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Natural selection:
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CONTENTS

PAYDIRT (ISSN 1445-3436) 5 NEWS 22
Published by Following the West Australian Govern- 30
Paydirt Media Pty Ltd. ment’s launch of an inquiry into the 74
A.C.N. 063 985 133 impact of FIFO work practices on mental
health, Mark Andrews spoke to FIFO
Head Office: Families managing director Nicole Ashby
Suite 9, 1297 Hay St, West Perth about the possible benefits an industry-
Western Australia 6005 wide Code of Practice could have for
P.O. Box 1589, West Perth companies which are yet to develop full
Western Australia 6872 mental health and wellbeing strategies
Phone: (+61 8) 9321 0355
Facsimile: (+61 8) 9321 0426 8 OPINION
[email protected] Regular columnist Keith Goode took to
www.paydirt.com.au the conference circuit in May, attending
four events in four different cities. He
Editorial: gives readers his conclusions this month,
Editor: Dominic Piper including the belief that the junior sector
Deputy editor: Mark Andrews may have bottomed and the second half
Journalists: Michael Washbourne, of 2015 could be the scene of an Austral-
Rhys Dickinson ian resources revival
Graphics: Marian Noonan
Contributors: 22 COVER
Keith Goode (Sydney), Brendan Ryan The first half of 2015 has seen Jake Klein
(Johannesburg), Ross Louthean come good on his long-held promise to
catapult Evolution Mining Ltd into the
Advertising: mid-tier of international gold miners. The
Advertising executive: Tony Mwarey company has recently struck deals for the
Subscriptions: Magda Thibaut Frog’s Leg and Cowal gold mines which
Phone: (+61 8) 9321 0355 will make it the ASX’s second largest gold
Facsimile: (+61 8) 9321 0426 producer. Michael Washbourne spoke
to Klein about the company’s strategy
Pre-press and printing: and what he believes it will deliver for
Vanguard Press 26 John St, shareholders
Northbridge WA 6003
Member of: 30 DIGGERS PREVIEW
With all the recent M&A activity across
Paydirt Media the resources sector, there is little doubt
Executive chairman: Bill Repard the dealers will be in the ascendency at
Finance manager: Giovanny Jefferson this year’s Diggers & Dealers Forum in
Accounts/administration: Kalgoorlie, WA. As part of our special
Heather Melling preview to the forum, Paydirt looks at the
Conferences: Tammy Caldwell, headline stories set to make an impres-
Melita Fogarty sion this year, including interviews with In-
dependence Group NL managing director
Cover image: Evolution Mining execu- Peter Bradford and his Sirius Resources
tive chairman Jake Klein at Hyde Park NL counterpart, Mark Bennett
in Sydney
74 LADU REVIEW
Member of: The fourth annual Latin America Down
Under conference was held in Sydney
Registered by Australia Post PP 643938/0071. in May. Among the chief highlights was
No pages or articles in this publication may be the presence of Ecuador’s first Minister
reproduced in any form without the consent of for Mining, Javier Cordova Unda, who
the publisher. This includes photographs either travelled to Australia as part of a new
taken by Paydirt Media staff or provided by other push to attract foreign mining investors
parties into the country. Dominic Piper’s interview
with Cordova heads our coverage of the
two-day conference

EDITORIAL

Resources sector ready
for spring fashion

When I was a kid, it wasn’t the first cro- rick Gold Corp’s Cowal gold mine in New South Wales, which it secured
cuses or daffodils which alerted me to for $US550 million in May.

the fact spring was on its way, it was the The same may be said of Mark Creasy and his willingness to back

sound of Greensleeves coming from the the Independence Group NL management following its acquisition of

Mr Whippy van. perhaps his most successful exploration venture, Sirius Resources NL.

Ice cream men in northern England are Creasy will ultimately end up with 19% of the merged entity. While the

a hardy lot, which you would have to be cash component of the deal allows him to take some money off the ta-

when the temperature averages less than ble, the scrip offer, means Creasy retains his major holding in the Nova-

10ºC for nine months of the year. But, the Bollinger nickel project and all the upside he quite obviously believes is

climate wouldn’t stop them from starting their van up and driving around still inherent within it.

the schools at 3pm the first time the sun came out in late March/early The other half of the Independence/Sirius merger also provides fur-

April. ther evidence of an increasing appetite among investors for resources

The Greensleeves tune came to my mind when walking around West stories.

Perth last month. Part of it may have been because it was sunny but The S2 Resources Ltd spin-out was designed to recognise value for

only about 13ºC – a classic summers day where I grew up – but mainly Sirius’ non-core assets and if managing director Mark Bennett’s com-

it was because the first signs of spring coming to the junior resources ments are to be believed, fund managers and even institutions are be-

sector appeared to be present. ginning to consider backing exploration again.

And, as in my childhood, it wasn’t the obvious signs of spring – IPOs, Gold Road Resources Ltd’s recent successful capital raising is anoth-

capital raisings, project finance deals, etc – that had me believing the
harsh winter was thawing. We
are still awaiting those signals.

Instead, like the ice cream

As when I used to get that firstman selling 99s and choc

bombs in Arctic conditions, it

ice cream of the year, there willwas the presence of dealmak-

“still be plenty of cold, wet days toers, negotiators and financiers
er example of investors’ willingness to back the right exploration story,
even if it is still some way from
development.
Even in the uranium space,
former BC Iron Ltd chief Mike
Young has been able to raise
more than $40 million for Vimy
Resources Ltd.
come before spring is truly here and
chatting excitedly in the coffee it probably won’t lead to the glorious Elsewhere, we have seen
shops of West Perth despite Western Areas Ltd finally
a flagging market which con- begin deploying some of the

vinced me brighter times were summers we used to remember, but cash being generated by the
on their way. inevitability winter will end. That is Flying Fox ATM to nab the
reason enough to retain our optimism. Jubilee Mines-built Cosmos
As I wandered through the nickel mine from Glencore.
streets, I bumped into an in-
creasing number of managing The list is growing and there

directors and chief executives is a definite sense of momen-

eager to tell me about new tum, even if investors are not

deals, capital raisings and projects they are getting their hands on. It budging yet. Most encouragingly, the action we are seeing is spread

makes a change from just a few months ago when many were trying across commodity groups and transactions types, giving hope to almost

to avoid eye contact with a journalist who was only going to ask them every company which feels it is undervalued.

where the money was going to come from. The next sign to look for: Probably a return of IPOs, which have been

Hopefully, this new-found editorial optimism is reflected in the stories conspicuous by their absence this year. PCF Capital founder Liam Twig-

you read in this edition. ger said at Latin America Down Under: “We haven’t had one IPO in

What is apparent from many of the stories in this special Diggers & the last six months [but] our broking desk had its best ever month in

Dealers preview edition is that despite equity markets showing little sign April and there is a definite reallocation of funds. We are seeing people

of shifting their attitude towards the junior sector, those astute investors coming out of the financial sector and the banks and coming into the

within the industry have begun moving. better quality mining stocks. That is likely to continue because the value

And this rash of corporate activity comes despite commodity prices proposition for mining is very good.”

continuing to slide during the first half of the June quarter. Indeed, until As when I used to get that first ice cream of the year, there will still be

a rally towards the end of June, both copper and nickel slipped to their plenty of cold, wet days to come before spring is truly here and it prob-

lowest prices since the 2008 GFC. ably won’t lead to the glorious summers we used to remember, but in-

Our cover story focuses on Evolution Mining Ltd which has been evitability winter will end. That is reason enough to retain our optimism.

among the most active corporate adventurers of the past year. It has

struck two deals in the past three months which have not only launched

it into the much eulogised mid-tier gold space, but have also brought

new financial firepower.

The deal which saw Evolution acquire the Australian assets of La

Mancha Resources Inc, also brought La Mancha’s owner, Egyptian bil-

lionaire Naguib Sawiris in as Evolution’s new cornerstone shareholder

at 31% interest. That Sawiris was also prepared to agree, in-principle, to

put up another $100 million for further acquisitions shows he is willing to

support executive chairman Jake Klein’s bold strategy for Evolution. It

was this support which gave Evolution the opportunity to move on Bar- [email protected] @DominicPiper

PAGE 4 JULY 2015 AUSTRALIA’S PAYDIRT

NEWS

WA hands down FIFO
mental health report

A Code of Practice on mental health and wellbeing practices was one of the recommendations made by WA’s Education and Health Standing Committee

Aleading network founder supporting FIFO A total of 30 recommendations, of which in industry,” Ashby said.
families and workers has applauded the the implementation of a Code of Practice was
West Australian Government’s inquiry into one, were made and four particular issues “FIFO is definitely here to stay and despite
the impact of FIFO work practices on mental highlighted for consideration should legisla-
health and backed the implementation of an tive changes be made. the downturn right now it will definitely pick up.
industry-wide Code of Practice.
WA’s occupational health and safety stand- There are still around 60,000 FIFO workers in
Although some companies, namely Rio ards in the mining and petroleum industries
Tinto Ltd, AngloGold Ashanti Ltd, BGC Con- is currently being reviewed, with legislative WA and figures from the FIFO Mental Health
tracting and John Holland have led the way in reform expected next year.
mental health and wellbeing workplace prac- inquiry shows that just under 10% of WA’s
tices, there are many who would benefit from Ashby commended WA’s stance on the is-
guidance in this area, FIFO Families manag- sue and encouraged both the Government population at a mine site is affected by FIFO.
ing director Nicole Ashby told Paydirt. and industry to continue with critical research
into mental health and wellbeing workplace It is a part of our culture, part of our economy
“I think the Code of Practice is a really good practices.
idea because it gives something of a guideline and it is here to stay.”
for companies to follow and adhere to. There “The fact is that not a whole lot of work has
are some companies that aren’t quite sure been done into FIFO. There have been some Having started the FIFO Families – a sup-
how to tackle this [mental health and wellbe- small studies but the whole inquiry highlighted
ing workplace practices] and I think having that suicides and deaths on sites or in dongas port network helping FIFO families and work-
a Code of Practice will really help them out,” haven’t been documented accu-
Ashby said. rately, so I think WA has been ers – some five years ago, Ashby under-
world leading with this inquiry.
“There is a whole heap happening and It has certainly lifted the lid and stands the demands and stresses of the FIFO
there has been a huge shift on mental health highlighted what we can do bet-
and wellbeing from companies over the last ter,” she said. lifestyle and its impact in society.
12-18 months and the inquiry has really high-
lighted the need to start paying more attention Australia’s mining sector has She said FIFO Families had combined with
to it.” cooled off from a few years ago,
however, there is still strong other organisations to offer mental health
The WA Government handed down its final demand for a FIFO workforce
report on the impact of FIFO work practices – largely comprised of males training on site and through online means,
on mental health in June. aged 15-44 – in WA.
while a number of other companies have ini-
An inquiry into the issue was initiated after The National Survey of Men-
it was revealed nine FIFO workers had taken tal Health and Wellbeing deter- tiated peer support programmes
their own lives in a 12-month period. mined that one in five men aged
25-44 will experience a mental health prob- and the like.
Heavy media attention and growing con- lem in any 12-month period.
cerns within the community about the impact “There is a whole lot out there
of a FIFO workforce prompted the start of the While more research needs to be carried
inquiry last year. out, indications are that mental health prob- that is readily available and it is
lems in the FIFO workforce could be as high
There were 130 formal submissions plus a as 30%. not a lot of hard work. It is quite
number of other willing informal participants
who contributed to the investigation conduct- “No one is really aware of the extent of the easy to do the site visits and get
ed by the WA Education and Health Standing issues and I think the inquiry has shed some
Committee. very important light on what we can do better workers together on site to talk

about mental health,” Ashby said.

“We [FIFO Families] have got

16,000 FIFO workers and families

that we are connected with right

across Australia. We have so-

Nicole Ashby cial connections running in three
states, in the boom we had them

in every state and territory. We get

very good feedback from families and we are

partners with 10 resource companies and that

is recognition for the work we are doing and

how important it is in increasing [awareness]

all the time.”

Such is the success of Ashby’s FIFO Fami-

lies idea, it has been announced as a finalist

in the Telstra Business WA Awards.

– Mark Andrews

AUSTRALIA’S PAYDIRT JULY 2015 PAGE 5

NEWS

Flanagan fights for Atlas

Returning Atlas Iron Ltd managing director Fortunately for Atlas, the David Flanagan
David Flanagan believes his embattled company’s three main con-
company will not have to suspend operations tractors bandied together and company must pay back before December
again unless the iron ore price drops below signed a collaborative agree- 2017.
$US45/t. ment to reduce all-in costs to a
breakeven $50/t across all op- Flanagan expected his company to pay
In his first public address since returning erations and keep the business back some of that amount if it successfully
to the top executive role at Atlas, Flanagan afloat. raises $180 million at 5c/share via a rights is-
told last month’s Association of Mining and sue this quarter. Atlas’s contractors have al-
Exploration Companies (AMEC) Convention “In our operating cost is all of ready committed to $40 million of that raising,
how a collaborative agreement between the the maintenance that is required which was approved by shareholders late last
company’s contractors had pulled the busi- for that fleet, so McAleese month.
ness he famously founded in 2004 back from [Group Ltd] essentially cut their
the brink. road haulage costs for our busi- The rights issue carries a two-year op-
ness from $16/t to $10/t, MACA tion for shareholders and Flanagan said if all
Atlas was forced to suspend its Pilbara [Ltd] gave us $1.50/t in savings, options are exercised within the timeframe
operations in April when the iron ore price we had Qube [Holdings Ltd] in it could bring in another $270 million for his
slumped to $US46/t despite the company re- the port give us 30-40c/t and business.
ducing its operating costs to $61/t and cutting we had the Port Hedland Port
its workforce down to just 94 staff. Authority give us just under “The interest costs on [the debt] are about
$2/t,” Flanagan said. $2.5-2.8 million a month and that’s included in
“Just from operations we were looking like the $50/t [operating costs] so if we were able
losing $15 million that month and from the pro- “All of these things in isola- to get rid of that interest, that’s nearly another
visional pricing impact of the previous month, tion, if you just look at the port $50 million a year in savings we could make,
we were looking at [losing] another $10 million concession, if you just look at so we’re highly motivated to do that,” he said.
as well,” Flanagan said. the crushing and screening ef-
ficiencies at Abydos with MACA Flanagan, the 2014 West Australian of the
“We innovated just about everything we or if you just look at the road Year, conceded there was likely to be further
could but we needed to stop, have a look at train impact, none of those things are going job cuts at Atlas over the coming months,
the business and see if there was a better to make a difference for the business in isola- mostly from the managerial level up.
way. And if not, contemplate what that meant tion, but if you bring them all together and you
for the company, for the shareholders, for the What that means for former managing di-
employees and for the community.” get everyone to work rector Ken Brinsden, who has stepped down
together and agree, to an executive director role, remains unclear.
it’s transformative.”
“Those people who have gone and deliv-
Atlas has also for- ered us those $450 million [savings] costs,
ward sold its iron ore some of them know they will be tapped on the
cargoes through to shoulder and asked to take more pay cuts,
December and Flana- some will be demoted and some of those peo-
gan was confident that ple might not be working with the business in
would give his compa- six months time,” Flanagan said.
ny plenty of leverage if
the price was to drop “The changes haven’t finished, the cost-
suddenly again. cutting hasn’t finished.”

“Because there is – Michael Washbourne
enough depth in the
spot market and the
derivative products,
Atlas is able to par-
ticipate in that so if the
iron ore price goes to
$US46/t again and
it stays there for two
months, it won’t affect
the cash flow in our
business because we
will have pre-sold iron
ore for at least the next
three months but up to
six months,” he said.

“We wouldn’t con-
template suspending
operations [again] un-
til the price went well
below $US45/t.”

However, the el-
ephant in the room
for Atlas remains the
$340 million of out-
standing debt the

PAGE 6 JULY 2015 AUSTRALIA’S PAYDIRT

BUSH TELEGRAPH

RSA’s power struggles

The joys of getting old. day realities. He also had some very
I nearly punched out my com- strange ideas on how you got infected

puter screen the other day. Reason by AIDS and how the disease should

for the instant fit of rage was an article be tackled.

quoting South African president Jacob But – with the benefit of hindsight –

Zuma claiming that the “apartheid re- he’s looking better if only because he

gime” was to blame for the country’s was prepared to accept the reality of

power crisis. the country’s power situation when it

The “apartheid regime” has plenty finally stared him in the face. By com-

of wrongdoings to answer for but the parison, many of our current political

current power crisis is not one of them. leaders, as well as key executives at

That is solely the creation of the ANC state-run organisations, seem to me

Cabinet itself as acknowledged by for- to still be “away with the fairies” as the

mer president Thabo Mbeki in Decem- power crunch gets worse.

ber 2007 when he publicly apologised Looking back, I think the crucial un-

to the nation over it. derlying issue was that, when the ANC

So, now we have President Zuma came to power in 1994, Eskom sat with

glibly trying to fob off the most seri- a massive oversupply of power gener-

ous crisis this nation has faced since ating capacity. It actually mothballed

1994 – when the democratic nation of a number of older power stations to

South Africa was born – as the fault of concentrate generation from its newer,

the former white racist rulers. What ut- cheaper-to-run stations.

ter rubbish! That was thanks to the apartheid re-

The old age angle? I grew up in what gime investing the money to build new

was Rhodesia and can still vividly re- power stations in the 1980s to meet

call my mother restraining my father forecast rising demand for electricity

from attacking our TV set some time which did not materialise for various

in the 1960s. reasons, including sanctions against

On the screen was an interview with the country which knocked back eco-

then-British Prime Minister Harold Wil- nomic growth.

son who was clearly saying something Thabo Mbeki Under the ANC, the economy took

inflammatory about Rhodesia’s Unilat- off during from the late 90s until about

eral Declaration of Independence which had the end of 2007 and then the failure of much 2008 but has now slumped back into stagna-

gotten right up my father’s nose. of the national grid early in February 2008, at tion because of the global downturn which

At the time, I recall thinking that my father which point the Government finally woke up has been greatly exacerbated in South Africa

was losing it. What was the big deal? I now to the fact that the country really did face a by the shortage of power and its rapidly rising

have a deeper understanding of his emotions power supply crunch. price.

Mbeki issued a public apology at an ANC
fundraising dinner held in Bloemfontein in
and far greater sympathy for his reaction. It’s for that reason that African Rainbow
The ANC caused the country’s power cri- Minerals Ltd (ARM) – arguably the country’s

sis back in 2000 when the Cabinet greatest black economic empow-
refused a request by Eskom to be al- erment success story so far – is
shutting down ferroalloy smelters
Looking back, I think thelowed to build a new major coal-fired in South Africa and replacing them
with a new project in Sarawak,
power station. Eskom’s top manage- Malaysia where there is plenty of

crucial underlying issuement – backed up by the country’s

“was that, when the ANC came tomajor power users – warned that,
unless a decision was taken to go power in 1994, Eskom sat with power.
ahead with this construction soon, a massive oversupply of power In Malaysia, ARM has signed a
generating capacity. It actually
then the country would be plunged 15-year power purchase agreement
into a power shortage crisis from with an annual escalation clause of
about 2007. just 1.5%. Compare that with the

The Cabinet refused, saying it mothballed a number of older 25% increase Eskom is demanding
did not believe the situation was power stations to concentrate for the next year.
as grave as Eskom was making
out. Eskom is, of course, owned generation from its newer, The apartheid regime also made
100% by the State and is controlled cheaper-to-run stations. one other huge infrastructural in-
through the Department of Public vestment in its time, the construc-
Enterprises. tion of the Sasol oil-from-coal plants
which can supply around 30% of

Government also said it wanted to the country’s fuel requirements.

encourage greater participation by the private December 2007 when he indicated that the Depending on how things turn out in the

sector in meeting the country’s power needs Government had been asked earlier to invest Middle East, all the citizens of South Africa

through the promotion of independent power more in electricity to keep pace with the coun- may yet be very grateful for that investment.
Brendan Ryan is a Johannesburg-based min-
producers (IPPs). I need to point out here that try’s economic growth. ing writer
the regulatory framework required to allow “Eskom was right and the Government was

IPPs to operate in South Africa is only now wrong,” he commented.

being put in place some 15 years later. I was never a fan of Mbeki. I thought he

The power crunch duly arrived as predict- was too cold and distant and that he operated

ed, with a number of rolling blackouts towards intellectually at a level remote from day-to-

AUSTRALIA’S PAYDIRT JULY 2015 PAGE 7

GOODE NEWS

Have resources bottomed yet?

Following conference organiser Stewart Lion Selection’s Lion Clock is heading nearer to the 5 o’clock boom time
McDonald’s proclamation at the Explorers
Conference in Fremantle in late February that most other resource conferences. that he thought we were at 4.30, approaching
“the commodity boom has restarted”, the mar- The Symposium conference was opened 5 o’clock, on the “Lion Clock”, as seen in the
ket slipped again, thanks to the weakening iron image. The “Boom” period, as far as he was
ore price heading into an even deeper funk. by an eight-year old girl, Gloria Zhu, talk- concerned, has started with its “first swallow
It left many explorers focusing on methods to ing about Australia-China co-operation for of summer”.
slow their dwindling cash reserves. a better future. The conference contained a
number of panel discussions such as what Widdup thought the key for 5 o’clock was
By mid-June, doom and gloom appeared acquisitive traits successful companies have private equity acquisition of companies. The
to have largely taken hold, with a weak-to-flat (e.g. prior experience for material upside po- move on Mungana Goldmines Ltd was a pos-
stock market (unless you are in China where tential, management, quick return, and not sibility but there needed to be more. Widdup
the market is up 40-50% to June) despite the overextension) and what company could be thought that private equity usually tried to buy
bullish backdrop of a relatively strong Austral- next into the group. near the bottom and then sell back to the mar-
ian gold price of $1,550/oz (US$1,180/oz @ ket possibly three years later for a material
$0.76) and falling labour costs. Julian Malnic presented his successful profit.
companies that he has started like Nautilus
As many consultancy and stockbroker firms Mining Corp (which expects to start min- However, according to the private equity
reduce their staff, the private equity funds ing using its $235 million undersea miner in companies they are extremely busy, although
state that it has been an extremely busy time, about two years’ time) and Direct Nickel Pty what they are doing may not be obviously vis-
with everyone wanting their money, thus cre- Ltd. Malnic said the key to selecting success- ible from an Australian viewpoint.
ating a “buyer’s market” in which they can pick ful companies was to identify a future conver-
and choose which project and/or company to gence point based on technical and economic On the day after the Broken Hill Sympo-
take a slab of. vectors at which things could happen. Conse- sium, there was a technical day held by the
quently, one of his current focuses (apart from NSW Government, mostly on the Curnamona
Some corporates have also done extreme- graphene and Nanocarbon) was DSI (Deep Craton, followed by a field trip in the vicinity of
ly well and beaten the trend. Gold Road Re- Space Industries) looking with NASA at min- Broken Hill. In a video link to Broken Hill, the
sources Ltd raising big money and the logical ing asteroids. NSW Minister of Mines stated that red tape
Independence Group NL/Sirius Resources was going to be halved, though some dele-
NL merger – both executed by ex-JBWere Julian recounted a conversation he had gates remained sceptical.
Ross King’s Treadstone – being the stand- with Buzz Aldrin who stated that “the first
outs. baby will be born on Mars in 2035, but no one NSW does appear to be following South
is coming back. Those that go to Mars don’t Australia by paying towards some drilling,
Having attended four conferences in May, get to come back. After all, no one asked for a although it has a long way to go as South
the overall mood has been a mixed bag return ticket on the Mayflower!” Australia started its PACE programme 11
amongst the four conferences with reduced years ago. SA representatives commented
delegate numbers and those who did attend Malnic’s DSI also hopes to produce water that to start mining in its State, companies
wanting to know: “Have resources bottomed in space due to the differential temperature only needed two key approvals and up to 10
yet?” between different sides (sun to shade) of an sub-approvals. In contrast, Roy Hill needed
asteroid, because 1t of water at the space sta- around 4,940 approvals from the West Aus-
At the SAA (Stockbrokers) conference in tion costs $1-3 million. tralian Government to start mining.
late May, Li Xinchuang (who from our ob-
servation appears to be one of China’s main Hedley Widdup of Lion Selection showed Apart from the $32 million drill core library
presenters on iron ore and steel), gave an out-
look for the iron ore price and steel market to
2016, with his presentation giving a view to
2020. His expectation was that the average
iron ore import price to China in 2015 would
be $US50/t with the second half of the year
seeing US$60/t.

The iron ore price was expected to increase
to $US65/t in 2016 as high-cost miners close
(in China, iron ore mining costs mostly range
from $US60-100/t, within a range of $US35-
180/t) resulting in better supply/demand con-
ditions, and with further closures, and com-
pletion of expansion by the Big Four, the steel
price was expected to rise in 2017, thus driving
the iron ore price up to average of $US75/t.

For 2018 to 2020, the iron ore price was ex-
pected to remain stable at about $US80-90/t,
initially due to the recovering world economy
in 2018 driving up steel and hence iron ore
demand, with supply and demand under con-
trol in 2019.

In 2020, costs would rise due to stricter en-
vironmental requirements while finance faced
issues such as inflation and a depreciating
US dollar. So according to China, the iron ore
price appears to have bottomed.

Kerry Stevenson’s Broken Hill Symposium
Conference continued to be very different to

PAGE 8 JULY 2015 AUSTRALIA’S PAYDIRT

Keith Goode’s conference barometer was moving up in May

that it is constructing, SA is focusing on estab- bassadors in Latin America, which was very political mayoral elections and what each
lishing a new minerals province in the western informative. mayor needs to do to get re-elected.
part of the State called Uno, as part of its aim
to triple its copper exports within 15 years. The ambassadors gave introductory sum- Brazil was also perceived to be facing prob-
maries of what was happening in the coun- lems due to its severe drought which was hav-
If necessary, infrastructure development tries they are responsible for. Mexico ap- ing a major impact on one of is mega cities,
would occur in the Gawler Craton, possibly peared to be advancing the fastest in terms Sao Paulo. Whether, like South Africa, there
even a central processing plant for compa- of GDP monetary growth with an expected will have to be water restrictions on mining
nies to use, and an almost $1 billion upgrade target of 6-8% pa by 2020 and there was operations, hence affecting production, was
was in progress for the Port Pirie smelter. speculation as to when Mexico was going to currently not known.
overtake Australia with the 2014 difference
Now that is what you call a state getting be- only $US187 million. Mexico apparently has a The last of the May conferences was the
hind mining and processing and recognising population of 180 million of which 120 million Sydney RIU conference in which McDon-
its potential long-term growth benefits. are a young, growing middle class. ald commented that sales at Joe’s Pie Shop
in West Perth were picking up (inferring in-
Paydirt’s Latin America Down Under con- As for the other countries in the region, creased customers) and the bodies littering
ference in Sydney was upbeat as far as the Colombia may possibly be in 5th place, with the streets of West Perth were beginning to
South American countries were concerned. Ecuador rapidly rising too. twitch. The closing speech was from Sean
Yes, they had slowed down, but in their opin- Russo, who thought it looked like it was time
ion 2015 was experiencing a turnaround ver- China is conducting major infrastructure to “jump in” to the market, although it could
sus 2014, with expected GDP growth rates projects in Latin America, having started on still drift sideways for a bit longer.
of 2.9% (up from 1.9%) in Chile, 4.7% versus the new $US20 billion canal (capable of take
2.9% in Peru, 2.1% increasing to 3.6% in Mex- mega iron ore carriers) through Nicaragua as Russo also commented that there had
ico, and 0.1% increasing to 0.5% in Brazil. an alternative to the Panama Canal. China been a lot of debt and little hedging, apart
is reputedly financing a $US50 billion asset from his few satisfied Noah’s Rule clients. And
Latin America Down Under actually con- package to Brazil, besides its recent support although it is available, there had been very
tained a surprise for me in that I usually think of Vale, and undertaking a fast rail feasibility little hedging of iron ore, even though there
of Latin America as being Chile, Peru and study between Brazil and Peru. had been many that called the iron ore price
then Brazil in terms of investment, whereas lower.
Mexico is in fact No.3. Mexico falls between However, Argentina with its rampant 30-
the cracks due to its proximity with the south- 50% inflation and collapsing currency, was There has been a significant rebound in a
ern border of the US. seen to be probably the worst investment number of gold stocks, but caution still ap-
area of Latin America. The new president pears to be the case, despite all conferences
Mexico’s GDP in 2014 was $US1.296 tril- (there has to be a new one because the that I attended seeming to be experiencing
lion (versus Australia’s $US1.483 trillion), the current president has served her maximum glimmering signs of recovery.
second highest in Latin America after Brazil. two terms) is expected to be pro-mining and
should relax the foreign exchange controls Possibly a recovering iron ore price as fore-
At least one delegate commented that the currently in place. cast by China could be the catalyst behind
advantage of this conference is the ability reviving sentiment, the advance of the Lion
to meet the ministers of the country where Unfortunately, mining limitations in the indi- Clock and the recovery of commodity prices,
your project/mine is located (a similar com- vidual provinces are not expected to change and hence Australia’s mining industry.
ment is made about Paydirt’s Africa Down because each province controls its environ-
Under too). In addition, Paydirt managed to mental restrictions and that is dependent on Keith Goode is managing director of Eagle
co-ordinate a panel of all the Australian am- Research Advisory Pty Ltd

AUSTRALIA’S PAYDIRT JULY 2015 PAGE 9

NEWS

China slowdown inevitable:
Eslake

China’s economy is slowing down but it’s a Although a collapse wasn’t on the cards, Saul Eslake
far cry from collapsing, according to one Eslake believed the iron ore sector would
of Australia’s most respected economists, Saul experience some pain as a result of China’s China aren’t under the same pressure to turn
Eslake. slowdown. a profit as those in Australia.”

Addressing the West Australian Mining While China intends to wean itself off its Eslake said for iron ore prices to stay at cur-
Club last month, the private economics con- historical reliance on exports and fixed in- rent levels, Chinese iron ore production would
sultant said China’s days of 10% GDP growth vestment and instead achieve growth from need to continue its rapid decline of late.
were “receding into history”. household consumption – which may benefit
some commodities – Eslake said there were Having struck fear into many of the Club’s
Eslake said the Chinese themselves regu- no signs of a reacceleration in Chinese steel members, Eslake said explorers and miners
larly discussed the concept of “the new norm”, production. could take heart in knowing the Australian
which in GDP terms translated to roughly 7% dollar was likely to head south soon.
growth per year. “Although Australia has been making mar-
ket share gains, Australia’s total net exports to Recently, the dollar had been held up at
But according to Eslake, that was also set China are still rising quite steadily, but that’s higher levels than its fundamentals had war-
to change in time. because of the huge net increase in supply. ranted by two types of capital inflows: foreign-
And that has been at declining prices,” Eslake ers borrowing Australian Government bonds
“China’s sustainable rate of growth, if it’s said. and financing of multinational energy and
now 7%, will drop by about one percentage mining companies.
point per annum each 3-5 years,” he said. “To some extent the softening in China’s
demand for iron ore imports reflects the lev- In the last three years, Australia had at-
“If it’s now 7%, by the mid-2020s it will be elling out of the property markets and steel tracted twice as much capital as it needed to
5% and by the mid-2030s it will be 3%. If you production, but the fall in prices represents finance its deficit, according to Eslake, so un-
don’t believe that, ask yourself what percent- actual and prospective increases in supply. less bond purchases almost doubled as min-
age of world GDP China would have if it con- While there is more supply coming on that will ing financing weakened; the dollar was going
tinued to grow at 7% and the rest of the world inevitably weigh on price. to fall.
at 3%. The answer would be 35%, which is
more than China’s share of population, which “The hope, from an Australian perspec- “I believe the currency is going to fall into
is about 25%, and it simply doesn’t make tive, is that more iron ore production can shut the $0.60 mark in 2016, which of course
sense that China’s economy could be that down within China itself, as their miners are will be good for mining companies, farmers,
big. There is an air of inevitability about the high cost producers that typically have costs manufacturers and tourism operators, as well
slowdown that’s happening in China.” in excess of $100/t. The problem from the per- as the Reserve Bank and Australian Govern-
spective of those who want to compete with ment,” Eslake said.
But fear not, Eslake said pessimists pre- Chinese producers is that those companies in
dicting China will collapse under the weight “It can’t happen soon enough.”
of its own debt didn’t understand that its debt
was structured very differently to most debt in – Rhys Dickinson
western nations.

Unlike the west, neither China’s govern-
ment or households have much debt – rather
much of it is held by provincial governments,
which can be backstopped by the central gov-
ernment in Beijing.

Eslake said China’s biggest problem was a
quick fix, as the majority of its debt was owed
by government-run enterprises to govern-
ment-owned banks.

“From that point of view, in the event of a
crisis they can be thought of opposing entries
on the same ultimate parent company bal-
ance sheet,” he said.

“And if it were ever to be the case that a
major debt crisis loomed in the corporate sec-
tor, it’s almost certain the Chinese would do
what they’ve done twice in the past 15 years,
which is cross some of those things out. While
that would create a hole in the asset side of
the Chinese banking sector, fortuitously in
China’s case there is $4 trillion worth of US
reserves sitting in the People’s Bank of China
that can be drawn upon to offset the impact
of that hole.

“The probability of China having a debt,
property or share market … [come to a] sud-
den stop – that you will read forecasts of in the
paper – is less likely than Tasmania getting its
own team in the AFL.”

PAGE 10 JULY 2015 AUSTRALIA’S PAYDIRT

OPINION

Private equity investment in
mining companies

The past year has been a difficult company dealing with? Sector-fo-
one for the Australian mining in-
dustry and capital markets. cused? Opportunistic, “special situa-

Market sentiment has changed tion” or distressed asset-focused?
with bio-tech and cloud-based com-
panies receiving increased attention • Is the fund seeking control or a
from the broker and investor commu-
nity, leading to reduced attention be- non-controlling shareholding in the
ing given to mining companies.
company?
The tough market is particularly
noticeable for small to mid-cap min- • If the fund is seeking to pursue a
ing companies which have faced dif-
ficulty when seeking to raise funds change of control transaction, has the
through traditional sources. Despite
the subdued interest in the sector, company considered Takeovers Pan-
there is still money in the market
looking to be deployed – from private el Guidance Note 19 - Participation
equity funds.
of Insiders in Control Transactions?
 Private equity funds investing in
this sector are often either specialist resource Funds are likely to require specific
investment funds, which take a longer term
view on the resource cycle, or special situ- information (including financial mod-
ation funds with a greater tolerance for risk.
These funds have recognised the investment elling) from key ongoing management
opportunities presented by the subdued activ-
ity in the mining industry, and the valuation which can cause disclosure and other
pressures on these businesses arising from
lower commodity prices and fluctuating ex- issues if correct protocols are not im-
change rates.
Private equity funds keen on investing in Australian mining plemented, particularly in the context
A sub-set of these funds also have com-
modity trading businesses and as such their companies are willing to commit an initial $30-50 million of agreeing future incentive arrange-
investment will be conditional on agreeing ac-
cess to product by way of off-take or market- ments for ongoing management
ing arrangements.
and identify viable projects which satisfy their • What structure, size and type of funding
 A number of international private equity
funds are showing increasing interest in the investment criteria. The expertise of these does the company require – debt, equity or a
Australian market and are indicating an appe-
tite to pursue immediate investment opportu- project teams often means that obtaining hybrid investment?
nities in mining and mining services.
their commitment to make an investment in • Will access to off-take or marketing rights
The entry of these funds into the Australian
market presents a valuable alternative source a company requires more than an investor be a condition of investment?
of funding for small to mid-cap mining compa-
nies with viable projects that have otherwise presentation prepared with the assistance of • Is Foreign Investment Review Board ap-
found it difficult to attract funding through tra-
ditional capital market sources. the company’s broker or banker. These funds proval required for the investment, including

 In our experience the majority of private conduct a thorough due diligence review of a in respect of royalties or security for debt in-
equity funds investing in Australian mining
companies seek: company and its assets prior to making any struments? If so, does the mining company

• a five to seven year investment pe- investment decision. It is not unusual for pri- have assets in any potentially problematic ar-
riod;
vate equity funds to request access to techni- eas (e.g. Woomera Prohibited Area)
• an initial investment of between $30-
50 million; cal reports and geological data and site visits • Does the company have a clear project

• a company with a near-term project are usually conducted. development programme?
capable of starting production within one
or two years; and Mining companies seeking to attract in- • Are recent technical and title reports avail-

• a company with a strong manage- vestments from private equity funds should able?
ment team.
understand the relevant fund’s objectives and • Can the company accommodate a site
 Mining sector-focused private equity
funds are highly sophisticated investors investment criteria and inform themselves of visit?
with projects teams consisting of indi-
viduals with a range of geological, opera- the process undertaken prior to making an • Is the company’s internal housekeeping in
tional and financial expertise to evaluate
initial investment in a company, so that they order (i.e. financials, statutory records, signed

can ensure they are prepared to meet these and written contractual arrangements, etc)

requirements.   • Does the company have a data room to al-

A company can never predict when its low easy access to geological, technical and

project may attract the attention of an exter- corporate records? 

nal investor. However, when that opportunity • Has the company prepared a confidenti-

arises the following are some matters small to ality deed to provide the fund with access to

mid-cap mining companies should consider confidential information?

when seeking to secure an investment from a • Has the company identified appropriate

private equity fund: advisers who can assist in navigating the

  • What type of private equity fund is the potential financial and legal complexity of a

structured investment by private equity?

A small or mid-cap mining company

that attracts an investment from a private

equity fund can often mark a key mile-

stone in validating the future prospects of

a company and its assets. While resourc-

es may have to be allocated to attract the

initial investment of the fund, the relation-

ship with a private equity fund can ben-

efit a company’s development through

the technical, financial and strategic ex-

Michael Bowen Corporate Scott Gibson Corporate pertise the fund can provide to assist in
Partner, DLA Piper Perth Partner, DLA Piper Perth growing the company and making it more
profitable.

AUSTRALIA’S PAYDIRT JULY 2015 PAGE 11



OPINION

From boom to gloom to a
more positive future

As Australia’s mining sector enters a new continues and is entering the final stages of achieve sustainable productivity improve-
financial year, and with Diggers & Dealers the transition, giving the industry a significant- ments, but also to withstand and survive fu-

rapidly approaching, there’s little doubt that the ly larger export base, despite the decrease in ture iron ore price volatility.

prevailing mood in Western Australia is more prices. In the December 2014 quarter, iron ore Atlas Iron Ltd’s emergence from a major re-

than just a little gloomy. production grew 0.4% on the previous quarter structure has shown that the right approach

There are multiple, and well-documented, and, while this increase was only marginal in to costs, and taking innovative approaches

reasons for the challenging market environ- percentage terms, it resulted in a production to industry challenges that involve, and even

ment – on both the demand and supply sides increase of 0.8mt. This meant a record level reward, suppliers and contractors, can be the

(and the less said about the slide in commod- of quarterly production of 189.9mt, more than difference between failure and a future.

ity prices the better) – and no reason to sug- 17% higher than the December 2013 quarter. Cost savings, a back-to-basics approach,

gest that the pain will dissipate in the short-to- On the export side, earnings from major and doing things differently, appear to have

medium term. partners underpinned the overall downturn, been a game changer for Atlas. The company

We continue to see distress among both with the March quarter 2015 seeing a con- has said it has achieved cost reductions it

juniors and contractors, retrenchments, re- traction in export spending from all of Western would never have thought possible and, with

structuring and M&A. Many junior explorers Australia’s key trading partners. The March contractors also at risk in the event of an Atlas

are giving up – shutting down exploration quarter saw an 8.7% decline in export earn- failure, this has been a win-win for all parties.

activities to preserve cash and seeking new ings from iron ore, a greater decline than the The innovation imperative remains more

4.5% fall in the December 2014 quarter.
deals, often as tech companies, because they compelling than ever, and those that apply in-
can’t access funding to con- novation across their opera-
tinue their exploration activi- tions will realise significant
ties. gains. This is important at
the enterprise level, but also
Put simply, the industry needs toImpacts are also being felt when it comes to sourcing
innovation from partners
well beyond the mining ser- and suppliers.

find new models to fund efficientvices companies, in sectors An interesting example

“exploration to develop pipelines.one wouldn’t normally think
would be directly affected.

When the mining sector of this is drilling and survey

reins in spending, the flow-on impacts can be Export receipts from India were down operator Imdex – delivering significant cutting

pervasive. 29.4%, driven by a 79.8% fall in the value of edge innovations via its REFLEX instruments

So challenging market conditions remain, iron ore exports. And Chinese export earnings and data division – which is seeking to make

and this means that managing costs, driving continued the trend seen throughout most of both exploration and production more effec-

productivity and embracing innovation also 2014 and declined by 6.2%, and 25.5% fall tive and efficient through real-time field data

remain more important than ever. relative to the same time last year. collection and analysis.

Significantly lower commodity prices, cer- It’s hard to imagine that amid so much Finally, it’s absolutely critical that, among

tainly as far as iron ore is concerned, clearly gloom, a lot of really positive things are hap- all the hard work being done to manage costs

need to be seen, and managed, as a ‘new pening that point to a much brighter future. and innovate, we don’t forget about explora-

normal’. This should certainly be the case for those tion.

Deloitte Access Economics’ most recent perceptive and agile enough to adapt to Again according to our analysis for the

resources forecasts for the WA Chamber of changing industry dynamics. Once costs and WACME, WA exploration expenditure rose

Minerals and Energy (WACME) for the three productivity have shaken out, operators will 0.5% in the December 2014 quarter 2014 (un-

months to April 2015 confirm that the col- be well placed with a high export base. adjusted for seasonal factors), and fell 3.8%

lective downward trend in global commodity Perhaps three words need to be treated as when adjusted for seasonal variations. And

prices has continued, and this was clearly the a mantra for miners seeking sustainable fu- total exploration outlays of $883 million rep-

case for iron ore which has fallen 54.6% in the tures – costs, innovation, and exploration. resented a decline of 11.5%, year-on-year, as

12 months to April (including a 10-year low of Over the past year, miners and, of course, lower commodity prices and cost-cutting ad-

$US46.08/t in early April) in the face of mod- service companies have undertaken substan- versely affected exploration activity.

erating demand and increasing global supply. tive cost reduction strategies and implement- Although WA iron ore exploration expendi-

The spot price in mid-June of around ed more streamlined cost structures – to help ture increased in the December quarter 2015,

$US63/t was obviously in more positive ter- albeit by only 0.9% (or $1.2 million), the to-

ritory. But looking further forward, recent tal outlays of $131.5 million were 17.2% be-

broker forecasts paint a sobering picture low those for the December quarter 2015.

(even if they are more than a little divergent It goes without saying that the industry

in their views). In early June, for example, has a very limited future if exploration is put

Credit Suisse was projecting the average to one side during challenging times. Put

iron ore price to be $US55/t in 2015, down simply, the industry needs to find new mod-

to $US47.50/t in 2016 and only up slightly els to fund efficient exploration to develop

again, to $US50/t in 2017. Deutsche Bank is pipelines, and put ‘lifestyle’ exploration to

more optimistic, predicting an average price one side forever.

of $US62.50/t for 2015, a dip to $US59.50/t Nicki Ivory is a Deloitte Matt Judkins leads the

in 2016, followed by a rise to $US68/t in Corporate Finance part- Deloitte Access Econom-

2017. ner and the firm’s National ics practice in Perth

The shift from construction to production Mining Leader – West

AUSTRALIA’S PAYDIRT JULY 2015 PAGE 13

NEWS

Geopacific eyes Kou Sa resource

Geopacific Resources Ltd managing direc-
tor Ron Heeks says an IP survey of the
company’s Kou Sa project in January was the

“silver bullet” the Cambodian play needed to

go to the next level.

Heeks told Paydirt the IP survey brought

together the pieces of a previously disjointed

project which featured up to eight potential

targets.

“In an area where determining the extent of

mineralisation was becoming difficult, the IP

clearly shows where structural offsets have

dislocated the target zones and highlights

why some drilling results were confusing,”

Heeks said.

“The latest information from the IP geo-

physics has further confirmed the belief of

Geopacific that the Kou Sa project has the

potential to be a significant mineral field in a Geopacific managing director Ron Heeks visits a health care centre near the company’s Kou Sa project

totally unexplored terrain. This belief comes

from the outstanding sequence of results 53,000t copper equivalent with an average chemistry suggests that there is a porphyry

achieved from the systematic exploration grade of 3.9% and sees more upside within floating around the area. Something needs to

work programmes undertaken to date.” the greater Kou Sa project. be driving this. You don’t get this much min-

An example of a revelation from the IP work “We have endeavoured to conservatively eralisation in such a big area without some-

was the discovery of a link between the pro- estimate the potential mineral endowment at thing being underneath it. We’d be very upset

ject’s high-grade gold and copper 128 target Prospect 150,” BBY said. if there wasn’t any potential at depth.”

and high-grade copper sulphide Prospect “However, drilling has produced significant Heeks likened the state of the copper mar-

160. results at other targets, such as Prospect 100, ket to that of iron ore of yesteryear, suggesting

“That trend wasn’t apparent at all,” Heeks 117 and 160, which are likely to add to the an- now was the perfect time for smaller explorers

said. ticipated maiden resource estimate. Further, to make their mark on the industry.

“That particular zone is now 5.5km and the company has a number of additional tar- He said gigantic South American plays had

where we thought we had a discrete orebody gets, including Prospects 128, 170, 180 and stalled due to financial constraints and pre-

at one end we actually have to work along the 190.” dicted a window of at least 5-6 years for mid-

whole zone now. The definition is such that At the time of print Geopacific had complet- tier producers to get into the market.

you can walk up and hit it with the first hole.” ed drilling campaigns at Kou Sa’s gold-only “It’s exactly the same way Fortescue Met-

RC drilling guided by IP data at Kou Sa’s plays, Prospects 170 and 190. als Group [Ltd] snuck into the iron ore mar-

flagship target, Prospect 150, returned more The first diamond hole at Prospect 190 in- ket,” he said.

high-grade copper-gold intercepts in May. tercepted gold mineralisation and single me- “Everyone knew BHP [Billiton Ltd] and Rio

The programme, which targeted Prospect tre samples exhibited grades up to 2.46 g/t Tinto [Ltd] were going to go up the ante, but

150’s main 400m strike at a 40m by 40m pat- gold within broader zones. they knew it would take them twice as long as

tern to depths of 70m, net- “This is the first time we anyone else because of the way they move.

ted hits of 36m @ 11.1% have drilled a gold-only geo- FMG stuck in there in that gap and now that

copper equivalent from 8m, chemical anomaly at Kou Sa the big guys have come back they’re in all

including 12m @ 34.1% and to get immediate results sorts of strife. The difference is that we are

copper equivalent, 8m @ so close to surface is very en- always going to have a high grade product,

4.38% copper equivalent couraging,” Heeks said. whereas they’re selling a low grade product.

from 52m, 32m @ 4.09% “The shear hosted nature Our costs will always be lower.”

copper equivalent from 4m of the mineralisation has the While it builds towards a resource at Kou

and 36m @ 2.58% copper potential to be deep and long. Sa, Geopacific is laying the foundations for a

equivalent from 12m. The similarities in geology long stay in Cambodia by the way of commu-

Heeks said the plan for between the Prospect 170 nity engagement.

the remainder of the year and 190 gold anomalies are Geopacific financial analyst Phoebe Lee

was simple: “Drill, drill, encouraging and we await re- told Paydirt the company recently installed

drill”. sults from the initial testing at two toilets at a local health centre, distributed

“It’s all about getting an Prospect 170.” learning materials to a nearby primary school

initial resource up and I Geopacific was also revis- and was assisting with infrastructure improve-
want that to flow immedi- Kou Sa has returned copper iting one of its most promis- ments at a village proximate to Kou Sa.
ately into a scoping study,”
grades of up to 11.1% ing targets, Prospect 117, in It was also in the process of setting up a

the managing director said. which it discovered native micro credit system to fund local agricultural

“Our minimum target is 20,000t copper for copper during early ground work. projects.

a minimum of seven years. Our backers have And despite focusing on shallow explora- “The money will aid local farmers to put

said they’ll fund that if we come up with it.” tion to date, Heeks said all signs pointed to a in bores, as they have rice paddy fields, but

According to a BBY Ltd research note re- big resource at depth. they don’t have enough money to cultivate the

leased last month Geopacific won’t have any “The mineralisation has to come from land,” Lee said.

problems reaching that target. somewhere,” he said. – Rhys Dickinson
The stockbroking firm believes Pros- “The tellurides in our material suggest a

pect 150 alone has the capacity to produce deep source. All the petrology and all the geo-

PAGE 14 JULY 2015 AUSTRALIA’S PAYDIRT

Case histories of discovery

The world’s pre-eminent
gold exploration event

taEekxaeoprinjraluyeldissnvtbR1eai$4renNdt1ght2iAaOsr9gtua5eeWgteurosotftofthe

Pan Pacific Perth
November 17-18

www.newgengold.com

Presentations will include: Aurora (Guyana) – Guyana Goldfields Inc.

Gruyere (Australia) – Gold Road Ltd Haile (USA) – Romarco Minerals Inc.
Didipio (Philippines) – OceanaGold Corp Amaruq (Canada) – Agnico Eagle Mines Ltd

Invincible (Australia) – Gold Fields Ltd Pegasus (Australia) – Northern Star Resources Ltd
Kiaka (Burkina Faso) – B2Gold Corp Coffee (Canada) – Kaminak Gold Corporation
Petowal (Senegal) – Toro Gold Ltd Borden Gold (Canada) – Goldcorp Inc.

Galat Sufar South (Sudan) – Orca Gold Inc. Nuevo Chaquiro (Colombia) – AngloGold Ashanti Ltd
Salares Norte (Chile) – Gold Fields Ltd Merian (Suriname) – Newmont/Surgold LLC
Richard Schodde, Minex Consulting – “Long term trends in gold discovery”

Pan Pacific Perth
November 17-18

Jointly organised by:

Keith Yates & Associates Pty Ltd

Sponsors to date: Exhibitors to date:

For all enquiries about exhibiting or attending please contact Melita Fogarty
on (+61) 8 9321 0355 or email [email protected]

NEWS

The story so far: OceanaGold

OceanaGold Corp Ltd was not quite an ugly In later years the company changed its Mick Wilkes
duckling but now it’s certainly a swan. name to Gold & Resource Developments Ltd
What a difference a few years make. (later shortened to GRD Macraes) but before Critical at this stage was Minproc’s creation
OceanaGold is one of the current darlings departing Kennedy also had acquired the bulk of a pressure oxide plant at Macraes which
of the Australasian gold stocks, and it could of the Reefton goldfield on the South Island’s dramatically improved the gold recovery from
be because it is now living the doctrine of West Coast from CRA Exploration (Rio Tinto), the complex ore that was, from the open pit
Robert Champion de Crespigny and not that including the Sams Creek gold discovery, to operations, not much better than 1 g/t and
of the late Alan Bond. the north of Reefton. about double that from the later developed
Frasers underground mine at Macraes.
It was de Crespigny who famously built Instrumental in driving the mid-life of the
the Normandy Mining empire which, by the company were Brett Fogarty who ran both The “Pox” plant, as it was affectionately
early 2000s, was Australia’s biggest and GRD Macraes and Minproc Engineering and dubbed, was also a catalyst for Globe-Pro-
most profitable gold miner. The well-known mining administrator Patrick O’Connor. From gress’ development at Reefton, as concen-
corporate chess player used to hammer the this emerged a new vehicle in 2004, Oceana- trates were railed then road delivered to Mac-
fact to journalists that it was the cost of gold Gold which started the Globe-Progress open raes for campaign treatment.
you produced, not the tonnes treated, which cut at Reefton.
mattered. Open cut mining expanded at Macraes
The Frasers open cut at Macraes through the massive Frasers open cut and
This bottom-line figure was of little interest this led to development of Frasers under-
to most until the cost escalations of the 2010s ground to tap higher grade panels at depth.
coalesced with the gold price slide to plunge
the gold sector into trouble. Macraes-GRD-OceanaGold was not a
breathtaking performer on its New Zealand
At the other end of the scale, the Austral- operations, but it did get a regular jumper at
ian gold boom of the 1980s saw Alan Bond Diggers & Dealers and was prominent at the
push the “tonnes through the mill” principle annual AusIMM New Zealand conferences.
and through debt and management costs, the Grade was the most important challenge and
operations of Bond International Gold eventu- by striving to contain costs and introduce ef-
ally went pear-shaped, along with Bond Cor- ficiencies, it was managed.
poration. Some of the WA gold assets Bond
acquired went back to de Crespigny through But when the gold price rapidly nose-dived,
failure to maintain royalty payments. profit margins on NZ operations virtually dis-
appeared and OceanaGold was forced to join
Through the force of circumstances and other gold miners who had to rationalise pro-
unfortunate timing, the original company that duction and dispense with some of the con-
owned the Macraes gold project in New Zea- tractors and workforce.
land’s Otago province, Macraes Mining Co,
had acquired the property from BHP Gold Some of the planned expansion of the Fras-
at the end of the 1980s and listed just as the ers open cut was muted, Globe-Progress was
global share market took a big dive. to mothball by the end of the year and Frasers
underground’s life was also seen as limited.
Macraes, ran by Miles Kennedy, who now However, recently the company decided it
has a package of companies including An- would put more exploration dollars into Mac-
golan diamond miner Lucapa Diamond Com- raes and may extend its life.
pany Ltd, had the challenge of commissioning
a large low-grade gold miner with complex
refractory ore in a suddenly dead market. The
team’s wisest move to achieve this was smart
hedging and debt funding using Rothschild
Australia.

PAGE 16 JULY 2015 AUSTRALIA’S PAYDIRT

An ore truck enters the Frasers underground portal into Ghana. Askew was also head of the origi-
nal company holding the Didipio lease.
Since the rationalisation, OceanaGold has operating costs into minus territory, perhaps
performed better, in part due to better oper- reflecting the strong run Newcrest Mining Ltd The operating performance in the nine
ating costs in NZ but more importantly the had a few decades ago with the Ridgeway un- months, following commissioning of Didipio,
incredibly good cash operating costs for the derground gold-copper mine at Cadia in New now sees OceanaGold as one of the prime
new Didipio gold-copper mine in the Philip- South Wales, in the process becoming Aus- stocks for attendees at Diggers & Dealers this
pines. tralia’s lowest cost producer. year and also the likely best story for the 2015
AusIMM NZ Mining conference in Dunedin
Didipio was to be the first mine outside of That provided Newcrest with a springboard late in August.
NZ for OceanaGold but its development was to get on the acquisition trail, and Oceana-
stalled by the GFC, not helped by rising global Gold is now following suit. A lot of credit for In the March quarter, OceanaGold deliv-
operating and materials costs and some Ca- this must go to managing director Mick Wilkes, ered 91,146oz gold from all operations, with
nadian broker views about mine development who developed Prominent Hill for Oz Minerals 6,102t copper coming solely from Didipio. The
lemons that had surfaced in the Philippines. Ltd before taking up this position, and also company had group cash costs of $US402/
chairman James Askew, a well-known min- oz gold sold and all-in sustaining costs of
Didipio was put back on the commissioning ing identity who for years ran a consultancy, $US630/oz both net of by-product credits.
track to now be the envy of the gold mining which was a pathfinder for Australians going Revenue was $US129.3 million, EBITDA was
world, with copper credits putting gold cash $US60.7 million and net profit $US24.5 mil-
lion.

The company generated $US19.4 million in
free cash flow despite lower commodity pric-
es and increased its cash position by $US8.4
million to $US59.6 million.

While it put a big hole in March quarter debt,
the acquisition trail since has seen Oceana-
Gold confirm it will be buying the Newmont
Waihi Gold operations owned by Newmont
Mining Corp on the North Island, and it has
taken up a 14.9% interest in TSX-V company
Gold Standard Inc which holds the emerging
Railroad-Pinion gold project on Nevada’s fa-
mous Carlin Trend, close to Newmont’s Emi-
grant and Rain mines.

In early June, the company confirmed it
was acquiring the epithermal gold-silver pro-
jects held by Newmont Waihi Gold and its
competent workforce, so that from July it will
be producing about 99% of NZ’s hard rock
gold.

– Ross Louthean

The Macraes gold processing complex dwarfed by waste dumps
AUSTRALIA’S PAYDIRT JULY 2015 PAGE 17

NEWS

Waihi’s life beyond Martha

The changeover in the new finan- away and now sits near the top
cial year of ownership of gold
mining operations in Waihi on the of the main street – an exercise
North Island of New Zealand is seen
as a guarantee of a future for the dis- costing more than $NZ1 million.
trict mining community at the base of
the Coromandel Peninsula, not so A statue of a regional Maori chief
much for the scope for new deposits
but the amount paid. was moved to higher ground so he

OceanaGold Corp Ltd confirmed could survey the town, above the
in June that it would pay $US101
million to buy the Waihi operations, old pump house.
regional properties and JVs from
Newmont Mining Corp which had Under the deal struck by
acquired the NZ operation as a mere
pimple to its Australian operations in OceanaGold, Newmont will also
its takeover of Normandy Mining.
retain a 1% net smelter royalty for
The original jewel in the mine’s
crown was the Martha open cut up to 300,000oz gold from one
mine, which began life in 1987 over
the Martha underground mines that specific exploration tenement.
from the 1880s to 1952 had been
New Zealand’s richest producer with 5.6 moz Though unnamed, this could be
gold and 38.4 moz silver.
either the Waihi West or WKP
It was reopened by a JV between an Ameri-
can company and Australian Consolidated project, both JVs with struggling
Minerals (ACM) before majority control of
Martha moved to Normandy when the then- TSX-V and NZAX-listed junior An-
growing Australian miner took up the non-
nickel assets of ACM in a joint takeover deal tipodes Gold Ltd.
with WMC Resources.
Antipodes is involved in a cor-
Martha’s rich vein system made the Waihi
operation a modest but good cash cost open porate merry-go-round for surviv-
cut producer. The original challenge was that
the town of Waihi had grown around the old al but Newmont has a first right to
underground workings so the open cut was
developed amid housing. The Maori chief statue overlooks the town of Waihi Antipodes equity in both projects

The other challenge was that the Coroman- that may well be exercised by in-
del Peninsula was a “greenie” heartland and
prior to opening, protestors went to town with saw restrictions on mine vibrations and explo- coming OceanaGold.
a campaign which suggested locals would
see their water poisoned and the mine’s sions and night and weekend operations were OceanaGold will inherit resources and re-
noise would make life unbearable. But Waihi
still had many mining families and they saw out. When Normandy, and then Newmont, serves totalling about 2mt @ 5.52 g/t gold and
through the ploy.
undertook exploration around Martha, the drill significantly higher silver values. It would not
However, mining near the heart of the town
rigs were encased in steel containers to mute have paid that money alone for those figures,

the noise. particularly after a wall slip at the old Martha

Waihi became a model for the mining sec- pit halted mining and may see it out of action

tor regarding effective community relations for the rest of this year; a situation which re-

and events today, with public communications sulted in a contractor and some workers being

and meetings still an important ingredient on retrenched.

all issues. All-in sustaining operating costs have been

In 2010, a major subsidence almost swal- put in the $US760-820/oz range.

lowed one home and affected several others, The new life of Waihi is the Correnso un-

as well as the mine’s then administration cen- derground which replaces the mothballed

tre. The Greens jumped in, claiming the open Favona and now mature Trio mine.

pit mine was responsible, but GNS Science’s Correnso, on the side of the Martha pit,

investigation showed that back in the 1920s is going to be much bigger than Favona and

the underground companies ceased backfill- Trio and is considered to have potential for a

ing stopes and some of these progressively deeper clone.

journeyed to surface. Waihi West has progressed this year while

Linked to those investigations was the re- WKP is a huge target that may offer both open

alisation that the Cornish pump house – a cut and underground potential, and then there

historic landmark the from the underground are other targets which have not had a public

mining era – was slipping towards the pit, so airing.

in the transition to – Ross Louthean
Newmont’s con-

trol it was moved

The big Waihi drill core farm at the back of Newmont’s administration building A bird’s eye view of the Martha open cut in 2015
PAGE 18 JULY 2015 AUSTRALIA’S PAYDIRT

Gold agenda
at Dunedin
conference

The annual pilgrimage
by explorers, min-
ers, university students

and company execu-

tives in New Zealand will

this year go to the lower

South Island and the city

of Dunedin.

The New Zealand

branch of the AusIMM

alternates this annual

event between the

North and the South

islands and the 2014

programme in Hamilton

took in a big focus on

gold mining and explo-

ration, including a visit

to the Waihi gold opera-

tions by geoscientists

and students.

This year, the prime Simon Bridges
focus will again be on

gold with the country’s

soon-to-be dominant producer OceanaGold Corporation Ltd pre-

senting a keynote address as well as several technical papers.

The Macraes gold mining project has been an economic boost for

several decades for Dunedin and surrounding Otago towns, notably

Palmerston, which is down the winding hills from Macraes.

The 2015 AusIMM NZ Mining Conference will be held from August

31 to September 2 and will take in at least two pre-conference tours

– one for students to tour gold deposits in Otago province – includ-

ing OceanaGold’s Macraes gold operations – and another to look

at sub-bituminous and lignite coal deposits in southern Otago and

Southland.

One of the keynote speakers will be NZ Energy & Resources Min-

ister Simon Bridges and he will undoubtedly be asked by industry

captains what is being done to rectify problems created for two sea-

bed mining projects – Chatham Rise phosphate and Trans-Tasman

Resources’ North Island iron sands project.

Both had their recent mining consent applications rejected by the

Environmental Protection Authority (EPA) on the basis of marine

consents now being part of new legislation. These decisions had a

negative impact on mining stocks and capital investment in NZ at a

time when the economy was humming.

However, in early June the EPA gave the nod to an extension of

operations for the mature Maui offshore gas field under the same

legislation.

In recent times, there have been mutterings in the minerals sector

that the NZ Government has a strong focus on advancing offshore oil

exploration but a dim light for minerals issues.

Helping shed some light on political and legislative moves on the

minerals scene will be the Wellington-based mining lobby Straterra,

which has been actively supporting the Dunedin conference.

AUSTRALIA’S PAYDIRT JULY 2015 PAGE 19

NEWS

US yellow cake baking
for Peninsula

Peninsula Energy Ltd remains on tions and increased liquidity by up to
track to become the next urani- seven times, compared to uranium

um producer on the ASX in the sec- companies without a US listing.

ond half of 2015. “Comparable in-situ recovery

In June, the company reported companies with a US listing outper-

the successful completion of the form companies that do not have a

deep disposal well for stage one of US listing by two to three times the

the Lance in-situ recovery projects enterprise value per pound of meas-

in Wyoming, US. ured and indicated resource,” Pen-

“We are in train and on track, and insula said in a statement when an-

most importantly, on schedule and nouncing its proposed NYSE listing.

budget,” Peninsula executive chair- Lance will be the company’s first

man Gus Simpson told Paydirt. project into production, however,

“All the metal work is up; sides, Peninsula hopes to have three oper-

roof is going on. Obviously the ion ating mines in its portfolio by 2022.

exchange columns and circuit have Karoo (56.9 mlb @ 1,108 ppm ura-

been installed before we put the nium) five hours from Cape Town,

building up around the slab and eve- South Africa, is shaping to be its

rything is there. second.

“We finished monitoring the wells Within a seven-year target, Pen-

for the first couple of production insula is planning to produce 8-10

units and the guys are heading into mlbpa uranium and has not pigeon-

well development drilling, finish- holed any destination as a prefer-

ing construction and installation of ence.

the off-site fabrication like header Simpson has not ruled out M&A

houses.” activity, but hinted that Peninsula

Peninsula managed to stitch up was not for sale.

almost $70 million late last year to “Only if we are the principal,”

build stage one of the Lance project, Simpson said. “There are certainly

which is poised to produce 700,000 some groups out there that would

lbpa. like us to pick them up and there are

Following successful commis- several things out there that we are

sioning of stage one, Peninsula interested in.”

has earmarked stage two (1.2 mlba The central processing plant be-

uranium production) to start in 2018, ing built at Lance has capacity for 3

with stage three (2.3 mlbpa) primed mlbpa and with Peninsula currently

for launch in 2020. capable of satisfying 2.5 mlbpa dur-

Simpson is bullish on uranium Construction of Peninsula Energy’s Lance uranium project in the US is on ing a three-stage process, there is

prices of about $US60/lb in 2017/18, track. Production is scheduled for the second half of 2015 room to cater for more throughput.

which may prompt a rush from in- “We need another 500-700,000

vestors into the uranium space. works we will be able to access that large cor- lbpa project that would have a remote ion

At the time of print, UxC uranium spot porate debt, corporate bonds and so on and exchange on it that we could ship load resin

prices were $US36.50/lb, which is about the they will be very inexpensive and smart in a from. There are a couple of those in close

mark Peninsula anticipates all-in sustaining non-dilutive way to grow our business.” proximity to us and we know that those par-

costs of production to be during stage two of Simpson said foreign companies with a ties would like to get into bed with us,” Simp-

the Lance project. dual listing were likely to attract higher valua- son said.

Therefore, the company is setting up to “There are M&A possibilities out there and

take advantage of an upswing in prices and you never know what will come out of the blue.

ensure it has options available to fund the 54 I believe that a lot of groups like the Saudis,

mlb Lance uranium project beyond stage one. some of the Eastern European groups are po-

Earlier this year, Peninsula announced it in- tentially going to want to do what the Chinese

tended to list on the NYSE and is expected to are doing – securing their own supply – and

formalise the process in October. you can’t get any better than a 54 mlb uranium

Some big North American investment resource at all in costs of $US35/lb sitting in

banks are helping Peninsula through the list- the US.”

ing process, with exposure to hundreds of At the time of print Peninsula appointed

funds across the US also a massive fillip for specialist uranium fund manager Richard

the company. Lockwood as non executive chairman. Lock-

“It opens up the corporate debt market for wood’s expertise will be vital to the company

stages two and three, once we have got our- as it transitions into a uranium producer.

selves up and profitable,” Simpson said. Gus Simpson – Mark Andrews
“Once we understand how the system

PAGE 20 JULY 2015 AUSTRALIA’S PAYDIRT

Anatolia finds an American ally

Anatolia Energy Ltd will seek to fast-track Uranium Resources Inc’s Rosita processing plant was central to the deal
the development of its flagship Temrezli
project in central Turkey following the compa- plant at the Temrezli project help make this a of $247.4 million, projected gross revenue of
ny’s merger with NASDAQ-listed miner Ura- compelling combination,” he said. $833.7 million and an operating cash flow of
nium Resources Inc. $447.3 million, based on a fixed $US65/lb ura-
“Add to that a new global investor base and nium price.
The merger, which creates potentially one we have a newer, stronger platform for further
of the world’s most intriguing uranium compa- growth.” Operating costs of $US16.89/lb over the
nies, exhibits the astute management style of project’s 12-year mine life were expected to
Anatolia managing director Paul Cronin. Tetra Tech Inc, which completed a PFS for position Anatolia as one of the world’s low-
Temrezli in February, presented a two-case est cost uranium producers at the time of the
Cronin, who initiated merger discussions development scenario for the project, includ- study.
with Uranium Resources chief executive ing one that added 80% of the project’s in-
Christopher Jones in January before formerly ferred resources to the mining inventory. Cronin said it was safe to assume Temrez-
assuming Anatolia’s top job in February, ad- li’s costs and profits would improve as a result
mitted he always considered Uranium Re- That scenario established a pre-tax NPV of the merger.
sources’ Rosita plant as a good fit for Tem-
rezli. “The returns available at Temrezli … are
likely to improve quite substantially,” he said.
“I always had it in the back of the mind that
Rosita might be an option for us,” Cronin said. “We think by the potential synergy savings
with Rosita and other equipment that Uranium
“We have used the basic design of Rosita in Resources have that are now available to
establishing the more detailed designs of the Temrezli, in addition to the increased pool of
Temrezli plant, so the work that we have done knowledge and experience available to look
to date we will be able to use immediately in at well field development, maximise recover-
terms of putting those plans into regulatory ies and to look at the potential for resource
approval and allowing them to fit in with the expansion at Temrezli … will be incredibly val-
Rosita plans.” uable to us all. The Temrezli project is still be-
ing advanced rapidly by Anatolia at this stage
The transaction will be implemented by way and this merger will not change that.
of three inter-conditional schemes of arrange-
ment, under which Anatolia shareholders will “We will continue with our detailed designed
receive equivalent securities in Uranium Re- work, we will continue to get our quotes in on
sources. our final infrastructure, evaporation columns,
power connections and roads. We will obvi-
Uranium Resources, one of the world’s ously be making some tweaks to that, looking
most celebrated uranium producers, will also at the incorporation of the Rosita plant, but I
seek to establish a listing on the ASX. should note that Chris and I started work on
this deal in January this year.”
Anatolia seeks to gain much more than a
processing plant from the merger. – Rhys Dickinson

While the new company will boast a handy Paul Cronin
combined market capitalisation of approxi-
mately $88.7 million, it was the companies’
synergies that most excited Cronin.

“The merger with Uranium Resources
provides an excellent solution to Anatolia’s
current objectives to advance Temrezli into
production as quickly and efficiently as possi-
ble, and brings with it the possibility of greatly
reducing the upfront capital costs if we can
successfully relocate and utilise Uranium Re-
sources’ Rosita ISR processing plant in South
Texas as currently expected,” Cronin said.

“The Rosita processing plant had major
upgrades and additions in 2007-2008 before
construction was halted. It is fit for our Tem-
rezli project and has the added benefit of al-
ready being designed and constructed with
the ability to scale up the production profile
from 800,000 mlbpa uranium to 1.6 mlbpa
uranium with some additional upgrades which
would accommodate potential future produc-
tion from satellite operations that may feed
into the Temrezli central processing plant.”

Jones described the merger as “transfor-
mational” for Uranium Resources, which like
Anatolia, was keen to see Temrezli in produc-
tion sooner rather than later.

“Our internal technical design and produc-
tion team’s skillset, combined with the Anato-
lia team already in place in Turkey, along with
expected utilisation of our Rosita processing

AUSTRALIA’S PAYDIRT JULY 2015 PAGE 21

COVER

Humble banker
evolves into
gold king

Evolution’s acquisition of La Mancha’s Australian assets yielded more than just the Frog’s Leg mine

Evolution Mining Ltd executive chairman stone in mid-April when he constructed a the ASX and Klein, the former Macquarie
Jake Klein often refers to himself as the deal to acquire the Australian arm of privately banker who spearheaded the development
“accidental miner”, yet everything about his owned La Mancha Resources. of the first foreign-owned gold mine in China,
business strategy is calculated and deliberate. had put his company in the spotlight for global
The transaction was more than just a investment.
Since forming Evolution in 2011, Klein has straightforward mine acquisition and opened
been plotting to transform his company into a the door for Evolution to make a play for an And, if Klein’s bold bid to lead a new wave
“globally relevant” gold mining business – and asset Klein has long desired; Barrick Gold of Australian mid-tiers continues to unfold, he
one capable of rivalling the Canadian mid-tier Corp’s Cowal operation in New South Wales. believes Evolution will not be the only one to
equivalents. benefit.
Suddenly, Evolution was shaping as the
Klein’s master plan reached a major mile- soon-to-be second largest gold producer on “If you go back a decade, Australia was

PAGE 22 JULY 2015 AUSTRALIA’S PAYDIRT

“ Jake Klein Northern Star Resources Ltd, Regis Resourc-
Australia, in spite of being the second largest es Ltd, Metals X Ltd and OceanaGold Corp.
gold producer in the world, has sort of
fallen off the map in terms of global relevance for Northern Star was the toast of the local re-
investment opportunities in gold companies. sources industry last year following a string
a place where international fund managers be mid-tiers and attract that capital – for there of acquisitions in the West Australian Gold-
used to come and look at assets and compa- to be more than one opportunity.” fields, while renowned tin producer Metals X
nies, but it has been a long time since we have emerged as a new player in the gold space
seen any US or UK investors come through Following the collapse of the gold price in after taking control of Alacer Gold Corp’s Hig-
Australia to have a serious look at our assets,” April 2013, Klein sensed an opportunity for ginsville and South Kalgoorlie operations.
Klein told Paydirt recently in Sydney. Australian gold producers to reclaim some
lost ground as the scorned majors flagged There were fears from some sections of the
“Australia, in spite of being the second larg- their exit from the country due to the downturn market that Evolution would get left behind in
est gold producer in the world, has sort of fall- in the resources industry. the M&A frenzy despite Klein declaring his
en off the map in terms of global relevance for company needed to add to its five-mine port-
investment opportunities in gold companies Evolution was among a potential list of suit- folio.
and I think it’s genuinely in the best interests ors for some of the assets of Barrick, New-
of all of us – all those companies aspiring to crest Mining Ltd and Newmont Mining Corp, But Klein, highly regarded for his business
alongside other Australian producers such as dealings over a professional career spanning
almost three decades, was always prepared
to wait for the right asset to come along.

“We have looked at a lot of things we can
afford but don’t like and we’ve looked at a few
things we couldn’t afford but do like,” Klein
told delegates at last year’s Diggers and Deal-
ers conference.

Evolution was punished by the market for
its cautious approach to M&A and the compa-
ny’s share price slipped to 40c/share in early

December despite consistent production
numbers across its five operations in WA
and Queensland as well as promising ex-
ploration results from its JV with Emmerson
Resources Ltd in the Northern Territory.

It was around that time Evolution was ap-
proached by an adviser to La Mancha over
the possible sale of its Australian assets, in-
cluding the Frog’s Leg and White Foil mines.

This was the break Evolution needed and
the company’s stocks started to rise when
rumours of a potential transaction started to
swirl around the investment community in
March.

A deal was confirmed in April, lifting both
the company’s production and market profile.
But the acquisition of two new gold mines and
a 1.5 mtpa processing plant was merely the
side story of the lucrative transaction.

La Mancha’s outright owner, Egyptian bil-
lionaire Naguib Sawiris, would become the

Cowal will soon be the biggest operating asset in Evolution’s production portfolio
AUSTRALIA’S PAYDIRT JULY 2015 PAGE 23

COVER

“A South African
guy who has
just come from visiting
a mine in Kalgoorlie,
meeting an Egyptian in
Rome for a business
dinner; to me that
contrast captures what
the resources industry
is all about.

Cracow, a former Newcrest operation, has a long history of reliable performance and ore reserve replacement

company’s new cornerstone shareholder at “It’s who we’ve got and who we’ve acquired tal from a shareholder in the current market
31% interest and agreed in-principle to put up which is equally as important,” Klein said of where gold funds are down 50-60% and gold
another $100 million for further acquisition op- the La Mancha deal. equities are down a similar amount is just fan-
portunities. tastic.
“To have a long-term, stable source of capi-
“In the discussions I’ve had with him, while
The addition of Cowal is expected to increase the company’s production to 760,000-860,000 ozpa, he’s got an equity lock-up of two years, his
making Evolution the second largest gold producer on the ASX timeframe seems to be in the 7-10 year cat-
egory, which is pretty unique.”

Klein and Sawiris, who has an estimated
net worth of $US3.1 billion, had never met
face-to-face until just days before the deal
was signed. Now they form one of the most
prolific partnerships in the resources industry.

“A South African guy who has just come
from visiting a mine in Kalgoorlie, meeting an
Egyptian in Rome for a business dinner; to me
that contrast captures what the resources in-
dustry is all about,” Klein said.

“It’s one of the very few industries which is
truly global. I had this experience of operating
[mines] in China after coming from South Afri-
ca to Australia. These experiences are unique
to the resources space.”

With Sawiris now providing unequivocal
backing and financial support, Evolution could
finally put an offer to Barrick for the Cowal
gold mine. Even by Klein’s own admission,
the deal happened much quicker than anyone
had expected.

PAGE 24 JULY 2015 AUSTRALIA’S PAYDIRT

Evolution has agreed to pay “ Mt Carlton has been a standout performer for Evolution since it was opened in March 2013
$US550 million for the 230-260,000 This is the high quality asset we have been looking
ozpa operation and raised $247 for to cornerstone our business and provides us
million via a 5-for-13 accelerated with a secure platform on which to build our future.
renounceable entitlement offer
shortly after details of the proposed

acquisition were released to the

market in late May.

La Mancha will contribute $112 million to

the Cowal transaction upon handover of its

Australian assets.

The balance of the purchase price is ex-

pected to be funded by refinanced corporate

credit facilities, comprising an upsized $300

million senior secured revolving facility with a

three-year tenor and a new $400 million sen-

ior secured term loan with a five-year tenor.

The addition of Cowal, Frog’s Leg and

White Foil to Evolution’s operational portfo-

lio will lift the company’s production base to

760,000-860,000 ozpa, placing it behind only

runaway leader Newcrest (almost 3 mozpa)

on the list of leading ASX gold producers.

Average group all-in sustaining costs

across the eight mines are expected to fall in

the range of $US750-810/oz.

Klein described the Cowal acquisition as

a “transformational step” in Evolution’s bid to

make an imprint of a much bigger kind on the

gold sector.

“This is the high quality asset we have been

looking for to cornerstone our business and

provides us with a secure platform on which

to build our future,” Klein said. The average cash costs at Pajingo have reduced by almost 25% in the past year

AUSTRALIA’S PAYDIRT JULY 2015 PAGE 25

COVER

“ White Foil, 2km west of Frog’s Leg, is expected to deliver more than 40,000 ozpa for Evolution
I’ve always called myself the accidental miner because if you had asked
me when I was growing up at school to list 100 different careers to
pursue, mining in China would not have been one of them.
“This acquisition puts Evolution on the map, reliability, consistency and delivery since our tions, reserve and resource upgrades and po-

not just for the local institutions who have un- inception. tential mine life extensions.”

derstandably been disillusioned with the Aus- “This is a very attractive acquisition for Evo- It is hard not to like Klein. He’s approach-

tralian gold sector for many years, but for the lution and is expected to be accretive in terms able, honest and direct. And he is genuinely

offshore investors who now have an attractive of value, free cash flow per share, earnings surprised and humbled at being referred to as

Australian gold investment proposition in the per share and production per share. Through one of Australia’s premier gold mining identi-

form of a large, liquid, low-cost, long-life gold due diligence we have also identified a range ties.

producer with an impeccable track record of of upside opportunities including cost reduc- South African-born Klein never set his

sights on becoming a mining execu-

tive. He migrated to Australia in 1990

to further his professional career and

to raise a family. And like many disillu-

sioned Springboks rugby union fans

at the time, being able to follow the

success of the Wallabies more close-

ly was an added bonus.

Klein, a chartered accountant,

quickly worked his way up the ranks

at Macquarie Bank in Sydney and

was working on the trading desk one

day when a call came in looking for

someone to host a visiting Chinese

investor.

“I put my hand up – no one else did

– and I hosted the visitor for a couple

of weeks,” Klein said.

“He then invited a group of us to

China and one thing led to another

and suddenly here were three guys

from Macquarie, who knew little about

mining and nothing about China, who

suddenly thought it was a good idea

to build gold mines in remote parts of

China.

Evolution considered selling the Edna May gold mine, but it has completed a remarkable “I’ve always called myself the ac-

turnaround in performance in the last 12 months cidental miner because if you had

PAGE 26 JULY 2015 AUSTRALIA’S PAYDIRT

asked me when I was growing up at school Despite the new acquisitions, Klein says the company’s original five
to list 100 different careers to pursue, mining mines will continue to play a key role in Evolution’s future
in China would not have been one of them.”
AUSTRALIA’S PAYDIRT JULY 2015 PAGE 27
Klein soon made the whirlwind ascent to
the positions of president and chief executive
of SinoGold Mining Ltd and helped establish
the first foreign-owned gold mine in China.

SinoGold listed in 2002 with a market cap
of $100 million before being sold to Canadian
giant Eldorado Gold Corp in late 2009 for
more than $2.2 billion.

“We were at a time when people thought we
were absolutely crazy to go to China – and we
probably were – but perhaps our naivety was
a very valuable thing back then because we
weren’t experienced mining guys who under-
stood how difficult this was going to be, so we
kept on going,” Klein said.

“China suddenly started opening up and
people became interested in China and we
had many, many investor meetings with peo-
ple who weren’t really interested in gold in
China, but wanted to know more about China.

“There were moments where it looked like
it was all going to end in tears, but it was fan-
tastic and a remarkable thing to be involved
in. We stuck with a specific strategy in that
we said we believed there was an arbitrage
opportunity in China and we wanted to take
advantage of it.

“And I think Evolution has a very similar ap-
proach in that we think there’s a significant op-
portunity to grow a globally relevant mid-tier in
Australia due to strategic circumstances in the
industry – and we’re going to stick with that.”

Klein briefly headed Conquest Mining Ltd
before orchestrating a merger with Catalpa
Resources Ltd in 2011 to form Evolution,
bringing the then-developing Mt Carlton
project and the Pajingo and Edna May gold
mines under one roof.

Newcrest also agreed to put the Mt Rawdon
mine and its 70% interest in the Cracow op-
eration into the entity and become Evolution’s
first major shareholder.

Over the past three-and-a-half years, the
Sydney-based company has established a
reputation as one of the most consistent and
reliable gold producers on the ASX, regularly
hitting guidance while striving to bring down
costs.

Historic moments have also been made.
Mt Carlton, near Townsville, became the first
new gold mine to be opened in Queensland
in more than a decade when first gold was
poured in early 2013 before commercial pro-
duction was achieved just a few months later.

Cracow and Mt Rawdon have been very
consistent since transitioning to Evolution
ownership while Pajingo, also in Queensland,
had its challenges initially but is now operat-
ing at record-low cash costs.

Edna May, near Merredin in WA, was on
the brink of being offloaded by the company
following a frustrating period of underper-
formance, but is now its highest-producing
and lowest-cost operation.

“It was possibly the best decision we didn’t
make,” Klein said. “We never got an offer that
was anywhere near what we thought the val-
ue was so we weren’t put in a position where
we had to make a choice. It’s been a fantastic

COVER

“The recently completed 1.5 mtpa Mungari processing plant was purpose-built by La Mancha to process ore from both the Frog’s Leg and White Foil mines
We’ve got, in some ways, a bit of a tailwind at the moment in that costs
are coming down. The gold industry is a cost-taker and we, in many ways,
are a beneficiary of the heat coming out of the iron ore markets.
turnaround story and it shows some “We’ve got, in some ways, a bit of a tailwind
of the best decisions are the ones you at the moment in that costs are coming down.
don’t make.” The gold industry is a cost-taker and we, in
many ways, are a beneficiary of the heat com-
Evolution was on track to at least ing out of the iron ore markets.
meet the 400,000-440,000oz produc-
tion guidance for FY15 at the time of “The quality of people is improving, turno-
print and generated a record quar- ver rates are reducing, skills are more acces-
terly cash flow of $26.9 million for the sible and costs are coming down across the
March quarter. board. We’re quite optimistic about our origi-
nal five.”
The last reported C1 cash costs of
$736/oz and all-in sustaining costs Regional exploration around new and exist-
of $1,024/oz for the group were both ing operations will once again have a high val-
below the lower end of the cost guid- ue attached to it in FY16. Evolution committed
ance. $20 million to exploration in the last financial
year and a similar amount is expected to be
Evolution’s “original five” might set aside for programmes to be overseen by
soon take a backseat to the incom- former AngloGold Ashanti Ltd head of discov-
ing operations, but Klein insisted they ery Warwick Smith.
remained an integral part of the com-
pany’s long-term growth strategy. Funds will also be set aside for exploration
programmes at the Tennant Creek JV with
“We recently released our reserve Emmerson. The company also attempted to
statement and we were able to replace make a strategic investment in new WA Gold-
70% of our mined ounces, so certainly fields neighbour Phoenix Gold Ltd but those
if we can keep doing that it means our plans were scuttled by Zijin Mining Group’s
mine life will be significantly more than proposed takeover of Phoenix.
the current reserve life,” Klein said.

Mt Carlton was the first new operational gold mine to be Discovery remains a vital part of Evolution’s growth strategy and the company last year
built in Queensland in more than a decade formed an exploration JV with Emmerson Resources over the Tennant Creek mineral
field in the Northern Territory

PAGE 28 JULY 2015 AUSTRALIA’S PAYDIRT

Evolution also recently acquired 100% Evolution’s portfolio of assets is spread pose those are the conditions which
interest in the Puhipuhi gold project in across four states and territories give companies like ours, who are
New Zealand – its first overseas acqui- acquiring things, the opportunity to do
sition – but is yet to declare its intentions for delivers on the intentions of his master
the prospective ground. plan and raises the global profile of Evo- something interesting.”
lution and that of the “somewhat forgotten” Klein has flagged a
Klein described exploration as the “R&D Australian gold producer. likely enterprise value
of our business” and said some genuine of $US1.72 billion for
discovery excitement would bring much- “You’ve got a situation where the majors his company once
needed “sizzle” back to the sector. are selling assets because they are de-gear- the Cowal acquisi-
ing and they’re selling Australian assets be- tion is approved.
“The reality is there haven’t been, cause they perceive them to be high cost, yet That value com-
other than Sirius [Resources NL], you’re at an inflection point where we’re com- pares favourably
any outstanding discoveries for quite ing down the cost curve rapidly and Australia with those of several
some time – and we desperately need is now a good place to mine,” Klein said.
some of that in Australia right now,” Klein mid-tier TSX-listed play-
said. “You’ve got majors selling, you’ve got jun- ers, including Detour Gold
iors not able to raise any money and I sup- Corp ($US2.25 billion),
“I really like the concept of land-banking New Gold Inc ($US2.16 bil-
ounces during a time like this and if we can lion), B2Gold Corp ($US1.91 billion)
work with teams in very prospective areas and London-listed Acacia Mining plc
where we can bring some skills and capital, ($US1.78 billion).
then it’s only going to be beneficial for all par- “We’ve set out to build a globally rel-
ties. There are too many stranded juniors at evant mid-tier gold company, but we’re not
the moment and I think we all have to get bet- there yet,” Klein said.
ter at collaborating with each other.” “If you look at a Canadian metric of what
is a mid-tier, it’s probably a plus-$US1.5 bil-
Klein has no particular production target in lion company, so that’s probably a $2 billion
mind for his company, but he appears con- market cap in Aussie dollar terms, and there’s
tent for now with settling at eight mines in the probably 8-10 of them on the Canadian ex-
portfolio, having previously stated that “six or change, yet over here we don’t have any.
seven” operating assets was his ideal number “I really think there’s space for three or
for a sustainable gold business. four plus-$US1.5 billion gold companies to
emerge in Australia. There’s a real need for
Further M&A, however, has not been ruled consolidation, still.”
out. Newcrest’s Telfer mine is up for sale and
Evolution has been touted as one of the po- – Michael Washbourne
tential buyers despite Klein saying earlier this
year he did not see a future for the WA opera-
tion under his company’s management.

Klein’s next challenge will be to ensure he

Former colleagues toast ‘ethical’ leader

Jake Klein had every intention of cooling his ened never to return after enduring a terrify- “He’s a very good communicator so he’s
heels for an extended period after inking a ing journey through a blue dust storm in the able to communicate very well to staff, to the
deal to sell SinoGold Mining Ltd to Eldorado Gobi Desert. industry and the financial world,” said Qiu,
Gold Corp. who first met Klein just days after the Evolu-
“He ended up going back for more again tion Mining Ltd chairman visited his first mine.
Contrarily, Klein immediately set up Con- and again and I think that characterises Jake
quest Mining Ltd in a tiny 100sq m office in – he always keeps coming back to finish jobs “He’s very good at that and probably one
Bondi and told his SinoGold co-founder Nick and doing more on the way through,” Curtis of the best I’ve ever met in the industry. He’s
Curtis he would finally “take things quietly for said. able to maximise the strength of his staff, he
a bit”. knows how to use people and I believe that’s
“He’s the straightest, most ethical person why he’s been so successful because he’s
Curtis, who plucked a fresh-faced Klein you will ever come across, combined with able to get the best out of people.”
from the audit desk at Macquarie Bank and an acute capacity to learn and to understand
placed him in its commodities division, did not what’s going on, and I really valued his opin- Former SinoGold geology manager Chris
believe him. ion from very early on. He’s got a very strong Cairns went on to guide Integra Mining Ltd be-
financial auditing background, but he’s far fore his current role as chief of copper hopeful
“I said, ‘Jake, you’ll be out of there before beyond that; he’s a very good manager be- Stavely Minerals Ltd.
you know because you’ll keep growing’ and cause he’s very clear in his concepts on what
sure enough that’s the way it transpired,” Cur- he wants to develop and he’s able to hold his Cairns lauded Klein’s ability to think strate-
tis told Paydirt. opinion very well and work a team to get the gically and grasp most technical advice and
best possible outcome.” terminology despite having no formal educa-
“He might have wanted to take a break, but tion in mining.
I don’t think he could really help himself. He’s Klein took control of SinoGold in the early
always had it in him to keep doing deals and 2000s and served as a mentor to some of the “It’s been some 15 years since Jake and I
growing companies and I think now he’s built industry’s then up-and-coming stars. worked together, but I would assume that af-
a great team around him and he’s got a great ter 15 years in the gold business he’s probably
platform on which to do it.” Geologist Mark Yumin Qiu worked with a lot more technically au fait,” Cairns said.
Klein for more than a decade and is now the
The resources industry has Curtis to thank managing director of Chinese-backed Hank- “In the earlier days we might have been
for “distracting” Klein with the idea of a ca- ing Gold Pty Ltd. able to pull the wool over his eyes a little bit
reer in mining in the mid-1990s when the pair because he was a bit naïve, but I daresay he’s
made frequent trips to China. Despite being two years older and having sharp enough for that to have come to a rapid
more mining experience, Qiu tries to replicate end.”
Curtis recalled a defining moment in their the management style of his former boss.
often eventful travels in which Klein threat-

AUSTRALIA’S PAYDIRT JULY 2015 PAGE 29

DIGGERS & DEALERS PREVIEW

Independent
assessment leads

to Sirius buy

Since production from Tropicana started in early 2014, Independence has been keen to expand the company

This is the right time in the cycle to build a of Evolution Mining Ltd and Independence shareholders will also receive one share in
mining house.” Group NL. a new vehicle, S2 Resources, for every 2.5
As the Australian resources world turns its Sirius shares held. S2 will hold the Polar Bear
attention to Kalgoorlie for the annual Diggers Investors may still refuse to see the value and Scandinavian asset portfolio currently
& Dealers forum, the mining house construc- proposition being offered by mining stocks but owned by Sirius, plus around $22 million cash
tion boom is gathering pace. the sector’s more ambitious executives have upon listing.
declared M&A season open.
While most newspaper headlines are con- “I think the fact Independence was pre-
cerned with the woes of the iron ore miners, “What you are seeing is the smart deploy- pared to put in cash was significant, it means
gold and base metals players are pressing ment of capital,” Morgan’s resource analyst the company is prepared to do the deal,” Wil-
ahead with corporate deals. James Wilson told Paydirt. son said.

A process started by gold miner Northern “Perhaps the market hasn’t woken up to The offer comes at a 35% premium to Sir-
Star Resources Ltd more than 18 months ago that yet.” ius’ closing share price, a 46% premium to
is now spreading to a number of other com- Sirius’ one-month VWAP and a 47% premium
modity groups. Nowhere is this attitude more apparent to two-month VWAP.
than at Independence.
Northern Star’s audacious acquisition The Independence share price dropped in
of Barrick Gold Corp’s assets in the West In May, the company announced its $1.7 bil- the days following the deal. The analyst com-
Australian Goldfields has been followed by lion friendly takeover bid for Sirius Resources munity has been split on the merits of paying
similarly assertive M&A moves by the likes NL. Under the terms of the offer, Independ- that much for what is undoubtedly a world-
ence will pay Sirius shareholders 66 shares
and 52c for every one Sirius share held. Sirius

PAGE 30 JULY 2015 AUSTRALIA’S PAYDIRT

Construction of Nova-Bollinger is in full flight, with first concentrate to be produced in 2016

class asset with some declaring it overvalued. enced similar growth following their acqui- modest Long nickel and Jaguar base metal
“We view the acquisition as strategically sitions however they did so by purchasing mines, Independence has three high margin
mature assets from gold majors keen to exit production sources.
sensible, but the premium paid for [Sirius] is Australia – Barrick in the case of Evolution,
in excess of our expectations and dilutes our Barrick and Newmont Mining Corp in the case The problem was the company’s project
[sum-of-the-parts] valuation,” GMP Securities of Northern Star. pipeline had nothing to which the significant
analyst Duncan Hughes said cash being generated could be applied.
In contrast, Independence will acquire a
Wilson sees it as a fair deal. rising market darling and a project widely re- “At the start we had several good operating
“Based on our valuations, it is an even mon- garded as the best base metal discovery of assets and a bunch of early-stage exploration
ey deal. But that is at a $US6/lb nickel price. the last decade. projects, none with a resource, then Stock-
So, if there is any upside in nickel, you are man [a second base metal project in Victoria]
looking at 40% back in cash.” In doing so, Independence managing direc- in the middle. The pipeline looked like a bar-
If approved by both sets of shareholders, tor Peter Bradford delivered on the promise bell. Our aim in this process has been to iden-
Independence will grow from a market cap he made upon his appointment in March last tify a fairly advanced project which can fit our
of $1 billion into a $2.8 billion company with year to propel the company towards the upper criteria and fill the gap in the pipeline.”
full or part ownership in four operating mines echelons of the Australian resources sector.
once Nova-Bollinger comes on stream at the There is little doubt the acquisition of Nova-
end of 2016. He may not have the investment banker Bollinger achieves this.
Evolution and Northern Star have experi- slickness of Jake Klein or the Goldfields
brashness of Bill Beament, but after little The project has garnered numerous head-
more than 12 months in the job, the unassum- lines and awards since its discovery in 2011.
ing Bradford has pulled off one of the most
ambitious M&A deals of the last decade. Led by Mark Bennett, Sirius has conducted
a near-faultless exploration and development
When Paydirt spoke to Bradford 12 months programme in the ensuing four years.
ago, he said the major imperative of the com-
pany was to find Tier 1 projects capable of Over an initial 10-year mine life production
standing alongside its flagship assets; the from Nova-Bollinger will be 285,000t nickel @
30% share in the 450,000 ozpa Tropicana 2%, 118,000t copper @ 0.8% and 10,000t co-
gold mine, also in WA ‘s south east. balt @ 0.07% at a processing rate of 1.5 mtpa
and is poised to be the 12th lowest cost nickel
“One of the motivations for growing the sulphide mine in the world with all-in sustain-
company is to enable it to manage a greater ing cash costs estimated at $US2.09/lb.
proportion of the cash flow and earnings. We
need to find a way to offset Tropicana. The Peter Bradford
focus does have to be on high-quality assets.
That is, ones which have the potential to be at
the bottom of the cost curve and offer longer
mine life.”

Speaking to Paydirt in June this year,
Bradford said Independence’s desire to find
projects which could offer high margins,
long mine lives, scale and low sovereign risk
meant Nova-Bollinger was an obvious target.

“We had run the ruler over the majority of
the companies that fit our criteria; both in Aus-
tralia and overseas. It was obvious to us that
Nova was a standout relative to all the other
assets out there and was well aligned with our
criteria.”

The desire for an asset such as Nova-
Bollinger has been strong since Tropicana
started production at the beginning of 2014. In
the 450,000 ozpa gold producer and its more

AUSTRALIA’S PAYDIRT JULY 2015 PAGE 31

DIGGERS & DEALERS PREVIEW

Bringing Nova to fruition will be Independence’s focus, however, Mark Bennett
it has not ruled out further acquisitions
“We are doing a fairly compressed pro-
First concentrate is expected by the end of concept and then executing it.” gramme. We have spoken to shareholders
next year and Independence inherits a project The two management teams may have seen in Sydney and Melbourne then overseas
that is on time and on budget, according to shareholders. The idea being that within two
EPC contractor GR Engineering Services. the sense of the tie up, but questions were to three weeks we’ve spoken to a significant
raised in the investment community about the proportion of shareholders.”
“Recently, Sirius said the decline was fly- merits of the deal. While Sirius’ share price
ing and was down 100m already,” Paydirt rose on the bid’s launch, Independence’s fell. Like Bradford, Paydirt columnist Goode
columnist Keith Goode said. “When it gets to However, Bradford is not fazed by the market sees the logic of the deal.
the orebody, that exploration drive is going to movements.
be punched above it and the orebody properly “I think it’s a very logical move by IGO and
delineated for stoping blocks, and the prob- “The fundamental metrics for the transac- the market doesn’t really understand how
able grade profile, which could occasionally tion are compelling. We accept the fact that spectacular the Nova orebody is,” Goode
be much higher than the DFS.” this will be dilutive in an earnings and cash said. “When Sirius’ copper concentrate
flow per share basis but that is for a short pe- agreement came out, it said that ‘at current
How, then, did such a high profile project riod. We have accepted the fact that it was di- copper prices, the copper con agreement al-
end up in the hands of a company whose ma- lutive to Independence up to early cash flow, most pays for all the mining costs, the nickel’s
jor 100%-owned projects were modest nickel maybe for 18-24 months. But after that it is for free from a mining cost viewpoint’.
and base metal mines? significant cash flow accretive for the compa-
ny and this will be one of those transactions “All successful acquisitions depend on
For Bradford, it was a matter of building that in a couple of years time will say that was grade [preferably high], nearness of produc-
trust. an excellent thing to do. The board could see tion and upside potential especially within the
that.” mineralised area – all of which Nova has. And
“We had a number of opportunities to build there is still the Crux exploration that looked
the relationship with Mark Bennett without And, having embarked on a month-long promising and is probably allocated little val-
having to talk about potential deals [before] road show with Sirius’ Mark Bennett to pro- ue at present.”
formally approaching the company at an mote the deal to shareholders, Bradford is
Australia Day concert that Independence even more confident the deal will be success- As Independence makes its move towards
sponsored and Mark performed in. After ful. the mid tier, can investors expect to see more
that things began to develop. Once over the headline-grabbing acquisitions from the com-
bridge of conceptualising that company; due “The majority of shareholders we have spo- pany?
diligence, deal, board approval all came quite ken to see it as a win-win for both companies.
quickly,” Bradford said. They recognise the deal delivers an immedi- “We would still be looking for future projects
ate premium to Sirius with a long-term uplift to add but would be less ambitious about the
“That is the way of the majority of business; for both sets of shareholders,” he said. stage of the projects,” Bradford said.
relationships, then developing the business
“The focus will be on those which could
have the metrics to become the Novas of the
future but are much earlier in their life cycle
and so, come in at a much lower valuation.”

The strategy, then, will turn to filling up the
rest of the development pipeline.

“We are seeing opportunities out there but
there is nothing we would be pursuing in the
near term because we need to focus on im-
plementing, integrating and completing the
building of Nova to realise value.”

And, the further up the development pipe-
line prospective projects are, the more likely
Independence won’t strictly apply the four cri-
teria of low sovereign risk, high margin, long
life and scalability.

“If you are picking up earlier stage projects
you can probably afford to pick up projects in
jurisdictions that wouldn’t necessarily meet
that other criteria,” Bradford said.

PAGE 32 JULY 2015 AUSTRALIA’S PAYDIRT

Higher zinc prices could trigger interest in Independence’s Stockman project in Victoria

“If you are looking at projects like Nova brought forward the new suite of projects to around fewer, higher quality assets mean the
[late-stage development] you are going to deliver organic growth. likes of Long, Jaguar and Stockman no longer
spend a lot of money upfront, you will get im- fit the company profile?
mediate entry into the project and there is “The benefit of where we are in the com-
potentially immediate capital to spend so you modity cycle is that access to the very best Bradford says not.
want to be confident about the jurisdiction so it tracts of land is much easier than it was 3-4 “Long and Jaguar are both high-margin as-
needs to be low risk and/or one that you know years ago. The company, in a good position, sets and significant to Independence today
well. You have to go where the rocks are.” can capitalise on that. So, a large part of our and will continue to be. We wouldn’t go and
exploration is spent on quantifying what we buy them but we wouldn’t disengage. The
Bradford has a long, distinguished career are looking for as far as exploration targets shopping list is different to the list we would
in Africa and would consider re-entering the go and where the best places are to identify have for divestment. If something is a high-
continent, but only if the conditions were per- those targets. It is a much more proactive ap- margin asset why would you think of getting
fect. proach to area selection than we may have rid of it, especially in this market?”
been able to apply three or four years ago.” Stockman isn’t at that stage yet and has
“If an overseas project was commensurate- disappointed for a number of reasons since
ly better; operating margin and the cost of en- If Nova-Bollinger has filled the gap in the being acquired as part of the Jabiru Minerals
try. Nova is going to be the 10th largest nickel Independence development pipeline, what takeover which also brought the Jaguar mine
producer in the world with a cash margin of about its operating portfolio? During a pres- into the company.
around 70%.” entation to the WA Mining Club in May, Brad- However, with zinc prices on the rise and
ford said he wanted a “portfolio of assets, not the interminable Victorian approvals process
Exploration will also return to prominence something that resembles a phone book”. nearing its end, Stockman could be in for a
in a company famed for its discovery rate revival of fortunes.
since founding managing director Chris Bon- Does this strategy of building the company “What we do with Stockman will depend
wick created it in 2001. on what commodity prices, particularly zinc,
The billion dollar hole. Nova has been the talk are doing at the time. We suspect zinc prices
“When Chris Bonwick established Inde- of the town since discovery in 2011 are likely to be moving up and that may colour
pendence he always said that he wanted to what we do with it,” Bradford said.
build another WMC. Well, you can’t make an- “At the same time, higher zinc prices may
other WMC without nickel,” Far East Capital’s motivate potential bidders. So our minds are
Warwick Grigor said. open and we could either build, JV or look for
an exit. But we fully expect that we will real-
“The acquisition of Sirius will complete the ise value from it through one mechanism or
circle to fulfil the objective. Independence is the other. It certainly fits our skills set; under-
shaping up as one of our best success sto- ground mining, running a co-product concen-
ries, through discovery and acquisition.” trate, shipping concentrates and the scale is
not dissimilar to Jaguar.”
It appears the arrival of Nova-Bollinger will
buy the rest of the development portfolio time – Dominic Piper
to grow into something significant.

“We’d want to be ahead of the curve and
have ability to recognise Novas of the future
at an earlier stage of their life cycle,” Bradford
said. “Longer term again, we will have been
maintaining our investment in exploration
and we would expect over 5-10 years to have

AUSTRALIA’S PAYDIRT JULY 2015 PAGE 33





DIGGERS & DEALERS PREVIEW

Bennett gang sticks together

S2 will take control of Sirius’ non-Nova assets, including the Polar Bear gold assets near Norseman

It is rare that a new float can call on the pedigree of the most successful exploration team in Australia, rarer still that it
could also have that team’s latest discovery in its portfolio and almost unheard of that it would start its life with $22 million
in the bank. But that is exactly the position S2 Resources Ltd finds itself in.

Born out of the merger between Independ- managing director Mark Bennett and for the success story of the last decade with the
ence Group NL and Sirius Resources Ltd, well-credentialed explorer, it provides an op- discovery of Nova and Bennett said the com-
S2 will take control of most of Sirius’ non-Nova portunity to “do it all over again”. pany’s exploration spirit would be transferred
assets, including the Polar Bear gold assets directly into S2. 
near Norseman, Western Australia, as well as “The Sirius team wouldn’t have had trou-
a portfolio of gold and base metal exploration ble finding something again, but to get these “The Sirius ethos is at the heart of this new
assets in Scandinavia.  specific assets, and the cash component, is a company,” he said.
very nice place to start,” Bennett told Paydirt.
The new company will be headed by Sirius “Apart from the assets and the money, the
Sirius has been the biggest exploration people were vital to putting this together. All
the key people from Sirius will go into S2,
Mark Bennett will head S2 hence its name. It will be the same team, the
same culture and our intentions are the same.
These people aren’t employees, they are
more like family and the family is getting back
together again.”

Bennett will lead a team including Sirius
directors Anna Neuling and Jeff Dowling,
however, the immediate focus will be on gold
rather than nickel.

S2 will begin its life following up on prelimi-
nary work done by Sirius at the Baloo gold
prospect on its Polar Bear project.

The Baloo licence was only granted last
year after a 15-year process, but Sirius has
since wasted no time in getting on the ground
and by January was reporting hits of 33m @
3.81 g/t gold. 

Baloo shares similarities with another re-
cent Higginsville discovery, Gold Fields Ltd’s
Invincible deposit at St Ives.

PAGE 36 JULY 2015 AUSTRALIA’S PAYDIRT

“The interesting thing about Invincible “We’ve met 80 fund managers across
is that it is the first example of a really sig-
nificant gold deposit in that different geol- the world in the last two weeks and they
ogy,” Bennett told Paydirt back in May.
consistently say that S2 is really sexy,”
“It has proven that you can get gold in
those other areas and raises the ques- he said.
tion what else is there? Finding Baloo in a
similar sort of geological setting is anoth- “Somebody commented that they
er example and suggests Invincible might
not be a one off. There might be quite a lot would like to see our Top 40 register
of gold in this sort of geology which hasn’t
really been checked out before.” when we list because it is likely to be a

Bennett has no doubt Baloo will be who’s who of international fund manag-
brought into production, it is simply a mat-
ter of finding out what scale of operation ers. Even the institutions are expressing
it can support.
interest, which is remarkable given the
“Our worst case scenario is it will be an
open pit operation providing a toll-treat- size of the company. I think even Sirius
ment feed,” he said. “Even in that scenar-
io it will create additional cash flow that trading higher since the announcement
could sustain S2 as an explorer for a long
time. Then there is all the upside associ- is a reflection of investors’ desire to get
ated with it being a standalone operation.”
their S2 entitlement.”
Sirius has already drilled more than
300 aircore holes and has now begun RC As well as keeping the Sirius team and
drilling in an effort to produce a JORC-
compliant resource. its assets together, the structure of the

“We’ve drilled the oxide zone out with new company is vital to S2’s prospects. 
aircore and although that is extensive it
is not sufficient for a JORC-compliant re- “If the company had to start with $5
source, so we have to re-drill it with RC
holes.” million, like other IPOs, it would’ve been

A stronger commitment to Baloo and hard, but having $22 million in the bank
other prospects at Polar Bear is part of
the reason Sirius and Independence when we get started means we can get
chose to create S2.
to a point where we can recognise value
“S2 will explore Polar Bear more than
Sirius did and the Scandinavian assets will without having to go back to the market,”
also become more prominent. In Sirius, Scan-
dinavia was a long-term growth prospect Bennett said. 
which we were deliberately keeping at arm’s
length because it didn’t cost much,” Bennett The $22 million also means S2 can
said.
move on opportunities if they present
Neither will they be competing for attention
in the expanded Independence portfolio. themselves. Bennett has never been an

“They possibly would’ve been better served acquisitive managing director, but he ad-
with a bigger budget at Independence, but its
focus will quite rightly be on Nova, not Baloo, mitted the current travails of junior min-
not Polar Bear and certainly not the Scandi-
navian assets.” ers meant now was an ideal time to take

The creation of S2 will also allow for clearer advantage. 
valuation to be placed on the non-Nova as-
sets. “We are not about trying to buy lots of

As far back as January, Bennett was la- things but we’ve got money and when
menting the lack of value the market was
ascribing to Polar Bear, but S2 now has a people are desperate they will accept
chance to rectify the situation.
deals, so it is a good time, at a moder-
“For the shareholders, they get to go with
a company which is more highly leveraged Sirius director Anna Neuling will join Bennett at S2 ate level, to have a prowl around for bar-
to those assets than was Sirius and certainly
Independence had they taken them on. This gains.”
way, Sirius shareholders are getting bigger
bang for their buck than if we made a big dis- ence getting its hands on Nova and the rest A cashed up junior would usually be im-
covery within Sirius.”
just complicated the issue. plored to deploy its funds to make acquisi-
S2’s arrival also simplified the merger ne-
gotiations, according to Bennett. “We had been getting asked for a while tions in a struggling market, but with the track

“Because Baloo had not received a defined whether we would spin these assets off and record the management team has established
value within Sirius, it would’ve been tricky do-
ing the deal with it as part of it because it is a this was the ideal opportunity to do so.” it is likely S2 shareholders will back Bennett
moving feast. By excising Baloo and the other
projects out of the Nova deal it stops any com- Shareholders and other investors have to carry on his preferred path and “do it all
plication. The deal was all about Independ-
responded well to the news of S2’s genesis, again”.

Bennett saying he had spent as much time – Dominic Piper
talking to investors about the new company

as he had Sirius during a recent road show to

promote the merger. 

Sirius has certainly taken the resources sector by storm. Will S2 do the same?

AUSTRALIA’S PAYDIRT JULY 2015 PAGE 37

DIGGERS & DEALERS PREVIEW

Western Areas swoops on Cosmos

Western Areas Ltd showed its faith in the Dan Lougher onciliation to reserve, optimal mill feed and re-
future of the nickel industry by purchas- ductions in key supplier and service contract
ing the historic Cosmos nickel project off Glen- Lougher hoped Western Area’s board costs helped the miner achieve its industry-
core for $24.5 million last month. would sign off on the company’s centrepiece best numbers.
processing efficiency project, the BioHeap
Whereas Independence Group NL’s bid for bacterial leaching technology, which would “Our underground and haulage contractors
Sirius Resources NL was among the indus- be built into Forrestania’s Cosmic Boy Con- have come to the party and, to be honest with
try’s worst kept secrets, Western Areas flew centrator. you, we were relentless,” Lougher told Pay-
under the radar to swoop on the asset which dirt.
managing director Dan Lougher described as A Cosmic Boy Mill Recovery Enhancement
“an excellent, prudent and low cost invest- feasibility study was finalised last quarter, “Mining services have had some huge
ment”. which Lougher said achieved its aim of devel- margins over the last 10 years, but everyone
oping a flow sheet for incorporation into the is in the same boat now; they’re fighting for
The asset, which includes the historic concentrator to improve mill recoveries. contracts. It’s moving towards a positive, new
Prospero and Cosmos underground mines, a environment for the mining industry to claw
concentrator, new SAG mill and established The patented BioHeap technology, which back some money in terms of what was being
accommodation village, has no remain- has been in development for more than six handed over in the past. We’ve got the easy
ing economic mining reserves, according to years, will allow Western Areas to cost ef- runs, but now it comes down to relationships
Glencore’s most recent resource statement. fectively process nickel from low grade waste with contractors and how they deem your
stockpiles and ore that would otherwise re- business.”
Western Areas, however, appears most main in the ground.
excited about the potential of Cosmos’ high In spite of its efficiency focus, Western Ar-
grade Odysseus deposit, which has a re- In essence, BioHeap offers a second eas continued near mine exploration at For-
source of 7.3mt @ 2.4% nickel containing source of production for the company. restania and work at its Western Gawler Cra-
174,000t nickel. ton nickel-copper JV.
“Our logic is that at this lower nickel price
Lougher said while Odysseus had the ca- environment … we’ve said to the market that Western Areas drilled three targets within
pacity to become the company’s third oper- instead of going out and building a new mine Forrestania’s Western Ultramafic Belt and
ating nickel mine, he was also excited by the with a high capex we will try and optimise the Mt Hope prospect within its Eastern Ul-
exploration opportunities in the project’s 88sq what we have and try to produce nickel with tramafic Belt.
km land holding in the Agnew Wiluna nickel projects with a very low capex base,” Lougher
belt. said. It also completed nine EM surveys of pro-
spective targets with a view to drill its North
Western Areas intended to embark on a The technology would allow Western Areas Ironcap, Sibelius, Mt Hope and West Quest
two-year exploration programme from the day to mine approximately 1,000t additional nickel prospects shortly.
of settlement. per year for a one-off $21 million investment,
Lougher said. Lougher said Western Gawler neighbour
The company’s deal is representative of Iluka Resources Ltd recently hit copper-nickel
how quickly things have changed – and con- Western Areas has also continued to ex- mineralisation, which gave him hope there
tinue to change – in the nickel market. tract maximum value out of Flying Fox and was plenty of metal in the JV’s licences.
Spotted Quoll by hitting production and cost
Twelve months ago the nickel price was guidance without fail. Western Areas’ JV partner, Monax Mining
ticking along comfortably near $US18,000/t Ltd, recently signed a native title agreement
and Western Areas was toying with the idea Last quarter the company achieved $2.32/ with the Far West Aboriginal Corporation
of unleashing the full force of its Forrestania lb costs, with year-to-date figures sitting at Registered Native Title Body Corporate which
project by drilling its New Morning prospect, $2.36/lb at the time of print. allows for the start of on-ground exploration.
wedged between Australia’s best nickel
mines, Flying Fox and Spotted Quoll. Lougher said a combination of positive rec- Lougher expected drilling to start at West-
ern Gawler Craton in the coming months.
But now with the commodity’s price hov-
ering around $US12,800/t the game has Lougher admitted he had been frustrated
changed – as has the company’s outlook. by the nickel price in the past year, which he
said was at least $2.50/lb short of the com-
Prior to its Cosmos announcement, Lough- pany’s forecasts, but he believed there was
er told Paydirt Western Areas had put work at some light at the end of the tunnel.
New Morning on hold to focus on getting the
most out of its current assets. With world stainless steel demand growing
by 6% and China’s middle class growing by
“What we did last year was start drilling the minute, Lougher doubted whether Asian
New Morning to create a new resource so we miners could keep up with laterite demand.
could justify putting access development into
it,” Lougher said. “Do we think Indonesia will be quick enough
to fill the gap? The answer is generally no,
“We had some fantastic results down the because of power problems, labour quality
bottom of New Morning, however, we stopped problems and generally the slow building and
drilling because it was time consuming, it was commissioning of these plants. We also think
burning up a lot of money and we weren’t get- the dizzying heights of 450,000-500,000 tpa
ting continuity of mineralisation to define an nickel pig iron peak production in China can’t
orebody. Now we are putting a lot more atten- be made up by Indonesia and China’s domes-
tion to exploring the idea of an open pit in that tic mines. There’s going to be a big hole in the
area. But we must always come back to the nickel pig iron market in the next 12 months.”
economics of the day and the reality is nickel
is $6/lb. He also reckoned the Philippines’ scramble
to supply China with 1-2% nickel wouldn’t fix
We will not just bring nickel units online just supply issues, as much of its material couldn’t
to become a bigger nickel producer. We need be used in China’s rotary kiln electric furnac-
to ensure that any new production we bring es.
online is going to give our shareholders some
value.” – Rhys Dickinson

PAGE 38 JULY 2015 AUSTRALIA’S PAYDIRT

8 October 2015
Pan Pacific Perth

Register now for Australia’s
only nickel event

australiannickelconference.com

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

DIGGERS & DEALERS PREVIEW

Aggressive Ram begins drilling

Nickel hopeful Ram Resources Ltd has A maiden drilling campaign at Ram’s Fraser Range South project is under way
started its maiden drilling programme in
the Fraser Range. Work programmes will soon be devised for “It’s just speculation and no one can prove
the Sheoak project, about 100km south-west anything yet, but at this stage the rocks seem
Drill pads for the 1,500m RC programme of Fraser Range South and along strike of two very similar.”
targeting two EM bed rock conductors in the targets where Mount Ridley Mines Ltd identi-
Fraser Range South project area were in- fied primary nickel sulphides. There are no plans to add further ground
stalled in early June ahead of the first holes to Ram’s existing 870sq km land package, al-
being punched into the ground at the end of Ram paid $25,000 for a 12-month option though Guy admitted it would be foolish not to
the month. to acquire the 70% Sheoak exploration lease consider any acquisition opportunities in the
and can fork out another $25,000 to exercise current market.
Ram is proposing to drill up to four RC holes that option. The remaining 30% interest in the
for 800m into the two conductors, as well as licence will be free-carried until the company Guy said funding for his company’s immedi-
six to eight holes, ranging from 50m to 100m completes a BFS and announces a decision ate exploration plans would not be an issue
deep, across a prospective soil anomaly di- to mine. if the proposed capital raising of $1.6 million
rectly south of the targeted area. came in as expected. A combined placement
It is not yet clear if the Sheoak and Fraser and securities purchase plan for sophisticated
The priority targets are just 2km from Sirius Range project areas are contiguous. and professional investors was due to close
Resources NL’s promising yet lesser-known in late June.
Crux nickel deposit. “It’s going to take 30 years of geological
work between now and here to prove it, but “Essentially the goal is to develop some of
Ram aggressively ventured into the Fraser basically the rough theory is maybe these those targets and hopefully get some sulphide
Range after Sirius’s major nickel find at Nova things were once joined together or part of the sniffs and some nickel numbers and develop
in 2012 and managing director Bill Guy is cau- same unit,” Guy said. those targets a little more,” Guy said.
tiously optimistic his company can replicate
the success of its prolific neighbour. “There’s been a lot of drilling of conductors
in the Fraser Range, but to me that’s a good
“It’s very rare for you to get just one nickel thing and not everything people wanted out
find – although sometimes you do. We usually of the Fraser Range has come out yet, so the
talk about nickel in terms of belts, camps and belief is still there and the aggression too.”
that sort of terminology,” Guy told Paydirt.
Ram was rated a “speculative buy” in a
“I think a lot of geologists, like me, in WA report from Beer & Co Equity Research re-
believe there’s got to be more than one out leased early last month, citing it as being
there and so the race is on to find number two “very highly leveraged to discovery” and “tick-
– and it’s not so bad to be number two either.” ing all the boxes for a good explorer”.

Soil sampling will also continue this quarter A major discovery would certainly keep the
over three recently identified anomalies which Fraser Range in the market spotlight and pave
returned peak values of 103 ppm nickel and the way for further M&A activity in the same
96 ppm copper. ilk as Independence Group NL’s $1.81 billion
takeover of Sirius.
Ram’s Fraser Range South project area
covers 410sq km and the company has simi- “It’s crystallisation for all the players in that
larly prospective ground at Fraser Range area of what could happen,” Guy said.
North (163sq km) and Fraser Range Central
(270sq km). “You could [acquire] us all for less than that
so it doesn’t take much. They say a day is a
The company will complete an EM survey long time in politics, but a day is a bloody long
over Fraser Range North in the coming weeks time in exploration if you’re drilling holes. So
and is hopeful of drilling into that project area we’re all living the dream I guess.”
in late September, pending approvals.

Drill pads are installed in readiness for the 1,500m RC drilling programme – Michael Washbourne

PAGE 40 JULY 2015 AUSTRALIA’S PAYDIRT



DIGGERS & DEALERS PREVIEW

Saracen cools its heels

Corporate activity has ignited some excite- Saracen will look to replicate production of 160,000oz gold from Carosue Dam
ment in the resources sector this year, again in financial year 2016
leaving many to wonder who will be next on
the dance floor. put of 160,000oz gold from its Carosue Dam out for the Thunderbox underground. Mining
operations, north-east of Kalgoorlie. will start with open pit reserves for the first 4.5
Some companies may feel a sense of ur- years, we have got a nominal three year re-
gency to take part in the action considering As the transition into the high-grade Karari, serve or inventory which is not yet in reserves,
the value-for-money propositions on the mar- Deep South and Whirling Dervish deposits at so there are a couple things on the horizon.
ket however, Saracen Mineral Holdings Ltd is Carosue Dam continues, Finlayson said pro- We’re confident of getting north of 2 moz [in
not one. duction guidance in financial year 2016 would reserve] in the reasonably short term,” Finlay-
be similar to 2015. son said.
“We have a solid organic growth profile in
the pipeline. That is our key priority and ob- The introduction of Thunderbox, south-east As Saracen starts the mobilisation process
viously Thunderbox heads that up,” Saracen of Leinster, from mid-2016 onwards will see at Thunderbox ahead of pre-strip mining of
managing director Raleigh Finlayson told Saracen produce 300,000 ozpa at AISC of Zone A in the September quarter, the com-
Paydirt. $1,075/oz. pany has not stopped drilling and expects to
see some results from Carosue Dam (Karari,
Thunderbox is of course the asset acquired Thunderbox will start as an open pit opera- Red October and Blue Manna) this quarter
from Norilsk Nickel in 2014 which Saracen is tion which allows Saracen ample time to con- in addition to a feasibility update at the Deep
on track to bring on-stream in financial year vert its 2 moz resource base into reserves. South underground.
2017.
“We also have a reserve in time to come “I don’t think explorers are getting rewarded
The company is forecasting gold produc- for exploration success but our campaigns are
tion from Thunderbox to be in the vicinity of for different reasons. Our aim is to drill to try
125,000 ozpa. and find some good ounces,” Finlayson said.

Saracen purchased Thunderbox, which “For a company of our size it is a pretty ag-
had a 728,000oz gold reserve at the time, for gressive programme. We have got four rigs
$20 million. underground – two each at Red October and
Karari – which is a bit of a sign where we’re
“We’re forever keeping an ear to the ground at with those two projects. We have got three
and being open to opportunities and of course on surface doing various jobs, so we’re pretty
Thunderbox fits that mould from an opportun- happy with a similar output to what we did
istic view that we were able to orchestrate,” in 2010. We are putting $25 million into the
Finlayson said. ground this year which is one of the highest
[budgeted programmes] we’ve ever done.”
“We are not super keen on creative trade so
I suppose we are going to be a little bit more The fruits of its drilling campaign will be an
‘acquisition by stealth’ and keeping a very ore reserve update at Red October which will
close eye and ear to the ground in what’s hap- be included in the company’s next five-year
pening around us. Our immediate priority is plan, expected to be announced in the Sep-
Thunderbox, but unfortunately you can’t order tember quarter.
M&A so you have to be nimble and aware of
what is around you and that is the mode that Raleigh Finlayson – Mark Andrews
we’re in at the moment.”

Finlayson hoped the recent flurry of activ-
ity in the gold space would prompt a spike in
investor appetite for precious metals stocks.

“Hopefully then you’ll see the gold price
pick up on the back of all that,” he said.

“There has obviously been a little bit of cor-
porate activity in the sense of mergers – Inde-
pendence [Group NL] and Sirius [Resources
NL] – what you’ll potentially see next is a dry-
ing up of the pool of projects that are for sale.
Then it will potentially move into the corporate
space in the next 12-24 months.”

The recent additions of successful gold
dealmaker Mark Connelly to the board as a
non-executive director and former analysis
and broker Troy Irvin as chief corporate de-
velopment officer has bolstered Saracen’s
corporate experience.

Connelly and Irvin will add grunt at board
level to a company poised for status elevation
into an Australian mid-tier gold producer.

It is a space occupied by Regis Resources
Ltd, Alacer Gold Corp, OceanaGold Corp,
with only the likes of Newcrest Mining Ltd,
Evolution Mining Ltd and Northern Star Re-
sources Ltd boasting more prominence in the
Australian gold sector.

Saracen is expected to exceed production
guidance for the 2015 financial year with out-

PAGE 42 JULY 2015 AUSTRALIA’S PAYDIRT



DIGGERS & DEALERS PREVIEW

Nothing rare about Arafura

China’s decision to scrap its long- welcomed the changes, even though
standing export controls policy on they do not directly affect his company

rare earths is expected to drive a price in- at present.

crease and put the spotlight on a group of “I think what you’ll start to see in the

international hopefuls such as Australia’s short term is prices coming off – and

Arafura Resources Ltd. they have done since May 1 – but in the

On May 1, China’s Ministry of Com- medium to longer term, as the industry

merce formally removed all taxes, quotas consolidates within China, you will see

and limitations on enterprises relating to prices come back to a more supply-de-

rare earths exports after failing to over- mand, marketforce-orientated process,”

turn a World Trade Organisation ruling. Lockyer told Paydirt.

The 15-year-old policy was deemed to “Our key target is the magnet-feed

have violated trade rules and has been rare earths and the long-term forecast

replaced by a new licencing system that for both growth and demand in those

requires exporters to obtain a permit to products significantly outstrips the oth-

trade rare earths. er rare earth products and I’m expect-

Rare earths exports will now only oc- ing the price forecasts for those will be

cur through nine designated ports, while much brighter than perhaps some of the

permits will be issued on the basis of in- Arafura has received the terms of reference for an EIS at Nolans more common, less critical rare earths.”

ternational sales contracts. Arafura is targeting first production

China controls 97% of the world’s rare much-needed lift in prices, particularly in the from Nolans by the end of this decade and is

earths market and the nation has moved magnetic metals neodymium and praseo- working on a feasibility study it hopes to re-

swiftly to ensure it retains a stranglehold on dymium. lease later this year.

the niche industry by implementing a new re- Neodymium and praseodymium are the The Perth-based company was last month

source tax for rare earths. two feature metals Arafura is looking to mine issued with the terms of reference for the pro-

This change, which will see China’s focus at its Nolans rare earths project, about 135km ject’s environmental impact statement and

shift from export control to production con- north of Alice Springs in the Northern Terri- remains on track to receive all of the neces-

trol, coupled with new emissions targets on tory. sary regulatory approvals during the first half

rare earths processing, is tipped to result in a Arafura managing director Gavin Lockyer of 2016.

PAGE 44 JULY 2015 AUSTRALIA’S PAYDIRT

Initial economics for No- feasibility study, they’re con-

lans suggest the project can fident they will get the prod-

support a 20,000 tpa opera- uct at the end of the day and

tion over a mine life of at least the regulatory bodies in their

40 years for a total capital respective jurisdictions are

cost of $1.4 billion, including comfortable that we’ve done

contingency. things the right way.

Other key metrics include “Hopefully that cuts down

an IRR of 21.4%, NPV of some of the due diligence

$2.05 billion and payback time the funders require at the

during the fifth year of opera- back-end so that when we are

tions. ready to push to the button,

Arafura has spent the best we’ll have off-take in place, all

part of the last three years op- the technical feasibility done

timising its flowsheet in a bid and the funding should be a

to drive down costs and re- matter of course.”

cently had a win in success- Lockyer, who has worked

fully reducing the project’s for Arafura for 10 years, said

proposed operating costs by Arafura’s Nolans rare earths project in the Northern Territory has become an convincing financiers to dip

7.4% to $US11.22/kg. asset of interest given some of the recent policy changes in China into their pockets for a rare

“We believe that is in the earths project was still diffi-

lower quartile of producers, but we’re striving With a market cap of less than $25 million cult, but he remained hopeful sentiment would

to do a bit better than that if we can,” Lockyer at the time of print, Arafura knows the chal- soon change.

said. lenge of securing funds to develop Nolans will “I think our industry – outside of China –

Since listing on the ASX in 2003, Arafura be an uphill battle and has started looking into hasn’t really helped itself in terms of getting

has spent about $15 million on exploration different financing strategies. runs on the board to this point in time and until

programmes and another $150 million on “What we’re looking to do is have an off- we do that it’s always going to perhaps ring

R&D processing work at laboratories in West- take arrangement in place that comes with alarm bells to investors,” Lockyer said.

ern Australia and at ANSTO in Sydney. some form of export credit funding or debt “And for that reason, we hope Lynas [Corp

The company received a $3.4 million tax re- funding from the country in which that product Ltd] and Molycorp [Inc] both get up and run-

bate last month, taking the total cash receipts is going,” Lockyer said. ning because it will prove to a lot of people out

from the Australian Government refund pro- “That’s the structure we’re currently work- there that the western world can do it.”

gramme past $30 million and lifting the com- ing on as these organisations are growing in – Michael Washbourne
pany’s total reserves to $17.1 million. confidence with us as we work through our

AUSTRALIA’S PAYDIRT JULY 2015 PAGE 45

DIGGERS & DEALERS PREVIEW

Valence rejigs graphite strategy

Valence Industries Ltd has heeded to Valence has revised its production strategy for advanced graphite products on the back of
unprecedented customer demand and increased customer demand over the last five months
revised its strategy for advanced graphite
products from the historic Uley mine in South ity until we’ve got our existing production up and we only see that number going up,” Darby
Australia. and running and humming along nicely and said.
we’ve got all the detailed engineering design
A feasibility study released earlier this packages completed and the timetable for “We haven’t factored into that analysis the
year forecast a 95/5 production split between construction completed for the expansion recent metallurgical results, which shows a
standard and refined graphite products when programme. higher level spread of product, we haven’t
a proposed advanced manufacturing facility factored in the 60/40 split between our tradi-
becomes operational. “It’s a very clear programme and what it tional and high purity products and we haven’t
does give us is not only great confidence in factored in the remaining 65% of drilling that
But customer feedback and market analysis our capability to expand in that way, but it’s we’re still doing [for further reserve and re-
of future graphite demand prompted Valence also illustrative of the typically low capital source upgrades], so there are a number of
to adjust the production split to 60/40 and intensive nature of what we’re doing. It’s not elements there which suggest our NPV is ulti-
strive to deliver higher volumes of advanced about volumes of production, but about trying mately going to be a lot higher.”
graphite production as early as next year. to get less volumes out for more per tonne.”
Valence recently added a European sales
Valence managing director Chris Darby Valence shareholders also contributed to a agency contract to its burgeoning portfolio of
said his company had no choice but to ac- recent $2.1 million placement and the compa- existing sales contracts and MoUs.
celerate its initial three-year strategy for ad- ny was expected to close a $9.4 million rights
vanced production. issue at the time of print. Both raisings are in- “We’re up to about 8,000 tpa in sales con-
dependent of the interim debt facility. tracts, we’ve got MoUs for another 37,000 tpa
“We identified that at a 5% volume we and now we’ve got this additional agency con-
would sell out within three months of sales of Early last month, the company released tract for another 20,000 tpa, so when you add
[advanced] production, while the level of de- some revised economics for the feasibil- all those together it’s more than the final pro-
mand from customers for a very stable and ity study based on a 43% increase to the duction capacity we’re aiming for,” Darby said.
sophisticated source of supply for these ad- reserves at Uley. This resulted in a 38% in-
vanced graphite products was still very high,” crease in the project NPV to $US90 million, “It’s really a matter now of managing the ex-
Darby told Paydirt. a new IRR of 47% and a 60% lift in mine life pectations amongst those customer sets and
to 8.3 years. bringing on board even higher value custom-
“Having talked to our customers over the ers and proving up those qualifications that
last 18 months, but particularly in the last five “That NPV is more than double our current take slightly longer than the initial qualifica-
months, they would readily sign up contracts market cap [$48.5 million at the time of print] tions for refectories or foundries.”
for the traditional graphite but they would ask
when can they start signing contracts for the Chris Darby Valence’s stocks were trading near a 52-
advanced products because they really want- week low of 22c/share at the time of print hav-
ed some in their portfolios.” ing peaked at 87c/share last September, but
Darby said he was not concerned given what
Construction of an advanced manufactur- lies ahead for his company.
ing plant in Adelaide will begin as soon as a
suitable location is identified. Once the plant “What I am concerned about is that people
is in operation, graphite products of up to perhaps don’t understand exactly where we’re
99.95% purity will be manufactured to cus- going in terms of the acceleration of this pro-
tomer specification. gramme and the fact we might be four or five
months behind our production timeframe for
The advanced products are expected to lift a variety of combined reasons,” Darby said.
Valence’s average graphite sales price from
$US1,335/t to $US3,819/t, based on feasibil- “It’s still only been 18 months from when we
ity study estimates. listed and we’re about to be hitting full produc-
tion levels very soon. I think people are just
Valence has come a long way since listing waiting with baited breath for that to happen.”
on the ASX in January 2014, restarting opera-
tions at Uley, about 23km from Port Lincoln, – Michael Washbourne
late last year.

A busy June quarter saw the company se-
cure a two tranche $US75 million debt funding
package for existing operations and the Uley
expansion strategy to drive production up to
64,000 tpa over the next few years.

Valence has access to an early drawdown
of $US20 million provided under a binding
heads of agreement with Singapore-based
Chimaera Capital Management, which will be
repaid when the full $US75 million facility is
drawn.

“The reason we put in place the two tranch-
es was not to scare the market that we’re
suddenly going to borrow $US75 million, but
to show that these financiers don’t put their
hands in their pockets for very large amounts
of money and commit to having that available
unless they’re convinced of your business
plan and your ability to repay,” Darby said.

“We won’t draw upon the second facil-

PAGE 46 JULY 2015 AUSTRALIA’S PAYDIRT

Oakdale’s graphite vision verified

Oakdale Resources Ltd man- Oakdale is targeting a resource of 10mt @ 8% total graphitic carbon from its namesake project
aging director John Lynch on South Australia’s Eyre Peninsula
has a reason to smile following
preliminary exploration at the have a contract metallurgist who will super- A 1.5% net smelter royalty was cancelled
company’s Oakdale graphite vise that,” Lynch said. following a payment of $250,000 to Anglo
project on South Australia’s Eyre American.
Peninsula. “Then the plan is to close up our (aircore)
spacing to develop another 1-2mt of indicated – Rhys Dickinson
In an interview with Paydirt – potentially measured – material to develop
in May, Lynch exuded an air of a mine plan on. We think that given our loca-
confidence in the virginal project tion, our orebody, our
having only reviewed historical capacity to mine and
data and core from Oakdale’s process our material
days as a lead-zinc explorer in cheaply and by tar-
the area. geting about 70,000
tpa given the global
Such was Lynch’s faith in the graphite market is 1.1-
future of Oakdale that he openly 1.4 mtpa it means we
stated a target resource of 10mt want 3% of that market
@ plus-8% total graphitic carbon going forward.”
(TGC).
Lynch said future
While many likely raised their exploration would fo-
eyebrows at Lynch’s statements cus on the relatively
the fact of the matter is outsiders untouched southern
just didn’t know the ground as areas of Oakdale’s
well as Lynch – and that’s been proven in the tenement.
company’s latest exploration results.
“I also want to tar-
A maiden 113 hole aircore drilling campaign get some of the higher
netted wide intersections of graphite bearing grade zones and de-
saprolite (oxidised) clay rich units over 1.4km velop an indicated or
with line spacing of 100m x 200m at a hole measured resource
spacing of 25m on each line. based on them and
then we can start put-
Standout individual intersects included ting some economics
24m @ 7.77% TGC from 35m, including 12m around that,” he said.
@ 11.38% TGC, 39m @ 4.15% TGC, includ-
ing 4m @ 10.38% TGC and 20m @ 5.77% Oakdale also re-
TGC, including 8m @ 8.69% TGC. cently announced
the finalisation of an
Follow up aircore drilling at Oakdale inter- agreement with Anglo
sected in excess of 2km continuous graphite American Explora-
mineralisation in four lenses joined, in part, by tion Pty Ltd which en-
folding. sures the company’s
entitlement to 100%
The lenses defined were up to 275m wide of all revenue gener-
and averaged about 100m wide over the ated from future sales
length of the identified system. of graphite produced
from its Eyre Penin-
The thickness of the soft saprolitic graphite sula tenements.
bearing clays was 18.9m.

Lynch said the continuity, width and thick-
ness of the saprolite was a huge plus for Oak-
dale.

“Given the composition of the soft, graphite
bearing saprolitic clays and based on the pre-
viously completed metallurgical testwork car-
ried out by ALS/AMMTEC laboratories [which
revealed 60% of Oakdale’s graphite was high
value flake] the graphite should be able to be
readily washed clean with little or no crush-
ing,” Lynch said.

“This will significantly reduce the capital
and power costs of recovering the graphite
while protecting the flake graphite.”

As a result of its findings, Oakdale will focus
solely on near-surface saprolite exploration
for the remainder of the year, Lynch said.

At the time of print the company had initi-
ated a four hole diamond drilling programme
to recover in situ samples for metallurgical
testing.

“We’ve negotiated with Bureau Veritas in
Adelaide to undertake the metallurgy and we

AUSTRALIA’S PAYDIRT JULY 2015 PAGE 47

DIGGERS & DEALERS PREVIEW

Doray fine tunes Deflector

Reeling in some of Mutiny Gold Ltd’s “ag- Kelly said engineering evaluation work was
gressive and risky” assumptions on the under way to assess the potential for small

Deflector gold project was the key to getting scale open pit mining at Suzie.

the asset green lit for development, according “It’s only small, in the range of 5,000oz, but

to Allan Kelly. the impact that might have on the cash flow,

The Doray Minerals Ltd managing director especially when we are looking to fund De-

told Paydirt the company’s board only ap- flector, is nice,” Kelly said.

proved Deflector for development following a “We will probably start mining it before we

thorough review of the project. finish Wilber Stage 2. If we can keep the un-

Kelly said the board’s greatest point of derground going and continue finding these

contention with Mutiny’s numbers was the little high grade open pits that we can add to

estimated capex for Deflector, which Doray the mix, they will have a nice impact on our

increased from $68 million to $88.2 million operation.”

after its review. Kelly said a change of mining method at

Given Doray hope to be in production this Andy Well focusing on development first and

time next year, Kelly said it was unrealistic to production second helped Doray meet both

follow Mutiny’s model, which only allowed a mining and opex guidance last quarter.

month of mining the open pit before the pro- Allan Kelly Development of sufficient levels for stoping

cessing plant was switched on. ahead of schedule allowed for maximum flex-

Due to Deflector’s copper credits and a To increase the size of the mill up front is noth- ibility, which suited Doray’s newly implement-

plant designed to take mostly fresh ore, which ing in the scheme of things, but the flexibility it ed Avoca method of ground control.

made up almost 90% of the project’s orebody, gives you down the track, as we’ve shown at Now with 18 months of mining under its belt

the mill would require a mixture of oxide, tran- Andy Well, makes a big difference.” at Andy Well, Doray has developed a shear

sitional and fresh ore. At Andy Well, Doray celebrated the start of model which, with the Avoca mining method,

Kelly said it was impossible to put that mining at its Wilber lode Stage 2 open pit in is used as the standard to suit the ground con-

blend together in a month. February, with a maiden resource of 468,000t ditions.

“We thought Mutiny’s approach was too @ 8.1 g/t for 123,000oz gold announced at its By the end of last quarter, approximately

risky,” Kelly said. burgeoning Suzie zone. 70% of Andy Well’s stoped ore was extracted

“So we intend to start mining the using the method, with a full transi-

open pit fourth months ahead of the tion expected to be completed by the

opening of the plant. The main dif- start of this month.

ference is [Mutiny] had $4 million Kelly said Doray was also reaping

assigned to the open pit, and we’ve the rewards of systematic plant de-

got $12 million. The cost of the bottlenecking.

open pit hasn’t changed; it’s just the Andy Well’s 20 tph plant was con-

amount that is pre-production. It’s sistently operating at 40 tph, accord-

the amount capitalised versus the ing to the managing director, who

amount expensed.” said there was still room for improve-

Doray also factored in its expe- ment at the facility.

rience with unplanned dilution at “In the original BFS the recoveries

Andy Well while summing up Deflec- we were getting were 98-99% total

tor’s numbers. recovery of the gold,” Kelly said.

Kelly said Mutiny hadn’t planned “Running it so fast you sacrifice

for any unexpected dilution, so that a little bit, but we’re still recover-

Doray effectively added tonnes of ing around 97%, but for an 8-10 g/t

dilution to Deflector, which in turn orebody that has a big impact. If we

reduced its overall grade. could increase the throughput some-

In an effort to get the same how that would have a significant

amount of ounces from the project, impact.”

Doray upped Deflector’s throughput At the time of print Doray capped

numbers in the review. off its maiden drilling campaign at its

“Mutiny had 380,000 tpa, where- Gnaweeda JV, just 10km from Andy

as we increased it to 454,000 tpa,” Well.

Kelly said. An eight hole RC programme at

“As a result of that there was a Turnberry returned standout hits of

slight increase to the capital for the 1m @ 37.2 g/t gold from 75m, 5m @

plant, roughly $1 million, and the all 17.4 g/t gold from 71m, including 1m

in sustaining costs increased. Mu- @ 79.8 g/t gold and 4m @ 17.9 g/t

tiny planned for an AISC of $720/oz, gold from 45m, including 1m @ 63.3

and we always thought that was a g/t gold.

bit low. We thought it was closer to The company planned to follow up

$800/oz, and we arrived at a $787/ the results with RC drilling and ex-

oz average for the life of mine. We’ve ploration field work in the September

built in that dilution and if we do bet- quarter.

ter than that we will have increased Doray’s maiden drilling campaign at the Gnaweeda JV returned a – Rhys Dickinson
capacity. We are just using our ex-

perience … to get the best outcome. standout intercept of 5m @ 17.4 g/t gold, including 1m @ 79.8 g/t gold

PAGE 48 JULY 2015 AUSTRALIA’S PAYDIRT

Good signs from Rox’s raising

Depressed nickel prices or not, Rox Re- “We’ve been staging the purchase and with of reserves on them. Fifteen years later they
sources Ltd was still able to extend its re- this capital raising we can move to 100% own- are still operating and still have three years of
cent capital raising to give shareholders more ership in the next month or so,” Mulholland reserves.
of what they wanted, in the process surprising said in June.
even managing director Ian Mulholland. “With these types of nickel sulphide depos-
With that, Rox can step up its development its, it makes no sense to drill out the entire
“We were pleasantly surprised by the level work at Fisher East. system, it is much more effective to keeping
of demand,” Mulholland said of the recent adding reserves incrementally. Fisher East
capital raising. “Our primary goal is to get into production will be similar.”
with what we have got. Securing a toll-milling
Rox closed the share purchase plan on agreement is vital because that is by far the The recent capital raising came despite
June 9, raising $3.2 million in the over-sub- best option for this project and we will be do- nickel prices falling to seven-year lows, but
scribed issue. The company subsequently ing a lot of technical work – mine planning, etc Mulholland said shareholders had voted with
chose to complete a top-up placement of – over the next few months to put ourselves in their chequebooks as to where they thought
$700,000 on the same terms as the original the right position,” Mulholland said. the stainless steel ingredient was heading.
placement at 2c/share.
“Hopefully, within six months we will have “Everyone feels things are going to start
Mulholland said shareholder enthusiasm toll-milling agreement.” happening in the nickel, it’s just no one knows
for the plan highlighted the confidence share- when. But if you do have a positive forward
holders had in the company’s plans. Mulholland said once production was view of the nickel price, and lots of our share-
achieved, the company could focus on ex- holders obviously do, then you need to posi-
“We have had really good backing for the panding the project. tion yourself to catch the up cycle.”
last couple of years now,” he said. “Share-
holders like what we are doing, they can see “There is still a lot of potential on Fisher For Mulholland, Fisher East offers investors
the project has got legs and will work at a vi- East but once you get over that hurdle of pro- the chance to do just that.
able nickel price.” duction it is much easier to keep everything
running.” “In the current nickel price environment, we
The project Mulholland refers to is the would be in the same boat as the established
Fisher East nickel project, 500km north of For an expansion model, Mulholland be- producers who aren’t making a lot of money.
Kalgoorlie. Rox will use proceeds from the lieves Rox would do well to look to other nickel However, it is about getting all the work done
capital raising to complete the purchase of operations further south. now so when the price does turn, we are ready
Fisher East for which it has produced a posi- to catch it and start making a lot of money.”
tive scoping study built on resources of 3.6mt “Look at the likes of Independence [Group
@ 2% nickel. NL] and Mincor [Resources NL],” he said. – Dominic Piper
“When they acquired those Kambalda assets
in the early 2000s they only had three years

AUSTRALIA’S PAYDIRT JULY 2015 PAGE 49

DIGGERS & DEALERS PREVIEW

KBL keeps moving
at Mineral Hill

KBL Mining Ltd has moved drilling Jacks Hut and we are
on from the corporate is- moving onto drilling Pearse

sues which hampered the North,” Wesson said.

company late last year. “At the moment we only

KBL’s largest shareholder have a year of surface mak-

– Kidman Resources Ltd – ini- ing good cash out of Pearse

tiated a board spill in Novem- and then we go back into the

ber 2014 after a debt dispute underground which will make

over $12.6 million ended up good money. We are look-

in the Supreme Court of New ing at giving ourselves a bit

South Wales. longer [mining at surface] and

Kidman’s attempts to re- drilling underground to make

move the KBL board and ac- sure we have it set up better,

quire the company’s assets, so when we do go back [un-

including the flagship Mineral derground] we are dead sure

Hill project in NSW, eventually we are making cash. We are

fell through as KBL courted drilling at surface and if we

US-company Quintana Miner- can stay at surface for the

als Corp in a metals purchase next two years that gives us

agreement. The new operating team at Mineral Hill has extensive underground mining experience a very good, robust plan and

In March, Quintana came then we can go into the under-

forward with $US23 million for KBL to repay in November to process gold-silver from the ground when we are ready.”

its debt and progress work at Mineral Hill 298,000t @ 6.5 g/t gold and 80 g/t silver de- KBL has strengthened the operational

where development of the Pearse gold de- posit at Pearse, 800m from the existing Min- team on site by adding experienced under-

posit is under way. eral Hill processing plant. ground people to ensure it has the necessary

The Kidman case was an un- KBL expects to extract capabilities on hand to execute underground

wanted distraction however KBL 35-40,000oz gold and 280- mining efficiently.

managing director Brian Wesson 290,000oz silver from Pearse Bedding down operations at Mineral Hill is

told Paydirt that production from at a rate of 30,000 tpm at total critical to the company’s long-term ambitions.

the Pearse open cut would start costs of about $45-50/t. In addition to Mineral Hill, in NSW’s Cobar

in August. Net cash from Pearse has Basin, the company is advancing its Sorby

“It hasn’t affected our resolve been estimated at $15 million a Hills silver-lead-zinc project through the final

with the project,” Wesson said of year, while the addition of a zinc approvals process in Western Australia.

the court proceedings. processing circuit is expected to Environmental approval has been granted

“We refinanced in November deliver KBL another $7 million for Sorby Hills, 50km north of Kununurra,

and re-rolled the debt. We had to per annum. which is one of the largest undeveloped silver-

fight them and beat them in court. Based on current modelling, lead-zinc projects in the world.

What it [the court action] did do KBL only has one year of pro- KBL’s 25% JV partner at Sorby Hills –

was the 60 people on site were Brian Wesson duction scheduled at Pearse 16.5mt @ 4.7% lead, 0.7% zinc and 53 g/t sil-
reading about us being insolvent however, Wesson is confident ver – is China’s Henan Yuguang Gold & Lead

and the effect it might have on exploration drilling can expand Co. Ltd (Yuguang).

their jobs. The spirit on site was dismal at one open pit potential at Mineral Hill. “At one stage KBL was looking at selling it

stage because of the press attention, which “We have had a surface rig running around a few years ago which is crazy,” Wesson said.

had an impact on productivity. the plant. We have put a few holes into the “I think we are showing that we are going to

“There are only two people [left] on site edge of the Pearse pit and now we are busy turn around the underground mine [at Mineral

from 12 months ago. It’s not that anyone left; Hill] and make it work. We have good support

it’s a change of management and a reflection from Quintana and they are now big share-

of how we have changed as a company. For holders. We are reworking the data on Sorby

us we were in survival mode before, now it is at the moment and have been to China to

about making cash,” Wesson said. speak with Yuguang and they are happy to put

Production from Mineral Hill has predomi- their 25% in. We are looking at cleaning that

nantly been copper-gold concentrates, with up and moving ahead, no one from Mineral

the introduction of silver-lead concentrate Hill will be involved with it because our focus

production two years ago. has to be making cash at Mineral Hill and that

The company’s most recent focus has been will come next year.”

on the Southern ore zone (SOZ) underground A PFS released in 2014 estimated an initial

target where resources stand at 1.98mt @ 400,000 tpa for 20,000 tpa lead and 710,000

1.2% copper, 1.4% lead, 1.1% zinc, 1.8 g/t ozpa silver concentrate project would cost

gold and 19 g/t silver. about $70 million at Sorby Hills.

Lead-zinc-copper is currently being mined, – Mark Andrews

while a CIL plant is installed. KBL has recovered from corporate issues and is now

The CIL plant is expected to come online focused on producing gold from the Pearse open cut

PAGE 50 JULY 2015 AUSTRALIA’S PAYDIRT