Winston Churchill famously said: “Success is not final, failure is not fatal: it is the courage to continue that counts.” So we believe it is with Thor Mining, This mining and exploration tiddler is very much a survivor; having lived through the market implosion of 2008 and taken some bold decisions in its wake, Thor Mining now finds itself with a portfolio of relatively heavyweight Australian assets and is now set to develop these assets and drive them up the value curve.
With economics at their Molyhil molybdenum/tungsten “mine in waiting” becoming increasingly viable, Thor’s bold decision to move into gold has been more than vindicated. The geography and geology at both gold prospects, Dundas and Spring Hill, are compelling and early exploratory drilling is producing promising results.
The value proposition
Solid assets more than underpin Thor’s market capitalisation with strong prospects for ‘Blue Sky’ potential and solid management already in place.
•Molyhil molybdenum and tungsten mine: having been drilled out to JORC compliant standards and subject to a Definitive Feasibility Study (DFS) in 2006, Molyhil is a “mine in waiting”. After moly and tungsten prices plummeted in late 2008 making the project unviable, tungsten prices are back around historic highs and molybdenum (moly) has recovered significantly. While the prospects for an increase in the moly price look promising, exploratory drilling to increase the resource is also scheduled to commence in July, both of which would greatly improve the economics of the project.
•Dundas Gold Project: After moly prices collapsed in 2008, rather than sit and wait for it to recover, Thor’s management, led by Michael “Mick” Billing, a veteran of Australian mining, took the bold decision to bring in new projects, acquiring the Dundas Gold Project in 2010. Dundas is situated in a hugely exciting prospective territory in Western Australia and exploratory drilling is already underway. If positive, which geography and recent drilling results suggest is likely, this could be transformational for the company.
•Spring Hill: In January 2011, Thor agreed to acquire 25% of Spring Hill with the rights to take that up to 80%. Spring Hill comes with its own JORC gold resource and potential for further increase with additional work. Exploratory drilling has already started to further increase resources based on persuasive geographic and geological characteristics.
•Management: The appointment of Michael Billing as Executive Chairman in 2008 has been pivotal in Thor’s prospects. A long term veteran of Australian mining, Thor is arguably Billing’s swan song suggesting a higher level of devotion to ensure an impressive legacy. His leadership has already paid dividends in moving the company down the yellow metal road, despite some investor grumblings about dilution. His keen business acumen has also led to identified savings of up to 30% in the capital costs of exploiting Molyhil. In addition, the introduction of Trevor Ireland to Thor’s management board in March 2010 also adds significantly to the potential at Spring Hill.
Digging into the detail
Molyhil
Molyhil, Thor’s 100% owned flagship project in Alice Springs, has published reserves of 4.8 million pounds of molybdenum and 700,000 metric tonne units of tungsten. This advanced mine, which has been drilled out to JORC compliant standards, is currently poised for development with all the necessary permissions in place. The deposit, on which systematic test work has been carried out since 2004, is situated in two adjacent skarn bodies containing outcropping molybdenite and scheelite mineralisation
An initial DFS in 2006 showed the current deposit to be an economically viable short-life mining and milling opportunity producing 300,000 tonnes per annum with rapid capital payback and strong financial returns. The DFS suggested an Internal Rate of Return of 111% and pre-royalty EBIT of AU$117m over the first four years based on base-case sales prices of US$20/lb for moly and US$204/mtu for tungsten.
By March 2008, an off-take agreement had been negotiated with CITIC Australia Commodity Trading Pty Ltd, a Chinese government trading organisation, for all the moly and tungsten produced at Molyhil.
Shortly after, in May 2008, Thor management saw a changing of the guard after Western Desert Resources Ltd (WDR) installed mining heavyweights Mick Billing, Norman Gardner and Michael Ashton after buying a 16.7% holding that April.
With the fresh cost-cutting focus from Thor’s management, led by Billing, Molyhil was standing on the brink of production in the Summer of 2008. Then came the financial crisis. The resulting sharp falls in moly and tungsten prices meant the project was no long viable.
Rather than grinding to a halt, Thor’s management made two key decisions: firstly, to review the dynamics at Molyhil to improve economic viability by cutting costs and increasing the resource; and, secondly, to go in search of other promising assets benefiting from the extraordinary assent of gold. More on those later.
The 2006 DFS estimated the capital costs of getting Molyhil into production at AU$65m. Believing this to be based on a ‘Rolls Royce’ five-year-plan, the DFS has since been reworked to account for huge cuts in capital costs by modifying the project to be operated by a contractor and using a modular plant assembly. Both decisions make sense for a small mining company exploiting a short-life opportunity. A 30% cut in the capital expenditure is believed to be possible as a result, although the recent hike in oil price will have some impact on power costs.
In the meantime, moly and tungsten prices have also changed direction. Tungsten recovered 80% in 2010 and is currently trading above all-time highs and the base rate calculated in the 2006 DFS after China imposed export restrictions, shrinking supply and causing the US and EU to place tungsten on the list of critical metals.
Moly, although still less than half its pre-crash price, has recovered considerable ground and is expected to follow the tungsten price after a time delay, reaching around $21.75 this year – also above the base-case price used in the 2006 DFS.
While this suggests Molyhil may now be a tungsten mine with a moly by-product, it would be prudent to wait for the moly price to improve further to better support the project economics.
Rather than waiting for the markets to come to Thor, however, exploratory drilling is already underway to increase the size of the Molyhil resource, bringing it back into viability sooner rather than later.
The initial DFS was based on resources up to a vertical depth of 150 meters. The hope is that an underground operation can continue following the skarn down below the open pit. Not only would this potentially extend the life of the mine by two or more years, but grades are also potentially better, if not at least consistent, at greater depth.
Although it has since lapsed, the existence of the CITIC take-off agreement shows promise for the future as Chinese demand remains strong. The company is expected to try and establish a replacement agreement once metal prices recover.
Molyhil has one more trick up its sleeve. There is also now an additional revenue stream from magnetite, a premium product for coal washing much in demand by the booming Australian coal industry. It should therefore attract a robust price in local currency, avoiding any foreign exchange risk. This resource was ignored by the 2006 DFS.
Dundas
After the moly price crash in 2008, Thor’s management was faced with two options: either sit and wait for Molyhil to become viable again or go out and find other projects. They chose the latter, taking a 51% stake in the Dundas Gold Project in February 2010, building up to 60% later that year. The project includes three tenements covering 340 square kilometres in the Albany-Fraser Province within the general strike extension of the Wiluna-Kalgoorlie-Norseman greenstone belt, considered the richest area of the gold-producing Yilgarn province.
The Albany-Fraser province is relatively under-explored as it fell off geologists’ radar and subsequently spent a decade as a nature reserve between 1996 and 2006. Since then, the discovery of Anglogold Ashanti’s 5 million plus ounce gold resource at Tropicana, has caused a flurry of big names rushing to secure opportunities in most of the region. Many discoveries have since followed.
Initial work carried out by Thor in 2010 discovered carbonate soil geochemical anomalies similar in size and scale to that at Tropicana during its early days, suggesting the geological environment could well be the same. Results from initial exploratory drilling in the top meter or so of bedrock in one of the three tenements (E63/872) is also extremely promising, producing peak values of 0.25% copper AND 0.17 grams/tonne (g/t) gold. Tests have only been carried out on a small proportion of the anomaly, but they point to the occurrence of gold mineralisation.
At least five other areas of gold and copper anomalies in calcrete in this and its neighbouring tenement (E63/1102) look ripe for further investigation. Next steps include further exploratory drilling and deeper exploration of the mineralisation discovered by the programme just completed later this year.
Meanwhile, reconnaissance calcrete geochemical sampling has already begun in the third tenement (E63/1101), which lies on a previously identified gold-mineralised trend.
Spring Hill
Geography clearly plays a very important role in underpinning the prospects, and therefore value, of mining and exploration companies. And so the story continues with Thor’s second gold acquisition in early 2011 of up to 80% of Spring Hill from WDR.
Spring Hill, which sits within the Pine Creek Inlier in the Northern Territory, comes with a JORC compliant indicated resource of 274,000 ounces of gold at a cut-off grade of 1.0g/t. The site enjoys good access by road and rail as well as power and other infrastructure being only 150km south east of Darwin.
Scoping and metallurgical test work was carried out in 2008 so the deposit has been partly evaluated and the process design and mill costing are in place. The Pine Creek Inlier, and the nearby Tanami Inlier, have already produced several multi-million ounce deposits.
The fact WDR still hold a 9% stake in Thor suggests the motivation for selling was not lack of potential at the site as they will still benefit from Thor’s development of the project, but rather WDR’s desire to focus on iron-ore.
The potential of Spring Hill will be significantly bolstered by the appointment of one of Australia’s most respected gold explorers, Trevor Ireland, in 2010. Ireland is well known for his role is discovering and developing the Callie Project, the biggest mine in the Northern Territory located on the Tanami Inlier with a 5 million plus ounce gold resource with grades between 5g/t and 6g/t.
Under Ireland’s leadership, drilling is scheduled for July/August at Spring Hill to explore what he believes is a strong chance of Callie-style mineralisation giving rise to a potentially deeper, richer and more continuous deposit.
Similar to the Callie deposit, the gold at Spring Hill is mainly situated in quartz veins in fracture and axial zones of the anticlinal fold structures. It is coarse grained with a high nugget effect. Pine Creek, which is a prolific area of shallow gold mining, has a greater number of deposits than Tanami so the likelihood of economically viable amounts of gold, is not only greater, but Pine Creek is also logistically superior further boosting the economics of exploiting the resource.
Conclusion
Although the economic recovery is already underway and gold prices have been more volatile of late, there is still sufficient uncertainty and inflationary risk in the markets to push gold higher, further supported by the sharp oil price rises. The fundamentals driving moly and tungsten prices also remain strong.
This, coupled with the substantial potential offered by the geographical and geological characteristics of the Dundas and Spring Hill projects and the improving economics of the Molyhil project, provide a solid asset base to underpin Thor’s current market cap. In addition, exploratory drilling at all three locations provide ample prospects for blue-sky potential and early results are already encouraging.
While valuations have risen left right and centre in this sector, Thor, with its £11.5m market cap, appears to have been overlooked in valuation terms versus some of the bigger companies.
Although Thor may have failed at the first attempt to bring Molyhil into production, it had the courage to continue, and has now built a diversified operation with three projects with substantial potential. The ‘courage to continue’ may just have paid off.
http://www.miningmaven.com/k2/companies/thor-mining/thor-mining-the-courage-to-continue/
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