I don’t post very often but was thinking of writing an imaginary Q&A given all the comments of the past few weeks so here it is:-
Please note this is all In My Opinion and being my own research may not be completely factually correct so please as always Do Your Own Research.
Q. O.k. so I just took a look at the FNT chart. Wow that company looks likes it is in trouble – I hear it is heading to 4.5cents right? $30m market cap, I suppose it is one of those two bit mining companies with a few leases, talks a good book, jazzy presentations, but no real results, no JORC and running out of cash?
A. Well not really, true it doesn’t have a significant JORC resource as most of the development is earlier stage but results are pretty good so far.
Q. So what, it has one or two early stage leases with a bit of promise?
A. Actually it has a total of 11 exploration licences (EL) and 9 exploration license applications(ELA) making 20 in all located in PNG and Tasmania.
Q. Wow that’s a lot, bet they haven’t got cash to explore them.
A. Well no, that isn’t the case either. 6 of the exploration licenses and 1 ELA are subject to JV’s with two companies where they have to spend $79.25m over the next few years to develop them. So JV partners will be developing the major leases.
Q. Ahh now I get it rubbish JV partners who can’t afford to develop the licenses?
A. Well no not really. Newcrest who just announced a JV, is a major gold company with a $24 billion market cap, oodles of cash and a strategy to find major new gold porphyry systems – the JV isn’t quite finalised yet as they just announced the Heads of Agreement with FNT to set up the $19.25m JV for Andewa but that should be more of a formality. The other JV partner is a PNG government related entity called OTML. A private company but it accounted for 33% of PNG exports in 2009 and makes over half a billion dollars a year in profit.
Q. Oh, so major JV partners then but they are sat around doing nothing right?
A. Well no, OTML run a big mine in PNG but it is coming to the end of its life – they are extending their open pit operation to an underground mine but that still gets them only to 2022 and they need to replace the mine given that they account for a fair amount of PNG GDP and exports. The FNT JV is the key to that and I think it represents their main exploration expenditure outside of the exploration work at the existing Ok Tedi mine. Granted they were a bit slow getting started on their JV, but you have to remember that they are a private entity and government related so they are pretty careful about getting all the landowners on board first and preparing everything, but now they have started things aren’t too bad. They are now drilling 2 of 5 JV licenses with 2 x 5,000m drill programs ongoing and they are preparing a third license for a 3,000m drill program once a rig has been freed up. They are running aeromags and radiometric surveys on the 4th and preparing an exploration plan on the 5th.
Q. O.k. so Newcrest then, that will take a fair bit of time before a major gets to work all that paperwork etc., lots of delays I suppose.
A. Well no again. FNT has done a great deal whereby they get paid to keep on drilling Andewa using their own crew and equipment (yes FNT owns its own drill rigs and equipment which helps keep exploration costs low). Newcrest pay market rates for barges, drill rigs and other equipment and Newcrest also pay a 10% mark up for admin so drilling is continuing as we speak and in addition Newcrest will provide technical direction and support.
Q. O.k. so the results must be bad so far then given the share price. I heard those Andewa results were pretty poor.
A. Well again not really. The Andewa grades were low and most people were hoping for higher results but the system is pretty consistently mineralised and porphyry systems are characterised by low grades. Take the results so far for Andewa , FNT has given out results for 9 holes over a total of 3,450 metres. Average grade was about 0.35g/t Au equivalent .
Q. Ha ha, those are rubbish, 0.35g/t Au equivalent, over how many metres was that?
A. No, no, that is for the whole 3,450 metres of drill results so far. All the holes, every metre.
Q. Wot the whole thing is mineralised?
A. Yes pretty much and it is huge, the first two holes were 2.7km apart and the chargeability anomaly covers over seven square kilometres. FNT has barely scratched the surface so far – they even have results like 15m of rock chip channel at 15.5gt gold +21.9g/t silver which haven’t seen a drill bit yet. That is why they needed someone like Newcrest to develop it and that is probably why Newcrest wanted in. If a project is that big and that consistently mineralised then you should be able to find some good grades somewhere. In fact FNT already has some pretty o.k. grades for a porphyry system – check out ADH001. They could have tried to drill Andewa themselves but as you can see the market wasn’t keen on the results so far. Raising cash is tough in this market and by doing so FNT would have diluted existing shareholders exposure to both Andewa and the other 18 ELs/ELAs.
Q. Ahh FNT needed Newcrest, bet they got stuffed then.
A. Well no, FNT keep 40% of Andewa and they are deferred carried through to a project feasibility study. That means that once Newcrest has spent the first $15.25m then FNT still doesn’t have to pay any cash while the project is being developed until a feasibility study is completed. They will have to put up their share of costs after that but by that time you will know if the project is viable or not and they only repay the deferred costs from metal sales if a mine is developed.
Q. Ahh not bad. $15.25m – I thought you said they had to spend $19.25m
A. The JV is for one EL and one ELA. The ELA is called Mt. Schrader, it is much bigger and surrounds Andewa and includes another lookalike volcano. Once the ELA is granted Newcrest need to spend $4m to earn 60% and then FNT is deferred carried again. So there is potential for two huge systems and you never know Newcrest might pay us to explore there too.
Q. Nice, so FNT doesn’t have to pay to develop two of its projects until a feasibility study is completed?
A. Err no it has similar terms on 5 other licenses with OTML so seven in total. FNT retains a 42% stake in Bulago and Leonard Schultz and a 19.9% stake in Likuruanga, Central New Britain and East New Britain. All are deferred carried through to completion of a feasibility study.
Q. O.k. so results on those OTML JV’s must be pretty average then.
A. Not really, take Bulago – it has trench results of 27m at 66.8g/t.
Q. Wow you don’t see those very often – but will they ever drill them?
A. OTML is drilling a copper porphyry target at Bulago now and has to drill 5 holes into the high grade gold zone by May.
Q. May – which year?
A. May 2012.
Q. O.k. so they’ll be drilling the Bulago high grade gold targets over the next couple of months. What about the other OTML JV’s – I heard the ESIS results were a let down too?
A. Well again depends on your point of view. At Esis they are drilling a known copper porphyry system with a supergene that was discovered by BHP in the 70’s. It is known to extend on surface by at least 1,400m in length by 400m to 1,000m in width. BHP had drilled to a depth of approximately 150m finding evidence of a supergene and mineralisation continued to end of hole. OTML drilled down to 700m and were still in mineralisation (0.41% copper) at the end of hole. Extending from 150m to 700m+ is a pretty good result because you know you have something pretty big already. The question then is - is it economic? Grades were 0.38% from 12 to 234 metres, which is fairly average for a copper porphyry and should be economic if the size is big enough and they can find some higher grades. We know BHP found evidence of a supergene, although it wasn’t evident in OTML’s first hole, but OTML also found porphyry dykes in the lower parts of the hole. Hopefully they can use these results to find the main porphyry stock and potentially higher grades – we will know fairly quickly as OTML have drilled a fair few 700m holes already and we should be seeing a steady flow of assay results over the coming weeks. You should also remember that ESIS is just one of the prospects in the Likuruanga JV. OTML are also going to be drilling the nearby Pele prospect which unlike Esis could also have gold as well as copper and it is worth going back and looking at the gold potential of the Bukuam prospect with historic results such as a 55m trench returning 5.8g/t Au.
Q. Right so it must be cash burn then? The market is discounting a big rights issue?
A. Nope sorry again, once the Newcrest JV is completed most of their costs are covered by the Newcrest JV, FNT will get cash back from Newcrest to cover costs spent on Andewa since the beginning of the year and Newcrest are paying FNT to explore for them so net net they should be generating cash from Andewa given the JV agreement allows a 10% mark up on costs and FNT already owns the drill rigs, barges etc which it can charge Newcrest market rates for. By the way did I tell you Newcrest also injected $750k cash and joined OTML as a shareholder.
FNT still needs to pay exploration costs for its Tasmanian portfolio but given they own their own rigs, costs are pretty low and they run a pretty tight ship. In addition, they already paid for some of the bigger costs for Tasmania so they may not have too much cash burn there for a while and as a result we are waiting for results on a 3DIP survey on the Moina project and a heli VTEM geophysical survey on the SMRV project, not to mention the revised resource for Stormont.
Q. I thought you said they didn’t have a JORC resource?
A. Ahh sorry I said not significant – it is only 46,000 oz gold equivalent so very small but it is from surface down to approximately 30m and could be easily mined given the grade. Should be a revised resource and scoping study out shortly. More importantly there is a lot of exploration upside which again we should find out about pretty soon as exploration drilling is ongoing and the results from the very large 3DIP for the lease should be out shortly.
Q O.k. so let me get this right there is–
$80m of earn-in exploration spend on 6 licenses and 1 ELA from 2 JV partners, Three drill programs ongoing, Newcrest and OTML as JV partners and shareholders, FNT not paying a cent and deferred carried on the 6 El’s and 1 ELA so limited cash burn, Results due on the ESIS porphyry system for several 700m holes Bulago porphyry targets results due with high grade gold zones to be drilled by May followed by another drill program on Leonard Schultz Another 5 EL’s and 8 ELA’s with:- 3DIP results due on Moina A heli VTEM survey results due on SMRV An increased resource estimation on Stormont And they own their own rigs and equipment.
That is quite a lot going on!
A. Ahh well let me tell you about Sudest Island, now I wouldn’t mind getting a drill rig in there! The other PNG ELA’s, the high grade results from SMRV, Stormont and Leonard Schultz and the potential for Central New Britain and East New Britain……
…..ahh maybe another day.
Q. What was the market cap again????
LB
FNT Price at posting:
10.6¢ Sentiment: LT Buy Disclosure: Held
(20min delay)