GOLD, page-4

GOLD
The Prospector
By Peter Gibson
Junior player goes for gold

Not too many years ago, Western Australia hosted a vibrant junior gold mining industry that built small mines based on near-surface oxide deposits using gold loan financing. Small companies were the basis of the entrepreneurial Australian gold sector. Today, this part of the industry is all but dead. Native title, low gold prices (at least in US dollars) and a lack of investor interest have removed much of the incentive to build small projects.

It is therefore exciting news for the industry when a junior company launches a new development. Gindalbie Gold (GBG) owns 100 per cent of the Minjar gold project, located 350 kilometres north-east of Perth. The mine is on track to pour its first metal in December this year. The project will produce at least 140,000 ounces of gold over an initial two-and-a-half-year mine life. The company forecasts an operating surplus of $22 million from these initial deposits, which translates into roughly 14 cents per share of value to the share price.

Construction is being financed with a $7.5 million facility from Macquarie Bank, and debt repayment is protected by 90,000 ounces of hedging at $510 per ounce.

The real story with Minjar is its regional exploration potential. Many small mines in Western Australia were commissioned with short mine lives and an expectation that exploration would add to the reserve base. Minjar has a swag of potential orebodies that look like adding at least another two years to the initial mine life.

Gindalbie also has a 51 per cent stake in the Mt Mulgine tungsten property, located just 40 kilometres south of Minjar. Tungsten is primarily used in light-globe filaments and to harden steel. The global market is small and until six months ago, ample Chinese production - 85 per cent of all supply - ensured prices were low. Earlier this year, China announced it would close many smaller mines. The spot price of the metal has since doubled and some western consumers are seeking new sources in politically stable countries.

Mt Mulgine is Australia's largest tungsten resource and although low-grade, it could be economic if developed as a bulk open-pit mining operation. The GBG share price has edged higher in the last three months. Once Minjar is fully commissioned and producing cashflow, investors may start to focus on the exploration upside and push the price to more than 20 cents.