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Thanks MiningNews.net

Thursday, June 10, 2004
THE spinning out of Mincor's vast Reko Diq copper project into a newly listed vehicle has been warmly accepted by the market. By James Hamilton

To most observers the original slotting of the Reko Diq copper project into boutique nickel miner Mincor was a bit like putting a square peg into a round hole.

Analysts, investors and journalists alike grappled to fathom just why such a huge project covering 4000 square kilometres of the Tethyan Magmatic Arc in Pakistan should be in such an ASX-listed company.

The answer has something to do with history and much to do with opportunity.

Back in the mid-1990s South African mining giant Iscor began spreading its wings and started getting interested in copper and gold. The result saw the company take a long look at places like Peru, Chile and other regions that had large porphyry copper belts.

The one they settled on was Reko Diq in Pakistan, an opportunity identified by their then business development manager, geologist David Moore. The project had been discovered by BHP Billiton, which at that time was cutting back on exploration and seeking partners for their better greenfields projects.

Yet by 1999 Iscor had shied away from the offshore deal quietly citing its need to focus on its core iron ore and coal businesses. However the company adopted Moore's proposal for a backdoor listing of its gold assets onto the ASX via Mincor – a divestment mechanism that ultimately paid rich rewards when Iscor (now Kumba) sold out of Mincor for a reported $20 million.

Tasked with creating and leading Mincor, Moore, well familiar with porphyry systems around the world, was determined not to let such a massive copper-gold play slip through the cracks.

He consequently struck a deal for the project through Mincor, allowing the junior cheap entry into the massive system but providing BHP Billiton with a claw-back right on a project area by project area basis.

"The whole idea right from the start was to nurture it in Mincor and then spin it out into the London market," Moore said.

"I saw it as a cheap earn-in for us. The geologists driving the project knew they were onto a major copper district, and that is why BHP Billiton wanted a deal that allowed them to remain involved in the project."

And spin it out they did. In 2003 Tethyan Copper Company Limited was spawned out of Mincor, with Mincor's shareholders receiving around half the share capital in a free distribution worth around 12c per Mincor share.

One of the hottest floats on the ASX last year, the company raised $15 million via the issue of 50 million 30c shares.

It was little wonder punters were keen to partake. Last year saw a major spike in the copper price and TCC's resource inventory already stands at 11 billion pounds of copper and 9.1 million ounces of gold – to JORC inferred and indicated categories.

Tethyan Copper's project comprises four exploration licences covering 4000sq.km taking up much of the south-western extreme of Pakistan which abuts the Afghanistan and Iranian borders.

Given the rapidly deteriorating state of world relations, this hardly sounds a top-of-the-pops location in terms of sovereign risk. However Moore argues that this is more perception than reality, and the under-populated desert country creates a work-friendly environment.

"When I say it's in desert country, that's not to say it's totally cut off," Moore said.

"We're only 30km west of a major road and rail system and 50km to the east is a Chinese-run copper-gold mine and smelter complex which is producing at a rate of 20,000 tonnes per annum of blister copper.

"The project will call for us to generate our own power and we are now tackling the issue of hydrology. But given the scale of what we have here, the cost of these inputs in minimal given the vast resource base."

In simple terms the project can be divided into three parts: The H4 Starter project, the Western Porphyries and other known Reko Diq targets, and the grassroots potential of the wider area.

As the name suggests, the H4 Starter project is all about taking the most advanced area and creating a cash flow. H4, which is only a tiny blob on the total Reko Diq Landsat image, contains a probable mining reserve of 78 million tonnes grading 0.7% copper.

Tethyan has started a bankable feasibility study (due to be completed by mid 2005) with a view to opening a mine producing 42,000tpa of copper metal.

"The actual indicated resource at H4 is more than 108Mt," Moore said. "The orebody is a supergene, flat-lying blanket which will be heap leachable followed by solvent extraction and electrowinning.

"We've appointed Snowdens as the study manager, however, in general terms we're looking at a mine that will cost US$130 million to bring on and have a life of at least 12 years. We're also pretty excited about the potential to fatten the resource to the west."

While H4 will bring in much needed cash flow to continue the exploration effort, it is the Western Porphyries which have the potential to produce a mega mine. Based on previous drilling, Tethyan has defined an inferred resource of 729Mt at 0.64% copper and 0.39% gold. That resource is based on just 30 holes.

The Western Porphyries is really three adjacent porphyry orebodies. The hope is that these three can form the backbone for a big mining scenario which is likely to exploit a myriad of smaller systems. Already Tethyan has 14 additional mineralised porphyries (with seven drill holes or less) begging for follow up.

According to Moore a major regional IP survey during the last quarter over the whole Reko Diq Complex was successful in "seeing" targets buried beneath surficial cover.

"The test lines showed the entire Reko Diq Complex to be a giant sulphide anomaly, and identified not only the total system, but individual ore zones within the system," Moore said.

The company has now commenced a major regional IP survey, which will take about six months to complete and cover the entire 4000sq.km.

If your mind is starting to boggle at the scale of Tethyan's project then you are not alone. But the comforter is that size commands attention. Look at what Robert Freidland has been able to achieve with another large-scale copper-gold play in Mongolia.

Moore says he was "mobbed" at this year's Prospectors and Developers Association Conference in Toronto. The interest coming from institutions looking for a new punt on copper and China's voracious demand for the metal.

"I don't think the Ivanhoe story is too dissimilar to what we're trying to achieve other than to say that they are about two years ahead of us in terms of drilling," Moore said.

"We've still got a lot of exploration and infill work to do but I think investors both locally and internationally appreciate that we are a credible entry into copper."

* This report, first published in the April/May 2004 edition of RESOURCESTOCKS magazine, was commissioned by Tethyan Copper