The Speculator

PORTFOLIO POINT: Heavy minerals developer Image Resources moves forward with its production plans by appointing a high-profile project manager, while Beacon Minerals’ board fight heats up.

Shares in Image Resources (IMA) are bound for a re-rating in the months ahead as the company moves closer to production from its North Perth Basin mineral sands project.

The company yesterday announced the appointment of one Peter J Davies, of ISOC Pty Ltd, as project manager for what is described as the largest, high-grade undeveloped heavy minerals (HM) resource in Australia.

Davies has extensive operational experience in the mineral sands industry, and was previously general manager of Tiwest’s Chandala business of mineral sands processing and synthetic rutile production. He was also director of European operations for Kerr-McGee Chemicals/Tronox (titanium dioxide pigment manufacturing). Other senior staff positions have been held with Billiton International/Shell Metals, Dominion Mining, Delta Gold and CSA Global.

Last August, Image managing director and geophysicist George Sakalidis confirmed a feasibility study was underway for an initial 12-year production program on the North Perth Basin, following a robust scoping study completed that month.

Since then, strongly rising forward prices for both titanium dioxide and zircon mineral sands products have significantly enhanced the economics of the project (see The Speculator, December 21.)

Yesterday’s announcement from Image pointed out that the current feasibility study includes just six of Image’s 11 100%-owned identified mineral resource discoveries. Within those six, comprising the North Perth Basin project, the total resource is 42.4 million tonnes of 6.4% HM, containing 2.7 million tonnes of HM (with a cut-off grade of 2.5%).

The valuable HM content of the six resource deposits comprises 1.67 million tonnes of ilmenite, 268,000 tonnes of zircon, 150,000 tonnes of leucoxene and 145,000 tonnes of rutile.

This week’s announcement predicted several things: that based on the scoping study for Image (completed in August 2011) and on current and forecast commodities prices, the project should have a fast payback of 13-16 months. It should also have an internal rate of return (IRR) range of 47.7-58.6%, a net life-of-mine cashflow after capital of $280 million-$381 million and a capital cost of $84 million.

That’s a vast improvement on last August’s scoping study projections, which envisaged a life-of-mine cashflow after capital costs of $170-259 million, an IRR of 32.1-42.9% and a capital payback within the first 18-22 months of operations.

When I first wrote about Image’s scoping study projections (see The Speculator, August 31), Image’s 92.6 million shares were priced at 40c, down from a 12-month high of 82.5c. At 40c, the company carried a market capitalisation of $37 million.

As this bearish market progressed and nervous investors quit the stock on comparatively tiny weekly turnovers, the shares retreated to a low of 22c and ended 2011 at 28c.

Last week, they closed at 30c which, with 93.8 million shares now on issue, gives the company a market capitalisation of $28.14 million.

A sniff of gold might help

Quite apart from Image’s core heavy minerals focus, the company has a joint venture with Top 200-listed gold producer Integra Mining Ltd (IGR), 60 km south-east of Kalgoorlie.

This week, the companies revealed a broad area of gold anomalism had been identified through aircore drilling on a trend extending “for at least” three kilometres into Image tenements, and a further five kilometres into Integra adjacent tenements.

Under the terms of the joint venture, Integra may earn a 70% interest in Image’s 100%-owned tenements totalling 125 sq km through expenditure of $750,000. The joint venture adjoins Integra’s Aldiss gold project, 60 kilometres south-east of Integra’s Randall gold processing plant.

We should disclose that Integra is held in the Speculator’s Money Magazine-only portfolio.

Beacon board fight heats up

Shareholders in gold prospector Beacon Minerals (BCN) will meet in Perth on March 12 to decide whether to replace the present three-man board with three nominees representing dissident shareholders with just 5.3% of the stock.

This was discussed in this column on February 8, after a meeting was called to approve the sale of Beacon’s Halley’s East gold project 200 kilometres north of Southern Cross, WA, which is just not big enough to sustain its own treatment plant.

Beacon shares had last traded at 0.8c, giving 995.07 million shares a market capitalisation of $7.96 million. We bought in at the same price.

Since then, Beacon managing director Darryl Harris, a metallurgical engineer, snapped up another 5 million shares at prices up to 1.2c, taking his holding on February 23 to 6.l7 million.

Today, another director Paul Lloyd reported buying another 5 million shares on market for $55,000, taking his holding to 11.18 million. By lunchtime today, another almost 10 million shares traded up to 1.2c.

I doubt the three challengers will convince other shareholders to topple the Ramelius deal to pay $4 million for the 12 sq km mining lease, plus a royalty of $80/oz on the first 40,000oz recovered, and even more as explained in our earlier column. The deal will leave Beacon with cash reserves of about $5 million, plus listed securities in Consolidated Tin Mines Ltd valued at $950,000.

That will fund further exploration planned on its retained 388 sq km of tenements, with at least four targets identified for drilling in early 2012.

-The Speculator portfolio, as at February 29
Company	ASX	No of shares	Bought	Purchase price	Current price	Current value
Image Resources	IMA*	15,000	31/12/2010* *	0.362 av	$0.315	$4,725
Viralytics	VLA	19,995	20/12/2011	$0.308	$0.370	$7,398
Robust Resources	ROL	6,000	31/12/2010*	$1.49 av	$1.170	$7,020
Scotgold Resources	SGZ	25,000	31/12/2010*	$0.053	$0.075	$1,875
Scotgold Resources Options ex30/4/12 @ 8c	SGZO	2,500		$0.000	$0.008	$20
Coalworks	CWK	10,000	31/12/2010*	$0.830	$0.800	$8,000
GoConnect Ltd	GCN	120,000	31/12/2010*	$0.038	$0.030	$3,600
Minemakers	MAK	20,000	25/01/2011*	0.425 av	$0.285	$5,700
Platsearch	PTS	20,000	8/02/2011	$0.130	$0.085	$1,700
Broken Hill Prospecting	BPL	20,000	22/02/2011	$0.160	$0.110	$2,200
Austpac Resources	APG	40,000	2/03/2011	$0.060	$0.040	$1,600
Potash West	PWN	11,050	30/03/2011***	$0.200	$0.280	$3,094
Cortona Resources	CRC	20,000	13/04/2011	0.146 av	$0.145	$2,900
Golden Gate Petroleum	GGP	270,000	20/04/2011	0.013 av	$0.022	$5,940
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	$0.125	$2,406
Total value of portfolio						$62,688
Cash at bank						-$9,554
Total						$53,134
Portfolio change since January 3, 2012 (started with $50,000)						6.27%
All Ordinaries change since January 3, 2012 (then 4155.22)						4.72%
* Shares held from previous year, carried at their December 30, 2011 closing price.

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