What the Brokers Say

Thursday, October 31, 2013

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

Australian Bauxite (ASX: ABZ)

ABZ’s strategy has consistently been to identify quality bauxite close to infrastructure and with low socio-environmental impacts.

Tasmania emerged in 2010 as a possible destination with the discovery of bauxite similar in nature to Taralga and nearby deposits.

With costs being the key, focus shifted to Tasmania where a positive scoping study is being completed on a possible mining operation at Bald Hills.

The scoping study will most likely reveal a relatively low cost project underpinned by simple mining methods, short distance to port and existing infrastructure.

The plan is to mine Bald Hill, mine nearby deposits and develop a Tasmanian bauxite industry.

TASMANIAN BAUXITE KEY POINTS

Tasmanian bauxite is gibbsite rich, which only requires low temperature for processing at an alumina refinery thus aiding in reducing alumina production costs.

Identified deposits are located close to existing infrastructure such as roads and rail, on land with little to no environmental issues, and free of socio-political opposition.

With the nation’s highest unemployment, Tasmania offers an eager and experienced workforce having a rich mining history.

Port of Bell Bay is underutilised and spare capacity exists for exports which is advantageous as it could aid in reducing infrastructure spend. A Memorandum of Understanding has been executed between ABZ and Tasmanian Ports Corporation for access to Port of Bell Bay.

Existing rail and road networks are excellent and offer low transport costs as deposits are in close proximity to port.

Tasmania seems abundant with bauxite and offers great potential to establish a long life bauxite mining industry.

BALD HILLS

Bald Hills is the first project for ABZ in Tasmania as it’s ideally situated, being close to port, in close proximity to associated infrastructure and four kilometres from Campbell Town, which could provide some of the workforce.

One of the key reasons Bald Hills was selected as the first mining project in Tasmania was the approvals process, which seems straight forward enabling mining to commence from late 2014. The mining lease application was submitted in early May and a Notice of Intent was lodged with the EPA at the same time.

Bauxite at Bald Hills is very good quality and ideal for special purpose blending, enhancing final alumina quality at refineries.

The expected capital cost at Bald Hills is approx. $8 to 10 million, with total operating costs approx. $30 per tonne. Using long term bauxite price assumptions, we expect margins between $15 and $17 per tonne.

MINING

ABZ is planning to start production at Bald Hills at approx. 500,000 tonnes per annum. We see this increasing to approx. 2.5 million tonnes per annum as more new mines come on stream. On current numbers we expect a mine life of around six years but we are confident that new mines will be added and production extended well beyond 2020. Second mine has already been put forward at Fingal Rail which is in close proximity to Bald Hills and will only require a modest cap-ex to bring into production.

Vital Metals (ASX: VML)

Vitals Metals is an advanced exploration company with its flagship Watershed tungsten project located in northern Queensland.

Watershed currently hosts a JORC Resource of 49.3 million tonnes at 0.14 per cent tungsten-trioxide (WO3) for 70,400 tonnes of contained WO3.

Japan Oil, Gas and Metals National Corporation (JOGMEC) have earned a 30 percent interest in the Watershed project by spending $5.4 million to fund completion of a Definitive Feasibility Study (DFS).

Initially the DFS was designed to assess a one million tonnes per annum capacity processing scenario, however this capacity was recently increased to three million tonnes per annum following a resource upgrade – creating more robust financial outcomes.

JOGMEC will not take Watershed into production but rather act as a match maker to third party Japanese corporation; however, it may act as a bank guarantor during the project finance stage.

Vital also holds a 100 per cent interest in a series of exploration projects in southern Burkina Faso, comprising over 850 square kilometres of contiguous tenements in highly-prospective Birmian Greenstone terrain – collectively known as the Doulnia project.

Early stage drilling programs have been particularly encouraging at the Kollo prospect, encountering significant ‘ore grade’ gold mineralisation. The Burkina Faso tenements are also prospective for VMS style zinc mineralisation.

In 2009 Vital enhanced and diversified its exploration interests to include gold and base metal prospects in southern Burkina Faso, West Africa. It currently holds four permits in a favourable geological setting within the prospective Markoye Fault Corridor.

The Markoye Fault Corridor is host to the Essakane (5.1Moz), Tarpako (1.3Moz), Bombore (5.2Moz) and Kiaka (5.2Moz) gold deposits.

Exploration within the project area is being steadily advanced, with early drill programs intersecting multiple high-grade gold intercepts. Planned drilling campaigns are aimed at extending the limits of the known near surface (open pitiable) mineralisation, as well as identifying additional deposits that will provide the critical mass for a stand-alone project.

An early drilling campaign intersected 44 metres at 6.39 grams per tonne gold from 8 metres depth, highlighting the potential to delineate meaningful scale, shallow resources within the project area.


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

What the Brokers Say

Thursday, November 07, 2013

WHAT THE BROKERS SAY: Stockbroking firm, Bell Potter runs its eye over the Pilbara iron ore industry and its main players.

Iron ore sector Port Hedland – October 2013 – Total iron ore shipments flat, record shipments to China.

Bell Potter has dissected the Port Hedland Port Authority’s October 2013 monthly statistics. Key points to arise from the data are:

– Total iron ore shipments were above trend at 28.9 million tonnes (Mt) (flat Month on Month (MoM), up 33 per cent Year on Year (YoY)); and

 

– Iron ore shipments to China were 25.2Mt (up 10 per cent MoM, up 43 per cent YoY).

 

According to Bell Potter production capacity expansions from BHP Billiton and Fortescue Metals Group contributed to the increase in China shipments over October 13.

Spot pricing holding up; upside risk to consensus pricing

Spot iron ore prices (62 per cent CFR) are currently ~US$136/t, holding up despite record iron ore exports to China. With the financial year to date iron ore price averaging ~US$133/t, Bell Potter said it envisages upside risk to FY14 average consensus price estimates (i.e. ~US$115-120/t).

Prices will have to average ~US$105-110/t from now until 30 June 2014, to meet average consensus estimates.

Bell Potter nominated Fortescue Metals Group (ASX: FMG) and BC Iron (ASX: BCI) as its preferred iron ore exposures

FMG’s production growth and declining unit cost profile are unique in the industry. With expansion capex winding down, FMG’s free cash flow will improve markedly into FY14. FMG’s next focus will be to de-gear its balance sheet; pay dividends; potentially increase production to 175 to 180 million tonnes per annum (Mtpa); and reduce unit costs.

BCI is the cleanest leverage to iron ore prices, and is a lower cost producer (BP est ~A$48/t) compared to its junior peers. With a strong balance sheet (net cash of A$68 million), Bell Potter sees potential for BCI to:

1) Pursue small-scale growth opportunities; and

2) Return excess free cash flow to shareholders.

Atlas Iron (ASX: AGO) is a higher cost producer compared with BCI and FMG, and its FY14-15 CAPEX commitments are substantial ($464 million for Horizon 1 to take production from 10Mtpa to 14 to 15Mtpa).

The company’s earnings and valuation are therefore more leveraged to iron ore prices than its peers.

AGO is Bell Potter’s least preferred iron ore exposure due to expected weak earnings and free cash flow over FY14/15.

AGO is expensive on short term earnings (FY14 P/E 12x; and FY15 P/E of 8x). AGO’s expansion beyond 12 to 15Mtpa (Horizon 1) will require third party infrastructure agreements and significant capital.

Bell Potter company analysis

Atlas Iron Ltd (ASX: AGO)

AGO is an independent Australian iron ore company, mining and exporting Direct Shipping Ore (DSO) from its operations in the Northern Pilbara region of Western Australia.

The company’s business model has been to develop iron ore resources close to road infrastructure, avoiding the need for significant investment in rail infrastructure.

Horizon 1 expansion:
AGO is aiming to increase production capacity to 10Mtpa by the September 2013 quarter and 12Mtpa by the June 2014 quarter from the incremental addition of the Mt Dove, Abydos and Mt Webber mines. Surge capacity could see Horizon 1 volumes reach 15Mtpa.

Horizon 2 expansion:

Longer term AGO plans to utilise 46Mtpa of port capacity at Port Hedland through the development of its S.E. Pilbara assets. The Horizon 2 expansion will require a rail solution.

We recognise upside earnings risk should iron ore prices remain elevated or from positive sentiment should AGO strike an infrastructure deal for Horizon 2. However, AGO is most leveraged should iron ore prices correct (as we expect).

In addition, a Horizon 2 deal will only further delay positive free cash flow. We are also concerned that Horizon 2 would bring online relatively high cost production (compared with existing production) in a weaker iron ore market.

BC Iron Ltd (ASX: BCI)

BC Iron (BCI) is an iron ore producer with key assets in the Pilbara, Western Australia.

The company’s core focus is the Nullagine iron ore project, an unincorporated 75 per cent:25 per cent joint venture with FMG.

The Nullagine Joint Venture is currently producing DSO at a rate of 6Mtpa (BCI equity  per cent 4.5Mtpa). The NJV uses Fortescue’s infrastructure at Christmas Creek to rail ore to Port Hedland for shipping.
 
BCI remains our top pick in the junior iron ore sector. With minimal CAPEX to spend going forward and cash costs in the bottom half of the cost curve, we see BCI generating substantial free cash flow over the short- to medium-term.

We think it’s likely that a large proportion of this free cash flow will be returned via higher dividends.

Valuation upside exists through its project inventory work, and we are expecting significant earnings and cash flow growth in FY2014.

 
Fortescue Metals Group Ltd (FMG)

FMG is an independent iron ore producer in the Pilbara region of Western Australia.

The company is currently producing iron ore at rates of around 120Mtpa. By the end of 2013, FMG aim to be producing at 155Mtpa rates.

There is also potential for expansions beyond 155Mtpa rates, through the development of resources close to its existing infrastructure, or through the development of a third production hub.

However, to achieve such production growth, additional port capacity would need to be secured.

FMG’s production growth and declining unit cost profile are unique in the industry. With expansion capex winding down, FMG’s free cash flow will improve markedly into FY14.

FMG’s next focus will be to de-gear its balance sheet; pay dividends; potentially increase production to 175 to 180Mtpa; and reduce unit costs.


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

What the Brokers Say

Thursday, November 14, 2013

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

Mutiny Gold (ASX: MYG)

Paterson Securities considers Mutiny Gold’s (MYG) Deflector deposit to be a quality gold-copper asset with the potential to generate significant cash flow.

With an updated Definitive Feasibility Study (DFS) demonstrating a considerable reduction to start-up capital, the key challenge for MYG is obtaining project financing.

Robust project economics should underpin a funding outcome in the near term and we highlight mid-2015 as a potential start date for production.

With upside to both resource size and production profile we see MYG as a valid investment proposition, well leveraged to any improvement in commodity prices.

Numbers stand up on all fronts.

A revised DFS released in September 2013 allowed for a 32 per cent reduction in start-up capital costs to $62 million while maintaining average production of approx. 80,000 ounces per annum gold equivalent.

Cash costs are forecast to be around $638 per ounce and all-in sustaining costs around $800 per ounce, on a gold equivalent basis.

Funding solution the key catalyst.

We have modelled funding for the Deflector project on a 70:30 debt-equity basis.

Despite tight debt markets, we see financing the portion of the $62 million capital requirement as achievable given the robust economics of the project.

Rocksteady iron ore project a strategic asset.

MYG is also developing the small scale Rocksteady iron ore project with current drilling aiming to increase the 650,000 tonne DSO resource to between 1.5 to 4.5 million tonnes.

The asset is strategically located near rail and port infrastructure and as the scale grows, it may attract corporate interest from regional producers.

Lamboo Resources Limited (ASX: LMB)

Lamboo Resources (ASX: LMB) continues to make steady progress at the McIntosh flake graphite project (located in northern WA) and at its three South Korean flake graphite projects (called Geumam, Taewha & Samcheok).

At the McIntosh project, Lamboo released a maiden JORC Resource of 5.3 million tonnes at 4.9 per cent TGC (Total Graphitic Carbon) covering the north-eastern end of ‘Target 1’.

Encouragingly, only 10 per cent of the interpreted strike length of the graphitic schist horizon has been tested, paving the way for meaningful resource upgrades as drilling continues along strike and at depth.

Lamboo has also identified an additional four high priority targets at McIntosh, increasing the prospective strike length by an additional approx. 10 kilometres.

A further 15km of geophysical anomalies (proven to have a high correlation to graphitic schist horizons) have also been identified at the neighbouring ‘Black Rock’ project, which is currently under application.

The South Korean projects cover three different project areas, each of which were historically mined by open cut operations.

The three deposits have a combined JORC Resource estimate of 0.57 million tonnes at 7.5 per cent TGC and offer significant exploration potential.

Processing of the flake graphite ore is relatively straight forward as demonstrated by the historical operators who employed a simple flotation processing route to produce a large flake carbon-graphite concentrate on site.

A ‘Mining Right’ was recently granted over the Samcheock project paving the way for further exploration and potential early start-up of mining operations.

The initial 5.3 million tonnes at 4.9 per cent TGC, JORC Resource at the McIntosh project was broadly in line with the company’s stated exploration target and provides Breakaway with confidence that Lamboo will reach its next stated objective, which is to double the resource in the near term.

Breakaway is also encouraged by the large flake size of the graphite mineralisation from the McIntosh area.

Flake graphite of a size >425µm (0.425mm) as appears the case for around 15 per cent of the mineralisation at Target 1, commands a significant premium trading in a price range of $3,000-$35,000 per tonne.

On the path to production

A recently completed capital raising of A$1 million (at 6 cents per share) will support Lamboo as it embarks on engineering and baseline environmental studies as well as associated metallurgical test work.

An application for a Mining Licence at McIntosh has already been submitted although parameters around the potential size and cost of the operation are yet to be fully assessed.


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

What the Brokers Say

Thursday, November 21, 2013

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

Bathurst Resources New Zealand Ltd. (ASX: BRL)

No more appeals – Path almost cleared to move into construction

Our view:
In a positive update, Bathurst has announced that the appeals period against the Environmental Court decision to award the resource consent for the Escarpment mine has lapsed.

This moves Bathurst one step closer to production.

Key points:
Following the decision of the Environmental Court to grant the resource consent for the Escarpment mine on the 24th of October, there was a window available for lodging appeals.

That window closed on Monday with no appeals.
This announcement follows the news last week that an agreement had been reached with the Royal Forest and Bird Protection Society such that it would not appeal.

This agreement significantly reduced the likelihood of any appeal as it was the most frequent appellant; nevertheless the news that no other party has appealed is positive.

We have reviewed our numbers, bringing forward production and lowering capex in line with more recent targets.

One step closer to construction:
Bathurst still requires approval of 25 management plans from local council, iwi, and the Department of Conservation.

These will allow for site access and for Bathurst to operate on the site.

Bathurst expects these plans to be signed off by mid-January 2014, allowing for first coal from Q1 as part of development. First steady state sales are expected in June.

While we acknowledge this final step should be much more straightforward than the court processes Bathurst has been embroiled in (there is significant local support and the resource consent has been granted), given the project’s history, we do not discount the possibility for delays.

Bringing production forward:
With appeals no longer possible we have adjusted our modelling to incorporate first sales from the June quarter vs. our prior assumption of the December quarter 2014.

We have also revised our capex to reflect the lower cost options now identified by Bathurst.

Funding:
With NZ$19 million cash on hand and very little capex prior to first coal (less than $10 million), Bathurst is funded into production.

However, we do not expect Bathurst to be free cash positive until 2016. In order to fund the remaining development capex to lift Escarpment to 0.9 million tonnes per annum we assume $100 million debt financing.

We estimate Bathurst can fund Wharatea West from cash flow.

With a major roadblock now passed, the path to production is becoming clearer for Bathurst. We see strong valuation support for the stock, and expect the transition into construction to see it supported.

Sandfire Resources (ASX: SFR)

DeGrussa de-risking, SFR still exploring

Bell Potter analysts recently attended a site trip to Sandfire’s DeGrussa mine and came home with the following update.

The key value drivers for Sandfire are the successful ramp-up of DeGrussa, and exploration success which can either extend the project’s life (currently around 7 years) or increase its scale.

We have returned more confident on the ramp-up, with copper recoveries improving, the mine operating at design 1.5 million tonnes per annum rates and issues with the paste fill plant being resolved.

However, there is yet to be any major success on the exploration front.

Recoveries improving to design 92 per cent rates

We are now more confident that Sandfire can achieve design recovery rates of 92 per cent at DeGrussa.

Sandfire only begun optimising the plant since late September 2013, when the plant switched to full underground ore feed.

Since then, there has been a marked improvement in recoveries, averaging 88 per cent in October, and 91 per cent in November to date.

We are confident that through optimising plant processes, ore grind size and the suite of reagents, Sandfire will be able to at least achieve design recovery rates.

Underground mining at 1.5Mtpa rates achieved

We are also more confident that SFR can sustainably mine at design underground rates of 1.5 million tonnes per annum, as achieved in October 2013.

There are risks around this target, with underground stoping, the paste fill plant and the mill all required to work in concert.

However, underground development is well ahead of mining, removing potential bottlenecks.

The paste plant has recently undergone upgrades and is operating well.

Investment thesis
 
The DeGrussa project is yet to reach sustainable steady-state production and ramp-up risks do remain.

However, the project is being progressively de-risked as underground mining rates improve and ore/mill performances are better understood.

We expect the high grade (low cost) DeGrussa project to deliver strong free cash flow in FY14-15, despite relatively high underground development capital costs over that period.

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

What the Brokers Say

Thursday, November 28, 2013

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

Sirius Resources NL (ASX: SIR)

Exploration Appeal on Multiple Fronts

Sirius Resources NL, while continuing with its Nova-Bollinger development studies, is looking to replicate its exploration success with the discovery of more base and precious metal mines.

The company continues to report significant exploration results from the Fraser Range JV project (SIR 70 per cent), and from the Polar Bear gold project (SIR 100 per cent), south of Kalgoorlie.

Fraser Range – New nickel-copper mineralisation outside the Eye

Recently completed drilling at Fraser Range has identified a new intrusive complex approx. 3km to the west of Nova, with nickel and copper mineralisation intersected in Nova-style host rocks.

This new prospect (Western Trend) forms one of three new targets outside the Eye Intrusion (but within the mining lease application) which could provide the next discovery.

The intersection of nickel and copper mineralisation to the west of Nova is the first time nickel and copper mineralisation has been found outside the ‘Eye’ intrusive structure.

The ‘Western Trend’ was originally outlined by elevated nickel and copper bedrock geochemistry with the first diamond hole (436) into this feature intersecting shallow nickel-copper sulphides.

Follow-up exploration including DHEM and more detailed bedrock drilling is underway with the next diamond hole to be drilled.

In addition to the Western Trend, Sirius has another two near-Nova targets outside the Eye.

All three of these targets are planned to be drill-tested in the coming months.

Polar Bear – New gold bearing palaeochannel and ridge

At Polar Bear, three new supergene gold anomalies have been confirmed over the Lake Cowan salt lake.

Recently completed geochemical drilling at the Nanook prospect has returned some of the highest grade gold intercepts yet with 13m at 23.9g/t gold from 44m (incl. 4m at 74.7g/t gold) reported from quartz gravels within a palaeochannel.

Just to the west of this channel, drilling has also defined a buried ridge which contains quartz-veined altered bedrock, which could potentially be the primary source of the gold.

Further drilling is planned, with another five gold targets to test.

We have a nominal value for Polar Bear of approx. $20 million, included within our exploration value; this will be revisited as results come to hand.

Exploration remains a key value driver

We currently assign an exploration value of approx. $100 million in our Sirius NAV which we see as conservative given the proven prospectivity of the Fraser Range ground and potential now being demonstrated at Polar Bear.

A recently completed equity raise, positions Sirius in a very strong cash position (around $110 million) to accelerate exploration and/or fund some project development costs.

The cash could also be used as a component to partly fund the Nova-Bollinger project acquisition (should JV partner Creasy be a seller).

Sirius already has a proven track record of exploration success and with further encouragement in 100 per cent-owned ground increases the likelihood that more scrip could potentially be used when negotiating the purchase of the remaining 30 per cent project interest.

White Rock Minerals Limited (ASX: WRM)

Key Points

–    100 per cent owned tenements over the prospective Mount Carrington area in northern New South Wales;

–    Current JORC compliant resources of 23.5 million ounces of silver and 338,000 ounces of gold;

–    Excellent exploration potential for additional gold and silver resources within a large alteration system;

–    Additional untested porphyry copper potential;

–    Exploration model invokes a volcanic caldera model – worldwide these host major precious and base metal mineralisation; and

–    Ongoing drilling encountering broad intervals of shallow gold and silver mineralisation.

White Rock Minerals is a northern New South Wales precious and base-metals emerging developer/producer, with 100 per cent ownership of the highly prospective Mt Carrington area.

The tenements cover the Permian Drake Volcanics, including the interpreted Drake Volcanic Caldera, a 20km diameter feature that hosts the majority of the mineralisation and contains appreciable alteration.

White Rock Minerals continues to intersect precious metal mineralisation in drilling at the Mt Carrington Project in northern NSW.

The company has already established a resource base of 700,000 ounce (at 1.4g/t gold equivalent) and the strategy is to increase this through further exploration on a large number of targets within the volcanic complex.

In parallel the current resources are proposed to be developed, with an operation helping fund further exploration.

To date most drilling has been relatively shallow and there is good potential for additional discoveries at depth.

The mineralisation intersected to date is largely low-sulphidation epithermal gold and silver; our view is that there is significant potential to expand this, as well as for the discovery of porphyry copper mineralisation deeper in the system.

The copper potential is reinforced by the presence of a number of zones of supergene copper enrichment – very little work has been done to identify the primary source.

We believe that White Rock represents excellent value as a junior explorer. It has solid cash backing, highly prospective tenements that could be one drill hole away from a ‘company making’ discovery and a high quality team with a track record of discovery.

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

What the Brokers Say

Thursday, December 05, 2013

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

 

Syndicated Metals LTD (ASX: SMD)

The current management of SMD joined in March 2012, but detailed new work plans were delayed until a settlement was achieved in August 2013 enabling the company to focus on development of the Barbara deposit.

Copper Chem Ltd (CCL) is farming into a 50 per cent share of Barbara by funding drilling that should lead to an extension of the current mining inventory of 1.2 million tonnes that has been established for an open pit at Barbara.

Barbara, near Cloncurry

Barbara is in North‐West Queensland, 60km from Mt Isa and 110km from Cloncurry, on the north side of the Barkly Highway, in a suite of tenements running up to 80km north.

Barbara has JORC Indicated and Inferred resources totalling 5.3 million tonnes, at 1.4 per cent copper, 0.1g/t gold, 2.5g/t silver plus some cobalt, for 76,000 tonnes contained copper.

SMD has further Resources totalling 600,000 tonnes for 8,000 tonnes contained copper nearby.

Agreement to develop the Barbara deposit

On 3 June 2013, SMD announced that it had executed an MOU with Exco Resources to develop the Barbara project.

On 16 September, the MOU had become a firm agreement with Copper Chem Ltd (a related entity of Exco Resources; and a subsidiary of WH Soul Pattinson (ASX: SOL).

This agreement involved:

CCL subscribing $522,000 in a share placement and buying out a significant shareholder to move to an 18.9 per cent stake in SMD;

CCL sole funding until a decision to mine at the Barbara development; and

CCL buying out a JV partner in some of the ELs in the Barbara project, so that the project becomes a 50:50 SMD‐CCL JV.

Likely Barbara Project

A pit containing 1.2 million tonnes of ore has been defined.

The current drill program, which has already reported 42m at 1.57 per cent copper and other, significant intersections of similar tenor with high-grade portions, is to determine ore closer to surface and the presence of mineralisation in an area of pit currently not drilled.

We expect that the development may increase to 1.8 million tonnes of ore at similar high grades.

We expect that this can be developed for less than $20 million (100 per cent basis) for a cash cost of about $1.65 per pound, with first ore in approximately 12 months, with a payback of about 12 months.

Goldminex Resources (ASX: GMX)

Goldminex Resources has significant acreage encompassing 2,756 square kilometres, positioned over two project areas within the Owen Stanley Ranges of Papua New Guinea (PNG).

The company’s flagship ‘Liamu’ project hosts 12 high-priority prospects within an extensive intrusive complex which has significant potential to host multiple large porphyry copper-gold deposits.

Geological and geochemical exploration to date has outlined an area in excess of 15sqkm shedding anomalous gold and copper in drainage samples. Exploration within this project area is still at a relatively early stage, however the ‘world class’ scale of the exploration targets should not be underestimated.

Within the tenements, GMX has also identified four nickel prospects, broadly defined by rock chips samples assaying up to 49 per cent nickel. Further work is required to better understand the source of these high grade nickel results.

Goldminex also has a 100 per cent interest in tenements (one EL and two ELA’s) surrounding the historical Gira goldfield, which was originally discovered in 1897.

Sparse exploration was carried out in the 1970’s/80’s with approx. 67,000 ounces of alluvial gold production recorded. The prospect, however, remains vastly underexplored. Goldminex is yet to carry out exploration within this prospective ground.

In 2011, Goldminex entered into a farm in agreement with Vale S.A., whereby Vale could earn a 51 per cent interest through funding exploration expenditure of US$20 million across six tenements (including the Liamu project).

Since entering into the farm-in agreement, Vale has spent a total of US$16.6 million, principally at the Liamu project, with the aim of identifying a large, economically viable porphyry copper-gold deposit.

Exploration activities included target generation, geophysical surveys, geological mapping, geochemical sampling and diamond drilling (8 deep holes for 4,299m).

In September 2013, Vale gave notice to withdraw from the Farm In Agreement leaving Goldminex with a 100 per cent interest in all of its tenements.

While it is clearly disappointing to see Vale withdrawing from the Farm In Agreement, the exit should be put into context.

As part of company-wide cost saving measures, Vale has substantially reduced its global exploration budget (and staffing levels).

As a result, a review of all exploration projects was undertaken with the reduced funds now allocated to more advanced ‘priority projects’.

Given the relatively early stage of exploration within the Owen Stanley Range, Vale’s exit is understandable.

The value attributed to the Owen Stanley Range tenements has been substantially enhanced with Vale’s involvement. All data gathered during the Vale’s funded US$16.6 million exploration program (geophysics, age data, geochemical and assay data) will remain the property of Goldminex.

There are also several gold targets which were identified during the Vale funded exploration program and which were not addressed. These targets could be quickly developed to drill testing stage.

Goldminex has a negative enterprise value suggesting the market is attributing no value to the company’s assets.

Breakaway believes this valuation is unwarranted given the prospectivity of the Owen Stanley tenements.

In excess of $30 million has already been spent advancing multiple prospects within the portfolio, all of which have ‘large scale potential’.

A new Joint Venture (JV) partner is now being sought to help share costs associated with advancing exploration at the Owen Stanley Range projects. In the meantime, Goldminex will likely run a lean operation, led by a capable management team.


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

What the Brokers Say

Thursday, December 12, 2013

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

 

Elysium Resources Limited (ASX: EYM)

Elysium Resources is an Australian mineral exploration company whose core business is exploring for large, high-quality copper and gold deposits in the rich mineral provinces of Australia and Indonesia.

The current Board of Directors was appointed in February 2013.  An immediate review of the company’s existing assets was conducted with a view to establishing an updated strategy.  The company changed its name from United Orogen Limited (ASX: UOG) on 8 July 2013.

On 30 August 2013, Elysium announced an off-market takeover offer for all shares and options in Burraga Copper Limited (BCU), an unlisted Australian public company, for a consideration of 6.5 EYM shares for every BCU share held and 1 EYM share for every BCU option held.

The acquisition of BCU provides Elysium with the potential for early cash flow from BCU’s Lloyds copper project in NSW.  This cash flow would be used to finance Elysium’s exploration programs in the Lachlan Fold Belt of NSW, Redmond and Horseshoe South in Western Australia and Malang in Indonesia

Potential Early Cash Flow

Unlike many of the junior explorers at very early stages of exploration, Elysium has identified a potential source of early cash flow generation.

The Lloyds copper project is small, but in its favour are low capital and operating cost estimates.

In particular, the very modest upfront capital cost estimate of $10.3 million is not disproportionate to current market capitalisation of the company.

Tailings/Slag Re-Treatment Followed by Open Pit Mining

The presence of a small copper tailings dump and two slag heaps at Lloyds provides early, readily accessible feed for a proposed 300,000 tonnes per annum plant which, together with the subsequent treatment of hard rock open pit ore, is expected to produce up to 11,000 tonnes of copper in concentrate (plus gold and silver by-product) over a 4-5 year period.

In addition to the very modest capital cost, the PFS indicated average cash costs (excluding any by-products) of less than A$1.40 per pound of copper in concentrate, providing a substantial operating margin.

Pre-Feasibility Study Indicates a Robust Project

The pre-feasibility study conducted in 2011 established that the Lloyds copper project was economically viable based on prevailing metal prices at the time: A$10,000/t of copper, A$1,500/oz of gold and A$30/oz of silver.

The bulk of the revenue (~87 per cent) is derived from copper, with some gold and silver by-product.

Based on these prices, annual cash flows (after capital expenditure) range from $15.9 million to $22.1 million for the first four years.

At a 10 per cent discount rate (pre-tax), the Net Present Value (NPV) of the project is $53.2 million, with undiscounted net cash flow (pre-tax) of $76.7 million.

Project Cash Flow Still Positive at Current Metal Prices

At current metal prices and exchange rates (A$7,620/t for copper, A$1,346/oz for gold and A$21.64/oz for silver at an A$/US$ exchange rate of 0.923), the annual cash flows are reduced to between $10.3 million and $14.8 million over the first four years.

The NPV, at a 10 per cent discount rate, is reduced to approximately $31 million.

Provided the technical parameters and cost estimates can be achieved, the project will still produce healthy cash flows at current metal prices.

Project Risk

Breakaway sees the main risks to the project as metallurgical.  With short treatment campaigns for tailings and slag, there is little time to make plant adjustments to achieve optimum recoveries and concentrate quality.

This could have an adverse impact on cash flows as well as putting pressure on working capital requirements.

The PFS is based on open pit hard rock ore grading 1 per cent copper.  The currently reported global Inferred resource has a grade of only 0.5 per cent copper.

However, the grade/tonnage curve indicates that at a higher cut-off grade there is a component of around one million tonnes at 1 per cent copper equivalent – consistent with the assumption in the PFS.

Cash Flow to Fund Exploration

The cash flow generated should provide funds to carry out exploration, particularly on the NSW tenements.

First priority would be establishing additional feed for the mill.  The tenements are also prospective for Lucky Draw-type gold deposits.

However, the ultimate prize would be the discovery of a large copper or copper gold deposit similar to the McPhilamys deposit only 50 kilometres to the north.

Early cash flow would also help to fund the greenfields exploration program in Indonesia, which although still at a very early stage, has the potential to deliver very large copper-gold deposits.

 


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

What the Brokers Say

Thursday, February 06, 2014

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

www.breakawayresearch.com

Sundance Resources Limited (ASX: SDL)

Sundance Resources is a Central African iron ore developer, with high quality projects at the shovel‐ready stage that will initially produce a high grade low impurity Direct Shipping Ore (DSO) product.

The company envisages a two stage production plan, with an initial phase producing 35 million tonnes per annum of DSO for at least 12 years, with a 20-plus year, second stage 35 million tonnes per annum high‐grade itabirite concentrate operation starting in year 11.

Sundance Resources Limited (ASX: SDL) is making steady progress towards development at the Mbalam‐Nabeba iron ire project in the Republic of the Congo and Cameroon, in Central Africa.

The project is ‘shovel‐ready’, with a positive Definitive Feasibility Study delivered in early 2011 and the majority of Government approvals now in place.

Tenders for the estimated $2.6 billion direct cost rail and port infrastructure have been received, with a decision on the successful bidder expected in Q2, 2014.

Negotiations are also underway concerning offtake agreements.

These are critical elements in advancing the project, enabling construction of the infrastructure that will unlock the riches of this greenfield, world‐class iron ore province.

Sundance’s project is the most advanced in this emerging iron ore province.

Development of Mbalam‐Nabeba represents an excellent ‘company making’ opportunity, while controlling regional infrastructure should create numerous secondary benefits.

The company will achieve a strong market re‐rating as it achieves funding and development milestones.

www.beerandco.com.au

Midas Resources Limited (ASX: MDS)

New management to develop Kalman

60.8 million tonnes JORC Resource at 0.60 per cent copper equivalent to be finessed into a high-grade project

Recent drilling at Overlander, less than 10 kilometres from Kalman, has reported intercepts including:

14 metres at 2.62 per cent copper, 9m at 2.58 per cent copper, 13m at 2.15 per cent copepr.

Midas has consolidated over 1,950 square kilometres of tenements southeast of Mt Isa, including over 60km of the Pilgrim Fault.

This includes Kalman which is the basis for a copper project in northwest Queensland.

Kalman’s existing Resource will be reviewed, focussing on a smaller, higher-grade open pittable Resource, supplemented by high-grade feed from nearby deposits.

New Management – New Projects

New management was installed at Midas, after 10 years.

The new management has introduced new projects in N‐W and Central Queensland and is aggressively progressing them.

The new management has been successful in getting title to over 1,950sqkm, nearly all of which is 100 per cent Midas owned (and the balance on a clear path to 100 per cent).

Kalman development potential

Over $25 million has been spent at Kalman by previous owners, producing a JORC Resource of over 350,000 tonnes of contained copper equivalent, of which about 10 per cent is underground and the balance open‐cut.

The scoping study was based on a high volume, modest grade project, adding 6 per cent to each of global Rhenium and Molybdenum supply.

Midas’ concept is to focus on a smaller, higher grade project that relies less on by‐product credits and niche markets.

Regional Plan

Midas has over 65km of the Pilgrim Fault, which has many targets for near surface, higher grade copper, as shown by recent exploration results; these are within 10km of Kalman so they can be developed as satellite feeds to a mill of 1 to 2 million tonnes per annum at Kalman.

Other Projects

Kalman is the focus project for Midas.

Midas is farming into 320sqkm near the historic Mt Morgan and has flow a VTEM survey which has identified other prospective VMS occurrences.

Beer & Co conclusions

Beer & Co expects that the round of drilling that is to commence soon will lead to the definition of a new project, which we expect will be announced during Q2 2014.

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

What the Brokers Say

Thursday, February 13, 2014

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

Website: www.psl.com.au

Cradle Resources (ASX: CXX)

The recently released independent scoping study on Cradle Resources’ (ASX: CXX) Panda Hill niobium project (50 per cent owned with right to acquire balance) demonstrated a robust project at current prices.

There were several highlights which included lower capital/sustaining costs and higher grades (when compared to our estimates).

In addition, the study briefly examined a staged case whereby upfront capital costs were estimated to be c30 per cent lower compared to the base case.

On balance the base case was slightly lower than our estimates on a Net Present Value (NPV) basis due to higher operating costs and lower recoveries which have scope for improvement.

Robust Niobium Project:

Overall, the scoping study demonstrated a robust Ferroniobium project.

Encouragingly, upfront capital costs were c19 per cent lower (US$185 million) than Cradle’s initial estimates and sustaining capital was lower.

Whilst upfront capital was significantly lower this was offset by higher operating costs which were up c26 per cent from our previous estimates.

Recoveries were also slightly lower at 62 per cent LOM (PSL est. 65 per cent).

Based on the study we estimate a project NPV (at12 per cent) at US$332 million and IRR of 56 per cent.

At decision to mine our project NPV (at 12 per cent) increases to US$466 million.

PFS to Further Optimise:

Cradle plans to commence a Pre-feasibility Study (PFS) in Q2/2014 which is anticipated to be completed in Q4/2014.

The study will examine further project optimisations. The key areas highlighted for improvement include:

1) recoveries and reagent use;

2) reduced contract mining rates; and

3) power costs.

These have the potential to further reduce operating costs.

Staged Case Considered with 30 per cent Lower Capital Costs:

As part of the scoping study, a staged approach was briefly examined. Under this scenario the study estimated that capital costs would be c30 per cent lower at US$125 million.

The plant would initially process one million tonnes per annum (Mtpa) then be expanded to 2.3Mtpa after the first three years.

This lower capital option will be further examined in the PFS. The advantage is the reduced dilution with equity and/or lower debt requirements, as this expansion is funded through operating cashflows.

Further Funding:

At the end of the December Quarter, Cradle had $754,000 in cash. We anticipate that Cradle will need to raise additional capital to drive the project towards a decision to mine.

Catalysts:

1) Q3/2014: Metallurgical test work results;

2) Q3/2014: Updated resource estimate (category);

3) Q3/2014: Baseline studies for ESIA;

4) Q4/2014: PFS; and

5) Q4/2014: Commence DFS

Website: www.breakawayresearch.com

Emmerson Resources (ASX: ERM)

Emmerson is successfully applying a modern exploration strategy to its dominant tenement position in a world class mineral field.

The company has established a large JORC Resource at four deposits, with significant further exploration potential.

Emmerson also owns a fully permitted 300,000 tonnes per annum C.I.P. processing plant, providing a fast-track pathway to gold production.

With an Enterprise Value of just $9.4 million, Emmerson appears significantly undervalued.

Emmerson Resources (ASX: ERM) has a large, 100 per cent-owned tenement package covering the majority of the world class ‘Tennant Creek Mineral Field’, located in the Northern Territory.

The company has already identified significant copper-gold resources at four deposits, totalling 6.79 million tonnes at 3.6 grams per tonne gold equivalent (AuEq ) for approx. 900,000 ounces AuEq.

This JORC Resource is likely to be revised upwards in the near term with approx. one million tonnes of ‘ore grade mineralisation’ identified for near term assessment.

Of particular interest is the high-grade Chariot gold deposit (170,000 tonnes at 17.4g/t gold for 99,000 ounces gold) which is likely to be the first deposit mined and processed through the 100 per cent-owned 300,000 tonnes per annum Warrego C.I.P. processing plant, which is currently under ‘care and maintenance’.

A 1,200m RC drill program is scheduled to commence at the end of the wet season, targeting relatively shallow mineralisation (100m-200m) at Chariot East and Chariot West.

Historic ‘ore grade’ intersections in this area make it low risk-high reward program with potential to add meaningful ounces within an expanded open cut mine plan at Chariot.

Emmerson is a well-run company operating in a world renowned mineral province.

The company appears to have ‘cracked the code’ for discovery of blind deposits, and has increased its JORC Resource estimate by 70 per cent (gold) and 140 per cent (copper) in just the last quarter.

The Scoping Study currently underway is likely to provide impetus to begin feasibility work, targeting production in late 2015/early 2016.


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

What the Brokers Say

Thursday, February 20, 2014

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

www.breakawayresearch.com

Sundance Resources (ASX: SDL)

Sundance Resources is a Central African iron ore developer, with high quality projects at the shovel‐ready stage that will initially produce a high‐grade, low impurity Direct Shipping Ore (DSO) product.

The company envisages a two stage production plan, with an initial phase producing 35 million tonnes per annum (Mtpa) of DSO for at least 12 years, with a 20-plus year, second stage 35Mtpa high‐grade itabirite concentrate operation starting in year 11.

Sundance Resources (ASX: SDL) is making steady progress towards development at the Mbalam‐Nabeba iron ore project in the Republic of the Congo (RoC) and Cameroon, in Central Africa.

The project is‘shovel‐ready’, with a positive Definitive Feasibility Study delivered in early 2011 and the majority of Government approvals now in place.

Tenders for the estimated $2.6 billion direct cost rail and port infrastructure have been received, with a decision on the successful bidder expected in Q2, 2014.

Negotiations are also underway concerning offtake agreements.

These are critical elements in advancing the project, enabling construction of the infrastructure that will unlock the riches of this greenfield, world‐class iron ore province.

Sundance’s project is the most advanced in this emerging iron ore province.

Development of Mbalam‐Nabeba represents an excellent ‘company making’ opportunity, while controlling regional infrastructure should create numerous secondary benefits.

The company will achieve a strong market re‐rating as it achieves funding and development milestones.

Advanced Player in a World Class Province

Sundance Resources is majority owner of the Mbalam‐Nabeba iron ore project (including the Mbarga and Nabeba groups of deposits.

The project is the most advanced project in the as yet undeveloped world class Central African iron ore province, located in Cameroon, Republic of the Congo and Gabon.

The province includes two main groups of identified deposits; one group (including Mbalam‐Nabeba) is located in the northern RoC, Gabon, and southern Cameroon. The second is located in the southern part of the RoC.

These form two distinct provinces – the northern province contains significant DSO resources in addition to itabirite, whereas the southern Mayoko‐Zanaga province is dominated by itabirite, with no significant DSO resources.

www.breakawayresearch.com

Blackham Resources (ASX: BLK)

Blackham Resources continues to make significant progress as it steadily marches toward production.

The recently acquired 1.1 million tonnes per annum processing plant represents a game changer, supporting the company’s transition from ‘explorer’ to ‘emerging producer’.

Blackham also has a substantial tenement position over highly prospective ground where ongoing drill programs provide potential for resource upgrades in the coming months.

Blackham Resources (ASX: BLK) recently agreed terms to acquire the Wiluna gold project under highly favourable terms totalling $4.6 million.

This acquisition is a major step forward for Blackham in its aspirations of becoming a near-term, self-sufficient gold producer.

The Wiluna gold project hosts a significant JORC Resource of 16.7 million tonnes at 5.3 grams per tonne gold for 2.8 million ounces of gold.

However, the game changing aspect of the acquisition for Blackham is the fully permitted 1.1Mtpa processing plant and associated infrastructure, located in the middle of its Matilda gold project.

With the acquisition of the Wiluna gold project now a formality, Blackham intends to continue drill programs designed to prove up oxide and free milling reserves as the principal feed for a refurbished and reconfigured processing plant.

Encouragingly, the nearby Williamson and Matilda deposits both host this style of mineralisation and are already within granted Mining Leases (existing haul roads also link the plant to the deposits), thus providing a relatively short time frame and low capex pathway to production.

Initial gold production is targeted in mid-2016.

Blackham is now in the enviable position of being a well-funded, emerging gold producer with a significant resource all on the door step of fully permitted processing plant.

Significant exploration potential still exists and with drilling campaigns ongoing, resource and reserve upgrades are likely.


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

What the Brokers Say

Thursday, March 06, 2014

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

www.breakawayresearch.com

Altlantic Gold NL (ASX: ATV)

Atlantic Gold is an ASX-listed gold developer operating in the Meguma Terrane of Nova Scotia, with a +1 million ounce gold resource.

A key positive is the mineralisation style – unlike most occurrences in the Meguma Terrane which are nuggetty ‘Bendigo’ style mineralisation, Atlantic’s projects, while still containing relatively coarse gold, are disseminated in nature, allowing for more efficient (and low strip ratio) open cut mining whilst still achieving high gravity recoveries.

The key Touquoy project is close to being fully permitted, with funding now being negotiated.

Atlantic Gold continues to work towards development on its Nova Scotian gold projects.

The company has established a resource base of 1.2 million ounces over two deposits – Touquoy and Cochrane Hill.

Atlantic’s strategy is to initially develop Touquoy, which is close to being fully permitted, and then move 80 kilometres to Cochrane Hill once Touquoy is exhausted.

Both proposed operations have a five year mine life, with a combined planned production of 900,000 ounces and should be viable at current gold prices.

Near mine and regional exploration is also planned to expand the resource base, and results to date indicate excellent exploration potential.

Atlantic is currently suffering due to the need to raise capital to fund development of Touquoy in a time of depressed market conditions and a relatively low gold price.

However, given Atlantic’s personnel and the potential of the project, we believe this is a good opportunity at bottom of market valuations for a speculative medium term investment, with the added possibility of short term value increases with the completion of permitting and putting development funding in place.

To date the company has defined mineral resources of 1.21 million ounces at 1.6 grams per tonne of gold at the Touquoy and Cochrane Hill properties, with these including 454,000 ounces at 1.48g/t of reserves at Touquoy.

Atlantic plans a two stage operation – an initial 5 year, 84,000ozpa operation at Touquoy, after which the plant will be relocated 80km to Cochrane Hill, where another five years of operation will extract a further 480,000 ounces of gold.

Nova Scotia is a mining friendly jurisdiction, with a history of gold mining, however with current activities largely confined to quarrying and industrial minerals.

The provincial government has been strongly supportive of Atlantic’s activities, and well developed permitting procedures are in place.

Tax rates are reasonable, with corporate taxes (federal and state) totalling 31 per cent and a one per cent NSR royalty on gold.

Following completion of a positive Definitive Feasibility Study, Atlantic is now close to completing permitting for the Touquoy gold project, with the following milestones being achieved to date:

Environmental Assessment Approval granted;

Mining Licence Granted;

Industrial Approval application lodged 2012, approval expected in March 2014;

Private surface rights obtained, Crown land leases on offer; and

Sourcing funding, based on a standalone Touquoy project.

Once permitting is finalised and funding in place, the Company will be able to commence the 21 month development period, with the possibility of production commencing in late 2015/early 2016.

Website: www.rfcambrian.com

Peninsula Energy (ASX: PEN)

Peninsula Energy is an ASX-listed uranium developer focused on its flagship Lance ISR project in the Powder River Basin of Wyoming.

The company also has an earlier-stage conventional mining project in South Africa.

Peninsula’s flagship Lance project is well advanced.

Construction has commenced and only one permit remains outstanding (and this is expected later this quarter).

The project looks likely to be largely funded by a number of debt instruments, with production anticipated to begin in 4Q14, ramping up to 1.2 million pound per annum by 2017 and 2.3Mlb pa thereafter.

Peninsula’s second development asset is Karoo in South Africa, which hosts a high-grade 50Mlb JORC resource at an average grade of 1,040ppm uranium.

The project also hosts a similar amount of uranium in historical (non-JORC) resources that management is aiming to bring swiftly into JORC resources.

Exploration upside is apparent at both projects.

At Lance, a combined 312 kilometres of prospective strike along roll-fronts needs exploration testing.

At Karoo, the company has 7,800 square kilometres of tenure across prospective Permian sandstones and a 250 to 350Mlb exploration target.

Uranium sales will be managed through a marketing subsidiary.

PEN already has a small quantity of production off-take secured at an average price of US$75.60 per pound.

It plans to sell 45 per cent of sales to strategic off-takers, 35 per cent to US utilities and the remainder on the spot market.

Peninsula has plans to produce 8 to 10 million pounds per annum by 2022.

Management intends to combine organic growth with accretive acquisitions.


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

What the Brokers Say

Thursday, March 13, 2014

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

www.breakawayresearch.com

Adelaide Resources (ASX: AND)

Broad widths of high grade copper and gold mineralisation have been intersected at the Alford West prospect.

Of the 3,500 metre geochemical anomaly, only 1,100m has been drill tested with the entire interval reportedly mineralised, highlighting the significant exploration potential which still exists along strike.

Further drilling is in progress, including first testing of the recently identified Blue Tongue and Kambula anomalies, providing strong news flow in the coming months.

Adelaide Resources (ASX: ADN) is an Australian copper-gold exploration company which continues to deliver material exploration results at its flagship Moonta project, located in the highly prospective Moonta-Wallaroo district of South Australia’s Yorke Peninsula.

A shallow air core drill program carried out in 2013 at the Alford West prospect delivered some of the most impressive intersections seen from any junior exploration company in the past year.

Particular highlights include: 20m at 4.2 per cent copper and 0.27 grams per tonne gold from 32m and 45m at 1.56 per cent copper and 1.83g/t gold from 13m.

To date, only 1,100m of a 3,500m geochemical anomaly (approx. 30 per cent) has been drill tested, with numerous intervals of significant mineralisation reported along the entire zone, highlighting the potential which still exists.

Adelaide has commenced a 12,000m aircore drill program, designed to test geochemical targets along strike from the area tested in 2013.

Newly identified and highly prospective targets called Blue Tongue, Blue Tongue West and Kambula have been defined using low cost FPXRF geochemistry near Alford West and will also be tested in the upcoming campaign.

Breakaway is encouraged by the initial high grade shallow intercepts at Alford West.

Results from the upcoming drill program are eagerly awaited and with an EV of $12.3 million, Adelaide is highly leveraged to positive news flow.

Website: www.breakawayresearch.com

Rox Resources Limited (ASX: RXL)

Rox has a portfolio of quality exploration plays, however two standout as having potential to support a significant re-rating of company’s valuation.

A JORC Resource has already been defined at Camelwood (at the Mt Fisher nickel project) with drilling confirming ‘repeat’ zones along strike.

At the Teena prospect, wide spaced drilling has intersected broad widths of lead-zinc mineralisation which bodes well for Teck (and Rox) to meet the +100 million tonnes exploration target.

Although Rox Resources (ASX: RXL) has a diverse exploration portfolio, each with their own merit, two projects stand out as possible ‘company makers’.

The first project is the Mt Fisher East nickel exploration project where the company has identified what looks to be a new nickel field.

The first deposit, Camelwood, has been quickly delineated, hosting a current JORC Resource of
1.6 million tonnes at 2.2 per cent nickel for 34,600 tonnes of contained nickel.

Encouragingly, a recent RC drill program has identified multiple high priority prospects along strike of Camelwood where drilling has intersected significant widths and grades of nickel mineralisation (e.g. 17m at 2.2 per cent nickel, including 2m at 8.2 per cent nickel).

Further RC and diamond drill campaigns, earmarked for much of 2014, will likely lead to further high grade intercepts and ultimately, an increase in the resource.

The second is the Teena lead-zinc prospect which is being fully funded by Canada’s largest diversified mining company Teck Resources.

Rox currently has a 49 per cent interest, but will move to 30 per cent once Teck has sole-funded a further $10 million.

Teena has scope to become a +100 million tonnes ore body and is already regarded as one of the best zinc discoveries in Australia for many years.

Both of these projects have a significant excitement factor, and upcoming drill campaigns are designed to better quantify their size potential.

With an EV of approx. $27.5 million and an active 2014 drill season, positive news flow will likely provide a meaningful adjustment to the company’s market valuation.

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.

What the Brokers Say

Thursday, March 20, 2014

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



Website: www.breakawayresearch.com

TNG Limited (ASX: TNG)

TNG Limited (ASX: TNG) has made considerable progress over its portfolio of development and exploration projects, and has developed a two-pronged strategy, with the focus on its ferrous and strategic metals projects, with value adding options being explored for the non-core assets.

A review of the 2012 Mount Peake PFS and comminution optimisation results has generated improvements to the already robust project economics, and exploration results point to the potential for additional resources.

The addition of the Roper River licences has strengthened the ferrous metals side of the portfolio.

TNG continues to work towards development of its Mount Peake Vanadium-titanium-iron project, and commercialisation of the TIVAN® hydrometallurgical process.

It is expected that the DFS will be completed by late 2014 – timing will be dependent upon results of the pilot scale TIVAN® testwork and obtaining funding.

The company is now exploring DFS and development funding options, with the preferred option being introduction of a project equity or offtake partner.

Exploration work has also continued over the Mount Hardy and McArthur base metals projects, with very encouraging results from these high quality assets.

Achieving funding, further exploration success and positive TIVAN® pilot plant results should be key price drivers over the short to medium term.

The 100 per cent-owned Mount Peake Vanadium-titanium-iron project is located 235 kilometres north of Alice Springs in the Northern Territory.

The project has resources of 160 million tonnes grading 0.28 per cent vanadium, 5.3 per cent titanium and 23 per cent iron.

Recent exploration success at Mount Peake has enhanced the possibility of significant resource expansions.

Website: www.breakawayresearch.com

White Rock Minerals (ASX: WRM)

White Rock has a 100 per cent interest in the highly prospective Mt Carrington project area, located in northern NSW.

A recent resource category upgrade provides further confidence that Mt Carrington can host a medium scale gold-silver operation, buoyed by existing infrastructure which supports a low CAPEX development model.

White Rock Minerals (ASX: WRM) continues to make steady progress at the Mt Carrington gold-silver project.

The Mt Carrington project incorporates eight nearby deposits which combine to form a global resource base of 700,000 ounces at 1.4 grams per tonne gold equivalent (AuEq).

Following an infill drill program at the flagship White Rock deposit (4.4 million tonnes (Mt) at 58g/t silver for 8.2 million ounces (Moz) of silver), the company announced a resource category upgrade, shifting 1.7Mt at 77g/t silver for 4.2Moz silver into the higher ‘Indicated’ category.

The upgrade in the resource now completes the major geological component of its assessment plans and puts the company firmly on the path to development.

White Rock also recently announced that the ‘Conceptual Project Development Plan’ for the Mt Carrington project had been submitted to the NSW Department of Trade and Investment and was approved, and referred to the Department of Planning and Infrastructure.

Encouragingly, the White Rock deposit is already located within a ‘Mining Lease’ and is well supported by historical infrastructure (such as a tailings dam), providing confidence development consent can be gained in a timely manner.

Pre-feasibility studies are well advanced, centred on permitting, metallurgical test work and baseline studies.

In July 2012, White Rock completed a Scoping Study on the Mt Carrington gold-silver project.

The Study outlined the parameters for a medium-scale operation targeting production of approx. 40,000 ounces AuEq per annum.

Although the current global resource contains eight separate deposits, the Scoping Study only assessed mining five of the deposits (based on open pit shells).

The key outcomes of the Scoping Study are:

800,000 tonnes per annum, six year operation, producing 107,000 ounces of gold, 6.9Moz silver;

40,000 ounces per annum AuEq production;

Capital cost of $24 million;

Cash operating costs of $46/tonne milled ($869/oz AuEq);

NPV10 of $40 million, IRR of 62 per cent post tax; and

Gold price of $1,500/oz, silver price of $30/oz.

White Rock envisage an 800,000 tonnes per annum processing plant with a CIL circuit (to recover gold) and a floatation circuit (to recover the silver).

Significant infrastructure is still in place from the historical ‘Mount Carrington Mines’ mining operations, contributing to a low CAPEX estimate of $24 million.

These items include:

1.5Mt tailings dam (with room for expansion);

750 million litres freshwater dam;

Administration and exploration offices;

Water treatment plant;

Connection to the power grid; and

Sealed highway access.

Following the positive outcomes of the 2012 Scoping Study, White Rock commenced with infill drill programs, metallurgical studies and permitting.


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.

What the Brokers Say

Thursday, March 27, 2014

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

www.breakawayresearch.com

Auroch Minerals (ASX: AOU)

Auroch Minerals’ (ASX: AOU) Manica gold project hosts a significant JORC Resource of 48.9 million tonnes at 1.79 grams per tonne gold for 2.82 million ounces.

The company now has put in place a clear three stage strategy which envisages mining the non-refractory component of the ore body first, providing the framework and cash flow necessary to advance the larger and potentially more lucrative refractory project.

A DFS is underway with the company targeting first production as early as Q4 2015.

The Manica project, located in Mozambique, hosts its current JORC Resource at four nearby deposits.

Approximately 90 per cent of the resource is hosted within sulphide ore zones (refractory) while the remaining (approx.) 10 per cent of the resource (approx. 258,000 ounces) is hosted within free milling, transitional or oxide (non-refractory) ore zones.

It is these non-refractory ore zones which provide a near term path to production.

Auroch recently updated the 2013 Scoping Study to reflect a new 3 Stage strategy which envisages initial mining and processing of the non-refractory ore zones at various satellite deposits, followed by an expansion to process the larger and potentially more lucrative refractory ore zones.

Manica is located on a 25 year mining lease and already well serviced by local infrastructure such as telecommunications, local airport, roads, rail, power and water, minimising the upfront capital costs and time line to production.

Auroch is well advanced with metallurgical test work and infill drill campaigns required for the DFS, which is being supported by a ZAR 8M (approx. A$870,000) grant from the Department of Trade and Industry of South Africa.

Importantly, this grant now opens up the potential to receive further funding on a project level from other South African based financiers.

Website: www.breakawayresearch.com

PLD Corporation (ASX: PLD)

PLD Corporation is an early stage nickel-copper exploration company with exposure to a highly prospective project located in the Albany-Fraser belt of Western Australia.

Shallow RAB drilling at two targets (of 36 identified) demonstrate a geological setting considered directly analogous to the Nova-Bollinger discovery, also located within the Albany-Fraser Belt.

Upcoming drilling provides opportunity for positive news flow and a substantial valuation re-rating.

PLD Corporation (ASX: PLD) has entered into binding option agreements for an exclusive 12 month period to acquire a 90 per cent interest in the Rocky Gully nickel-copper project (comprising 3 tenements), located in the southern corner of the Albany-Fraser Belt from ASX-listed Heron Resources.

A further option agreement was signed with a private group for a 100 per cent interest in a contiguous Exploration Licence Application (with both option agreements now covering four licences).

PLD has already made non-refundable payments totalling $80,000 to secure the option agreements and, should the company elect to exercise, it will pay a further $280,000 (or 28.75 million PLD shares issued at 0.8 cents) to Heron and 5 million shares to the private group (at 1 cent).

Heron will retain a 10 per cent interest in 3 licences and a Net Smelter Royalty (NSR) of 1.5 per cent.

The Rocky Gully project hosts 10 ‘priority’ nickel-copper targets, however, the two of most significance are the ‘M19’ and ‘M20’ prospects.

Historical shallow RAB drilling intersected strongly anomalous nickel-copper zones within lateritic horizons in a setting that is considered directly analogous to that of Sirius’s Nova-Bollinger discovery.

An upcoming RC drill campaign has been designed to test these highly prospective nickel-copper targets, with first results expected before the end of June 2014.

PLD has a management team with extensive experience in exploration, development and mining, providing confidence of stringent exploration.

With an EV of $1.9 million, PLD is highly leveraged to any positive news flow.

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.

What the Brokers Say

Thursday, April 03, 2014

WHAT THE BROKERS SAY: Interesting news and views from across the Resources and Oil & Gas Analyst universe.


website: www.breakawayresearch.com

Carpentaria Exploration (ASX: CAP)

Carpentaria Exploration is primarily a western New South Wales iron ore developer, with 60 per cent ownership of the Hawsons iron ore project, located near Broken Hill.

The project, for which positive economics are indicated, is well served by infrastructure, including power, rail, port and a skilled workforce in Broken Hill.

Carpentaria also has a second string to its bow, actively exploring a package of tenements in New South Wales prospective for intrusion related gold and porphyry related gold/copper deposits.

Carpentaria Exploration (ASX: CAP), along with 40 per cent JV partner Pure Metals, continues to assess development of the Hawsons iron ore project.

The company has recently completed a positive project review, and now is looking to progress through the feasibility phase, for which funding is required.

A key to the project is that it is well served by infrastructure, with potential available capacity for production of up to 8 to 10 million tonnes per annum, thus minimising capex and lead times.

In this, Carpentaria is unique when compared to its peers. There are also potential infrastructure synergies with other projects and companies in the region.

With Pure Metals currently managing the Hawsons project, Carpentaria has the resources to actively explore its package of 100 per cent held intrusion related gold and porphyry related copper/gold projects in central and northern NSW.

These prospective projects are largely located over areas of known mineralisation, however with little modern exploration.

The company has a Board and management team with a proven track record in industry and government that has pro-actively managed projects.

We see short term price appreciation on the back of obtaining a partner to fund the Hawsons DFS and any exploration success on the gold projects, with medium to longer term appreciation to be driven by ongoing advancement of all projects.

Website: www.argonaut.com

Citation Resources (ASX: CTR)

Citation has announced that its Atzam#5 well, onshore Guatemala, has been successfully cased above the first of multiple objectives.

The well is an appraisal of a field that was successfully tested by the Atzam#4 well in 2013.

Atzam#4 is currently producing 170 barrels of oil per day with no water cut and steady pressure (indicating greater deliverability is possible).

The well is choked back until the Operator has a better handle on the impact of a higher production rate on the Estimated Ultimate Recovery (EUR).

The Atzam field may contain as much as 20 million barrels of recoverable oil with additional upside possible from near field exploration (CTR 60 per cent).

Operations have been slower than expected; however, we are now at the pointy end of the process and, given the success at Atzam#4 and oil shows seen already in Atzam#5, we consider the chance of success as high.

Guatemala Re-Cap:

Citation has a 60 per cent interest in the Atzam Oil Field, onshore in Guatemala, through its ownership in the local operating company, Latin American
Resources.

The first well in the recent program, Atzam #4, flowed at >600bopd from a secondary target and has been flowing at a choked back rate of 170bopd.

The current 2P Reserve related to only the Atzam#4 well has been independently estimated at 2.3mmbbl with upside potential for the field as high as 20mmbbl.

Additional potential on the permit is also considered likely with Atzam look-a-likes as well as other play types in which oil production has been proven.

Guatemalan fiscal terms are considered attractive with operating margins of approx. 50 per cent.

Atzam#5 – Layer Upon Layer:

One of the key positives about the Atzam field geology is that there are multiple prospective horizons starting at the C13 level (just below where casing has recently been set).

During the drilling of Atzam#4, many interesting shows were seen but not tested as a standard drilling plan calls for drilling to Total Depth and then testing from the deepest horizon up.

Atzam#4 had issues with the deepest horizons (C18/19 – the primary targets) but fell back to the C17 and achieved a highly successful outcome, albeit that the interesting shallow zones were not tested.

A different approach is being used at Atzam#5 with production testing equipment so that testing can occur on the way down if anything interesting is seen.

The primary targets remain in the deeper horizons; however, we are likely to get significant newsflow on oil shows as well as production testing from other horizons over the next few weeks.

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.

What the Brokers Say

Thursday, April 10, 2014

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

www.beerandco.com.au

Metals of Africa (ASX: MTA)

Metals of Africa’s main project, Rio Mazoe in Mozambique, reported an average of 47.6 per cent lead, over 55 select samples from rock chips and trenching, with a maximum of 9.5 per cent copper at Rulio.

Rio Mazoe’s Meque prospect has artisanal lead-zinc-copper workings along 2.5 kilometres of outcropping mineralisation.

MTA’s Mkindu prospect, in Tanzania, has defined conceptual Olympic Dam IOCG style drill targets.

Broken Hill Type fertile geological setting dentified by BHP in 2001‐2003

In 2001, BHP began a program to identify Broken Hill Type prospective areas in Africa, focussing on tectonically and geologically favourable areas, along the northern margin of the Zimbabwe Craton, and to the south of the Congo Craton.

Despite promising results, BHP abandoned the program in 2003 for global corporate reasons at that time.

Rio Mazoe identified, in Tete province, north‐west Mozambique

Rio Mazoe covers about 857 square kilometres in north‐west Mozambique. MTA has three main prospects in the Rio Mazoe area:

Meque has 2.5km of outcropping mineralisation which has been mined historically for lead-zinc-copper-silver ores. Most of the adits have collapsed but there are shafts still in place to 35m in depth;

Ruilo has yielded many high grade galena samples, to 79.9 per cent lead, plus zinc-silver; and

Cocdeza has yielded high grade copper samples, with visible malachite, chalcocite and bornite.

MTA is farming into the Changara project, covering 511sqkm, which is co‐located with Rio Mazoe, and has five identified lead-zinc and copper-lead-zinc prospects.

Tanzania: Mkindu IOCG and Tanga gold/copper-gold

Mkindu is interpreted, from detailed areo‐magnetics and mapping, to have conceptual Olympic Dam IOCG style targets that need to be drill tested.

At Tanga, soil sampling has determined a zone of anomalous copper-gold, over more than 5km, with values up to 3 grams per tonne gold and 0.67 per cent copper.

Gabon: 90 per cent of 6,886sqkm with many lead-zinc-silver-copper occurrences

MTA has just acquired a large area in Gabon which has shallow drill defined lead-zinc-silver mineralisation over several kilometres.

Beer & Co conclusions

MTA is stalking elephants in elephant country. It has already found many high grade indications of potential projects.

www.breakawayresearch.com

Potash West (ASX: PWN)

Potash West continues to advance its 100 per cent-owned Dinner Hill SSP project, which forms part of the overall Dandaragan Trough project in Western Australia targeting greensands.

A scoping study has shown the feasibility of a 20 year, plus-340,000 tonnes per annum SSP production facility, supplying both domestic and Asian markets, based on forecast USD cfr SSP prices of A$383/tonne.

The keys to the project are a low ($144 million) start-up capital, and relatively low operating costs due to the flat-lying, shallow simple mineralisation that is amenable to standard treatment options, and short transport distances.

The company is assessing further process improvements aimed at improving the project economics.

The location is close to a potential market in Asia, with demand for fertilisers expected to continue to grow with the need to continually increase crop yields to feed a growing population.

The Dandaragan Trough project has returned a positive scoping study on a low start-up capital single superphosphate producing operation.

Results indicate an NPV of $218 million and an IRR of 26 per cent, with scope for improvement.

The project area has excellent access to infrastructure, and is close to export ports and growing markets.

Dinner Hill phosphate Indicated resource of 90 million tonnes at 2.65 per cent phosphate, 3.6 per cent potassium and 4.5 per cent calcium.

The deposit remains open to the north and east, and with considerable exploration potential.

Potash West holds 100 per cent of the Dandaragan Trough project covering extensive greensand deposits that can be processed to produce a range of fertiliser and chemical products.

Since listing in May 2011 considerable progress has been made, including the definition of indicated resources and scoping various development options.

The initial scoping study assessed the viability of treating the glauconite sands to produce a series of products using the company developed “K-Max” pyro/hydrometallurgical process.

This developed positive outcomes at the then economic conditions, albeit with high capital costs that would require a major partner.

This option is being kept on the backburner, however can be reactivated should conditions allow.

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.

What the Brokers Say

Thursday, May 01, 2014

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

www.breakawayresearch.com

King Island Scheelite (ASX: KIS)

King Island Scheelite is looking to fast track its King Island Scheelite project, with an aim to commence production possibly as soon as early 2016.

This historical high-grade producer still has significant open cut and underground resources, at grades significantly higher than ASX-listed peers.

The key to the King Island project is its grade – an average LOM feed grade of approx. 0.83 per cent tungsten contributes to a potentially robust operation.

There is also good exploration potential on the flanks of the mineralising intrusives.

The company share register is dominated by key stakeholders in the project (including the directors), and hence we see significant motivation to generate value in the company.

King Island Scheelite has completed a Definitive Feasibility Study and supplementary studies for re-opening the historic King Island Scheelite Mine located on King Island, in Bass Strait, Australia.

Current open cut and underground hard rock resources are in the order of 6.4 million tonnes at 1.2 per cent tungsten (10.6 million tonnes at 0.93 per cent tungsten using a lower cut-off), with additional low grade resources in the tailings dam.

The company is considering a staged open cut and underground development, and is looking to fast track development of the project.

Little needs to be done with regards to permitting by virtue of approvals being in place from previous work, with this development not proceeding due to circumstances largely out of the company’s control.

King Island Scheelite is currently scoping a combined open cut, limited tailings retreatment and underground operation at its 100 per cent-held King Island Scheelite project, with the potential to produce up to 36,000 tonnes of tungsten over a 13 year mine life.

This is in effect a hybrid of two previous studies – a 2006 DFS that was based on a large open cut at the historic Dolphin Mine, and a 2012 study based on tailings retreatment followed by underground mining at Dolphin and Bold Head.

www.psl.com.au

Centrex Metals Limited (CXM)

Centrex Metals has successfully implemented a business strategy of attracting foreign investment to develop early stage exploration assets in Australia.

To date the company has secured the support of two major Chinese steel producers for its iron ore assets in South Australia and one major Chinese partner for a base metals project in New South Wales.

With $35 million in cash, CXM is well positioned to maintain these assets and advance its new metals portfolio which will provide short, medium and long term value to the company.

CXM has been focused on the development of its iron ore assets and infrastructure on the Eyre Peninsula in South Australia since 2001.

In 2010 it successfully created joint ventures with major Chinese steel producers, Wuhan Iron & Steel (WISCO) and Baotou Iron & Steel (Baotou), to fund the development of two magnetite projects.

CXM also owns 100 per cent of a small hematite DSO operation and another magnetite project which has had some encouraging exploration results recently, which could lead to another Joint Venture agreement.

These magnetite projects are located between 40km and 100km via slurry pipeline from ports and
CXM has identified and developed a conditionally approved port solution at Port Spencer.

The projects are also located in an area close to large regional centres and relatively well endowed with infrastructure including roads and national grid power.

CXM has built a portfolio of early stage exploration tenements in the Lachlan Fold Belt, NSW.

The portfolio is prospective for base and precious metals with historical mineralisation evident at all prospects.

CXM will endeavour to develop these projects in a similar fashion as it has developed its iron ore holdings.

This will be done through conservative exploration expenditure to develop each tenement, prior to seeking foreign investment partner.

CXM has successfully executed this strategy with the Goulburn zinc-lead project by executing a Joint Venture agreement with the Shandong 5th Geo-Mineral Prospecting Institute.

All Joint Ventures are structured to have minimal impact on the company’s cash reserves and financial structure.

As the projects develop, CXM, with its JV partners, will look to raise the require capital at the project level.

This should ultimately provide CXM with a portfolio of minority holdings in projects producing a number of commodities around Australia.

Over the next 12 months Patersons envisages a number of significant catalysts for CXM including 1) Chinese approval and commencement of drilling on the Goulburn JV tenements; 2) Exploration success at Woolgarlo and Gundaroo; 3) Resource definition and JV agreement for Kimba Gap; 4) Baotou increasing its interest in the Bungalow JV to 50 per cent and investing the additional $16 million.

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.

What the Brokers Say

Thursday, May 22, 2014

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


Website: www.hartleys.com.au

Buxton Resources Limited (ASX: BUX)

Magmatic nickel-copper sulphide intersected at Zanthus

Buxton Resources recently completed RC drilling at the Zanthus project in the Fraser Range, confirming the presence of highly prospective mafic/ultramafic rocks and more importantly identified magmatic nickel-copper sulphide mineralisation through petrology and assay results.

No ore-grade intervals were reported but two holes returned nickel values around 0.12 per cent nickel within ultramafic rocks while testing conductive targets located within three kilometres of one another.

Prior to further exploration BUX plans to undertake a full technical review of the data collected over the project area.

Results to date clearly warrant further work in and around targets ZV10 and ZV07, which could involve more detailed geophysical surveys (magnetics and/or electromagnetics (EM)) and more drilling.

Western margin of intrusive structure upgraded by drilling

The aim of the first pass drilling program was to test 20 bedrock conductors originally identified through airborne EM surveys but followed up with ground EM prior to drilling.

A vast majority of the conductors tested were explained by graphitic rocks or iron sulphide accumulations, considered to be of low interest for magmatic nickel-copper mineralisation; however, the drilling of six targets intersected gabbro (mafic) and ultramafic rocks considered to be priority hosts.

Five of the six holes which intersected gabbro and/or ultramafic rocks are located along the western margin, a large interpreted intrusive structure which spans over 10kms of strike.

This zone or corridor may provide a focus for future exploration.

Target ZV10 – large conductor with confirmed nickel mineralisation

Out of all the drill results reported the standout hole is ZRC086, which returned 4m at 1,219ppm (0.12 per cent) nickel, 114ppm copper from 96m, contained within a 12m zone of ultramafic host rock.

The hole was drilled to test conductive target ZV10, defined by as strong conductor, coincident to some low tenor nickel geochemical anomalism.

The target has a north-south orientation and an approx. 1km strike extent, and was previously considered to be a moderate priority anomaly.

Petrographic analysis of the mineralised zones (from 96-100m) identified “definitively magmatic sulphide blebs of inter-grown iron sulphide (pyrrhotite), nickel sulphide (pentlandite) and minor copper sulphide (chalcopyrite) from within ultramafic”.

Fraser Range still the hottest address for nickel

The Zanthus project has been upgraded by the confirmation of magmatic nickel-copper sulphide mineralisation, but further work will be required to locate potential higher grade zones of mineralisation.

That Buxton has highly prospective ground within the Fraser Range has been validated by the drilling.

A full technical review will determine the level of next exploration within the project area.

Greenfield nickel exploration remains high risk but can be highly rewarding, especially within the Fraser Range.

Buxton has a tight capital structure, low market cap of around $12 million (EV of approx. $10 million), and has now confirmed magmatic nickel sulphides, which could translate to discovery success.

Website: www.breakawayresearch.com

Adelaide Resources (ASX: ADN)

All the hallmarks of a major copper discovery

Shallow aircore drilling at the Alford West prospect in South Australia has continued to return some of the most impressive drill intersections seen from any exploration company in recent times.

Four defined ‘zones’ of higher grade copper mineralisation have been modelled with each zone still open at depth.

A deeper drill program is planned for the second half of 2014 which will better quantify the known mineralisation and test likely depth extensions, whilst also providing a strong opportunity for a market re-valuation of the company.

Adelaide Resources continues to steadily advance its flagship Moonta project, located at the southern end of the ‘Olympic Copper Gold Province’ in the Moonta-Wallaroo district of South Australia’s Yorke Peninsula.

An extensive shallow aircore drill program targeting the previously defined 3.5 kilometre Alford West geochemical anomaly has now been largely completed.

Multiple impressive intersections have continued to flow following early standout hits of 20m at 4.2 per cent copper and 0.27g/t gold from 32m, and 45m at 1.56 per cent copper and 1.83g/t gold from 13m.

While these highlights often attract short lived market attention, it is the ‘big picture’ which appears to have been overlooked: Alford West is demonstrating all the hallmarks of a major discovery.

Adelaide has now defined four target zones which appear likely to contribute towards an eventual mineral resource.

While shallow aircore drill holes have been completed over these zones (with economic grades and widths reported), they are yet to be adequately tested below approx. 100 metres.

Evidence from nearby historical drill holes (and other deposits within the region) indicates that mineralisation commonly continues to significant depths.

The potential size of the Alford West prospect should not be underestimated.

The combined strike length now exceeds 3km with deeper RC and diamond drill programs set to begin testing the depth extent in the second half of 2014.

Positive news flow will likely soon follow providing significant opportunity for a company re-rating as the potential scale of the system is realised.


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.

What the Brokers Say

Thursday, June 05, 2014

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

Website: www.hartleys.com.au

AUSDRILL LIMITED (ASX: ASL)

AUMS downgrade, but other businesses are okay

Ausdrill has downgraded FY14 normalised NPAT guidance to $25 million to $30 million from previous normalised NPAT guidance of $35 million.

The downgrade is due to underperformance of the African Underground Mining Services (AUMS) 50/50 JV with Barminco.

AUMS generated $35m (100%) of EBITDA in 1H14 ($5.2 million net income to ASL), but we expect that it will be barely EBITDA positive in 2H.

We understand that Barminco has now replaced the top operational managers of the JV.

ASL says that their other businesses (which were greater than 85 per cent of FY13 earnings) “have generally been performing in line with management expectations”, which is very encouraging for improved medium term earnings certainty.

Hartleys expects FY14 NPAT $26.2 million, FY15 $50 million
 
We have revised our FY14 NPAT to $26.2 million, (group EBITDA of $198 million, covenant EBITDA $179 million).

We have lowered our FY15 NPAT to $50 million by assuming AUMS margins rebound but remain lower than our previous assumption given the commentary about the aging fleet raises concerns.

We expect FY15 group EBITDA of $234 million, covenant EBITDA $214 million.

We estimate that if “covenant EBITDA” falls toward approx. $150 million the covenant pressure increases.

However, the covenants are only for the revolving cash advance facility, for which only $65 million is currently drawn.

The other facilities are asset backed or, in the case of the US$300 million unsecured notes, covenant light.

In our view, ASL remains well positioned for a cyclical improvement, and the financial leverage remains manageable, on current earnings estimates.

It is hard to imagine that we are not at the bottom of the earnings cycle for ASL.

ASL is a complicated business (not least the financial accounts, for which we have three measures of EBITDA).

However, part of the reason for the complications is the diversity of the company, although financial leverage doesn’t help.

We continue to believe that ASL is a well-run business that “deserves” to make an economic profit.

Hence, when the cycle turns we expect ASL earnings to rise significantly.

Superficially the leverage looks like a substantial risk, but on closer inspection the capital structure doesn’t appear to have short term (next two year) risks.

Website: www.breakawayresearch.com

Vital Metals (ASX: VML)

Vital Metals continues to progress its Watershed Scheelite project in North Queensland with key points of the current DFS expected to be finalised by mid-2014, and a final investment decision by the end of 2014.

Although originally conceived as a one million tonne per annum operation, the scope has been expanded to three million tonnes per annum to take advantage of economies of scale and the large JORC-compliant resource.

Our modelling indicates a robust project, which will withstand reasonable adverse movements in key financial parameters.

Tungsten consumers see supply risk for the metal given the Chinese concentration of production bans on concentrate exports and restrictions on APT exports, and thus are keen to diversify their supply base, with Watershed being ideally placed to tap into this potential demand.

Vital Metals’ (ASX: VML) flagship project is the Watershed Scheelite project in North Queensland, which is one of the 10 largest un-exploited tungsten deposits in the world.

It has a measured, indicated and inferred JORC-compliant resource of 49.3 million tonnes at 0.14 per cent tungsten for 70,400 tonnes of contained tungsten.

Vital Metals has a key partner in the Japan Oil, Gas and Metals National Corporation, which has earned a 30 per cent interest in Watershed through funding the current Definitive Feasibility Study to $5.4 million, and will act as match-makers to source potential offtake/funding/development partners to take the project through to production.

Vital Metal’s second string is the 100 per cent interest in four gold tenements in Burkina Faso, collectively termed the Doulnia project.

The tenements are located over units of the Birimian Greenstone Belt, the host to a number of world-class gold deposits.

Drilling to date has returned very encouraging results.

We continue to rate Vital Metals with key medium term price drivers including attracting a suitable partner to help take Watershed through to production, which should result in a significant rerating.

Shorter term momentum should be gained from the release of a positive numbers from the current DFS.

 

 

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.

What the Brokers Say

Thursday, June 12, 2014

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


Barclay Wells

Website: www.barclaywells.com

Potash West (ASX: PWN)

Potash West’s 100 per cent-held Dandaragan Trough asset contains both rock phosphate and potash within glauconite.

Despite the long term goal of the company to progress its potash projects (as evidenced by the company name), the company’s immediate focus is to become a producer of Single Super Phosphate (SSP) from this greensand deposit to then eventually fund the potash production.

The SSP project requires relatively low amounts of capital expenditure, is conveniently located near all necessary infrastructure and entails very little technical risk, as the mining and processing involved are relatively simple.

With an anticipated 20-plus year mine life, the project is attractively leveraged to forecast rises over the medium to long term in price and demand, globally, for SSP.

We have calculated a fully risked NPV range of between $31million and $43 Million for the phosphate project alone.

This compares to the current market capitalisation of around $4.5 million.

Whilst the potash may have significant value, the ability to fund the significant infrastructure is heavily dependent on cash flow from the SSP project.

In addition, we view the potash side of the asset to be essentially a technology play around development of the (company-developed) K-Max process.

This proprietary process would allow the company to viably extract potash from the glauconite at efficiencies far greater than current conventional methods.

We consider this blue-sky (for purpose of research note) and have attributed no present value to it in our valuation of PWN.

Like virtually all junior exploration companies, PWN entails significant risk.

However, we view the current market capitalisation as significantly undervaluing PWN’s potential.

 

 

Breakaway Research

Website: www.breakawayresearch.com

Horseshoe Metals Limited (ASX: HOR)

Horseshoe Metals is in the process of raising up to $2.05 million to progress its Horseshoe Lights and Kumarina projects in the highly prospective Bryah and Bangemall Basins of Western Australia.

The company has already identified significant copper resources on its projects, and the work has also identified a number of additional encouraging targets that require further work, particularly drilling.

As such the company has planned a drill program that will commence once funds are raised.

We see significant potential for exploration success, and for the company to build a critical mass of plus-200,000 tonnes of contained copper at Horseshoe Lights and to significantly add to the Kumarina copper resources.

Horseshoe Metals has made considerable progress on the Horseshoe Lights and Kumarina projects since listing on the ASX in 2010.

Copper resources have been delineated on both projects, and work has delineated a number of targets worthy of follow up.

The Horseshoe Lights project is centred over the historic Horseshoe Lights mine, which produced 300,000 ounces of gold and 54,000 tonnes of copper up until closure in 1994.

Horseshoe Lights is located in a similar stratigraphic position in the Bryah Basin to the recently discovered DeGrussa deposit of Sandfire Resources (ASX: SFR), and we consider there to be excellent potential for the discovery of additional zones of mineralisation on the company’s leases, in addition to the current resource of 12.8 million tonnes at one per cent copper.

At Kumarina a number of additional drilling targets have been identified, that have the potential to significantly augment the current shallow Rinaldi resource of 835,000 tonnes at 1.3 per cent copper.

Horseshoe Metals has defined significant copper resources at its Horseshoe and Kumarina prospects in the productive Peak Hill Mineral Field of WA, which also hosts the high-grade DeGrussa copper-gold mine (13Mt at 4.5 per cent copper and 1.8 grams per tonne gold) and other significant copper and gold deposits and prospects.

DeGrussa is located 75km east of Horseshoe Lights and 100km south of Kumarina.

Work on both projects has identified prospective targets that now require additional work.

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.

What the Brokers Say

Tuesday, June 17, 2014

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


Hartleys

Website: www.hartleys.com.au

 PAPILLON RESOURCES LIMITED (ASX: PIR)

Takeover arrives

Papillon Resources Limited has received a friendly scrip merger offer from B2Gold (BTO.tsx).

The offer is 0.661 B2Gold shares for each PIR share held. The merger represents a purchase price of $1.71/share (based on B2Gold closing price 3/06/14) and values PIR at approx. $617 million.

Before PIR went into trading halt on 26 May 2014 the proposal represented a purchase price of around $2.00/share but since this date the B2Gold share price has fallen due to a combination of gold price volatility and media speculation surrounding the transaction.

Our current valuation for PIR is $1.89/share which suggests the original proposal was around fair value, especially given our PIR valuation is not adjusted by a country risk discount.

Fair value although cash would have been better

We see the original proposal by B2Gold as appropriate although the recent share price movement has pushed the implied deal price below our PIR valuation.

We maintain our view that Fekola is one of the best undeveloped gold assets in the world and hence may attract a counter offer by a larger gold miner, particularly as we see the potential for more value in PIR through a larger development (lower cutoff, larger mill for increased production).

Not scared to develop projects in difficult jurisdictions

BTO has a portfolio of assets in the Philippines, Nicaragua, Colombia, Namibia and Uruguay.

The company has a history of developing gold projects in some of the world’s more difficult jurisdictions.

BTO is currently operating two mines in Nicaragua and one in the Philippines. The company plans a fourth mine (Okjikoto) in Namibia to be commissioned in Q4 CY14.

BTO has a cash and equivalent assets position of approx. C$150 million and unused debt capacity of C$150 million.

Second deal PIR Chairman has done with the B2Gold club

We note that this deal comes soon after the completion of the Sierra Mining Ltd (SRM) merger with RTG Mining Inc (RTG).

The PIR chairman was also the chairman of SRM, and B2Gold was a major shareholder of both SRM & RTG.

We maintain our view that Fekola is one of the world’s best undeveloped gold projects.

The offer price doesn’t include a scarcity premium or significant exploration potential, but perhaps this allows for a small country risk discount.

Due to the scarcity of deposits like Fekola and the potential value accretion we believe it is possible that there is a counter bid, although given the very long sale process it seems probable that other potential avenues have been exhausted.


Breakaway Research

Website: www.breakawayresearch.com

TNG Limited (ASX: TNG)

TNG has made significant key advancements on the Mount Peake project, with the signing of MoU’s with WOOJIN and POSCO E&C since March 2014.

These agreements cover critical aspects of project development, including offtake, financing and construction.

In the shorter term the POSCO E&C MoU covers potential funding and completion of the Definitive Feasibility Study, a critical near term step in advancing Mount Peake.

One key now will be to progress these non-binding MoU’s into binding agreements, which will add significant impetus to Mount Peake.

The key technical consideration is to prove the commercialisation of the TIVAN® hydrometallurgical process, with pilot scale work now under way.

TNG continues to work towards development of its Mount Peake V-Ti-Fe project, and commercialisation of the TIVAN® hydrometallurgical process.

It is expected that the DFS will be completed by late 2014 – timing will be dependent upon results of the pilot scale TIVAN® testwork and obtaining funding.

With the signing of the recent MoU’s TNG has moved closer to sourcing funding for the DFS and development of Mount Peake.

Recent progress increases our confidence that TNG’s development strategy for Mount Peake is on track to be executed.

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.

What the Brokers Say

Thursday, July 03, 2014

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

Breakaway Research

Website: www.breakawayresearch.com

Elysium Resources (ASX: EYM)

Elysium Resources continues to make significant progress on its 100 per cent-owned Burraga copper project in the Central West of New South Wales.

Key advancements include progress on the permitting and EIS, and exploration in the project area has returned excellent early stage results, with a number of targets now requiring drilling – we consider the Burraga tenements as highly prospective for additional gold and base metal mineralisation, with any discoveries potentially adding to the currently planned 4.4 year, 300,000 tonnes per annum operation.

Successful project implementation will allow Elysium to self-fund exploration activities over all of its prospective properties, and any exploration success should significantly drive the company’s value.

Elysium Resources is an Australian mineral exploration company whose core business is exploring for large, high-quality copper and gold deposits in the rich mineral provinces of Australia and Indonesia.

Elysium is currently focussing activities on its Burraga copper project, located south-east of Bathurst in the Central West of NSW, and centred over the historic Lloyds Mine, which produced some 470,000 tonnes of ore at over 4 per cent copper.

The strategy involves developing a 300,000 tonnes per annum operation to initially treat historic tails and slag, and then develop an open pit to mine and treat approximately one million tonnes of in-situ copper mineralisation.

Free cash flow from the envisaged 4.4 year operation will be used to fund ongoing exploration activities on the company’s exploration assets, including a number of high quality gold and copper targets in the Burraga tenements.

Other exploration tenements include Malang in the highly prospective Sunda Arc of Indonesia, and Horseshoe South in the VMS prospective Bryah Basin of Western Australia.


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.

What the Brokers Say

Thursday, July 10, 2014

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

Website: www.breakawayresearch.com

Tungsten Mining NL (ASX: TGN)

Tungsten Mining is an Australian mineral exploration company focused on the development and exploitation of tungsten projects.

Following the establishment of a maiden JORC resource at its flagship Kilba project in the Gascoyne region in Western Australia, the company released the results of an in‐house scoping study which indicated a viable and economically attractive project.

The project is on a granted Mining License and all environmental studies have been completed.

Based on a tungsten price of US$440/mtu APT, average annual production of 154,000 mtu over a seven year mine life, recovery of 80 per cent, capital cost of $56 million and average LOM operating costs of US$212/mtu, the project NPV was $36 million.

Previous modelling by Breakaway confirmed a valuation in line with the company’s estimate.

A shortage of funding slowed down activities over the past 6‐9 months, but following the recent capital raising, drilling will re‐commence and full feasibility studies begin.

Successful capital raising of $4.34 million (before costs) in a subdued small‐resources market seen as a significant achievement.

Proceeds of the capital raising to be used to advance feasibility studies, including further drill outs, metallurgical test work and engineering studies, infrastructure requirements and permitting and marketing.

Australian iron ore company GWR Group Limited has become the largest shareholder, securing a 16.5 per cent interest in the recent entitlement issue.

Additional metallurgical studies carried out in 2013 have indicated the potential for Dense Medium Scalping which, if successful, would effectively reduce the amount of ore to be processed by more than 50 per cent.

Successful implementation of Dense Medium Scalping has the potential to significantly reduce processing plant capital requirements and overall capital and operating costs.

Paul Berndt will stand down as managing director but will continue as a non‐executive director and consultant to the company from 1 August 2014.

Following the recent capital raising Tungsten Mining is poised to recommence drilling and feasibility studies on its flagship Kilba project with the intention of transitioning into production in a short time frame.

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.

What the Brokers Say

Thursday, July 24, 2014

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

Website: www.beerandco.com.au

Company: Athena Resources (ASX: AHN)

AHN has Direct Shipping Ore haematite to go

AHN has significant outcropping haematite mineralisation in the north of its tenements.

Sampling suggests an in‐situ grade of about 56 per cent iron.

The deposits are near the Mullewa‐Carnarvon Road and up to 2.5 million tonne per year can be trucked for export through Geraldton, where there is spare capacity.

Beer & Co expect that an in‐pit crush can upgrade the ore to about 59 per cent iron.

Beer & Co estimates Life of Mine costs will be US$73 per tonne, adjusted for grade.

Our estimated NPV for this project is $44 million.

AHN has an exciting nickel-copper‐PGE prospect

Milly Milly is a six kilometre long intrusion on the northern crustal margin of the Yilgarn Craton.

Soil and rock chip sampling has yielded up to 2.5 per cent nickel from rock/laterite and up to 9 per cent copper from gossans.

Shallow drilling has yielded best results of 13.7 metres at 1.2 per cent nickel and 67m at 0.7 per cent copper, including 18.3m at 1.14 per cent copper.

AHN has drilled one deep hole which provided encouraging results.

AHN will undertake further geo‐physical surveys to design the next deep hole.

AHN has an Exploration Target of over 400 million tonnes of coarse magnetite.

AHN reported, in October 2011, that a plant to produce 2.5 million tonnes per year of 68 per cent iron concentrate had a capital cost of $136 million and operating costs of $42.3 million per annum.

Beer & Co estimate an NPV of $170 million for this project, with AISC costs, adjusted for grade, of US$63 per tonne.

There is significant upside to our valuation from a more effective transport solution, such as rail, as AHN appears to have sufficient mineralisation to make this feasible.

Website: www.hartleys.com.au

Company: Renaissance Minerals (ASX: RNS)

Unlocking a new Intrusion Related Gold Province

Renaissance Minerals Limited is a quality gold explorer looking to transition to producer through the development of the company’s 100 per cent-owned Okvau gold (+1.2 million ounces) deposit in Cambodia.

Okvau is hosted in an intrusion related gold system (IRGS), which is largely unexplored and has the potential to be a significant new gold province.

IRGS have wide-ranging characteristics, but on a basic level are gold deposits produced by local-scale fluids derived from a cooling pluton in regions lacking copper.

These mineralised systems rarely form in isolation and can host a significant volume of gold, which bodes well for more discoveries to come.

Okvau – A quality resource which is expected to grow

The 1.2 million ounce Okvau deposit is a high-quality gold resource; it is shallow (low strip ratio expected), good-grade (2.4 grams per tonne gold at a 0.65g/t gold lower cut) and robust (90 per cent Indicated resource).

Mineralisation also remains open to the north-east, south-east and at depth, as such further resource growth is anticipated.

The gold mineralisation does however have a strong association with sulphides (pyrrhotite and arsenopyrite veining), which is common among IRGS deposits (ie they are often “refractory”), and recently completed metallurgical testwork indicates that sulphide flotation followed by fine grinding of the concentrate prior to cyanide leaching will be required to achieve ideal gold recoveries.

The current conceptual flow sheet for processing is a coarse primary grind and sulphide flotation to generate a high-grade concentrate which is then reground prior to cyanide leaching.

Gold recoveries nearing 90 per cent have been achieved, and importantly no oxidation is required.

With available cheap grid power nearby, processing costs are not expected to be onerous, and should be similar to conventional processing.

The met-testwork to refine recoveries is ongoing and work has already commenced on a scoping level study into the potential development of Okvau.

On current timing the scoping study should be released in Sep 2014.

Highly prospective mineralised trend north of Okvau

Surrounding Okvau the company has plus-400 square kilometres to explore with highly prospective geology and multiple drill ready targets remain to be tested.

An initial area of focus is within a 5sqkm radius of Okvau, where gold-in-soil anomalies with coincident IRG pathfinders (bismuth, arsenic and tellurium) have been defined over large plus-800m zones.

A recent trench sample at the Area 1 prospect (located approx. 3km north of Okvau) returned 17m at 2.9g/t gold, including 9m at 4.8g/t gold over a soil anomaly more than double the size of Okvau deposit.

Follow-up drilling is planned to test this and other nearby targets.

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.