Minefield: Blasts from the past
Surprise revivals, and a lithium miner branching out.
As with every edition of Minefield, this article is not providing investment advice. For all stock recommendations, click here.
We start this chapter of Minefield in a town halfway between Broken Hill and Sydney, following the green light to outback WA, and close the chapter by landing on lithium and a blast from the past.
The first company we explore is Peel Mining, up until recently in share price slumber before breaking news about a promising metals intersection discovered in a project named Wagga Tank.
While still a minnow, Peel is seeing its profile rise, as is the larger Mincor, after being downtrodden for some time. Mincor is clawing back again, this time armed with something more than nickel.
Rounding out this edition we look at Neometals, a company that put itself on the map with lithium, but is now being energised by two other metals and an historic mining asset.
Peel Mining (PEX)
It might come as a surprise to some people in New South Wales, but the far west of their State is re-emerging as one of the hottest locations for mineral exploration, led by a minnow called Peel Mining which has made a series of tantalising copper and zinc discoveries.
The area around Cobar, which is roughly halfway between Sydney and the historic home of Australian mining, Broken Hill, is where Peel is getting close to developing its first mine, and potentially looking at several more.
Mallee Bull, a joint venture with the Japanese-controlled CBH Resources, has been earmarked for development as a supplier of copper-rich ore for processing at CBH's Endeavour mine about 150km to the north.
But the discovery which has turned the spotlight back on a region that has hosted a number of world-class base metal (copper, lead and zinc) mines is at a project called Wagga Tank. This is located at the southern end of Peel's extensive tenement holding in an area dubbed the Cobar Super Basin.
Exceptional assays from drilling at the Southern Nights prospect which lies within the Wagga Tank project have been reported, including 21 metres grading 31.02 per cent zinc, plus 12.05 per cent lead, 258 grams per tonne of silver and 1.43g/t of gold starting at a depth of 194m.
To put that intersection into perspective the McArthur River zinc mine of Glencore in Queensland averages 10 per cent zinc, while the zinc lenses at Mt Isa average 5.6 per cent zinc.
Heightened interest in the Southern Nights drill results enabled Peel to quickly raise a fresh $6 million in capital this week through an oversubscribed share issue priced at 40c.
The fresh cash will enable Peel to do a lot more exploration at Wagga Tank to assess whether it has discovered something of commercial significance, or simply hit an outlier of enriched material, but the grades encountered so far are highly encouraging.
Australian investors have not been close followers of the re-emergence of the Cobar region, which has a long history of mining with once-famous projects such as The Peak and Hera.
Japanese companies, and even the Japanese Government, are more aware of the importance of the area. CBH became a subsidiary of Toho Zinc in 2010 and Peel signed a joint venture exploration deal over a number of its tenements with the Japan Oil, Gas and Metals National Corporation (JOGMEC), a government agency charged with securing a stable supply of raw materials for Japan.
For Australian investors, Peel has been a sleeper, waking only last month when first reports emerged of the Wagga Tank discovery with that news dovetailing neatly with the price of zinc hitting a 10-year high of $US1.55 a pound, before easing to around $US1.46/lb.
Adding to interest in the low-profile company is a plan to spin off gold exploration assets in WA before Christmas into a new company, Saturn Metals, with Peel shareholders getting a priority entitlement in the new company.
On the market, Peel has risen from a mid-year low of 16.5c to recent trades at 42.5c, a price which values the company at $71 million.
An early mover in the carve-up of the Kambalda nickel assets which launched WA's 1969 nickel boom, Mincor was rocked by the latest collapse in the price of nickel. But with nickel on the way back up, so is Mincor, and this time it also has gold as a back-up.
Over the past five months, despite not producing any nickel or gold, Mincor's share price has risen by 175 per cent from 13c to recent trades at 36c, reflecting growing confidence among followers of the stock that it is back from the brink.
The challenge now for management is to decide which is the best route back into production – gold or nickel – with gold the likely winner because it is the easiest metal to convert into cash and requires no marketing.
The asset most likely to be developed is the one with the most difficult name, Widgiemooltha, located about 30km south of the company's mothballed Kambalda nickel mines.
It's around Widgiemooltha that Mincor has drilled out a gold resource of 267,100 ounces, lifting the company's total resource in all gold assets to 328,660oz.
The gold at Widgiemooltha is in an existing mining area so only minor approvals are needed to start producing production with the Flinders West deposit likely to be the first into production by early next year.
Flinders West is forecast to generate pre-tax cash flow of $28.3 million over its short life with gold treated on a toll basis at a nearby process plant for an all-in sustaining cost $A1126/oz, representing a gross profit of around $A543/oz at the current gold price of $11671/oz.
A small gold mine is exactly what Mincor needs to restart its corporate engine after several bad years, during which it has chewed through much of the surplus left after its nickel mines were forced to close, with that potential $28.3 million adding to a current cash balance of $10.6 million.
Important as gold is to Mincor's fresh start is the company's nickel assets, plus its extensive land holding in a prolifically mineralised part of WA. This makes the stock an interesting revival situation, though it could be a few years before it challenges its share price high of $4.90 reached in mid-2007.
Lithium, the hot commodity in Australia's latest mining sector renaissance, is what put Neometals on the radar screens of speculative investors, but it's two other metals and an historic mining asset which might be its future.
A minor stake in the Mt Marion lithium mine near Kalgoorlie in WA, plus a plan to become involved in processing lithium into material with a greater value, such as lithium hydroxide, is what has helped Neometals double its share price from 24c to 50.5c since mid-year.
But the asset which could drive the stock further is a real blast from the past, the Barrambie titanium and vanadium project close to another WA goldfields town, Meekatharra.
A project that oozes Australian prospecting history, Barrambie is a mineralised structure that a long line of companies has tried to develop, including Ferrovanadium Corporation, a shooting star in the 1970s.
In theory, vanadium, which is used to harden steel, should be a major Australian export. In practice, it never gets there because of cheap South African material produced as a by-product in processing iron ore.
Management at Neometals is led by once prominent stockbroker, David Reed, and his son Chris. They reckon there's a better way to tackle Barrambie, and that's to focus on another metal in the deposit, titanium.
Despite extensive exploration over a 40-year period Neometals is continuing to beaver away at Barrambie, recently completing a drilling campaign to fine-tune the understanding of the metallurgy, with the next step being to extract a 50,000-tonne bulk sample for evaluation of the production of a direct shipping product.
Interest in the latest plan for Barrambie, which is rated as one of the highest-grade titanium deposits in the world, has been growing and if Neometals can unlock the secrets of the project the stock could enjoy a significant re-rating.
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