junior marengo shows mettle in png copper play

Junior Marengo shows mettle in PNG copper play
FOR seven years Les Emery has been "chief cook and bottlewasher" at Marengo Mining as he readies its $2 billion copper project in Papua New Guinea for development, and his hard work is finally about to pay off.

The Marengo Mining chief executive went to PNG 7 1/2 years ago to buy the Yandera copper-gold-molybdenum project for $7.5 million, at a time when copper hadn't yet gained its shine.

"It was a good deal and was a counter-cyclical purchase at the time . . . that's the best time to do deals," he says.

Emery has been involved in three start-up operations, from discovery to production, and while he cut his teeth on gold over the years, he is happy to be in copper now.

Commodity markets may be shaky but the outlook on copper is strong and, with connections to China, Emery is not worried about talk of the economic powerhouse slowing.

"The Chinese want to acquire feedstock from non-aligned companies," he says
"Iron ore monopolies have been formed around the world and the Chinese want to vertically integrate with independent mining companies, such as Marengo, who will do a deal over a long term, set prices and agree on sliding scale prices relative to market. That scene really works for us."

The project, which is 95km southwest of Madang, is of national interest to the PNG government and Emery says the company benefits from a high profile in the country.

"Because of the scale of the project, and other projects in the region being shelved, the PNG government sees Yandera as being part of their economic plans . . . from the Prime Minister down, we are well regarded," he says.

A feasibility study into the $2bn development that would produce 80,000 tonnes of copper (in concentrates) is scheduled for release this month and it is expected to confirm robust economics.

"We have sunk hundreds of millions into it, which was equity funded from loyal investors. That is quite a task for a junior and we have done the sort of job at the same level a major would; we haven't cut corners."

The company has been working hard on securing funding for the project and it is expected to update the market on that at the end of the year. China has been the focus as a potential financing source.

Chinese state-owned construction, smelting and mining group China Nonferrous will come back to the company in December with its engineering, procurement and construction agreement under which it will tap Chinese funding sources for 70 per cent of Yandera's capital cost in return for a supply agreement covering 60 per cent of its production.
Emery said that in early 2010, after the global financial crisis, the company started looking for potential funding options, knowing it would be a tough project to develop if the junior could not secure financing.

"We had two options. There was the creative way of doing it, or the easy solution for a junior is to bring in a big brother," he says.

"My approach was that giving control of this asset to a major would then mean all we do is become inventory for them. But if we had the guts to hang in there and control the play, that is the way to add value."

Fortunately, the company was able to do just that and has now passed the point of needing a

"big brother".

In mid-2010 Emery was introduced to China Nonferrous and the talks between the two companies advanced rapidly, which was generally unusual for China, Emery said.

Canadian-based analyst Aleksandra Bukacheva from Fraser Mackenzie said the combination of management expertise coupled with the effort invested to line up substantial project financing and construction services for Yandera placed Marengo Mining in a superior position to a number of its peers that lacked clear development paths and financing plans for their assets.

As part of its strategy ahead of becoming a producer, Marengo is planning to move its base to Canada, where it is listed on the Toronto Stock Exchange. Emery said North American investors strongly supported the PNG region and the Yandera story.

He said when he bought the asset in 2005 the Australian market failed to support the company, with the general reaction that "PNG is a basket case and the last place they'll invest".

"Through some contacts in Canada I investigated the feeling over there . . . of the $150m we have raised until July, we raised around $120m of that through the North American market," Emery said.
"That's a good confirmation that's where we should be. The amount of money we need to raise to build the project is significant. We need to dress ourselves up and make ourselves as attractive as possible, so we don't lock out any option of financing.

"In all the time I've walked the streets of North America I rarely get asked about sovereign risk in PNG, corruption, the ability to do business, but as soon as I talk to an Australian investor, the first thing I get asked is, it must be unsafe up there -- how do you get around?"

Australian investors might not quite get the story but billionaire financier George Soros does and his belief in its happy ending has prompted him to take about a 16 per cent stake in the junior.

Marengo added to its team of expertise last month, appointing experienced international mining executive Louis Gignac to its board as a non-executive director and chairman-elect.

"Louis is highly regarded, with a good track record and, as a mining engineer, his job has been building mines," Emery says.

"He has some good wins under his belt . . . we are building a powerful little team."

As with all juniors, Emery complains that the company's market capitalisation is well below where it should be, which he says is because of the scepticism in the Australian market about the region and the project.

"There is this sense that we won't be able to pull this off, but my attitude to that is, you just wait and see, guys," he says.

"That credibility gap will close very quickly, probably in the next six months, then things will move quickly."

http://www.theaustralian.com.au/business/mining-energy/junior-marengo-shows-mettle-in-png-copper-play/story-e6frg9df-1226504910222

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