Gulf Industrials (?Gulf? or ?the Company?) is an Australian listed mining company that is focussed on African industrial mineral exploration and development with assets in Uganda, Kenya and Madagascar. Gulf currently operates the Namekara vermiculite mine in Uganda that was previously held by Rio Tinto. Namekara has an initial capacity of 30ktpa of high grade vermiculite concentrate. The Company also holds limestone and phosphate licences across eastern Africa and Madagascar.
We believe Gulf makes for a compelling story and as such warrants further research for potential coverage in the future, which we will be working towards. Vermiculite demand for coarse grained vermiculite is at unprecedented levels and with coarse grained material becoming increasingly scarce, we believe Gulf has the ability to become a serious player in the industry. There is also great potential for the larger intrusive complex to host a base metal deposit such as the copper mine hosted in the Palabora intrusive complex. Gulf has a strong management team with the ability to drive a dynamic and growing company going forward.
Recent News - New Mining Licence & Exploration Plan at Namekara
Gulf announced on the 15th Apr?11 that it had increased its Namekara mining lease in central-eastern Uganda to incorporate a larger part of the carbonatite intrusive complex that hosts its Namekara vermiculite mine.
The larger mining lease area (Fig. 2) covers most of the carbonatite intrusion that hosts the Namekara vermiculite deposit. Carbonatites are complex intrusive bodies that can host a variety of industrial mineral and base metal deposits. The ground recently taken up by the Company holds a previously operating phosphate mine as well as a prospective iron ore deposit. There is also great potential for the larger intrusive complex to host a base metal deposit such as the copper mine hosted in the Palabora intrusive complex. The Namekara mining lease area now covers 19.5km2 of ground across the Namekara intrusive complex.
Gulf has outlined an exploration programme for both the previously held ground and the newly acquired exploration licence. The Company plans to drill 8,000m this year, starting this quarter (Q2?11), and aims to drill a further 14,000m next year.
The Namekara Mine ? Already In Production
Gulf recently brought the Namekara mine back into production after acquiring it from Rio Tinto during the economic crisis in May?09. At that time Rio Tinto was selling assets to meet debt obligations. The deposit has a resource of 55Mt grading 26.7% vermiculite above the 180?m crystal size fraction and 18.8% above the 425?m fraction, the larger crystal size. The greater the size of the vermiculite crystals, the greater the scope of uses and therefore it receives a higher price in the market. The company is currently selling its high grade product at above $300/ton. Gulf sells its entire vermiculite production to UK-based Dupr? Minerals Limited under a 25-year agreement based on market price terms.
Currently the mine is in an early stage of production with a capacity of 30kt of vermiculite per annum. Gulf?s intention is to increase production to over 130ktpa. This can be achieved through gradual modular increases to the plant?s capacity.
Vermiculite Market ? Impending Deficit
South Africa, specifically Rio Tinto?s Palabora mine, produces the lion?s share of vermiculite that is consumed by the market. Not only is Palabora?s product of a lower standard than the product produced at Namekara (i.e. smaller crystal size), but it is also struggling to maintain a resource replenishment rate to support a longer mine life. Earlier this week a spokesman for Rio Tinto?s Palabora vermiculite operation commented that demand for coarse grained vermiculite is at unprecedented levels and that coarse grained material is becoming increasingly scarce.
Ocean Comment
The new licence area adds to the ground that Gulf already owns in the highly prospective carbonatite intrusive complex which is analogous to Rio Tinto?s Palabora deposit that has supported the copper-vermiculite-phosphate mining complex for generations.
Whilst the vermiculite market is a small and obscure one (approximately 550kt is consumed each year) demand for the product is increasing, especially for the higher quality product such as produced by the Namekara mine. Once production is ramped up to ~100ktpa, costs are expected to fall below the US$150/ton level which would give the mine a healthy margin in a stable market with significant growth prospects. Our view is that the vermiculite market is subject to the same constraints that have lifted copper prices, say; essentially the world?s resources of high grade vermiculite are dwindling. Thus Gulf presents an opportunity to gain exposure to a growing a relatively low risk market as Gulf produces the scarce, higher quality vermiculite product.
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