September 01, 2009Marengo Is Cashed Up And Ready To Go: The...

September 01, 2009

Marengo Is Cashed Up And Ready To Go: The Feasibility On The Yandera Copper-Moly Project Is Now Fully Funded To Completion.

By Alastair Ford / www.minesite.com

Ask Les Emery what he’s going to do with the A$16.3 million he’s just raised in Canada and Australia for Marengo Mining, and you get a succinct and clear answer: “Drill holes”. As Marengo’s managing director he’s certainly in a position to decide, but the simplicity of that response belies his 35 years in the mining industry.

Marengo’s ongoing feasibility study at its Yandera copper-moly-gold project in Papua New Guinea has about 15 months to run, and much of the drilling that Les refers to will go towards proving that the 1.3 billion tonne resource there can be worked up into an economic proposition. At the most recent resource update, Marengo booked an indicated resource of 527 million tonnes at 0.38% copper equivalent, and an inferred resource of 766 million tonnes at 0.33%.

Shame that the copper price was on its knees when that resource was first released to market, but not such a shame now that copper is back on its uppers. You might not have credited it at the beginning of the year, but summer 2009 wasn’t such a bad time to be out looking for new money for a sizeable copper-molybdenum project. Sentiment took a little while to turn, according to Les. He’s perhaps got more of a feel for the global picture than most, since while Marengo’s base is in Australia, it also has a listing and raises much of its money in Canada.

On his way between the two, Les also passes through London, where he allows himself to catch up with old friends like Minesite, and to gauge the mood of the third great mining capital market. Les’s assessment of recent history will be familiar to many in the market, though, whichever continent they are on. In April and early May, when he undertook his initial scouting mission to Canada ahead of the current raise, the outlook was still quite bleak, he says.

By June, when he came round again to select a broker, the situation was, he reports, “a little better”. And by July the crucial factor was that copper had gone through US$2.00 per pound. That put smiles on a lot of faces and eventually dollars in Marengo’s pockets too.

Copper at US$2.00 is a boon for Marengo, because as far as current modeling for Yandera goes, the base case operation runs at US$1.50. And US$2.00 is, says Les, “our optimistic case”. So it can’t have done any harm that on 31st August, the day the company closed off the Canadian side of its fundraising, and announced that major investor Sentient Group had increased its stake to 26.7 per cent, copper was trading at just shy of US$2.85.

Some investors, says Les, have worried about the levels of dilution that this latest raise implies. These investors may not be any happier if drill results on the company’s new up and coming prospect at Kombruku, which lies just four kilometers away from the Yandera development, come up trumps. In that eventuality, Les may look to raise even more money to accelerate drilling.

But, although dilution’s no fun for anyone, Les has clearly thought it through, and come up with what, to coin a famous Churchillian phrase, is the “least worst option”. As he sees it there are three choices: (1) raise money through an equity offering, (2) raise funds through a farm out deal, or, (3) do nothing.

Obviously the third isn’t attractive to anyone, but the key point in differentiating between the first two to Les’s way of thinking is that Marengo stays in control of what happens at Yandera. “I would prefer to see the company retain the asset for as long as possible”, he says. With the money that’s just coming in there’s more than enough to see Yandera through to the completion of the feasibility study, and to explore the upside that appears to be on offer at Kombruku. “My approach has always been to have enough cash so that we’re never constrained”, says Les.

When it comes to pouring concrete and getting the thing built then the company may have to reconsider its options. Debt will no doubt be part of the equation at that stage. But there’s a fourth option too, one that’s largely outside of Les’s control, and that’s that some predator will suddenly catch the scent of a really huge project developing at Yandera and launch a takeover bid.

The amount of prospective ground that Marengo has under licence but that it can’t, yet, afford to properly explore, might lead an acquisitive larger miner to hope that proper camp in the Canadian sense might one day spread itself right across the Yandera licence.

Quite rightly, though, Les parries such suggestions. “It’s not something I dwell on”, he says, and in a nice display of corporate speak before we get on to discussing the cricket, he adds, “my job is at all times to build value into the company”. With Marengo now fully cashed up and ready to go, and sailing into a benign copper environment, there doesn’t seem to be much standing in his way.