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Published by Paydirt Media, 2016-05-01 21:36:49

pd238 May16 mag-web_Neat

MAparyil 22001166 VOLUME 1. ISSUE 2387 $11.95

paydirt

front and back cover
supplied seperately

Brazilian:crusade:

Aussie gold rush begins early

• Latin America•Do•w•n Under preview IISSSSNN 11444455--33443366
• Graphite Conference review 0043

99 777711444455 334433000077



CONTENTS

PAYDIRT (ISSN 1445-3436) 5 NEWS
Published by Late April saw Paydirt return to Adelaide to
Paydirt Media Pty Ltd. host the annual South Australian Resourc-
A.C.N. 063 985 133 es and Energy Investment Conference.
Head Office: The Festival State has suffered as much
Suite 9, 1297 Hay St, West Perth as any exploration destination in recent
Western Australia 6005 years but Mark Andrews found a State
P.O. Box 1589, West Perth
Western Australia 6872 Government still backing the sector
Phone: (+61 8) 9321 0355
Facsimile: (+61 8) 9321 0426 18 MZI 22
[email protected] MZI Resources Ltd took the covers off its 34
www.paydirt.com.au new Keysbrook mineral sands mine last 58
month. Mine openings are a rare occur-
Editorial: rence in 2016 so Mark Andrews headed to
Editor: Dominic Piper the project on the outskirts of Perth to see
Deputy editor: Mark Andrews just how the company managed it
Journalist: Michael Washbourne
Graphics: Marian Noonan 22 COVER
Contributors: Brazil is well-known as a powerhouse
Keith Goode (Sydney), Brendan Ryan of world mining but Australian compa-
(Johannesburg), Ross Louthean nies have, in the main, struggled to find
Advertising: success there. However, a number of
Advertising manager: Tony Mwarey juniors are now starting to make progress.
Subscriptions: Mitchelle Matambo Michael Washbourne joined two of them –
Phone: (+61 8) 9321 0355 Crusader Resources Ltd and Orinoco Gold
Facsimile: (+61 8) 9321 0426 Ltd – at their projects in Brazil and found
out the wealth of untapped opportunities
Pre-press and printing: on offer
Vanguard Press 26 John St,
Northbridge WA 6003 34 LATIN AMERICA
Member of: PREVIEW

Paydirt Media Latin America Down Under is coming to
Executive chairman: Bill Repard
Finance manager: Giovanny Jefferson Perth for the first time this month. Eight
Accounts/administration: ministerial delegations from the region will
Heather Melling
Conferences: Tammy Caldwell, join Australian miners and service provid-
Melita Fogarty
ers with interests in the region in what will
Cover image: Crusader Resources be the largest ever Latin American event
managing director Rob Smakman
(right) with geologist Jucieny Sousa de held in Western Australia. Paydirt looks
Moura Barros at the Borborema gold
project ahead to the conference over 24 pages
Member of:
58 GRAPHITE REVIEW
Australia-Africa Minerals & Energy Group CONFERENCE

Registered by Australia Post PP 643938/0071. March saw Paydirt host the inaugural Aus-
No pages or articles in this publication may be tralian Graphite Conference in Perth. More
reproduced in any form without the consent of than 170 delegates joined 16 presenters
the publisher. This includes photographs either and exhibitors for an event which aimed
taken by Paydirt Media staff or provided by other to demystify this often confusing commod-
parties ity. We provide full coverage of the day’s
proceedings

EDITORIAL

Should we lament
benchmark pricing?

When Woodside Petroleum Ltd chief est quarterly results indicate they have achieved their objectives
executive Peter Coleman warned – BHP Billiton could boast nearly 20% unit cost savings from its

of the chances of oversupply and de- Pilbara business – it remains to be seen whether the cuts were

pressed prices if spot pricing was in- too harsh or what effect they will have on the current supply glut.

troduced into the LNG market, he was While BHP Billiton and Vale intend to stick to their cuts, Rio

making a thinly veiled reference to the Tinto remarked the cuts were for one year only. And, the 40mt

iron ore industry. taken out of the market may be swamped by Gina Rinehart’s

Following his comments, I found Roy Hill mine which is currently ramping up to its 65 mtpa ca-

myself casting my mind back to the wrangling over the introduc- pacity.

tion of spot pricing into the iron ore industry. The benchmark system kept the majors locked in with cus-

Do you remember those days of annual benchmark pricing in tomers and allowed for a degree of control. Now that the market

which the big three miners would sit down with steel mills from is easier to enter, the majors are finding they have less control

Japan, Taiwan, South Korea and China to negotiate next year’s than ever. It is no wonder Coleman is not keen to see the story

price? In those times, you never heard the iron ore spot price repeated in LNG.

mentioned on the morning news because the spot market was West Perth Index on the turn

so small that it didn’t matter. Instead, both miners and customers

were locked in for the year. The Paydirt team has certainly noticed an upturn in the West

However, by 2009 as demand from China continued to in- Perth Index over the course of the last month, and it could spell

crease, the annual negotiations stalled. When negotiations for good news for the rest of the year.

the 2010 prices began in October 2009, Chinese steel mills For those of you who don’t know the West Perth Index, it is

were demanding a 40% cut in prices but as both Tom Albanese a reliable indication of the level of activity in the junior mining

(then Rio Tinto Ltd chief executive) and Marius Kloppers (then space, taken each week by my colleagues and I; usually when
“BHP Billiton Ltd chief) pointed out publicly, the spot price in Chi- we are doing the morning coffee run. It essentially involves
na was often as much as 100% checking how many people are

above benchmark prices. Whether it is a false dawn in coffee shops, how many cars
A compromise of quarterly are parked on the street and how

benchmarks was reached but that or not remains to be seen many office removalists are lurk-
didn’t really help anyone as sev- but it is nice to see a few smiling ing around the inner-city suburb.
eral deadlines were again missed
Walking around the heart of the

and eventually, the benchmarking faces around the place again. Australian junior mining sector
index was dismantled completely, in the latter part of 2015 and the

replaced by the current system. early months of this year, it was

Six years on, it appears the apparent things were not healthy.

steel mills may be the long-term winners out of the debate. Iron Coffee shops were empty, bars were quiet and parking spaces

ore miners have lost the stability of revenue that the benchmark were easy to come by. It felt like the only person doing well in

system granted them. This has been particularly tough for the West Perth was the bloke who installs the For Lease signs out-

junior miners who may not have ran into the same kinds of prob- side of the ever-growing number of vacant office buildings.

lems if they were relying on annual benchmarks. The steel mills But recently, there has been a distinct change; the roads are

are not locked into long-term contracts and it is now easier for busier, the coffee shops are full again and there is a buzz among

them to throttle down when needed. the clientele in the Brown Fox and Black Tom’s.

For the major miners, the instability in the prices received sent That means deals are being done – or at least being dis-

them scrambling to find cost savings. All three majors have cut cussed – and there is a notably positive atmosphere as mining

production recently as evidenced by their quarterly production executives begin to believe we have got through the worst of the

figures. Rio Tinto started, announcing on April 19 a cut to its commodity rout.

2017 production forecast to between 330mt and 340mt from a It had been a long and painful downturn for many associated

prior forecast of 350mt. with the industry and there are many who deserve the benefits a

BHP Billiton cut its output forecast for the year to June 2016 rebound would bring. Whether it is a false dawn or not remains

by 10mt to 260mt, having previously cut it by 10mt in January to to be seen but it is nice to see a few smiling faces around the

account for losses associated with Samarco. place again.

Vale also joined in, saying in April its iron ore production would

be at the lower end of its 340-350mt target.

The cuts have delivered cost savings but the question is at

what price? Under the annual pricing system, they would have

had more time to plan their production cuts and find efficiencies

more effectively. Benchmark pricing wouldn’t have saved them

from the fall in iron ore prices but they would’ve had a longer pe-

riod in which to implement cost saving measures. While their lat-

[email protected] @DominicPiper

PAGE 4 MAY 2016 AUSTRALIA’S PAYDIRT

NEWS

All-in to save Arrium
in Whyalla

Leading politicians have banded we have this ready to go before
together in the fight to rescue the Federal election commenc-

embattled miner and materials out- es,” he said.

fit Arrium Mining Ltd. A federal election is scheduled

With billions of dollars in debt for July 2 and while Koutsantonis

and a $US927 million capital re- was not prepared to put a date on

structuring proposal, courtesy of when a formalised plan would be

GSO Capital Partners LP, knocked revealed, he hoped something

back by creditors in February, Ar- would be in place by the election.

rium’s future largely rests on the “Whyalla rightly, and the Aus-

shoulders of administrator Korda- tralian steel industry, should be

Mentha. front and centre of this [federal]

KordaMentha, which replaced election campaign,” Koutsan-

original administrators Grant tonis said.

Thornton when Arrium entered “Both the major political par-

voluntary administration in April, ties need to ask themselves one

hosted the first creditors meeting in South Australian Treasurer Tom Koutsantonis main question: can a country like

Sydney on April 19. Australia with vast resources such

During that meeting, attended by about In the meantime, KordaMentha has as iron ore simply be allowed to import

300 people, a creditors committee was vowed to conduct “business as usual”, all of our structural steel? What does

elected to liaise with KordaMentha Re- with no new redundancies to be an- that mean for our national sovereignty,

“structuring as it performs its adminis- nounced and wages to be paid as nor- what does that mean for our economy,
trative duties. The committee includes mal. what does that mean for our productiv-

representatives of the ity? I am of the view, and

non-unionised workers, That is why it is important whatever I think the vast majority
the AWU, ACTU, BIS In- of Australians are of the

dustries, Lucas Group, capital investments that we are view, that any modern
K&S Freighters, a repre- looking at are front and centre, right in the economy needs to have
sentative of the US note- capability of making its

holders, Westpac, NAB, middle of this federal election campaign, own structural steel.
CBA, Spanish bank “If we don’t have that

BBVA, Morgan Stanley, so Australians can judge which political competitive tension in
the Federal Government party has the most to offer the people of this country, we are sim-
and the South Australian ply reliant on interna-

Government. Whyalla and Australian steel making. tional steel and that will
Speaking to media on weaken us as a nation.

the sidelines of the South “That is why it is impor-

Australian Resources, Energy & Invest- Koutsantonis said the SA Government tant whatever capital investments that we

ment Conference in Adelaide after the had been working with Arrium for a pe- are looking at are front and centre, right

committee was elected, SA Treasurer riod of time and had a better understand- in the middle of this federal election cam-

Tom Koutsantonis said it was important ing of what improvements could be made paign, so Australians can judge which

the State’s welfare was taken care of. in areas of plant and equipment, diversity political party has the most to offer the

“We obviously want to make sure that of product range and improving efficien- people of Whyalla and Australian steel

South Australia is represented and we cies to try and make Arrium – which em- making.”

want to make sure that the creditors have ploys almost 8,500 people at 160 sites Shadow Federal Minister for Re-

an eye towards Whyalla; it is important worldwide servicing 30,000 customers sources, Hon Gary Gray, who grew up

we are there,” Koutsantonis said. and 10,000 suppliers – more profitable. in Whyalla where Arrium has integrated

A second creditors meeting, where a He said while Arrium was not out of the steelworks, said it was important circum-

detailed written report from the adminis- doldrums, the preferred administrators stances at Arrium were not used to gain

trators will be delivered, is scheduled for were in place and the situation had been political advantage.

mid-May, however, it is likely KordaMen- largely stabilised. Instead, Gray urged thoughtful lead-

tha will seek an extension. “…now we are focused on how do we ership was required to cement Arrium,

“It is common in large and complex get Arrium spun out of administration which employs 7,000 people in Australia,

administrations to seek more time so and back into trading as normal. This is a as the backbone of the country’s steel

that the creditors are better informed,” company that has got 85% of the Austral- industry.

Kordamentha’s Cassandra Mathews ian market share, it is a very important “We can get through it,” Gray said in

said in a statement. Australian company and it is important an address to delegates at SAREIC. “We

AUSTRALIA’S PAYDIRT MAY 2016 PAGE 5

NEWS “What we don’t need is politicising of
the resources sector. We don’t need
politicians going out and bashing each other
up trying to find a political advantage out of the

difficulties that we see in the current cycle.

Gray backed KordaMentha to Arrium; we can turn it to our advantage,”
Gray said.
devise a strategy to keep Arrium’s
“We have done that before, we can do
Whyalla operations delivering it again. We need to do it with good lead-
ership from government, insightful lead-
long-term value to creditors. ership from the administrators at Korda,
with strong support from the unions
KordaMentha’s task will be done which we have. The unions determined
that they wanted to have Korda working
against a resources backdrop on this and that is what we have.

fighting its way back from the dark “We also have a commodity prices
that just might be showing some light our
place it has been for three years. way. What we don’t need is politicising of
the resources sector. We don’t need poli-
At the time of print, iron ore was ticians going out and bashing each other
up trying to find a political advantage out
trading at almost $US65/t, its high- of the difficulties that we see in the cur-
Shadow Federal Minister for Resources Gary Gray est level since June 2015. rent cycle.”

No doubt this is good news for – Mark Andrews

can get through it with thoughtful leader- iron ore players globally, including Arrium For a full wrap of SAREIC 2016, get
your June edition of Paydirt
ship from government, with thoughtful which has mining operations 60km from

leadership from companies and with a Whyalla and produces 12 mtpa hematite

frugal pathway to productivity. I know that ore for export and feed for its integrated

all of our governments are aligned in the steelworks at Whyalla.

best way to try and help out at Arrium; “The critical pathway at Whyalla in-

no one is playing political games and no cludes Whyalla’s debt restructuring of

one is providing false hopes to the work- course and a valid productivity pathway,

ers or to the communities, I think that is both by workers and bankers, and led by

important.” KordaMentha, there is an opportunity at

LATIN

AMERICA

29-30 May 2013, Sydney

The CD-Rom of Paydirt’s 2016
Latin America Down Under Conference

will be available soon

CD-Rom – $80 (inc. GST)
Phone (+61) 8 9321 0355 or email [email protected]

PAGE 6 MAY 2016 AUSTRALIA’S PAYDIRT

BUSH TELEGRAPH

Nkosi to step down at Exxaro

It’s a case of all change at Exxaro nancial journalists and – at presenta-
Resources Ltd – the South African
heavyweight resources company tions – would time and again deflect
which is one of the two most success-
ful black economic empowerment difficult questions to his subordinates.
(BEE) groups created; the other being
Patrice Motsepe’s African Rainbow Challenged on this at one point, Nkosi
Minerals Ltd (ARM).
replied he was only doing it to get his
As of the beginning of March,
Exxaro is being run by Mxolisi Mgo- executives used to dealing with the
jo following the retirement of former
chief executive Sipho Nkosi – one of media. It seems Mgojo has learnt the
the best known and most influential
black mining entrepreneurs to have lesson well because he’s already us-
emerged in South Africa.
ing the same technique.
Nkosi’s departure was, of course,
expected. He had signalled it a year in So Nkosi will now join Fauconnier
advance and announced Mgojo as his
successor in keeping with the system and a few other Exxaro/Iscor old-tim-
used when he came to power. Mgojo
has spent the last year understudying ers in the Exxaro “pensioners club”.
Nkosi before taking on the top job in
the same way that Nkosi understud- Fauconnier is a regular attendee at
ied former Exxaro chief executive Con
Fauconnier for a year before taking all Exxaro presentations saying he
over.
comes to check up on his dividend
What was not expected was the an-
nouncement a few days after Exxaro payments and enjoy the free lunch.
released its annual financial results
for the year to end-December on March Mgojo and his new team have to
3 that the group’s chief financial officer
– Wim de Klerk – was also leaving. De face up to some serious challenges
Klerk will shift to run the listed South
African arm of international steel group with which de Klerk has so far been
Arcelor Mittal at the beginning of Sep-
tember. integrally involved with, the main one

Nkosi, De Klerk and Mgojo were all being Exxaro’s new BEE strategy.
in at the start on the creation of Exxaro.
Mgojo and Nkosi were partners in Eye- Both Nkosi and Mgojo rescued them-
sizwe Mining – a black-owned start-up
coal mining company which had ac- selves from this because they are
quired some second-rate coal assets
from Anglo American plc and the former part of the empowerment structure
Ingwe Coal.
through Eyesizwe Mining.
De Klerk was working for Iscor – the
former state-owned steel producer which The previous BEE deal will expire
had been privatised and was integral to
the complex BEE deal through which An- shortly and must be replaced in terms
glo American acquired its iron ore assets
– and listed them separately as Kumba Sipho Nkosi of South Africa’s mining legislation
Iron Ore Ltd – while Iscor’s steel division
became Arcelor Mittal and the rest of its while both De Klerk and Nkosi have
coal and mineral assets were merged
with Eyesizwe to set up as Exxaro. various coal assets grouped under a ve- previously declared that Exxaro will re-

The plan to create Exxaro was initial- hicle called NewCoal and put up for sale main more than 50% BEE controlled.
ly hatched in 1999 between Nkosi and
Fauconnier – an ex-JCI executive who in a BEE transaction by Anglo American Other challenges include what actions
had been pulled out of retirement to run
Iscor’s mining division which would be- and Ingwe. Fauconnier subsequently to take regarding the future of Exxaro’s
come Exxaro.
commented in 2006: “I thought we could minority stakes in titanium group Tronox
Nkosi was in the process of bidding for
create the biggest coal company this and the Sishen iron ore mine and, more

country had ever seen. I told Sipho to get importantly, Exxaro’s future strategy on

hold of NewCoal and then come back coal which dominates the group’s earn-

and talk.” ings.

Nkosi won the bid for NewCoal helped Anglo’s South African coal mines have

greatly by his track record in South Af- been put up for sale but Mgojo has indi-

rica’s coal sector. He had previously cated he’s not that interested other than

worked in senior positions for Anglo and in the Mafube export colliery which is a

Ingwe. Significantly, he was also well 50/50JV between Anglo and Exxaro.

known to Eskom from his time working at Reason is that most of the Anglo coal

engineering group ABB which had done mines for sale supply coal to Eskom and

major contract work for Eskom. That Mgojo believes Exxaro’s exposure to Es-

was important because the coal mines kom business is already far too high. He

grouped under NewCoal all supplied Es- wants to see some diversification to re-

kom power stations and Eskom had a big duce business risk.

say in who got to run them. There’s no doubt that Mgojo is up to

The rest, as they say, is history. Exx- the job and he’s likely to fall back on an-

aro is now the largest coal producer in other technique used by Nkosi who, after

South Africa, running the country’s big- taking up the top job, still held breakfast

gest – and so far only – coal mine in the meetings with Fauconnier to use his for-

Waterberg which supplies South Africa’s mer boss as a sounding board.

two most important power stations – Ma- Brendan Ryan is a Johannesburg-based

timba and Medupi which is currently un- mining writer

der construction.

Nkosi became well-known to the South

African media for his “hospital passes”.

He feigned to dislike being quizzed by fi-

AUSTRALIA’S PAYDIRT MAY 2016 PAGE 7

OPINION

Investor sentiment is improving,
although sustainability uncertain

Heading into 2016 the mining
services sector was subdued
and uncertain as to what the future

held, had we reached the trough

of the cycle or was there further

to fall. Already three months into

2016, how has this year treated

the mining services sector?

By December 2015, the Deloitte

Mining Services Index had de-

creased by 12.03 points ($5.56 bil-

lion market capitalisation) to 55.60

points compared to the June half.

By comparison, the benchmark

ASX200 decreased by 3.98 points

to 129.34 points.

Why? The second half of 2015

was characterised by further capit-

ulation among investors in mining-

related stocks. While the market

was down, the recurring trend of Fortescue’s JV deal with Vale to sell a blend of Australian and Brazilian ore into China is an exam-

industry downsizing, cost-cutting ple of the big producers finding ways to slash costs and maintain market share

and profit downgrades continued

to dominate the mining services sector. which has had an industry wide impact confirmation by Moody’s of an improved

Some operators signalled the bottom of on margins. credit profile.

the market with operating margins and Since the beginning of the new year, However, while CIMIC was the major

revenue stabilising over the course of the index has recovered to levels not contributor there has been a general

2015, however others remained scepti- seen since the middle of 2015. By March trend of improvement (albeit, to lesser

cal around the threat of further falls, or 2016, the Deloitte Mining Services Index extent) in the index across the partici-

sustained low commodity prices as well had increased by 8.74 points ($4.06 bil- pant categories.

as the depreciation in the oil price. lion market cap) to 64.23 points against There is a strong connection between

As the mining industry moves deeply its lows in December 2015. By compari- commodity prices and the pipeline of

into the production phase of the resourc- son, the benchmark ASX200 decreased future Australian business investment

es cycle in the absence of a significant by 5.20 points to 124.13 points. The – the lower that commodity prices go,

improvement in commodity price out- increase in the index has been driven the worse the outlook for investment

look, mining construction – which drove by the larger participants, in particular becomes. Notwithstanding a recent im-

activity during the boom – will continue CIMIC Group Limited with an increase provement in the price of iron ore, cur-

to fall. In the face of a shrinking mar- in market cap of $3.24 billion on the rent investment momentum remains

ket, mining services companies have back of strong FY15 earnings, comple- subdued as commodity prices more

been subject to heavy price competition tion of the takeover of Sedgman Ltd and generally continue to be weighed down

by ramped-up global supply and falling

140 Chinese (and therefore global) demand.
Australian business investment is

120 continuing its descent as construction

Index value on LNG megaprojects wraps up and
100 early-stage mining projects are delayed

80 or cancelled. This is reflected in the
largely negative capital expenditure sur-

60 vey released by the Australian Bureau of
Statistics. Private construction work is

40 down markedly on last year and falls are

20 projected to continue over the next few
years. Indeed, engineering activity has

contracted in every quarter but one over

Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar16 the last three years, and Deloitte Access

Over $1b $100m-$1b Under $100m Economics expects this pattern to con-
tinue over the next three years.

PAGE 8 MAY 2016 AUSTRALIA’S PAYDIRT

160 the bottom of the market or there is still
further to fall. Despite the significant im-
140 provement in the index since December
2015, most of this is attributed to a small
Index value 120 number of large participants. There re-
mains surplus capacity in the market and
100 many service companies have very high
debt loads.
80
The big miners are not investing capi-
60 tal in expansion, which is bad news for
those service companies who focus on
40 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar16 exploration and development. Those that
Mar-14 focus on production have better opportu-
nity, although it is an extremely competi-
Deloitte MS Index ASX 200 tive market with their customers focused
on cost reduction.

According to Deloitte Access Eco- these may not make the cut.
nomics’ most recent Investment Monitor
publication, the value of mining projects The outlook for coal also remains sub-
either under way or in the pipeline has
contracted by more than 15% over the dued. Lower prices have rendered a sig-
last year.
nificant proportion of global production
Softer conditions globally are proving
problematic and may challenge the re- unprofitable, however the shakeout of
turns on a number of major mining pro-
jects that sit higher on the cost curve. marginal producers is taking time, and
Both mining exploration and mining
services have borne the brunt of cost- the outlook for new investment remains
cutting pressures as companies cut back
investment and pursue a lower cost pro- poor. Despite this, more than 50mt is
file. In addition, the transition of the min-
ing lifecycle to the production phase has scheduled to be added to Australian an-
weighed on mining services – including
the specialist construction, drilling and nual production capacity by 2017 and a
pumping services – that occur during the
exploration and construction phases of further 62mt could be added by that time
mine lifecycles.
if all of the projects in planning proceed. Based in Brisbane, Tim Heenan is a
Iron ore prices have fallen steeply over The Alpha Coal Stage 1 project is set financial advisory services partner for
the past few years. However, during the Deloitte Energy & Resources
March quarter a recovery that continues to add 32mt of thermal coal capacity by
on an upward trend undoubtedly had a 2017. The biggest potential project is the
positive impact on the index. How sus-
tainable this recovery may be is uncer- $8.3 billion China
tain, and it may not continue long term.
First Coal project in
With nearly half the world’s steel pro-
duction occurring through China, the the Galilee Basin. If
Australian investment outlook remains
highly dependent on industrial produc- approved, it would
tion in that country. The big producers
are all looking for ways to slash costs account for an ex-
and maintain market share (as shown
by Vale’s JV deal with Fortescue Met- tra 40mt of thermal
als Group Ltd to sell a blend of Brazilian
and Australian ore into China). The shift coal capacity. The
towards balance sheet preservation at
all cost means investment in new pro- prospective $7.3 20 April 2016 – Hilton Adelaide
jects is not really on the radar anytime billion Carmichael
soon.
coal mine contin-
The only iron ore project under way is
Rio Tinto Ltd’s Marandoo mine expan- ues to progress,
sion, due to finish this year. There are
currently nine iron ore projects with es- with the Queens-
timated values of more than $500 million
that are under consideration (a com- land Government
bined value of $21 billion), but some of
issuing three mining

leases for the pro-

ject earlier this year,

although no firm

date for the start of

development has

been set.

So, has mining

services reached

the bottom of the

cycle? The num-

ber of operators in- The CD-Rom of the 2016
cluded in the Mining South Australian Resources and
Services Index has

fallen through merg- Energy Investment Conference
ers, de-listings and will be available soon
insolvencies. There

is a strong ele- CD-Rom – $60 (inc. GST)
ment of uncertainty

around whether Phone (+61) 8 9321 0355 or email [email protected]

we have reached

AUSTRALIA’S PAYDIRT MAY 2016 PAGE 9

NEWS

Tungsten prices boost Vital

Tungsten prices are moving in the right
direction for Vital Metals Ltd.
The company has had the Watershed

tungsten project at development-ready

stage since 2014, however, the curse of

low commodity prices has stymied the

Queensland project.

“Since October, it [tungsten price] has

been steadily moving up, it is knocking on

the door of $US200/t and that is a place

we see the project moving into a pretty

attractive zone for financing,” Vital man-
aging director Mark Strizek told Paydirt.

“Somewhere from $US220-250/t the

project starts to make some serious

amounts of money. We can see that

definitely $US200/t is the way that we

are possibly going in the next couple Vital is confident it can add to the Watershed resource of 49.3mt @ 0.14%

of months and I’d like to think the price tungsten at a low cost

would be touching $US250/t by the end

of the year. I think that is very positive for some very cheap tonnes could be added

our shareholders.” to the open pit. I’d like to be able to go

On the back of the improving tungsten out there and take advantage of the low

price, Vital is polishing the Watershed exploration costs that are currently in

project and has demonstrated reductions hand, so at this stage that is something

to opex and capex requirements. that we are considering. Outside of that

Two years ago, the Watershed DFS we are considering a number of metal-

highlighted the potential for a 2.5 mtpa lurgical enhancements to the project that

operation over 10 years costing $172 mil- look like they will be able to deliver capex

lion (pre-production capital estimate and and opex reductions.”

contingency). With some of the hard work required to

Since then, Vital has been busy opti- lock in cost savings done, Vital can begin

mising the project, with recent flow-sheet to look at some engineering work.

work revealing the potential to recover As the sole ASX-listed company with

high-grade scheelite at an early stage, a long-life tungsten project permitted for

while adding dense media separation Mark Strizek production and with Chinese operations

to the processing circuit could reduce slowly closing down, Strizek hopes the

grinding and maximise recoveries. investment community will see value in

Through ongoing processing and met- Vital’s C1 cash costs are estimated at what Vital offers.

allurgical test work, Vital hopes to be $US124/mtu, which is far better than Chi- The company is in discussions with

able to pull cash cost estimates back to nese producers reportedly operating at domestic and global contractors in the

$100 million. about $US175/mtu. mining and EPC spaces and has stated

Strizek considers Wa- a willingness to explore opportunities for

tershed, 150km north- partnerships and alliances.

west of Cairns, to be one Through the takeover of Sedgman,

of the best projects, in which completed the Watershed DFS,

terms of scale, in Aus- CIMIC Group Ltd is an investor in Vital.

tralia and hopes to make CIMIC also owns Thiess and there

further cost reductions. may be opportunities to work on build-

“We have been able to and-mine proposals at Watershed where

show that we are going probable and proven ore reserves are

to be able to decrease 21.3mt @ 0.15% tungsten.

the capital cost and de- An exploration target set by Vital

crease the opex so the across the Watershed project area is

project is stacking up 49,000-80,000t @ 0.1-0.19% tungsten.

very attractively in an At the time of print, Macquarie Bank

international sense,” he agreed to amend and extend the terms

said. of its existing $3 million loan facility to

“There is some drill- June 30, 2017.
Adding a DMS flow-sheet could reduce grinding ing which I consider
requirements and improve recoveries at Watershed low-hanging fruit where – Mark Andrews

PAGE 10 MAY 2016 AUSTRALIA’S PAYDIRT

Sandfire to spark up exploration

The DeGrussa plant is central to Sandfire’s organic growth plans

After another solid round of quarterly unveiled last month. copper project, central Montana, USA.
results from the ultra-consistent “I think there are some interesting op-
Sandfire Resources NL, managing direc- Through its 57% stake in TSX-V listed
tor Karl Simich reaffirmed the company’s portunities there to pursue and at the
strategy to create shareholder value very least I’d say the exploration pro- Tintina Resources Inc, Sandfire has ex-
through organic growth. gramme, culminating in some $30 million
being spent, predominantly in Australia, posure to Black Butte, which according
Punters need look no further than the is nothing less than aggressive. We want
maiden resource put out at Monty to see to make discoveries and we see that as to a 2013 PEA, could potentially produce
why the thirst for exploration in Western being the best and clearest pathway to
Australia’s Doolgunna region lingers for significant value,” Simich said. 30,000 tpa copper over 11 years from an
Sandfire.
Having concentrated its manpower on underground operation.
Monty, part of the 70/30 Springfield JV resource delineation at Monty, Sandfire
between Sandfire and Talisman Mining can now deploy the ef- A mine operating permit application
Ltd, is the first new resource in the De- forts back to first pass
Grussa since the original deposit’s dis- prospect trail explora- has been lodged with the relevant au-
covery seven years ago. tion, while assessing
how to bring Monty into thorities in Montana.
Prior to providing an update on busi- the production pipeline.
ness for the March 2016 quarter, a re- Simich said he expected the depart-
source of 1.05mt @ 9.4% copper and 1.6 Merging Monty into
g/t gold for 99,000t copper and 55,000oz DeGrussa operations is ment’s review of the application to take
gold was delivered from Monty. one option to consider.
a few more months and
It was a pleasing result for Sandfire, “It is very pleasing to
which produced 16,095t copper and see that first maiden re- was prepared for some
9,080oz gold at C1 costs of $US1.01/ source and I dare say in
lb during the quarter, despite a planned that Monty region poten- “tennis” between the
shutdown period in February. tially deeper, potentially
laterally there is, as we project holders and Mon-
Ending the quarter with $45 million in think in most of the areas
cash and deposits, a reduced DeGrussa that we have got at the tana’s authorities.
debt ($70 million) and having paid a 2c/ moment, significant organic potential,”
share fully franked dividend, Sandfire is Simich said. An EIS is also being
on track to produce at the upper end of
production guidance – 65,000-68,000t Given the resource statement made prepared this year and
at $US0.95-1.05/lb – in FY2016, while at Monty, Sandfire is in the process of
re-charging its exploration team for an- analysing how much mine planning and when completed will be
other aggressive pursuit of discoveries in technical work needs to be done, Sand-
Doolgunna. fire’s chief operating officer Mike Spread- out in the public domain
borough said.
Simich said exploration would be fo- for review.
cused in the Homer Corridor (4km east of “We would hope to be in a position by
DeGrussa) and Southern Volcanics un- the end of the year to have a completed Once in the public do-
der the Springfield JV, Homestead and feasibility-style document that allows us
adjacent to the underground Conductor to then consider the best development main, it is not usual for po-
5 deposit where a maiden ore reserve of path for the project,” he said.
1.8mt @ 4.5% copper and 2.1 g/t gold for tential litigation to follow,
83,000t copper and 123,000oz gold was In addition to work at Monty, progress
is also being made at the Black Butte something which won’t

Karl Simich take Simich by surprise.
“We’re trying to be

ahead of the curve here,

we may find that we are able to navigate

our way through this without having to

end up in that scenario,” he said.

“Hopefully getting a permit, and that

is obviously the important thing here, is

something we don’t quite know [how long

it will take]. Our view of the world is, by

the time we need to move the feasibility

study and all the rest of it, it is probably

a two-three year period from where we

are, maybe longer, depending on what

transpires in the public domain, with po-

tential litigation and things like that.”

– Mark Andrews

AUSTRALIA’S PAYDIRT MAY 2016 PAGE 11

NEWS

Right time to strike for
Western Areas

Western Areas Ltd be left alone, with
quickly hosed base metals, gold and

down speculation a PGMs in safe jurisdic-

transaction from left- tions all possibilities for

field was on the horizon Western Areas.

after its surprise $60 However, the only

million capital raising in available assets the

March. company sees at the

It was left to chief moment are deemed

financial officer Joe Tier 2, not the Tier

Belladonna to address 1-Tier 1.5 assets it is

WA Mining Club, as seeking.

managing director Dan Belladonna is confi-

Lougher was closing dent that as the com-

out the fully underwrit- modity crunch bites

ten share placement harder and producers

which was oversub- start to divest marginal

scribed at $2/share, a operations in favour of

premium to the under- their more cash gen-

written floor price of Western Areas chief financial officer Joe Belladonna told WA Mining Club erative projects, there
$1.94c/share. attendees of the company’s plans for the $60 million raised via a placement will be ample opportu-

Existing and new in- nities for Western Ar-

vestors at home and abroad participated, then we maybe [would] wait and see how eas to assess.

in a sign of approval of Western Areas’ that played out.” Therefore, the company will take a

capital management strategy. In addition to meeting obligations for hard-line approach in its due diligence

A SPP to raise up to $10 million (maxi- Cosmos, Western Areas can also repay appraisals and won’t be making any

mum $15 million), also at $2/share, as what has been drawn under the $25 mil- hasty purchases in fear of missing out on

previously announced, was also on the lion corporate facility with ANZ, continue anything.

table, with shareholders having until April investing in exploration at Cosmos and “[We will] be making sure that projects

27 to register an interest. Western Gawler, take Odysseus to PFS pay their way,” Belladonna said.

Belladonna said while it would be nice status and move to BFS for an estimated With a large section of the nickel sector

to reward retail and institutional share- $5 million and fulfil general working capi- in dire straits it remains to be seen if any

holders in the placement process via the tal expenses. projects fall in front of Western Areas.

SPP, the company wasn’t relying on it “Also, capital that has been deferred at At the time of print, nickel was

in light of already securing such a large some of the areas of the group [vertical $US8,465/t which is hardly cause for a

amount. development at Spotted Quoll and the flurry of investment in the sector. How-

“One thing that people have asked is: mill enhancement recovery project] will ever, no investment means a lack of new

‘Is there a transaction that we are not be reassessed,” Belladonna said. capacity coming to market which may be

aware of that is coming on?’ No, I can “But, it is not just turning on the tap a beacon of light for nickel prices.

put my hand on my heart and say as we for all the capital that we have deferred, “We think that over time if capacity

stand here today there is nothing we are there are some logical things that we will gets idled or runs out we should be see-

aware of that we have raised money for, re-implement and restart and the one that ing some recovery in the nickel price. It

specifically in that regard,” Belladonna really comes to mind is the intake airway might not happen today or tomorrow or

told the media. at Spotted Quoll. That needs to be done the next 12 months, but over time the

Instead, the money raised allows between now and the next six months, nickel market will return and we want to

Western Areas to replenish capital spent but rather than push that to the envelope be in position to make sure we’re ready to

in the last few months, namely the $26 we will probably start that sooner rather capitalise on that when it happens,” Bel-

million Cosmos acquisition. than later, so that doesn’t penalise the ladonna said.

“[The] Cosmos payments due was re- mine play in 12 months time.” “It doesn’t take a lot of recovery for

ally the main driver to go to the market Strengthening its balance sheet also Western Areas to generate good cash

now,” Belladonna said. gives Western Areas greater flexibility flow again and fund all of its own explora-

“We wanted to remove any issues of to react to different market situations as tion and all of those things. Every 50c/lb

perceived lack of liquidity to actually meet they arise. increase is $15 million to EBITDA; that is

the book payments due on that. The op- Essentially, any M&A opportunities a pretty significant change.”

portunity to go now is probably the right Western Areas sees being complimen- – Mark Andrews
time, if we knew where the nickel price tary to its portfolio can be pounced on.

was going, and we’d all like to know that, Iron ore and coal plays will definitely

PAGE 12 MAY 2016 AUSTRALIA’S PAYDIRT

Navigating the tough times
Western Areas-style

Few companies have been able to was mutual and at the end of the day
weather the storm in today’s re- we were very pleased with the result.

sources sector and, at the moment, “We were very encouraged by the

there appears to be only a few com- response of our major shareholders

panies that will be left standing when both in Europe, mainly London, and

sunnier days return. on the East Coast of Australia, to

At $US3.80/lb nickel prices, not the point they see base metals prob-

many companies have the founda- ably now being on the low part of the

tions of success like Western Areas curve.”

Ltd does to survive now and flourish M&A opportunities are there for

later when the mining cycle starts its the taking right now, but the feeling is

ascension. Lougher doesn’t see much value for

The company’s recent $60 mil- what’s on the table at the moment.

lion capital raising through a share He uses the phrase “buyers be-

placement and $10 million SPP (on- ware” as sellers continue offering

going at the time of print), suggests up assets using consensus pricing

Western Areas is satisfying investor which is way above spot pricing.

demands and is being backed in to “You have to be careful with how

affirm its mantle as Australia’s lead- you deal with that,” Lougher said.

ing nickel miner. Patience and thorough due dili-

Building on its reputation as a gence is how Western Areas is

high-grade, low-cost nickel miner handling M&A at the moment, with

from the Spotted Quoll and Flying Lougher saying the likelihood of par-

Fox sulphide operations, the com- ticipating in any major activity was

pany has added Glencore’s Cosmos “very, very low” at this stage.

asset to its stable to demonstrate it “You have to be very wary of as-

is progressing business rather than Western Areas managing director Dan Lougher sets coming out of the major miners;

faltering. they are not very good assets. They

While watching many of its peers in the years and progressing organic growth are basically Tier 3 or Tier 2A or 2B.

West Australian nickel space succumb to opportunities are priorities for the next Whether Tier 1 assets come on remains

dire market conditions, Western Areas few years. to be seen and depends on how much

has vowed to navigate through these “We need to progress at an even pace, downward pressure on commodity pric-

tough times by being progressive, not so in three years’ time we won’t be ask- ing there is going forward,” Lougher said.

cavalier. ing ourselves: ‘what’s just happened?’” For the time being, Western Areas’

““It stresses how important assets are Lougher said. preferred direction for growth is through

to give you that anchor. It has been enhancing its strong portfolio of
difficult for an extended period of
time now, two years plus, where We’re not a group that projects at Forrestania, Cosmos
conditions have not been favour- is likely to standstill, and exploring more at the West-
able. But, you have to navigate ern Gawler greenfields JV in South
through these times, you can’t stop Australia.
because if you stop you get caught
up in the storm; you end up being but we are very prudent on The company is comfortable
what we spend money on. entering JVs with its friends in the
junior sector – demonstrated by two

taken over or raising more debt at tie-ups in the Western Gawler and

higher interest levels,” Western Ar- with St George Mining Ltd in WA –

eas managing director Dan Lougher told “Nobody really knows when we are and is something which will be preferred
Paydirt.
going to pick up out of that curve, but if above anything else.

“We’re not a group that is likely to the view is two or three years from to- “JVs are a good way to reap potential

standstill, but we are very prudent on day... now is not a bad time to invest. growth benefits. JVs with juniors are

what we spend money on.” But, investors are looking for companies what we like and there are endless re-

Having raised substantial cash to re- that have got the assets that give them quests right now. You have to get your

solve debt and pay off the remaining the foundation to go through the cycle, hands on a good, solid, cash generating

$12.6 million to secure Cosmos, Western because if they can’t see how you can asset if you are going to give it a go. You

Areas can also lift the lid on the capital get through the cycle then obviously they have to create shareholder value or you

deferment programme initiated on Janu- won’t invest in that company. The confi- will be marked down,” Lougher said.

ary 1. dence we got from that [capital raising] – Mark Andrews
Remaining debt free for the next few and the confidence we got from investors

AUSTRALIA’S PAYDIRT MAY 2016 PAGE 13

NEWS

Gryphon goes underground

Gryphon Minerals Ltd has identified Gryphon is targeting an underground resource of up to 1 moz gold at Banfora
a potential underground mining op-
portunity at its Banfora gold project in The result was an upscaled scoping running has always been the key thing for
Burkina Faso. study focused on the simultaneous build us and once that’s sorted and finalised,
of a 2 mtpa heap leach facility and a 1 then obviously we’re off to the races.
And managing director Steve Parsons mtpa CIL plant. Based on a $US1,250/
told Paydirt he was confident of secur- oz gold price, the study found the project “We have a mining permit in place and
ing vital project development funds within could produce 133,000 ozpa over an ini- we’re ready to go on the build, it’s just
the next few months. tial seven-year mine life for $US130 mil- about making sure we have an appropri-
lion in capital costs. ate funding solution. With the gold price
Gryphon reported last month that a re- back up around $US1,200/oz or more,
cent geological and engineering review “Once we’re down through the open pit that makes it much easier for us to get
of the project had demonstrated potential and into where the higher grade material the project off the ground.”
for a future underground mining opera- sits at the bottom of the pit, we’ll be look-
tion below the proposed Nogbele North ing to try and get into an underground Parsons was also confident the new
open pit. scenario and taking that production up Kaboré Government had brought some
closer to 200,000 ozpa,” Parsons said. much-needed political stability to Burki-
Drilling to prove up a high-grade un- na Faso after a period of uncertainty
derground resource at Banfora was due “It’s very high-level study work at the following the end of Blaise Compaoré’s
to start at the time of print. An explora- moment and we plan to get some holes reign in late 2014.
tion target of 3.5-4.5mt @ 5-7 g/t gold drilled into it in the coming weeks to show
for 560,000oz-1 moz has been set for an that it is robust and then we’ll update the “The new party is in power and life
area down to a vertical depth of 400m study work accordingly.” is back to normal,” Parsons said. “This
below the current open pit design. didn’t really affect anything that was go-
In other good news for Gryphon, pro- ing on in the mining industry, but it made
Last year’s drilling at Nogbele North ject funding appears imminent. Parsons it difficult for mining investment in the
returned a number of high-grade inter- said his company was in the final stages country until things were sorted out.
cepts, including 2m @ 148.62 g/t gold of negotiations with a number of banks
from 35m (including 1m @ 296.4 g/t), 3m and alternative financiers. “However, in the last two months we’ve
@ 120.53 g/t gold from 61m (including seen an enormous amount of capital
1m @ 358.01 g/t), 4m @ 152.65 g/t gold Gryphon has a financing mandate of suddenly going into mining in Burkina
from 19m (including 1m @ 569.01 g/t), up to $US60 million with Macquarie Bank Faso…so I think this year should be a
10m @ 14.74 g/t gold from 29m and 8m and a healthy cash position of $14.4 mil- pretty exciting year for the country.”
@ 10.85 g/t gold from 132m. lion.
Parsons pointed to Endeavour Mining
“We identified some very high-grade “Things last year with the gold price Corp’s recent $US250 million takeover
material when we were undertaking our the way it was made it difficult for us to of True Gold Inc as well as the former’s
grade control drilling for the banks,” Par- get a funding solution in place that wasn’t $US350 million build of the Houndé pro-
sons said. going to cost us a fortune,” Parsons said. ject as key milestones for Burkina Faso’s
“Now things are much better and I’m hop- mining industry – and ones that are vi-
“We then went and spoke to a mining ing over the next few weeks we’ll have tal to Gryphon’s chances of developing
engineering group that has done a lot of some good news to release to investors. Banfora.
work up in West Africa on underground
mining and we showed them our re- “Finding the full funding solution to get – Michael Washbourne
source and got them to put in what the our Stage 1 heap leach project up and
latest mining costs are for underground
mining in West Africa.

“That report came back looking very,
very positive and basically confirmed that
yes, this is underground material, without
a doubt, and would make money…so our
game plan now is to look at the under-
ground coming on board as a Stage 3
approach to our production scenario.”

This is not the first time Gryphon has
considered an underground mining sce-
nario, however, the company has always
held the view it would be uneconomic
to target the deeper material until it had
drilled through at least 50m of the depos-
it’s oxide cap.

Gryphon released a robust BFS for the
3.6 moz Banfora project in August 2014,
but a dwindling gold price at the time
prompted the company to go back to the
drawing board and assess other devel-
opment options.

PAGE 14 MAY 2016 AUSTRALIA’S PAYDIRT

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OPINION

Supply the differentiator for
base metals in first quarter

Nickel prices remained at a lowly $US8,500/t at the time of print

After last year’s collective slump base faltering supply in both markets, a clear soldering metal.
metals showed signs of bottoming and present danger for tin, a looming Exports slumped by 45% over the
out over the first three months of 2016. threat for zinc.
first two months of 2016, largely due to
The London Metal Exchange (LME) The LME tin contract, the smallest and yet another tightening of the regulatory
index touched a six-year low of 2,049 in least liquid of the core metals traded on screw on the hub of independent produc-
January but closed March out at 2270.9. the London market, has been plagued by ers operating on the Bangka and Beli-
Even the worst performer among the low stocks and tight spreads for much of tung islands.
LME’s major contracts, lead, ended the the last three months.
quarter down by just 2.3%. Exports should recover over the com-
The benchmark cash-to-three-months ing period but that low level of LME stock
The two best performers were tin and period flexed out to $US220/t backwar- is indicative of a market facing structural
zinc – both up almost 16% – a double dation in late February. supply issues.
manifestation of the current overriding
narrative in the industrial metals world. That has sucked some metal into the Zinc bulls are pinning their hopes on
LME warehouse system but at a current similar structural supply issues resulting
With all the base metals reeling from 4,810t, registered inventory is still down from the closure of some of the world’s
the shock of slowing demand growth in 14% on the start of the year and cash biggest mines.
China, the differentiator of price perfor- was still commanding a modest $US29
mance right now is supply. premium as of March 31 close. There is tangible evidence the raw
materials supply chain is starting to
The reason tin and zinc were the out- As ever with tin, this is all about Indo- tighten, even if there remains consider-
performers in the first quarter is down to nesia, the world’s largest exporter of the able uncertainty as to when that will feed

PAGE 16 MAY 2016 AUSTRALIA’S PAYDIRT

through into metal availability. Chinese investors may well take a neg- Such considerations explain why the

But with tin too small a playground for ative view of copper’s prospects given LME nickel price is doing no more than

the market’s bigger players, zinc is the the huge build in SHFE stocks this year. tread water at its current bombed-out lev-

best bullish supply story in town. Even with the sharp drop, they have still els. It ended the quarter flat on where it

Encapsulating the high hopes for this more than doubled to 368,725t. started at $US8,500/t.

market was a report issued this week by LME stocks, by contrast, are low and Aluminium fared better with a 3% gain

Leon Westgate, analyst at ICBC Stand- still falling. Open tonnage, meaning that after a run-up over the last half of March.

ard Bank. not earmarked for physical load-out, That may have been a reaction to a

“Refined deficits of 550,000t in 2016 is hovering around two-year lows and strong rally in Shanghai, itself a possible

“and 660,000t in 2017, representing near- front-month spreads are tightening ac- sign of improving dynamics in China, the
ly 5% of refined consumption, will rapidly cordingly. source of the global market’s problems of

destock the zinc market excess capacity and over-

and will provide the foun- The reason tin and zinc were production.
dations for zinc to reach re- Chinese production ap-

cord high prices in the next the out-performers in the first peared to drop sharply over
24 months.” quarter is down to faltering supply December and January
which would help explain
The previous record high

was $US4,580/t all the way in both markets, a clear and present the strength of the local rally
back in 2006, which still danger for tin, a looming threat for zinc. in prices.
looks a long, long way up
But everyone’s wary of

from the current price of Chinese production figures

$US1,850/t. around the end of the year,

Zinc has, however, re-established a The cash-to-three-months spread both calendar and lunar, and those for

premium over sister metal lead, the lag- ended March valued at $US32/t back- February remain conspicuous by their

gard of the LME base metals pack. wardation, the tightest the period’s been absence.

This is partly seasonal. Lead is mov- since August last year. The LME market itself, meanwhile, has

ing out of the period of seasonally strong Is this market in feast or famine? Rath- been more about spreads than outright

winter demand for replacement automo- er confusingly, it appears to be showing prices. The latest spasm of tightness has

tive batteries. symptoms of both depending on where passed but the aftermath is still playing

But it may also partly reflect the con- you look. out in the form of massive cancellations

flicting signals emanating from LME No such doubts as to either the nickel of LME stocks prior to physical load-out.

stock movements. or aluminium markets. Both are burdened This metal is largely on its way to

These have been distorted by a long- by high stocks and excess production. cheaper off-market storage and as it

running battle for units between ware- Nickel’s supply side has proved curi- moves, at the new faster rates stipulat-

house operators. The resulting loss of ously inelastic to low prices with most ed by LME rules, the store of available

visibility on the real state of the physical producers hanging on in there in the tonnage in LME warehouses is going to

lead market has not been helped by a hope that Chinese nickel pig iron (NPI) tumble sharply.

still-to-be clarified reporting error in LME producers will close first. Another bout of spread contraction

stocks held at the Dutch port of Vlissin- China’s NPI sector is being squeezed looks to be just a matter of time.

gen. by low prices and low availability of the If so, it will merely extend the contradic-

Copper was the third-best base met- nickel ore it uses as a raw feed and there tion sitting at the heart of the aluminium

als performer of the quarter with gains of is mounting evidence that run-rates are market, namely its increasing tendency

around 5%. now steadily declining. towards technical tightness even at a

It was doing better until the last week The problem is that supply everywhere time of huge stock overhang.

of March when the Shanghai Futures Ex- else is running too strong and stocks are – Andy Home, Reuters
change (SHFE) contract started coming still building, particularly in Shanghai.

under renewed bear attack, a running Even if the global market does move into

feature of the copper market for many deficit, it will take a long time to translate

months. into tangible tightness.

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AUSTRALIA’S PAYDIRT MAY 2016 PAGE 17

NEWS

It’s only the beginning
for Keysbrook

The majority of Keysbrook’s workforce live within 30 minutes of site

In many respects, MZI Resources Ltd’s and I acknowledge MZI, Mal [Randall] has the potential to be a “multi-decade”
Keysbrook operation is a rare beast. and Trevor [Matthews] and the board of business.

First and foremost, being one of a few directors. It has been a long journey... Prior to the unveiling of the plaque at

new mines to open in these austere times and... we have a long future in front of us Keysbrook, MZI released an updated ore

makes it a rarity but its primary produc- and I congratulate you on the hard work reserve estimate which indicated there

tion of leucoxene also makes Keysbrook you have done to get where you are and was enough in store to run the mine for

the first and largest operation of its kind I look forward to working with you,” Simp- more than 15 years.

in the world. son said. Total probable and proven high-value

Furthermore, as it is just 70km south It is with confidence Simpson can bank leucoxene and zircon ore reserves are

of Perth, the large major- on MZI playing an 72mt @ 2.2% heavy minerals (HM),

ity of the drive-in-drive- important role in which includes a higher grade portion of

out Keysbrook workers the Peel region’s 26mt @ 2.7% HM suffice for six years of

operate on either a five- economy for production at current mining rates of 4.5

and-two roster or four- sometime consid- mtpa.

and-four roster and are ering Keysbrook “We plan to be here for the long term,”

spared the arduous rota- MZI managing director Trevor

tions FIFO workers are Matthews said. “Keysbrook is

accustomed to. potentially a multi-decade busi-

Understandable then ness. We recently trebled the

that despite a cloudy Keysbrook ore reserves to 16

day, there were smiles years from 5.5 years, within the

all round among the space of current mining rates.

60-strong workforce at We also have total resources

Keysbrook on the day sufficient to last for over 30 years

140 people witnessed with excellent potential to build

Hon Tony Simpson, MLA resources beyond that.

for Darling Range and “Based on existing reserves

West Australian Minister and potential resources we have

for Local Government; the opportunity to create more

Community Services; employment and business activ-

Seniors and Volunteer- Keysbrook is the first mine in ity in the local area and also in-

ing; Youth officially open the world to produce titanium vest in the social infrastructure in

the mine. MZI technical director Peter Gazzard is dioxide leucoxene as its pri- the region.”

“It has been a big step one of 60 employees at Keysbrook mary mineral from sands Keysbrook’s longevity will be

PAGE 18 MAY 2016 AUSTRALIA’S PAYDIRT

MZI general manager at Keysbrook Graeme O’Grady

important for the expanding Peel region since mining and WA Liberal Party member for the federal seat of Canning Andrew
and MZI is not holding back on its inten-
tions to drive Keysbrook harder. wet processing Hastie and Hon Tony Simpson, WA Minister for Local Government

The current mining rate at Keysbrook commissioning joined MZI chairman Mal Randall and managing director Trevor
is 4.5 mtpa from an average depth of
2.2m. This is processed at Doral’s plant started ahead of Matthews for the official opening of the Keysbrook mine in April
at nearby Picton to produce a final prod-
uct of 28,800 tpa dry concentrate L70, schedule and on
38,400 tpa dry concentrate L88 and
29,000 tpa dry zircon concentrate. budget in October last year. then it hoped to dazzle the market with

Essentially, MZI has a toll-treating The company expects to hit nameplate options to potentially double the size of
agreement with Doral. After basic wet
concentrate is processed at Keysbrook, production this quarter. Keysbrook.
material is transported to Picton for dry
plant processing to make the final high “You can never really put a target “We see some opportunities to in-
value leucoxene and zircon concentrate.
date out there, we are expecting we will crease our throughput through small
To date, over 4,800t of zircon concen-
trate has been shipped, while leucoxene achieve that around this quarter,” Mat- scale capex,” he said.
sales started in March with the first ship-
ment of L70. thews told media on site at Keysbrook. “A lot of the project was designed with

MZI expected the first shipment of L88 “This is at the simpler end of process- reasonable amounts of excess capacity
in April.
ing and we de-risked the back end with in it and we have more than enough re-
Despite the project taking a decade to
bring to fruition, MZI has moved quickly Doral because they had a long history sources and reserves to accommodate

of operating those mineral separation expansion. So, beyond that, apart from

plants or dry plants as they are called. optimising the initial capital investment,

Through our investment in processing we are looking at doubling the size of the

facilities down there and using their man- project. Eighty percent is what an optimal

agement and staff [it has] pretty much expansion might look like and yet you

de-risked the ramp-up from our point of can still have a 15-20-year mine life if we

view.” are able to convert all of our resources.”

Matthews said hitting nameplate pro- While there is some improvement

duction was MZI’s No. 1 priority and in prices – L88 is linked to rutile prices

Chemours and Tricoastal-Wengsheng will receive almost three quarters of production from Keysbrook under a five-year off-take
agreement. MZI also has a letter of intent executed with Jinzhou Titanium for potential supply of L88

AUSTRALIA’S PAYDIRT MAY 2016 PAGE 19

NEWS

A wet concentrator is on site at Keysbrook while a dry concentrator,
operated and managed by Doral, is located at Picton, near Bunbury

better outcomes over the from sands that were previously con-
sidered lacking sufficient heavy mineral
short term for shareholders.” content to be viable. In addition, leucox-
ene can help fill the supply gap forced by
Keysbrook is already gen- the accelerated global depletion of natu-
rally occurring high-grade rutile,” Mat-
erating cash for MZI courtesy thews said.

of off-take agreements with Located in a well populated area,
Keysbrook is not a typical mine and there
Chemours and Tri-Coastal are issues to consider which simply don’t
apply to the run-of-the-mill mining opera-
Wengsheng which account tions WA is known for.

for 73% of output. There are a number of farms in the
area, with MZI owning the 340ha lot
Chemours is committed Keysbrook is on plus two other nearby
blocks, while three other agreements are
to taking the L88 (containing in place with land owners in the area.

88% titanium dioxide) and At night, to prevent noise and dust
problems, Keysbrook operations are kept
Spiral circuit inside the wet concentrator L70 (containing 70% titanium at least 1.5km from its nearest neighbour,
while in the interest of road safety, trucks
plant at Keysbrook dioxide) which can be used with material for export are kept off bus
routes.
to produce titanium pigment
Adhering to such agreements will hold
which are forecast to start rising this year for paint and plastics, while Tricoastal- MZI in good stead if it chooses to go
large with Keysbrook.
towards $US1,000/t – Matthews said the Wensheng will take the zircon concen-
“It is also a sustainable project with a
value proposition for shareholders and trate (56% zircon, 3% L70 and 11% L88) light environmental footprint,” Matthews
said. “We recycle and reprocess about
potential investors to consider was the useful in porcelain and ceramic products. 85% of our water requirements. The
mining itself, is basically a free digging,
opportunity to expand production and MZI continues to work on further shallow mine with just over 2-3m depth
on average. There is no mining waste; it
therefore profitability. agreements for the remainder of its initial is pretty simple. All the processed sand
is returned to the pit and because we
“We are looking at optimisation and ex- production, as it starts to look at scenar- don’t use any chemical in the process;
we basically put it straight back into the
pansion rather than price movements to ios beyond the stated 5.5-year mine life. ground and commence the rehabilitation
process. You can return to farming in 2-3
improve returns,” Matthews said. “It [Keysbrook] is the first mine in the growing seasons,” Matthews said.

“We are doing the things we have world to produce the titanium dioxide – Mark Andrews

some control over to basically achieve product leucoxene as its primary mineral

Keysbrook is 70km south of Perth

PAGE 20 MAY 2016 AUSTRALIA’S PAYDIRT

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COVER

Crusader suits up for
new adventure in Brazil

PAGE 22 MAY 2016 AUSTRALIA’S PAYDIRT

In the eyes of Crusader Re-
sources Ltd managing director
Rob Smakman, there is a sense
of serendipity surrounding his
company and its diverse suite of
projects in Brazil.

And it’s not hard to see why.

Crusader’s Borborema and Juruena

gold projects are firmly in the develop-

ment pipeline and will almost certainly

benefit from the precious metal trading

near an all-time high in Brazil on the back

of the depreciating local currency.

Brazil’s domestic iron ore market is

also recovering steadily after a difficult

period either side of Christmas, with cus-

tomers lining up at the Posse mine gate

to purchase the company’s products.

And in another fortunate occurrence Crusader managing director Rob Smakman has been based in Brazil for the last decade

for the ASX-listed company, surging

sentiment towards lithium has reignited companies exiting the country. Obviously can country, picking up the key assets of

exploration plans for Manga, one of Cru- there is a significant crisis going on, but Posse in 2007 and Borborema in 2009.

sader’s longest-held but seemingly for- from Crusader’s perspective that’s a Borborema has delivered its fair share

gotten projects. blessing.” of ups and downs for Crusader share-

“There’s a certain element of luck for Crusader listed on the ASX in 2004 holders over the past six years. The com-

us in being in the right place at the right with a handful of brownfields explora- pany has built up an impressive resource

time, let’s call it serendipity,” Smakman tion projects in Western Australia in its of 68.6mt @ 1.1 g/t gold for 2.43 moz,
told Paydirt during a tour of the compa- portfolio before ultimately turning its fo- including proven and probable reserves

ny’s projects last month. “cus to the resource-laden South Ameri- of 42.4mt @ 1.18 g/t gold for 1.16 moz.Crusader confirmed the
“No question it’s a good
viability of a 3 mtpa open-
time, not just in the gold sec-
tor but for all minerals in Bra- No question it’s a good time, cut operation producing up
zil because the real is appli- not just in the gold sector but to 180,000 ozpa (averaging
cable to most of them. 130,000 ozpa over the life of

“I’m surprised the country for all minerals in Brazil because the mine) in a positive PFS re-
hasn’t got more attention and real is applicable to most of them. leased in September 2011,
I’m surprised at the number of
earmarking Borborema as

Earlier feasibility studies ranked Borborema among the largest gold projects in Brazil
AUSTRALIA’S PAYDIRT MAY 2016 PAGE 23

COVER

Under the new development strategy for Borborema, powerlines running through and that’s been helped by the [depreci-
the Crusader farm will not need to be relocated ating] Brazilian real. That has devalued
significantly over the last couple of years
one of largest gold projects in Brazil. for gold-producing companies in Brazil and also, from the market’s perspective,
The PFS flagged a $US169 million in the past year prompted Crusader to the price of fuel has come down and the
initiate a rethink on Borborema and the price of iron has come down, which is
capex to build the project, along with project is now firmly back on the agenda. important for operating costs as well as
operating costs of $US558/oz. Assump- construction costs.”
tions were based on a then $US1,300/oz “The biggest issue we had three years
gold price and an exchange rate of 1.6:1. ago was the capital hurdle, without ques- Crusader is completing an internal
tion,” Smakman said. scoping study focused on a smaller 2
Crusader embarked on a BFS in early mtpa throughput at Borborema, generat-
2012 to outline the costs for a 4.2 mtpa “The feasibility was being completed ing both initial and sustaining capital cost
operation producing about 150,000 ozpa during a period when the gold price was savings and a shortened build time.
over an estimated 10-year mine life, but falling dramatically and it didn’t take Ein-
little has been said publicly about the stein to realise that we couldn’t raise the Mining a smaller pit on the upper lens
project’s future since the gold price col- capital to build the project. of the reserve (roughly 19.2mt @ 1.2 g/t
lapsed in April 2013. gold for 743,000oz) is set to cut the strip
“The capital hurdle has been reduced ratio in half to 3.3:1 for only a moderate
However, improving market conditions significantly by rethinking the project reduction in NPV, slated at $US250 mil-
lion in the PFS.

The revised project footprint is also
entirely within the Crusader farm limits.
Waste movement drops 75% to 64mt.

Plans for a tailings dam have also
been scrapped as part of the new de-
velopment strategy, eliminating earlier
requirements to deviate a portion of the
nearby highway and powerlines running
through the project area, thus avoiding
the lengthy and frustrating licencing ap-
plication process.

“During the last year we were able to
do some test work on the tailings and

that proved we could

PAGE 24 MAY 2016 AUSTRALIA’S PAYDIRT

“It’s come to a point where the Brazilian
real has fallen so dramatically that,
much like the Australian dollar in 2015, the
economics of Borborema keep improving as

the currency devalues.

do filtration and dry stacking on the tail- ing around 4,300 real/oz at the
ings, which was a really big step for-
ward,” Smakman said. time of print, as the exchange

“The other major advantage is going to rate neared 4:1 to the US dollar.
be the licencing. By rethinking the scope
and taking some of the more difficult as- “It’s come to a point where
pects of the licencing out of it – like mov-
ing the highway, moving the powerlines the Brazilian real has fallen so
and licensing the tailings dam, especially
in light of the recent Samarco disaster – dramatically that, much like the
we think it will be a much smoother path.”
Australian dollar in 2015, the
Crusader will this month fly samples
collected from drilling last year to Perth economics of Borborema keep
in a bid to improve the metallurgy, an
area previously identified by independ- improving as the currency de-
ent engineering firms working on the
BFS as requiring more attention. values,” Smakman said.

Exploration work at Borborema, about “Borborema looks very differ-
30km from the small town of Currais
Novos in the country’s north-east, will ent now to its last incarnation
also restart over the coming months.
and I think it’s a project that will
Gold, in Brazilian real terms, hit an
all-time high of almost 5,000 start to get a lot more attention Crusader has logged an extensive core library at
real/oz in February and
was comfortably trad- over the next few months.” Borborema since picking up the project in late 2009

Borborema’s second coming,

however, will not affect the company’s relatively short timeframe.

development aspirations for Juruena, With the rebirth of Borborema now in

Central Brazil, acquired from TSXV-list- play, Juruena’s future might be viewed

ed Lago Dourado Inc in July 2014 for just as somewhat uncertain, but Smakman

$C650,000 plus shares. insists nothing has changed and it will be

Juruena was initially touted as a po- “full steam ahead” on the development

tential cash cow for Crusader – a high- front.

grade, low capital intensive project which “They’re different projects at different

could be put into production within a stages so they’re not competing

The high-grade Dona Maria deposit is one of two prospects earmarked for early production at Juruena
AUSTRALIA’S PAYDIRT MAY 2016 PAGE 25

COVER

Juruena is hosted within the 400km long, 6 moz Alto Floresta gold belt in Central Brazil

for resources within Crusader,” Smak- (216m @ 0.55 g/t).

man said. “At Borborema, we’re using A scoping study on an early production Historical workings collected by previous ex-
consultants to help us and Juruena will scenario for Juruena is due before the plorers were a major drawcard for Smakman
be more or less the internal team within end of this quarter.
Crusader working on that project.” and his team in the purchase of Juruena
“Part of this strategy is born out of the

Crusader was drawn to Juruena, locat- licencing restrictions and the opportuni- where we’ll have a central processing

ed on the largely untapped 400km long, ties you have in Brazil,” Smakman said. facility and hopefully we’ll be able to

6 moz Alto Floresta gold belt, based on “Like we had with Posse, we can bring generate enough ore from each target

the project’s long history of successful Juruena into production using a trial min- to fill that processing facility up. We see

exploration and production. ing license and one of the unique charac- Dona Maria and Querosene as the first

Juruena has produced about teristics about Juruena is the tenements two cabs off the rank, but we’re hoping

500,000oz from shallow garimpeiros (ar- are small and for each one you can gen- there’s a much longer cab line than there

“tisanal) workings, albeit to depths of just erate its own trial mining licence. is at Perth Airport.

15m. The project has also been system- “We’re taking a hub a spoke approach “We’re going to use 2016 as a year

atically explored by a handful of where first we put the scoping

companies, including defunct We see Dona Maria and study out, finish the resources
Australian group Consolidated Querosene as the first two and take it from there. If the
Madison Holdings Ltd. cabs off the rank, but we’re hoping capital cost comes in below
there’s a much longer cab line $US15 million, which is what
Lago spent close to $C30 we’re aiming for, we’re pretty
million on exploration between

2009 and 2014, including over confident we can raise that in

30,000m of RC and diamond than there is at Perth Airport. the current market and look to
drilling and 2,600km of tight- try and fast-track production.”

spaced aeromagentics and While much of the excitement

gradient IP surveys. hovers around plans for Cru-

Crusader has drilled more than sader’s two gold projects, the small

10,000m at Juruena and last year but efficient Posse iron ore mine

announced an impressive maiden continues to be the quiet achiever

resource of 1.3mt @ 5.6 g/t gold for in the company’s portfolio.

234,000oz for the project, compris- Posse, just 35km from Brazil’s

ing three key deposits: Querosene mining capital Belo Horizonte, has

(263,500t @ 12.3 g/t for 104,100oz), generated more than $33 million

Dona Maria (196,300t @ 11.8 g/t for in sales revenue and $10 million in

74,700oz) and Crentes (846,450t @ gross profit since the start of opera-

2 g/t for 55,100oz). tions in 2013.

The restart of drilling at Juruena Despite reduced global and do-

was imminent at the time of print mestic demand for iron ore prod-

and will seek to upgrade the exist- ucts on the back of a falling mar-

ing resources from inferred to in- ket price through 2015, Posse still

dicated status, as well as prove up churned out gross profit of $52,520

a number of promising targets, in- Crusader announced a maiden resource of 1.3mt @ 5.6 g/t and sales revenue of $7.3 million for

cluding Tomate (8m @ 6.3 g/t gold), gold for 234,000oz at Juruena last year, including 263,500t the calendar year.

Mauro (57m @ 15 g/t) and Uiliam @ 12.3 g/t for 104,100oz at the Querosene prospect Posse was put into production

PAGE 26 MAY 2016 AUSTRALIA’S PAYDIRT

Artisanal mining by the local garimpiero community Customers are lining up at the mine gate to Posse as Brazil’s
remains ongoing at Juruena domestic iron ore market shows signs of a recovery

three years ago on the back of just 11 iron ore producers typically talk about. lier this year when Crusader partnered
drill holes and a $US2 million process- “It has been an amazing cash flow with exploration and mineral processing
ing plant build. Remarkably, only three technology company Lepidico Ltd to in-
months – December 2015, January 2016 asset for the company. We had a tough vestigate a range of lithium opportunities
and February 2016 – have posted nega- end to 2015 and the start of 2016, but the in Brazil.
tive results, amid the recent iron ore price market is improving. We’re seeing new
slump. customers come to the market because That agreement includes exclusive use
Posse is one of the last projects standing of Lepidico’s patented L-Max technology
“Posse just keeps on giving,” Smak- in the region. We’re getting real interest in Brazil for the recovery of lithium from
man said. “It has allowed us to survive and we’re hoping we can return to profit- micas such as lepidolite, zinnwaldite and
and thrive when many of our peers have ability and really start helping out the rest polilithionite.
been falling away…from our perspective of the company.”
it has given us a real point of difference. “When zinnwaldite was mentioned by
According to Smakman, the “sleeper” the Lepidico guys in their L-Max process,
“We’ve never made a big song and in the company could be the Manga my ears pricked up and I remembered
dance about this project because it was lithium project. One of Crusader’s first Manga so I went back and hunted down
never what the Australian vision of an acquisitions in Brazil, Manga was initially some of our old results and put two and
iron ore project was. First, there are no drilled for its tin and indium potential but two together,” Smakman said.
exports and, second, it’s very low ton- has been on the backburner since 2008.
nage compared to what the Australian “That’s really what has stimulated our
Interest in Manga was reignited ear- revision of Manga. People might think

Posse has been an unheralded asset for Crusader despite the global iron ore price slump
AUSTRALIA’S PAYDIRT MAY 2016 PAGE 27

COVER

Posse has generated more than $33 million in sales revenue and $10 million quarie Bank, also saw veteran fund man-
in gross profit since the start of operations in 2013 ager Jim Rogers join Crusader’s board.
US-based Rogers co-founded the Quan-
we’re being a bit cheeky here, but this is tor Paul Stephen managing all things fi- tum Fund, widely recognised as one of
a project we’ve known about and had in nance back in Perth, Crusader appears the world’s first truly international funds,
the company for a long time. to have found the perfect formula for an during the 1970s.
Australian company operating in another
“We’ve just come across the old drill country. “We’re really excited about what Jim
cuttings and we’re going to see if they’re brings to the table,” Smakman said. “Ob-
usable, but I think we could have a pretty Stephen recently spearheaded a $6.25 viously he’s a well-known investor who
exciting lithium story out there in a fairly million capital raising which will enable has a long-term vision and he’s turned
short period of time.” the company to complete the next round that vision to South America, specifically
of drilling at Juruena as well as the pro- Brazil, alongside gold and lithium. He’s
Crusader is one of the few Australian posed exploration work at Borborema. chosen Crusader and we feel really privi-
success stories to come out of Brazil, leged that he has come on board.”
alongside Troy Resources Ltd and Bead- “Paul and I have been partners in this
ell Resources Ltd, albeit one still in its company since the beginning and he is Rounding out Crusader’s board is
infancy despite the company approach- excellent at what he does,” Smakman chairman and respected businessman
ing the 10-year anniversary of its venture said. “He keeps the market fully informed Stephen Copulos, ex-Vale SA executive
into the country. and he keeps finding money for me to Mauricio Ferreira and chartered account-
spend here in Brazil. Without that part- ant John Evans, ensuring the company’s
Part of that success can be put down nership, I don’t think Crusader would directors and management team is just
to Smakman, a geologist with extensive work nearly as well. It’s been key to what- as diverse as its project portfolio.
experience in Australia and Africa, bas- ever success we’ve achieved today.”
ing himself and his family in Brazil for the With the likes of Troy exiting Brazil en-
past decade. With fellow founding direc- The capital raising, financed by Mac- tirely and Anglo American plc reportedly
considering its future in the country, the
planets are aligning nicely for Crusader
to take advantage of its strong founda-
tions.

“We’ve managed to get really good
deals during our tenure here and long
may that continue because it’s the best
way you can grow a company in a coun-
try like this,” Smakman said.

“There’s amazing opportunities here
and I’d encourage anyone to come and
spend some time in Brazil because in
many ways it has the same opportunities
as other jurisdictions, but it’s easier to
operate. Bureaucracy is difficult, but the
infrastructure is fantastic, so there’s a lit-
tle bit of a quid-pro-quo.

“We have four really good projects and
we expect good news from each one
over the next 12 months. There’s going
to be a little bit of everything for Crusader
shareholders.”

– Michael Washbourne

Regrowth of natural vegetation is an important part of the Smakman inspects the geology at Posse. Only 11 holes were drilled
company’s licencing requirements at Posse into the project before it was put into production three years ago

PAGE 28 MAY 2016 AUSTRALIA’S PAYDIRT

No resource,
no worries for Orinoco

AUSTRALIA’S PAYDIRT MAY 2016 PAGE 29

COVER

Orinoco Brazil president Klaus Petersen, an experienced geologist, has been a key figure in the company’s success to date

By the end of this month, Orinoco Gold Ltd will be Brazil’s newest last quarter. Pointing out actuals will be
gold producer – a remarkable achievement considering the com- hugely important.
pany’s flagship Cascavel project has no resource, let alone a formal
feasibility study. “While we’re commissioning, we’re
also going to put through some batches
A nuggety ore type, consequently re- sive time for the company because there of high-grade ore. These are also actu-
turning “unreliable” drilling results, is the will be some actuals at the end of it,” Pa- als and will be, give or take 10%, repre-
primary reason Cascavel has not fol- pendieck said. sentative of the grade that will come out
lowed the same path to production as of those mineralised zones.”
almost every other modern day gold op- “We can’t tell people what our pro-
eration. duction forecasts are for the coming Underground mine development at
three months, but what we will be able Cascavel, part of Orinoco’s Faina gold-
There is no doubting the copious to tell them is what we produced in the fields project in Goias state, Central Bra-
amount of visible gold at Cascavel be- zil, has been ongoing since last June,
cause, as Paydirt found during a site Orinoco managing director Mark Papendieck at following several years of intense explo-
visit last month, it is abundantly clear to the opening to the Cascavel main incline shaft ration in which Cascavel was confirmed
anyone who has walked over the project. to be a large, coarse gold system.

Orinoco managing director Mark Pap- Perhaps most importantly, that work
endieck and his team are convinced no concluded Orinoco’s flagship project was
amount of drilling will ever equate to an not amenable to modern project feasibil-
accurate and JORC-compliant resource ity progression and a decision was made
estimate for Cascavel, hence why ex- to advance Cascavel by bulk sampling
plaining the company’s non-traditional and exploration decline.
business model has proved challenging.
Cascavel is not the first project to be
Without a resource, the company is un- put into production by an ASX-listed
able to publish any production forecasts company with few or no reserves. Rame-
or associated costs, potentially weaken- lius Resources Ltd put Wattle Dam into
ing the investment case for Orinoco dur- production with just 13,000oz in reserve
ing this well-publicised economic down- and the mine ultimately produced more
turn. than 250,000oz gold.

However, according to Papendieck, Paulsens has churned out more than
the untapped potential of the project will 700,000oz gold for Northern Star Re-
start to become evident once the first sources Ltd despite having an initial
batch of ore is processed through the reserve of 45,000oz, while Silver Lake
new Cascavel plant later this month. Resources Ltd’s Mt Monger operation
has delivered more than 250,000oz gold,
“These next few months will be a mas- having started with not a single ounce in
reserve.

PAGE 30 MAY 2016 AUSTRALIA’S PAYDIRT

Exploration manager Vinicius Rodrigues and mine geologist Leandro Ballarin discuss the mineralisation within the mine

In Brazil, Troy Resources Ltd put Cascavel, like the above examples, is for Cascavel, with the company estimat-
Sertão – now owned by Orinoco – into
production in 2003 without establishing a high-grade, narrow-vein gold deposit ing only one in five drill holes returned
a reserve base for the project. The mine
delivered 256,000oz gold over the next which typically has a short initial mine ore grade intercepts.
three years.
life and can be difficult and expensive to Panel sampling at Cascavel returned
“At the end of the day we are mining
and processing the same way people completely drill out from surface. 15m @ 88 g/t gold along one shoot, how-
have been mining and processing for
over 1,000 years,” Papendieck said. “Drilling to date has not provided any re- ever, it has also failed to offer a definitive
calculation, particularly for those trying
“We’re using modern machinery and liable information about the likely grade
we’re using modern supports, but the If you get a nugget or a couple of nuggets
concept of what we’re doing is not tech- in your sampling, you can overestimate
nically complicated. We think it’s low risk.
the grade. If you miss some nuggets, you’ll
“Even though we don’t have a JORC underestimate the grade.
resource, we would rather have a project
that’s got lovely, continuous geology and
you can walk underground and you can
actually see the orebody than have a
computer model try to estimate what you
do and don’t have.”

Visible gold is abundant through Panel sampling is one technique Orinoco has used to collect information
the Cascavel mine about the potential grade of Cascavel

AUSTRALIA’S PAYDIRT MAY 2016 PAGE 31

COVER

Orinoco acquired the former Sertão open pit mine in January 2015

to work out an appropriate bulk sample search, GMP Securities Australia and walk underground and see over 100m of
size. MineLife Pty Ltd’s Gavin Wendt, with all strike, you can see from surface work-
pointing to a high-grade gold deposit. ings that produced gold for almost 500m,
“There’s a great example in the mine and it’s open past that.”
where our highest grade panel sample GMP suggested Cascavel could host
returned 1,300 g/t and it is located within around 50,000oz with a diluted aver- Orinoco’s rapid transition from explorer
touching distance of a drill hole that had age grade in excess of 10 g/t gold, while to gold producer is even more remarka-
0.2 g/t gold in it,” Papendieck said. Breakaway flagged initial production of ble when you consider the company only
22,000 ozpa at 20 g/t gold, a grade simi- listed in late 2012, using a shell held by
“If you get a nugget or a couple of nug- lar to Wendt’s estimate. now-chairman John Hannaford.
gets in your sampling, you can overesti-
mate the grade. If you miss some nug- Sertão, part of the same greenstone The company is the brainchild of Pa-
gets, you’ll underestimate the grade. belt as Cascavel, averaged about 29 g/t pendieck and his Brazilian business
gold when in operation. partners, experienced geologists Klaus
“We can see that the grades are go- Petersen and Marcelo de Carvalho. Both
ing to be spectacular, but if you ask me, “Even though these guys don’t have have been instrumental in pushing Cas-
‘Mark, is it going to be 10 g/t gold, 15 g/t, any more information than what the mar- cavel towards first production.
20 g/t across the whole mine?’, I can’t an- ket has, they have taken the time to come
swer that yet. As soon as we start mining, and see the project and they can see the “There’s a sense of pride on site at
we’ll have a much better feel for that.” potential,” Papendieck said. the moment,” Papendieck said. “What
we find here in Brazil is we have a much
Orinoco has hosted several analysts “It’s one of those mines where you higher profile here than what we do in
at the project, including Breakaway Re- can actually see the system. You can Australia. Cascavel is known in Brazil as
quite a big discovery.
Orinoco miners crushing and panning
samples at Cascavel’s “Olympic Dam” “To be able to bring this project to mar-
ket in these economic times has been
very rewarding. Hopefully soon we will
also be able to point to the grade and
say, ‘we told you so’.”

Hannaford described the past year as a
“watershed” period in Orinoco’s history in
his recent annual address to sharehold-
ers, singling out the start of mining op-
erations and plant construction, as well
as raising $US8 million in gold-streaming
funding, as landmark moments.

Last May, Orinoco received $US8 mil-
lion for project finance from New York-
based private equity fund Cartesian Roy-
alty Holdings in return for 20% of the gold
produced during the first three years of
operation at Cascavel. The agreement is
subject to a floor of 16,000oz and a cap
of 24,000oz.

“No bank is going to loan you debt fi-
nance for a project which doesn’t have
a JORC resource, so we basically did a
forward gold sale,” Papendieck said. “At

PAGE 32 MAY 2016 AUSTRALIA’S PAYDIRT

the time we were also a $15 million com-

pany so it would have been disastrous

to have gone to the market and tried to

raise $US8 million.”

Orinoco suffered a setback in Febru-

ary when customs officials in Brazil de-

layed the release of key equipment for

the gravity processing plant at Cascavel,

pushing back the proposed start of pro-

duction to late May.

The modular plant, located less than

300m from the mine portal, will operate

as a three-stage crushing circuit, without

a ball mill and the use of cyanide. The

initial run rate is slated at 3,500 tpm, al-

though the plant, constructed by Gekko

Systems Australia, is capable of running

at 8,000 tpm.

Papendieck and his team are already

expecting big things from the plant, which The new gravity-only processing plant was in the final stages of construction when

is expected to recover about 85% gold. Paydirt visited the project in April

“Cascavel is a lot bigger than we’re cur-

rently mining so the aim will be to ramp delivering tonnes of ore to our brand new equivalent) was recorded.

Cascavel up to try and fill this plant,” he mill,” Papendieck said. “It’s one of those projects that will take

said. “You don’t build a plant that can Sertão is also an option, although Pa- a lot of money to find, so it’s not a focus

take 100,000 tpa and not fill it up. pendieck conceded a standalone plant for us at the moment, but don’t get me

“We don’t want to start with a ‘big bang’ was probably needed to process ore wrong, we think there is potentially a big

approach. We want to start with some- from that site, 28km by road from Cas- deposit there,” Papendieck said.

thing that is going to generate some ex- cavel, given its gold was not as coarse as “If this was a different market where

“cellent returns for our shareholders and that currently being mined. people were looking for big exploration

deliver some good gold plays, you could easily go

for us. What we find here in Brazil is we and raise $10-20 million
“Obviously we need to have a much higher profile here and try to find where all of
this is coming from.”
reinvest the money that
the mine makes…it can While the lack of a

be very profitable at the than what we do in Australia. Cascavel is JORC-compliant re-
levels we’re planning on known in Brazil as quite a big discovery.
running it at, but of course source prevents the com-

pany from releasing any

your unit costs go down production forecasts, Pa-

if you can bring on extra pendieck has made no

tonnage and produce extra ounces.” Making a major discovery in the Faina secret of his desire to ultimately trans-

The focus for Orinoco may be on get- goldfields region is also high on Orino- form Orinoco into a major gold producer.

ting Cascavel up and running and gener- co’s agenda, potentially around the Tinti- “We see this as just the tip of the ice-

ating a profit, but in the background work ero prospect where an impressive hit of berg for Cascavel,” Papendieck said. “In

has begun on finding those additional 17.56m @ 1,262.7 g/t silver (17 g/t gold a couple of years time we want to be pro-

ounces within a 3km radius. ducing 100,000 ozpa out of

Cuca, 400m from Cas- the Cascavel area.

cavel, is the logical next “We have had to advance

target, although Garimpo, this project in a different way

a further 2km from site, has to most other companies,

potential but requires further but we know that Cascavel

exploration. A trial mining li- is going to be a lot bigger

cence, which takes about than the area that is covered

six months from application by our initial mine plan.

to award, looms as a pos- “These Archean systems,

sible option to incorporate they’re big systems. Even if

either of these satellite de- you start with a really small

posits into the mine plan. resource, that’s not an indi-

“The logical way to ex- cation of where it’s going to

plore somewhere like Ga- lead you.”

rimpo is to drill a couple of – Michael Washbourne
thousand metres to test the

structure, make sure it’s

continuous and if there’s

gold in the system, get one Orinoco Brazil vice-president Marcelo de Carvalho inspects old workings

of these licences and start at Garimpo, a potential second source of ore for the Cascavel plant

AUSTRALIA’S PAYDIRT MAY 2016 PAGE 33

LATIN

AMERICA

17-18 May 2016

Pan Pacific, Perth

$A1,200

INC. GST
After four highly successful years in Sydney, Paydirt Media will present the 5th Latin America Down
Under conference in Perth. Since its inception in 2012, Latin America Down Under has grown into
the premier forum for Australian-Latin American relations, particularly in the area of resources

investment and policy, all of this in the vibrancy and momentum of Australia’s mining capital.
The two-day conference will provide prime opportunity for governments, companies, service
providers, media and investors to network and share their stories and experiences of operating in

one of the world’s premier mining investment regions.

Conference sponsors
& supporters to date:

To present, exhibit or attend as a delegate please contact
Melita Fogarty on (+61) 8 9321 0355 or email [email protected]

Session 1: PROGRAMME OVERVIEW BOOK TODAY

Session 2: Welcome to Latin America Down Under
Session 3: Ecuador – Beginnings of an industry
Session 4: Chile and copper – Preparing for the next cycle
Mexico and Brazil – Latin powerhouse economies
Session 5: Meet Australia’s diplomatic corps
Session 6: Colombia – A new era of development
Argentina and Panama – Back on the international stage
Session 7: Cuba – Unearthing hidden opportunity
Session 8: Mining Sustainability: Energy and Water Panel Discussion
Peru – Still moving forward
Panel discussion and farewell reception

PRESENTATIONS FROM:

Argentine Republic, Republic of Ecuador,
Sr. Daniel Meilán, HE Mr. Javier Cordova Unda,
Mining Secretary Minister of Mines

Republic of Chile, United Mexican States,
HE Mr. Ignacio Moreno, Dr. Mario Alfonso Cantú Suárez,
Vice Minister of Mining General Coodinator of Mining

Republic of Colombia, Republic of Panama,
Sra. Silvana Habib-Daza, HE Mr. Manuel M. Grimaldo,
President of the National Mining Agency Vice Minister for Domestic Trade
and Industries
Republic of Colombia,
Sr. Santiago Angel Urdinola, Republic of Cuba,
President of the Colombian Mining Sr.Yuri Vaimontes Lazo,
Association Vice Minister of Energy and Mines

Western Australia, Australia,
Hon. Sean Kimberley L’Estrange MLA, Hon. Gary Gray AO,
Minister for Mines and Petroleum and Shadow Minister for Resources and
Small Business Northern Australia

Australia,
Hon. Josh Frydenberg,
Minister for Resources, Energy and
Northern Australia

www.latinamericadownunder.com

LATIN AMERICA DOWN UNDER PREVIEW

Argentina gets
into shape

After four years in Sydney, Latin America Down Under will this year be held in Perth. Eight ministerial
delegations from across the region will be visiting Australia’s mining capital to showcase the opportuni-
ties on offer to Australian explorers and miners. While the likes of Chile, Peru and Mexico are among
the world’s leading resources jurisdictions, others such as Ecuador, Cuba and Argentina are only
beginning to welcome foreign investment. Ahead of the conference, Paydirt looks at the developing
stories in those countries and the Australian companies making waves in the region.

The Argentine Government has un- and Chubut consistently rate in the top cult,” Troy managing director Martin Pur-
veiled the new coach of its mining 50 jurisdictions in the Fraser Institute’s vis told Paydirt in April.
team and expects him to deliver a world- Annual Survey of Mining Companies
class outfit. – the new Government has identified Meilan said Kirchner’s macroeconomic
mining as another potential pillar to the policies were the antithesis of good min-
Daniel Meilan has twice previously economy. ing policy.
served as the Secretary of Mining in
Argentina, but with President Mauricio Meilan said his upcoming visit to Aus- “I don’t like to bad-mouth the previous
Macri’s Government elected on a prom- tralia for Latin America Down Under and government because I am part of the in-
ise to bring the country back into the his recent trip to the PDAC event in To- stitutional continuity but the fact is that
international fold, his job this time is to ronto were designed to raise awareness the previous government increasingly
court foreign investors into a sector often about the country’s attractiveness. closed off the Argentine economy from
ignored in the last decade. 2006 onwards with populist policies and
“We believe it is important to send a more protectionism and by 2011-12 the
“This is my third time as secretary and message both inwardly and outwardly economy was almost completely closed
[my job] this time is to convince investors that mining is important to Argentina and off. This resulted in macroeconomic dis-
that we are once again open for busi- that our initial measures are aimed at turbance to all productivity and especial-
ness,” Meilan told Paydirt during a video reopening the sector,” he said. ly mining,” he said.
conference.
The macroeconomic dynamics had “We had two or three different ex-
Macri came to power in December quashed almost all mining investment. change rates for the US dollar, there
2015 with a promise to adopt a more As recently as March, ASX-listed Troy were export duties on mining goods, the
market-friendly approach than his prede- Resources Ltd sold its interest in the importation of capital goods was restrict-
cessor Cristina Kirshner, who had led the Casposo silver-gold mine in the country, ed and there was no allowance for the
country down an increasingly isolationist citing the difficult macroeconomic poli- repatriation of dividends.
path following its debt default in 2001. cies as one of the main reasons for its
decision. “This is exactly the opposite of what
Argentina has long been an agricul- mining needs and it was not just a mat-
tural powerhouse but given its widely “The political situation meant it was ter of policy. If someone asked to play
acknowledged geological prospectivity – hard to make any money and the fall in football turned up at the ground wear-
provinces such as San Juan, Catamarca the silver price made it even more diffi- ing a suit and with a rugby ball under his

PAGE 36 MAY 2016 AUSTRALIA’S PAYDIRT

Australian Minister for Foreign Affairs, Julie Bishop, delivered a video welcome to delegates at last year’s Latin America
Down Under conference in Sydney. The event will be held in Perth for the first time this year

arm, you would assume he’d gone to the points, now they have come to high sin- we have to play by are”.
wrong place and was ill-prepared; the gle digits; which is significant if you are He said much of the change in policy
previous government was similarly ill- thinking about how to put your dollars to
prepared for mining.” work.” simply involved applying existing legisla-
tion which the previous government had
Macri’s first 100 days in office saw his The devaluation of the Argentine peso ignored or circumvented.
government lift capital controls on repa- is also proving beneficial.
triation of profits, define a unified floating “We are returning to the existing min-
foreign exchange rate, lift import controls “Obviously there is inflation to counter ing investment promotion law that the
on capital goods, remove taxes on min- that but even if it is not 40% reduction, we government had not been applying. For
ing exports and begin negotiations over think a 10% saving on the $US220 mil- instance, the existing law already en-
unpaid debt. lion that was peso-denominated will be sured tax stability for investment.”
very meaningful to the project,” Tse said.
Results have already begun to flow Meilan said although the change in at-
through to the economy with S&P up- Regarding specific mining policy, Mei- titude meant Argentina was ready to at-
grading Argentina’s debt to B- and the lan said the Government had studied tract foreign investment into mining, it still
US Treasury Department supporting Ar- regional neighbours such as Chile, Peru needed to get in better shape.
gentina in the multilateral entities to ease and Brazil to “see what the basic rules
access to credit. “So, we have put on our football shorts
Diego Temperley and start to play the game by the correct
In April, Argentina launched a $US16.5 rules. That doesn’t mean we are in condi-
billion bond offering, the largest emerg- tion to play against Barcelona, however.
ing-market debt sale in history. We are a little overweight but we are see-
ing a nutritionist – President Macri – and
ASX-listed Galaxy Resources Ltd is he is getting us fitter.”
currently investigating funding options for
its Sal de Vida lithium project in northern However, mining investors are still
Argentina and chief executive Anthony wary of a country where, despite the cap-
Tse said there was already a discern- tain getting into shape, many of the play-
ible change in banks’ attitudes towards ers are still reluctant to pull in the same
investment in the country. direction.

“Anecdotally, quantitatively and quali- Diego Temperley, managing direc-
tatively, the new president has done a tor of boutique investment banking firm
huge amount in the first 100 days, as he Capital Agroindustrial, said despite the
said he would,” Tse told Paydirt. “The legal framework encouraging private in-
Government has made a lot of progress vestment, companies entering Argentina
with the US hedge funds on the holdout should be cautious as the country was
discussions and as a result the country’s not as well versed in mining practices as
credit rating is going up and it is easier to its neighbours.
do business.
“The Argentinian general mining legal
“Last year, some $US14-15 billion in framework strongly recognises private
profits was being withheld but that has ownership of mineral projects and has
now started to flow again. More flow of several tax advantages in both explora-
goods and capital is important. When tion and development. President Macri
we spoke to banks a few years ago, the also repealed the mining export tax, as
rates were in the upper teen percentage well as lifting all currency restrictions,
among other pro-investment measures,”

AUSTRALIA’S PAYDIRT MAY 2016 PAGE 37

LATIN AMERICA DOWN UNDER PREVIEW

Despite hosting prospective rocks, competing land uses and provincial level opposition to the industry have
stymied mineral developments in Argentina

Temperley said. “[But], mining compa- Meilan believes the Federal Govern- “The politicians left companies to their
nies have had difficulties in bullish mar- ment can help reset this attitude. own devices so companies invested in
kets to adapt to Argentinian business local communities and had to work in
and social situations – basically applying “The situation is like a symphony or- community relations and spend on things
Chilean or Peruvian models to a country chestra with the federal government as that are really the responsibility of the
which doesn’t have a strong national un- the conductor and the provinces play- government,” he said.
derstanding of mining. ing the instruments. If you don’t conduct
properly the provinces will play out of “We’ve had discussions on this topic
“It is important to have sufficient time tune,” he said. “The issue with the pre- with our colleagues from Peru and Mex-
not only for scouting projects, but also vious government was that it acted as a ico and they’d had similar issues where
testing and developing social, tax, legal unitarian government rather than a fed- communities and companies end up
and corporate planning in order to max- eral one and, instead of working in har- captive to each other and communities
imise capital investment.” mony, worked against the provinces or demand off companies services which
left them to their own resources. And all should be provided by the government.”
As with Australia, Argentina is gov- this with a mining sector that is underde-
erned under a federal system with min- veloped and inexperienced.” Temperley said the notable success
ing regulatory framework legislated and of the pro-mining provinces was being
managed at the provincial level. In the Meilan said such attitudes filtered closely watched by other provinces.
recent Fraser Institute survey, seven of down to local government and commu-
the 10 provinces covered ranked among nity levels where miscommunication al- “Mining investment-driven growth in
the 15 least attractive jurisdictions glob- lowed opposition to mining investment to some Argentinian provinces – notably
ally for policy attractiveness. fester. San Juan with 58% of its GDP coming
from mining – has made mining an at-
While provinces such as San Juan and “I don’t have to explain to Australians tractive industry for many other Argentin-
Salta have openly courted mining invest- the impact of mining but in Argentina we ian provinces,” Temperley said. “Other
ment, others have spurned it. have had major issues with miscommuni- provinces are analysing to take the lead
cation and communities not understand- of San Juan in order to diversify their
One mining executive who spoke to ing what is going on,” he said. “When economy.
Paydirt on condition of anonymity said mining is introduced there is a burst of
a breakdown in trust between federal, activity and a rise in income and some “Such is the case in the provinces of
provincial and local government officials communities can’t adapt and the previ- Catamarca, La Rioja, Río Negro, in addi-
meant regulation of the mining industry ous government didn’t provide proper tion to more traditional mining provinces
was highly political in Argentina. guidance and in turn the provinces didn’t as Salta, Jujuy and Santa Cruz. The ne-
provide proper guidance to local govern- cessity of investment is such that even
“The problem is that while mining is ment.” provinces with traditional mining restric-
regulated at the provincial and local lev- tions – Chubut and Mendoza, for exam-
el, royalties are paid at the national level The result, Meilan said, was that host ple – are openly trying to allow specific
and do not perhaps flow down to the communities began to look to individual districts to start developing mining re-
host communities in the way they could. companies to provide the support and sources.”
Therefore, the entire approvals system services government should be provid-
becomes politically motivated in some ing. Much of Argentina’s population and
provinces,” the executive said. economic activity is concentrated in

PAGE 38 MAY 2016 AUSTRALIA’S PAYDIRT

the east of the country. Meilan said the couraged by the economic policies im- matically reduced the ability of several of

Government saw mining investment as plemented and we are seeing increased the young exploration companies to cope

a gateway to infrastructure development interest in mining and other sectors, par- with their investment plans, generating a

in the poorer, more sparsely populated ticularly exploration,” she said. sizeable room for opportunities,” he said.

southern and western provinces. Before Orocobre’s investment in Meilan said Argentina remained an at-

“Mining needs infrastructure but Ar- Olaroz, Australian investment in Argen- tractive proposition for junior companies.

gentina needs infrastructure as well. tina had been defined by junior mining “Argentina is a tailor-made suit for jun-

Development of mining could bring more and exploration activity. Troy spent $90 ior companies because it is at an early

balance by attracting more people to the million building the Casposo mine in San stage of its development of mining,” he

areas that need more infrastructure.” Juan, which since 2011 has produced said. “Since opening up the mining sec-

Meilan said the Government projected 276,000oz gold and 8.11 moz silver. In tor in 1990, there have been 435 pro-

that by 2025, 95% of the country’s ex- 2009, Canadian gold major Goldcorp Inc jects discovered, 90% of these are now

tractives industry (quarrying and indus- paid $US3.3 billion in cash and shares at the mid-exploration stage; 5% are at

trial minerals as well as mining) would be to acquire ASX-listed Andean Resources the PFS-BFS-development stage and

concentrated in its south and west. This Ltd and its 2.3 moz Cerro Negro gold- 5% are in operation. So, the ideal flow of

“could also prevent conflict with the domi- silver project in Santa Cruz. exploration investment would be $300-

nant agricultural sector 400 million a year. If we

over land use. are able to achieve that,

“Quite simply, parts of Mining needs infrastructure but we are looking at four
the country are agricultur- Argentina needs infrastructure as or five projects moving
ally significant while other towards feasibility study

parts are important for well. Development of mining could bring each year.”
mining,” Meilan said. Meilan said Australia
Australian Ambassador more balance by attracting more people to was a natural partner
to Buenos Aries, Noel the areas that need more infrastructure. for Argentina and hoped
Campbell, told Paydirt the his visit to Perth for Lat-

new political sentiment of- in America Down Under

fered new opportunities would result in further

for Australian investment in Argentina Temperley said Argentina had been investment.

with mining one of four key sectors along struck by a double blow of unattractive “We will come to Australia with all our

with energy, agriculture and education. policies and the global resources down- flaws but also our virtues and potential.

“Even before the change in govern- turn but as both scenarios began to turn, We need Australian expertise and need

ment there were 40 Australian compa- he spied opportunity. Australian investment to show us how to

nies with interests in Argentina but we “The reduction of capital access in the build the technical expertise to develop

have certainly seen the inquiry rate in- Canadian and Australian capital markets, the mining sector.”

crease,” Campbell said. generated by our recent history and the – Dominic Piper
According to SNL Mining & Metals drop of the commodities prices, had dra-

data, there are currently eight

ASX-listed companies with as-

sets in Argentina with Galaxy

and Orocobre Ltd the leader.

The lithium miner began pro-

duction from its Olaroz lithium

project in Jujuy province in

December and expects to

achieve nameplate capacity of

15,000 tpa lithium carbonate

by the September quarter.

Campbell recently visited

the project and hopes it will be-

come a flagship of Australian

investment in Argentina.

“It is indicative of the confi-

dence in new investments and

in the mining regime. I hope it

is the first of many investments

by Australian companies,” he

said.

Austrade senior trade com-

missioner for Argentina,

Shannon Powell, agreed with

Campbell that the Macri Gov-

ernment’s attitude to foreign

investment was a positive for

Australian mining companies. Just a handful of Australian companies have made headway in Argentina but with a more

“We have been greatly en- investor-friendly government in place, interest is expected to rise

AUSTRALIA’S PAYDIRT MAY 2016 PAGE 39



LATIN AMERICA DOWN UNDER PREVIEW

Galaxy eventually finds
its stars aligning

Production has restarted at the Mt Cattlin spodumene mine in Western Australia. Galaxy is farming out 50%
of the project to JV partner General Mining Corporation

After a torrid three-year period, Galaxy And, corporate overheads were $17 mil- Tse then headed to China where the
Resources Ltd is no longer standing lion a year.” company was able to renegotiate its
at the precipice. Instead, it is staring at a bank debt and restructured the convert-
wide sky of opportunity. Debt can be serviceable if a compa- ible bonds, removing the put redemption
ny’s operations are performing strongly and extending maturity to November
“Now things are just starting to get but on that front Galaxy faced just as 2015.
interesting,” Galaxy chief executive An- many problems with its Mt Cattlin mine –
thony Tse told Paydirt. which had already been over budget and Breathing space secured, the compa-
behind schedule – being placed on care- ny had to find a path to full recovery and
When Tse joined the company in June and-maintenance and its Jiangsu con- Tse’s attention turned to the problematic
2013, Galaxy was under strain from un- version plant in China still making losses. Jiangsu conversion plant.
derperforming assets in both Australia
and China, a seemingly unserviceable Tse had little choice but to go back to “We had managed to kick the debt
debt and a heavily discounted share the equity markets – raising more than down the road but there was still too
price. $30 million in a rights issue – and then much of it,” he said. “My view always
strike an emergency bridging facility “just was that we needed to deleverage but
Nearly three years on, Tse and the re- to keep the lights on”. not through the equity markets because
vived management team have given the
company a spring to its step. The bal- Sal de Vida, on the border of Salta and Catamarca provinces in Argentina,
ance sheet has been restructured and its is considered the world’s third largest lithium resource
Mt Cattlin spodumene mine in Western
Australia is back in production at a time
when lithium prices are soaring.

Such is the confidence in the company,
Galaxy is even back on the development
path with a revised study for its massive
Sal de Vida lithium project in Argentina
due for release in June.

“Until early last year, the company was
trading at a very distressed level be-
cause the market thought it was going
to go broke,” Tse said. “We had raised
a lot of money on equity markets but
were cash-strapped. We had more than
$US100 million in debt of which $US51
million was due before the end of 2013
and we had a convertible bond of $61.5
million also maturing in three months.

AUSTRALIA’S PAYDIRT MAY 2016 PAGE 41

LATIN AMERICA DOWN UNDER PREVIEW

Mt Cattlin is slated to produce 100,000 tpa but thanks to the rise in lithium prices, the JV expects to exceed the target by at least 20,000 tpa

shareholders had already put in enough. Under the definitive agreement an- “In Q4 the market started getting very

And with the Jiangsu plant underper- nounced in September, General Mining tight,” Tse said. “Greenbushes, the only

forming we focused on that because it spent $25 million to earn a 50% stake in other spodumene producer in the world

had debt of $US110 million attached – the operation with Galaxy receiving $6 stopped third party supply of lithium car-

which a new owner would take on – and million a year for three years after pro- bonate in China, just at the time Chinese

it was the largest consumer of capital; $1 duction started and a 50% share of oper- electric vehicle demand began to take

million a month. ating cash flows. off.

“Also, we knew that, if needed, we “We wanted to restart Mt Cattlin but “Prices are currently up to $US20,000/t

could rebuild a plant at a later date but without committing the cash needed for small contracts and even $US13,000/t

it would be very difficult to discover the because Galaxy shareholders had put for large, long-term contracts. That is

quality of deposit we had in Mt Cattlin enough into Mt Cattlin. So, General Min- compared to $US6,500/t in early 2015.

and Sal de Vida.” ing raised the capital and took the op- “The next five years will see a widen-

The plant was eventually sold to Si- erating and financial risk. Galaxy is es- ing supply gap and we believe it will be

chuan Tianqi Lithium Industries Inc for sentially free-carried for its 50% of cash 2022 before the market is in balance,

a net price of $US173.2 million in April flow and a $6 million annual minimum even considering the handful of projects

2015. payment.” in construction or post-DFS within that

“From that, we were able to settle a Rising lithium demand made negotiat- five year window. Then, from 2022, the

lot of the debt, renegotiate further with ing new off-take contracts even easier market will grow at a more steady state.”

bondholders and restructure the convert- than the original operation. Many ASX-listed lithium plays have

ible bonds into straight debt,” Tse enjoyed strong share price ap-

said. preciation on the back of such

The balance sheet tidying exer- compelling fundamentals but

cise also meant Galaxy had more Galaxy is one of the few that

than $50 million cash to consider can translate that to immediate

how it would re-establish itself cash-flow. Mt Cattlin’s stated

around Mt Cattlin and Sal de Vida. production is 100,000 tpa but

And, as fortune would have it, the Tse said with off-take contracts

company would do so in a rapidly for 120,000 tpa, the JV partners

rising lithium price environment. expect 150,000 tpa to be an

“We recognised in early 2015 achievable target.

that the lithium market was be- “The economic study by Gen-

ginning to tighten as Chinese de- eral Mining assumed 100,000

mand continued to rise.” tpa production but there is ca-

In February 2015, the company pacity for 200,000 tpa,” he said.

announced it was working on a JV “We have already signed off-

with General Mining Corporation A 2013 DFS pointed to a capex of $US369 million but Galaxy take for 120,000 tpa and will like-

which would bring Mt Cattlin back believes the resources downturn and devaluation of the ly process 150,000 tpa this year.

into production. Argentinian peso could deliver cost savings And, there is more margin for the

PAGE 42 MAY 2016 AUSTRALIA’S PAYDIRT

convertors than miners so we see poten- Anthony Tse “Even if the capex doesn’t move, the
tial for a 20-25% uplift for the resource debt can be acquired at better levels and
suppliers. All of which adds up to an ad- he would and has made a lot of progress therefore a higher ratio. Also, thanks to
ditional $100-120 million a year from Mt on the debt holdout discussion. As a re- good news flow coming out of Mt Cattlin,
Cattlin if we hit the expansion targets.” sult the country’s credit rating is going we should have an equity rerating,” Tse
up and it is easier to do business. When said.
It is easy to see – just from looking at we spoke to banks a few years ago, the
Mt Cattlin’s restart – why Tse says things rates were in the upper teen percentage The revised DFS is set for release in
are getting interesting but that is to ne- points, now they have come to high sin- June, allowing the company to plough
glect the influence Sal de Vida could po- gle digits; which is significant if you are ahead with financing and off-take nego-
tential have on the company. thinking about how to put your dollars to tiations in the second half of 2016.
work.”
“If you look at our market cap [$436 “Then push the button before the end
million at the time of print], Sal de Vida The devaluation of the Argentine peso of the year,” Tse said.
has a market value of $270 million, yet is also proving beneficial.
[Orocobre Ltd’s recently commissioned] Galaxy will forecast six months to build
Olaroz project is valued at around $600 “Obviously there is inflation to counter the project’s evaporation ponds with a
million,” Tse said. that but even if it is not 40% reduction, we further 15-18 months needed to evapo-
think a 10% saving on the $US220 million rate the brines.
Galaxy’s Sal de Vida project has a [total capex was estimated at $US369
1.57bt resource with an insitu value of million] that was peso-denominated will “So, the first half will see us get the pro-
$US9.44 billion while the Olaroz re- be very meaningful to the project,” Tse ject together. In the second half we will
source is 1.21bt (insitu value: $US7.25 said. be closing out debt, equity and the off-
billion). take and then up to six months to build
However, the revised DFS will be more the ponds, start the evaporation because
Galaxy completed a DFS for Sal de than simply plugging in new foreign ex- it takes 15-18 months to evaporate the
Vida – on the border of Salta and Cat- change ratios and price assumptions. brines. And then commissioning of the
amarca provinces – in April 2013 and dry processing plant,” Tse said.
while the lithium market has changed “We don’t just want to do a spread-
dramatically since then Argentina has sheet exercise,” Tse said. “Instead, it is Start of production at Sal de Vida will
also undergone considerable change. a budgeting approach, talking to contrac- hand Galaxy its second operation in a
tors and suppliers to find the best price rising lithium market. Questions will then
A new president, Mauricio Macri, was they can give us today to build the evap- turn to expansion.
elected last year with a mandate to lib- oration plant, etc. That will give a more
eralise an economy which had become realistic answer in local terms.” Tse said growth options would be con-
increasingly isolated in recent years sidered at all three assets – it also has
thanks to the extreme fiscal policies of All of which will make funding Sal de the James Bay lithium project in Canada
Macri’s predecessor Cristina Kirschner Vida much more attractive in a market in – in the portfolio.
(see pages 36-39). which banks and investors are crying out
for quality investments. “It is about best allocation of capital,”
Exchange controls have been removed he said. “Do you spend it on doubling Sal
and import tariffs and other export taxes de Vida or expanding Mt Cattlin? It will
have also been eliminated, creating a be a happy problem to have to solve; do
more investment-friendly environment. we go with the shorter lead time of the Mt
Cattlin expansion or the greater margins
Tse said the changes in lithium pricing on offer in Argentina?
and the Argentine economy would be in-
cluded in the reworked DFS. “We are also in Canada and with lithi-
um supply dominated by South America,
“The $US380 million NPV for Sal Australia and China it could be good to
de Vida is based on assumptions of have geographical diversity of supply.”
$US5,500/t but we feel it will be plus
$US10,000/t for the foreseeable future After staring into the abyss three years
and at $US12,000/t the NPV is more than ago, being confounded by options must
$US1 billion,” he said. be a blessed relief to Tse.

“The new president has done a huge – Dominic Piper
amount in the first 100 days, as he said

AUSTRALIA’S PAYDIRT MAY 2016 PAGE 43

LATIN AMERICA DOWN UNDER PREVIEW

Avanco has Antas on-song

Plant commissioning has gone swimmingly for Avanco in Brazil

Avanco Resources Ltd is expecting to centrates this month [April]. We are on “Fortuitously it has gone particularly
hit nameplate capacity at its Antas target to do that and I am hoping to report well,” Polglase said. “The only issues we
copper mine soon, managing director that once it is done.” perhaps had were that we were ahead
Tony Polglase told Paydirt. of our schedule in some areas. Certain
At the time of print, off-take contracts small equipments weren’t on site so
“The plant is effectively commissioned were close to being completed, which is we had to do imaginative work to get
and the ramp-up phase is going very another dimension to what has been a around that. We didn’t have a 30t forklift
well. I am anticipating hitting nameplate dream-like start-up phase to production on site because we didn’t expect to be
capacity during this quarter,” he said. at Antas, in which Avanco’s only issue lifting containers on site quite so soon,
was being ahead of schedule.
“We are going to be shipping first con-

PAGE 44 MAY 2016 AUSTRALIA’S PAYDIRT

Shipping of concentrate from Antas was expected to start last month

so we had to use cranes, the forklift is ground than Avanco in Carajas, there is capex options to the full blown large mine
now available, so apart from a few minor opportunity to step up exploration this scenario,” he said.
things quite surprisingly it is going very year.
well.” “We think there will be an option that
Polglase said geochemistry had been a scenario will work at very low metal
By 2018, production at Antas is ex- done on some remote licences and pro- prices; a smaller version of Pedra Banca
pected to hit 15,000 tpa. Output this vided copper prices don’t deteriorate any or development version of Pedra Banca.
year is forecast at a rate of 12,000 tpa further and nameplate capacity is ful- That being said the management will
plus 7,000oz gold credits at C1 and cash filled, Avanco plans to up the ante in the needs to take everything into account be-
costs – $US0.99c/lb and $US1.20/lb, re- field during the second half of 2016. fore we commit cash to the project. Obvi-
spectively – in the first quartile. ously, if copper is seen not to be improv-
However, Avanco first hopes to whet ing shareholders may be concerned that
“Our costs per tonne should be in the the appetite of investors by announcing we are exposing ourselves to too many
first quartile and I think it [Antas] has sur- further detail of the underground poten- things at the same time. Copper prices
vived this downturn. I am not sure the tial at the Pedra Banca prospect. will come into that, but I think with this
market is going to recognise us for that, study we there will be some optionality
but when the market does return and an “We’re finishing an infill drilling pro- to identify a very, very low opex cost sce-
appetite for copper does return I would gramme and we are working on putting nario for Pedra Banca.”
hope that we are one of the groups that out a new resource upgrade, mainly for
people look at first,” Polglase said. the upper levels, with a view to compiling Pedra Banca is potentially shaping as
a feasibility study for around the middle a high-grade play, with results from some
Avanco will invite people to start look- of this year, certainly early to late Q3,” of the latest diamond drilling – 24.6m @
ing at the company before any significant Polglase said. 1.15% copper and 0.35 g/t gold from
rebound from sub $US2.20/lb copper 138.4m (including 7m @ 2.07% copper
prices happens. Adding Pedra Banca to the production and 0.66 g/t gold from 152m) and 24.7m
mix could see combined stage one and @ 1.93% copper and 0.41 g/t gold from
Currently, stage one mine life at Antas two operations at Antas deliver about 275.3m (including 9.7m @ 3.10% copper
is seven years from probable and proven 50,000 tpa copper within four to five and 0.66 g/t gold from 275.3m) – increas-
ore reserves of 3.63mt @ 2.53% copper years. ing Avanco’s confidence in the orebody.
and 0.55 g/t gold and with an 800,000
tpa plant not fully utilised there is plenty Copper prices will obviously play a part – Mark Andrews
of upside for Avanco to tap into. in any development decisions made by
Avanco, however, Polglase is confident
Obviously the company’s immediate an economic case will prevail.
focus is bedding down operations at
Antas but with only Vale holding more “We will be examining a number of
options for Pedra Banca, from fairly low

AUSTRALIA’S PAYDIRT MAY 2016 PAGE 45

LATIN AMERICA DOWN UNDER PREVIEW

Hot Chili rising in cool breeze

“I see a fair bit of
optimism creeping
into the people I deal
with, my colleagues and
even myself, everyone is
smiling a bit more and it
looks like the sun might
break through the clouds,
but we will see.

Hot Chili managing director Christian Easterday

Christian Easterday is bouncing at the into the people I deal with, my colleagues copper resource, and Hot Chili is confi-
moment. and even myself, everyone is smiling a dent at least one of the four large-scale
Hot Chili Ltd’s managing director is bit more and it looks like the sun might porphyry targets identified will bear fruit.
feeling good about the results produced break through the clouds, but we will
from the PFS at Productora, 600km see,” he said. Ideally, drawing another five years of
north of Santiago, and is also buoyed by mine life from Productora and increasing
the rays of light he sees appearing in the Easterday is certainly in the mix to test project NPV twofold will boost Hot Chili’s
resources sector. the pulse of the resources sector given profile as one of the globe’s emerging
the recent release of the Productora large-scale copper developers.
“In the last 4-6 weeks, particularly, I see PFS.
a bit of a spring in everyone’s step again,” “We think that probably our remain-
Easterday told Paydirt last month. At the time of print, copper was trading ing mine life targeted for the DFS at this
at $US2.16c/lb – significantly lower than stage is another 2-3 years. Is it likely that
“I don’t know whether that is just be- the $US3c/lb Hot Chili used to determine we would secure that...I think the poten-
cause a couple of sectors are performing an economic scenario at Productora in tial of the porphyries is a game changer if
well and have captured the imagination the PFS of $US4.3 billion revenue, post- we are successful,” Easterday said.
of investors and created that excitement tax NPV $US220 million from a pre-pro-
that we all need, but that value genera- duction capital cost of $US725 million, “We have plus-1bt potential on porphy-
tion which things like lithium are creating including $US82 million contingency. ries that have been identified right next
is good for us all at the moment.” to the Central Pit. Are they conceptual?
These figures assume production of No, but we have discovered Alice al-
The exchange rate and Australian- 66,000 tpa copper and 25,000 ozpa gold ready and turned that into a pit. We had
denominated gold price are behind some (for the first eight years) at C1 cash cost just enough time to drill that out and cre-
of the enthusiasm from retail investors at of $US1.47c/lb, including gold and mo- ate our first porphyry resource and that
the moment, something Easterday says lybdenum credits. looms as the real elephant in the room at
has been missing in the market for nearly Productora. One successful hole chang-
three years. Capital costs are forecast to be paid es everything.”
back in about four years at a real (includ-
“You have things like graphite, lithium, ing inflation) IRR of 15%. Exploration achievements may provide
Australian gold and Canadian gold, to a some short-term excitement in the mar-
lesser extent because of the exchange The PFS, released in early March, in- ket for investors, however, the question
rate, there are a few areas going well cluded an expanded resource of 1.47mt continually asked of Hot Chili is whether
and capturing retail investors’ imagina- contained copper and 980,000oz gold. Productora stacks up in the current price
tion. The juices are flowing again and This represented almost a doubling of environment.
slowly it will flow through to the institu- ore reserves to 166.9mt, containing
tions. If the price recoveries start to catch 720,000t copper and 47,000oz gold. Easterday is aware the PFS on Pro-
on and start affecting other commodities ductora was delivered based on a $US3/
– iron ore has bounced off [10-year] re- It is anticipated Productora can be in lb copper price, which has caused some
cord lows – and actually the space is not existence for 12-13 years based on ore concern from people finding it hard to
looking as dire as it certainly was in the reserves, however, should things go ac- fathom how a project costing $US725
second half of last year and beginning of cording to plan, greater opportunities are million can be built at today’s $US2.16c/
this year. ahead for Hot Chili. lb copper price.

“I see a fair bit of optimism creeping Tapping into the porphyry potential has Therefore, Easterday and his team are
already started with the Alice discovery, embarking on a marketing campaign so
which forms part of the overall 1.47mt

PAGE 46 MAY 2016 AUSTRALIA’S PAYDIRT

Hot Chili’s stance at Productora can be A DFS at Productora, which will include drilling and an EIA,
fully understood. is estimated to cost $US15 million

“I think people misconstrue that when a position to take at Productora. been surprised by the numerous calls we
project study is done at $US3/lb econom- CMP is already a 17.5% JV partner in have fielded from large corporates,” he
ics and you are dealing with $US2.20/lb said.
at the moment, it gives people the im- Productora after an infrastructure agree-
pression that this project doesn’t make ment was struck with Hot Chili 12 months “We are encouraged about where cop-
any money if you ran it at today’s prices,” ago. per prices will be in 2019/20 and if we get
Easterday said. this right we could well have navigated
The agreement provides Productora perfectly a counter cyclical development
“At today’s price, a third of the cash with access to significant infrastructure that comes on at perfect timing. More im-
cost curve doesn’t make money. Will and other rights, while it also opens the portantly, we’re at the front of the queue
it [Productora] be built if you think that door to other funding options for Hot Chi- of the next phase of copper mines that
long-term copper prices are going to be li, with CMP having an option to increase will be built in the world.
$US2.20/lb? No. Will any other mines of its stake in the project to 50.1%.
any significant scale be built? No. “Yes, we have to navigate commer-
Right now, with a share price of 7c at cially very carefully, we have to fund this
“It’s about context, will there be new the time of print and $US10 million drawn very carefully, which means our partner
mines built, yes. When, is the question, down from a Sprott lending debt facility, CMP is a very important aspect of this,
not if, and when the time comes Produc- Hot Chili can ill-afford to fund significant but we are really encouraged by the
tora at PFS stage already is right at the capital spends. amount of inbound interest we are get-
top of that list.” ting from large copper corporates or as-
Given the short timeframe CMP has piring copper corporates.”
Hot Chili is priming Productora for pro- to digest the PFS, Easterday hopes to
duction in 2019/20, by which time the continue the partnership, however there – Mark Andrews
project will be one of the largest of its is no shortage of interest in Productora.
type on the ASX and copper will be back
around the $US3/lb mark, according to “The large-scale copper world knows
Easterday. what this project means and we haven’t

Hot Chili is looking to complete a DFS,
including drilling of the porphyry targets,
to time in with that rebound.

Easterday estimates the exercises to
cost about $US15 million, with the com-
pany already assessing what can be im-
proved from the PFS and is undertaking
an interim engineering study ahead of
green-lighting a DFS.

Adopting an owner/operator mining
scenario utilising its own fleet, opposed
to a contract mining model, could de-
crease costs by $US0.20/lb, while ac-
cessing a second-hand oxide plant and
drawing power from a new power line to
be built within 1km of the plant are areas
where Easterday can tighten the purse
strings.

Delivering savings on these items will
improve IRR to 18%, double NPV to
$US500-550 million and significantly re-
duce capital payback.

“What that does overall is move Pro-
ductora down the cost curve into the
second quartile. That means half of the
global copper producers are costing
more than Productora to produce cop-
per,” Easterday said.

“I think that is a really strong place
to be at the commencement of a DFS,
where our stated intention is to finalise
what this project looks like and capture
the last phase of mine life.”

Hot Chili hopes to complete the DFS
within the next 18 months and just how
it goes forward with the project will be
known in a short while.

Compania Minera del Pacifico S.A.
(CMP) had 90 days to review the PFS
(released on March 2) and decide what

AUSTRALIA’S PAYDIRT MAY 2016 PAGE 47

LATIN AMERICA DOWN UNDER PREVIEW

PFS confirms Kingsgate’s
new Chilean direction

Kingsgate Consolidated Ltd’s decision A recently completed PFS highlighted a $US168 million NPV for Nueva Esperanza
to divest its Australian assets in fa-
vour of Latin America received a major Kingsgate had flirted with a heap leach the capex down because of the cycle
boost in April following the release of a processing route but Foulis said the dis- and our back-to-basics approach. Also,
positive PFS for its Nueva Esperanza covery of the higher-grade Chimberos the power situation in Chile has changed
gold-silver project in Chile. deposit – 640,000oz @ 1.73 g/t gold considerably. There are now much better
equivalent – had precluded that option. options and costs associated with grid
The PFS – the third economic study power.”
Kingsgate has completed on the project Foulis said the new PFS also demon-
since acquiring it in 2011 – indicated a strated better capex and opex figures in The PFS estimated power costs of
capex of $US206 million could deliver a comparison to the 2012 (unpublished) $36 million a year and highlighted that
91,000 ozpa gold equivalent project with grid power could be accessed by install-
a NPV of $US168 million (using a 5% dis- feasibility study which was ing 27km of overhead lines. However, an
count) and an IRR of 25% (both based based solely on the Arquer- agreement to use a section of privately
on $US1,200/oz gold and $US19/oz sil- os deposit. owned line must first be struck.
ver prices).
“Since then we have con- With payback set for three years, Nue-
Its release came months after Kings- solidated the district – which va Esperanza’s start-up could be just the
gate sold its Challenger gold operation gives us 50sq km of altera- foundation of Kingsgate’s investment in
in South Australia and its Bowdens silver tion system – and we are in the project.
project in New South Wales. a very different part of the
market cycle. The first study “It sets the scene for what to do next,”
Kingsgate chief executive Greg Foulis in 2012 was similar to this Foulis said. “We have already had good
told Paydirt the company was “very hap- one but that was peak cycle exploration success and we eventually
py” with the results of the PFS. and the capex was high and expect to add significant tonnes.”
inventory low,” Foulis said.
“The project has been through a num- Greg Foulis “This time, we have got The company has already restarted
ber of iterations and like any project it exploration with a view to testing more of
takes a number of times to shake it down
but now I believe we have demonstrated
a very real and very excit-
ing project,” Foulis said.

The company will now
press ahead with a full
feasibility study, with the
aim of reaching decision-
to-mine in 2017.

The new PFS marks
a return to conventional
flow-sheet of traditional
crushing, grinding, leach-
ing and Merrill Crowe
extraction. In the second
of two previous studies,

PAGE 48 MAY 2016 AUSTRALIA’S PAYDIRT

the 50sq km of alteration already identi- Kingsgate’s Nueva Esperanza gold-silver If silver prices do increase, perhaps
fied. project is among good company on the pro- it will be reflected in Kingsgate’s share
price. Kingsgate shares are down 46% in
“The first things you typically do in lific Maricunga gold belt in northern Chile the last 12 months and Foulis bemoaned
exploration are the obvious things. Now the lack of value being ascribed to Nueva
that they have been done we are taking er during the four-year downturn but with Esperanza.
a very systematic and multilayered ap- gold having rebounded in the last 12
proach to exploration,” Foulis said. “This months, there is hope silver will catch up. Kingsgate’s market cap is currently
includes a lot of inexpensive work; map- It has already outperformed gold in 2016 around $85 million, with Foulis saying
ping, geochemical sampling and grid and despite trading at $US3/oz less than that meant either the Chilean project or
drilling to sample the bedrock across the the base case used in the PFS, Foulis is the company’s operating Chatree gold
system.” confident silver prices will justify Nueva mine in Thailand were not being fully val-
Esperanza’s development. ued.
With a gold equivalent resource of 1.9
moz, Nueva Esperanza is far from the “This project makes double digit IRR at “We are extremely disappointed with
largest epithermal deposit in Chile, but spot prices and our view is that the mar- the share price. I believe the political situ-
Foulis believes it has much more poten- ket for both precious metals is improv- ation in Thailand is weighing heavily on
tial still to be unearthed. ing,” he said. it. So, either Chatree is discounted to the
point where Nueva Esperanza accounts
“I don’t think the market is quite aware for all of the market cap or the other way
that our neighbours include Kinross round. Either way, one of them is valued
[Gold Inc] with its La Coipa project [1.85 at zero,” he said.
moz gold] directly to the south and Gold
Fields [Ltd] and its Salares Norte [3.1 Foulis admitted changing that scenario
moz gold] just to the north. Both have a was vital before Kingsgate began to con-
lot of exploration success and we have sider funding options for Nueva Esper-
learnt a lot from them,” he said. anza.

The epithermal system at Nueva Es- “A good project will always get fund-
peranza has already yielded riches. In ing but we need to make sure the mar-
1998-99, previous owners mined 40 ket sees the value of both projects,” he
moz silver from the project area in just said. “Let’s deliver value first by showing
13 months and Foulis thinks bonanza de- we have a viable project and not getting
posits are still likely. way ahead of ourselves. In 2017, when it
comes time to fund development we can
“If you look at Salares Norte, Gold look at where we are.”
Fields has discovered 3 moz at 3-4 g/t
gold on what is only a small footprint and By 2017 the company could also be
very subtle geochemical signature,” he considering new opportunities. And,
said. “There is a history in Chile of ini- with its Australian portfolio extinguished,
tially modest projects growing into Tier 1 Foulis is happy to cast an eye over Latin
assets.” America.

Work is now set to start on a DFS “Yes, we will look at other Latin Ameri-
which Foulis said would look very similar can projects; firstly in Chile because we
to the PFS. think there are opportunities there,” he
said. “It is a simple strategy; if you al-
“There are no major obstacles in front ready have assets in a region we like to
of the project and the DFS will be more utilise the IP we have developed around
of the same. We will tighten the numbers that and amortise the overheads and
and do a bit more fieldwork,” he said. extract synergies. However, we are very
sensitive to how we structure those op-
A number out of the company’s control portunities.”
but one which it will keep a keen eye on
is the silver price. – Dominic Piper

The precious metal’s spot price had
suffered even more than its bigger broth-

AUSTRALIA’S PAYDIRT MAY 2016 PAGE 49

LATIN AMERICA DOWN UNDER PREVIEW

Power, permitting concerns
for Colombia

With 70% of its energy generated by About 70% of Colombia’s energy is generated by hydro-electricity
hydro-electricity, Colombia is facing
a worse-case scenario at the moment: were processed within 180 days. There are few new mines coming on-
Drought. “There is still a lengthy wait for the time stream, with the exception of Red Eagle
Mining Corp’s Santa Rosa gold project
Severe drought is a direct effect of taken to have permitting done,” Butta (construction on schedule for completion
El Nino, which has devastated farming said. in Q1 2016), while fellow Canadian gold
communities and caused great alarm hopeful Continental Gold Ltd is still ex-
throughout the country. “They [Colombian Government] don’t periencing some frustrations with permit-
seem to understand that it is not the big ting at its Buritica project.
“We’re already starting to see a bit [of companies that come in and do the ex-
rain] but the first couple of months were ploration, it is the juniors that do it and “We are not really seeing much explo-
really dry. I have been here for 15 years they don’t understand the burn rate of a ration,” Butta, who runs Bogota-based
and I have never seen it so dry in the junior company.” MCR, a private deal-making group fo-
early months of the year,” Mining Capi- cused on infrastructure, energy and min-
tal Resources managing director Ryan Butta said while juniors struggle for ing, said.
Butta told Paydirt. recognition, mid-tier companies were not
deterred from showing an interest in in- “The resources and geology are there,
“When El Nino comes usually there is vesting in Colombia. but it is the above-ground issues that
flooding in Peru, but we haven’t seen that need to be addressed. You need peo-
yet.” “The mid-level companies are coming ple that understand the country and can
in now with a bit more of a strategy and a manage hopes and expectations. It is en-
In March, Colombia’s Mines and Ener- bit more of a plan,” he said. tirely different and different issues need
gy Minister Tomas Gonzalez stood down to be considered than say operating in
from the post after accepting responsibil- “It’s all about risk, there is a lot of work Chile or Peru. You have to make sure you
ity for not acting quickly enough on en- to be done, a lot of projects have pro- are not looking at South America as one
ergy savings measures. gressed quite far, but because of funding homogenous country.”
and they have just stopped. However, in
At the time of print, a replacement was the past where people were holding out – Mark Andrews
yet to be appointed, but it is believed po- for the market to turn, we are starting to
tential suitors for the position are reluc- see some interest and groups looking
tant to assume the role while power is- around and really trying to understand
sues continue to grip Colombia. what they are getting into.”

In order to conserve energy, the Gov- Known for its gold and coal potential,
ernment has imposed penalties on peo- exploration in these fields has died off as
ple overusing electricity, as it aims to Colombia has not escaped the commodi-
avoid having to ration power. ties rout.

While Colombia tries to find solutions
to fix its energy sector, there also ap-
pears to be other issues holding back the
mining sector.

Despite ranking well in the Fraser In-
stitute 2015 mining survey – Colombia
finished behind Chile, Peru and Mexico
in investment attractiveness in the Latin
America and Caribbean Basin – feed-
back from participants suggests greater
attention needs to be paid to the approv-
als process.

Comments made in the survey by min-
ing executives of exploration companies
indicated permitting was still an issue,
particularly for the smaller end of the
market.

Twelve months ago, the mining and
environment ministries appeared to be
working in unison so permits could be
processed more efficiently, as the Co-
lombian Government spied the mining
sector as an important part of its future.

The Government was supportive of a
law that assured environmental permits

PAGE 50 MAY 2016 AUSTRALIA’S PAYDIRT


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