www.miningmx.com | mybk08 Desert juniors

Desert juniors
Julie Bain
Posted: Mon, 15 Sep 2008

[miningmx.com] -- EMBOLDENED BY THE unprecedented bull-run in metal prices, junior miners are becoming increasingly willing to shoulder a bit of hardship in search of the much-vaunted “company-making” discovery. This includes operating in regions with unforgiving geographies such as Africa’s desert and semi-arid regions.

Take John Teeling, chairman of the UK-listed African Diamonds. He’s in the fortunate position of heading a junior mining company with proven resources and that has De Beers as a partner. Set against this is the difficulty of operating in the Kalahari; more specifically the Orapa semi-desert region in which African Diamonds’ main prospect, the AK6 project is located.

The Kalahari may be inhospitable but it pales in comparison to the deserts of Iran where Persian Gold, another company Teeling founded and heads, is digging for metal. “[By comparison] Botswana is lush,” says Teeling.

James Campbell, CEO of African Diamonds, says Botswana has one of the best mining cultures in Africa. In his opinion, it’s the best place to work in Africa.

African Diamonds has a 29% interest in AK6, which is scheduled to start production by early 2010. Teeling said when it starts producing it will be one of only 12 operating hard rock diamond mines in the world.

That fact is another key to what drives diamond exploration companies across Africa, encouraged by a market where the supply of diamonds is waning.

We want to be proactive not reactive

The effect of the slump in the US economy and the impact of inflation globally may knock diamond sales, but in the longer term, companies seem confident that good quality diamonds will always find a buyer.

African Diamonds has a number of prospects in Botswana. In fact, there are few regions with its proven reserves of diamonds. Having secured prospecting licences in some of these areas in Botswana, which is home to some of the largest diamond mines in the world, gives African Diamonds a sound suite of projects.

Teeling said an application for a mining licence has been submitted for AK6, which is also in the Orapa region. At the AK8 prospect, for instance, field work has been completed and there’s the possibility that it might yield a “small mine” of an estimated 300 000 carats a year.

A major turning point for African Diamonds would be if its other kimberlite discoveries, in association with De Beers and mostly in the Makgadikgadi Salt Pans area, which lies north of the Orapa mine, could be turned to account. Expressing the kind of optimism that’s typical of all exploration firms, Teeling believes it’s possible.

Just as South Africa is keen to attract junior miners, with exploration assets in the country, to list on the JSE, Botswana and Namibia are eager to do the same.

African Diamonds has a secondary listing on the Botswana exchange, and investors in Botswana hold more than 20% of the company.

In addition to its joint venture with De Beers, African Diamonds has a separate wholly owned business in Botswana. It’s carrying out a review of the previously completed geographical survey data on what is known as the Kedia block, another inhospitable semi-arid area in the Central Kalahari Game Reserves, which lies to the west of Orapa and covers more than 3 000sq km.

For African Diamond investors, it’s a matter of sitting tight as the exploration company is still recording a loss.

In the six months to end-December, the loss was £202 000 compared with a loss of £176 000 in the corresponding six months last year; and costs are likely to rise as it pays its proportion of the exploration costs in Botswana. The exploration will be funded 70% by De Beers and 30% by African Diamonds.

When it comes to the development of the mine at AK6, De Beers will fund the construction, and African Diamond’s portion will be repaid out of dividends. Campbell said this structure was used in order to avoid any shareholder dilution, meaning the company is unlikely to have to issue more shares to pay for the development of the mine.

He added that once the company’s mining rights are secured, and noting that by early 2010 the company should have its share of the cash flow from the sale of diamonds from AK6, African Diamonds hopes to take part in the widely anticipated rationalisation of the junior mining sector.

“We want to be proactive not reactive,” said Campbell.

CENTAMIN

ABOUT 25 kilometres from the Red Sea Riviera town of Marsa Alma, junior miner Centamin Egypt is developing a major gold resource as part of the Sukari gold operation. The aim is to produce its first gold by the end of this year.

Sami El-Raghy, chairman of the company, which has its main listing on the ASX and has two additional listings on the TSX and AIM, is a geologist by training. In the early Nineties, he decided to check out some ancient gold mines from the time of the Pharaohs.

El-Raghy said the mining then was on a small scale with only “one narrow” vein being accessed. “Not only did the vein continue, it repeated over the hill, the whole hill has got disseminated gold in it,” he says.

He found the deposit by “pure chance”.

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“I looked at it in 1993. I couldn’t really believe it, so I got other people to look at it. I thought it might be my emotions making it look better than it was.

“I got a lot of people to look at it and when I was comfortable, I started negotiations and we started work (on the site) in 1995.”

Sukari has a measured and indicated resource of 8,12m ounces and also an additional 3,5m ounces of gold inferred at 0,5 g/t cut off grade, the deposit’s resource is nearly 12m ounces, says Centamin.

“We will have our first gold by the end of this year. We are building a 5m tons/year plant and will produce gold on site using a carbon in leach plant – it’s huge,” says El-Raghy.

From exploration to first gold production, Centamin has invested about $300m. El-Raghy said initial annual production would be 250 000 to 300 000 ounces/year. It hopes to increase this to beyond 500 000 oz/year.

Sukari is in the desert, but El-Raghy said that as a result of its closeness to Marsa Alam, the infrastructure is not a problem. (The town opened an international airport in 2001.) Water for the plant is being piped 25 km to the mine from the Red Sea and a desalinisation plant will treat some of the water needed for the final stage of the gold making process.

The mine, which will start as an open pit and to later be developed into an underground operation, has taken a long time to develop. El-Raghy, who has worked as a geologist in South Africa and Zimbabwe and now lives in Perth, Australia, has had to play a role in establishing a mining regime in Egypt.

Sukari is the first modern mining project in the country and much of the legislation had to be drafted as the project moved forward. He believes that as the regime is put in place, there will be more mining opportunities in Egypt.

“I think Egypt is going to be a major mining country. It was a major gold producer when the rest of the world was in the Stone Age. I think these days will return,” said El-Raghy.

KALAHARI MINERALS

Kalahari Minerals is an ASX and AIM-listed junior that could be producing ore from its Witvlei copper project in Namibia in two years’ time.

Mark Hohnen, Kalahari’s chairman, says he knows the metal is there and depending on how drilling progresses, and when a bankable feasibility study is complete, the company could be producing by 2010.

This scenario would mean toll-treating the ore while another possible plan, which sees production starting a few years later say 2011/2012, would involve an investment in excess of $150m and the construction of a smelter at the mine.

“At Witvlei, we started drilling eight months ago. I think we will have our first serious resource statement at the end of the year,” says Hohnen.

Earlier exploration work, carried out in the Sixties and Seventies, shows ore is there. “We are going back into that area; from all the drilling we can see more than the 250 000 tons [of copper].”

Between now and June next year, Kalahari plans to have drilled 100 000 metres and between Kalahari and Extract (the junior uranium miner in which Kalahari has a stake) they will have 14 rigs operating in Namibia.

This is not a bad position to be in given the shortage of equipment and skilled staff, a consequence of the surge in the number of junior miners in the last few years.

For many juniors it’s a race to get their reserves proved up or to develop them to the mining stage before the price of the metal they hope to mine slumps. Although the metal prices are certainly holding higher for longer, the commodity cycle will follow its traditional trend and the price of some metals, at least, will fall.

Kalahari is working as fast as it can: “We could not work any faster than now given the restrictions on personnel and rigs,” says Hohnen.

Development of the company’s other 100%-owned copper prospect, Dordabis is on hold for now as Kalahari focuses on Witvlei.

Kalahari’s name is a bit misleading; it has no assets in the Kalahari Desert, which stretches through South Africa into Namibia. Rather, the company’s copper exploration projects are on arid farmland on the edge of the famed region. It gains its desert stripes, though, by virtue of its 39,11% stake in Australian uranium junior Extract Resources, which is exploring for uranium in the Namib desert.

“We are sitting in a very strong position with copper and uranium, and next year we will see uranium come into its own again,” says Hohnen, referring to the drop in the uranium price from last year’s record highs. More than 200 nuclear plants are under development or planned worldwide.

“I think there’s an over-sell on coal, people are getting carried away. The uranium price will be $77 to $85/lb by the end of this year,” he says.

Hohnen also seems to have no worries regarding the copper price. “Our copper scoping study is based on a copper price 40% of the current price and is very profitable,” he says.

Kalahari has £13m in the bank after the placing and purchase of Extract shares, and this money is earmarked for the development of its copper projects. If Kalahari decides to take the toll treatment route at Witvlei, development costs would be around $15m. Alternatively, if it’s decided that a smelter will be built, costs would leap to in excess of $150m.

“We are sitting with what we believe to be a hell of a lot of money,” says Hohnen. The stake in Extract gives Kalahari an option to further fund its copper project by “… getting Extract to place our holding in that company if we wanted to,” says Hohnen.

Extract, which is drilling at the Rössing South uranium project, is responsible for its own funding. “For the foreseeable future we can maintain both positions [copper and uranium],” says Hohnen.