CuDeco's Lesson

Australian Mining Investments, a high-flyer in early June, emerged early this week as the renamed CuDeco Ltd and was immediately brought back to earth. Its share price crashed from $7.70 to $3.56 after a resources downgrade at the Las Minerale copper prospect on the Rocklands project near Cloncurry in north-west Queensland, and amid speculation about more after-shocks.

It was a company under the spotlights of the sharemarket and the regulators. CuDeco’s downgrade announcement '” after an audit of drill results demanded by ASIC '” stunned small investors, as it would any junior explorer with its market capitalisation slashed by more than $340 million. However, it was a result that relieved experienced observers who had regarded previous statements by flamboyant chairman Wayne McRae as over the top.

Two Perth observers had told me they thought Las Minerale’s independently audited inferred resource made it a highly interesting discovery, particularly being in a region with good infrastructure. It was for 25 million tonnes grading 1.57% copper, 818 parts per million cobalt and 0.2 grams per tonne gold (for a copper equivalent 2.04%). However, this is a long way from the previously stated 59 million tonnes of similar grades.

The onus is now on CuDeco to continue providing detailed updates on what is says will be an aggressive drilling campaign. Detail in the July 16 release was far more precise. It is to be hoped that the trading halt imposed by ASIC has jolted McRae enough to put an end to his Hollywood-style announcements to the media.

In fairness to the company, its previous announcements gave good detail, although the resource assessment is now shown to have been outrageous. Now the media is watching CuDeco, it is either in a spotlight or the roaster, depending on your point of view.

Clearly, the earlier CuDeco report did not comply with the JORC (Joint Ore Reserves Committee) Code, which sets minimum standards for ASX and New Zealand-listed companies to report exploration results. This raises a question about those who put their names to the original over-assessed resource.

Don Larkin, chief executive of the Australasian Institute of Mining & Metallurgy (AusIMM) says that although the code provides a mandatory system for classification of tonnage and grade estimates according to geological confidence and technical/economic considerations, JORC does not regulate procedures used by the “competent person” involved.

One veteran geologist says JORC was set up to give some precision to drilled orebodies, to take them through the inferred up to measured status. Like the security regulations introduced after the nickel boom, which were designed to clamp down on corporate conduct and reporting, JORC was brought in to “make it hard for the crooks, but in the process made it difficult for the good guys”. But it is regarded as the best standard in the world and, if the Toronto Stock Exchange had applied similar code a few years ago, then the BreX scam in Indonesia '” one of the biggest international mining scandals in recent years '” could have been detected earlier.

The Poseidon boom of the 1970s was a rollicking affair that saw most investors severely burned, some wallpapering their houses with now useless scrip. In the leadup to CuDeco’s report on July 16 there were mutterings of a return to the Poseidon boom, particularly with a bullish market and the fact new floats are being churned out weekly (A few weeks ago the backlog for the ASX in Perth was reportedly more than 50 IPOs).

The Tasminex affair

The prelude for CuDeco, when its share price was threatening to soar well above $10, was in some respects similar to the infamous Tasminex affair during the nickel boom, when the company’s share price moved rapidly from a low level to more than $90 in London. However, unlike CuDeco, Tasminex eventually announced sub-economic nickel drilling results from its Mount Venn prospect in Western Australia, results that put the lie to statements by chairman Bill Singline that Mt Venn was “bigger than Poseidon”.

Tasminex was the low point in the Poseidon nickel boom, made worse by Singline using this peak period to offload stock. Tasminex represented one of the nickel boom juniors whose boardrooms were populated by the most unlikely people: the butcher, the baker, the candlestick maker. (Singline was a Tasmanian grocer.) CuDeco’s board has mining and mineral chemistry skills as well as McRae’s experience as a businessman-enterpreneur, who in the 1990s ran Diversified Minerals NL. Having said that, McRae had hit controversy in a previous role when a deal with Rio Tinto soured and he fell foul with his key investor.

Investors worried about CuDeco should take a hard look at the growing army of juniors now chasing uranium in Australia. First, the green light for development is not clear politically in most Australian states (uranium prospecting is banned in NSW and Victoria, and the potential in Victoria is likely to be negligible). More importantly some have boards that are at kindergarten level in comprehending uranium geology, the marketplace and uranium development’s rigged compliance conditions.

John Borshoff, managing director of uranium market darling Paladin Resources says reporting by several new uranium juniors gives no clarity compared to reporting standards demanded for base and precious metal properties. He feels as many as 70% could fail.

So what should CuDeco do? First, McRae needs to comprehend that the media is listening to his every word and that bravado is not the way to deal with dismissing a potential investor class action from Slater & Gordon or other legal firms. Las Minerale was reportedly “world class” but at this stage it’s only a few thimbles’ full, compared to real world-class deposits like South America’s La Escondida or El Teniente. The chairman should button up and the board could do with a conservative exploration-development specialist to handle any investor or conference presentations. McRae has hopefully comprehended that those doubters of early July were not “dickheads”.