Four promising miners
Australia’s resources industry is constantly throwing-up companies that are going through the rite of passage from explorer to producer, which can often change the way the company is viewed on the stock market – notwithstanding the fact that potential gives way to the exposure to all the things that can go wrong with complicated mining and processing operations, and the added scrutiny of whether throughput matches expectations. But against that, mining and processing means revenue, and from revenue there is the prospect of profit, and even, eventually, dividends. Production is a huge achievement for resources companies – here are four, across a range of commodities, that appear poised for this milestone in 2020.
1. Barra Resources (BAR:ASX)
Market capitalisation: $13 million
Three-year total return: –19.4% a year
Analysts’ consensus valuation: n/a
All over Australia there is huge interest in re-opening old gold mines, based on the fact that hardly any of them are mined-out, and they are usually very high-grade. The Burbanks deposit, at Coolgardie in Western Australia, is a typical example: from 1887 to 1914, the mine was the highest-grade gold mine in WA, at 22.7 grams per tonne (g/t) of gold, from both underground and open pit mining, before it fell victim to a manpower shortage brought on by World War I. The mine was re-opened by Western Mining in the early 1950s, but closed down in 1991.
Minnow Barra Resources hopes to re-open the mine next year, after a positive reaction to its scoping study (a technical and economic study of the potential viability of a project) released in September, which identified a shallow underground mining opportunity at Burbanks, based on a mineral resource of 1.2 million tonnes at a grade of 3.7 grams per tonne (g/t) of gold, for 145,700 ounces of gold, at the historic Birthday Gift and Main Lode underground gold mines.
But Barra says these deposits are only the “easy ounces,” with plenty more expected to be delineated – to that end, the company kicked-off last month a 5,000-metre drilling program that hopes to confirm a 2-kilometre-long mineralised gold system. Birthday Gift historically produced at an average grade of 27.4 g/t – making it one of the richest goldmines in WA — and the “down depth potential” still remains open in all directions, Barra says.
Crucially, the company can talk of the opportunity to start mining next year, because of the existing infrastructure on-site, and the close proximity to established mills at Coolgardie. Barra has been granted a mining lease, but it would require a partnership or other funding deal to get started.
In the background, Barra has its Mt Thirsty cobalt-nickel project near Norseman, to the south of Coolgardie. Being only 16 kilometres from Norseman, Mt Thirsty is also close to all the infrastructure it needs. A pre-feasibility study (PFS) is under way at Mt Thirsty, where Barra has a total resource of 26.9 million tonnes at 0.117% cobalt and 0.52% nickel – an indicated JORC ore reserve would be established by a successful PFS.
2. Ausmex Mining Group (AMG:ASX)
Market capitalisation: $44 million
Three-year total return: 14% a year
Analysts’ consensus valuation: n/a
Also in the historical gold mine business is Ausmex Mining Group, which says it is committed to begin gold production in 2020 at its Mt Freda Complex project near Cloncurry in northwest Queensland, starting with the eponymous open-cut mine: drilling underneath the old Mt Freda mine has given samples of up 21.8 g/t, with the high-grade gold zone still open at depth, at about 300 metres.
Ausmex’s ground – the Mt Freda Complex area – contains another 20 historical mines. Ausmex has applied for a mining lease application (MLA) for a group of high-grade gold projects within the complex, called the “Golden Mile” projects: the company’s joint venture partner in Golden Mile is Round Oak Minerals Pty Ltd – a subsidiary of ASX-listed investment company Washington H Soul Pattinson and Co (SOL) – which owns 20% of the joint venture. Also within the Golden Mile, drilling at the old Shamrock mine hit an intersection of 38.9 g/t of gold, with drilling extending known mineralisation.
Similar to Barra, being near to gold processing facilities in Cloncurry – just 30 kilometres away – improves the project’s economics significantly: because Ausmex is not planning to process ore on site, the Golden Mile mining lease approval should be able to be fast-tracked, leading to a multi-pit mining operation starting in 2020. Ausmex envisages first gold production in September 2020. The company also holds another 12 mining leases within the Cloncurry region.The next milestone for investors is a maiden JORC resource estimate for the Mt Freda Complex, including the Golden Mile projects: this is expected by the end of this month.
3. Mincor Resources (MCR:ASX)
Market capitalisation: $198 million
Three-year return: 25.4% a year
Analysts’ consensus valuation: 85 cents (Thomson Reuters)
In another re-opening – albeit with a much shorter hiatus than the gold mines of Barra and Ausmex – Mincor Resources looks likely to soon push the button on re-starting nickel production at Kambalda in WA, which it mothballed in 2016 at a time of historically low nickel prices. Prior to that, the company had produced some 180,000 tonnes of nickel metal in ore over a successful 14-year period as a profitable, dividend-paying mining company – and investors would be hoping for a return to that status.
Mincor’s plans to re-start at Kambalda received a shot in the arm last month with outstanding drilling results at its Cassini project, most notably intersections of 12.3 metres at a grade of 5.1% nickel, including a sulphide core of 9.7 metres at 6% nickel. Mincor chief executive David Southam said this was one of the most exciting new base metal discoveries for at least 20 years.
Earlier this month, Mincor lifted the mineral resource at Cassini by 33%, to 1.254 million tonnes at 4.0% nickel, for 50,400 nickel tonnes. That was after a 52% resource boost flagged in April and another 33% lift reported in August.
The stunning results at Cassini augur well for the restart strategy, in which the new discovery is seen as one of four key production hubs at Kambalda, along with Durkin North, Ken/McMahon and Miitel/Burnett. Development studies are underway on each of these deposits to put together a production schedule for the district. Mincor’s total Kambalda mineral resource now stands at 4.9 million tonnes at 3.8% nickel, for 187,900 tonnes of nickel metal, with 84% of that in the ‘indicated/measured’ category. A maiden ore reserve is expected to be announced around the same time as the definitive feasibility study (DFS) is released, in the March 2020 quarter.
This will also include the Long nickel operation, which Mincor bought from Independence Group in May, and which has an existing high-grade resource of 750,000 tonnes at 4.2% nickel, for 32,000 tonnes of nickel metal – and which also offers near-term production potential.
As well, in FY19 Mincor signed a binding ore tolling and concentrate purchase agreement with BHP Billiton Nickel West Pty Ltd, giving the company both a processing and sales route. In short, Kambalda should be back in the nickel business very soon – and well-placed to capitalise on the strong long-term nickel market outlook.
4. Kalium Lakes (KLL:ASX)
Market capitalisation: $181 million
Three-year return: n/a
Analysts’ consensus valuation: 90 cents (Thomson Reuters)
Kalium Lakes’ Beyondie project, located in the Pilbara region of Western Australia, is on track to be the country’s first sulphate of potash (SOP) project up and running – and delivering on its promise to supply Australian farmers – and export markets – with locally produced SOP, from late 2020. SOP is a high-potassium-content, premium fertiliser used to strengthen and ripen flower blooms, as well as prevent disease, pests and weather damage. (There is currently no SOP production in Australia.)
Beyondie is based on a high-grade sub-surface brine deposit that will supply an evaporation and processing operation. The deposit has brine-containing potassium and sulphate ions, which can form a potassium sulphate salt. The project’s brine grade of the project is one of the best in Australia, while the sodium-to-potassium ratio of 9.4:1 is considered to be the best in the country.
KLL is considered to be ahead of Salt Lake Potash (SO4), which is developing its Lake Way project in WA, on the basis of having defined an ore reserve, completed a bankable feasibility study and front-end engineering design work, obtained a binding offtake agreement (with German minerals firm K+S), received both federal and state government environmental approval, been granted two mining leases, and successfully concluded two native title agreements. It also has two credit approved debt facilities, of about $176 million in total, after concluding a $102 million funding deal with German KfW IPEX-Bank in June 2019.
All that puts Kalium Lakes in a position to enter production in 2020, with a steady ramp-up toward the end of the year. The project has an estimated mine life of 50 years. Kalium Lakes is targeting production of 90,000 tonnes per year of SOP in its initial phase, before ramping up to 180,000 tonnes a year. Potassium recovery is expected to be at least 91%, with the resultant product expected to be a premium granular and soluble suite of products, containing more than 51% potassium oxide, and less than 0.5% chloride.