CGG - Citadel Resource Group

[jman2007]

Small firm poised to mine Saudi Resources - This is an interesting story...

CGG, formerly known as ADV Group has gone from a small company which marketed itself as a multinational media services company to form a JV in one of Saudi Arabia's biggest untapped Cu resources, Jabal Sayid. The current JORC resource stands at 46 MT at 1.8% Cu, the company is expecting to have a new JORC resource by March 2008, and is hoping to double the size of the known resource.

A scoping study completed in the 1990's suggested that Jabal Sayid had the potential to be a 100 million to 150 million open cut project grading between 1 and 1.5% Cu, with significant Au, Ag and Zn credits, putting the project into the top tier of its type in the world. The pace is set to quicken at Jabal Sayid with a third and fourth diamond rig contracted to be onsite and drilling this December.

The merging of ADV Group and mining services company Vertex has given the new Citadel Resources a 50% earning in the project, with CMC (Consolidated Mining) retaining the other 50% interest, and Citadel taking the lead in the project. The story has gone virtually unnoticed even in the midst of the resources boom.

While Jabal Sayid has the potential to be the real flagship for Citadel, Vertex also brings another 9 wholly owned projects and exploration licences to the company, all of which are in Saudi Arabia. At least 4 of these projects have the potential to be company makers, Vertex Executive Director Ms Ines Scotland said.

(Information taken from 'The Australian', Dec 4th page 20 and ADV Annual Report 2007)

 

[rhen]

Just received an email from Citadel Investor Relations:

The ASX has only yesterday advised us of the conditions we need to satisfy
in order to resume trading as Citadel Resource Group (ASX:CGG). We have the
paperwork now with them and we expect to commence trading again within the
next few days, but hopefully no later than Monday.

It begs the question: "Why only yesterday"?
Is this acceptable?

 

[doctorj]

I'm surprised that it will only take a "few days". My understanding is the listing rules require them to submit a reviewed pro forma balance sheet to the ASX to support their application. This requires engaging an accounting firm to conduct the review - I find they could go from "not knowing about it" to arranging their auditors and then their auditors being happy with the balance sheet in only "a few days". Realistically, I'd expect atleast a week, if not 2 before ASX get everything they need.
There is ofcourse the chance ASX have exempted them from this specific requirement in which case 'a few days' is achievable. Who knows.

 

[Santoro]

I'm surprised that it will only take a "few days". My understanding is the listing rules require them to submit a reviewed pro forma balance sheet to the ASX to support their application. This requires engaging an accounting firm to conduct the review - I find they could go from "not knowing about it" to arranging their auditors and then their auditors being happy with the balance sheet in only "a few days". Realistically, I'd expect atleast a week, if not 2 before ASX get everything they need.
There is ofcourse the chance ASX have exempted them from this specific requirement in which case 'a few days' is achievable. Who knows.

Thats all been posted up in ann's tonight...must happened just before you wrote this....anyway sounds kinda interesting worth some investigation

78% held by top 20...nice

 

[doctorj]

Credit where its due - that's quick work from BDO. Scratch everything I said before, I stand corrected!

 

[BSD]

I cannot find a superior copper/gold play in the Australian market.

The ownership/deal complexity is over, as well as the overhang from the jilted shareholders of the previous business being soaked up by instos like Portfolio Partners.

The grade, tonnage and in-place infrastructure are stunning.

The upside in expected additions to reserves from recent drilling at Jabal Sayid is enormous - the other projects haven't even been contemplated, but exceed the quality of many local aspirationals in potential.

Recent intercepts include:

Zone One
115m @ 1.77% Cu, 0.45g/t Au
97m @ 3.28% Cu, 0/71g/t Au

Zone Two
164m @ 2.79% Cu, 0.44g/t Au
122m @ 2.74% Cu, 0.22g/t Au

Zone Four
254m @ 2.65% Cu, 0.39g/t Au (!)

This is purely virgin country - anything like this in Australia would have been discoverd and mined 20 years ago.

First mover advantage in a such a resource rich, unexploited country makes for an excellent opportunity.

Cannot imagine financing a deal in such a well endowed country would be too hard either.

Obvious ownership disclaimers apply and I should add that for deals like this; I 'own' and don't 'trade'

 

[jman2007]

I realise that CGG is best known in the market for its Jabal Sayid project, but Vertex brings a whole host of other projects to the table, many of which could be company makers in their own right, imo.

The only downside I can see with CGG is that the issue of new shares and options to fund the aquisition of Vertex which has caused substansial dilution to current holders, so it might take a fair bit to get this moving. And as the sole funder of Vertex, CGG could come under unecessary financial strain. At this stage CGG's only significant assets are cash and its investment in Vertex.

I thought it might be interesting for people who maybe don't know much about CGG or their projects to see them displayed in table form. One table displays the assets acquired by CGG, the other table details the proposed development scenario over the next 3 years.

I'm not going to get into predicting sp's or anything, I'll leave that up to the t/a's and chartists : (hint hint). I'm more interested in the overall strategic position of the company and the logistics of the development.

 

[jman2007]

More good news from Jabal Sayid,

A new zone of zinc-gold mineralisation discovered overlying lode 4, extending the copper mineralisation to the north. By the sounds of it, they're also preparing to use the ramp decline to gain access to lode 4 deeps and comence underground drilling where previous drill holes terminated in 3% grade Cu.

Continual in-fill drilling by the feasibility team should allow new discoveries and updates to be included in an upcoming resource re-calculation, and allow categorisation of the Resource into the Indicated and Measured categories in preparation for the BFS commencing Q2 2008.

A 3000m RC drilling programme commenced in Dec 07 at Jabal Shayban, of which approx 600m has been completed, assay results pending.

jman

 

[shaunm]

This looks like a great opportunity. Does anyone have any thoughts on why the SP has not recovered like many others after last weeks rout?

 

[jman2007]

This looks like a great opportunity. Does anyone have any thoughts on why the SP has not recovered like many others after last weeks rout?

Well with the aquisition of Vertex and the issue of new shares to fund it, there are about 744M listed ordinary shares causing substansial dilution to holders of former ADV group. Imo, it may take some serious momentum to get this moving. I'm actually reasonably happy with the sp, seems like 20c might be baseline support atm.

jman

 

[BSD]

Great resource upgrade today.

1,000,000 tonnes of copper and 400,000 tonnes of zinc

http://www.asx.com.au/asx/statistics/showAnnouncementPDF.do?idsID=00814228

The gold and silver hasn't been calculated yet and plenty more drilling and results are pending.

It looks as though the mining can begin on Lode 4 with the already deliniated 570,000 tonnes of copper at 2.3% and nearby decline - before open pit work begins on the caps.

Love to hear your opinion JMan?

There is still a big overhang of stock weighing CGG down. I look forward to it dissapearing. This resource upgrade should assist in bringing onboard some new players. Portfolio Partners are already onboard.

 

[BSD]

Good volume shifting the sellers this week.

Ongoing buyer this afternoon for millions. Do a replay...

$0.30 the next step with fundamental support of looming new highs in copper and gold.

Show me another 1mt Cu deposit at 2% at this price...

 

[jman2007]

Great resource upgrade today.

1,000,000 tonnes of copper and 400,000 tonnes of zinc

http://www.asx.com.au/asx/statistics/showAnnouncementPDF.do?idsID=00814228

The gold and silver hasn't been calculated yet and plenty more drilling and results are pending.

It looks as though the mining can begin on Lode 4 with the already deliniated 570,000 tonnes of copper at 2.3% and nearby decline - before open pit work begins on the caps.

Love to hear your opinion JMan?

There is still a big overhang of stock weighing CGG down. I look forward to it dissapearing. This resource upgrade should assist in bringing onboard some new players. Portfolio Partners are already onboard.

Hey BSD,

Sorry mate, just got back from the bush and from chasing drilling rigs around the countryside!

Well I've had a quick look at the release, and based on the available information we have, it certainly appears as though the project would have reasonably robust financials.

Lode 4 certainly looks like the money shot atm, obviously well below the base of a conceivable open pit design, but it appears as though they could drive down with stopes and mine it out that way, so it looks like a combination of open cut and underground at this stage.

BSD, not quite sure what you mean by the overhang of stock disappearing? be interested to hear your thoughts. I'm still a little concerned by the sheer volume of shares on placement here, which imo is the one of the potential downsides. Addtionally, the ability of CGG to continue as a going concern relies heavily on their ability to raise equity from the market, but as you mentioned, the more they delineate these ore bodies and convert them to more "measured" and less "indicated" resources, the greater the investment potential will be.

If they manage to obtain and ore reserve figure for lode 4, this would obviously be a major achievment, as there is simply no higher category in terms of confidence in the JORC Code.

Obviously some of the underground workings are flooded out, hence the initiation of the dewatering phase, some idea of where the local water table sits would be very useful here.

Looking forward to your reply mate.

Cheers
jman

 

[BSD]

Hey BSD,

not quite sure what you mean by the overhang of stock disappearing? be interested to hear your thoughts. I'm still a little concerned by the sheer volume of shares on placement here, which imo is the one of the potential downsides.

Addtionally, the ability of CGG to continue as a going concern relies heavily on their ability to raise equity from the market, but as you mentioned, the more they delineate these ore bodies and convert them to more "measured" and less "indicated" resources, the greater the investment potential will be.

If they manage to obtain and ore reserve figure for lode 4, this would obviously be a major achievment, as there is simply no higher category in terms of confidence in the JORC Code.

Obviously some of the underground workings are flooded out, hence the initiation of the dewatering phase, some idea of where the local water table sits would be very useful here.

The stock overhang is a result of the past of CGG; being a backdoor of the Vertex assets into ADV Group (ADS), a failed company focussed on medical imaging.

This shell was less than ideal, with a bucket of script still in the hands of people with no interest in copper/gold exploration, many of who vended their businesses into ADS for scrip. These guys have no interest in mining and want their cash.

The worst example was a massive chunk of options with 5c to pay, now turned into shares post the restructure. There has therefore been no shortage of people who are happy to knock-out their CGG regardless of drill results, JORC upgrades and prevailing metals prices.

Large standing sell orders have been blanketing the stock for months, even before the restructure was finalised. Anytime a rally occurs, a wave of selling emerges. Note the days of trade when the restructure was completed and the recent performance post the bullish JORC upgrade.

Thankfully, buyers are still coming into the story and today a 3m line was crossed at 25c.

Someone yesterday was ongoing for millions of shares on the buy side - I hope the 3m line today wasn't the end of his buying, but with no follow-through this afternoon after the line went through, it could be that this buyer is done for now and I may be wrong (again) in my claims of the selling drying-up.

At least the price has been getting some traction (22c - 25c) in the last fortnight, offering some hope of the sellers getting exhausted. But remember, massive volume was done around 30c - so there are plenty of stale bulls.

You may have noted by now that I like to follow the activity closely to understand who is buying and selling!

The absolute number of shares does not phase me in the slightest. It doesn't mean anything and attracts a bit of liquidity.


You are right that capital raising in the next twelve months will be required to progress on the feasibility front and at the moment they and every other player in the space have no chance placing stock in this market.

That said, copper concentrates are in great deficit in China and many Chinese firms have taken strategic stakes in juniors to get their hands on future offtakes. MLM and ALB are examples of this in the Ni space. FXR is another group that attracted an investor to their register at a premium to the prevailing market.

CGG has a far superior resource to many of the projects securing equity from Chinese partners for long-term offtakes, so fingers crossed a deal could be done on this front.

Let us also not forget that CGG operates in Saudi Arabia, a money rich part of the world with a government that is very supportive of endeavours to diversify the economic output of the nation away from energy.


As for the water table - that is beyond my knowledge.

 

[jman2007]

The stock overhang is a result of the past of CGG; being a backdoor of the Vertex assets into ADV Group (ADS), a failed company focussed on medical imaging.

This shell was less than ideal, with a bucket of script still in the hands of people with no interest in copper/gold exploration, many of who vended their businesses into ADS for scrip. These guys have no interest in mining and want their cash.

The worst example was a massive chunk of options with 5c to pay, now turned into shares post the restructure. There has therefore been no shortage of people who are happy to knock-out their CGG regardless of drill results, JORC upgrades and prevailing metals prices.

Large standing sell orders have been blanketing the stock for months, even before the restructure was finalised. Anytime a rally occurs, a wave of selling emerges. Note the days of trade when the restructure was completed and the recent performance post the bullish JORC upgrade.

Thankfully, buyers are still coming into the story and today a 3m line was crossed at 25c.

Someone yesterday was ongoing for millions of shares on the buy side - I hope the 3m line today wasn't the end of his buying, but with no follow-through this afternoon after the line went through, it could be that this buyer is done for now and I may be wrong (again) in my claims of the selling drying-up.

At least the price has been getting some traction (22c - 25c) in the last fortnight, offering some hope of the sellers getting exhausted. But remember, massive volume was done around 30c - so there are plenty of stale bulls.

You may have noted by now that I like to follow the activity closely to understand who is buying and selling!

The absolute number of shares does not phase me in the slightest. It doesn't mean anything and attracts a bit of liquidity.


You are right that capital raising in the next twelve months will be required to progress on the feasibility front and at the moment they and every other player in the space have no chance placing stock in this market.

That said, copper concentrates are in great deficit in China and many Chinese firms have taken strategic stakes in juniors to get their hands on future offtakes. MLM and ALB are examples of this in the Ni space. FXR is another group that attracted an investor to their register at a premium to the prevailing market.

CGG has a far superior resource to many of the projects securing equity from Chinese partners for long-term offtakes, so fingers crossed a deal could be done on this front.

Let us also not forget that CGG operates in Saudi Arabia, a money rich part of the world with a government that is very supportive of endeavours to diversify the economic output of the nation away from energy.


As for the water table - that is beyond my knowledge.

BSD,

Some great insights there, I was also at a loss to explain with the recent JORC upgrade just why there was not much movement in the sp, but your explanation goes a long way in explaining these patterns. I guess in a nutshell you seem to be proposing that until these holders not interested in the fundamentals offload their shares, it will be difficult to build any serious momentum as long as hordes of sellers materialise each time.

I was also thinking that exposure to Saudi interests may also open up new opportunities for financing, as it would certainly be in their best interests for the economy to diversify and add another string to its bow. The Chinese connection is obviously purely speculative at this stage, but I don't doubt that they are constantly assessing and reviewing jnr's aound the world, and imo this project will be beginning to generate some interest somewhere.

Cheers
jman

 

[jman2007]

Some nice Au-grade continuity from Jabal Shayban,

They're obviously confident of uncovering some more mineralisation along strike in both directions, and also down dip and down plunge. Grades are certainly not stellar, but factor in the additional Ag credits, and the width of the mineralized zones, and we just may have a nice little cash-flow starter project here.

I'm sure Jabal Shayban will rapidly increase in importance during the year, depending on just how quickly they can prove up the resource, CGG appear to think the best prospects for early production would lie with this prospect, the capex for development may in the long run, be substansially less than for Jabal Sayid(?).... open question there! Refer to my Dec 24th post for details.

jman

 

[Miner]

interesting report from Owls on late Feb as speculative buy. Then the report came as good drilling.
What is the real future of this stock CGG ?

Regards

 

[jman2007]

interesting report from Owls on late Feb as speculative buy. Then the report came as good drilling.
What is the real future of this stock CGG ?

Regards

Hehe...

Sorry Miner, left my crystal ball at home today.

I read the Owl report, not too much disclosed that we didn't already know, they have a twelve month price target of 47c, which would represent a financial gain of approx 100%.

This stock obviously is still speculative and relatively high-risk.

Key points to consider Miner would be CGG's financial position (I am unsure of their current cash balance) and their heavy reliance on the market for equity raising, as funding for these types of projects are naturally reliant upon this mechansim. The Vertex acquisition may also place some unecessary financial strain on CGG in the future.

Future price triggers could be a positive outcome for the Jabal Sayid Pre-Feasibility and an increase in the global resource, as the Owl report mentions. Further postive results from other prospects such as Jabal Shayban would obviously be well-recieved by the market as well.

jman

 

[BSD]

Found this very detailed research piece on the CGG website:

http://www.citadelrg.com.au/links/news-articles-media/petra-capital-cgg-arabian-delight-0108.pdf

Not familiar with the analyst or background of Petra Capital, but I do know they have been active buyers of the stock in recent weeks. Probably off-the-back-of marketing this report.

Some key points from the piece:

* Gold project Jabal Shayban (US50m capex) to be brought into production before the larger copper/zinc Jabal Sayid (US360m)

* Analyst describes in detail the debt funding options offered by the Saudi govt (up to 75%)

* Assuming $660 gold and $2.50 copper (pretty bullish, but similar to WiseOwl)


My issue with the attached report is I cannot find any mention of dilution. As Jman notes, CGG needs to raise $10s of millions to complete these feasibility studies. There is no way the same amount of shares will be on issue at the time of production.

I note the WiseOwl note provided by Miner provides for the issuance of an extra 120 million shares (~10%) dilution.

Shareholders shouldn't be disheartened by necessary dilution. Hopefully, a convertible note (or similar) can be used to fund feasibility and provide convertibility at a far higher shareprice.

In reality all of the capex estimates will be wrong by large amounts and slippage will occur in the timeframes.

But, the beauty of this company for me is the level of upside in scale and the world class quality appearing in the main project. Negative effects can quickly be offset by large additions in tonnage and grade.

The other projects are completely off the radar and gold projects are far easier and quicker to convert to cashflow than base metals.

Finally, some pretty upbeat comments from the Saudi press

http://www.meed.com/news/2008/03/citadel_finds_gold_bonanza_at_shayban_mining_project.html

 

[BSD]

Stunning and surprising gold drill results today from Jabal Shayban.

http://www.citadelrg.com.au/links/announcements/180308-shayban-exceptional-results.pdf

To quote:

"39m at 37.8 g/t Au from 5m to 44m, including 12m at 100.5 g/t (uncut)"

"The bonanza grade intersection reported in drillhole SH031RC represents part of a blanket of supergene enrichment within the oxide zone covering the Shayban hill. This is known to extend over at least 200m of strike, could be up to 100m wide, and remains open to the north along strike."


It looks as though the gold projects in CGG have a substantial value and need to be taken very seriously. Until now CGG traded solely on the value of Jabal Sayid.

Good volume and price action today in the face of bearish miner sentiment.

These results will require an adjustment to management and analysts approach to the company. A 33% increase in the drilling effort for the project has been the immediate response.