Equities

Plus, Legend’s latest assays fuel hopes of a new nickel-copper find in the Fraser Range and Sprott eyes a golden girl in Kalamazoo.

The cooling US-China trade war is a positive for metals and bulk commodities, none more so than for zircon.

The trade war was seen as a key factor in the price weakness for the key mineral sand in the back half of 2019.

Tied as it is to building and housing activity along with some other sectors, zircon, like copper, is something of a bellwether of global economic activity.

Now things are settling down on the trade war front, the expectation is that the demand and price weakness that worked its way into the zircon market in the second half of 2019 will be reversed as 2020 unfolds.

Having said all that, the zircon price in its weakened form (the last reference price was $US1,540/t) is pretty good anyway. It might well be down on its 2011 peak of $US2800/t, but it is also well up on its 2015 low of $US900/t, with predicted supply shortages in the early 2020s yet to bite.

It is against that backdrop that 2020 is shaping up as a big year for mineral sands developer, Strandline (STA). It’s trading at 11c for a market cap of $40 million.

While it is working away at getting a “starter” mineral sands project up in Tanzania, it is the big-time potential of its zircon-rich Coburn project in WA’s Mid-West that is attracting investors’ attention.

No wonder in that as the DFS on Coburn, which was released in April last year, suggested a pre-tax NPV of $551m, an IRR of 32%, life-of-mine revenue of $3.9b, average annual EBITDA of $86 million and a revenue-to-operating cost ratio of 2.2, based on price forecasts by the leading mineral sands consultancy, TZMI ($US1,480/t for premium zircon).

The project is now in the offtake and financing stage, with the latter including the potential for debt financing from the Federal Government’s NAIF, announced in October.

The financing task has just been made easier thanks to recent process enhancement work which essentially pointed to the potential to increase revenue from the DFS case for no increase in capital or operating costs over the projected 38-year mine life.

As was outlined in the DFS, Coburn could end up producing a heavy mineral concentrate (HMC) at a capital cost of $207m, or go through to producing final products for an extra $50m, or $257m all up.

Producing HMC for sale is nothing new for the WA industry. Industry leader Iluka (ILU) brings in HMC from its South Australian operation for processing at its separation plant near Geraldton in the Mid-West and Image Resources (IMA) ships HMC from its northern Perth Basin project to China.

Iluka’s separation plant is one of the biggest in the world and given its proximity to Coburn, some pundits speculate there is a role for Iluka in Coburn’s development, if it wants one.

There would seem to be scope for Iluka to provide debt or equity at either a project or company level, or simply help underpin Coburn by purchasing the concentrate for processing at its own plant.

Equally, it may choose to let Coburn stand on its own two feet, in which case Strandline would presumably go down the route of making final mineral sands products for export to the world.

Either way, it’s an interesting scenario, particularly given that Coburn will account for 5 per cent of the world’s annual zircon supply.

Iluka has a lot on its plate at the moment. Next month it will let the market know what it will be doing with the MAC iron ore royalty with BHP, valued by the market at around $1.6 billion.

There is also work to be done salvaging what value it can from its $US330m acquisition of Sierra Rutile in 2016, now with a written-down carrying value of $US50m. The troubles with the African excursion necessarily narrowed Iluka’s mineral sands growth options.

LEGEND MINING (LEG):

The status of Legend Mining’s (LEG) Mawson prospect as one of the best discoveries of 2019 has been enhanced with the release of final assays and structural observations from the discovery hole announced in December.

The entire 70.15m sulphide interval assayed 0.52% nickel and 0.36% copper from 88.2m, including the halo of disseminated mineralisation above and below the previously reported and excitement-causing 14.9m hit grading 1.07% nickel and 0.75% copper from 114m, including 2.1m at 2.03% nickel and 1.34% copper.

Importantly, Legend reported that structural observations suggest the discovery hole was drilled drilled across the mineralisation and not down-dip, meaning it is not only shallow, it is thick as well.

It was the 14.9m hit that fired up Legend in December, with the stock doubling to more than 8c a share, reflecting enthusiasm for the idea that Legend had uncovered the next significant nickel-copper deposit in the Fraser Range.

Hopes that the Fraser would evolve in to a multi-mine nickel-copper province have ebbed and flowed since the 2012 discovery of the Nova nickel-copper-cobalt deposit by the Sirius Resources/Mark Creasy joint venture.

Nova is now owned by Independence Group (IGO) following its $1.8 billion takeover of Sirius in 2015 and because of the way things worked out, Creasy and IGO are also the major shareholders in Legend.

Legend managing director Mark Wilson said this week that final assays and structural observations have confirmed a “new discovery” for the company. Euroz went a step further, with some caveats, in its latest research note, which had an 11c price target on the stock.

“Whilst a lot of further work is required before declaring this a new mine, Mawson has the ingredients to provide the framework for the next significant deposit in the Fraser Range,” Euroz said.

Apart from anything else, Euroz noted that Legend was now “catalyst-rich” in that Mawson is an exploration opportunity leveraged to the upside. Legend is now planning a follow-up diamond drill-hole program which will get going later this quarter.

Kalamazoo (KZR):

The $8m pumped into Castlemaine gold explorer Kalamazoo (KZR) by Canada’s Novo Resources and gold investor supremo Eric Sprott at above market prices has been taken as a strong endorsement of the idea that there could well be another Fosterville out there.

Fosterville, owned by Canada’s Kirkland Lake and an easy drive from Bendigo, is currently one of the best gold mines in the world thanks to the discovery a few years back of the incredibly-rich Swan Zone.

The equity injection from Novo-Sprott means Kalamazoo can get cracking on its consolidated ground position at Castlemaine where the maiden drilling program gave plenty of encouragement by returning a 1.42m hit grading 261g/t (8.3 oz a tonne) from 100m.

Thanks to the endorsement from Novo-Sprott, what was a 33c stock last Friday is now a 53c stock. And as might have been expected, there has been a nice rub-off effect on the share prices of other Victorian explorers like Gina Rinehart’s Catalyst (CYL), Navarre (NML) and Chalice (CHN), among others.

Novo chairman and president Quinton Hennigh has joined Kalamazoo’s technical advisory committee.

He is a big-brained type best known for pursuing a theory about conglomerate gold in the Pilbara. The Canadian market got behind the story which has made Novo a $C600m company, even if there is no cigar just yet.

Anyway, Hennigh reckons Kalamazoo’s hits to date are of the same ilk as the high-grade veins found at Fosterville in that they represent epizonal orogenic high-grade vein mineralisation.

“High-grade epizonal mineralisation forms at shallow depths and is usually eroded away during the mountain-building processes associated with the formation of such deposits. It is extremely rare to find these systems preserved,” (Dr) Hennigh said.

“Kalamazoo’s recent results display many of the right geologic indicators of this special type of high-grade deposit, remarkable given these recent results are at such an early stage.”



Craig Alford

So good that your back love your work .