The Speculator

PORTFOLIO POINT: The surge in the American dollar gold price has done nothing for the profit margins of emerging Australian gold miners '¦ but we’re hanging in for now.

We first bought into the emerging West Australian gold producer A1 Minerals Ltd (AAM) in May at 14.5¢ after expressing some misgivings over the strengthening of the Australian dollar at that time to about US76¢.

Nevertheless, at that price we noted that the local dollar gold price was still holding at about $1200 an ounce (equivalent then to a world gold price of $US876).

This week, with the world gold price near record highs at $US1064 on Tuesday, all our miners would be in clover if the exchange rate had held at its levels of six months ago. But the surging Australian dollar (or, conversely, the plunging American dollar) saw the exchange rate on Tuesday pushed to around US93¢. So, in local dollar terms, gold was worth $1150 – $50 less than its value six months ago.

The good news is that projected profit margins remain robust on so many emerging Australian gold producers.

In its September quarterly report lodged with the ASX last week, A1 Minerals confirmed its Brightstar gold project at Laverton, north of Kalgoorlie, was still on schedule to pour its first gold before the end of the current December quarter.

A1 Minerals now has 160.7 million issued shares which, at 21¢, gives the company a market capitalisation of $33.75 million, with cash at bank at the end of the September quarter of $5.4 million. During the quarter the company raised $2.93 million through a share purchase plan, in which the Speculator and hopefully readers participated, more than doubling the portfolio’s holding and reducing the “in” cost to an average 13.5¢ a share.

Since the end of the quarter, A1 Minerals has raised a further $1.9 million through a placement at 19¢ a share taking issued capital to its present level of 160.7 million shares. It also raised another $1 million through the sale of a non-core small mining lease for $1 million cash to Regis Resources. With that, the company confirmed in its latest report that its capital needs for 2009 were now complete.

A1’s Brightstar project is based on initial open-pit ore reserves of 1,159,054 tonnes grading 4.2 grams a tonne for 150,163 ounces over a four-year mine life, with the opening of a $1.7 million plant under a contract with CPC Engineering of Kalgoorlie to begin producing at the rate of 30,000 ounces a year by December 2009.

Cash operating costs are estimated at $600 an ounce, leaving a generous profit margin at the current local dollar gold price.

That might seem a modest target, but the initial ore body is within a greater area of tenements in which a JORC-compliant resource of more than 1.7 million ounces of gold has been so far identified. Recent drilling on what is known as the Delta North zone adjoining the Brightstar project includes intersections from near surface of 7 metres of 9.3 grams a tonne (g/t), 7m of 8.5g/t, 6m of 8g/t and 9m of 3.2g/t. These are yet to be factored into the resource base giving potential to boost resources and reserves to the north.

The refurbished plant was bought for cash and shares from one Sandra Wheeler and her husband, who now hold 7% of A1 Minerals – the second-largest holding after geologist and managing director John Williams’ 11%. The top 20 shareholders have 43% of the company.

A1 Minerals, which listed in December, 2003, has a total ground holding of 2500 square kilometres covering the highly prospective greenstone geological belt stretching north-south through Laverton. This has been the host of world-class mines, including Barrick’s Wallaby/Granny Smith and AngloGold Ashanti’s Sunrise Dam gold operations.

nThe Speculator portfolio, as at October 20, 2009
Company	ASX	No of shares	Bought	Purchase price	Current price	Current value
Robust Resources	ROL	25,000	13/02/09	$0.155 avge	$0.615	$15,375
Quickstep Holdings	QHL	20,000	16/03/09	$0.165	$0.290	$5,800
Cortona Resources	CRC	20,000	14/04/09	$0.150	$0.190	$3,800
A1 Minerals	AAM	43,077	12/05/09	$0.135	$0.210	$9,046
Gage Roads Brewing	GRB	40,000	26/05/09	$0.050	$0.064	$2,560
Image Resources	IMA	16,000	2/06/09	$0.654 avge	$0.800	$12,800
Blue Energy	BUL	20,000	9/06/09	$0.215 avge	$0.245	$4,900
Scotgold Resources	SGZ	20,000	22/06/09	$0.100	$0.145	$2,900
Viralytics (ops)	VLAO	200,000	3/07/09	$0.0105 avge	$0.017	$3,400
Hillgrove Resources	HGO	20,000	28/07/09	$0.235	$0.340	$6,800
Emmerson Resources	ERM	20,000	4/08/09	$0.190	$0.300	$6,000
Golden Gate Petroleum	GGP	53,330	25/08/09	$0.042 avge	$0.049	$2,613
GGP options ex. 8c by 31/8/2012	GGPO	6,665	30/09/09	Free	$0.021	$140
Emu Nickel	EMU	30,000	8/09/09	$0.145	$0.220	$6,600
Hill End Gold	HEG	20,000	15/09/09	$0.230	$0.230	$4,600
Coppermoly	COY	40,000	22/09/09	$0.065	$0.155	$6,200
Total value of portfolio						$93,534
Plus cash at bank						$10,388
Total						$103,922
Portfolio change since January 2, 2009 (started with $40,000)						159.81%
All Ordinaries change since January 2, 2009 (then 3655.7)						32.75%

Emu goes for a run

Our portfolio hopeful Emu Nickel (EMU) shot up 7¢ from Tuesday’s close to a high of 30¢ this morning (Wed October 21) on news of new nickel sulphide finds at Emu Lake, 70 kilometres north-east of Kalgoorlie.

Diamond drill intersections of up to 5.35% nickel enabled the company to announce its Binti gossan zone remains open to the north with a potential new nickel sulphide position 300 metres to the south, which is open at depth.

The reaction on the market appeared surprisingly enthusiastic, for the best three intersections reported were: Hole ELD 023, 0.28m of 5.35% nickel and 0.4% copper from a depth of 292.8m; ELD 035, 0.22m of 1.84% nickel and 0.74% from 529m; ELD 036, 1.58m of 3.7% nickel and 1.33% copper.

Nevertheless, in trade this morning the shares ran to 30¢ (0.5¢ short of a year’s high) on turnover to lunchtime of 1.22 million.

Emu Lake is a joint venture between Emu Nickel (33.3%) and Xstrata Nickel (earning 66.6% through spending $3.25 million over three years to September, 2010). Results from three diamond drill holes are yet to be received.

Scotgold placement misses small investors

Our highlands gold hopeful Scotgold Resources Ltd (SGZ) last traded at 14.5¢ when it sought suspension of trade on October 15 pending “an announcement regarding a proposed capital raising”.

This morning the company confirmed it was raising $3.2 million in a placement through brokers Patersons of 29.09 million shares at a discounted price of 11¢. The news left the market unmoved, with a hopeful opening sale at 15.5¢ quickly declining to as low at 13¢ on a tiny turnover of just 100,000 shares before lunch.

Once again, as in so many other recent small company capital raisings, the little investors have been ignored (see What about me? I want my share). The excuse is usually that a placement is cheaper and faster to execute. In this case, the placement to “sophisticated and professional investors” will be done in two tranches:

• 10.9 million shares immediately so it doesn’t exceed 15% of issued capital; and '¦
• another 18.19 million subject to shareholder approval at the company’s annual meeting on November 24, 2009. That’s more than a month away.

Paterson Securities Ltd will get for its troubles a placement fee of $25,000, PLUS a management fee of 1% of the gross amount raised, PLUS a further placement fee of 4% of the gross amount raised.

David Haselhurst writes a monthly column for Money magazine.