best chance, page-3

Pulled this off the SFR thread, a good read and plug for TLM!

December 08, 2009

On The Ground At Doolgunna, Sandfire Is Racing Towards Wrapping Some Resource Numbers Around Its Stunning Drill Hits.

By Our Man in Oz / www.minesite.com

Ever had the feeling that everyone is watching you? It’s a fair bet that Karl Simich suffers from that sensation as he fends off investors, stockbrokers, corporate cops, big miners sniffing around, as well as the media, all of whom are keenly observing the circus at the Doolgunna copper project owned by the company Karl runs, Sandfire Resources.

The challenge is to try to keep up to speed with what’s happening at one of the best Australian mineral discoveries in decades. And to meet that challenge Minesite’s Man in Oz got up at 4am yesterday for six hours in a light aircraft (three out and three back) to be one of the first journalists to kick the tyres at Doolgunna, and to get a better handle on Sandfire generally. After all, this is a company which has re-written speed records on the ASX, in light of its supersonic dash from A5 cents in March to recent trades at A$3.73, a 7,360 per cent gain in nine months. If nothing else that answers the question as to whether Karl’s being watched or not - he is.

OZ Minerals is one of the watchers. Fresh from its rescue from the clutches of either a Chinese investor, or a receiver, the chaps from OZ have found time to visit Doolgunna, suggesting that a deal might be useful to both sides. No bites yet from Sandfire. Other early visitors include a small flock of brokers from big name firms such as Goldman Sachs and Bell Potter, and a surprisingly large number of Canadians who have a deep understanding of the volcanic massive sulphide type of discovery made by Sandfire at Doolgunna, itself a shagged out cattle station halfway between Meekatharra and Newman.

The backroom boys at the Australian Securities Exchange have also been watching closely, helping Sandfire set another record - four speeding tickets since May, although some of those fall into a category called nitpicking. The funniest was a request that came in for the removal from Sandfire’s promotional material of a future possible mine design and production schedule for Doolgunna. This, said the ASX, could not be aired until a JORC-code compliant resource was available. But after Sandfire removed the offending paragraphs from one of its presentations, the original was left on the ASX’s own web site so, even if Sandfire can’t tell you what’s likely to happen, the ASX still can.

So, what is it that everyone is watching? The answer is simple - thick and fabulously rich copper structures (we can’t call them orebodies, yet) which will lead to the development of one, and possibly more, mines. The latest assays tell the story best. These include one hit of 6.8 metres at 10.9% copper plus 3.4 grams of gold a tonne, nicely complementing earlier hits of copper grading 15% (and more). The structures, of which there appear to be at least three, are steeply plunging, but surrounded by excellent country rock which will make for good and safe mining conditions at a later date.

Three diamond drilling rigs are active at site, rushing to generate sufficient data before a December 22nd shut-down to allow the mineral resource boffins to swing into action. With luck, Sandfire will report a maiden JORC resource sometime in February. For an insight as to how that resource might look, Bell Potter has used its own models to take a first pass stab at 7.8 million tonnes grading 5.9% copper and two grams a tonne of gold, for a contained 465,000 tonnes of copper and 540,000 ounces of gold. A back of the Bell Potter envelope estimate suggests a capital development cost of US$200 million and a cash operating cost of US$1.10 per pound of copper, after gold and silver credits, and a life of mine operating surplus of A$1.45 billion. But - and this is important - that’s just the start, because exploration at Doolgunna is really in its infancy, with the drill crews only now working on hole numbers 78-to-79.

The surrounding areas at the Doolgunna site also attracted close attention from Minesite’s Man in Oz, for two reasons. First, because VMS orebodies are generally gregarious, which is to say they appear in clusters. And secondly, and perhaps more interestingly, because Doolgunna was not drill target number one on the Sandfire “to do” list.

It was only by making a visit to the site that Minesite’s man was able to tease the story behind the discovery out, most of it emerging in the back of a Toyota “troop carrier” bouncing around the god-forsaken emptiness of north-west Australia. “Targets one and two are on the western side of the highway”, Karl said, a comment referring to the fact that the Great Northern Highway cuts the Doolgunna tenement in half. “The problem we’ve had is convincing the traditional owners that it is in their interest as much as ours that we get on with the exploration, something that we want to do in a good, neighbourly way, rather than steamrolling in, which we can do, but prefer not to.”

The two other targets in question have been identified by airborne electromagnetic - an essential tool in areas where there is no surface outcrop. The original Doolgunna discovery is under about 70 metres of surface cover and was made largely thanks to serendipity, and the enthusiasm of youth. Like most small exploration companies Sandfire was scorched in last year’s crash. Most employees were laid off, and at that stage there were only three full-timers left, including Margaret Hawke, a geologist four-years out of university. She was at Doolgunna in May when her boss, technical director, John Evans, was at another Sandfire project, and it was Hawke who authorised the drilling of a vertical hole to allow the ground crew to get a better look at early, but inconclusive gold and copper intersections. “She phoned me to say what was happening, but I found later that they had already started drilling”, Evans said. How fortuitous. And it was that hole which returned 47 metres at 5.3% copper, 20.1 grams of gold a tonne, and 1% zinc, from a depth of just 93 metres.

From that discovery hole everything changed. Staff retrenched have returned. There are now up to 50 people, employees and contractors, sharing a cramped site, and even more cramped kitchen. Despite the onset of summer, with its scorching 45 degree heat, and the threat of flooding from passing cyclones, there is a remarkable sense of camaraderie among workers on site as everyone recognises that here’s a chance to be in at the start of something successful. OZ Minerals, and other bigger miners, can also sense the emergence of a new copper “camp” on either of the road to Newman, as can another and potentially more interesting big player. Top spot on the share register of Sandfire is not one of your usual Chinese suspects - it is Posco, Korea’s biggest steel company, which bought into Sandfire in its penny dreadful days on the promise of a manganese discovery, but seems very happy to have copper instead.

As the Christmas shut-down looms, and the drillers take an 11-day break, interest in Sandfire will fade, presenting an interesting opportunity for investors to dust off their files on the stock (ASX code SFR). There is also the potential for attention to drift to other “nearby” explorers cashing in on the Doolgunna discovery. Talisman (TLM) is highest on the list of those most likely to mimic Sandfire. Most of the rest of could be exploring on the moon, though, and their lack of success might possibly be dampening interest in Doolgunna now, which is one of the reasons Karl is egging on his experts (internal and external) to generate a JORC compliant resource as soon as possible, and to maintain the news flow from the discovery zone, and from the other side of the highway where the top-rated targets remain to be drilled.