Thursday, December 30, 2004 WITH promising ground in a proven diamond province and a potential multi-commodity path to quick cash flow, 2005 is shaping up as a big year for Conquest Mining. By Michael Weir - RESOURCESTOCKS*
"Diamonds Are Forever" is the marketing slogan used so successfully around the world.
Perth-based junior Conquest Mining is certainly hoping it will enjoy a sparkling future from the precious stones.
Diamonds have become one of the market darlings in the past year and Conquest has put itself in to a leading position to tap into the strong investor interest.
Its key diamond project is in the heart of the Kimberley region of Western Australia and next door to one of only two diamond mines currently operating in Australia.
Conquest hopes to finish a feasibility study on starting a diamond mine at its Ellendale 17 project next year and is confident a mining operation will be developed.
However, Conquest offers investors more than just exposure to the diamond market. Managing director David Burton, a veteran geoscientist who discovered the massive Boddington bedrock gold-copper deposit, says Conquest is retaining a specific multi-commodity focus.
Ranking equally alongside Ellendale 17 is the highly advanced Mt Carlton project in Northern Queensland, a gold-silver-copper play offering the potential for quick cashflow.
"This multi-commodity focus provides investors with diversification from a single resource risk plus exposure to two projects offering the potential for strong, medium-term returns," Burton said.
On top of that Conquest has a strong portfolio of projects at various stages of development, offering a pipeline of opportunities.
But it is undoubtedly the diamond story which is attracting strong market attention.
Rough diamond prices surged during 2003 on the back of rising demand, and current market evidence suggests the trend will continue.
Tightening diamond supply is also driving prices higher. Global stockpiles, such as those held by market leader De Beers, have been sold down, few new mines are coming on stream and old mines including Australia's Argyle operation, a major global supplier, are quickly running out of reserves.
If you want to look for diamonds, Australia's Kimberley region is considered one of the best addresses in the world. Since the discovery of Argyle in 1979 it has been one of the world's richest sources of diamonds.
The Argyle mine currently produces about 34 million carats a year and accounts for one third of global diamond production. Argyle has become famous for its rare pink diamonds that are highly sought after and command a big price premium.
Australia's only other producing mine, Ellendale, is much smaller than Argyle, but importantly, the vast majority of its diamonds are valuable gem-quality stones.
At Conquest's Ellendale 17 project, the company has one of the biggest known diamond pipes in the Ellendale field.
Conquest has already identified almost 37 million tonnes of diamond-bearing ore at Ellendale 17. A large-diameter drilling and bulk sampling program is currently underway to find out just how many carats of gem-quality diamonds are likely to be contained in every tonne of ore.
Burton said Conquest was spending $1.3 million on the resource definition program and he was confident the company would be able to prove up a mineable orebody.
"All the work and all the testing that we've done to date tells us that the grades and value of diamonds from Ellendale 17 are likely to compare favourably to Ellendale 9 and 4, which are currently being developed," he said.
"A result like that could certainly lead to a profitable mining operation."
Critically, the average individual value of diamonds in the Ellendale field is higher than Argyle, meaning that lower grade deposits can be economic.
Some of the development scenarios being considered by Conquest highlight the attractive returns that could be achieved from a diamond project.
If Ellendale 17 contains a 30Mt resource grading 6 carats per hundred tonnes, it would yield 1.8 million carats. At an average value of $300 per carat, that puts the in-ground value at more than half a billion dollars.
Another advantage is that diamond mines are relatively inexpensive to develop compared to some other mining operations. Capital expenditure is estimated at $20-40 million.
The resource definition early next year is expected to give investors a clearer indication as to whether Ellendale 17 is shaping up as a realistic development option.
Burton said Conquest had already put in place strategies to maximise the value-added potential of any mining operation at Ellendale.
The diamond business has traditionally been a secretive affair, with prices and marketing controlled by De Beers. The mark-up from rough-cut diamonds to the retail end is a staggering 500%.
However, that monopoly has now been broken and the industry is far more transparent with dominant players, including De Beers, Rio Tinto and BHP Billiton handling much of their own diamond cutting, polishing and marketing.
Conquest's most recent capital raising attracted major gem cutting and marketing company Sino-Italy on to its share register, and Conquest hopes to forge a strong ongoing commercial relationship with the company, particularly in China.
Conquest's best chance for near-term cashflow comes from the company's Mt Carlton gold-silver-copper project in northern Queensland, which it picked up from Xstrata late last year.
Conquest quickly launched a program of reverse circulation and diamond drilling aimed at evaluating the potential for a 250,000-plus tonne per annum standalone mine producing gold, silver and copper. Conquest envisages an operation based initially on mining three shallow openpits.
Pre-feasibility studies are currently underway and already the signs are looking positive.
Conquest has recently increased its inferred resource at the 100 %-owned Mt Carlton and the nearby Crush Creek joint venture (Conquest earning 80 %) to 1.65Mt containing an estimated 99,000 ounces of gold, 1.49 million ounces of silver and 4960t of copper.
Burton readily admits Mt Carlton may not represent a company-maker, but it would certainly provide Conquest with something most other junior companies simply dream about – cashflow. And that cashflow would be pumped back into exploration.
Conquest is currently the second biggest landholder in Queensland behind BHP Billiton, meaning there are a lot of highly prospective exploration targets out there requiring attention.
The results of pre-feasibility studies at Mt Carlton are due in early 2005.
Most importantly Conquest remains well funded. A recent over-subscribed placement raised $5 million and attracted some quality institutional shareholders to the company's register.
With issued capital of 96 million shares and a current share price around 25c, Conquest has a market value of just over $24 million, clearly providing significant upside depending on the outcome of the two concurrent studies currently underway into both diamond and gold-silver-copper operations.
The market, and many eager investors, will keenly await Conquest's results.
CQT Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
