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ISSUE 220 2nd September, 2015
China’s Commodity Demand Paints an Interesting Picture
One of the reasons advanced for the plunge in commodity prices is concern over the outlook for Chinese
demand for raw materials, as growth slows in its economy. But as Reuters columnist Clyde Russell wrote
last week, “these are fears not necessarily in evidence.”
An examination of Chinese customs data for July reveals that there were at least 21 commodities that
showed increases in imports of greater than 20% during the month of July, compared to the same month in
2014.
While it's true that many of these commodities are minor, there are some fairly major ones showing strong
growth as well, led by crude oil, which saw imports jump by 29.3% during July compared to the same month
a year earlier.
Among the notable increases was a massive 236,594% jump in ethanol imports in July, with that single
month accounting for more than half of total imports of the fuel so far this year.
There were also other agricultural imports that showed surprising strength during July, with wheat up 158%,
barley up by 67.9%, corn by 1,184%, cassava by 28.5%, rice by 78.2%, soy oil by 25.8%, palm oil by
53.3%, natural rubber by 70.1% and sugar by 72.7%.
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Among the metals, tin ore and concentrates imports increased by 27% during July, refined tin by 50.7%,
zinc ores by 84.5%, molybdenum by 139.8%, tungsten by 33.4%, uranium by 227%, chromium ore by
35.8%, silver by 63.3% and platinum by 37.9%.
The numbers show that commodity import demand in China is far from weak, especially when looking at
raw materials beyond the majors.
Even amongst the major commodities, the picture is not bleak, although crude is the only one that managed
growth above 20% during July.
Iron ore imports were up 4.4% in July, while those for copper ore and concentrates gained 7.2%, whilst coal
fell by 7.7%.
While there will be a range of factors at work across different commodity markets, one common factor that
could help explain the strength in China's July imports is price.
The weakness in commodities across the board has more than likely sparked buying interest, a trend that
may continue given the acceleration of price declines over recent weeks.
The Chinese have a history of increasing purchases of natural resources when prices are weak, even if
these do flow into inventories in the short-term.
Sustained price weakness, coupled with the yuan's recent depreciation, is likely to give a boost to China's
export-orientated manufacturing sector. With the rest of the global economy in reasonable shape, there
may well be sufficient demand for consumer goods at cheaper prices.
The July data could potentially be the start of the reversal of the recent trend of slowing growth in China's
commodity imports – only time will tell.
It's also worth noting that of the 21 commodities with import growth of more than 20% during July, 15 are
also in positive territory for the first seven months of the year, compared to same period in 2014.
There are several solid reasons as to why commodity prices have performed so abysmally so far this year,
chief among them the structural oversupply plaguing many markets, as well as the impact of the recent
volatility in equity markets.
But poor Chinese import demand doesn't seem a valid reason for commodity price weakness, and while the
risk of a hard economic landing in China can't be ruled out, if history is a guide, weak commodity prices
tend to boost Chinese demand.
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Orinoco Gold (OGX) – Current Portfolio Watch-List Stock
Orinoco Gold is an emerging high-grade gold producer in Brazil. The company is minimising risk by
developing a low-capex/low-operating cost mining operation at Cascavel, with strong resource upside.
Corporate Details
Status: Emerging Producer
Size: Small Cap
Commodity Exposure: Gold
Share Price: $0.099
12-month Range: $0.058 - $0.12
Shares: 205m, Options: 120m
Top 20: 56%
Net Cash: $2.9m
Market Value: $19m
Key Parameters Rating (out of 5)Quarterly Statistics
Management Quality Q2 2015 Exploration Spend: $0.742m
Financial Security Q2 2015 Administration Spend: $0.28m
Project Quality Exploration Spend 73%, Admin. Spend 27%
Exploration / Resource Potential Q3 2015 F’cast Expl’n & Dev’t Spend: $2.58m
Project Risk Q3 2015 Forecast Admin. Spend: $0.7m
Orinoco Gold represents a higher-risk/higher-reward investment opportunity due to the high-grade nature of
its Brazilian gold projects. The company’s flagship Cascavel gold project will see the initial development of
a relatively small-scale, low-cost start-up mining operation, with plans to increase both the gold resource
base and mine-life through cashflow-funded exploration, minimizing both initial capex costs and overall risk
exposure. Just as importantly the company has assembled a highly-experienced underground mining team.
The Cascavel gold project forms part of its broader Faina Goldfields Project, which encompasses around
300 sq km within Central Brazil. Simultaneous with ongoing development and eventual production, Orinoco
is assembling an attractive pipeline of exploration and growth opportunities. Orinoco is confident that the
mineralised system likely extends south from its developing Cascavel mine (1M oz resource potential) and
north from its Sertão project (1M oz resource potential), with numerous gold anomalies in between.
Evidence of growing market interest is reflected in Orinoco’s solid recent share price performance, firming
from a 12-month low around $0.06 during January to a recent high of $0.12. There appears to be a
reasonable re-rating taking place ahead of H1 2016 production at Cascavel, with all project timelines so far
being met. Another major benefit is the fact that the Brazilian Real gold price is the best-performer in the
world at present, thus boosting project economics – and outshining even the Australian dollar gold price.
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Recent Activity
Expanded Project Acreage
Orinoco has boosted its strategic position within the Faina Greenstone belt in central Brazil following the
acquisition of an 80% stake in a 100 sq km portfolio of prime exploration acreage within close proximity to
its flagship Cascavel gold mine. It entered an agreement with private Brazilian company, Mineração Goias
Velho (MGV) to acquire the package, boosting its overall regional ground position to more than 300 sq km.
The newly-acquired tenements
comprise 12 exploration
concessions - of which ten are
located within the central portion
of the Faina Greenstone Belt
between Cascavel and Sertão
(which was mined historically by
Troy Resources (ASX: TRY) and
produced 250,000oz Au at a
head-grade of 24.9g/t). A further
two tenements are located in the
southern portion of the Goiás
Velho Greenstone Belt.
(The new tenements are in green,
while all other tenements are
Orinoco’s existing tenements).
Previous exploration work
including rock chip sampling has
returned very promising results
over the area, with samples
returning up to 43.7g/t gold.
Historic largely RAB drilling also
provides encouragement.
The new acreage is expected to provide an attractive pipeline of exploration and growth opportunities for
Orinoco once it commissions its Cascavel mine during early 2016. Orinoco believes that the mineralised
system is likely to extend south from Cascavel and north from Sertão into the newly-acquired acreage.
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Maiden Sertão Drilling Campaign
Orinoco recently commenced a 23-hole/2,300-metre diamond drilling program at its Sertao gold mine in
order to try and establish continuity of the gold mineralization.
The program will specifically test for extensions of known mineralisation and is aimed at establishing the
down-plunge and along-strike continuity of high-grade gold mineralisation previously mined by Troy
Resources between 2003 and 2005.
Geology of
the Sertão
area. Shown
in black
shading are
the
previously
mined high-
grade gold
shoots. Red
circles show
the drill
collars for
Orinoco’s
planned drill
program.
The drilling program has several aims:
o Provide information regarding the ore shoot geometry and spacing at Sertão;
o Provide the basis for an Exploration Target at Sertão; and
o Provide in-fill drilling of gaps in previous drilling work, with the aim of calculating a Mineral Resource
Estimate for Sertão.
The program will be executed in two phases, with the first phase designed to establish the down-dip
continuation of the ore bodies from the previous shallow open-pits, whilst the second phase will test
extensions along strike to the north of previously mined orebodies, including following up positive historical
drill results recorded near the location of the previous processing plant.
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Stage 1 drilling will comprise 13 drill-holes (spaced ~100 metres apart) for 2,105 metres located
immediately down-dip from the old open-pits. The drilling will extend approximately 120-140 metres from
the open-pit to the west, around 180 metres down-dip (vertical depth 110 metres) and 450 metres along
strike.
Stage 2 drilling will comprise 8 drill-holes (spaced from 50 metres to 125 metres) for 760 metres, distributed
along 650 metres of strike of the northern extension. One deep hole is planned to check the down-dip
extension of main mineralised body and also an upper mineralized level intercepted in historical drilling.
Cascavel Plant Relocation
Orinoco recently secured all of the necessary approvals to allow it to construct its Cascavel processing
plant at a location much closer to the Cascavel mine than previously allowed, resulting in significantly
reduced annual operational costs of around $0.5 million.
The processing facility will now be situated just 200 metres from the Cascavel mine portal, instead of 28km
away at the Sertão gold mine site. The plant will now be located in a central position in relation to other
potential sources of mill feed such as Garimpo and Cuca, which are located close to Cascavel, while the
Sertão site will remain free for an imminent drill campaign.
A number of significant savings in operational expenditure are expected to flow, including associated
savings from road and truck maintenance as well as other savings associated with the reduced level of
security and administration required to manage one site rather than two.
The plant location at Cascavel also provides future optionality in terms of having a centrally-located ore
treatment facility relative to the company’s exploration projects within the broader Faina Goldfields Project.
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Plant and Mine Development
Orinoco has reported that mine development, fabrication and construction activities are proceeding on
schedule at Cascavel. The crushing circuit is currently being fabricated in Brazil under the supervision of
Gekko systems, whilst the gravity circuit is being manufactured in Australia. Each module of the plant will
be pre-assembled and factory commissioned prior to being delivered to site.
As a result, installation and commissioning is expected to take just six weeks, whilst civil engineering work
for the plant site is expected to be completed by October. The crushing circuit is scheduled to be delivered
to site during November, followed by the gravity circuit in December, which will enable the entire Cascavel
plant to be commissioned during January 2016.
Two recent additions have been made to the Cascavel circuit – a secondary crushing unit (cone crusher)
has been added in order to take some planned load off the tertiary crusher - whilst a slimes thickener has
been added to the water and tailings module. The additional cost of these items will be offset against the
capital savings achieved from the move to a single site.
Importantly, mine development continues to progress to plan. Whilst the development remains within the
oxide/transition zone of the rock sequence, a key focus of the Cascavel mine portal has been the
implementation of adequate ground support. Particular care is being taken to ensure that the portal is both
safe and capable of serving as the main entrance point for the mine for many years to come. Hence the
planned dimensions of the incline shaft have been increased to 3.5 metres x 2.8 metres.
Metallurgical Results
Gekko Systems has reported exceptional results from the gravity test-work program, which are considered
to be at the upper-end of results achieved for coarse gold deposits. From a 70kg ore parcel, the Cascavel
flow-sheet achieved gravity gold recoveries of:
o 89.4% gold recovery into 2.9% of the mass at a grade of 417 g/t Au; and
o 91.6% gold recovery into 5.9% of the mass at a grade of 209 g/t Au; and
o 95.6% gold recovery into 30% of the mass at a grade of 43g/t Au.
The Cascavel operation can achieve high gold recoveries from a modular gravity gold circuit that utilises
standard, simple gravity recovery - with no chemicals or leaching. When combined with the fact that the
gold is liberated without significant milling, this makes the overall treatment process highly cost-effective,
whilst also reducing operational risks.
Investment Overview
The company’s strategy at Cascavel is to initially develop a relatively small-scale, start-up operation that
can be expanded and extended via existing cashflow, thus minimizing capex and financing exposure.
Cascavel forms part of the company’s broader Faina Goldfields Project, which now encompasses more
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than 300 sq km within Central Brazil. Gold mineralisation at Cascavel is vein and shear-hosted orogenic in
style, which means it’s typically high-grade, coarse and free-milling in nature – which are all positives.
The only downside is that this style of mineralization, combined with the narrow mineralised lode structures,
precludes the accurate and cost-effective calculation of grade for a JORC-compliant resource. This is due
to the likelihood of inherent sampling bias and the requirement for very high-density drilling. Orinoco is
targeting an initial JORC-compliant resource estimate prior to the end of 2015.
The good news is that the mineralisation is virtually identical in style to that at Anglo’s Crixas mine (2.3Moz
@ 7.76g/t Au) and Yamarna’s Pilar Mine (1.4Moz @ 4.1g/t Au), along with numerous other examples within
the five parallel greenstone belts hosted within the region. Furthermore, we are confident that Cascavel can
deliver high-grade ore after dilution at the minimum mining widths of around 1.5 metres.
Data from historic mining, along with recent bulk and channel sampling by Orinoco, suggests diluted grades
within the high-grade shoots in the vicinity of 15g/t – 30g/t, whilst even more recent bulk and panel samples
have assayed between 24g/t and 88g/t Au.
Initial plans for Cascavel involve a
four-year, 40,000tpa air-leg
underground operation, with the
expected 20g/t gold ROM ore
treated with high recoveries through
a simple gravity circuit, resulting in a
low capex operation (~US$6.6
million), with C1 costs in the order
of A$460/oz. Economics are
enhanced by the strongly-
performing Brazilian Real gold
price, which is reflected in the
accompanying graphic.
A key project strength is the potential for resource growth and production expansion, through extensions to
the known mineralisation and via new discoveries. Key areas for expansion include down-dip and along
strike at Cascavel, as well as underground mineralisation at Sertão, which historically produced 256,000oz
of oxide gold from a shallow open-pit at an average grade of 24.95g/t Au.
Summary
The high-grade nature of the Cascavel mineralization suggests a relatively low-cost mining
operation with robust margins. Recent share price appreciation indicates the market is becoming
increasingly comfortable as development activity progresses in line with expectations. Accordingly,
Orinoco Gold will remain on our Portfolio Watch-List.
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Matsa Resources (MAT) – Current Portfolio Watch-List Stock
A diversified exploration company that’s generating interest on two fronts – firstly, its two Fraser Range
nickel projects in Western Australia – and secondly its new high-grade Siam copper project in Thailand.
Corporate Details
Status: Advanced Explorer
Size: Small Cap
Commodities: Nickel & Copper
Share Price: $0.15
12-month Range: $0.125 - $0.30
Shares: 144m, Options: 15m
Top 20: 52%
Net Cash & Liquids: $14m
Market Value: $17m
Key Parameters Rating (out of 5)Quarterly Statistics
Management Quality Q2 2015 Exploration Spend: $1.156m
Financial Security Q2 2015 Administration Spend: $0.347m
Project Quality Exploration Spend 77%, Admin Spend 23%
Exploration / Resource Potential Q3 2015 Forecast Exploration Spend: $0.649
Project Risk Q3 2015 Forecast Admin Spend: $0.397m
Matsa Resources is a diverse exploration company, with interests in a range of exploration plays within
Western Australia and Thailand that are at varying levels of advancement - encompassing nickel, gold and
copper. The company boasts a well-credentialed exploration team that’s led by an experienced and
energetic Managing Director, Paul Poli, whilst also being cashed-up for exploration via a recent asset sale
that’s left it with around $14 million in cash and liquid investments.
The overwhelming focus at present in terms of near-term market excitement and potential share price
impact are its Symons Hill and Killaloe joint venture nickel exploration projects in Western Australia’s Fraser
range province where overall regional activity is extremely high, along with its new high-grade Siam copper-
silver exploration project in Thailand. Symons Hill is strategically situated just a short distance along strike
from Sirius Resources’ (ASX: SIR) outstanding and ground-breaking Nova-Bollinger nickel discoveries.
The current program of high-powered EM surveying at Symons Hill is highly significant and is generating
numerous drill-targets that are in the process of being tested. Matsa has also separately generated
encouraging drilling and down-hole EM results from its Killaloe joint venture project. In Thailand, Matsa has
generated separate high-grade copper hits respectively 54.7% Cu and 45% Cu from surface vein rock
samples, which could reflect a sizeable underlying economic copper deposit.
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Recent Activity
Siam Copper Project
Matsa’s Siam copper project in central Thailand comprises 309 sq km of granted Special Prospecting
Licences (SPLs) and 326 sq km of SPL Applications. The company has made two separate releases over
the past week relating to high-grade copper samples at Siam.
The company’s objective is to establish the presence of economic copper mineralisation within highly-
anomalous stream sediment catchments, particularly where past work has already confirmed the presence
of visible copper mineralised boulders at Siam 1 and Siam 2.
An assay of 54.7% Cu and 148 g/t Ag has
been returned from a recently discovered rock
sample RK142 on the western edge of the
Siam 1W prospect.
The mineralised float is located within cropped farmland in an area of moderate relief and minimal outcrop
of underlying andesitic volcanics. A shallow 50cm deep hand-dug trench at the site of the mineralised rock
float exposed a vein which is approximately 10cm wide within a broader altered zone up to 1 metre wide. It
can be seen to be oriented in a NW direction and to dip steeply towards the NE.
View of copper rich
vein prior to sampling
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The results from the sample S1W_vein were announced on Wednesday and returned values of 45% Cu
and 123 g/t Ag, confirming that the vein is the likely source of float sample RK142 (54.7% Cu and 148g/t
Ag). The copper-rich vein is located within a broader altered zone up to 1-metre wide and can be seen to be
oriented in a NW direction and to dip steeply towards the NE.
This vein discovery is in addition to the mineralised outcrop discovered at the southern end of Siam 1W
close to sample Y138 containing 3.9% Cu and 10.6g/t Ag, located 1.46km to the SSE.
Technical Significance
Chalcocite, digenite and covellite are very valuable copper-rich sulphide minerals that are characteristic of
the copper-rich “supergene enrichment zone” within the upper part of a copper deposit - typically underlain
by primary iron copper sulphides (eg. chalcopyrite) and iron sulphides (eg. pyrite) at depth.
The presence of a very high-grade enriched copper zone can have a significant positive impact on the
economics of a deposit, particularly where it is also strongly enriched in silver. With respect to the project,
the upper oxidised portion of the profile (which is typically leached of copper), appears to have been
removed by erosion at Siam 1W, leaving the enriched chalcocite zone very close to surface.
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Implications for the recently discovered vein include:
o The vein may be fault/fracture-controlled leakage of copper and silver from a major copper sulphide
deposit, perhaps underlying the spread of native copper-rich scree and anomalous soil
geochemistry at Siam 1W.
o Potential for it to be just one of a more extensive suite of copper-rich veins.
Schematic view of the
effects of weathering of a
primary copper sulphide
vein including iron oxide
(gossan) formation and
leaching of copper above
the water table and copper
enrichment at and below
the water table.
Mt Henry Project Sale
Matsa and project partner Panoramic Resources (ASX: PAN) recently entered into an Asset Sale and
Purchase agreement to dispose of their respective interests in the Mt Henry gold project to Metals X Limited
(MLX). Matsa holds a 30% stake and Panoramic a 70% stake in the project. Matsa will receive 6.6 million
fully paid ordinary shares in Metals X upon settlement which, which based on current market price, values
the MLX holding at $7.5 million. Metals X is Australia’s largest tin producer and a top 10 Australian gold
producer, with a pipeline of gold and nickel assets from exploration to development. Upon completion of the
transaction, Matsa will have $14m in cash, anticipated refunds and liquid investments available to it to
pursue exploration and growth opportunities.
Summary
Since the release of the Siam rock sample results, Matsa’s share price has firmed from a low of
$0.12 to a high of $0.18, before consolidating around its current price of $0.15. Auger soil sampling
is underway to try and identify the extent of near-surface copper mineralization, whilst Induced
Polarisation (IP) surveying is proposed to identify subsurface sulphides and define targets for
drilling. With active exploration programs underway in both Thailand and the Fraser Range
province, combined with solid cash backing, Matsa remains firmly on our Portfolio Watch-List.
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Minotaur Exploration (MEP) – Current Portfolio Watch-List Stock
One of Australia’s most highly-regarded exploration companies, with a range of commodity and project
exposures. Of primary interest at present are its various Cloncurry regional copper projects in Queensland.
Corporate Details
Status: Advanced Explorer
Size: Small Cap
Commodity Exposure: Multi
Share Price: $0.06
12-month Range: $0.058 - $0.21
Shares: 180m, Options: 12m
Top 20: 40%
Net Cash: $4m
Market Value: $11m
Key Parameters Rating (out of 5)Quarterly Statistics
Management Quality Q2 2015 Exploration Spend: $1.403m
Financial Security Q2 2015 Administration Spend: $0.241m
Project Quality Exploration Spend 85%, Admin Spend 15%
Exploration / Resource Potential Q3 2015 Forecast Exploration Spend: $1.15m
Project Risk Q3 2015 Forecast Admin. Spend: $0.25m
Minotaur Exploration is regarded as one of the sector’s best-credentialed exploration companies, led
by an experienced team comprising Chairman Derek Carter and Managing Director Andrew Woskett.
Minotaur’s directors each have around 30 years’ worth of resource industry experience. With solid
cash reserves, the company is able to maintain a high level of exploration activity, specifically applying
cutting-edge geophysical techniques with the aim of locating deeply-seated mineralisation.
Minotaur specialises in application of innovative geophysical techniques to locate virgin mineralisation
deep below the surface. Economic mineralisation is often contained within basement rocks, buried
below several hundred metres of transported cover (overburden) and cannot be located via
conventional surface exploration methods such as soil sampling, geochemical assays and drilling.
Minotaur’s remote sensing and interpretative approach has proven to be very successful.
Minotaur’s main area of exploration focus at present is the Cloncurry copper belt of northern
Queensland, encompassing an extensive 4,000 sq km tenement package that’s highly prospective for
iron oxide copper-gold mineralization. Minotaur retains a large chunk of acreage on a 100% ownership
basis, but also retains quality joint venture partnerships with respect to the balance of its tenements in
conjunction with groups such as Sandfire Resources (ASX: SFR) and Japan’s JOGMEC group.
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Osborne Joint Venture
Minotaur and Japan Oil, Gas and Metals National Corporation (JOGMEC) have entered into a new
exploration joint venture (subject to FIRB approval) over Minotaur tenements south of Cloncurry in
Queensland – which complements the current joint venture over acreage north of Cloncurry.
The partnership requires JOGMEC to expend a minimum $500,000 during the first year of operation and
then $1 million in each subsequent year. Upon aggregate expenditure of $3.5 million, JOGMEC will earn
51% beneficial interest in the relevant tenements. Minotaur will operate and manage the work program in
consultation with JOGMEC’s geoscientists.
The joint venture’s exploration objectives are IOCG-style copper-gold mineralization and Cannington-style
silver-lead-zinc mineralisation in the concealed eastern portion of the Mt Isa Block where basement units
are overlain by cover sediments ranging up to more than 100 metres in thickness.
The Osborne joint venture project area
encompasses ~1800 sq km within a well-
endowed portion of the eastern Mt Isa Block,
situated proximal to the Osborne copper-
gold mine and ~20 km south of the
Cannington and Pegmont silver-lead-zinc
mines.
South 32’s Cannington Mine, discovered in
1990, is a world-class base-metal deposit
with a resource of 43.8Mt at 11.6% Pb, 4.4%
Zn and 538 ppm Ag and a metal endowment
of 757 Moz of silver (5th globally), 5.08 Mt of
lead (7th globally) and 1.93 Mt of zinc (49th
globally). Sulphide-rich ores at Cannington
exhibit a positive gravity signature and are
highly conductive in EM surveys.
The Pegmont Mine has a resource of 8.6 Mt
at 7.6% Pb, 3.5% Zn and 150g/t Ag whereas
the Osborne Mine, a magnetite-hosted
IOCG-style deposit, has a resource of 11.3
Mt at 1.9% Cu and 3.8 g/t Au.
The graphic above displays the regional geology of the eastern Mt Isa Block, displaying the locations of the
Osborne and Cloncurry joint ventures with JOGMEC relative to selected major mines - graded in size with
respect to their contained metal content.
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Minotaur’s approach through the Osborne joint venture will be to assess the potential for base metal
mineralisation using a variety of geophysical techniques - including ground gravity, ground EM and IP
surveys - before embarking upon specific drilling programs.
During April 2015, a VTEM Supermax airborne electromagnetic (AEM) survey of the northeast part of the
Osborne project area was flown (with total funding support from the Geological Survey of Queensland
under its Industry Priorities Initiative) to identify priority geoscience projects capable of significantly boosting
mineral discovery rates within concealed basement areas fringing the Mt Isa Block.
Data has been received and is currently being evaluated. Coverage includes over the Rosella target, a 1.5
mgals gravity anomaly with a modelled density of 2.90 g/cm3 and which has a conductive response in the
VTEM survey data. Depth to basement at Rosella is relatively shallow (~50 metres) and as there are no
historic drill-holes within the vicinity, it represents an exciting new target.
The Cassowary target is a discrete 1000 nT magnetic anomaly which has not been previously drill-tested.
Minotaur was awarded a $90,000 drilling grant from the Queensland Geological Survey under Round 9 of
the Future Resources Program – Collaborative Drilling Initiative. Funding will assist Minotaur drill a single
deep exploratory hole at Cassowary in order to appraise its potential for IOCG-style mineralisation.
Rosella and Cassowary represent just two exploration targets identified from evaluation of historic
exploration activities and the joint venture partners are very confident that additional targets will be
delineated from their new geophysical surveys across the Osborne project area.
The graphic above shows a preliminary model (slice) of VTEM Supermax conductivity data across part of
the northern Osborne area, including a basement conductor coincident with the Rosella gravity anomaly.
Summary
Minotaur Exploration is a well-credentialed explorer with a solid cash position that is enabling it to
engage in full and proper evaluation of its Queensland exploration portfolio. Whilst maintaining
100% ownership of a large chunk of its Cloncurry acreage, it also maintains important joint ventures
with high-quality partners. Accordingly, the stock will remain firmly on our Portfolio Watch-List.
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Kibaran Resources (KNL) – Current Portfolio Watch-List Stock
An emerging Tanzanian graphite producer that boasts two high-profile, advanced and highly commercial
graphite production opportunities - in a country that boasts a solid history of graphite production.
Corporate Details
Status: Emerging Producer
Size: Small Cap
Commodity Exposure: Graphite
Share Price: $0.22
12-month Range: $0.11 - $0.375
Shares: 168m, Options: 12m
Top 20: 39%
Net Cash: $4.3m
Market Value: $37m
Key Parameters Rating (out of 5)Quarterly Statistics
Management Quality Q2 2015 Exploration Spend: $0.835m
Financial Security Q2 2015 Administration Spend: $0.586m
Project Quality Exploration Spend 55%, Admin Spend 45%
Exploration / Resource Potential Q3 2015 Forecast Exploration Spend: $1.1m
Project Security Q3 2015 Forecast Admin. Spend: $0.55m
Kibaran Resources maintains a diverse portfolio of Tanzanian graphite projects at varying stages of
maturity, in a country that boasts a solid mining history that includes graphite mining and production.
Importantly too, Kibaran’s board has always demonstrated a highly-commercial attitude to advancing
Kibaran’s graphite projects, choosing to align the company with high-quality partners and maintaining a
conservative approach to company promotion and project timelines.
Kibaran satisfies the key investment guidelines that I follow when assessing potential graphite
opportunities. Firstly, the company maintains a focused board and management team that possesses a
commercially-driven strategy in terms of progression of its Tanzanian graphite projects. Secondly, Kibaran
appreciates the value of first-mover advantage in the burgeoning graphite industry and accordingly is
seeking an accelerated path to production for its high-grade, low-impurity flake graphite.
Kibaran’s recent share price performance reflects extreme volatility - not only within the junior resource
sector - but specifically the graphite sector. This volatility however masks what has been an extraordinarily
strong 12-month period for the company, comprising high-grade drilling results, exceptional metallurgical
test-work results, an upgraded JORC resource, the release of a Scoping Study, the completion of feasibility
and project evaluation studies, along with the formalizing of an off-take deal with ThyssenKrupp.
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Recent Activity
Off-Take Deal with ThyssenKrupp
Kibaran recently announced the formalization of a significant off-take agreement (previously an MOU) with
ThyssenKrupp Metallurgical Products GmbH, a division of the Materials Services business area of
Germany’s ThyssenKrupp group.
The deal will see ThyssenKrupp purchase a minimum 20,000 tonnes annually of refractory-grade natural
flake graphite for sale in Europe, Turkey, Russia, Ukraine and Korea. The term of the agreement is initially
10 years, with a further 5-year option.
The deal will account for 50% of Kibaran’s planned 40,000 tpa graphite production from its Epanko project
and in conjunction with existing agreements, 75% of the planned graphite production from Epanko is now
supported by binding off-take and sales agreements.
Formalising a deal with a company of ThyssenKrupp’s standing and size is enormously significant, as it
reinforces Kibaran’s production credentials, previously demonstrated by the recent release of a robust
Bankable Feasibility Study (BFS).
ThyssenKrupp is one of the world’s leading commodity trading companies and diversified industrial groups
headquartered in Germany with more than 155,000 employees in nearly 80 countries and sales of around
€41 billion during fiscal year 2013/2014.
German Government Loan Guarantee
Kibaran has this week received confirmation of “in-principle eligibility for cover” for its Epanko project by the
German Government. With this confirmation, Kibaran has met the first important condition to receive an
UFK-guarantee from the German Government in combination with financing by German state-owned KfW
IPEX-Bank. KfW is one of the world´s leading development banks and its subsidiary KfW IPEX-Bank has a
strong track record in the mining sector, including in Africa.
The German Federal Government provides UFK coverage in the form of loan guarantees for loans awarded
by lenders to the financing of eligible projects. It provides lenders insurance against commercial and
political risk. Eligible projects contribute to the supply of critical natural resources to Germany in the form of
a long-term off-take contract between the borrower and a German off-taker.
Battery-Grade Scoping Study Results
Kibaran recently reported the results of its Battery-Grade Graphite Scoping Study that highlights robust
economics and a compelling case for the development of a manufacturing facility to participate in
downstream value-added processing. The Study was based on the additional product from the modeled
100,000tpa operation compared to the 40,000tpa level from the Bankable Feasibility Study (BFS). There
have been no material changes to those assumptions from the Scoping Study announced in January.
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Key Study Results
o Pre-tax NPV10 of US$115m
o Pre-tax IRR of 51%
o Capital Expenditure of US$35m
o Annual pre-tax cashflow of US$18mpa based on Stage 1
o Payback 1.9 years
Manufacturing of first battery-grade spherical graphite is scheduled to commence around 12 to 18 months
into Stage 1 Epanko graphite project expanded production. Stage 1 production is set to commence at
15,000tpa and then increase to 50,000tpa over three stages, producing spherical, expanded and other
purified graphite products. The staged expansion is expected to be supported through project cash flow.
The completion of the Epanko BFS has provided Kibaran with certainty to position itself to become part of
the global graphite supply chain and secure strategic partnerships for the battery-grade Spherical Graphite
market. Graphite will initially be sourced from the proposed staged increases in production from the Epanko
graphite project, where the company has completed a BFS reporting an NPV of US$197.5m.
High-value spherical and expanded graphite would be shipped from the port of Dar es Salaam directly to
end-users, eliminating their reliance on, and providing a viable alternative to current supply from China.
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BFS Completed
Kibaran recently released the much-anticipated BFS results for its Epanko graphite project, which
confirmed the viability of a conventional open-cut mining operation and conventional flotation processing
plant infrastructure.
Key Study Results:
o Epanko technically and commercially viable, with no impediments for a positive decision to mine
o Pre-tax NPV10 of US$197.4 million
o Pre-tax IRR of 41.2%
o Capital Expenditure of US$77.5 million
o Annual EBITDA of US$33.6 million for 15 years
o Mine life of 25 years
o Strip ratio 1:1 (LOM)
o Maiden Proved and Probable Ore reserves of 10.9 Mt at 8.6% TGC
The BFS has been delivered both on schedule and within budget and the results support Kibaran’s strategy
of being one of the first listed graphite companies to progress to production. Annual concentrate production
for the first 15 years is 40,000tpa, with the remaining 10 years averaging 31,300tpa.
Summary
Kibaran Resources appears to be in the right place at the right time as far as market interest in high-
quality graphite plays with a defined path to production is concerned. The company maintains
graphite of the highest quality, which has opened up a lot more potential doors for commerciality
than most of its peers. Accordingly, 75% of its output is now spoken for. Kibaran Resources will
remain firnly on our Portfolio Watch-List.
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Disclaimer: Gavin Wendt, who is a director of Mine Life Pty Ltd ACN 140 028 799, compiled this document. It does not constitute investment
advice. In preparing this report, no account was taken of the investment objectives, financial situation and particular needs of any particular
person. Before making an investment decision on the basis of this report, investors and prospective investors need to consider, with or without
the assistance of a securities adviser, whether the information is appropriate in light of the particular investment needs, objectives and
financial circumstances of the investor or the prospective investor. Although the information contained in this publication has been obtained
from sources considered and believed to be both reliable and accurate, no responsibility is accepted for any opinion expressed or for any error
or omission in that information.
