March 03, 2010
Sandfire Sets Early 2012 As The Target Date For First Metal Production From Doolgunna
By Our Man in Oz
www.minesite.com/aus.html
“The flag has dropped, let’s build a mine”. His metaphor might be slightly mad, but the message from Karl Simich is crystal clear. Sandfire Resources, the tear-away Australian copper and gold explorer he runs, has found enough material at its Doolgunna project to allow Karl to start counting down to first metal. It’ll be 10 quarters from now. If he is correct, and Simich hasn’t missed a beat since Doolgunna first hit the headlines less than a year ago, it will be one of the fastest developments in Australian mining history, and will bring back memories of the time when the old Western Mining Corporation discovered nickel at Kambalda in the 1960s and was mining there little more than a year later.
What’s making Karl so confident is a two word phrase that every miner dreams of hearing: “high grade”. At Doolgunna he has it, as confirmed in the all-important first official resource statement released last week. Measured at an initial 7.13 million tonnes of ore grading 5.2% copper, plus 1.9 grams of gold and 15 grams of silver a tonne, Doolgunna will start life with 372,000 tonnes of copper, 439,000 ounces of gold and 3.4 million ounce of silver. It is effectively an orebody grading the equivalent of 6.2% copper, or 12.3 grams a tonne of gold, under the rules of the Joint Ore Reserves Committee (JORC).
There will be more, though that’s a point that’s eluded some investors, perhaps under the influence of a nit-picking campaign being run by pencil pushers at the Australian Stock Exchange. In the hours after the release of the first JORC-code compliant resource Sandfire’s share price retreated from almost A$4.00 to as low as A$3.34. It has since recovered to around A$3.80, even allowing for the extra weight of a subsequent big capital raising, and in spite of a curious query from the ASX.
The exchange regulators were not interested in the content of the resource statement, just its timing, with the inference being that someone had leaked something. What particularly got up their noses was a small story in the Australian Financial Review newspaper that appeared ahead of the statement. The story came close to the mark on estimating the tonnes and grade at Doolgunna. Nothing then came of the ASX query, though, as the ASX seems to have overlooked the fact that some journalists are capable of adding up numbers themselves without waiting for someone else to do it for them. And it is interesting to speculate that a series of ASX queries that have been directed at Sandfire over the past 12-months might have had the effect of putting off some investors, potentially costing them profits as the stock has soared on an almost unbelievable trajectory, from a share price of just A5 cents at this time last year.
Undeterred, and certainly unrepentant, Karl is using the his first JORC-code compliant resource statement, compiled by independent experts, as the basis of a new pitch, as he heads off on a tour of North America and Europe to explain Doolgunna to investors, outlining its future as a mine and as a project with plenty of exploration blue sky. “Not too many people in Australia understand VMS [volcanogenic massive sulphide] orebodies,” Karl told Minesite’s Man in Oz, before jetting off. “It’s a style of mineralisation better known in Canada, which has a long history of developing VMS structures.”
Of the many events which occurred last week the most important from an investors perspective was not the tonnes, grade, share price or even the ASX query – it was the simple fact that Sandfire has its official resource statement in hand. That single document, which does not include results from 23 additional holes drilled into Doolgunna since Christmas, means that the clock is now ticking on the development of a mine, as new processes are initiated. One such is the obtaining of a mining lease from government, a trigger which starts the heritage and native title process, and sets a timetable on environmental and formal project approvals. That’s why Karl used the racing car analogy: “The flag has dropped”.
Events will now accelerate at Sandfire. It has cash in the bank courtesy of the latestA$50 million fully-underwritten share placement to professional investors, including the company’s major shareholder, the big Korean biggest steel maker, Posco. Posco is chipping in A$9 million to retain its 17.6 per cent stake. An additional A$15 million is also likely to come in from smaller shareholders, who are being offered a share purchase plan. Funds raised will pay for the pre-feasibility study which is getting underway, now that a JORC-compliant statement is in hand. That study, set for completion in the middle of the year, will almost certainly morph seamlessly into a definitive feasibility, leading to a start on mine development in the first half of 2011, and to first metal production in the first half of 2012.
Talking through the timetable gets Karl somewhat wound up, and three points arise from his enthusiastic exposition. First, that Doolgunna will get bigger simply because the initial resource statement does not include work already completed, let alone what’s underway now with a three drilling rigs on site. “What we have now is great, but it’s going to grow”, he said. Second, that Doolgunna will be a very profitable mine, yielding copper at a cash cost of somewhere between US60 cents and US$1 a pound, as a function of its grade, plus the gold and silver credits. “We can smell the cash”, continued Karl. Thirdly, that the Doolgunna orebody and its multiple mineralised lenses, is highly unlikely to be an “orphan”. Such is the nature of VMS discoveries elsewhere in the world, which contain a series of mineable structures, that Doolgunna is unlikely to be alone. “The completion of our maiden resource is a landmark event for Sandfire,” Karl said. “It provides a strong foundation for what we believe will rapidly progress as a high quality, long life mining operation in this emerging copper-gold province.”
Looking ahead, it won’t be long before the second resource statement comes in. This will include the results from the high-grade Conductor 4 deposit and extensions to the known ore lenses. There will also be ongoing drill results from the discovery zone and from regional work examining a series of look-alike structures, which, not to put too fine a point on it, represent the blue sky factor in the stock. Then will come the results of the scoping study currently underway, news of regulatory approvals, metallurgical test work, and the formal go-ahead for the pre-feasibility study that’s set to start in the middle of the year. All of which adds up to a news flow sure to keep the fire burning under Sandfire.