change of focus energises epsilon

Change of focus energises Epsilon
From -- Mining News --
Tuesday, 1 July 2008

A change of focus has resulted in a change of fortune for this uranium explorer. By Wally Graham – RESOURCESTOCKS*

PERTH-based Epsilon Energy listed on the Australian Securities Exchange as a uranium exploration company in December 2006 and since then has implemented a strategy that has seen the company diversify its commodity base.

“Certainly we are not leaving the uranium industry, but it is now just one suite of commodities that we are searching for at the moment,” Epsilon Energy managing director Matthew Gauci told RESOURCESTOCKS.

“The main reason behind our diversification was to get exposure to other commodities that are in high demand and would have a positive effect on the value of the company.

“Also there isn’t a clear direction on a change of uranium policy in Western Australia, so the strategy we have developed has seen us diversify away from focusing on being just a purely uranium exploration play in WA.

“We felt that we were handicapped in terms of the value of the company a little bit, by just being focused purely on uranium in WA, particularly given the outstanding work program undertaken at our Balladonia project, and that strategy has had a positive effect on our share price.”

The share price of Epsilon Energy skyrocketed recently after the company announced an exploration target set at its Mardie iron ore project, 110km south of Karratha, based on geophysical data, geological mapping and computer modelling, as well as interpretation by independent and internal geoscientists.

The company identified that the ore’s potential quality and grade is comparable to the Balmoral South deposit (1.1 billion tonnes at 31.4% iron), yet is conceptual in nature, and there has been insufficient exploration carried out at Mardie to define a mineral resource.

“The Mardie iron ore project would be our number one project moving forward, given the market’s response,” Gauci said.

“It is certainly the project that has generated the most interest and potentially has the most value for us.

“It’s just one tenement so it is easy to manage, which means our exploration programs shouldn’t be all that onerous or expensive in order to get to the point of knowing exactly what we have.”

Recent geophysical and geological modelling at Mardie identified an exploration target of around 1 billion tonnes of magnetite.

Epsilon and its technical partner in the project, the Centre for Exploration Targeting, are working on looking at a new model in exploration of iron ore to seek hematite within this project that is particularly related to hydro-thermal systems in banded iron formation (BIF) signatures.

“We have obviously got quite a sizable BIF signature, which is where we are targeting magnetite,” Gauci said.

“But we are also having a look at this new methodology that we are working on with the Centre for Exploration Targeting to seek hematite within the project area.”

Although the company has yet to undertake any drilling at the target, it is well advanced in getting the project through the grant process. From there it will do a ground gravity survey to better understand the density of the magnetite ore body, and also run an airborne magnetic survey to test for some of the channels it believes are running through the tenement.

Once this has been completed Epsilon will look at better defining the exploration target and then carry out an appropriate drill program.

“The identification of the target was based on a lot of things,” Gauci said.

“One was an independent report on the project looking at the geological formations and the geophysical signature.

“There was also our internal analysis of the geophysical and geological data and then, obviously, also coming to an understanding of the Brockman formation to be able to come to an exploration target of that figure.”

PART 2:

EPSILON'S new diversity strategy was evident when it announced a farm-in agreement had been signed with Heron Resources, covering 1650 square kilometres over 20 tenements for the rights to mineral sands at the Balladonia project – located between Balladonia and Norseman in WA – where it already owns 100% of the uranium rights.

“Our mineral sands project is essentially within the tenements where we are seeking uranium,” Gauci said.

“We have done a deal with Heron where we farm-in to 50 percent of mineral sands for year one for $150,000 and then 70 percent in year two for a further $250,000. So it is a pretty valuable deal for us to earn 70 percent of the mineral sands.”

The Balladonia project contains under-explored mineral sands deposits along three levels of fossil coast that stretches over 200km. Previous explorers reported zircon-rich heavy mineral sands (HMS) intersections with zircon values up to 33% and HMS up to 24%.

“There is a non JORC deposit in one of the targets,” Gauci continued.

“As well as four clear identified targets within a 200-kilometre fossilised shoreline, which is obviously important in terms of mineral sands, and also zircon and titanium feedstock products like ilmenite and rutile.”

Although Epsilon paints a portrait of a company abandoning uranium, Gauci is quick to point out that the company is eyeing about 8000sq.km in the Georgina Basin in the Northern Territory that it considers prospective for uranium and phosphate, with the view to expanding its uranium exploration program.

“It’s a similar type of exploration model to what we have had at Balladonia where we have built up a brilliant model that we have just put on hold due to the Western Australian Government policy,” Gauci said.

“We are taking that model and applying it to a similar ground area in the Northern Territory, which has a clear policy path to the development of a uranium mine.”

Epsilon’s change of strategy was not just a decision made overnight. It was the result of some detailed strategic planning, which a lot of mining companies would do, but not a lot of exploration companies would do.

The company is confident that each new project it has brought on has been done at a low cost, but each has realised a huge amount of value for the company.

“If we are going to change strategy and go out and pick up more advanced projects then we would be paying a significant sum for them and hence probably reducing the return that we would get,” Gauci added.

“So each one of them are what we call ‘value accretive’. They were cheap deals to get into that were pretty much done when the market was in negative territory so the valuation on those deals was a lot lower.

“As an exploration company you have got to do that. You have to be able to be opportunistic enough to pick up projects at a low cost then add some technical expertise to them and then value to them and increase that tenfold, at the very least.

“Exploration companies have the opportunity to do that while they are trying to find the next big deposit, which is what drives us every day.”