This week we look at potential near-term producer, Echo Resources; Plus, Orion’s South African deal could be genuine company-maker, Verdant’s plan to help feed the world and St Barbara joins Gina in search for ‘new’ Bendigo.
Gold’s initial buy-the-fact rally in response to the first of the three expected US interest rate rises this year was welcome stuff for the ASX gold sector, which has been showing signs of buying support fatigue.
Consolidating above the $US1200 an ounce level when the price seemed to have legs eleven written all over it also means that the great crush of new floats and other forms of deal-making can get moving again, for the time being at least.
That’s the generic overview of where the ASX gold space is right now. But as always, a deeper dive in to the sector can sometimes serve up a stock that is viewed to be on the edge of a break-out regardless of the daily gyrations of the gold price.
And it can be said that is certainly the read of some savvy market watchers on Echo Resources, the stock with the cute ASX code of EAR. It last traded at 19c for a market cap of $69 million on the strength of its near-term ability to become a gold producer from Western Australia’s Yandal greenstone belt.
Chris Bain at BW Equities has a 6-9 month price target on the stock of 32c, with the timeframe reflecting expectations that a drilling program underway will deliver up the ounces to underpin the restart of the currently-idle Bronzewing processing plant.
Echo is already part of the way to a restart. It’s part way because a recent feasibility study on the Julius deposit (68,000 ounces in reserves) found it could return $41m in earnings over 15 months of production.
But given the size of the Bronzewing plant, Echo would be best served to have at least three or four years of reserves ahead of it while turning early cashflow to exploring its extensive tenements to push mine life out further still.
That’s what the current drilling program is all about, with the conversion of resources to reserves at the Orelia deposit first cab off the rank. Results can’t be too far off now and the betting is that as the restart of Bronzewing (the cost of a mill refurbishment is far from challenging at $12.5m) gets closer, that valuation gap BW Equities alludes to will close.
Cheering things on is Mark Creasy, the “prospector’’ that became seriously rich when Joe Gutnick acquired the Bronzewing (and Jundee up south) ground all those years ago. Creasy took up $500,000 in Echo shares in its recent placement.
Tembo steps up tempo for Orion in SA push
The term company-maker gets bandied around all too often. But for a little thing called Orion, trading at 2.3c for a market cap of $25m (on expanded capital), the term seems in order.
After a hectic couple of days (which included a deal on its ground in Western Australia’s Fraser Range with Independence), Orion is putting the finishing touches to its push in to the long-overlooked zinc-copper, gold, nickel and platinum group metals riches of the remote Areachap region of South Africa’s Northern Cape Province, a region better known in this market for South32’s manganese interests there.
The jewel in the crown at Areachap for Orion is the large Prieska zinc-copper deposit. It was a big underground operation mined between 1972 and 1994 by AngloVaal and lots of the required infrastructure for a restart remains in place.
Based on its pre-mining resource, it ranks as one of the world’s top 30 VMS deposits and the bet is that there is plenty of material below the old workings for it to become a company-maker for Orion.
Add in the open-cut potential of the +105 deposit – as well as the regional exploration targets left behind by the likes of Iscor, Shell, Anglo American and Goldfields in decades gone by - and the story gets more interesting.
But is it a company maker? Confidence on that score comes courtesy of the rugged due diligence done by the commercial and technical experts at London-based private equity investor Tembo Capital, a junior and mid-tier mining-in-developing countries specialist.
Having first completed its intensive DD, Tembo helped Orion complete the Areachap acquisition by taking up a $3m convertible note and it is set to go to 19.9 per cent of the company via a placement.
Chinese exploration poser
Melbourne mineral economist Richard Schodde attracted one of the biggest crowds at the recent Prospectors & Developers Association in Toronto. The drawcard was the massive amount of work that goes in to his analysis under his MinEx Consulting banner on global trends in the minerals exploration effort.
One beaut bit of info to be drawn from the presentation is that the seeds of the next mining boom are being sown now. Why so? Because the annual global exploration expenditure (bulks and non-ferrous) has plunged in the past four years from $US33 billion to just $10.9 billion. Less exploration means fewer discoveries to replace existing mines in the future.
The other gem from Schodde’s analysis is that the ever long-term planners in China aren’t banking on the rest of the world to find the materials its burgeoning middle class will consume in increasing amounts in years to come. Not known to most is that China has become the world’s biggest explorer, accounting for 26 per cent of expenditure.
Canada is next with 11 per cent and Australia comes in third at 10 per cent.
Feeding the world
Beyond the issue of finding the next generation of mines, the other big thematic out there is the need to feed the world’s growing population, both in absolute terms and in terms of serving up the improved diets of the rising middle class in places like China and India.
Fertilising nutrient deficient soils is a big part of the solution. It was a subject to be tackled at CRU’s annual fertiliser conference in Florida this week. Among the speakers was Chris Tziolis, managing director of Verdant Minerals (VRM), a company with a $300m-or-so ambition to become a producer of potentially high-margin phosphate rock production from its Ammaroo project in the Northern Territory.
That Verdant has the backing of the $4.1 billion Washington H. Soul Pattinson (SOL) as a 38 per cent shareholder and that Ammaroo has recently been granted major project status from the NT government, says a lot about the momentum building up behind the potential for the project to get in to production.
Tziolis would have got a good hearing from the 400-plus fertiliser types at the Florida conference on the basis that as Australia’s biggest phosphate resource with easy access to infrastructure, Ammaroo had the credentials to become an alternative supplier to the more risky North African and Middle Eastern sources in the high-growth and nearby south east Asian and north east Asian markets.
But there is lots of work to do. Environmental approvals and a bankable feasibility study are being worked on and should be wrapped up by the end of the year. At the same time, work to secure project funding, partnerships and/or market offtake is going on in the background.
Previously estimated costs of production of $US60 a tonne compares favourably with long-term price forecasts for phosphate rock of $US115 a tonne. Early planning has been for annual production to start out at one million tonnes, rising to two million tonnes. Confirmation of those sort of figures later this year in the BFS will be interesting reading given Verdant last traded at 4c a share for a market cap of $39m.
Miner’s patron saint and Gina in search for ‘new’ Bendigo
Bob Vassie at St Barbara (SBM) has joined iron ore and cattle mogul Gina Rinehart in backing home the idea that there is a “new Bendigo’’ waiting to be found to the north of the old Victorian gold rush field, which yielded an ever-impressive 22 million ounces of the yellow stuff.
Now debt-free and on the hunt for new growth opportunities, the $1.2 billion SBM has plumbed in its initial foray to take up a 5 per cent stake in the ASX-listed Catalyst Metals (CYL) for $1.5 million or 50c a share.
That the smarties at SBM reckon that Catalyst might be on to something did Catalyst a world of good. It shares popped 17c or 40 per cent higher to 60c, albeit on small volume.
Catalyst holds a 50 per cent interest in the Four Eagles gold project which blankets the Whitelaw gold belt, with exploration beneath the wheat and canola fields previously proving encouraging enough to attract Gina. Her Hancock Prospecting is earning a 50 per cent interest in the project area from Providence Gold, a private company owned by gold bug Tom Burrowes who is to keep a 2.5 per cent royalty on any production.
It is Burrowes’ reward for being an early mover on what was a virgin patch of ground north of Bendigo which was overlooked by the oldtimers because unlike the old goldfield which outcropped, its prospective rocks are hidden beneath a thin cover of Murray Basin sediments which modern day exploration techniques can peel back.
One of Australia’s leading business journalists, Barry FitzGerald, highlights the issues, opportunities and challenges for small and mid-cap resources stocks, and most recently penned his column for The Australian newspaper.