The Speculator

PORTFOLIO POINT: Our portfolio stock Coalworks significantly exceeds its exploration target on the Ferndale deposit in the Upper Hunter Valley of NSW.

Newcastle mining and sporting entrepreneur Nathan Tinkler and other shareholders in Coalworks (CWK) should be cheered with the maiden resource assessment from the company’s Ferndale deposit in the Upper Hunter Valley.

A maiden inferred resource of 743 million tonnes of bituminous coal announced at the end of last week confirms Ferndale as a high-quality, strategic project.

It significantly exceeds the exploration target pursued for the past 18 months of between 350 and 530 million tonnes. The 743 million JORC-compliant inferred resource comprises:

• 443 million tonnes identified within the Newcastle Coal Measures at depths amenable to open cut mining; and
• 300 million tonnes identified within the deeper Wittingham coal measures with underground mining potential.

In this cautious sharemarket the news briefly pushed Coalworks’ share price up from a week’s low of 78.5¢ to a high of 87¢, before sliding back to close at 83¢. Last week’s stock turnover totalled 2.37 million shares; that’s not much activity out of Coalworks’ total issued capital of 149,088,955 million shares. Today the shares weakened again to trade at 78.5¢.

At that price, Coalworks carries a market capitalisation of close to $118 million. Remaining cash at the end of December stood at $18.78 million, with projected cash outflow in the current quarter of $2.48 million.

Nathan Tinkler’s company, Boardwalk Resources, owns 19.9% of Coalworks’ stock (29.67 million shares) acquired for $19.2 million cash through a share placement earlier last year.

The placement was part of a deal whereby Boardwalk entered into a joint venture with Coalworks to develop the Ferndale coal project held within EL7430 in the Upper Hunter.

At that time, Coalworks owned 92.5% of Loyal Coal Pty Ltd, holder of Ferndale project (EL7430), which was independently valued a year earlier at $40 million. Following the placement, Boardwalk will acquire 50% of Loyal Coal by spending up to $25 million to finance a bankable feasibility study for an open-cut mine and a pre-feasibility for an underground mine.

-The Speculator portfolio, as at February 22, 2012
Company	ASX	No of shares	Bought	Purchase price	Current price	Current value
Image Resources	IMA*	15,000	31/12/2010*	0.362 av	$0.300	$4,500
Viralytics	VLA	19,995	20/12/2011	$0.308	$0.375	$7,498
Robust Resources	ROL	6,000	31/12/2010*	$1.49 av	$1.175	$7,050
Scotgold Resources	SGZ	25,000	31/12/2010*	$0.053	$0.070	$1,750
Scotgold Resources Options ex30/4/12 @ 8c	SGZO	2,500		$0.000	$0.001	$3
Coalworks	CWK	10,000	31/12/2010*	$0.830	$0.770	$7,700
GoConnect Ltd	GCN	120,000	31/12/2010*	$0.038	$0.034	$4,080
Minemakers	MAK	20,000	25/01/2011*	0.425 av	$0.295	$5,900
Platsearch	PTS	20,000	8/02/2011*	$0.130	$0.088	$1,760
Broken Hill Prospecting	BPL	20,000	22/02/2011*	$0.160	$0.100	$2,000
Austpac Resources	APG	40,000	2/03/2011*	$0.060	$0.043	$1,720
Potash West	PWN	11,050	30/03/2011*	$0.200	$0.290	$3,205
Cortona Resources	CRC	20,000	13/04/2011*	0.146 av	$0.150	$3,000
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	$0.110	$2,118
Beacon Minerals	BCN	100,000	8/02/2012	$0.008	$0.010	$1,000
Total value of portfolio						$66,371
Cash at bank						-$11,020
Total						$55,351
Portfolio change since January 3, 2012 (started with $50,000)						10.70%
All Ordinaries change since January 3 2012 (then 4155.22)						5.13%
* Shares held from previous year, carried at their December 30, 2011 closing price.

Board purge trims two directors

The pleasing progress reported on the Ferndale project is in stark contrast to the boardroom ruckus initiated by Tinkler and other dissidents at Coalworks’ annual meeting on November 11 last year.

They combined to win a board purge, with two of five directors voted out of office after criticising the directors’ remuneration report.

The two board members to lose their seats were: executive director David Smith, a former corporate finance chief with Sydney stockbroker BBY, who joined the board only two months previously; and accountant Tony Teng, who had been Coalworks’ company secretary from 2005 to earlier last year.

Remaining directors are: accountant Wayne Mitchell (chairman), former CSIRO scientist Andrew Firek (managing director) and mining engineer Ian Craig.

The maiden inferred resource estimate, prepared by Ravensgate Minerals Industry Consultants, is based on 40 completed bore holes with hole spacings ranging from 500 metres to 2 kilometres apart. Quality analysis results from 15 boreholes were included in the resource estimate, with remaining boreholes awaiting completion of analysis. All boreholes intersected coal.

The Ferndale joint venture is but one of Coalworks’ three major projects. The other two are:

Vickery South, where Itochu of Japan is spending $11 million to complete a bankable feasibility study to earn a 49% interest in a coking and export thermal coal project near Gunnedah, NSW.

A completed preliminary feasibility study last year, based on exporting two to three millions tonnes a year, produced a range of positive net present values (NPV) of between $A159 million-$A323 million on an 8-10% discount rate.

At this stage, the ownership of the Vickery South Project is Coalworks 71% and ICRA Vickery Pty Ltd 29%.

Coalworks’ December quarterly report confirmed a JORC-compliant measured resource for Vickery South of $48 million tonnes in the Eastern Zone and 10.4 million tonnes of inferred resources in the North-west and South-west zones.

In the current quarter, the joint venture is proceeding to a bankable feasibility study.

Oaklands North (#EL6861). In south-central NSW about 250 kilometres west of Canberra, this 100%-owned Coalworks project is continuing an “alternative products” study, with a view to attracting potential partners into establishing a coal-to-liquids (CTL) plant.

A pre-feasibility study undertaken earlier by consultant Minarco examined the potential to produce 21,000 barrels a day of petrol, equal to 6% of the Australian market.

Coalworks also retains a one-third interest in our portfolio stock Orpheus Energy (OEG), which was spun-off last year as a separate listing. It’s developing in a 50:50 joint venture with Indonesia’s PT Mega Coal a coking and thermal coal export project, B26, in East Kalimantan.

Suitor Minemakers gets the knockback

Last week’s column discussed the takeover bid our portfolio stock Minemakers (MAK) planned to lob on its phosphate prospecting affiliate UCL Resources (UCL).

Minemakers and UCL each hold a 42.5% equal interest in a joint venture on the Sandpiper Marine Phosphate Project in offshore Namibia, off the west coast of Africa. Minemakers already owns 13.1% of UCL.

Directors of UCL have branded Minemakers’ planned offer of nine of its shares for every 10 UCL shares as “inadequate and opportunist”, and urge investors to ignore it until a response is issued to the still-to-be released bidder’s statement.

We await that bidder’s statement. Ahead of the planned bid announcement, UCL shares traded at 19¢; today they were trading at 25¢.

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