A new angle on Mt Kare Publishing Date 20 Dec 2013 11:23am GMT...

A new angle on Mt Kare

Publishing Date 20 Dec 2013 11:23am GMT Author
Brian Rodan knows a gold mine when he sees one and the founder of one of Australia’s top ranked underground mining contractors thinks Mt Kare’s time to shine is finally near.

Rodan’s Australian Contract Mining (ACM), established 12 years ago, has more than doubled in size in the past five years on the back of plum hard-rock underground mining contracts in Australia and Africa. The former executive director of internationally recognised mining contractor Eltin is keen to extend the portfolio into Papua New Guinea (PNG) via the work ACM is doing with Mt Kare owner Indochine Mining Ltd (ASX: IDC).

He is now a major shareholder in Indochine, with about 8% of the stock, so has every reason to help the junior develop its adit and to better define the wide, high-grade zones of gold and silver mineralisation seen as likely to support a substantial, low-cost operation, and get it safely into production.

Indochine chief executive (CEO) Stephen Promnitz told the recent Mines & Money conference in London that Rodan’s “expert input” into Mt Kare would be a key factor in the project’s transition to production. As would Australian engineer GR Engineering Services’ plant design, modular offshore construction and delivery.

Promnitz believes Indochine can get its proposed 200,000oz/y gold and 820,000oz/y silver project into production for less than A$100 million (US$89 million), which would be a fair effort on two counts. First, the company had a market capitalisation this week of a mere A$41 million, highlighting market disenchantment with gold, PNG and small companies generally.

Promnitz was at a conference that reinforced a bleak outlook for capital raising for juniors, although modest success with a recent raising will leave it with about A$6 million in the bank.

Secondly, recent similar-scale project builds in different parts of the world, and some planned ventures, put Indochine’s proposed development at the low end of the capital expenditure (capex) spectrum.

Mt Kare’s grade and scale are obviously key, but Promnitz also believes offshore modular assembly will play a part.

“The reason we’ll have a relatively short construction period is we’re aiming for this processing plant to be built in a modular manner and that means most of it can be built offshore, shipped to PNG, and trucked to site, reducing the timeline in construction, which is something debt providers like to see,” he said.

“We’re targeting fairly low capex, a bit under A$100 million, and on the back of that, producing 200,000oz/y of gold and 820,000oz/y of silver, and a payback of just under a year at current gold prices. We’re somewhat agnostic as to the gold price… if it’s A$1,000/oz this will have a payback of 16-18 months, and if gold trends up higher that reduces to 7-8 months. So consequently, we’ve had quite a number of debt providers coming to speak to us about this being a relatively easy project to get capital finance.”

ACM will establish a “production scale” adit to provide access for underground drilling and for “investors and anyone else to come in and have a look at the sparkling stuff”.

Indochine switched its focus from lower-grade, larger-scale open-pit mining to underground when the gold price nosedived and Promnitz maintains the approach has been well received, even if that isn’t reflected in the share price.

The company’s gold focus is part of the reason for that lacklustre stock value, but Indochine’s chief is adamant: “I don’t care if it’s gold or any damn thing, this [Mt Kare] is a gold mine; it throws off cash. It’s got a payback of a year. Even if we cock it up it’s going to be 18 months. Banks come and see us; they think it’s solid. I’ve been speaking to funds. They all reckon it’s pretty good and we’re going about it the right way.

“Plus we have the case history of the adjoining gold mine, which started along exactly the same path, with a high-grade underground, paying everything off very quickly – now they’ve been in production for more than 23 years.”

Ironically, Promnitz, a geologist, was working with what was then CRA Exploration back in the late 1980s when the original Mt Kare discovery was made. He has worked with Kingsgate Consolidated Ltd, Western Mining Corp and Placer Dome, Citigroup and Westpac, and maintains he is comfortable with the overall political and sovereign risk situation in PNG.

“I’m not saying that PNG is straightforward to work in, but we have certainly got a team with the experience to be able to deliver the project,” he said.

The company is targeting a new resource of 1Moz with an average grade of 10g/t gold in the first half of next year.

“There are fewer than 20 deposits in the world with head grades of 10g/t or that contain more than 1Moz,” Promnitz said.

“The difference [at Mt Kare] is we’re looking at ore zones 50-175m in width. That delivers low-cost, high-margin and a rapid payback. We’ll be applying for mining leases in the middle of next year [and] aiming for production in the middle to latter part of 2015.”

As well as Rodan, Indochine has supportive shareholders in Baker Steel, Genesis and BlackRock.

“He [Rodan] thinks this project is such good value he has invested out of his own pocket,” Promnitz said.

“That’s putting your money where your mouth is.”

And where your future profits are hopefully flowing.