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Cash flows to Kimberley as first copper exported

Mineral Hill lives up to its name and it's just one project in the area.

Mineral Hill lives up to its name and it's just one project in the area.

JIM Wall at Kimberley Metals (ASX: KBL) was a happy man on Friday. He was able to report to the market that he had just waved goodbye to the first shipment of copper concentrates from Port Botany to far-off Yunnan in China. The first shipment from Kimberley's rejuvenated Mineral Hill project near Condobolin in central west New South Wales also marked the first cash flow for the company, which listed early in 2010 after being spunoff by CBH Resources since taken over by Toho Zinc funnily enough.

The shipment was why Kimberley shares popped 2? or 7.4 per cent higher to 29? on Friday on what was otherwise a tough day out for the miners because of more volatility in metal prices ahead of the European debt crisis being fixed.

Wall, an industry veteran and Kimberley's executive chairman, had another reason to smile last week thanks to the approval from the Lachlan Shire Council for Kimberley's development of the Pearse gold/silver deposit which sits less than one kilometre from the Mineral Hill processing plant.

The Pearse open-cut development will increase annual production from Mineral Hill to a planned 5000 tonnes of copper, 21,350 ounces of gold and 255,000 ounces of silver from mid-to-late next year.

That's near-on $80 million revenue at current prices, with the value of the copper just edging out the gold as the dominant metal for the project.

Pearse itself was found only in 2009-10, which just goes to show that despite a long production history with previous owners, Mineral Hill and its surrounds have a lot to give up yet.

Returns from Pearse over its 2.5-year mine life should be sweet. The mineralisation is within 100 metres of the surface and grades 6.9 grams of gold a tonne and 72 grams of silver a tonne. That's $427-a-tonne dirt at current prices.

Although Pearse is not the biggest show in town, it is part of the perception change that Wall and his management team are hoping to achieve in the market's thinking on Mineral Hill. Under previous owners, the project led a kind of hand-to-mouth existence.

Add Pearse to the existing underground development at Mineral Hill (1.9 per cent copper from the Parkers Hill development) and the success Kimberley is having in outlining new underground resource positions, and the market can start thinking about Mineral Hill as at least a seven to 10-year proposition.

That in itself should trigger a market re-rating for Kimberley, currently valued by the market at the enterprise level (equity and debt less cash) of about $50 million.

Helping convince the market that it needs to reprice the value of Mineral Hill to Kimberley will be an expected announcement before year-end of a new underground resource in the so-called Southern Ore Zone (SOZ).

It's a 1.5 million target grading around 1.75 per cent copper and one to two grams per tonne of gold and would confirm the decade-long production potential at Mineral Hill. By the time that announcement comes out, Kimberley should be in a position to confirm Mineral Hill's expected competitive cost of production one that gets even more competitive once Pearse kicks in.

Having said all that, Kimberley is more than Mineral Hill. It also has big-time lead-silver production ambitions at its Sorby Hills project in Western Australia, a 75:25 per cent joint venture with China's biggest lead producer, Henan Yuguang.

Yuguang is funding a feasibility study on the development of the project's 18 million tonne near-surface lead-silver resource, which could lead to a project start-up in 2013-14. Annual production in stage one of some 24,000 tonnes of lead and 600,000 ounces of silver in concentrates is the plan.

Because so much of global consumption is met by scrap supply, lead does not do it for most investors. And it has been hit hard in the recent selloff in all metal commodities, falling some 38 per cent from its April peak to $US1910 ($1840) a tonne.

But BNP Paribas for one is predicting the metal will rebound, forecasting it will climb to more than $US3000 a tonne in 2013 on looming supply shortages. That dovetails nicely with Kimberley's planning for production.

BNP Paribas reckons that mine supply of lead (barely 40 per cent of total supply) needs to grow strongly, certainly much faster than in the past decade, if the market is to achieve supply/demand balance in future.

THE ability to raise cash without serious dilution in the current weak market conditions means that, more than ever, cash is king.

So expect punters in exploration stocks to drift towards those explorers that have a decent bank balance.

Talisman Mining (ASX: TLM) falls into that category and it was a message that came across loud and clear last week during an eastern states roadshow by the company.

At Friday's closing price of 41.5? a share, Talisman is valued by the market at $55 million. That compares with its cash at bank of $40 million and the $6.3 million value of its listed investments in Rico Resources (RRI) and Shaw River (SRR).

So Talisman is well and truly covered on that score. But what really got interest up in the stock in last week's roadshow was the promise of a news flow in coming months from exploration campaigns across multiple targets in WA.

Talisman is best known for its work in the Bryah Basin copper/gold region, which is home to Sandfire's high-grade DeGrussa mine development.

Talisman's Springfield project is adjacent to DeGrussa, which Sandfire and the rest of the exploration industry is convinced is but one of multiple volcanogenic massive sulphide-type deposits in the Bryah.

As you would expect from the deeply technical management team at Talisman, Springfield has been the subject of just about every form of whiz-bang exploration technology you can think of to confirm its ability to host the type of mineralisation found at DeGrussa. Now comes the fun part drilling the targets identified.

Talisman has added to its Bryah presence too, with the Halloween property picked up from a prospector on the western side of DeGrussa to be hit with 18 holes starting in a couple of weeks.

It will be worth watching, as are drilling campaigns at two Murchison gold belt properties added to the portfolio in June, Livingstone and Muddawerrie, and one at Shelby, an iron-oxide copper/gold play on the northern margin of the Bryah in the Gascoyne region.


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