As good as gold?

Copper producers will lead the way

February 21, 2011

All punters are predicting that the copper market will be in (supply) deficit in 2011. So for the time being at least, the much used metal is what you might call scarce, giving it a ”store of value” hue usually reserved for gold.

It’s no wonder then that the price of the stuff marched to record levels earlier this month, to $US4.63 a pound. It’s backed off a little since, settling back at $US4.47 a pound on Friday.

So there has never been a better time to be a copper producer than now. As luck would have it, ASX-listed Tiger Resources (ASX: TGS) is but a couple of months off becoming a producer from its Kipoi project in the Democratic Republic of Congo (DRC).

Now the DRC is not everyone’s first choice as an investment destination. But it is fast recapturing its status as one of the major copper producers and unlike much of Africa, it has got a fair dinkum democratically elected government.

Kipoi’s economics are also proving hard for investors to ignore in the lead-up to its first production in April, and this has been reflected in the run-up in Tiger’s share price, from 25¢ five months ago, to 53.5¢ on Friday.

Tiger has not updated the economic indicators on Kipoi since November. Back then it said that after capital expenditure of $31.5 million and assuming a copper price of $US3.50 a pound, Kipoi would pay back its capital inside about four months.

With copper at near-on $US4.50 a pound, payback will be shorter still. All that means is that over the expected three-year life of ”Stage 1” mining at Kipoi (three years at 35,000 tonnes of contained copper annually from material grading a magical 7 per cent copper), Tiger is going to pull in one big chunk of cash.

The extra  free cash will support the push for a much longer mining life from a solvent extraction and electro-winning (SX-EW) operation that brings into play the rest of the (lower grade) resource that Tiger is outlining at Kipoi and its Sase prospect.

Tiger’s story in the DRC is very similar to that of Anvil Mining (ASX: AVM), now a $1 billion company. Anvil has been a DRC copper producer since 2002 and is now spending $US400 million on its Kinsevere project, a 60,000-tonne-a-year SX-EW operation.

Interesting thing is that both companies have commodities trader Trafigura as their major shareholder. In Tiger, Trafigura holds 28 per cent (fully diluted) and in Anvil, it sits at 35 per cent.

There have been whispers that it would make sense to bring Tiger and Anvil together. No action to report on that front just yet, but it could be a space worth watching as Tiger gets into production and as Anvil beds down the Kinsevere projects.

VICTORIA’S Ballarat-Bendigo gold corridor has yielded more than 33 million ounces of gold over time, making it one of the most prolific & consistant gold regions anywhere in the world.

But all that is old news, very old. To recapture its status as the place to be for gold as it was in gold rush days of yesteryear, the ”corridor” needs a modern-day discovery to fire up the imagination of investors. Only problem is, much of the corridor’s prospective rocks are hidden beneath thick sequences of Murray Basin sediments.

So there has been little, if any, in the way of new deposits being uncovered since Australia’s third gold production boom got going in the early 1980s. But there have been some promising finds, including the Lockington find by South Africa’s Gold Fields Ltd on the northern end of the Ballarat-Bendigo corridor.

The experts will tell you that it is the first significant discovery of gold mineralisation under the thick Murray Basin sediments. Significant all right, but not yet in the category of a discovery to maintain Gold Fields’ full attention after spending some $6 million on exploration.

That task is being handed to a new $10 million gold float called Timpetra Resources, using the model that Gold Fields has used previously of striking a strategic alliance with a focused junior explorer to pick up the running, while keeping its foot on the potential upside.

Timpetra is picking up Lockington in return for shares, enough to give Gold Fields a 22 per cent interest on Timpetra listing.

It has also an anti-dilution right under which it can maintain its cornerstone shareholding.

On listing, Timpetra will have 68.75 million shares on issue.

Of that, new shares from the float will account for an impressive 72.8 per cent. That’s compared with the usual 50 per cent that goes to the public after vendors and promoters have their fill from a float.

At the float price of 20¢ a share, Timpetra will have a market cap of $13.75 million.

Its board is filled by well-known mining types, including Tony Grey as chairman.

Grey is the Canadian lawyer who arrived in Australia in 1969 and got bitten by the mining bug after watching the craziness of the Poseidon nickel boom.

He went on to make his own fame and fortune when a company he founded, Pancontinental Mining, found one of the world’s biggest uranium deposits, Jabiluka.

It’s now owned by Rio Tinto’s listed uranium subsidiary Energy Resources of Australia.

Lockington lies some 50 kilometres north of Northgate’s Fosterville gold mine, currently Victoria’s biggest mine, with annual production of more than 100,000 ounces from a gold endowment of some 2.5 million ounces.

Mineralisation discovered by Gold Fields at Lockington is of the fine-grained type found at Fosterville, rather than the coarse (nuggety) stuff that makes grade estimation and reserve definition so difficult at places like Bendigo and Ballarat.

Work by Gold Fields since 2003 at the project has outlined eight separate mineralised trends, with strike lengths of up to 10 kilometres. Best drill results included 7.7 metres grading 4.2 grams of gold a tonne from a 166 metres depth and 4.1 metres grading 6.3 gram/tonne from 231 metres.

Timpetra’s future drilling will be attempting to zone in on the fault system where the gold activity lies. It could start in April. The share offer is fully underwritten by Ord Minnett.

Sourced & published by Henry Sapiecha

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