Bazza doesn't pick losers (most of the time ;-). He's got this...

Bazza doesn't pick losers (most of the time ;-). He's got this one right!

Cdchi1

Dominion more than a one-mine miner
By Barry Fitzgerald
GARIMPEIRO
October 24, 2005

SEPTEMBER-QUARTER reporting season for the miners has got off to a miserable start, with far too many of them causing share-price heartache for shareholders.

Newcrest and Perseverance were among those that got beaten up last week for failing to meet their production targets. They shed 16 per cent and 20 per cent of their value respectively.

But among the disappointments there was some joy. Dominion Mining was one that did shine, with the rerating of the stock on the back of the strong performance of its Challenger goldmine in South Australia's Gawler Craton now well under way.

It was the discovery of the Challenger deposit, using a calcrete sampling method, that triggered the now long forgotten Gawler gold-exploration boomlet of the mid-1990s.

To date at least, Challenger is all that has come of the boomlet. Not that the market cared all that much while operations at the remote mine site were focused on open-cut ore positions.

The recent switch to the mining of higher grade/underground ore has changed all that, with Dominion's release last week of its production report for the September quarter confirming that the transition from open-cut to underground operations at Challenger had gone off a treat.

Gold production for the period was 23,847 ounces at a cash cost of $A311 an ounce from the mining of 94,974 tonnes of ore grading 8.31 grams of gold a tonne. That compares with the 7624 ounces in the previous corresponding period at a cash operating cost of $A496 an ounce.

What's more, Dominion has been able to upgrade its production forecast for 2005-06 to more than 90,000 ounces at a cash operating cost of $A330 an ounce, which will give it the sort of margin that goldmines are supposed to generate.

But as sweet as it is, Challenger is not without its … er … challenges. Mine life has been extended out to mid-2008 at the upgraded production rate after gold reserves were increased by 77 per cent to 298,400 ounces. Mid-2008 is still too close.

The saving grace there is that the reserve position is based primarily on the M1 lode alone. The M1 has yet to be fully tested at depth and the M2 and M3 lodes — they account for only 6 per cent of the current reserve base — are in their infancy in terms of being tested.

So on the assumption that Challenger will continue to be something of golden cash cow for Dominion well beyond mid-2008, the current market capitalisation of $56 million (57¢ a share on Friday) could be on the thin side of things.

At the end of September, Dominion was holding cash and bullion of $8.01 million. About $4.5 million was left under the the group's ANZ facility, which will be gone by June.

Add that net-cash position to the cash being generated by Challenger, and Dominion clearly has the firepower to become more than a one-mine miner. The group's exploration portfolio could well provide the next growth option.

But you have also got to wonder if it might be better to speed the whole process up by making an acquisition, if not at the corporate level then at the asset level. Asset-level opportunities will be popping everywhere should the current equity market weakness become extended.