May 21, 2009 (minesite.com)
Intrepid Wins Best Of Breed, But It Certainly Isn’t A Dog
“Best of breed” is a description normally heard in horse, cat or dog competitions. It can, however, also be applied in the mining sector, especially if the exploration results are in the eye-popping category such as the 627.2 metres of copper and gold mineralisation encountered by Intrepid Mines at its Tujuh Bukit project in Indonesia. It was that drill hit, plus follow up results, which prompted the stockbroking firm, ABN-AMRO Morgans to describe Intrepid in a March 30 research note as a “best of breed” stock with the potential for a “10-fold” share price re-rating. It hasn’t happened, of course. In fact, Intrepid has slipped back a few cents since Morgans got a little excited. But, rather than accuse anyone of premature exuberance Minesite’s Man in Oz decided to find out what it was that caused so much excitement.
The answer does not lie in a single, albeit spectacular, drill hole. It is found in the overall structure of Intrepid, a company emerging from years of wandering in the wilderness under different names and different management. In a previous life Intrepid was known as Taipan and its primary asset was the small, unloved, and misplaced Paulsens goldmine. Located in the heart of Australia’s Pilbara iron ore country Paulsens is a dead-set winner of a competition for forgotten Australian mines – though that is perhaps the first mistake when looking at Intrepid. A second would be looking too much at its history and overlooking the future.
There are three key assets driving Intrepid. Paulsens, Tujuh Bukit and a fresh management team. Paulsens is providing immediate cash flow. It is not a big mine, but it is very profitable, turning out around 80,000 ounces of gold a year at less than US $400 an ounce. Concern about a short life has been eased somewhat by recent drilling which has added to resource estimates and could help add a few more years to the operation. Tujuh Bukit is the big prize. It is a classic Indonesian-style discovery complete with a shallow, surface “cap”, of material containing at least 2.57 million ounces of gold, sitting atop a potential monster porphyry structure from which the 627.2 metre drill core was recovered.
Maximising value from the two in-ground assets is a management team with deep goldmining knowledge. Six key executives all have Placer Dome, Emperor Mines or Newmont experience under their belts. It’s those years of experience chalked up by people such as the chief executive, Brad Gordon (Placer, Delta, Emperor) and new business manager, Malcolm Norris (Emperor, WMC), and chief financial officer, Steve Smith (Placer, Peabody) which is behind at least one hard-nosed asset-sale decision, and the formulation of a clear business plan.
“We’re very focused on Tujuh Bukit,” is how Gordon described Intrepid’s future when Minesite caught up with him for a chat on the sidelines of a gold conference recently. “It is shaping as a world-class discovery with the hallmarks of Batu Hijau.” For anyone unfamiliar with mining names Batu Hijau is one of the biggest open pit copper and gold mines operated by Newmont. Located at the eastern end of the island of Java, not far from Tujuh Bukit, it contains more than a billion tonnes of ore assaying 0.4 % copper and 0.4 g/t gold. It is, to use a non JORC-code description, a bloody big lump of very valuable rock.
At Tujuh Bukit, where exploration is still in its early stages, the grades and geological structure bear a strong similarity. That monster drill hole, which has caused seasoned observers to sit up and take notice, returned assays of 0.5 % copper and 0.5 grams a tonne of gold, almost identical to Batu Hijau. Getting to that potential bloody big lump of rock will be a challenge for Intrepid. Bulk mining of the type being undertaken at Batu Hijau is big company stuff and Gordon openly talks about the need to “find a partner” for the bulk mining phase of Tujuh Bukit – though the early stages might be a different matter because the gold “cap” which might be relatively easy to treat, and sustain a mine producing 200,000 ounces of gold for at least 10 years.
Intrepid’s plan is to clear the decks of surplus assets, keep Paulsens going for as long as possible and tackle Tujuh Bukit. That process started in March when Intrepid sold its Casposo gold and silver project in Argentina to Troy Resources for US$22 million, with closure of the deal achieved in early May. “We’re emerging in a very strong position after the Casposo sale,” said Gordon. “We’re debt free, with Paulsens contributing around US$3 million a month, and with a sizeable amount of cash in the bank.”
Just how far Intrepid has come under its new management is demonstrated by a check list of achievements over the past 16 months. Back in January last year the company was carrying debt of US$18.5 million. It is now debt free. A hedge book covering almost 44,000 ounces of gold has been closed. Revenue has risen strongly. Costs cut and resource ounces, thanks to the inclusion of the Tujuh Bukit gold cap have risen from 416,100 to 2.8 million.
Australian stockbrokers, if not yet their British cousins, have become increasingly interested in Intrepid. Of the seven brokers covering the stock all have a buy rating, or speculative buy rating. There is no dominant shareholder with Taurus Funds Management sitting on a 9.5 per cent stake, followed by Acorn Capital with 7.8 per cent, Sprott Asset Management with 3.4 per cent. Taurus, for non-followers of Australian funds features former Australian rugby captain, Nick Farr-Jones, as a director, plus seasoned mining industry executive, Gordon Galt.
“It’s really about Tujuh Bukit,” was Morgans snappy description of Intrepid’s future which included a comparison with another Indonesian gold project, Martabe, sold recently by the troubled OZ Minerals for US$211 million. Intrepid has a much more work to do at Tujuh Bukit before it can claim to have its foot on a Martabe or a Batu Hijau. That’s one reason why the stock is trading around A30 cents, less than half the latest value estimate from Morgans and at a market capitalisation of A$124 million, which is less than half the sale price of Martabe. But, with Paulsens ticking over, and an estimated A$50 million in free cash after the Casposo sale, and with Tujuh Bukit to come it’s little wonder that Intrepid has won a best-in-class rating.