Pierpont was a mite perturbed. Nothing to speak of really: just a shadow on his mind as he sat in the Croesus Club the other day sipping his third - or it may have been his fourth - Bollinger for the morning. Pierpont was enjoying aperitif hour with Leo Liability, the stockbroker who has never knowingly put a client into a good stock.
"I say, Leo," your correspondent asked. "What's happening to Charters Towers Gold? They're supposed to be digging up all the gold in the world, but the share price has drifted from 70c to 50c over the last six months."
"Maybe it's because a corner of the local schoolyard disappeared," replied Leo. "Apparently an old mine shaft subsided while CTG was digging underneath the town."
This sounded a pretty good rumour but, like Napoleon on his march from Elba, turned out to have gathered a lot more strength the further it got from home.
A phone call to Central State School at Charters Towers established that a bit of ground had indeed gone missing, although not in the schoolyard. Across Aland Street from the schoolyard stood a school reserve. One patch of it had always been fenced because it was the top of the old Brilliant Freehold shaft.
The shaft had been plugged with rubble, but last July the plug had given way and sunk about 100 metres. The subsidence was confined to the area covered by the old shaft which amounted to only 100 square feet, but the depth was impressive. To its credit CTG immediately covered the exposed shaft with mesh so that no schoolchildren would make a sudden plunge into mining.
Checking his facts like any diligent scribe should, Pierpont rang CTG's managing director, Mark Lynch, and asked politely whether he had mined any schoolyards lately. Mark said the story was "totally fictitious". A collar had opened on an old shaft when the plug had fallen in. CTG had thought it a jolly good thing for a while because they might have been able to use it as a ventilation shaft.
Once again Leo had come up with a story that sounded good but had to be consigned to the Universal Filing Unit. The subsidence does not appear to have had much impact on the mine and in any case only a handful of people seem to have known about it. As far as Pierpont can ascertain it hasn't even made the Townsville Bulletin.
Pierpont thinks the market may be more worried about grade. Charters Towers, 130 kilometres south-west of Townsville, is one of Australia's great old gold-mining centres. At one point it even had its own stock exchange, a graceful building whose shell still stands in the middle of the town and now houses a shopping arcade. Between 1871 and 1917 some 6 million tonnes of ore were mined from Charters Towers for an average yield of better than an ounce to the tonne. The CTG prospectus said this rated Charters Towers as the fifth largest gold producer in Australia.
The main old workings at Charters Towers lay under the present town and are called the Brilliant-Day Dawn field or sometimes the City Lode. So the town is sitting on top of several old shafts and mine workings. When the mines ceased to be economic the old-timers backfilled the workings with waste rock. As the pumps closed down, the mines filled with water.
The City Lode is being reopened by a joint venture owned 30 per cent by Charters Towers Mines (an unlisted company controlled by the Lynch family) and 70 per cent by CTG. CTG, a public company also controlled by the Lynches, raised $3.5 million from the public two years ago to retrieve gold from stope fill (the rocks that had been used to fill the mine), remnant ore pillars and completely new ore that the old-timers hadn't mined.
The prospectus projected mineralisation of 2 million tonnes averaging 8.5 grams, which was equivalent to 540,000 ounces in the ground. This estimate was partly based on a survey done by a Queensland Government geologist named J.H. Reid in 1917. According to Reid the old-timers had mined only the rich shoots of ore. He reported: "There are probably many hundreds of thousands of tons that would average 11 to 12 grams per ton."
CTG is now digging an exploration decline which starts on the eastern side of Charters Towers and is aimed at hitting various old workings under the town.
CTG was highly bullish in its 1996 annual report, stating proven and probable reserves at 906,000 tonnes averaging 3.8 grams, giving them a reserve of 110,000 ounces. Chairman John Foley predicted that "numerous ore shoots await discovery both adjacent to the old workings and in the regional area". The company is predicting eventual production at 250,000 ounces a year. And the company has bought a processing plant from Mt Hogan and is installing it eight kilometres south of the town next to mining leases held by CTM and Great Mines.
Mark says the stope fill is grading up to 5.6 grams and the 12 gram rock mentioned by Reid is the orebody untouched by the old miners which CTG will soon be digging out. He is confident of finding new veins of one-ounce material which the old-timers missed. Mark also assured Pierpont that there was no danger of subsidence because the rock was solid granite.
Pierpont wishes the lads well but he can't help being a bit sceptical. So far they have proved up less than half the tonnage predicted in the prospectus. Worse, the grade is a measly 3.8 grams, which is well under the 8.5-gram forecast.
Admittedly this is mostly stope fill, and if Reid is right the new ore will grade higher. But unfortunately, there was not much drilling done to define the orebody. A drill could not recover rock samples from the stope-filled areas. Drilling for narrow veins of gold is a bit hit or miss anyway. And finally, the drilling would have had to be done on streets around the town, which might not have overjoyed the residents.
So the workings are really being explored by the decline. Mark has high confidence and the reports of Reid and a few sample assays as he goes, but there is no such thing as a delineated orebody. The reserves to date are from the stope fill and a couple of small open pits near the town, and the company's future depends on what it finds in the unmined ground under the town.
Perhaps the market also remembers that in the early 1990s, the Lynches offered Mt Leyshon Gold Mines an option to mine the same ground by joint venture. Mt Leyshon spent six months and the not inconsiderable sum of $900,000 drilling the City Lode, then decided not to take up the option, which would have cost another $2 million.
Mt Leyshon hit some high gold values, but in very narrow shoots, and decided that whatever gold was under Charters Towers was insufficient to justify them entering the deal. But the Queensland Industry Development Corporation has nevertheless given CTG a $26 million loan facility. That makes the QIDC braver and probably smarter than Pierpont.
When a company is exuding optimism and the market is exuding pessimism, Pierpont always prefers to believe the market until he is conclusively proved wrong.
CTO Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
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