A1 Minerals is a emerging mid tier gold miner with it projects located in the highly prospective Laverton area, in the eastern goldfields of West Australia, 400km north of Kalgoorlie. World class gold mines Granny Smith and Sunrise Dam operations are in the same district. A1's tenement covers 500 sq kms, BrightStar is their 100% owned flagship project. Brightstar comprises of 7 areas of interest. Alpha, Beta, Delta, Gamma, Epsilon, Eta and Zeta.
A1 Minerals have had outstanding success from their BrightStar drilling campaign, figures including, Alpha(74 000 tons @ 5.1 gpt), Beta(350 000 tons @ 4.1 gpt), Delta(470 000 tons @ 4 gpt), Epsilon(233 000 @ 4.6 gpt) with the resource generally starting from the surface and conitualling into shallow depths. For people not to savvy with gold drilling results these are high grade. The BrightStar project at this stage has a consolidated resource estimate of 1.7mil oz and reserves of 150 000 ozs. A resource is a rough estimate of the in-situ mineral deposit, there is a low level of confidence in the figures. A reserve is a result from more definitive drilling and assaying, there is a high level of confidence in the final figures. Without a doubt the current reserve of 150 000ozs will grow significantly.
A1 Minerals is about to move into production. Construction on their fully funded 30 000 oz pa CIP plant is finished and is currently being commissioned. If there is no major technical difficulties we should see a gold pour announcement in the coming weeks. The current plan is, in the first couple of years the plant will be fed from the Alpha pit, then Beta and Delta, 2-3 years then Epsilon, year 4. This will obviously change when more reserves are certified. The plant is designed so infrastructure upgrades are easily achieved to support double the initial output. The first gold bearing ore to be put through the plant is high grade so it shouldn't be long to see the company in a cash-flow positive position. Although the first gold pour announcement would be viewed as positive from the market, its the positive cash flow over a period of time markets really want to see. The first gold pour is just a gold pour, when a company is finally cash flow positive, risk to a degree is diminished because the plant has gone through the risky stage of commissioning, reserve and feasibility estimates are proven to be accurate. The company would be rerated because its now a successful producer.
Although we will see technical difficulties initially, I would be surprised to see in given time A1 Minerals fail to emerge as a successful mid tier gold miner. CIP gold plants relatively speaking is a simple mining process, the eastern goldfields of WA is littered with them. So as long as the there is no gross incompetence in the planning, construction and maintenance of the plant, things in that regard will be okay. If there is going to be a stuff up its usually the geological side of things, I also feel confident in that aspect. The initial source from the Alpha pit is in a high grade, shallow deposit, this is typical for Beta, Delta and Epsilon. According to the feasibility studies the cash costs per oz will be $540usd, note the price of gold is around $1100usd. Drilling for Alpha was on a 20 mtr sectional basis and under, this gives the team more confidence in the geological interpretation so the anticipated 4-5 gpt head grade should be achieved. Thus saying all this, it has to be stressed this one is a high risk play until the company is established as a gold producer.
I've only known about A1 Minerals for 2 months so I haven't had time to entirely form an opinion on the directors. However, from reading past announcements going back a few years to the present its conclusive they have uncompromising commitment and professionalism to get the company to this stage its at. Managing Director John Williams also has significant investment exposure in the company which is always a sign of dedication.
In respect to its gold peers A1 Minerals share price has plenty of growth in it yet. A cash-flow positive company with a respectable resource base that's sure to grow will attract the attention from the wider market. Although I feel things will be relatively stable for the next couple of years in respect to the broader market, I also like being exposed to this one because I see gold as a hedge against a further global financial meltdown. In the longer term I don't feel confident with the global economy. The financial meltdown has yet to be fully played out. Its simply been delayed by an injection of huge amounts of capital and stimulus packages. Next time around the debt that needs to be dealt with will be much much bigger. We could see the gold price significantly much much higher over time.
AAM Price at posting:
37.5¢ Sentiment: LT Buy Disclosure: Held
