in deed Thor Mining is my only resources stock right now. Since I trust in the Northery Territory Mining ministry (and Hardman Report)
source Hardman:
Australian molybdenum specialist Thor Mining has secured a rig and is due to start drilling out a possible extension to its Molyhil orebody probably within a week. Molyhil is in the Australian Northern Territory near Alice Springs. It has 2.2m tonnes of confirmed reserves and a completed engineering review, with average grades around half as high again as most other new molybdenum prospects around the world. There will be considerable additional revenues from tungsten and magnetite, in fact at current metal prices the tungsten is the most valuable part of the resource. The excitement here is the possibility of this medium sized deposit being transformed into a large one. The molybdenum price has come back from $30/lb to $10/lb in the last three months, but underlying demand is still strong because the latest gas and oil pipes are using four times the proportion of Mo to steel as was common even four years ago. The managerial changes announced last summer have been reinforced, with chairman Mick Billing taking the new title Executive Chairman, and new arrival Ian Sheffield-Parker appointed Chief Executive Officer with overall responsibility for business operations but not being a member of the board. Our meetings with management strongly suggest to us that Thor will be one of the survivors of the current crisis. Thor had £1.3m cash in its balance sheet at end-June 2008. The issue of 22m additional shares at 1p earlier this week boosts finances by £0.2m and will pay for the current drilling programme. In due course we expect either a buy-in to the project by a third party or a further share issue to provide additional liquidity. In this credit crisis, cash is king. Share Price: 1.125p Q1-2008 Q2-2008 Q3-2008 Q4-2008 Source: Fidessa 08 9 THR THOR MINING ORD 0.3P .UKX rebased to THR 12m High: 8p 12m Low: 0.5p Market Cap: £2m undiluted, £3m diluted Shares in Issue: 171.47m + 79.07m options NAV/Share: 5p Gearing: Nil Interest Cover: n.a. EPIC Code: THR Sector: Mining & Exploration Market: London AIM Broker: Blomfield Corporate Finance +44(0)20 7429 4500 PR : - Website: www.thormining.com Description: Thor Mining is an Australian based junior exploration company with a medium size, good grade Molybdenum/tungsten/magnetite property, and some interesting uranium prospects. Analyst: Roger Hardman Tel: +44 (0)20 7929 3399 Email: [email protected] Y/E Group Sales Declared Profit Adjusted Profit Adjusted EPS P/E ratio Divi Yield June £m £m £m p. p. % 2007A 0 -1.4 -1.4 -1.27 - 0 0 2008A 0 -1.1 -1.1 -0.76 - 0 0 2009E No Estimates 2010E Leaders in Corporate Research Thor Mining 23 January 2009 Hardman & Co. Leaders in Corporate Research 2 Tel: +44(0)20 7929 3399 www.hardmanandco.com Further Drilling at Molyhil The planned drilling at Molyhil is on an extension to the property that has not been drilled previously. Seismic work has been undertaken, and following this, Thor Mining has decided to invest A$0.25m in the drilling. Thor is planning 2,300m of drilling on this and other properties during the current financial year. The key Molyhil orebody has been well enough drilled out to give a reliable picture of the gross value of the minerals in the ground. During 2008, 73% of what were previously categorised as Measured and Indicated resource tonnages were converted to Reserve Status. The statistics are as follows: Tonnes Grade WO3 Grade MoS2 Proven 461,000 0.47% 0.30% Probable 1,750,000 0.47% 0.19% Total 2,210,000 0.47% 0.21% Current price of metal US$ US$210/mtu ($9.50/lb) US$10.00/lb Contained Metal Underground 1,050,000 mtu 6,100,000 lb Value in Ground US$ US$220m US$61m Value in Ground UK£ UK£159m UK£44m Recoverable Metal 700,000 mtu 4,800,000 lb Value Recoverable US$ US$147m US$48m Value Recoverable UK£ UK£106m UK£35m Recently Thor’s management has moved from quoting just the recoverable metal tonnages as indicated in independent engineering reports to also quoting the contained metal underground. This is because work on recovery processes will be ongoing, and the ‘recoverable metal’ numbers should really be a minimum. In our opinion, Thor is right to now be stressing the two separate numbers, and the higher value that the ‘contained metal in ground’ figure gives. There will be two processes, and the molybdenum will be removed first. It should be noted that at current prices the majority of the value is in the tungsten. We do not expect metal prices – and the price of molybdenum in particular – to remain at this level however. The grades here are satisfactory. Most new molybdenum prospects are grading 0.15% or less. As far as tungsten is concerned, an interesting benchmark is the Barruecopardo project in Salamanca, Spain, owned by Ormonde Mining (London AIM, ORM, 4.375p, market cap UK£11m). At a 0.25% cut-off that is grading 0.48%, which is almost identical to the Molyhill grade. Barruecopardo is more than twice the size of Molyhil and will gain from both economies of scale and lower transport costs. Nevertheless, Barruecopardo is a single mineral mine, while Thor also has its molybdenum and magnetite. North American Tungsten (TSX-V NTC, 16c, market cap CAN$20m), the key benchmark in the Tungsten marketplace, boasts 8.2m tonnes Indicated Resource at 1.36% with a 1% cut-off and a further 1.6m tonnes at 1.2%. At present it accounts for 4% of world production, rising to 8% over the next three years. Molyhil, therefore, would not be world class as a stand-alone tungsten deposit, but once again it also has molybdenum and magnetite, and NTC’s Yukon resource is pretty special. Magnetite at Molyhil The presence of Magnetite at Molyhil could be an important swing factor economically, especially if the price of Molybdenum stays at its current, historically very low level. The value of the magnetite depends to some extent upon which one of the three possible production processes is chosen. For fuller information on this, see our research note dated 11 August 2008. The problem with commercial exploitation of magnetite is extracting it without reducing the yield of molybdenum. “The magnetite could be an important swing factor financially” Leaders in Corporate Research Thor Mining 23 January 2009 Hardman & Co. Leaders in Corporate Research 3 Tel: +44(0)20 7929 3399 www.hardmanandco.com However, assuming that this can be accomplished, the economics look interesting. There is possibly 20,000 tonnes of recoverable Magnetite of coal washing grade, either in Australia or Japan. Magnetite needs to be <75 microns in order to qualify as coal washing grade. There is a further 35,000 tonnes of the less valuable grade that is taken by the steel industry, which uses it for briquettes in blast furnaces. Whether the steel grade magnetite would be economic in the current economic environment is questionable, because transport costs will be high and this is a low value product. Putting a value on the Magnetite is not easy with the world economy in a state of flux, but taking prices ruling last summer the in-ground value of this was c. US$10m. The seismic undertaken at the Molyhil extension has a signature that suggests magnetite is almost certainly present here as well. Drilling Elsewhere Thor is hoping to drill its Hatches Creek tungsten-copper-gold prospect before the end of its current financial year. The exploration licences here cover 63km2 and are on aboriginal land. Mining took place on this land from 1913 to 1957. A rock chip and mapping programme was undertaken in May 2008, and 174 rock chip samples taken over old workings and from abandoned stockpiles. The average tungsten grade returned was 2.19% with strong Copper Gold and Bi associations. One group of samples also returned Molybdenum assays peaking at 1.98%. These are astonishingly high grades. Metal Prices The molybdenum price withstood the shake-out in commodity prices pretty well, until November 2008 when the price collapsed to a third of its previous level in the space of a month. The Chilean state mining company Codelco and the US firm Climax (part of Freeport McMoRan) between them produce a third of the world’s molybdenum. The attitude of Chile, and the Chinese metallurgical industry which accounts for 10% of world demand, are the primary determinants of the price. At the current molybdenum price of c. US$10/lb we doubt that any new molybdenum mine development would make sense unless it were allied with some other metal (such as, in the case of Thor Mining, tungsten). At the current price the world’s largest Molybdenum-only mine, the Henderson, owned by Climax in Colorado, will probably run out of economically mineable ore in 2011 – 12. “Some samples from Hatches Creek show astonishingly high grades” “The attitude of Chile, and the Chinese metallurgical industry is important” Leaders in Corporate Research Thor Mining 23 January 2009 Hardman & Co. Leaders in Corporate Research 4 Tel: +44(0)20 7929 3399 www.hardmanandco.com Metal Bulletin The tungsten price was one of the most stable of the metal prices during the 2008 economic hiatus. Its price quadrupled between 2002 and 2005, and since then has shown little movement. The dip in price in December 2008 shown above is less dramatic than it appears because of the scale of the chart. 85% of the world’s Tungsten is produced by China, which has tight export quotas and bans foreign interests from investing in its Tungsten deposits. Management We welcome the decision by chairman Mick Billing to spend sufficient time at Thor Mining in future for him to upgrade his title to Executive Chairman. At this time, many other junior mining companies have gone into hibernation; some have already failed and many others will follow them. Billing’s move rather suggests that Thor will be one of the successes to come out of the last mining boom. We are also pleased by the arrival last Autumn of Ian Sheffield-Parker and his subsequent promotion to Chief Executive (without a board seat). John Young, the driving force behind the company in its early stages, remains on the board. Finances A modest share issue in January 2009 raised £0.2m. 22m shares were issued at 1p each. 15m of these shares were subscribed for by City Equities, which becomes an 8.75% shareholder, and 6m shares by Wills & Co. stockbrokers, which becomes a 3.5% shareholder. The mid-price of the shares immediately before the issue was 1.5p, and the discount at which the issue took place was fair, especially bearing in mind the current financial environment. Both City Equities and Wills are likely to place the shares with their private investor clients during the coming weeks. At end-June 2008 the company had cash of UK£1.3m. Expenses have been very much reduced during the current financial year in order to reduce the cash burn, and the bank balance is being helped by the sale of a surplus crusher for $A0.5m. Thor will need to either raise additional equity capital or negotiate a farm-in on Molyhil sometime during the next financial year. 85% of the world’s tungsten is produced by China Billing’s move suggests that Thor will be one of the successes of the last mining boom Leaders in Corporate Research Thor Mining 23 January 2009 Hardman & Co. Leaders in Corporate Research 5 Tel: +44(0)20 7929 3399 www.hardmanandco.com Development of Molyhil Three months ago, management estimated that it would probably cost in the region of $A60m to develop Molyhil to the point of production. Since then, Ian Sheffield Parker has joined the company with a brief to hammer down the costs involved, and the weakening of the Australian economy has resulted in mining contractors locally cutting their prices from the previous inflated levels. Development will almost certainly take place in partnership with either the end user of the material or a larger organisation. Thor already has an offtake agreement for Molyhil with the Australian subsidiary of CITIC, the Chinese state company. Mick Billing’s other quoted company, Western Desert Resources (WDR.AX, 6.5c. Cap AU$5m), has already chosen this route for its Roper Bar iron ore project with Itochu of Japan, and so has the Vancouver based Molybdenum junior Nanika (TSX-V: NKA. 3.0c., Cap CAN$3m). On the current delineated reserves, the mine would probably have a life of either 3 ½ or 5 ½ years; management has two mine development options and has yet to make a final choice. The development will be open pit. If the extension drilling proves successful, then the mine life will be longer, and if Molybdenum and Tungsten prices recover to their 2006-2008 levels as well then theoretically Molyhil could conceivably have a productive life of 15 years or more. Conclusion Thor Mining is making good progress and we are pleased with the company. Both Molybdenum and Tungsten have a great future ahead of them medium term. Thor Mining is playing into a very promising market. The shares are in effect option money.
THR Price at posting:
1.4¢ Sentiment: ST Buy Disclosure: Held
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