Mercator Gold Embarks On A New Life, With Established Cash Flow And A Potential New Mine In New Mexico.
By Charles Wyatt / www.minesite.com
It is good to see that miners, unlike politicians, have no qualms about making an apology when things have gone wrong. Patrick Harford set a good example while talking about Mercator Gold to Minews in London last week. There were five main reasons, he said, why the Meekatharra operations did not come into production successfully. Firstly, money to fund underground development was raised by way of loan rather than through an equity placing; secondly, mining plans had to be reassessed at two pits due to lower than expected grades and rising costs; thirdly, a hedging position suffered a margin call on which Mercator was unable to deliver; fourthly, sufficient stockpiles of ore were not built up to ensure that when the mill came into operation it hit the ground running.
Finally, and this was a major blow, mining at the Surprise pit had to be suspended in September last year when it was found to be too close for comfort to the Great Northern Highway – the route that connects north and south Australia. You cannot move a road like that overnight and any realignment would cost a bomb. The vultures were gathering. All this, mind you, at a time when the stock market was in complete turmoil. So the company’s shares ended up suspended in October last year after the operating subsidiary had been put into voluntary administration. But at least by keeping a hand on the tiller at this stage Patrick ensured that he and chairman Michael Silva had at least six months to sort the company out. And this is what they have done.
First, last year they had acquired a 70 per cent interest in ACS Asia (1996) and this turned out to be the lifeboat for the company. It is a Thai company with rights to manufacture and sell within South East Asia the world renowned Unistrut brand of metal construction products. At the time they judged that it had plenty of potential to expand and that it would win several contracts from multinationals. This is proving to be the case and in the six months ended 31st March ACS Asia made a net profit of around US$400,000 on sales of US$2.7 million. Positive cash flow is manna from heaven to a company in Mercator’s position, and in the year to end 31st September turnover is expected to rise to between US$7 million and US$8 million. An engineering company is not first choice for a mining company, but for the moment Mercator will stick with it. Earnings before tax and interest are running out at 10 per cent of revenue, so next year Patrick reckons that earnings will top US$1 million. And at that time thought may be given to selling the ACS Asia stake, or listing it on the Thai Stock Exchange and retaining an interest.
Meanwhile, another small investment which should come good is an alluvial gold project in Papua New Guinea, for which a key licence was granted earlier this year. Mercator’s current interest is a 50 per cent stake in a joint venture on this project with a local company, PT Madinah Qurrata’ain. The plan is to mine around eight million tonnes of gold-bearing gravels, and production is expected to start before the end of the year, as all the kit is on site.
Mercator has loaned £170,000 to the project operator, and this should be repaid in September. But at the end of July , Patrick Harford announced that its stake in the gold project was being sold to a company to be called Paniai Gold which will list on the National Stock Exchange in Australia. The company is just about to raise A$500,000 in IPO funding and should then raise another A$2 milion when listing. At the end of all that it is expected to have a market capitalisation of A$10 million, and Mercator will have a 17 per cent stake. The project will be managed by Trevor Neal, an old campaigner in alluvial projects in that region. He’ll have his own stake in Paniai Gold.
Not bad, and there is more. Mercator also has 10 million shares and four million performance shares in an ASX listed company called Silver Swan which are currently worth A$2.7 million, so the company can certainly keep its head above water. ----------------------------------------------------------------------------------------------------------------- London - 22 June 2009: Mercator Gold plc is pleased to draw attention to the exploration update released on 18 June 2009 by Silver Swan Group ("Silver Swan"), which is listed on the Australian Stock Exchange ("ASX") with the ticker SWN. Mercator holds ten million ordinary shares in Silver Swan following the sale to Silver Swan of certain of Mercator's non-core exploration leases near Meekatharra in Western Australia (see announcement dated 20 February 2008). Mercator also holds four million performance shares in Silver Swan, which will convert to fully-paid ordinary shares subject to certain terms and conditions, the most notable of which is the proving up by Silver Swan of 350,000 ounces of gold or gold equivalent in the indicated resource category on the leases sold to it by Mercator. ----------------------------------------------------------------------------------------------------------------- But Messrs Harford and Silva are not just content with that, they want to see shareholders in Mercator get a proper reward for their patience. A further acquisition has been announced recently and this will take the company into New Mexico if it exercises its exclusive option over a promising-looking copper-moly- gold silver deposit called Copper Flat.
This deposit has significant infrastructure in place so can be brought into production quite quickly, and at low cost. The historic reserves amount to 45.5 million tonnes grading 0.45% copper, 0.015% moly, 0.15 grammes per tonne gold and 2.2 5 grammes per tonne silver, at a cut-off grade of 0.23% copper. That adds up to 203,000 tonnes of copper, 6,600 tones of molybdenum, 223,900 ounces of gold and 3.3 million ounces of silver. The Copper Flat deposit was mined in the past, so plenty is known about the metallurgy, and it can be mined by open pit.
The plan is to treat up to six million tonnes per year to produce between 13,000 and 20,000 tonnes of copper, with the concentrate trucked to a nearby smelter or the railhead. The deal is not done until it is done, but Patrick Harford is confident that this operation will be the main plank of the new Mercator. Speaking of which he has a problem over the name as it will not be a gold company and there is already a North American company called Mercator Minerals operating in the vicinity.
Minews suggested “Phoenix” to denote that Mercator has arisen from the ashes. Patrick did not seem overwhelmed by the idea, but he has certainly done a good job in bringing it back to life. The next step will be to refinance Mercator Gold Australia and list it on the ASX, but with the progress that has been made already a bit of time can be taken over this.
SWN Price at posting:
35.0¢ Sentiment: None Disclosure: Not Held
