August 25, 2009
Citadel Resources Invites Comparisons With Early Oxiana, As It Moves Towards A Development Decision In Saudi Arabia.
By Our Man in Oz / www.minesite.com
A decade ago, though it seems like yesterday, Minesite’s Man in Oz was one of the few outside observers who got excited about the Sepon copper and gold discovery in the gentle hills of southern Laos. In time, and thanks to China’s appetite for both metals, Sepon became the key to the rise of Oxiana Resources, one of Australia’s most successful mid-tier miners. It took an ill-fated merger and adventure in zinc to kill Oxiana, which has been restructured into OZ Minerals. But it’s the good memories of Oxiana which flood back every time Minesite’s Man gets a glimpse of Citadel Resources, a copper and gold play which is travelling on a similar road to Oxiana, albeit in a different country.
Swap Saudi Arabia for Laos, but leave virtually everything else intact, and you could have a company called Son of Oxiana though, given that Citadel is run by a woman it might be best to say: Daughter of Oxiana. Ines Scotland is the Citadel boss, and a onetime protégé of Owen Hegarty, the man who crafted the original Oxiana. Like Owen, Ines understands the delicacy of working in a country with a limited history of hard-rock mining, and where government is different to anything seen in the western world. While Hegarty had a curiously benign bunch of communists to deal with, Scotland has an Islamic Kingdom. But, after that, the similarities clear. Both companies based themselves around a large copper and gold resource base in the context of rising commodity prices in the face of a global economic recovery.
Over the past month more people have been discovering Citadel, as has been clear from its rising share price. Having traded at around A19 cents in mid July, the stock jumped this week to a 12 month high of A34 cents. The renewed interest comes after a series of developments that seem to indicate that Citadel is nearing a commitment to development at its 50 per cent owned Jabal Sayid copper-gold project. The first recent move in that direction came in the potent form of a strategic partnership, a share placement, and a copper concentrate sales agreement, all with the Transamine commodity trading house. Five days later came the award of a joint financing mandate to a Saudi and a German bank. Following soon will be announcements relating to the completion of design work and the definitive feasibility study, steps which could trigger an additional share price re-rating.
“We are making good progress on the project”, said Ines during a telephone chat from her office in Melbourne. “Engineering design is close to 90 per cent complete and we’ve issued packages of information for equipment, contracting, and pricing for the definitive feasibility study.” As currently planned, Jabal Sayid will produce around 60,000 tonnes of copper in concentrate and 15,000 ounces of gold a year from an underground mine with an annual output of three million tonnes of ore. The estimated capital cost was US$250 million and this, Ines told Minesite, remains the target number after receipt of initial equipment and contracting cost estimates.
Citadel’s forecast for production costs remains US94 cents per pound of copper over the life of the mine, though outside observers such as the investment bank Goldman Sachs are using US$1.17 per pound. Despite this difference of opinion on costs Goldman is a believer in the “daughter of Oxiana” theory. “Citadel is following a similar route to Oxiana and Pan Aust with an initial gold starter project whilst the larger copper project is developed”, it said, adding that if there is risk in Citadel it lies in the focus on a single, large, underground development, and the need to finalise financing there. This is likely to include a big equity component. But, having noted the risks Goldman also pointed out the attractions, including: “a very desirable exploration package, and first mover advantage in Saudi Arabia”.
Striking the copper concentrate sales agreement with Transamine and mandating WestLB and Riyad Bank to organise financing for Jabal Sayid were the latest in a series of steps for Citadel which will lead to the completion of the definitive feasibility study, and to a start on full-scale project development. The Transamine deal will see the injection of A$25 million in fresh capital via a placement of 72.6 million shares at a price of A34 cents. The sales agreement provides for the delivery of 50,000 tonnes of copper concentrate a year for at least five years starting in 2011, a tonnage equivalent to roughly 21 per cent of annual production.
“The off-take agreement, even if a relatively small share of our forecast output is an important step for the project”, Ines said. “The market likes to see deals like that because all that we’re going to make is a concentrate, and the outside world can now see that our product meets the specifications of a major mineral trader. It’s a tick in the right box.” More ticks in more boxes can be expected over the next few months. Ines lists a series of objectives. “We have project boxes to tick and corporate boxes”, she said. “From a corporate view we’re keen to get the formal grant of the mining licence from the government, which is something we would like sooner rather than later, and that is a major focus for the current quarter. Other steps include the mandating of the banks, finalising the technical work and mining reserve. Mine design work is underway, and we’ve started some of the detailed engineering.”
If there is a possible change ahead for Jabal Sayid it’s the potential for a delay in mining a “gold cap” which sits atop the copper orebody. “We’re still keen to do that, but there is a timing issue”, Ines said. “We had hoped to get the mining licence granted about a month ago, which would give us time to get the gold project working before shifting to the copper project. For us, the early gold phase is connected to the grant of the mining licence and how much time we will have. It’s a question we review on a daily basis. We continue to do some work on the gold project. We’ve bulldozed the side of the hill, done a bit of infill drilling, and completed test work. But, one thing we have decided is that we won’t do it if we put the copper project at risk, because that’s 99 per cent of the value of the company.”
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