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July 2016 VOLUME 1. ISSUE 240 $11.95

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Mood enhancer:

How lithium gave resources a lift

• Diggers & Dealers preview
• Latin America Down Under review

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CONTENTS

PAYDIRT (ISSN 1445-3436) 11 NEWS 18
Published by June saw a rarity for the Australian 28
Paydirt Media Pty Ltd. resources sector this year; a new listing
A.C.N. 063 985 133 on the ASX. Graphex Mining Ltd was the
new arrival, having been spun out of IMX
Head Office: Resources Ltd a few months ago. Michael
Suite 9, 1297 Hay St, West Perth Washbourne spoke to Graphex managing
Western Australia 6005 director Phil Hoskins about the success
P.O. Box 1589, West Perth of the IPO and the company’s plans for its
Western Australia 6872 Chilalo graphite project
Phone: (+61 8) 9321 0355
Facsimile: (+61 8) 9321 0426 18 COVER
[email protected] Lithium has been the buzz commodity of
www.paydirt.com.au the last nine months as juniors across the
world dash to take advantage of prices ris-
Editorial: ing on the back of the electric vehicle and
Editor: Dominic Piper home power storage revolution. Paydirt
Deputy editor: Mark Andrews investigates how real the lithium boom
Journalist: Michael Washbourne is, whether it will last and who the major
Graphics: Marian Noonan Australian players are in a special 10-page
Contributors: report
Keith Goode (Sydney), Brendan Ryan
(Johannesburg), Ross Louthean 28 DIGGERS PREVIEW
The Goldfields Art Centre hosts Australia’s
Advertising: largest resources conference, Diggers &
Advertising manager: Tony Mwarey Dealers, from August 1. Paydirt provides
Subscriptions: Mitchelle Matambo the forum’s largest preview with more than
Phone: (+61 8) 9321 0355 50 pages dedicated to the stories, compa-
Facsimile: (+61 8) 9321 0426 nies and people who will be the focus of
attention in Kalgoorlie
Pre-press and printing:
Vanguard Press 26 John St, 76 LATIN AMERICA
Northbridge WA 6003
Member of: REVIEW

Paydirt Media Latin America Down Under was held in
Executive chairman: Bill Repard Perth for the first time in May. Over two
Finance manager: Giovanny Jefferson days, nearly 300 delegates debated the fu-
Accounts/administration: ture of Australian investment in the region.
Heather Melling Among our coverage are in-depth reviews
Conferences: Tammy Caldwell, of the five Latin American countries repre-
Melita Fogarty sented and the Australian juniors building
their asset base in the region

102 REGIONAL ROUND-UP
This month’s look at Australian globetrot-
ters takes us to Myanmar, Greenland,
Sweden, Portugal and Ethiopia where
Harry Anagnostaras-Adams’ Kefi Minerals
plc took another step towards the start of
production at its Tulu Kapi gold project

Cover image: Pilbara Minerals 76
managing director Ken Brinsden has
placed his company at the head of
the emerging Australian lithium pack

Member of:
Australia-Africa Minerals & Energy Group

Registered by Australia Post PP 643938/0071.
No pages or articles in this publication may be
reproduced in any form without the consent of
the publisher. This includes photographs either
taken by Paydirt Media staff or provided by other
parties

EDITORIAL

Enjoying a game of
follow the leader

As momentum builds in the resources to make their shareholders a sustainable return.
sector recovery, the preferred vehicle So, what hope for those companies not in gold and resisting
for investors is becoming clearer; solid the rush to lithium? As this edition of Paydirt hopefully demon-

structure, simple strategy and strong strates, it is those companies with a simple structure and strong

management but it is two quite differ- management which are enjoying greatest support.

ent commodities attracting the most Both Western Areas Ltd managing director Dan Lougher and

attention. his Sandfire Resources NL counterpart Karl Simich allude to this

The last three months have seen during interviews in this edition.

momentum gathering among ASX-listed junior mining stocks. Western Areas has endured a torrid price for nickel in recent

Commodity prices haven’t bolted – indeed nickel remains times but has kept its head while all around it have lost theirs

pinned around 14-year lows – but junior companies are begin- thanks to a strict capital discipline strategy and an ability to ex-

ning to see sustained support. tract operating cost savings out of an already tightly run under-

Gold and lithium stories have led the way but for contrasting ground mine.

reasons. In gold, investor interest was initially sparked by the “Investors are looking for debt free companies which can sus-

larger domestic gold miners over 18 months ago. However, as tain themselves in a low-price environment and give them a tick

Northern Star Resources Ltd and Evolution Mining Ltd became up when the nickel price turns,” Lougher says on page 29.

fully priced over the course of 2015, shareholders who had tak- Simich, who has built a reputation as one of the mining sec-

en profits began to reinvest in smaller stocks. This process was tor’s most colourful executives, offers similar sentiment when

repeated in the early part of this year as the smaller Australian discussing Sandfire’s recent performance.

gold miners continued to deliver strong returns thanks to the “We are doing precisely what we said we’d do regards pro-

prevailing Australian gold price tail wind. duction, throughput, underground mining rates, metallurgy and

Now that money is beginning to trickle into development and cost structures,” he told me. The days of excitable promises are
“exploration plays, as MineLife analyst Gavin Wendt explains in behind Sandfire. The company is banking on solid performance
this edition. to deliver it shareholder support.

“As the Australian gold price has In these circumstances, Outgoing Iluka Resources Ltd
taken off we have seen a trickle chief executive David Robb rails

down to those juniors with devel- the personality of the against the cult of the “celebrity
opments and even those explorers executive is intrinsically and CEO” in his interview on page 14-
with resources because investors 15. Robb is largely correct; compa-

are looking for the next opportunity. unavoidably linked with the nies are built on successful teams,
And, when exploration stories start not colourful CEOs. But, in the cur-

moving, it gives confidence to the DNA of the company. rent junior resources world, where
entire market,” Wendt said. companies are run on a shoestring

Gold’s popularity is straightfor- budget, chief executives and man-

ward and most often answers the calls for simple strategy. A aging directors often are the team; playing exploration manager,

consistently strong Australian dollar gold price has been a ma- financial officer, business development manager, marketing

jor catalyst but more than that, it is a known commodity, one chief and investor relations executive all at the same time.

which seasoned investors are extremely familiar with. There In these circumstances, the personality of the executive is in-

are boundless companies in which to invest, endless research trinsically and unavoidably linked with the DNA of the company.

which to study and a clearly identifiable spot market to follow. In many cases, and particularly in the current market, inves-

Gold projects themselves, save a few exceptions, are also rel- tors are backing those managements teams which have deliv-

atively easy to understand. Geology, mining and processing are ered before and that is why we see the likes of Mark Bennett,

all well understood, with a few methods dominating the sector. Rohan Williams, Ken Brinsden and Julian Hanna enjoying suc-

Gold is also a hedge in uncertain times – such as around cess at the moment.

Brexit, Trump and whatever Putin is up to – and, when discuss- This support for previously successful management teams

ing domestic companies, against a falling Australian dollar. may not be applicable to other sectors but in resources it is una-

In contrast, lithium’s attraction is built on a lack of fundamen- voidable. Indeed, the industry is built on stories, myths and an-

tals. The recent spike in interest has been generated by recent ecdotes about these “celebrity CEOs”. That is why we commit

growth in the electric vehicle market. However, with its opaque so much of our coverage this month to the personalities at the

pricing structure and uncertain future demand projections, lithi- front of the companies. Without them, the industry and Diggers

um’s future status is still largely unknown. But, shareholders are & Dealers in particular would be far less colourful and far less

encouraged to fill in the blanks with their own blue sky dreams. enjoyable.

It is surely apparent to everyone that not every lithium story

will be a success; just as was the case in iron ore, uranium,

rare earths and graphite before. However, it is currently support-

ing companies which would otherwise have collapsed, keeping

them going in the hope they will eventually find the opportunity

[email protected] @DominicPiper

PAGE 4 JULY 2016 AUSTRALIA’S PAYDIRT

NEWS

African players back in the game

Teranga Gold Corp’s takeover bid for Mod Resources – led by Julian Hanna “It is definitely achievable for Botswana
Gryphon Minerals Ltd is the clearest (right) – is part of a growing group of African to become a low-cost copper producer
indication yet that investor interest has despite a few false starts,” the former
switched back onto African resources explorers gathering market support Western Areas Ltd managing director
stories. said. “We had success within one month
ries in May when it raised $16.2 million of starting drilling at the T3 prospect and
The hottest exploration destination in for work on its Nyanzaga gold project in we believe the entire area is misunder-
the world seven years ago, Africa fell out Tanzania. stood and poorly explored.”
of favour during the downturn with inves-
tors losing their appetite for heightened The East African nation is also playing Challenges remain, however, with Af-
geopolitical risk and the continent’s ma- its part in the ASX graphite rush. Kibaran rica’s lack of infrastructure continuing to
jor commodities – gold, copper, iron ore Resources Ltd (up 85%) and Magnis prove a major impediment to fulfilling the
and coal – all experiencing major price Resources Ltd (up 145%) have both re- continent’s resources potential. Accord-
falls. corded strong share price performance ing to the World Bank, Africa’s $US45
since the turn of the year thanks to posi- billion infrastructure gap is locking up 2%
According to S&P Global Market Intel- tive momentum on their graphite projects annual GDP growth in Sub-Saharan Af-
ligence data, Africa’s share of global ex- in Tanzania. rica.
ploration expenditure fell from more than
16% in 2012 to less than 14% in 2015. In Meanwhile, to the south, Syrah Re- Botswana is a prime example of Af-
the same period, Latin America’s share sources Ltd continues to be the graphite rica’s infrastructure gap. The Botswana
increased from 25% to 27%. market leader with its market cap ex- Government is keen to diversify the
ceeding $1 billion (part of a 62% increase economy away from its reliance on dia-
However, the first half of 2016 has this year) after it announced several new monds but despite being widely acknowl-
seen investors return to stories on the off-take agreements for its 800,000 tpa edged as the continent’s most stable and
continent and ASX-listed companies are Balama graphite project in Mozambique. investment-friendly jurisdiction, its lack of
feeling the benefits across the commod- power and transport options has meant
ity spectrum, with Teranga’s $86 million Africa has also provided 2016’s only its massive coal reserves remain unex-
offer for Gryphon the latest evidence. new resources listings to date with Soon ploited.
Mining Ltd (March) and Graphex Mining
The bid by TSX-listed Teranga – which Ltd (June), joining the bourse. Graphex ASX-listed African Energy Resources
comprises a mix of common shares and was spun out of IMX Resources Ltd and Ltd controls more than 8bt of coal re-
ASX-listed CDIs – values Gryphon at hit an intraday high of 38c on its first day sources in the landlocked country but
20.6c/share, a 45% premium to the ASX of trading after it raised $7 million at 20c managing director Frazer Tabeart sees
junior’s 40-day VWAP and 53% higher in its IPO. those reserves being used to make Bot-
than its latest closing price. Investors swana a major power provider to the
reacted positively to the news, sending Elsewhere, Julian Hanna’s Mod Re- region rather than international coal ex-
Gryphon shares up 22% following the sources Ltd has enjoyed a 283% share porter.
announcement. price increase thanks to encouraging ex-
ploration results from the T3 prospect on “Exporting coal out of Botswana is im-
That price appreciation is part of a wid- its Botswana copper project. possible in the current climate and very
er trend for ASX-listed companies with challenging in the long term,” Tabeart
African assets and it is the larger compa- Hanna told Paydirt his company’s told Paydirt. “But there is an obvious op-
nies which have seen most benefit. success was evidence of the opportunity portunity right now if you have got a coal
that still exists on the African continent. project to become an independent power
After a torrid 2015, Base Resources provider to the entire Southern African
Ltd has enjoyed a strong rebound this region.”
year, thanks in the main to an improving
mineral sands market. The mineral sands The South African Government re-
miner – which became the first company cently announced plans to find 3,750MW
to open a commercial mine in Kenya last of power from cross-border independent
year – has seen its share price rise 182% power providers. Tabeart believes Bot-
since the turn of the year. swana, and African Energy itself, is in the
“box seat” to provide the majority of that.
The ASX’s two largest African gold
plays – Resolute Mining Ltd and Perseus “The reality is, the situation is looking
Mining Ltd – have enjoyed 358% and better than ever for Botswana,” he said.
73% increases respectively while West “If Botswana could win half of South Af-
African Resources Ltd – which continues rica’s requirements, that is $US6 billion
to have great success at its Tanlouka of investment into the country and poten-
gold project in Burkina Faso – raised tially a whole new industry opening up.”
$12.5 million itself in April. Even smaller
players such as Azumah Resources Ltd – Dominic Piper
($2 million) and Burey Gold Ltd ($3.5 mil-
lion) have been able to return to capital Find out more on Botswana’s infra-
raisings for the first time in several years. structure challenge and a full preview of
the annual Africa Down Under confer-
Craig Williams-chaired explorer ence in the August edition of Paydirt
OreCorp Ltd also highlighted the im-
proved market appetite for African sto-

AUSTRALIA’S PAYDIRT JULY 2016 PAGE 5

GOODE NEWS

Lithium and gold steal the show

The theme of conferences and the be- ble in that commodity, when a new IPO million in China or possibly $300 million
haviour of stocks so far this year has (since listed) stated in its presentation in Australia. Hence treatment from con-
clearly been focused on gold and lithium. that aeromag results had identified about centrates to carbonates is expected to be
While it was still doom and gloom in Janu- 12km of strike length of greenstone near outside of Australia.
ary, the revival of the gold price and its Pilgangoora.
reluctance to fall below $US1,050/oz To convert lithium carbonates to con-
(as predicted at the Tianjin conference Its proximity to Pilgangoora meant it centrates requires an eight time conver-
in October 2015) caused many specula- had to contain pegmatites and therefore sion rate (or divide the concentrates by
tors to realise that gold was not going to lithium, so the company has a resource eight to get to LCE), although some com-
meet many expectations of a fall through already. The lithium bubble was forming panies expect that a seven time conver-
$US1,000/oz to $US800/oz. and has since continued almost unabat- sion can be achieved. The HPAL process
ed, with the number of lithium-exposed does not appear to be straightforward as
I had written these comments in a re- stocks on the ASX at 60 and counting. Galaxy Resources Ltd can attest when
cent Paydirt column but many refused it was commissioning its Jiangsu conver-
to believe it. China had stated that it ex- The money has flowed in 2016 Beadell sion plant (now owned by another com-
pected the gold price in the coming year Resources Ltd raised $50 million in Feb- pany) in China in November 2012. There
to range from $US1,100/oz to $US1,400/ ruary with the sponsoring broker com- was an explosion, injuries and loss of life.
oz, however, $US1,050 was also viewed menting it had had received offers three
as $US1,100/oz. times that amount in the first hour. This The fact that Pilbara had commis-
was followed soon after by Pilbara Miner- sioned the nearby Tabba Tabba tanta-
I firmly think China put its foot in the als Ltd, which raised $100 million in April lum project and it wasn’t working was
door at $US1,050/oz, because they want and followed up with a SPP raising up to ignored, reputedly because it has noth-
the gold, and as they stated in Tianjin, at another $15 million at 38c (Pilbara was ing to do with the Pilgangoora orebody,
a gold price of $US1,100/oz, about 30% trading at 68c/share and post-raising which is clearly world-class.
of its gold mines are uneconomic, and peaked at around 87c, in May).
at $US1,000/oz, about 50% are uneco- The growth projections for lithium de-
nomic. It is simply about economics. At 87c/share and 1.14 billion shares, mand are impressive and have fanned
Pilbara almost achieved a market cap of the flames, somewhat resembling those
China had also banned shorting gold in $1 billion and that’s without even com- historical ones of the uranium demand
2015, but the shorting of other commodi- pleting the DFS. boom and higher uranium prices that are
ties was allowed because it benefits the still coming.
construction industry and China’s econo- Having paid ostensibly by May 6, the
my, and still facilitates the acquisition of SPP applicants ($50.7 million for the $15 Money continued to be raised in the
resources throughout the world. million available) had to wait until May 26 early part of 2016, with Gold Road Re-
for their allocation, only to discover that sources Ltd banking $74 million by way of
Forecasts made at the China Mining if they had reduced their holdings to less a placement in April and a 1-for-10 equity
Conference, Tianjin, in October, that iron than 5,000 shares, as at May 20, their raising at 44c/share (currently 62c at the
ore prices would dip at year end before a SPP application had been cancelled due time of print), to complete its DFS by the
shallow recovery still hold true, with base to disloyalty, with the other applicants re- end of 2016 and order long-lead items.
metals to remain flat during 2016. ceiving almost 40% of their application.
It is the first time I have seen a disloyalty At the RIU conference in Sydney in
Will base metals prices pick up in provision, but perhaps it could become May, Stewart MacDonald of Vertical
2017 as Europe and the US recover as the norm. After all, often there is share Events prophetically quipped in his open-
expected, but then realise China con- price weakness due to SPP applicants ing remarks that the lithium-battery pow-
trols the stockpiles and many of the selling their shares, especially if they ered train was leaving the station, and
world’s resources? We shall have to see. can replace the shares at lower prices some of the instant stock movements
Whether that results in two markets; a or score a quick potential or actual profit. based on presentations during the con-
China-priced market (mined by China ference were simply astounding.
and treated by China), and the rest of the The raise was to accelerate drilling,
world that need product also remains to complete the DFS by August 2016 and Pioneer Resources Ltd gave a mostly
be seen. order long-lead items. The PFS in March lithium-based presentation on prospect
2016 outlined a 2 mtpa plant producing potential in Australia and Canada on May
Quite surprisingly, one reads or sees 330,000 tpa of 6% lithium concentrate 12, and within two hours its stock had
very little (if anything) presented at con- from a capex of about $184 million (in- soared from 4.5c to 10.5c and back to
ferences on one belt, one road (OBOR) cluding a 15% contingency). Pegmatites 6.9c/share. The ASX suspended trading
despite its $US8 trillion infrastructure re- are hard and hence often require three to in Pioneer and issued a “speeding ticket”
quirement or China’s rebuild of Russia’s four stage crushing or HPGR, which ap- and the company had fallen back to 5c/
infrastructure, road and rail laterals and pears to be in Pilbara’s planning. share by mid-June.
verticals (same as China) and oil pipe-
lines. I suppose we will have to wait for Once lithium concentrate has been Silver City Minerals Ltd stated it was
what may come out at the next China produced, it is shipped to say China for going to explore for pegmatites that
Mining Conference in September. conversion in another plant into lithium could potentially contain lithium near
carbonate or LCE from which it can be Broken Hill. That caused its share price
Returning to February 2016, as gold used in batteries. to soar five times to 13c/share on May
prices started to improve, revelers at the 11 before closing at a respectable 7.6c/
RIU Explorers Conference were seeing The conversion process is high pres- share. Silver City escaped any speeding
green shoots of a recovery and a ses- sure acid leach (HPAL) with an autoclave fine that day.
sion on lithium had the makings of a bub- and a typical plant may cost up to $150
Whether it was the presentation slide

PAGE 6 JULY 2016 AUSTRALIA’S PAYDIRT

of 100sq km of outcrop- As Widdup high-
ping pegmatite in the an-
nouncement on May 11 lighted, the difference
or the subsequent pres-
entation on May 12 with between gambling and
known lithium minerals
(discovered in the area) investing is that “gam-
that provoked the frenzy
is not clear. However, Sil- blers know only one
ver City was able to raise
$1.3 million at the end of horse can win”. They
May in a placement and
SPP at 4.5c/share plus a gamble hoping they
free 1-for-2 option at 6.7c
within three years. have backed the win-

Exploration started ner, yet know from bit-
in early June on Sil-
ver City’s 100sq km of ter experience that
tenements, which are
expected to contain ex- they probably haven’t,
tensive zones of out-
cropping pegmatites whereas investors buy
that may contain spodumene and, hence
lithium, among the tin prospect areas. junior miners thinking

A new entrant to the conference scene that every horse will win
in May was Nicholas Read’s Resource
Rising Stars (RRS) on the Gold Coast. one day. It’s up to you to
Previously held in October, the confer-
ence has switched to May due to clashes decide when the race is
for some of its presenters, namely Aus-
tralian gold producers, being whisked over; letting a horse run
away by the annual Denver Gold show.
longer (usually) won’t
The free RRS conference is regarded
as one of the premier retail investor con- make it a winner.
ferences and this year attracted about
630 delegates with many high net-worth Gold and lithium stories have dominated much of the chatter Widdup cited two
individuals in attendance. At this confer- on the conference circuit this year definitions of success;
ence, the delegates are keen to invest, building a project which
unlike Diggers & Dealers where the
booth tends to be full of service provid- pressed by how he had handled dilution should make it become more valuable,
ers looking for a contract. Also during the
RRS conference you can see delegates underground. but that share price appreciation was
actively trading on their laptops or other
devices. The lithium fever also continued, with often completely unrelated to. Investing

It was commented that one of the one presenter stating they expected to in stocks requires a long-term view, but
draw-backs of Diggers was that it did not
provide one-on-one break out rooms for be granted some prospects 4km above you cannot set-and-forget for the miners
investors to speak individually with the
presenting companies. sea level in the Andes where the lithium especially have no control over the com-

Presentations by Northern Star Re- brines had already been mined, but the modity prices that they receive.
sources Ltd and Saracen Mineral Hold-
ings Ltd contained their growth aspira- lithium brine keeps bubbling up and Widdup identified five key areas for
tions and quite an amount of technical
detail, with the former keeping up with forming. considering investment in junior mining
the train theme seen at RIU Sydney, ex-
cept they had a “golden train”. The prospects were later granted, and stocks:

As some of the presenters comment- that company’s share price almost dou- • People and management: Attend
ed, the knowledge base of the audience
is very high, and no one worries about bled instantly. As for the new IPO – Lithi- AGMs and see how they behave. Deter-
asking questions in the open, packed-
out forum. And in booth, some questions um Power International Ltd – it had reput- mine if they are arrogant and try phon-
that have raised eyebrows were from
a 70-year old lady grilling Sandfire Re- edly received $40 million in applications ing their offices to gauge how interested
sources NL over her NPV model, or an-
other buying stock in one of Tony James’ within the first two days for the $7 million they are in speaking with you. Also sum
past companies because they were im-
available from May 24, but has since is- up the level of experience and “skin in the

sued a supplementary prospectus dated game” board and management have.

June 14 extending the closing date to • Portfolio: Ensure you have a good

June 14 and has received applications portfolio. What do you do if you run out

for only $8 million. Listing was expected of money? Things can go wrong, so it is

on June 24. wise not to have all your eggs in one bas-

In a sign of things to come, the RRS ket of listed investments. The good has to

conference was held at the RACV venue make more than the bad.

on the Gold Coast and outside the hotel • Valuation: Any analyst can manipu-

entrance, it had a battery-powered unit late a valuation to result in a higher target

plugged into a hybrid car as shown in the price, or justify the current share price.

image on this page. There was also a You need to ask the question why and

rack of bicycles – not yet lithium-battery focus more on market cap levels than

powered though. share price levels. Also what discount is

Apart from an interesting spread of being applied and why?

presentations covering economic and • Speculation: As in what are you

commodity price expectations and pan- speculating on – commodity prices, a

els, RRS had a pre-conference presen- major discovery, funding or a “tip from a

tation by Lion Selection Group’s Hedley mate”?

Widdup (with his Lion Selection invest- • Identify risk: Know when to exit.

ment clock stopped at 6 o’clock or “boom What could go wrong? Politics in Africa?

time”) on practical investing in junior min- The ability to sell the product? Whether

ing stocks from a fund manager’s view- the product be transported to market?

point.

Widdup remarked that when he makes

recommendations of stocks or positions

that may be purchased, he also has to

state what is going to cause him to sell/

review at a particular price level.

AUSTRALIA’S PAYDIRT JULY 2016 PAGE 7

OPINION

Achieving accurate valuation of
large capital projects

Structure decision Data management Quantitive analysis Decision making
“framing”

ITERATIVE LEARNING
Modify assumptions and analysis

An architecture for high quality capital decision-making

Imagine you are the investment analyst estimated and poorly understood when negative) returns for shareholders.
at a mining company. The newly ap- projects are sanctioned for a number of Having selected the best project for
pointed chief executive walks into your reasons:
office asking you to build the investment a company to pursue, critical invest-
case for a new project. It has been ex- • Behavioural biases ment analysis is required to ensure the
plored and is thought to contain signifi- • Inadequate front end planning be- planned commitment to the capital ex-
cant resources. fore project sanctioning penditure project is likely to provide the
• Underestimation of capital expendi- benefits anticipated, at an appropriate
The new chief executive gets the chair- ture and project timing risk.
man behind the project and you build a • Small biases in such matters as
shiny new financial model. You have commodity prices and demand projec- A better approach to quantitative anal-
some concerns: does the project align tions, which significantly improve the ap- ysis combines tools and techniques from
with the corporate strategy? Will the pearance of a project. the fields of decision analysis, corporate
Australian dollar move adversely during Good project owners spend more pre- finance and valuation, portfolio manage-
construction? Do we need to hedge rev- sanctioning than poor owners (3-5% of ment, data analytics and behavioural
enues? What will we do if reserves are the project cost) and achieve returns finance, to provide tailored insights and
significantly less than the P50 estimate? that are 13% higher. In addition, the pre- create a project structure to maximise
What if processing is more difficult than sanctioning investment made by good the chance of success:
anticipated? How good is the estimate of owners reduces the risk of cost over-
capital costs? Could environmental con- runs, enables project schedules to be • Tornado chart identifying and flexing
cerns/social issues impede our construc- achieved, enhances operability and im- key value drivers
tion timeline? proves safety.
Capital allocation is one of the most • More insightful risk adjusted fore-
The company brings in a few partners, strategically important decisions a re- casts
obtains debt finance, is sanctioned and sources company can make and one of
commits to spending $US1 billion to the prime accountabilities of a chief exec- • Incorporates risk and project inter-
develop a project. Costs and timelines utive. Too often the decision of which pro- dependence in evaluation criteria
blow out, and the project is delivered 18 ject to pursue is biased towards the pro-
months late at a cost of $US1.3 billion. It ject with the largest NPV, notwithstanding • Sophisticated multi-criteria Monte
is a really nice piece of kit, though. that project may be high risk and have a Carlo analysis to capture the impact of
high chance of producing suboptimal (or uncertainty – stochastic factors
Does this sound familiar? The values
of resources projects are routinely over- • Perform ‘what if’ analyses to under-
stand the impact of various scenarios
and develop contingency plans or miti-
gate risks

• Use your understanding of value

PAGE 8 JULY 2016 AUSTRALIA’S PAYDIRT

Companies can be quick to chart investment decisions on spreadsheets before properly framing the capital investment proposition

drivers to optimise project design data will be required to develop a finan- analytical insights should be defensible
This process must remain ‘live’ cial model for complex capital projects. and transparent, should address ques-
With modern financial models it is easy tions raised during the framing process,
throughout the development of the pro- to extrapolate cash flow assumptions out and lead to superior investment deci-
ject. Markets and conditions change and for 10, 20 or 50 years, when it can be dif- sions.
new information becomes available, all ficult to forecast what commodity prices
of which could require earlier stages of will be next week. Making sense of the Shareholders, directors and the C
development to be revisited. The deci- data and the quality of the data is a key Suite should want to know there is a high
sion-making process should not be seen challenge. quality framework behind the decision to
as a series of gates, rather an iterative proceed with a project. The framework
process. Analytics is a central component of should enable the project to be designed
better decision making and is poten- and structured to give shareholders the
There is also a tendency to keep ad- tially a source of competitive advantage. best chance of maximising returns and
vancing a project, even though the funda- Building dynamic models that effectively realising their required return on capital.
mental value drivers may have adversely represent the economics of the invest- While a number of the major energy and
changed. Perhaps project advocates ment across a broad range of ‘what if’ resources companies do this very well,
should be rewarded for exercising the scenarios is critical. Dynamic models will shareholder money is too often squan-
option to stop and/or wait, rather than encompass sensitivities, simulation, de- dered on poorly conceived projects.
continuing with a deteriorating project. cision trees and potentially real options.
What is the prize for getting this right?
Framing the capital investment de- While projects can be extremely com- Good project owners deliver IRR that are
cision is a critical step in the decision plex, a relatively small number of inputs 13% better than poor project owners.
process. Too often it is minimised or likely drive most of the variability of fore- The cost of a proper decision process is
overlooked and work on spreadsheets cast cash flows: easily outweighed by the benefits. And
is started too soon. Framing is about es- the difference between your share price
tablishing the decisions that need to be • Time increasing strongly and languishing or
made. At this stage, dialogue is impor- • Commodity prices declining, compared with its peers.
tant to create ownership of the capital • Foreign exchange rates
investment decision amongst the team. • Volume of hydrocarbons extracted This article is an excerpt from a paper
• Capital cost recently published at APPEA 2016 by
All investment opportunities have al- • Recoveries Deloitte: Why are the value of large capi-
ternatives, which need to be properly Decision making should be a combi- tal projects routinely overestimated?
analysed to identify value trade-offs to nation of facilitated analysis and expe-
choose the best risk adjusted alternative. rienced judgment. Bringing the power Stephen Reid is the Deloitte Energy and
The alternatives need to be incrementally of robust analytics to a senior decision- Resources transactions leader, based in
compared against all viable alternatives. making body requires both robust tools Sydney.
and effective facilitation techniques.
A solid framing process will define With a structured process for decision-
what data and assumptions are required. framing, data and analytics, the resulting
In terms of quality, all data is obviously
not the same. A significant amount of

AUSTRALIA’S PAYDIRT JULY 2016 PAGE 9

20 October 2016

Perth, Western Australia

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]

Image courtesy of Western Areas Ltd

NEWS

Graphex breathes new
life into IPOs

Graphex Mining Ltd has provided hope Phil Hoskins upside if we can deliver on those critical
for prospective resources IPOs after milestones and that remains the focus of
raising the maximum amount to list on not necessarily confident in achieving the company.”
the ASX and debuting at more than 80% the maximum raise,” Clarkson said. “The
above its issue price. market was pretty bad when this was The only hiccup for Graphex during
priced back in March. I really thought we the listing process came in late April
Spun out of IMX Resources Ltd, would have to roll up our sleeves and dig when ASIC issued the company with an
Graphex had no trouble rattling the tin for pretty deep to get this money. interim order to suspend the IPO due to
$7 million before capping its entry to the concerns over the forward-looking state-
Australian bourse with an opening day “As it turns out, by the time we were ments in its prospectus, specifically the
trade of 36.5c, having started at 20c. trying to close the book, not only had the ability to secure project finance.
market improved,
IMX committed to spinning out the but I think the A revised prospectus was issued three
Chilalo graphite project in Tanzania ear- Graphex story had weeks later, coinciding with the release
lier this year, believing the full value of resonated with in- of a maiden reserve of 4.7mt @ 11%
Chilalo was not being recognised in the vestors and we did TGC for 516,000t contained graphite at
company’s portfolio, which also houses get in excess of the Chilalo, and the Graphex IPO was back
Tanzanian gold and nickel assets and maximum book. We on track.
previously the Cairn Hill iron ore mine in actually had to cut
South Australia. back people pretty Hoskins said the success of the
severely.” Graphex IPO was due to the quality of
A litigation hanging over the heads of the Chilalo project, as highlighted by last
several former IMX directors and man- Hoskins said the year’s robust PFS, coupled with returning
agement following the closure of Cairn Graphex team could investor sentiment towards resources.
Hill in 2014 was another reason to move not have asked for a
Chilalo into a new vehicle. IMX’s stock better start. “I don’t think the success of the IPO
was trading at just 0.2c on June 14 when
Graphex made its official debut. “This is a reflec-
tion of the quality of
Graphex managing director Phil the Chilalo project,
Hoskins said an IPO-based spin-out was the strong investor
the best of several options considered for interest shown in
Chilalo’s next phase. the oversubscribed
placement and the
“We felt the best opportunity to de- expected timeframe
velop the graphite project would be in its until significant re-
own vehicle and to spin it off via an IPO rating events, such
was the cleanest way of achieving that,” as the granting of
Hoskins told Paydirt. the mining licence
and execution of
“Backdoor listings and other things binding off-take and
like that were on the table, but through financing agree-
working with our corporate advisers, we ments,” he said.
thought the IPO was the best route and I
think the outcome of the listing has vindi- “Despite such a
cated that decision.” positive early show-
ing, we firmly be-
Palladion Partners and RM Corporate lieve there is con-
Finance were the joint lead managers for siderable near-term
the Graphex IPO, which is only the sec-
ond new resources float on the ASX this
year, continuing a lean run for related list-
ings.

Only two mining companies joined
the bourse via IPOs last year (South32
Ltd and S2 Resources Ltd were not IPO
based) and a mere seven floated in 2014;
a far cry from the record 80 resources
entries in 2011.

Palladion Partners executive director
Rod Clarkson said he was surprised by
the uptake for the Graphex IPO.

“In all honesty, we thought we would
get to the minimum raise, but we were

AUSTRALIA’S PAYDIRT JULY 2016 PAGE 11

Panoramic has started an IPO to spin out the Gum Creek gold project from its portfolio Harold said investors were crying out
for new gold stories and his company
was necessarily just because it was an At the time of print, Lithium Power In- wanted to take advantage of that while its
IPO,” he said. “During the roadshow, in ternational Holdings Ltd was the only up- nickel mines were out of action.
Sydney in particular, there was a general coming resources float on the Australian
feeling that money was flowing back to- bourse. However, a handful of potential “While nickel and other commodities
wards resources. new listings have been flagged and could look to be in oversupply status and need
unfold in the second half. some production cuts…gold is going
“I think fund managers were starting through a period of prosperity and off the
to look at decent investment opportuni- Argentine lithium hopeful Everlight Re- back of that there has been a lot of inter-
ties and thankfully the investors we met sources Ltd is finalising a $15 million pre- est around small to medium-sized gold
felt that Graphex was one. It shows that IPO capital raise to fund its acquisition companies that are trying to become big-
even in difficult markets where investors of SurMinera SA, owner of the Gallego ger,” Harold told Paydirt.
can afford to be picky, if you have a high lithium brine project. Chinese-backed
quality project and a clear strategy with gold producer Hanking Gold Mining Pty “My sense is the market is starting to
near-term catalysts, there is still money Ltd, operator of St Barbara Ltd’s former value these things more highly and as a
out there for resources IPOs.” Southern Cross assets, has also long result we’ve had a few discussions with
been eyeing a move to the ASX. a couple of brokers. There’s definitely
Hoskins said the next focus for his an interest around creating another de-
company would be securing binding Embattled nickel miner Panoramic velopment/exploration story and Gum
off-take and financing agreements with Resources Ltd has started an IPO for its Creek is certainly one of those.”
project partners China Gold Group In- Gum Creek gold project (formerly known
vestment Co Ltd and CN Docking Joint as Gidgee) while concurrently seeking Harold, who oversaw the float of Pano-
Investment and Development Co Ltd. interest from potential buyers. The com- ramic (then Sally Malay Mining) in 2001,
pany ran the same process for the Mt said spinning out a non-core asset via an
“Both groups will be doing a site visit Henry gold project last year before opt- IPO was nothing new in the mining indus-
in June and soon after that we’ll look to ing to sell the asset to Metals X Ltd for 22 try, but shareholders nowadays expected
start negotiating commercial terms with million fully paid ordinary shares. companies to assess all options in order
those groups up in China,” he said. “We to extract maximum value.
expect within months of listing to be able Panoramic managing director Peter
to conclude the transaction we’ve been “Mining is one of those industries that
pushing for over the last 18 months.” Peter Harold needs risk capital, because exploration
is pretty risky, and so I think that’s why
Clarkson said impressive marketing IPOs have always been an attractive way
of both the company and the project by of raising funding and will probably con-
Hoskins and his team had helped the tinue to be for the foreseeable future,”
process, but he cautioned the success of Harold said.
the Graphex IPO could be a one-off.
“By running the dual process, you’ve
“I don’t think it’s back to a booming IPO got the ability to benchmark someone
market for resources by any means,” he who comes in with a cash offer versus
said. “The market is definitely more fertile what you might be able to raise in the
for backing existing producers and those market. It offers some great optionality.”
near production, particularly in gold, and
people have made good money there re- Harold said his company had resist-
cently. ed the temptation to make Gum Creek,
80km north of Sandstone, Western Aus-
“I think people are going to remain tralia, its interim flagship asset because it
pretty selective, frankly, and it’s got to wanted Panoramic to remain a nickel-fo-
be a good project to capture that money cused business despite this lean period
which is sitting on the side.” for the base metal.

Lanfranchi was placed on care-and-
maintenance last November and op-
erations at Savannah were mothballed
in May. Drill rigs are still turning at Sa-
vannah North and the results from the
campaign will be worked into a feasibility
study for a restart once the nickel price
recovers to sustainable levels.

“The nickel price will recover, there’s
no question,” Harold said. “I’ve been in
nickel for 20-something years and it al-
ways overshoots on the upside and the
downside. That’s one of the problems
with a commodity like nickel.

“It’s sad for our people, but they all
understand. They know it’s not a char-
ity and our shareholders own the assets
and they want a return. I don’t think any-
one who works for us has been surprised
by our decision to do what we’ve done.”

– Michael Washbourne

PAGE 12 JULY 2016 AUSTRALIA’S PAYDIRT



NEWS

Robb bids farewell to Iluka

Iluka returned more than $715 million to shareholders during David Robb’s tenure

Outgoing Iluka Resources Ltd manag- departure, nor has a successor been ap- the creation and delivery of value for
ing director David Robb has never let pointed to fill his giant shoes, although shareholders was all that mattered from

anything more than “opportunity” define the baton is likely to be passed sometime that point on.

his career. this quarter. Investors typically want a chief execu-

Robb will step down from the helm of One thing clear, however, is that Robb tive like Robb who is not afraid to make

the mineral sands miner later this year, will exit Iluka as one of the premier min- the tough decisions that others don’t

having overseen the company’s trans- ing executives of the last 15 years, thriv- want to. In fact, he freely admits he feels

formation from investment flop to global ing during a period in which he had to “very comfortable” doing so.

leader in a niche sector of the resources withstand the fallout from the GFC and “I’ve been really fortunate to have lead-

industry. “ the current downturn in resources. ership responsibilities most of my life and
A trained mathemati-
I know that if you’re trying
cian, Robb joined Iluka
in 2006 after more than a When I started at Iluka, the to change direction and
decade with Wesfarmers company had a fairly poor
Ltd, occupying a number give people confidence,
of key executive roles you need to talk to them,”
with the conglomerate be- Robb said.
fore sensing the time was
reputation, it was hard to get people “You answer their ques-
excited about joining Iluka and to keep tions. They’ve got a new
CEO so naturally they

right for a change. working there, and some investors had want to know ‘what’s
“I believe in being op- totally given up on the company. he like?’, ‘how does he
think?’ and ‘what’s in it for
portunistic and if cir-

cumstance presents you me?’. They’re all things

with an opportunity to do you can address if you get

something different, then I’ve tended to Reflecting on his time at Iluka, Robb them all together. It costs some money,

take that opportunity,” the 62-year-old tracked his success back to early 2007 but it’s really effective and we’ve done it
told Paydirt.
when he held separate workshops for his every second year since.”

“I’ve never planned my career. I’ve al- new board and management team, just Without question, the pivotal moment

ways relied upon the fact that life would months after settling into the managing of Robb’s tenure at Iluka was his bold de-

throw up challenges and opportunities director’s chair. cision to progress development of the Ja-

and you deal with them at the time. So Taking inspiration from former IBM cinth-Ambrosia and Murray Basin Stage

in that situation, the opportunity came to chairman Lou Gerstner, he promised 2 projects following the GFC in 2008, as

run my own show and that’s the direction there would be no “grand vision”. Howev- financial institutions and other mining

I went in.” er, he made it clear to his new colleagues companies closed ranks to protect them-

No official date has been set for Robb’s that a culture change was needed and selves from the fallout.

PAGE 14 JULY 2016 AUSTRALIA’S PAYDIRT

Iluka’s stock slumped from nearly $5/ the board that I work for.” David Robb
share in the lead-up to the GFC to $2.75/ Iluka was faced with perhaps an
share in mid-2009. However, the compa- not only my time in the chair, but also for
ny ultimately reaped the rewards of back- equally difficult decision earlier this a little while afterwards because some
ing itself in during an incredibly tough year when global zircon demand di- of what happens next is actually deter-
financial climate and its stock gradu- minished to the point where the com- mined on your watch.”
ally climbed to almost $19/share over the pany opted to suspend mining and
next two years and remained there for concentrating activities at Jacinth- Iluka is conducting a global search for
the best part of the next 12 months. Ambrosia for 18-24 months and pro- Robb’s replacement, however, the com-
cess only from existing stockpiles at pany could still appoint someone from
Since 2010, Iluka has returned $715 mineral separation plants in Victoria within the business.
million to shareholders – more than dou- and Western Australia.
ble the $340 million the company has One piece of advice Robb has for his
retained in the business for investment Jacinth-Ambrosia, in South Aus- successor: Don’t fall into the trap of be-
purposes during that period. tralia’s Eucla Basin, has the ability to coming a “celebrity CEO”.
supply 25-30% of global zircon de-
“The fact we ran our company to the mand at peak production. “This culture of, ‘it’s all about the CEO’,
limit to keep those projects going…that is rubbish,” Robb said. “It’s a much, much
was a telling time for our company,” Robb “We believe in flexing our opera- more collective effort that gets compa-
said. tions,” Robb said. “We believe that nies moving forward. Yes, the CEO is the
we should adjust production to suit figurehead, but it’s a team game we play.
“We face a similar inflexion point now, I demand. We continued to produce at
think, but a lot of it is about culture. When Jacinth-Ambrosia at a cost-effective “It is all consuming, it’s certainly very
I started at Iluka, the company had a level, which was obviously quite a hard work. There is a soundtrack that
fairly poor reputation, it was hard to get high production level, but it meant our plays in the back of your head as a CEO
people excited about joining Iluka and to inventories, although stable, were not that just never goes away. You need to
keep working there, and some investors reducing. be ready for that challenge.”
had totally given up on the company.
“We felt it was best to remove that While spending more time with his
“To leave it with a reputation as being production for a time – we’re only family is top of his list of priorities, nar-
a good company that tries to do the right talking 18-24 months – and work rowly ahead of watching his beloved
thing, tries to do things well, is a good down some of that inventory and liber- Melbourne Football Club win an AFL pre-
place to work and is focused on share- ate the cash that’s within it. We also felt miership, Robb is keen to stay involved in
holders, I’m happy with that. People of- it might be a positive for market dynam- the resources industry, but will continue
ten talk about leaving something in better ics to get our inventories lower, at a time to let “opportunity” guide his next career
shape than you found it and I think that’s when demand might be rising. move.
the case, but it’s a team effort. I’m only as
good as the people who work for me and “You don’t want people saying, ‘how “I like the resources industry, be that
can things be tight? You’re sitting on all oil and gas or minerals, I’ve spent time in
this material’. We wanted to remove that both,” he said.
from the discussions.”
“As I said before, I’ve been opportun-
Robb announced his impending de- istic all my career, I haven’t tried to plan
parture a little more than a month after things in too great a detail or too far
Iluka advised the market of Jacinth-Am- ahead. I’m exactly the same now, so we’ll
brosia’s operational suspension. How- just wait and see what comes along.”
ever, the two are unrelated, as Robb had
previously flagged to others inside com- – Michael Washbourne
pany walls that 2016 would mark his exit
from the business.

Some investors have asked why Robb
resisted the temptation to stay on and
guide Iluka through another tough patch,
just as he did in 2009, but he believes
the time has come for somebody else to
make the tough decisions and drive the
company’s future.

“You’re always tempted to go out on
the highest note you can, but not many
get to do that and I think you have to be
realistic about how infrequent the big
highs are,” Robb said.

“If you’re lucky enough to time your
exit with one of those, it’s all well and
good, but I also think you need to judge
CEOs…two or three years after they’ve
left because that’s your legacy in part.

“It’s not just how it’s travelling on the
day you walk out the door, it also what
building blocks are in place for the next
phase and I’m very confident about that
with Iluka, so I’m happy to be judged on

AUSTRALIA’S PAYDIRT JULY 2016 PAGE 15

NEWS

Rox ready to spin Teena

Rox Resources Ltd has fi- cause he doesn’t think the
nally received some mar-
ket recognition for its Teena resource size will grow much
zinc project, but managing
director Ian Mulholland says larger. Instead, the JV will fo-
his company will still look to
spin out the prized Northern cus on metallurgy, some ge-
Territory asset.
otechnical work and regional
The quality of Teena was
confirmed early last month exploration around Teena.
when Rox announced a
maiden inferred resource of “We expect there will be
58mt @ 11.1% zinc and 1.6%
lead for 6.5mt contained zinc some additions to the re-
and 900,000t lead.
source with a bit of extra
Only six zinc deposits in
Australia – Broken Hill, McAr- drilling, but we don’t think it’s
thur River, Hilton, Mount Isa,
George Fisher and Century – going to be a doubling of the
boast a larger resource than
Teena, about 8km west of resource. It might be another
McArthur River.
10-20% [added] to the re-
Investors have reacted
favourably to the announce- source,” Mulholland said.
ment, with the company’s share price
jumping 107% to 2.9c on June 1 before “Some drill holes may
tailing off slightly to 2.1c at the time of
print. intersect some thicker sec-

However, Mulholland believes the val- tions of mineralisation, that
ue of Teena is still not reflected in Rox’s
share price and his company, along with certainly happened last year.
JV partner Teck Australia Pty Ltd, will
look to spin the project out into another We had some pleasant sur-
vehicle, most likely via a backdoor listing,
to seek better market recognition. prises with some of those

Shares in the company slipped below drill holes. They were thicker
1c earlier this year as the nickel price
tumbled. Rox’s flagship asset is the Rox managing director Ian Mulholland with drill and higher grade than we
Fisher East nickel project, about 150km core from the Teena zinc project expected.”
north-east of Leinster, Western Australia. Teena came in ahead of

“There’s always a risk that Teena is market independently of Rox to fund its the respective resources for South32
going to get lost within Rox again as we
proceed with our nickel project and vari- share of Teena, so we think that’s going Ltd’s Cannington mine (44mt @ 15.9%
ous other activities, so we really think the
best idea is to spin this project out into to be a good outcome for everyone.” zinc and lead for contained 7.4mt) and
another vehicle that can then be fairly
and transparently valued by the market Mulholland said he was not surprised MMG Ltd’s Dugald River project (48mt @
and not be clouded by any other things
that are happening in Rox,” Mulholland by the size and grade of the resource 14.2% zinc and lead for contained 6.8mt).
told Paydirt.
estimate for Teena, given it correlated Eight of the top 10 largest zinc deposits
“We think that will be a win-win for
shareholders because Rox will still have closely with the exploration target (70- in Australia are owned by majors.
a significant ownership of the new com-
pany, but that new company we think 80mt @ 10-12% zinc and 1-2% lead for Metalicity Ltd, owner of the undevel-
will be more fairly valued by the market.
Then if the zinc price takes off, like every- contained 7.7-10.1mt). oped Admiral Bay project, is the only jun-
one says it will, the value of that company
is going to increase and it means there’s Teck entered into a farm-in agreement ior other than Rox to feature on that list.
another source of funding for the project
as well. with Rox at the Reward project, which “People who invest in the junior sector

“That company will be able to go to the hosts Teena and the nearby Myrtle de- are really not familiar with the incredible

posit, more than five years ago. The Ca- value these big deposits have because

nadian group has spent $13.85 million of they’re long-term projects,” Mulholland

a $15 million expenditure commitment said. “We’re talking about a 20-30 year

and will soon claim a 70% stake in the project here, not an 8-10 year project.

prospective zinc-lead ground. “I just don’t know if people who invest

Rox will have to fund 30% of any explo- in the small end of the market are really

ration and development activities there- familiar with that and they’ll find that diffi-

after, but that could prove difficult given cult to value because it is such long-term

the company’s modest market cap of $25 project when the junior end of the market

million and $1.1 million bank balance. is generally a very short-term market.”

“Funding in this environment, although Meanwhile, Rox has been awarded

it’s starting to free up now, it’s still a chal- three grants under the WA Government’s

lenge,” Mulholland said. Exploration Incentive Scheme, totalling

“Obviously our challenge will be retain- $72,000, for the next phase of explora-

ing that 30% and being able to fund it, tion at Fisher East.

which is why we see the spin out as a Rox has temporarily suspended pro-

smart way of making that funding easier gress at Fisher East due to the low nick-

to get. el price, but Mulholland said PFS work

“We’ve got the process under way at could resume – and advance quite quick-

the moment and we hope to have some- ly – when market conditions improve.

thing very soon. It’s not an easy process. – Michael Washbourne
We’ve got to jump through the hoops re-

quired by the ASX and ASIC.”

Mulholland said there were no plans

to complete further drilling at Teena be-

PAGE 16 JULY 2016 AUSTRALIA’S PAYDIRT



COVER

Lithium:
Lifting the
market’s mood

The lithium craze has taken hold of the Australian resources sec- known they represent.
tor, with now more than 40 companies having laid claim to mak- “The jury is still out on lithium because
ing a lithium discovery, picking up lithium ground or intending to test
existing projects’ lithium potential. the big driver is the great, big intangible
sell-story,” MineLife analyst Gavin Wendt
Investor interest has been spiked by company, lifting many of them off multi- told Paydirt. “Few people understand
the anticipated blossoming of the electric year lows. lithium. Most people are buying in on the
vehicle (EV) and home power storage excitement and even companies them-
markets which both rely on lithium-ion A single commodity boom is nothing selves don’t understand it well.”
battery technology. As Tesla Motors Inc new and comparisons have already been
continues to set pre-sale records for its drawn to the iron ore and uranium booms Argonaut Ltd mineral resources re-
EVs and the likes of Panasonic and LG of last decade and the current lithium search analyst Matthew Keane admitted
expand their investment in lithium-ion spike shares similarities with both. to Paydirt his firm had initially misjudged
powered products, there is a feeling that the swiftness of the lithium take-up.
the dawn of a new age is upon us with What is surprising is that lithium is in-
lithium playing as important a role as fos- spiring shareholder hope at a time when “Did I anticipate this? Probably not, as
sil fuels did in the last century. investors are otherwise wary of the re- I didn’t think there would be this much
sources sector. of a spike,” Keane said. “It is obviously
However, as with any boom, sceptics a growing sector, but going back to Sep-
are not far behind the lithium believers, We have heard for more than four tember last year [it started] and maybe
claiming the run can’t last, supply is set years that investors were keen to get we missed it and didn’t get onboard
to outstrip demand in even the near term back into the sector for the right story; sooner and, as has been shown, it has
and a lack of fundamental evidence at- one that was simple to understand, had continued.”
tached to the speculation in the sector. a clear path to cash flow and was based
on solid fundamentals. With the lithium craze in full swing, the
The entire Australian resources com- challenge for investors and analysts now
munity – from companies to investors, It is a sound argument and one rea- is to identify those companies with lon-
analysts and media – is trying to make son why the Australian gold stocks have gevity and those who are destined to fall
sure it is on the right side of the lithium enjoyed strong support over the last six away.
boom. For now, investors are certainly months. However, the vast majority of the
voting in the affirmative. Every lithium- lithium stories currently on display can “I think we’re pretty close to that now,”
related announcement has sparked a offer none of those characteristics. Keane said. “There is a wave behind us
share price bounce for the associated where there is a lot of analyst research
The lithium boom is being driven by and there are some good publications
something very different; money is go- out there for people to access and make
ing into lithium stocks because of the un- informed investment decisions on, re-
garding what constitutes a real stock and
what is a dabbler. This is not to say the

PAGE 18 JULY 2016 AUSTRALIA’S PAYDIRT

dabbler won’t still get spikes in terms of 90% of global lithium demand. ond development, the Sal de Vida lithium

valuation, but who will be there for the Greenbushes is the world’s largest brine project in Argentina (see page 22).

long-haul and looking at a true 12-month supplier of spodumene (hard rock lithium Fellow ASX-listed miner Orocobre Ltd

outlook, I think you can sort of pick those ore) for which Western Australia is known is also entrenched in the Lithium Trian-

stocks now.” to be highly prospective and in 2011 was gle, with its Olaroz brine project currently

Wendt compared the current spate of joined as a spodumene producer by the in commissioning. Others have followed

lithium-related announcements to the Mt Cattlin mine, 2km north of Raven- Galaxy and Orocobre’s lead into Argen-

rush to claim iron ore and uranium dis- sthorpe in the State’s south. tina. In May, Latin Resources Ltd enjoyed

coveries in the mid-2000s. Owner Galaxy Resources Ltd intend- a 40% share price spike on news it had

“There are apparently no barriers to ed Mt Cattlin to be the first step in what secured lithium projects in Argentina

entry; lithium is seemingly abundant,” would eventually be a fully vertically inte- and Chile and Everlight Resources Ltd

Wendt said. “It is like background ura- grated model with lithium carbonate and announced plans to list on the ASX on

“nium or iron ore in WA; it is everywhere.” lithium-ion battery production facilities in the back of the Gallego project it has se-
When looking for those companies China to follow. cured on the same salar which hosts Sal

most likely to ride out the de Vida and FMC’s Fenix brine

impending lithium roller- We are definitely seeing some operation.
coaster, the most obvious But is has been the lithium-

place to start is with the ex- companies using lithium just bearing pegmatites of WA
isting producers. for survival purposes. It gives them a which have attracted the vast
majority of newly minted “lithi-
The international lithium

market is dominated by short-term price spike on which they um juniors”.
three companies producing can hopefully raise some money. Many will be hoping to emu-
lithium from salt lake brines
late not only Talison and Gal-

in the Lithium Triangle of axy, but also Neometals Ltd and

South America; SQM, FMC JV partner Mineral Resources

and Albemarle. Those ambitions faltered, however, Ltd. Last year, the two ASX-listed compa-

In Australia, lithium production has and by mid-2013 the company was strug- nies brought a third JV partner into their

been dominated for more than 30 years gling under severe debt requirements, an Mt Marion lithium project near Kalgoorlie.

by the Greenbushes operation – 250km underperforming operation and a stalled Under the deal, China’s most profit-

south of Perth – owned by China’s Tianqi lithium conversion plant in China. able lithium producer, Ganfeng Lithium,

Lithium in the 51/49 Talison Lithium JV Three years on, Mt Cattlin is back run- acquired 43.1% of Mt Marion and a life-

with Albemarle. Together with the South ning at commercial rates and the compa- of-mine, take-or-pay off-take agreement

American giants, Talison accounts for ny has now turned its attention to a sec- for all production.

AUSTRALIA’S PAYDIRT JULY 2016 PAGE 19

COVER

tor because the Chinese conversion

plants are already set up for it and like

the material.”

Could WA become the swing producer

in a diverse lithium space over the next

10-20 years?

“Because of the lag in brine production

coming online, the only thing that can

fill the supply gap is hard rock lithium,”

Lowry said. “And aside from the WA hard

rock deposits, there is only Canadian

Lithium Inc’s project that could potentially

come online in that timeframe.”

Lowry also dismissed the impact on

the market of any ramp-up Greenbushes

could achieve.

“That is all for internal consumption,”

he said of the Chinese-owned operation.

Neometals managing director Chris

Reed agreed. Neometals and JV partner

World lithium production is currently dominated by salt lake brine Mineral Resources halted development
operations in South America of Mt Marion in 2010 after a price war
broke out between Greenbushes and the

The next generation is undoubtedly operations by this year, only 18,000 tpa brine producers over the former’s expan-

led by Pilbara Minerals Ltd, which high- of it has, largely due to technical prob- sion plans.

lighted the investor appetite for lithium lems,” US-based lithium marketing ex- This time around, the supply deficit is

when it raised $100 million to advance pert Joe Lowry said. such that an immediate reaction is re-

its 80.2mt @ 1.26% Pilgangoora lithium The Lithium Triangle countries of Bo- quired.

project in the North Pilbara. livia, Chile and Argentina also pose sov- “There is a gap for the next two years

The Ken Brinsden-led company is now ereign risk. Bolivia is still largely closed and it can only be met by hard rock oper-
at the front of the queue to follow Galaxy to foreign investors and while Argentina ations,” Reed told Paydirt. “How long will

and Neometals into production, but less at last seems to be emerging from a that need for more supply last? The world

advanced juniors have also found market decade of isolation, investment is yet to is going to need a big chunk of supply for

support. materialise. Even Chile, always held up at least the next 10 years and lithium has

For example, Dakota Minerals Ltd, as a model example of stability among certainly got the strongest fundamentals

which has a project abutting Pilgangoora, mining jurisdictions, has begun making of any commodity.”

netted $12 earlier this year to advance noises about the sovereignty of its lithium Reed does, however, hold reserva-
“exploration at its Lynas Find project, also reserves.
tions about the ability of the new arrivals

in the Pilbara. in the lithium space to take

Other companies have found Because of the lag in brine advantage.
lithium-related news can bring “I wish them all well but

market relief in an otherwise production coming online, any company is going to
torrid period for junior explor- the only thing that can fill the supply have to be in production
ers. before the brine producers

“We are definitely seeing gap is hard rock lithium. And aside ramp up and bring new pro-
some companies using lithium from the WA hard rock deposits, jects online,” he said.

just for survival purposes,” Even once supply and de-

Wendt said. “It gives them a there is only Canadian Lithium Inc’s mand curves meet, Lowry
short-term price spike on which expects to see WA mines

they can hopefully raise some project that could potentially come continue to operate.
money.” online in that timeframe. “The WA spodumene

Whatever the strategy, WA’s producers will be the last to

high spodumene endowment go out of the market; cer-

gives it a natural advantage in tainly after the Chinese spo-

capturing the near-term lithium demand As the new generation of brine opera- dumene and Chinese brine producers

surge. tions were put into development a dec- which are higher cost and lower grade.”

Put simply, while the South American ade ago, there was an assumption that However, Lowry was quick to point out

brine operations are larger and lower development options for the higher cost that while WA could be home to several

cost, they are generally capital intensive spodumene projects would be nullified. new spodumene mines, it wouldn’t be

and take several years to ramp up to full However, Lowry said the recent surge able to support every newcomer.

production. Those which have been es- in demand meant the opposite was the “I think the established players will get

tablished over the last decade have also case. into production but once you get beyond

struggled to reach their planned output “Some of the brine producers specu- Pilbara Minerals, you are getting into

levels. lated 10 years ago that there would no speculation and hype because they are

“Of the 80,000 tpa production estimat- longer be a need for spodumene by now, based on very rough numbers,” he said.

ed in 2011 to come on-stream from brine but it is actually the fastest growing sec- “I’ve recently counted at least 40 lithium

PAGE 20 JULY 2016 AUSTRALIA’S PAYDIRT

– clay, brine and hard rock “In the five years after

– projects currently being 2020, electric storage

worked on and I believe will grow as large as the

75% of these won’t see the electric vehicle market in

light of day. The world just my opinion,” Lowry told
Paydirt. “That means the
doesn’t need 25 new lithi-

um operations.” market is going to need

Macquarie and Citigroup around 15,000 tpa extra

analysts also expect the capacity each year for the

major brine operators to next five years but from

increase capacity in their 2020 to 2025 we are going

undercooked operations to to need a lot more inven-

meet demand. tory again. I don’t see an

The demand side is, oversupply situation being

as Wendt explains it, “the even physically possible

great intangible” when it before 2022.”

comes to lithium. There The challenge for lithium

isn’t a resources company hopefuls may be secur-

around which is using cur- ing off-take contracts in a

rent spot prices to test the highly competitive space.

economics of their devel- The evaporative brine operations are slow to ramp-up, handing China dominates lithium

opment project, but while Australia’s hard rock players an opportunity demand at present, ac-

consensus prices for base counting for 70,000 tpa of

and precious metals, iron ore and even power plants in China, India and Russia. lithium concentrate consumption with Ja-

some industrial minerals can be easily These nuclear plants may well eventually pan and Korea next at 20,000 tpa each.

found, the lithium market is so opaque it come to fruition but the opaque nature of All of this Chinese consumption goes

is incredibly difficult even to find a current the BRIC economies means it is difficult into conversion plants which then con-

spot price. to predict when with any accuracy. vert the concentrate into lithium carbon-

The problem is that much of the inter- The greatest intangible, however, ate which is then sold to battery-makers.

est in lithium has been fuelled by the rise comes from speculation about how Given the intrinsic role these Chinese

of the still small EV market, led by Tesla. quickly EVs and power walls will be wide- producers play in the lithium chain, could

In a relatively short amount of time, the ly adopted. it be advantageous for companies to

Tesla brand has taken the EV market While copper, iron ore and even ura- strike deals with them now? Wendt sug-

by storm and created a niche product nium demand comes from the largely gests the iron ore boom heeds warnings

with its electric cars, such as the Tesla predictable industrial sector, demand for for such assumptions.

3. It is believed to have taken more than lithium comes almost directly from the “When we had hundreds of iron ore

250,000 pre-orders for its new Tesla 3 consumer sector which is traditionally far juniors and two things had for credibility

model, expected to be released next more volatile and difficult to forecast. were a Chinese shareholder and a MoU

year at a retail price of $US36,000. The main aim of Tesla and others is to with a Chinese group,” Wendt said. “But

German, Japanese and Korean car drive down the cost of EVs to make them China will never be your partner because

manufacturers are racing to join the EV competitive with traditional models but they have so much of their own. They

revolution, while Chinese car manufac- for now, the EV market is still largely reli- may become a customer but they are un-

turers are targeting EVs costing less than ant on government subsidies in the US, likely to fund an Australian project.”

$20,000 by as early as next year. Europe and China. A similar trend has developed in graph-

Behind the established names, there is Lead-acid batteries are now subject to ite – another commodity in which specu-

a plethora of start-ups attempting to join export taxes out of China and its major lation was fuelled by the battery charge.

the market, not just for personal cars but cities continue to clamp down on emis- In graphite, ASX-listed companies are

also e-bikes and public transport such as sions, while Japan and Korean have also actively courting partners and customers

buses. indicated a willingness to support the EV from Japan, Korea, Europe and North

Away from the transportation market, market by offering rebates, zero sales America who are keen to break China’s

the home energy storage is being led by taxes and free licensing. monopoly on graphite supply.

Tesla and Panasonic, as homeowners Initially, China will be the main con- Graphite’s rush came some 18 months

look for ways to move completely “off- sumers of battery powered technolo- before lithium’s and since petering out,

grid”. gies – already 30 million E-bikes are the companies left standing are those

The last two years have seen reports produced annually in the country and are who have secured strong off-take con-

from across the financial media about converting to lithium-ion batteries – with tracts.

new EV and power storage start-ups Japan and Korea stepping up their us- Wendt believes lithium companies may

throughout the world with China alone age, particularly in the EV space. be wise to follow this strategy.

forecast to have at least 20 new manu- “As a result, there is going to be huge “Go to end-users in Japan, Korea

facturers establishing commercial facili- demand for raw material product, partic- or Europe,” he said. “That is where the

ties. ularly from China,” Brinsden said. credible funding is.”

However, actual figures are much Lowry admits forecasts among lithium – Dominic Piper and Mark Andrews
more difficult to come by. It was a simi- analysts are wildly variable, but argues

lar situation a decade ago in uranium, his assertion that demand will grow from

with yellowcake hopefuls forecasting fu- 165,000t this year to 280-285,000 tpa by

ture demand based on planned nuclear 2020 is “among the most conservative”.

AUSTRALIA’S PAYDIRT JULY 2016 PAGE 21

COVER

Mt Cattlin merger makes
Galaxy the go-to

Mt Cattlin JV partners Galaxy Resources and General Mining Corporation have announced plans to merge

If M&A is the sign of a fertile market, Gal- ny Tse and chairman Martin Rowley then The balance sheet tidying exercise
axy Resources Ltd’s announcement it set about restructuring the company in also meant Galaxy had more than $50
was launching a bid for JV partner Gen- an effort to save it. million cash to consider how it would re-
eral Mining Ltd could be the clearest indi- establish Mt Cattlin and its massive Sal
cation yet there is some longevity in the “I didn’t want those shareholders who de Vida lithium brine project in Argentina.
lithium story. I’d encouraged to take up Galaxy’s of-
fer for Lithium One [the TSX-listed com- However, Rowley and Tse were still
On May 30, the two companies – pany Rowley had previously chaired] to hesitant to ask shareholders to contrib-
which together operate the Mt Cattlin lose out,” Rowley said. “We began re- ute further. Instead, the company decid-
lithium mine near Ravensthorpe in West- structuring the company, particularly the ed to bring a JV partner into Mt Cattlin.
ern Australia – announced they would management and the balance sheet and
merge in a move designed to simplify the were always working towards the idea “We went back to Michael Fotios, who
ownership structure of Mt Cattlin, paving that the lithium market would take off.” had been Galaxy’s original chief execu-
the way for Galaxy to establish itself as a tive, and told him to bring in a vehicle
multi-asset lithium player. It took the company more than two which could fund the restart,” Rowley
years to clear the decks, undertaking said. “He brought General Mining in and
The deal, which will see Galaxy pay a series of emergency capital raisings he could then progress Mt Cattlin while
$216 million in shares for General Min- and restructuring its $US100 million debt we were getting Galaxy sorted.”
ing, is the culmination of a three-year burden before it sold the underperform-
process which started when Mt Cattlin ing Jiangsu lithium conversion plant to The deal was struck in February 2015,
was placed on care-and-maintenance. Sichuan Tianqi Lithium Industries Inc for with General Mining agreeing to spend
a net price of $US173.2 million in April $25 million to earn a 50% stake in the op-
Galaxy had owned Mt Cattlin outright 2015. eration. In return, Galaxy would receive
but having run into debt and execution $6 million a year for three years after
problems with its vertically integrated “From that, we were able to settle a production started and a 50% share of
lithium plan, the mine was mothballed in lot of the debt, renegotiate further with operating cash flows.
2014. bondholders and restructure the convert-
ible bonds into straight debt,” Tse said. “We wanted to restart Mt Cattlin but
Newly installed chief executive Antho- without committing the cash needed

PAGE 22 JULY 2016 AUSTRALIA’S PAYDIRT

because Galaxy shareholders had put Mt Cattlin is slated to produce 100,000 tpa but thanks to the rise in lithium prices,
enough into Mt Cattlin,” Tse told Pay- the JV expects to exceed the target by at least 20,000 tpa
dirt in May. “So, General Mining raised
the capital and took the operating and the increasingly isolationist reign of Cris- come to high single digits; which is sig-
financial risk. Galaxy is essentially free- tina Kirschner. The country has come to nificant if you are thinking about how to
carried for its 50% of cash flow and a $6 agreement over its debt obligations and put your dollars to work.”
million annual minimum payment.” been welcomed back into the interna-
tional investment community. Although likely to be balanced by infla-
The process was a success and Mt tion pressures, Macri’s devaluation of the
Cattlin is set to ship commercial lithium Tse believes the political changes will Argentine peso is also proving beneficial,
concentrate in the third quarter. affect Sal de Vida’s DFS numbers, say- with Tse believing a 10% saving can be
ing the changes in lithium pricing and the achieved on the $US220 million (total
Rowley said that achievement, cou- Argentine economy would be included in capex was estimated at $US369 million)
pled with the rampant lithium market, the reworked DFS. that was peso-denominated and will be
also convinced both companies a unified very meaningful to the project,” Tse said.
structure would allow for a better invest- “The new president has done a huge
ment case. amount in the first 100 days... and as a All of which will make funding Sal de
result the country’s credit rating is go- Vida much more attractive in a market in
“General Mining had de-risked the pro- ing up and it is easier to do business,” which banks and investors are crying out
ject and Galaxy had sorted out its bal- he said. “When we spoke to banks a few for quality investments.
ance sheet; it made sense,” he said. years ago, the rates were in the upper
teen percentage points, now they have “Even if the capex doesn’t move, the
“We realised there was strong demand debt can be acquired at better levels and
in the market for a ‘go-to’ lithium compa-
ny which had a mix of hard rock and brine therefore a higher ratio,” Tse
assets,” he said. “The world’s three top said.
lithium producers are not actually lithium
companies. It is a smaller part of their The revised DFS was set
overall businesses.” for release in June, allowing
the company to plough ahead
Particularly enticing for Galaxy was with financing and off-take
the asset mix it could promote. While negotiations in the second
hard rock spodumene producers attract half of 2016.
higher operating costs, they are less
capital intensive and easier to build and “Then push the button be-
ramp up and down than brine operations. fore the end of the year,” Tse
said.
“Having spodumene and brine pro-
vides a natural hedge to whatever the That would signal another
market conditions for Galaxy,” Tse said. major shift in Galaxy’s for-
tunes.
Attention will now turn to Sal de Vida,
with Galaxy expected to release a re- “We’ve achieved a lot,”
vised DFS for the Argentinian project this Rowley said. “We have got
year. Galaxy back to an $800 mil-
lion market cap and forecast
Lithium marketing expert Joe Lowry cash flow of $100 million next
said it was Sal de Vida which made Gal- year.”
axy such an attractive proposition.
– Dominic Piper
“I see Galaxy as the next big thing be-
cause Sal de Vida is the next Anthony Tse and Martin Rowley of Galaxy Resources with
best lithium project in the lithium marketing expert Joe Lowry
world,” he said. “It is on the
same salar as FMC [Fendix
mine] but FMC is focused on
lithium hydroxide.”

Sal de Vida – on the bor-
der of Salta and Catamarca
provinces – has a 1.57bt re-
source with an insitu value
of $US9.44 billion while the
Olaroz resource is 1.21bt (in-
situ value: $US7.25 billion).
The reworked DFS will up-
date the original 2013 study.
Not only will it incorporate a
more buoyant outlook for lith-
ium demand, but also a dra-
matically altered sovereign
risk profile.

In December, Maurizio
Macri’s presidential election
victory ushered in a new era
for Argentine politics after

AUSTRALIA’S PAYDIRT JULY 2016 PAGE 23

COVER

Brinsden the right plug
for Pilbara Minerals

Pilbara Minerals will upgrade its Pilganggora resources this month. The company has made two discoveries outside the main resource

The setting hasn’t changed much, but pany could survive and I am very happy a great team and I am thoroughly enjoy-
the scene has for Ken Brinsden. how that’s unfolded,” Brinsden told Pay- ing myself.”
After carving his name in the resourc- dirt. With investors throwing money at
es sector as managing director of At-
las Iron Ltd, which operates in Western “I’m sad to not be involved given that lithium companies, it is easy to see why
Australia’s famed iron ore precinct the
Pilbara, Brinsden is only early into his I finished as a non-executive director al- Brinsden is in a happier place now than
tenure as managing director of emerging
lithium hopeful Pilbara Minerals Ltd, but most 10 years to the day of joining, but I 12 months ago.
his impact has been immediate.
am equally happy the company has been “I’ve got to be honest it has come as
The company has orchestrated one of
the largest capital raisings by an ASX jun- able to reshape itself and survive. My in- a complete surprise to me too being in-
ior in recent times – $100 million through
the placement of shares for $85 million volvement with Pilbara Minerals, I don’t volved with Pilbara Minerals and lithium
and a SPP for $15 million at 38c/share
– to progress one of the world’s premier think it was necessarily by chance, but having a significant price response,” he
hard rock lithium opportunities, Pilgan-
goora, 120km from Port Hedland. the fact that I had experience in North said.

Coming from a company on its knees Pilbara and that I could see the potential “What got me excited was the potential
– Atlas had to implement company-sav-
ing strategies and restructure its debt in the resource, I consider myself pretty I saw in the discovery. When the conver-
which totalled $US270 million ($US135
million at the time of print) not long ago lucky to be involved here where there is sation first started with the team there
– Brinsden considers himself lucky to
be a part of a one of Australia’s lead- was the wow factor of a potentially re-
ing developers in its most buoyant com-
modity. ally material resource and thankfully

“I am thankful that the team at Atlas it is. Of course, we’ve also had this
and everyone involved was able to cre-
ate an environment in which the com- massive tailwind [in the lithium sector]

come along as well, as people start to

get excited about the mineral potential

and its uses in the vast technology that

is emerging downstream in transporta-

tion and power distribution.”

As he sinks his teeth deeper into the

lithium business, Brinsden is becoming

more and more convinced by how the

emerging downstream technologies

The $100 million Pilbara Minerals raised this year will materially change the way power is

means it is immune to market pressures until stored and distributed.

after it has completed a DFS for Pilgangoora Perhaps the last crucial element in

PAGE 24 JULY 2016 AUSTRALIA’S PAYDIRT

making the industry competi- including 47m @ 1.91% lithi-

tive is pricing as Brinsden be- um from 68m, 61m @ 1.71%

lieves concerns over safety from 84m, 43m @ 1.72%

and performance have al- lithium and 135 ppm tantalum

ready been met. from 20m and 54m @ 1.49%

“The high-end batteries lithium and 125 ppm tantalum

used in commercial applica- from 167m.

tions are well tested and well Following that exploration

understood technologies. It success, another 16,000m

has been under development drilling programme was un-

for 30 years, so as long as der way at the time of print.

there is quality of the instal- “The drilling couldn’t be go-

lation and structure is there ing any better to be honest,”

then there is no doubt that it is Brinsden said.

a safe alternative. “We’ve even surprised our-

Currently, there is a short- selves at what we have turned

age of raw lithium mate- up and as a result of the PFS

rial which has inspired spo- drilling we expanded the ex-

dumene (a source hosting ploration target to 150mt.

lithium) prices of $US600/t. That is realistically only drill-

“Because the market is Pilbara Minerals executive directors Neil Biddle and John Young ing the resource down to

quite small and any one mine have been key in building the fortunes at Pilgangoora 100-150m depth, which indi-

can potentially influence the cates there are plenty more

outcome [in pricing] then there is a sen- have a tailwind we are not getting overly tonnes to be found and that is the reason

sitive balance between supply and de- focused on today’s [lithium] price. We behind continuing to expand the drill pro-

mand. We are conscious of that because want to ensure we have an ultra-cost gramme.”

we are proposing a reasonable chunk of competitive mine because that is what It is this exploration potential which al-

production, so we want to make sure that will make it a success all the way through lows Brinsden to fend off questions about

we get that balance right and don’t upset the mining cycle,” he said. possible M&A synergies at Pilgangoora.

the market,” Brinsden said. Given its location in iron ore’s heart- Pilgangoora is the same deposit which

Pilbara Minerals’ impact on the mar- land, Pilgangoora is ideally placed to be- hosts Altura Mining Ltd’s 35.7mt @

ket as a producer of raw lithium material come a mine next year at a price of about 1.05% lithium resource and Dakota Min-

could be realised by December 2017. $184 million (according to PFS esti- erals Ltd’s Lynas Find project.

The company expects to start con- mates) and with Brinsden at the helm Pil- “We’ve already got a lot of tonnes in

struction of its flagship Pilgangoora pro- bara Minerals has the insider knowledge the ground and there is a lot more to

ject by the end of this year and is aiming to tap into potential Chinese customers come,” Brinsden said.

to produce at rate of 2 mtpa for 330,000 for off-take, while he can also access a “There is plenty of potential in Pilgan-

tpa spodumene concentrates or 48,000 workforce which knows how to operate goora’s resource, and as a result we

tpa of lithium carbonate equivalent and efficiently in the Pilbara. wouldn’t really suggest there’s much

274,000 lbpa tantalite at life-of-mine “Some very good people have been more that we’d need to buy. We think we

cash costs of $US205/t. involved with Atlas over the years and have one of the most competitive hard

Pilgangoora currently hosts a reserve where those skills make sense for Pil- rock lithium projects in the world in which

of 29.5mt @ 1.31% lithium and 134 ppm bara Minerals then absolutely, we’d be case it would make a lot of sense that ex-

tantalum which is sufficient for a 15-year only too happy to get them involved. A pansion capacity comes from our mine.”

mine life as outlined in a PFS released couple of key resources have already Brinsden said the company’s ability

earlier this year. come in who had been involved with At- to raise $100 million recently in buoyant

A DFS is under way, with drilling also las over the years and we look forward market conditions was an indication of

being conducted as Pilbara Minerals to drawing on their expertise and we’re the high level of support from investors

looks to increase mine life to 30 years. very lucky to have them involved,” Brin- and shareholders.

It has set an exploration target of 130- sden said. “If you think about financing the rest of

150mt @ 1.2-1.5% lithium and 175-225 The company has 100% of lithium ox- the operation, we are reasonably confi-

ppm tantalum. ide production from Pilgangoora under dent that customers will be supportive in

Brinsden said there was a lot of hard MoUs with off-take partners in China, participating in the financing,” he said.

rock lithium to be found in WA and if pric- Japan, Europe and the Americas, all of “We are looking forward to finishing

es stayed where they were now, there which have expansion plans in place to those discussions and once we have

would be many players incentivised to meet growing demand for EVs. done that we will determine the balance

explore potential lithium hubs. There is a plethora of juniors aiming of the fundraising – definitely in terms

However, being a semi-bulk material, to enter that market but Pilbara Minerals of scale – and then we will make some

only high-grade lithium deposits close to believes it can maintain its position at the decisions about where we go next. But,

infrastructure and downstream industries front of the pack via the drill bit. the objective generally is to have that

would make compelling mining opportu- Drilling companies Strike Drilling and all wrapped up in the second half of this

nities, according to Brinsden. Mt Magnet Drilling have been getting the year and get construction under way by

“If you haven’t got those criteria, then job done at Pilgangoora, with a 15,000m the end of the year.”

there is a reasonable chance there won’t RC and diamond programme north of – Mark Andrews
be a mine. Ultimately, you have to have the central pegmatite this year, delivering

a low-cost operation. While it is great to significant new zones of mineralisation,

AUSTRALIA’S PAYDIRT JULY 2016 PAGE 25

COVER

Neometals sets its sights
on value chain

One of the earliest movers in Construction has started at Mt Marion, with the plant expected to be hitting 200,000 tpa
the West Australian lithium nameplate capacity by the end of 2016
space, Neometals Ltd is already
planning its next move; up the find how we could compete in a low-cost plant and the pilot plant is already pro-
value-adding chain. environment,” Reed said. ducing samples,” Reed said.

Neometals – along with JV What the company came up with was If the move to lithium hydroxide is
partners Mineral Resources Ltd a low-cost production route to lithium hy- achieved, Neometals – which controls
and Jiangxi Ganfeng Lithium Co droxide, the material which is then sold to 70% of the lithium hydroxide JV – will
Ltd – is on track for first produc- cathode and lithium-ion battery makers. set itself even further apart from the WA
tion at its Mt Marion lithium pro- lithium hopefuls.
ject before the end of 2016, but “The price spike will likely persist in the
it is the opportunity to participate short and medium-term but in the longer “The likes of [Chinese lithium hydrox-
in downstream processing which term the lowest cost producers will re- ide producers] Ganfeng and Jianshi op-
could hold the greater rewards. spond,” Reed said. “China has been con- erate at P/E ratios of 100, we’re at about
verting hard rock spodumene into lithium 10,” Reed said. “We think we can treble
Having listed in 2002 on the hydroxide for 30 years and dominates our profits by building the plant.”
back of a traditional suite of East- the market.”
ern Goldfields base and pre- Prices suggest likewise and Neomet-
cious metals assets, Neometals The process involves hydrochloric acid als believes its process will allow it to
changed direction in August 2009 leaching of spodumene concentrate, pu- produce battery grade lithium hydroxide
when it acquired the high-grade for around $US3,900/t compared to an
Mt Marion project, 40km south rification of lithium chlo- industry average of around $US5,700/t.
of Kalgoorlie. Two months later, ride solution and elec-
Mineral Resources entered a JV trolysis to produce lithium A PFS completed in September 2012
over the former WMC project and hydroxide. highlighted capex of $US83 million and
by July 2010, the JV vehicle, now average annual pre-tax net cash flow of
named Reed Industrial Minerals Pty Ltd RIM is now undertaking $US63 million for a project set to produce
(RIM), had announced a decision to mine pilot plant trials in the US 10,000 tpa of lithium hydroxide and 8,810
on the 200,000 tpa spodumene concen- to define the patented ELi tpa of lithium carbonate.
trate programme. process and if the full DFS
– set for completion at the As with Mt Marion before it, the lithium
At that stage, Talison Minerals’ Green- time of print – points to hydroxide plant would be built with sup-
bushes was the world’s only spodumene robust economics, the JV port from a third party. China currently
mine and, with prices for the battery ad- will look to build a lithium dominates lithium hydroxide production
ditive spiking, Neometals and Mineral hydroxide plant, most like- and Reed said Neometals was already
Resources were keen to tap into the ly in Malaysia. receiving strong interest from companies
emerging market. keen to break that monopoly.
“The DFS is proving
“It all stopped in 2010 though because the technology and the “The next wave of interest is coming
a price war broke out,” Neometals man- Chris Reed economics of building the from cathode and battery producers
aging director Chris Reed explained to
Paydirt. “Talison was ramping up pro-
duction and the brine producers in South
America suppressed the
prices in response.”

RIM put Mt Marion’s
development on hold and
went back to the draw-
ing board. Its challenge
was to make Mt Marion
more cost-competitive in a
space where brine produc-
ers enjoy natural operating
cost advantages over spo-
dumene producers.

“We went back to the
physics and identified the
best way to make hydrox-
ide is to electrolyse it. So,
we looked to technology to

PAGE 26 JULY 2016 AUSTRALIA’S PAYDIRT

Neometals was first set to develop Mt Marion – a former WMC asset – in 2010 but the project was delayed until lithium prices recovered

who are looking for security of supply,” the blossoming WA lithium space. The of our other assets is definitely not re-
he said. “We are getting a lot of interest
from non-Chinese companies and with recent price spike has created a rare flected in the current share price.”
the Chinese Government likely to put
export quotas on lithium like it did rare opportunity to bring spodumene pro- Among those other assets is the long-
earths that interest will intensify.”
jects – which traditionally attract higher held Barrambie titanium project, 100km
Under the terms of the off-take agree-
ment with Ganfeng, Neometals/Mineral operating costs but lower capex – into south-east of Meekatharra.
Resources can elect to take 51% of Mt
Marion’s output after three years produc- production, while demand is still strong Like at Mt Marion, Neometals is hoping
tion. The company also has the added
advantage of using run-of-mine material and the South American lithium brine in- a processing technology breakthrough
from Mt Marion for the pilot plant.
dustry takes its time ramping up. will make Barrambie cost-competitive at
“It means we are not relying on drill
core material; this is the actual concen- Reed doubts all the new lithium players a time when titanium prices are strug-
trate we would be using,” Reed said.
“The economic case is strong; 70% of will find success but said the opportunity gling.
the opex for the hydroxide plant will be
your own spodumene.” for the sector was very real. “We have used the technology to pro-

The lithium hydroxide project was de- “It probably has the strongest growth duce an ultra-high quality titanium prod-
signed to offer Mt Marion better econom-
ics in the face of falling lithium prices. fundamentals of any commodity,” he uct. The next stage is to confirm the abil-
However, no sooner was the price war
over than demand for lithium products said. “I wish all of the lithium players well ity to produce a high quality pigment and
began to push prices back up.
but they have got to get into production run a partner selection process,” Reed
Talison has increased capac-
ity at Greenbushes from 200,000 tpa to before the brine producers. said.
780,000 tpa in the space of five years
and by early 2015, Mt Marion alone was “The brine plays are difficult. They are “This is a real eureka moment because
looking attractive once again.
high capex and tough metallurgically recovering the hydrochloric acid allows
Ganfeng entered the project in July
2015, initially securing a 25% share of speaking but they are lower cost. All of for much lower opex – the lowest known
RIM by paying $US19.5 million and by
February this year, the Chinese lithium the big brine projects took many years to in the market – which will make Barram-
producer had exercised its
option to increase its share- ramp-up. Demand is peaking and supply bie very attractive to pigment producers
holding to 43.1% via anoth-
er $27.15 million payment. is constrained and there is a gap for the in this pricing environment.

Mineral Resources has next two years that can only be met by “We like the technology so much we
also exercised its option
to expand its ownership hard rock production but after that prices have secured the global rights along with
and Neometals now holds
13.1% of the project, but will normalise somewhat.” Sedgman who will market it to clients.
has seen its cash balance
increase to $80 million Given the changing dynamics of the We believe it could be applied to base
thanks to the call options.
sector and the company’s assets, Reed and precious metal flow sheets where
The first blast at Mt Mar-
ion occurred in March and admitted a corporate restructure could the ore is refractory.”
Reed said he was confident
the mine would be “flat out” occur. Reed said the company was hunting
by the end of the year.
“As we get into production and show for a multibillion dollar partner who could
Timing is currently key in
our downstream strategy is locked in, it fund development and allow Neometals

would make sense to have a pure-play to take a back seat, just as it has done at

lithium company and it is certainly some- Mt Marion.

thing we are open to,” he said. “The value “We have got a good captive resource

and cost-focused innovation

which will prove attractive to

a major partner and allow

Neometals to take a low-

risk, low-capex exposure,”

he said.

“Building up passive in-

terests is not a traditional

junior miner strategy, in fact

we are looking more like a

mineral royalties company,

but we have received strong

shareholder support. And,

as we turn those interests

into cash, it just reinforces

the strategy.”

At full production, Mt Marion will account for 25% of the – Dominic Piper
spodumene concentrate market

AUSTRALIA’S PAYDIRT JULY 2016 PAGE 27

DIGGERS & DEALERS PREVIEW

Lithium in vogue but
gold and nickel will

set the mood

If the atmosphere inside the big tent next to the Goldfields Arts players and reinvested in smaller compa-
Centre in Kalgoorlie is the best annual indicator of the temperature nies and retail investors are beginning to
of the Australian resources sector, then it is the booths of the gold look for the next cab off the rank. When
and nickel companies where the barometers should be placed dur- exploration stories start moving, it gives
ing this year’s Diggers & Dealers. confidence to market watchers.”

While the likes of iron ore, uranium and Standout miners Northern Star Re- Capital raisings among gold explorers
other commodities have had their mo- sources Ltd and Evolution Mining Ltd and developers in the first half of 2016
ment in the Diggers’ sun – lithium is this have led the resurgence but the last six were an indication of that with develop-
year’s speciality – gold and nickel have months have seen investors returning to ers such as Blackham Resources Ltd
always been the cornerstone of the con- smaller producers and even explorers ($20 million) and Gold Road Resources
ference. If the gold and nickel players are and developers. Ltd ($74 million) being followed by explor-
in positive mood, the conference is likely ers such as OreCorp Ltd ($16.2 million),
to be buoyant. If not, the overall impres- “We are seeing the trickle down in Excelsior Gold Ltd ($11.35 million) and
sion may be gloomy. the last three months,” Minelife analyst Middle Island Resources Ltd ($9 million).
Gavin Wendt told Paydirt. “At the start of
Complicating the matter is the mixed the gold run, investors were concentrat- Middle Island switched its focus from
fortunes the two traditional Goldfields ed on Evolution and Northern Star but as West Africa to acquire the historic Sand-
commodities have enjoyed over the last the Australian gold price took off we have stone gold operation in Western Australia
12 months. For the gold miners, it has seen a trickle down to those with opera- and managing director Rick Yeates said
been a period of undebatable success. tions and now even those explorers with the response from existing shareholders
Encouraged by a strong local gold price, resources because investors are looking and new investors had been so positive
the Australian gold sector is in its best for the next opportunity. the company had raised its initial fund-
state in a decade. raising targets.
“Profits are being taken from the larger
“The response was really pleasing for
both capital raisings,” Yeates said. “A
number of investors were insistent on

PAGE 28 JULY 2016 AUSTRALIA’S PAYDIRT

“Profits are being taken from the larger
players and reinvested in smaller
companies and retail investors are beginning
to look for the next cab off the rank. When
exploration stories start moving, it gives
confidence to market watchers.

raising more to push development and while a supply glut remained in place. cuts from the larger diversified miners,”
exploration further. They said it was a However, there are embryonic signs Lougher said.
good project and we should pursue it vig-
orously.” of a change in such fundamentals. Mac- He said Western Areas had been sur-
quarie Bank recently upgraded its global prised that more loss-making production
Wendt said strong support for gold nickel demand growth forecast for this hadn’t come out of the market but said
plays such as Middle Island’s was indica- year from 1.3% to 4.4%, largely on the many of those decisions were based on
tive of investor sentiment currently. back of expected 4% growth in Chinese non-commercial reasons.
300-series stainless production.
“Very simple stories are in vogue at the “When you look at the reasons it is
moment,” Wendt said. “Everyone under- On the supply side, there are indica- more understandable, there are sig-
stands gold has been performing so well tions the prolonged downturn in the sec- nificant barriers to exit. There has been
in Australian dollar terms. The near-term tor is starting to bite. huge capital invested in the laterite oper-
producers’ prospects are very good and ations and they can’t be easily switched
people have a key grasp of factors driv- Western Areas Ltd managing direc- off or placed on care-and-maintenance
ing gold.” tor Dan Lougher is cautiously positive, and there are a number of social, envi-
thanks to forecasts of an impending mar- ronmental and political issues concerned
While conditions may be bright for the ket deficit. with closing other operations,” Lougher
Goldfields’ premier precious metal, the said.
outlook for its base metal equivalent is “Conditions aren’t really any better
more uncertain. than at the start of the year but there Demand out of China’s stainless steel
is a feeling the market has bottomed,” sector has been solid throughout the first
The nickel spot price fell to 10-year Lougher said. “Macquarie Bank and half of 2016 and Lougher is growing in-
lows in early 2016 as supply and demand Wood Mackenzie are both talking about creasingly interested in the impact other
fundamentals continued on their bearish 70,000t deficits this year but we have nickel applications could have on the
trend. had a surplus for the last five years so sector.
the question is how the deficit will affect
On the demand side, China’s ailing stockpiles. We don’t need one year of “Other markets, such as alloys in the
steel industry continued to flatten en- deficit, we need several.” aeronautical sector, have performed well
thusiasm for the stainless steel additive and the electric vehicle (EV) market is
The nickel market has not been in sur- particularly interesting,” he said. “A Tesla
plus since 2011 and the spot price has battery uses 50kg of nickel which is good
subsequently struggled. However, many news for the industry. The projected
producers have stubbornly refused to growth of the EV market could mean an
curtail production. extra 200,000 tpa of demand within 10
years. That won’t have a massive impact
“We’ve seen the likes of Mincor [Re- on the global supply/demand balance but
sources NL], Panoramic [Resources it will certainly have a sentimental affect.”
Ltd], Queensland Nickel and Mirabela
[Resources Ltd] come out of the mar- It remains a subdued outlook for nick-
ket but we haven’t seen a whole pile of el but as one of the last nickel players
standing in WA, Lougher believes West-
Dan Lougher ern Areas offers investors exactly what
they want in the current market, regard-
less of commodity.

“Investors are looking for companies
which are debt free and can sustain
themselves during through low-price en-
vironment and then give them a tick up
when it turns,” he said. “For those people
who are preparing for base metals to turn
– and there are many institutions on our
register which have that belief – we are
very suitable.

“You may just have to get your tent out
and be prepared to camp while you wait
for nickel to turn.”

– Dominic Piper

AUSTRALIA’S PAYDIRT JULY 2016 PAGE 29

DIGGERS & DEALERS PREVIEW

Toro defies yellowcake slump

Toro Energy Ltd managing di- approval that we went through,”
rector Vanessa Guthrie is blunt
in her assessment of the uranium Guthrie said.
market: “It’s the toughest we’ve
seen in more than 20 years.” “Of course, we still have those

However, even she is amazed anti-nuclear opponents who are
at the progress her company has
made at the Wiluna uranium pro- making submissions and we’re dili-
ject since she stepped into the top
executive role more than three gently responding to all the ques-
years ago.
tions that they raise. But there are
Guthrie, who joined Toro in July
2011 as project executive general no environmental or social issues
manager before being appointed
managing director in early 2013, being raised this time that haven’t
has had to cope with the ramifi-
cations of the Fukushima incident been raised before and considered
during the entire length of her stint
with the company, but not once in the previous approval.”
has she allowed it to affect her
team’s pursuit of developing West- Discussions with the Native Ti-
ern Australia’s first uranium mine.
tle holders of Wiluna over a formal
“The project is most impacted by
the market and the market condi- mining agreement remain ongoing,
tions, but I would say it’s absolute-
ly in a better place than I originally but Guthrie was confident a reso-
envisioned it would be and that’s
very much about the robust sci- lution that would benefit both her
ence that we’ve applied to the de-
posits,” Guthrie told Paydirt. company and the local community

“I think the Wiluna project itself is in was not far away.
very good shape from a technical point
of view and Toro as a company has had “I think we’re in a very good place
to weather a pretty tough market with
both the end of the iron ore impact on the with the local community,” Guthrie
market and investors in general becom-
ing less attracted to resources as an in- said. “We understand their issues
vestment option.”
and their concerns and we’ve al-
Major strides were made during
Guthrie’s first year in charge of the com- ways had a lot of respect for the
pany, including a series of major project
acquisitions, and several more mile- cultural value they place around
stones have been, or will be, achieved
this year. the Lake Way area.

Toro capped a busy first half with posi- “They’ve been very involved in
tive results from preliminary beneficia-
tion test work on the mineralisation at the Toro has increased the Wiluna resource to 40.4 mlb our on-the-ground activities, work-
Lake Maitland deposit, headlined by a @ 951 ppm uranium ing with us in heritage survey and
350% increase in the effective grade of in some rehab work. We also help
the beneficiated concentrate to 9,968
ppm uranium, compared to the feed and then apply this beneficiation tech- to sponsor Aboriginal children from Wilu-
grade sample of 2,209 ppm.
nique to the other deposits.” na to finish high school, which is fabulous
“We were able to beneficiate by de-
sliming the Lake Maitland deposit to get Toro’s decision to pursue a new line of because we’ve seen a lot of kids actually
an 80% reduction in mass, with just a
10% loss of uranium in that process, and beneficiation with Strategic Metallurgy complete Year 12, whereas in the past
that’s an exceptionally good result for
beneficiation,” Guthrie said. followed an upgrade to the resource at that hadn’t been achieved.”

“Of course, that was just one test sam- Wiluna, which now stands at 40.4 mlb Guthrie praised Toro shareholders for
ple so now we’re doing some more test
work to see if we can replicate that result @ 951 ppm uranium (500 ppm cut-off) sticking with the company during a tough

across the Lake Maitland, Lake Way, market for uranium hopefuls, reiterating

Centipede and Millipede deposits. that no one should expect short-term

The improved resource quality at Cen- gains from any investment in yellowcake.

tipede and Millipede then allowed the “The nuclear market is an incredibly

company to optimise its mining plans for long market, it’s a long investment hori-

the early years of planned operations zon because it takes 8-10 years to build a

at Wiluna and this resulted in a 12% in- reactor and it takes another 8-10 years to

crease in the grade of the mining inven- get a deposit from discovery to develop-

tory material to more than 1,000 ppm, ment and into production,” Guthrie said.

a 31% decrease in the strip ratio and a “China is building between 6-8 reac-

43% reduction in the waste mined. tors per year for the next five years, so

Toro also moved a step closer towards out to 2020, they have 35-40 new reac-

having its revised environmental ap- tors coming online and the commitment

provals for Lake Maitland and Millipede to build those reactors started in 2005,

awarded during the first half, with the so that’s the sort of timeframe it takes.

company completing its formal public “It is a slow-growing market and I think

consultation period and submitting its re- the Australian investment market expects

sponse to the Environmental Protection that when you see a green shoot, things

Agency (EPA). will suddenly take off because that’s

Subject to any appeal, it appears likely what you see in the other commodities,

Toro will be granted full environmental but uranium is an energy market, not a

approvals for all four deposits later this commodity market and it’s a very long

year. investment horizon.”

“The community’s response in general – Michael Washbourne
was much more muted relative to the first

PAGE 30 JULY 2016 AUSTRALIA’S PAYDIRT



DIGGERS & DEALERS PREVIEW

Deflector start fires Doray
growth plans

Now in its fourth year of production, Andy Well remains on track to produce above its 73,000 ozpa life-of-mine average in 2016

The first gold pour at the Deflector gold- “It was a very up and down experience tiny had got itself into a mess with Deflec-
copper mine in Western Australia’s for me,” Kelly said of the Mutiny takeo- tor, particularly around gold recoveries,

Murchison district signalled Doray Miner- ver in April 2015. “It gave Doray all the and there was a perception among ana-

als Ltd’s move to multi-asset producer but right things – an undervalued opportunity lysts that Doray was taking on a troubled

managing director Allan Kelly knows it will capable of becoming a second produc- asset.

be a few months yet before the market ing asset – but the reaction in the market “The company and the project had his-

gives it credit. was very negative.” tory but a lot of it was unwarranted. The

“Doray poured first gold at Deflector on Kelly understands some of the reasons main problem was the metallurgy but it

May 31, 14 months after acquiring the behind the negative market reaction. Mu- was actually the plant that was wrong. It

project as part of its takeover is not as straightforward as

of Mutiny Gold Ltd. The com- It gave Doray all the right things other gold projects; it should
pany’s share price, however, have been a gold-copper

remained flat following the – an undervalued opportunity plant. We have done that
announcement but Kelly is capable of becoming a second but I think the perception is
aware Doray still has to con- still there.”

vince investors the Deflector producing asset – but the reaction in Construction of the new,
deal was the right one for the the market was very negative. purpose-built 480,000 tpa
company. processing plant was com-

PAGE 32 JULY 2016 AUSTRALIA’S PAYDIRT

pleted on schedule and the first

gold was won from the grav-

ity circuit, from which Doray ex-

pects to recover 60% of its pre-

cious metal.

First gold-copper-silver con-

centrate from the flotation circuit

following in June, with Doray ex-

pecting its first shipment of the

gold-copper-silver concentrate

to occur at the end of the month.

Now the company will be able

to start convincing the market

Deflector was the right choice.

“It may take until the Septem-

ber or even the December quar-

ter to convince people,” Kelly

said. “We have confidence be-

cause it is the second plant we

have built in three years and we

built it specifically for the ore-

body and we have three dedi-

cated metallurgists working on

it. We understand we have to

deliver and will probably put out

monthly updates until we have a The first gold bars from Doray’s new Deflector operation were won from the gravity circuit in May.
full quarter of production.”
“ Copper-gold-silver concentrate production followed in June
GR Engineering Services The challenge for us is how we get to 250,000 ozpa
Ltd built the company’s Andy without just chasing ounces for the sake of it. We
Well plant and has returned have got one of the best margins among Australian gold
again to build Deflector, giv- producers and we don’t want to sacrifice that.
ing Doray a natural advan-
tage in the ramp-up, accord-
ing to Kelly.

“We’ve learnt some opera-

tional things from Andy Well

and built that into the Deflector design,” “Mutiny was running at 10% dilution for knew what we were doing with an opera-

he said. “Andy Well has a 250,000 tpa Deflector and, given we had some dilu- tion of this size.”

nameplate capacity but we’ve been run- tion issues at Andy Well, we felt that was Deflector is set to produce 60,000

ning it very hard at 340,000 tpa so we a bit skinny. So, we upped the dilution to ozpa gold and 2,500 tpa copper over an

have beefed up the primary crushing 40% and increased the mill size, which initial six-year mine life. With Andy Well

capacity at Deflector in anticipation of results in better cash costs. I think that forecast to average 73,000 ozpa produc-

something similar. was a big selling point for Mutiny; we tion over the next three years, Doray will

soon be in the top 15 gold producers in

Australia and, Kelly hopes, primed for a

rerating of its market cap.

Like most resources executives, Kelly

believes his company is undervalued.

However, he can provide some compel-

ling evidence to justify his case.

“We’ve only just seen the share price

reach $1 again for the first time since

mid-2014 and our enterprise value to

EBITDA is still less than every other gold

miner on the ASX,” he said. “The aver-

age ratio is four times on the ASX and as

much as eight times for TSX-listed gold

companies. Ours is only two times.

“So, we have kept the same position in

the pack but we are now pouring gold at

Deflector.”

The company still had total debt of $60

million (with cash and gold of $56.6 mil-

lion) at the end of the March quarter but

Kelly said with this closer to $50 million in

Allan Kelly June, debt translated into 16c/share.

AUSTRALIA’S PAYDIRT JULY 2016 PAGE 33

DIGGERS & DEALERS PREVIEW

banks and investors and if we

get two or three years more

it will be a good result, espe-

cially if it gives us more time

to get Deflector right and find

another project.”

Consistent production from

the two existing operations

will give Doray the time, and

money, to pursue growth op-

portunities; either organic or

corporate.

“We are saying: ‘Let’s see

if we can get there through

exploration success’, but that

is a three-year process and

inherently risky,” Kelly said.

“We have our near-mine tar-

gets and the exploration plays

so ideally we want something

in between. The problem is,

those companies with assets

in or near production have

already had their share price

run. We need another Deflec-

tor; a project with problems,
Doray expects to ramp up Deflector to its full 465,000 tpa capacity during the September quarter with baggage.”

Such has been the run of

Having two producing assets and no Alloy Resources Ltd and in May an- market success enjoyed by gold compa-

need to further draw down on its $90 mil- nounced it had entered a farm-in agree- nies of all sizes in the first half of 2016,

lion debt facility could be the catalyst for ment with Rox Resources Ltd’s over the Doray finds its options narrowing.

a rerating in the next six months. latter’s Mt Fisher gold project. “If you are trying to do a merger today

“We’ve never been in the ASX 300 “The Rox deal is similar to the Horse you will be paying 100-200% more than

before but now we have the market cap Well one,” Kelly said. “They are under- 12 months ago,” Kelly said.

and the trading volume and I think that explored projects with opportunity for The preference will be to pick up an-

will give us another boost. If all goes well a 100,000 ozpa standalone operation. other WA asset but Kelly admitted the

with Deflector and paying debt I think we If they don’t begin to stack up after 12 company had already begun looking fur-

could be at $1.30/share,” Kelly predicted. months, we can move on. That’s the ther afield.

“To reach the next rerating milestone, model we like; get a free option for test- “Ultimately, we will stick with what we

Kelly knows the company would have to ing a concept.” know; narrow vein, high-grade under-

move into the 250,000 ozpa ground mining but we are not set

group production scenario of We always viewed Andy on WA. We will stick to that sort
Australia’s emerging mid-tier Well as a springboard to of asset first and then look at the
give us a track record with banks
gold miners. sovereign risk, time zone issues,
“Plus-250,000 ozpa and etc of where those assets are.

plus-500,000 ozpa, they are “The further away from home

the major thresholds for re- and investors and if we get two you go, the better the project
rating,” he said. “The chal- or three years more it will be a has to be but we are still open to
lenge for us is how we get looking at Africa, North America,

to 250,000 ozpa without just good result, especially if it gives South America, parts of Asia and
chasing ounces for the sake of us more time to get Deflector right even Europe.
it. We have got one of the best
“But, there is a timing issue

margins among Australian and find another project. because you are always compet-
gold producers and we don’t ing and if you leave it too long

want to sacrifice that.” the opportunity goes, particu-

Andy Well’s reserve grade larly with TSX-listed companies

is 6.6 g/t gold (with resources grading The company plans to increase ex- which have seen their value increase in-

9.7 g/t) while Deflector boasts grades of ploration expenditure from $11 million in credibly. We went to PDAC in Toronto in

5.6 g/t (reserves) and 6.4 g/t (resources). FY16 to $15 million in FY17 but with Andy March and there were some pretty good

Finding a project to match those num- Well’s mine life still only three years, Kel- projects on offer but with higher market

bers will be difficult and Kelly and gen- ly knows the company needs to restock caps attached.”

eral manager growth Mark Cossom are the project pipeline soon. – Dominic Piper
hunting the world over for a solution. “Andy Well is on track to hit 74,000

The company is already earning up ozpa for the next three years,” he said.

to 80% of the Horse Well gold project – “We always viewed Andy Well as a

50km from the Jundee gold mine – from springboard to give us a track record with

PAGE 34 JULY 2016 AUSTRALIA’S PAYDIRT



DIGGERS & DEALERS PREVIEW

Honeymoon start for Boss in SA

Boss has increased the total resource at Honeymoon from 16.6 mlb to 57.8 mlb in just over six months

Boss Resources Ltd may have only geologists who understand uranium Dam deposits.
controlled the Honeymoon uranium and understand in situ leach resources, Those three deposits account for
project in South Australia for a little over working for us,” Davey told Paydirt.
six months, but already the total resource 15.2mt @ 820 ppm uranium for 27.6 mlb
has trebled in size. “They’ve been working since Decem- of the total resource, including measured
ber to correlate all the geological data resources of 1.7mt @ 1,720 ppm ura-
When Boss completed its acquisition into one database and once they had nium for 6.5 mlb. A maiden resource of
of the project from Uranium One Austral- done that it was quite easy to increase 22.1mt @ 510 ppm uranium for 25 mlb at
ia Pty Ltd last December, Honeymoon’s the resources to JORC-compliant stand- Gould’s Dam was also announced in the
resource was just 5.3mt @ 0.14% ura- ards in those areas. first quarter.
nium for 16.6 mlb.
“With the amount of drilling now in the Boss raised $1.25 million via a place-
Three resource upgrades and two database, we understand where best to ment early last month to fund the up-
maiden resource estimates later, Hon- spend money on the exploration front coming drill programme, which will seek
eymoon now boasts a global resource and we’ll be starting a new exploration to upgrade the existing resources at
of 40.1mt @ 654 ppm several high-grade deposits within the
uranium for 57.8 mlb – programme in the third 2,595sq km tenement package, about
and it will only get bigger quarter.” 80km north-west of Broken Hill.
over the coming months,
with a new drilling pro- Last month the “We’ll be focusing on our higher grade
gramme slated to begin company announced resources – our low-hanging fruit – and
this quarter. a maiden inferred re- we expect to have significant upgrades to
source of 2.8mt @ our resource over the next six months as
Boss executive direc- 840 ppm uranium for we drill and further understand the data,”
tor Grant Davey paid 5.2 mlb (above a 250 Davey said.
tribute to the fastidious ppm cut-off) for the
efforts of his newly as- Jason’s deposit, at the Davey officially joined Boss in January
sembled geology team. northern end of the after a successful stint with niobium hope-
Yarramba palaeochan- ful Cradle Resources Ltd. The mining en-
“We’re very fortunate nel which also hosts gineer first came across Honeymoon in
to have Marat Abzalov the Honeymoon, East 2011 and was initially looking to integrate
and Neil Inwood, two Grant Davey Kalkaroo and Brook’s the project into Cradle’s portfolio.

PAGE 36 JULY 2016 AUSTRALIA’S PAYDIRT

However, with Cradle rap- to? We believe somewhere

idly advancing its Panda Hill between 2 mlbpa and 5

project in Tanzania, Davey mlbpa would make uranium

felt Boss – a struggling jun- production sustainable,

ior with dormant nickel and even at current uranium

copper assets in Finland, price regimes.”

Sweden and Norway – was Davey said the current

a better fit for Honeymoon uranium spot price meant

and so he stepped down it was “unrealistic” to think

from Cradle last November about a potential restart at

to focus on his new busi- Honeymoon, but that could

ness venture. change if yellowcake starts

“It got to a stage where I trading above $US45/lb.

felt my value-add was be- “For a relatively low

coming less, but I’m still very capital cost, maybe under

involved with Cradle on the $US10 million, we can actu-

technical management side ally start up this operation

of things,” Davey said. again,” he said.

“My business model is to “It has the resource, it’s

find a project, put it into a fully permitted and we’re sit-

publicly listed company and ting on a uranium province

to get behind the project and in the Curnamona Basin

make the project work. I did that can be explored. We

that with Cradle and they believe there’s up to 100

should be going into con- mlb more than what’s in our

struction towards the end resource. And it has pro-

of this year. I hope to do the duced yellowcake [before].”

same with the Honeymoon Davey is upbeat about the

uranium project over time.” future prospects for urani-

Kalahari Resources plc um, describing it as “one of

founder Mark Hohnen, who the fastest growing energy

oversaw the $US2.2 billion sources in the world” due to

sale of the Husab uranium the planned construction of

mine in Namibia, has since at least 70 new nuclear re-

been appointed chairman of actors worldwide, with more

Boss, while his predecessor than half of those expected

Evan Cranston has transi- to be built in China.

tioned to a corporate role An 880,000 lbpa processing plant is one of the mine Having a uranium mine
with the company. infrastructure advantages at Honeymoon in SA, where the Weatherill
Government recently con-
Davey’s private company,

Wattle Mining Pty Ltd, has retained 20% too low for sustaining a profitable opera- cluded a Royal Commission supporting

ownership of the Honeymoon project, tion at current depressed uranium prices. the State’s bid for a nuclear future, could

“however, Boss has an option to assume “As far as our option study goes, or be a fillip for Boss in the coming years.

full control upon com- “What most people

pletion of a BFS to re- don’t realise is Aus-

start operations at the What most people don’t realise tralia has about 30% of
mothballed mine. is Australia has about 30% of the the world’s uranium re-
serves, so Australia is
Honeymoon, one of

only four fully permitted world’s uranium reserves, so Australia is strategically positioned
uranium mines in Aus- strategically positioned for the developing for the developing coun-
tralia, was placed on tries – China, Japan

care-and-maintenance countries – China, Japan and India – and and India – and it’s also
in 2013 due to low pric- it’s also strategically positioned for off-take strategically positioned
es for yellowcake. Boss for off-take into Europe,

acquired all associated into Europe, especially Eastern Europe. especially Eastern Eu-
permits and mine infra- rope,” Davey said.

structure, including the “South Australia has

880,000 lbpa process- taken the lead as far as

ing plant, as part of the transaction. our initial stages of feasibility, we’ll be fo- the states go in Australia and the South

Boss has begun a technical review of cusing on new and recent technologies, Australian Government seems support-

a 2013 study which assessed the use of including resins, which are crucial for ive of uranium production as a form of

ion exchange (resin) technology and the extracting uranium on a large tenement energy source.”

potential reduction in operating costs it area,” Davey said. – Michael Washbourne
could bring to Honeymoon. “We’re also looking at the size of the

Initial assessments have indicated plant. Do we keep it at its current sizing

Uranium One’s plant production rate was or if we increase it, what do we increase it

AUSTRALIA’S PAYDIRT JULY 2016 PAGE 37

DIGGERS & DEALERS PREVIEW

Saracen to curb
exploration hunger

Karari is proving to be bigger than initially anticipated

Saracen Mineral Holdings Ltd is hoping for the company at Thunderbox and now the targets and areas it wants to tap are
to make a big bang with its explora- the thirst for exploration had returned. clear.
tion efforts this year.
“In fairness, our assets have been Saracen’s breadwinning project, Caro-
Followers of Saracen – who appear to reasonably starved [of exploration] par- sue Dam, already has the Karari under-
be growing rapidly in number given the ticularly in the last 12 months as we have ground mine proving itself bigger than
recently instated ASX200 company has focused on getting Thunderbox going,” expected, Deep South steadily growing
doubled its shareholder base in the last Finlayson said. “We have managed to do and the hunt for another Red October
12 months – would be aware rejuvenat- that without drawing any debt. Now that (recent results include 0.4m @ 141 g/t
ing operations at Thunderbox, near Lein- we have done that and Carosue Dam is gold and 2m @ 91 g/t) showing promise.
ster, has been priority No.1. cash flow positive, we will probably re-
vert to putting some dollars back in the However, about 18 months ago, a pro-
Having switched the plant on in Febru- ground and hit some targets that we have gramme of diamond drilling into the base
ary and pouring first gold on the 18th of known about for a period of time. We are of the open pit revealed some of the best
that month, cash flow has proceeded to talking about spending the majority of grades seen at the operation.
stream, allowing Saracen to declare the that between now and September, so that
Thunderbox revamp an overwhelming is pretty exciting. We are probably look- Finlayson said there was good poten-
success. ing at monthly potential game-changing tial to ramp up Karari from 70,000 ozpa
announcements to the market, so it is a gold production to 100,000 ozpa.
The strong Australian gold price envi- pretty handy time to be a shareholder.”
ronment ($1,700oz at the time of print) “The most exciting thing is that we
has been complemented by diesel costs Going into the new financial year, Fin- have two drill drives getting punched out;
coming in 30-40c/L under the 90c/L layson said Saracen would look to dou- one to the north and one to the south.
budget, producing a perfect storm for ble, even treble, its exploration from the Essentially, we are going to be doing a
Saracen to coast through. $12-13 million budgeted in FY2016. 40,000m programme from early July
through to about September, with the
Speaking to Paydirt, Saracen chief The company is yet to finalise exactly area we are drilling already about twice
executive Raleigh Finlayson said things how much it will spend on exploration but the size of what we have already defined.
probably couldn’t have gone any better We have already got close to a 1 moz re-

PAGE 38 JULY 2016 AUSTRALIA’S PAYDIRT

source, so that is probably the way at King of the Hills pros-
single most exciting drill pro-
gramme that we are going to do pect – Saracen appears to
this year,” Finlayson said.
be pushing hard to capitalise
With multiple lodes, orienta-
tions and attractive widths, es- on the very good momentum
tablishing new drill platforms
will allow Saracen to test an- generated by delivering and
other 300m down dip at Karari,
while investigating along strike exceeding its own expecta-
and at depth at Deep South is
also on the radar. tions.

Deep South has become the At the time of print, a com-
base-load feed provider from
the Northern region at Carosue bination of diamond holes
Dam where modest output from
Red October of 15,000 ozpa to the south of King of the
in FY2017 and FY2018 is ex-
pected. Hills was being carried out to

Saracen is planning exten- identify some never-before
sional drilling to chase prom-
ising intersections in the ilk tested areas.
of 18m @ 7.4 g/t gold – 40m
below the current reserve – at “There are high-grade
Deep South where ramp up to
60,000 ozpa production in FY2017 is on lenses similar to the north
track.
and some areas that we see
Hitting its FY2016 and FY2017 guid-
ance of 150,000-160,000 ozpa from Ca- as near-mining opportuni-
rosue Dam and with a full year output
from Thunderbox, Saracen is well placed ties,” Finlayson said.

“All of that phase one drill-

ing will be done in July. We

are running numbers on what

we can see on the north; the

theory being we might be

Raleigh Finalyson able to jump in there and get

some mining happening next

to double group production to 300,000 financial year, which will at least self-fund

ozpa at AISC of about $1,075/oz in the the drilling that we are doing there and

foreseeable future. essentially access the southern areas.

But, with potential growth opportuni- As early as July we’ll have a pretty good

ties at Carosue Dam and Thunderbox handle on what all that looks like.”

– drilling and a scoping study are under Finlayson is understandably excited

AUSTRALIA’S PAYDIRT JULY 2016 PAGE 39

DIGGERS & DEALERS PREVIEW

vious companies that the bigger

companies would run a rule over.

It’s what has happened time and

time again in the history where you

have had Barrick [Gold Corp] and

the like exiting at lower gold prices

and then when the gold price gets

some froth about it again all of a

sudden they come rushing back.

I didn’t think it would happen this

early, but maybe it will.”

Finlayson said the reason some

of the bigger US companies may

return to Australia would be to

solve their chronic debt problems.

“If they work their way out of it

through either producing more

cash flow or raising more equity to

get rid of that, it becomes an obvi-

ous solution for them to get some

exposure outside of wherever they

are operating. That may well be a

theme for the next 12 months,” he

said.

With one eye looking over its

shoulder, Saracen has the other

cast on its own opportunities.

At the moment, with high gold

prices pushing margins up, Sara-

Exploration is back in a big way for Saracen cen is priced out of large-scale

projects and is happy to “look at

about the potential bolt-on additional for a claim have next to no chance, even what’s available without executing at this
ounces at Thunderbox, where St Bar-
bara Ltd consistently ran underground with positive investor sentiment for gold stage”.
operations at about 60,000 ozpa @ 4.5
g/t gold between FY2012-15. stocks returning. Instead, the company will focus on

The upside for Saracen is that the un- “The juniors can’t get a look into that acquiring potential opportunities within
derground potential sits outside its five-
year plan at Thunderbox where stage territory because it is too hotly contested 100km of its two operating centres – Ca-
one open operations are based around
2.5 mtpa for 596,000oz (contained) at by the bigger guys with the bigger pock- rosue Dam and Thunderbox.
AISC of about $1,000/oz over four to five
years. ets and it is us and the likes of Dacian “They will be things that are too small

Saracen sees a potential 10-year op- leading the charge with our programmes to build a plant on, but ones that would
eration at Thunderbox and as it endeav-
ours to achieve that ambition, it is not later in the year,” Finlayson said. slot nicely into our five-year plan,” Finlay-
limiting its scope for growth further afield.
“We have stuff to the south [of the lake] son said.
Lake Carey has been identified as el-
ephant country with potential for green- that we will probably get to in the second A good bet also is that now Saracen
fields discoveries and Saracen plans to
investigate it. half of 2017; that area north of Red Octo- finds itself in the ASX200 there will be

The company has some land north of ber is absolutely elephant country.” much more scrutiny on its quarterly re-
its Red October mine in a neighbourhood
where 20 moz has been discovered in Having achieved success in build- ports and progress than ever experi-
the past 20 years.
ing its production profile, Saracen has enced by the company.
Residents occupying space in that
area and actively exploring include An- broadened its investor base to include Finlayson said he expected people to
gloGold Ashanti Ltd (Sunrise Dam), Gold
Fields Ltd (Granny Smith) and Dacian global specialist and generalist funds, be fixated on Saracen’s P/E ratios and
Gold Ltd (Calisto).
while retail investors are starting to show accounts as it evolves as a company and
Like his peers on the ground there, Fin-
layson is convinced potential 1 moz sys- a penchant for also investing. he welcomed the chance to meet one of
tems are waiting to be unearthed.
Adding outstanding exploration suc- the company’s core values – delivery.
However, with the bigger end of town
occupying large sections of Lake Carey, cess to its production credentials may “We have a little bit to go in the current
hopeful juniors looking for an entry point
just be the fillip for gold players wanting financial year, but that is looking on track

to dance with Saracen. to tick the boxes again on guidance,” Fin-

Gold mining major Newcrest Mining layson said last month.

Ltd has opened the door to potential “It will be four years in a row that we

M&A opportunities but with Northern have met or exceeded guidance, I sup-

Star Resources Ltd and Evolution Mining pose it has been building and what hap-

Ltd attracting hefty valuations, they could pens now there is a tendency from the

deter the likes of Newcrest or blue chip market, shareholders and brokers that

US producers making a play. whatever we put out is being viewed as

“If you look at the companies that have conservative, so there is always an ex-

one or two assets it is basically us, St pectation that we should do a little better

Barbara and Regis [Resources Ltd] in than that.”

that space,” Finlayson said. – Mark Andrews
“You’d imagine they would be the ob-

PAGE 40 JULY 2016 AUSTRALIA’S PAYDIRT



DIGGERS & DEALERS PREVIEW

Nickel hardens St George’s
crack at gold

St George Mining Ltd has “It is a great stamp of ap-
received deserved recog- proval having Terry Streeter

nition in the market so far this as a shareholder, he is familiar

year. with the Mt Alexander project

After starting the year at from his days at Western Ar-

less than 7c/share, the com- eas and since the first discov-

pany reached a high of 23.5c ery out there with BHP Billiton

in early May and at the time of in 2008,” Prineas said.

print was trading at a respect- Mt Alexander is a former

able 17c/share. BHP Billiton Nickel West Ltd

It has garnered its fair share asset, which St George com-

of market attention on the pleted the 75% acquisition of

back of shallow, high-grade in January, with Western Ar-

nickel-copper sulphide hits eas retaining a 25% interest

at Mt Alexander, west of Le- and becoming a shareholder

onora. in St George.

St George can claim to be “He has liked this project

Western Australia’s premier and thought it was a company-

nickel explorer at the moment, maker. He was disappointed

considering the sting appears Western Areas didn’t quite

to have dissipated from the own a 100% stake, but he is

tail of Sirius Resources wan- very happy that we picked it up

nabes plying their trade in the because he can see making

Fraser Range. 20, 30 or 40 times the money

Since the Nova discovery from St George, whereas if

in 2012, a lot of money and Western Areas pursued it he

effort has been expended in would have probably doubled

the Fraser Range, however, his money, so the actual mul-

explorers with interests in the tiplier investment is with St

region have little to show to George. It is great validation

date. for the project that he is on

“I am sure one good hit out board and it is very good for

there will ignite a lot of inter- the next steps as we go along

est and I hope that happens because he has been through

because it will be good for development and production

that company and good for Massive nickel-copper sulphides at Mt Alexander has excited stages and has a wealth of

everyone else [in the nickel the investment community contacts that will help us to

sector],” St George executive reach the next level.”
chairman John Prineas told Paydirt.
investors have taken a shine to the com- One of the next boxes to tick will be

“The lack of recent success has been pany despite the base metal being worth producing a resource, potentially early

a little disappointing and a little surpris- only $US8,350/t. next year, as St George continues to drill

ing given the amount of money and effort “Everyone knows nickel is an essential for the remainder of this year.

invested in the Fraser Range and inves- commodity and knows it is required, but “We still need a couple of really good

tors’ stamina can be challenged by that. we understand that we are in the nickel hits,” Prineas said.

We are fortunate that we see potential at space where the highs are strong and Streeter would have been impressed

depths of 30-100m, so we are not going the lows poor. But, everyone gets nickel on a recent visit to site with the progress

to have to raise $300 million to build an sulphides, particularly in WA,” Prineas being made by St George, with signifi-

underground project.” said. cant intersections of 4m @ 4.9% nickel,

With activity cooling in the Fraser Prineas is far from certain when nickel 1.7% copper and 3.9 g/t total PGEs from

Range and down-trodden juniors turning prices will bounce back, but is confident 91.4m, 3m @ 3.8% nickel, 1.6% copper

towards potential lithium and gold pro- St George is building something at Mt Al- and 2.7 g/t PGEs from 56.3m and 6m

jects, St George has remained staunch exander for the market to keep tabs on. @ 3.3% nickel, 1.5% copper and 2.7 g/t

in its pursuit of nickel in familiar territory. The company’s success to date at Mt PGEs at the Cathedrals target. Assays

It is perhaps that St George is tread- Alexander, where a pipeline of targets are also pending from XRF analysis of

ing on ground that has been worked over have been worked up, has compelled 1m of matrix/massive sulphides aver-

before or that it is that rare entity in the Western Areas Ltd founder Terry Street- aging 4.1% nickel, 1.5% copper from

WA nickel space; an active explorer, that er to back St George as a shareholder. 53.55m and 0.8m of massive sulphide

PAGE 42 JULY 2016 AUSTRALIA’S PAYDIRT

stringers averaging 2.8% nickel alisation on fertile ground at Mt

and 8% copper from 51.7m at Alexander, which is a very low

the Stricklands prospect. risk/high reward project.

The company planned to be “The gold is still very high

drilling the down-hole EM and risk/high reward. We haven’t

surface EM targets in mid-June hit any high-grade mineralisa-

and have results ready to show tion yet, but at a conceptual

off at Diggers & Dealers. level it ticks every box that you

“We plan to test a powerful could want out of a multi-mil-

conductor, the most powerful lion ounce target. It certainly

conductor tested out there so is capturing a lot of attention,

far. Hopefully we finish by the particularly with Aussie gold

end of July and hopefully we being a favourite at the mo-

have something very signifi- ment. People can see we are

cant out to create a good pro- in the right area for a major dis-

motional angle for us at Dig- covery to be made; Tropicana

gers & Dealers,” Prineas said. is 50km to the east, Gruyere

Prineas anticipates there will 100km to the north, so we are

be a return of hungry investors in an under-explored area of

at this year’s Diggers & Deal- the Eastern Goldfields where

ers conference, considering discoveries are waiting to be

the better sentiment being felt St George executive chairman John Prineas is delighted to have made,” he said.

in the resources sector at the influential nickel player Terry Streeter on board as a shareholder Of particular interest to St

present time. George is the Ascalon target

To capture the imagination of the in- drilling has intersected up to 1.05% nickel. which is in a favourable structural setting

vestment community, St George has Follow-up drilling there and also at high of the Minigwal greenstone belt condu-

more than its success in the nickel sector priority gold targets at East Laverton was cive to gold occurrences, while Bristol

to bank on. scheduled for June. – historical drilling has established an

In a booming Australian dollar gold Probably more noted as a nickel ex- anomalous gold zone 1km in strike – is

price environment, Prineas said St plorer, the company has attracted a bevy another priority target.

George was fortunate to also have a of investors interested in the gold poten- St George aims to conduct deeper

quality precious metals play in its port- tial at East Laverton, which is a nice co- drilling at Bristol to test for gold minerali-

folio. nundrum for Prineas to be facing. sation in fresh rock.

There is a fair bit of work to do at the “We certainly have investors that are Drilling had started at the time of print

East Laverton nickel and gold project, more focused on the gold and others and this campaign was to be the first

but Prineas is encouraged by the posi- who are focused more on the nickel; we ever focused on bedrock geology at East

tive signs stemming from it so far. cater for both,” he said. Laverton.

Under a previous farm-in, BHP Billiton “They are both extremely good pro- – Mark Andrews
discovered nickel sulphides at the high jects, the nickel is substantially de-risked

priority Windsor target, where nearby because we have hit high-grade miner-

St George shareholders have been approved for participation in the Federal Government’s Exploration Development Incentive (EDI)
which entitles eligible shareholders to a tax credit for the year ending June 30

AUSTRALIA’S PAYDIRT JULY 2016 PAGE 43

DIGGERS & DEALERS PREVIEW

Mincor’s golden saviour

When Peter Muccilli stepped est grade but smallest of the
into the hot seat at Mincor deposits.

Resources NL on February 1, Given Mincor’s proximity

the company was at its lowest to large gold camps such as

ebb. Higginsville and Chalice, a toll

Mincor’s stock had plum- treating arrangement looms as

meted to just 12c/share as the the likely production scenario

dwindling nickel price forced the should Mincor prove its pros-

company to cease production at pects are economic to mine.

its Kambalda operations for the “There’s some huge mills in

first time since they began in the area that are underutilised

2001. and there’s at least two mills I

If filling the giant shoes va- know of that are running part-

cated by his long-serving pre- time, so there’s capacity there

decessor David Moore wasn’t a and I think it’s in our interest

big enough challenge, Muccilli and their interest to try and

was now tasked with finding a keep their mill fixed-cost base

new source of cash flow for the down,” Muccilli said.

company. “One feels that’s doable, but

But Muccilli, who joined Min- we haven’t negotiated any-

cor in 2004 as chief mine geolo- thing yet. You don’t negotiate

gist and most recently served anything until you confirm you

as its chief operating officer, New Mincor chief executive Peter Muccilli at his West Perth office have a mine plan. But we’re

quickly took comfort knowing moving quickly and we’re not

the company had almost $26 million in one that we have gold prospects, even far away from those discussions.”

the bank and an ace up its sleeve which historic pits, on our ground,” Muccilli said. Mincor completed a DFS in March for

would ultimately steer a turnaround in “I’m pretty pleased how things are trav- independent restarts of two of its higher

fortunes. elling thus far and the market obviously grade nickel mines, Durkin North and Mi-

“I always felt Mincor had options, so likes the story, but Mincor has always itel/Burnett, for when the price recovers

did David, and we always knew we could been about generating cash and being to a more sustainable level.

play a few tunes with our ground hold- operators, so we’ve got to get back to The studies found Durkin North could
ings,” Muccilli told Paydirt.
that position as quick as we can. resume production for a $20 million capi-

“Mincor was mining for 15 years con- “We don’t know right now if they’re vi- tal cost and would generate a NPV of $24

tinuously, so it’s a bit strange for Mincor able in terms of the full resource and final million with an IRR of 53% over a four-

not to be in production and obviously reserves and having an off-take agree- year project life, based on a flat nickel

when you’re not in production, you don’t ment signed, but I feel our work is moving price of $20,000t.

have cash flow…but we’re very fortunate towards that. It looks very, very promis- Similarly, Miitel/Burnett can be restart-
“to have such a strategic land holding that ing.”
ed for $12.4 million at a flat nickel price

actually offers both nickel and gold of $22,000/t, returning a NPV of $15

assets.” I always felt Mincor had million with an IRR of 57% over a
Over the next four months, Min- three-year mine life.

cor built up an impressive gold options, so did David, Mincor has retained 28,200t of
resource inventory of 238,640oz and we always knew we could nickel reserves, its highest level in
across six prospects, including five nearly five years.

within its nickel-operating district at play a few tunes with our “I think from a shareholder point of
Widgiemooltha and one at Jeffreys ground holdings. view, they understand there is a 14-

Find, near Norseman. year nickel price low, in Australian

Despite hosting some historic dollar terms, but they want to know

gold pits on its ground, Mincor how we are going about navigating

started the year with no gold resources Mincor has begun feasibility work at these choppy waters,” Muccilli said.

in its portfolio and only set a conservative Jeffreys Find – the most advanced of the “We’re very fortunate we’ve identified

initial resource target of 100,000oz. six gold prospects – and is considering a a path back into production, albeit in an-

Suddenly, the chief executive’s chair near-term drill campaign to obtain metal- other commodity. We couldn’t just sit and

at Mincor had cooled substantially and lurgical samples and to test other mining hunker down and do very little in terms

Muccilli is now preparing to guide the assumptions. Similar feasibility work is of just waiting for the nickel price to re-

company down a new path. Investors set to soon kick off at Widgiemooltha. bound because who knows how long that

have also warmed to the change in com- Mining a series of small open pits in will take. It will rebound, there’s no doubt

pany direction, with Mincor rising to 30c/ sequence is currently the option on the about that, but we just have to preserve

share at the time of print. table for the company. Mincor holds min- those nickel reserves for a future date.”

“Our tenements are in a pretty neat ing leases for all but Hronsky – 136,300t – Michael Washbourne
spot and it should be no surprise to any- @ 2.5 g/t gold for 10,770oz – the high-

PAGE 44 JULY 2016 AUSTRALIA’S PAYDIRT



DIGGERS & DEALERS PREVIEW

McFadzean pulling
Thunderbird strings

There is no doubt in Bruce best miners. If a project is go-
McFadzean’s mind that the ing to be built, it is going to be

Sheffield Resources Ltd-owned Thunderbird.”

Thunderbird mineral sands With a resource of 2bt @

project will soon be an operat- 6.9% HMS, including 18.5mt

ing mine, regardless of market of zircon, 5.9mt of high-titani-

conditions. um leucoxene, 6.9mt of leu-

Pigment prices have shown coxene and 61.8mt of ilmenite,

signs of recovery this year after Sheffield can justifiably claim

a torrid three years and while Thunderbird as the largest

zircon prices still fell in 2015, undeveloped mineral sands

there is a more positive tone project in the world. However,

coming from the likes of Iluka McFadzean is well aware the

Resources Ltd about future de- company’s revised BFS, due

mand. for release before the end

McFadzean said Iluka’s as- of the year, must state that

sertion that zircon and titanium claim more decisively. When

prices would begin to rebound Sheffield released a BFS for

in 2016 as inventories were Thunderbird last year the mar-

whittled down, and Sheffield’s ket was not so sure, giving it

own market observations, led an emphatic “must do better”

to his generally upbeat assess- response, with the capex num-

ment of the mineral sands sec- bers causing most consterna-

tor. tion.

“The Tier 1, 2 and 3 cities in “The market was clear that it

China are going again, with a wasn’t happy with a $300 mil-

bit more infrastructure invest- lion capex,” McFadzean said.

ment and the general posi- The revised study is attempt-

tion is that with mineral sands ing to counter this. Through-

stockpiles running down things put will be reduced from two,

are encouraging,” McFadzean 6 mtpa trains to a single 7.5
Bruce McFadzean says the team at Sheffield which includes David mtpa line and the company is
said. “There’s been some posi- Archer, Will Burbury and Bruce McQuitty are in for a fun-filled year also pursuing some modifica-
tive movement in other mineral

sands stocks and I think the tions to the flow sheet, particu-

general view is that things are perhaps going to be a balance of supply in the larly at the back end.

better. We are in the right part of the cy- market; where else would you want the “The question now is can we optimise

cle to catch the upswing and be able to next project to come from? WA is the grade for a lower capex and opex. The

ride the subsequent ups and downs.” best jurisdiction in the world and has the BFS will ultimately determine the capex

It is a trend which is being replicated in but I would be disappointed if it is not sig-

other commodities with investors slowly nificantly below $300 million, 70-80% of

warming to stories of impending supply that would be a great outcome.”

shortages. McFadzean said he would Hatch is managing the revised BFS

be happy with a period of relative calm and McFadzean said the engineering

on commodity markets after a decade of firm was challenging some of the as-

dramatic swings. sumptions on optimisation.

“We are seeing a general levelling in all “We are working towards a low capex

commodities and a feeling that the mar- project but not by chopping the flow sheet

ket is not as bad as it was. I don’t want to to bits. We want to maintain the integrity

see a boom, just steady increases.” but ask whether we can be smarter with

Steady growth would likely reinforce the upfront capital.”

the chances of Thunderbird being the Once the BFS is complete, Sheffield

next mineral sands project to be devel- will begin perhaps the greatest chal-

oped. lenge; the marketing of Thunderbird’s

“It is a long life project so we want a products, for in mineral sands, marketing

steady price environment because if Thunderbird has claims on being the largest is a key component of securing project

there is an accepted view that there is undeveloped mineral sands project in the world financing.

PAGE 46 JULY 2016 AUSTRALIA’S PAYDIRT

“We have recently appointed a mar- including 15% zircon, 61% leu- A revised BFS on Thunderbird is due for
keting manager with 10 years experi- coxene plus titanium. release before the end of the year
ence in the zircon market and we are just
about to engage a debt advisor. We’ve “We have no idea about the
had plenty of preliminary debt finance size yet but it looks to be higher
discussions and there is a healthy appe- value assemblage than Thun-
tite. There will be debt and equity in the derbird,” McFadzean said. “An-
mix and we would love to be in a position yone who understands mineral
where we have off-take finance as well. sands realises this is special.
The idea would be to raise as little as we We will have a rig there in June-
can from shareholders, but equity won’t July to expand our understand-
be a large component regardless.” ing. Imagine having two projects
sitting next to each other; it will
Not that McFadzean sees too many all be part of the puzzle to make
challenges in raising the required capi- Sheffield a big important part of
tal. the mineral sands market.”

“I wasn’t phased with raising $300 That may sound ambitious
million in the first place. Good projects but McFadzean and the rest of
always get funded and this is a good the Sheffield board have suc-
project which will run for 47 years. It is a cessfully built companies in the
different scale to most others. I have no recent past and he is eager to
doubt the market will see it as we work make the most of his latest op-
towards finalising the BFS and a rerating portunity.
will come from the BFS.”
“I don’t think a lot of inves-
By then, the company could be con- tors around the world know that
templating how to advance a second Thunderbird exists but there
project in the area. Earlier this year the is no doubt that everyone who
company announced initial encouraging sees it recognises it as a poten-
drilling results from the Night Train pros- tially big project,” he said. “It is
pect, 20km south of Thunderbird. Hits going to be a fun year for us.”
included 7.5m @ 8.2% HMS with high
value mineral assemblage of 92% VHM, – Dominic Piper

AUSTRALIA’S PAYDIRT JULY 2016 PAGE 47

DIGGERS & DEALERS PREVIEW

Far from the madding
crowd with S2

There is a serenity about Mark Ben- The first came in March from the Ba-
nett which is at odds with the usual
air of quasi-salesperson most of his loo prospect with S2 announcing an ini-
peers have adopted in these tough
times. tial resource of 2.17mt @ 1.8 g/t gold for

While the typical junior exploration 123,000oz. In May, Baloo was followed
company managing director is often
desperate to prove the company’s by a maiden resource of 2.2mt @ 1.2 g/t
worth, Bennett can avoid such worries
simply because he has no need to fret gold for 84,000oz from the Nanook pal-
about the market, or his reputation, at
this stage of the game. aeochannel prospect.

Having $22 million in the bank on list- Bennett said the two resources were
ing last year, Bennett’s latest vehicle,
S2 Resources Ltd, has time and funding a good start for such a young company.
on its side as it strives to find another
company-making discovery. “We have been very pleased with the

“The really nice thing is we have in- start, especially to get two resources out
herited shareholders from [S2’s fore-
runner] Sirius and they are already fa- within six months of listing,” he said.
miliar with the strategy and comfortably
aligned with it,” Bennett said. “The top With prevailing gold prices strong and
30-50 shareholders are happy to sit
there and it means we can do it as we investors keen to fund gold develop-
want and ignore the market.”
ments, there may be a temptation to lift
However, as he admitted to Paydirt
in June, even Bennett became worried the tempo at Baloo to get into production
when the market hit its lowest ebb at the
beginning of 2016. but Bennett said the exploration focus

“In January, I came back after three would remain on finding a much bigger
weeks’ holiday in North America and
saw the state of the market and I was deposit.
quite alarmed,” Bennett said on a rare
visit to West Perth. “For the previous “We don’t want to get into tail-chasing
two years the sector had sustained itself
through hope. But, instead of looking at mode on mining small deposits because
upturn in the new year, it was staring
down from the edge of a cliff. All the mar- the greater opportunity could be lost,”
ket metrics were off the dial.”
he said.
Six months on and while not calling
the start of the next boom, Bennett is Instead, S2 is considering treating Ba-
prepared to call January the end of the
downturn. loo – which has more than 60% of its

“I hope it is the final act of the bust and resource in near-surface oxide and tran-
things are starting to improve slowly,” he
said. “I went to Mines & Money London sitional ore – as an isolated case.
[in December] and that was subdued.
Went to Mines & Money Hong Kong [in Such is S2 Resources’ quiet confidence, “Baloo could quite sensibly be toll-
March] and that was a quarter of the size
of previous years. But, in May I went to managing director Mark Bennett has time treated and quarantined from everything
the Sydney Resources Round Up ex-
pecting it to be a morgue but it was actu- for a relaxing coffee in West Perth else. That would allow us to get on with
ally buzzing.”
finding ‘the big one’,” Bennett said.
Most of the current clamour around
junior resources companies centres on man in Western Australia’s Eastern In that regard, Nanook is intriguing.
gold and lithium and in its Polar Bear pro-
ject – between Higginsville and Norse- Goldfields – S2 is focused on the more The initial drilling and resource mod-

traditional commodity. elling showed gold occurring in quartz

“As a proper investment, people prefer gravels occupying the base of a palae-

gold because they understand it and the ochannel. The challenge now is to find

market has a lot of compelling arguments the bedrock source of that gold; a quest

for why it will remain strong,” Bennett that was given impetus in May when air-

said. “Lithium is a great hobby to have to core drilling intersected mineralisation

trade in and out of but there has been no through the gravels at the base of the

temptation on our part to find any peg- palaeochannel and into the underlying

matite.” bedrock, producing hits of 16m @ 51.3

He did, however, understand the ra- g/t gold from 44m and 16m @ 1.63 g/t

tionale of those explorers moving into the gold from 40m.

burgeoning lithium space. “That 80,000oz resource is basically a

“If lithium is what you are about as a very big geochemical anomaly we need

company; fine. But, if you are serious you to follow up,” Bennett said. “We need

will run the risk of destroying your cred- to know where the gold came from and

ibility by saying you are into lithium and whether the source is still intact. We

then switching out of it later.” are now busy drilling underneath the re-

S2 has no need for such survival meth- source and the next month will enlighten

ods. The company spent $3.2 million on us as to whether it goes deeper or not.”

exploration (while keeping administration As with other ambitious explorers cur-

costs, including the listing, to $1.2 million) rently enjoying success in WA, S2 is

in the first two quarters after listing and taking advantage of the patchwork ex-

by May boasted two separate resources ploration history of much of the Eastern

at Polar Bear. Goldfields.

PAGE 48 JULY 2016 AUSTRALIA’S PAYDIRT

“The ground has only ever been got the attention or the value they
lightly explored because it is on a were worthy of. S2 is a smaller pie
salt lake and was not a priority for but they are a much bigger slice
previous owners. There is plenty within it.”
more to come,” Bennett said.
Nova was the latest in a string of
The company’s third “hotspot” at major discoveries Bennett and oth-
Polar Bear is the Monsoon pros- er members of the S2 team have
pect between Baloo and Nanook. been involved in over the last 20
years, but the team’s exploration
In the March quarter, aircore strategy remains a simple one.
drilling returned hits of 32m @ 2.47
g/t gold and12m @ 26.2 g/t (includ- “Our success does not come
ing the final metre ending in 12.9 from being fancy. It just comes
g/t gold). The company said the from being in the game. If you are
intersections defined “an apparent kicking rocks and have got money
steeply west-dipping high-grade to spend, you don’t actually have to
quartz lode at the contact be- be that clever, just persistent,” Ben-
tween basalt and shale, the same nett said.
sheared contact as seen at Baloo”.
“When we found Thunderbox
RC drilling is now targeting the we could’ve drilled 10m either side
zone beneath the intersection with and it wouldn’t have been there.
results due out in coming months. At Nova, 50m either side and we
would have missed it. That sort of
Bennett remains confident about outcome shows there must be a lot
S2’s chances of success at Polar more deposits lurking around the
Bear, one of the reasons he was Goldfields.”
so insistent on hiving off the assets
following Independence Group – Dominic Piper
Ltd’s takeover of Sirius Resources.
Despite the proliferation of mines in the area, S2’s early
“In Sirius, they wouldn’t have work has suggested the Higginsville/Norseman corridor
moved the dial and we were fo-
cused on Nova [nickel project] any- remains underexplored
way,” he said. “They wouldn’t have

AUSTRALIA’S PAYDIRT JULY 2016 PAGE 49

DIGGERS & DEALERS PREVIEW

St Barbara charges on

Australia’s gold sector was abuzz with Gwalia is the prized asset in St Barbara’s portfolio
M&A activity not long ago, and while
the likes of Northern Star Resources Ltd trading at $2.64c/share, with another de- deeper than the current reserve base of
and Evolution Mining Ltd were in a posi- fining few months ahead of it. 1,800m.
tion to prosper during that period, St Bar-
bara Ltd was doing everything possible Vassie said that by July/August the “Because we are so high grade and so
just to survive. company would have a clearer indication low volume, a potential ventilation solu-
on expansions activities at Gwalia and tion is likely to allow us to keep using our
Troublesome operations in the Solo- Simberi, PNG. current trucking method down to at least
mon Islands and debt in excess of 2,200m, unless we see that the orebody
$US300 million in 2014 had St Barbara While concrete decisions had not been gets a lot thicker or higher grade at the
out of favour with both investors and made at the time of print, the company depth that we are drilling down to,” Vassie
companies looking for growth via M&A. was leaning towards investing in ventila- said. “We are currently mining at around
tion shafts and associated infrastructure 1,540m, so we have several years ahead
In a stunning turnaround, St Barbara at the Gwalia underground. of us just with our existing reserves”.
has managed to relieve some of its debt,
with $US179 million outstanding at April Drilling under way at the time of print It is estimated that sinking ventilation
2016, and start implementing growth was focused below the base of the cur- shafts could cost in the vicinity of $65
strategies of its own. rent reserves at about 2,000m below sur- million, which would be much cheaper
face, with another hole testing 2,200m to than other haulage solutions such as full
“We are now walking around with our give St Barbara some options for going blown production shafts potentially de-
eyes open, rather than being blinkered manding in excess of $200 million.
from M&A activity, but we want to be sen- Bob Vassie
sible,” St Barbara managing director Bob Vassie said going down the ventilation
Vassie told Paydirt. shaft avenue was the less risky solu-
tion and wouldn’t require upfront capital
“I think what is positive now is that spend of $65 million.
some of our major shareholders say
that we should start considering growth “There is real potential that we will be
outside of ourselves. Our preference is able to do that, depending of course on
Australia but when you look at it, all the what we are doing with the debt and Sim-
gold players in the Australian space are beri, there is potential we could self fund
trading at premiums to net asset value. that spend over time,” he said.
We are trading at a premium, but per-
haps not as high as some of the other Addressing the company’s outstand-
companies.” ing debt will of course play a crucial part
in how St Barbara grows from this point
The opportunity has perhaps passed forward.
for potential suitors interested in St Bar-
bara’s portfolio, where Gwalia has been With strong cash flows from Gwalia
the pillar of success and would have contributing to St Barbara’s cash balance
been an attractive acquisition proposi- of $114 million (March 2016) and forecast
tion for some. FY2016 production of 260-265,000oz
gold (AISC for FY2015 was $841/oz)
However, taking on St Barbara would from the mine, Vassie said paying off the
have meant inheriting its debt and Solo- remaining debt early was an option.
mon Islands operation, which the com-
pany sold in 2015 to a company associ-
ated with local landowners.

“They were all the problems that were
keeping people away from our company,
but many wanted Gwalia. They were the
big problems – heaving debt, the Solo-
mon’s operation suspended and Simberi
losing money, so if you acquired the com-
pany you would still be losing money and
the uncertainties around the Solomons
and Simberi. We fixed all those things
and we were still at 50c/share, in fact
as recently as August 2015, we dropped
down to 38c,” Vassie said.

The company has repaired itself to the
extent that the target on St Barbara’s
back has disappeared and the appetite
to invest in the Asia-Pacific entity has re-
turned.

At the time of print St Barbara was

PAGE 50 JULY 2016 AUSTRALIA’S PAYDIRT