The Speculator

PORTFOLIO POINT: Cortona Resources plans a capital raising after winning a $42 million funding package for its gold mine near Canberra.

Our portfolio stock Cortona Resources (CRC) this morning entered a trading halt pending the announcement of a new capital raising.

Without knowing any details yet, the Speculator will confidently support any entitlement offer to come, with first production scheduled for 2013.

The trading halt follows last week’s triumphal announcement that Cortona had won a commitment for a $42 million financing package from Deutsche Bank, to underpin project construction due to begin later this year.

The company’s Dargues Reef gold project is located near Braidwood, NSW, about 60 kilometres south-east of Canberra. The financing package clears the way for completion of a 50,000 ounces-a-year gold mine, with an initial life of six years and expectations of significant increases in the resource from new discoveries within the project area.

Due to a spate of environmental objections (since overcome), Cortona’s shares sagged from a high last year of 21c to a low of 10.5c. They have since partially recovered to trade at 14c ahead of today’s trading halt.

That gives the company’s 221 million shares a market capitalisation of $30.9 million, with remaining cash of around $600,000 (hence the need of a capital raising in a company with historic quarterly outgoings on exploration and administration approaching $2 million).

That capitalisation greatly undervalues the Dargues Reef potential, with a current JORC-compliant resource of 327,000 ounces of gold, including a mineral inventory of 257,000oz of gold at an undiluted grade of 7.24 grams/tonne.

The Dargues Reef feasibility study confirmed the technical and economic viability of a start-up gold mining operation, forecast to produce an average of 50,000oz a year as a cash operating cost of $A697/oz. At the current world gold price, that leaves a gross operating margin of nearly $1000/oz.

-The Speculator portfolio, as at April 4
Company	ASX	No of shares	Bought	Purchase price	Current price	Current value
Image Resources	IMA*	15,000	31/12/2010*	0.362 av	$0.360	$5,400
Viralytics	VLA	19,995	20/12/2011	$0.308	$0.360	$7,198
Robust Resources	ROL	6,000	31/12/2010*	$1.49 av	$1.260	$7,560
Scotgold Resources	SGZ	27,500	31/12/2010*	5.5 av	$0.078	$2,145
Coalworks	CWK	10,000	31/12/2010*	$0.830	$0.870	$8,700
GoConnect Ltd	GCN	250,000	31/12/2010*	0.034 av	$0.034	$8,500
Minemakers	MAK	20,000	25/01/2011*	0.425 av	$0.275	$5,500
Platsearch	PTS	20,000	8/02/2011*	$0.130	$0.081	$1,620
Broken Hill Prospecting	BPL	20,000	22/02/2011*	$0.160	$0.095	$1,900
Austpac Resources	APG	40,000	2/03/2011*	$0.060	$0.040	$1,600
Potash West	PWN	11,050	30/03/2011*	$0.200	$0.270	$2,984
Cortona Resources	CRC	20,000	13/04/2011*	0.146 av	$0.145	$2,900
Golden Gate Petroleum	GGP	408,500	20/04/2011*	0.0145 av	$0.021	$8,579
TNT Mines	TNT	4,440	22/07/2011*	$0.000	$0.250	$1,110
Quickstep Holdings	QHL	20,000	23/11/2011*	$0.185	$0.170	$3,400
Orpheus Energy	OEG	19,250	17/08/2011*	0.164 av	$0.120	$2,310
Total value of portfolio						$71,405
cash at bank						-$13,930
Total						$57,475
Portfolio change since January 3, 2012 (started with $50,000)						14.95%
All Ordinaries change since January 3 2012 (then 4155.22)						6.48%
*Shares held from previous year, carried at their December 30, 2011 closing price.

Many targets to boost the project’s size

As previously pointed out, the JORC-resource does not include recent gold discoveries at Ruby Lode, Chinamans Flat, Dargues West or Carmine, all of which are within 250 metres of the planned mine development, with potential to significantly increase the mine life. (Drilling on the Ruby Lode, 150 metres north of the mine development, yielded two promising intersections: 12.6 metres of 9.9g/t plus 5 metres of 10.6g/t.)

The development is being accessed via a decline that extends continuously from 35 metres below surface to 480 metres, where the ore body remains open at depth and along strike.

The Dargues Reef mine is sited within Cortona’s larger Majors Creek Project area, regarded as the largest historic goldfield in NSW, having yielded more than 1.25 million ounces from mainly surface and near-surface workings dating back to the 19^th and early 20^th centuries. The greater project area is held within 700 square kilometres of exploration tenements.

Deutsche Bank’s commitment to the funding package follows extensive due diligence it carried out since it was mandated last August to provide the package, as well as key state and federal approvals in February.
Cortona’s managing director Peter van der Borgh said the Dargues Reef project was expected to be one of the few Australian gold projects which this year would go from feasibility to development, and into production next year.

“The mine is forecast to generate free cash flow of $A125 million over its initial six-year mine life, using a gold price of $A1550/oz,” he added. “The robust economics of the project are underpinned by the high grade of the deposit, which has an undiluted grade of 7.25g/t.”

Ore will undergo crushing and grinding at the Dargues Reef site, where 50% of the gold will be recovered via gravity methods on site and the balance recovered from a pyrite-gold concentrate (grading around 25g/t gold).

That concentrate will be transported 400 kilometres north to the now-mothballed London-Victoria gold treatment plant once operated by BHP Billiton at Parkes. Cortona will operate that plant to recover gold bars after a budgeted $3 million refurbishment.

Cortona’s trading halt will remain in place until the earlier of the commencement of normal trading on Tuesday, April 10, or when its planned capital raising announcement is released to the market.
Deutsche Bank’s financing package includes a pre-paid gold forward and requires Cortona to commit to a gold hedging program over approximately 30% of the existing proven and probable reserves at Dargues Reef. That will secure the company’s repayment obligations while giving it significant exposure to the spot gold price in a strong gold market.

Coalworks in a trading halt

Our coal stock Coalworks Ltd (CWK) also sought a trading halt yesterday (until Thursday, April 5), pending a capital raising announcement.

After trading last week between 80c-86c, the company’s stock touched a new 12-month high of 88.5c, retreating to a last sale of 87c ahead of suspension from trading. We’ll look forward to analysing tomorrow’s announcement in next week’s column.

David Haselhurst writes a monthly column for Money magazine. Please note that he is not able to provide personal replies to emails.