October 10, 2012Marengo Gets A Canadian Lift As The Feasibility...

October 10, 2012
Marengo Gets A Canadian Lift As The Feasibility Study At Yandera Nears Completion
By Our Man in Oz
When the share price of a company jumps by 60 per cent in three days it’s a reasonable assumption that something significant has happened and that the daily media will report the event. 

Camp at Yandera
Not so in the case of Marengo Mining, shares in which rocketed from A10 cents to A16 cents between Monday 3rd October and Wednesday 5th, earning a “speeding” ticket from the Australian stock exchange. 
 
Even so, barely a word reached the outside world, leaving observers of the sharp price rise wondering what really happened.
 
One possibility is that Canadian investment funds, governed by covenants which limit them to home-grown companies, discovered that Marengo has now obtained new citizenship, having swapped its Australian nationality for Canadian. 
 
Another is that investors suddenly recognised that Marengo will finalise its long-running feasibility study at its flagship Yandera copper project in Papua New Guinea by the end of the month. 
 
A third reason is that Marengo’s chief executive, Les Emery, fired up a room full of geriatric speculators at a conference on the Gold Coast in Queensland.
 
That final point seems to be the least plausible. Having said that, it was also the most interesting and one which Minesite’s Man in Oz observed first hand, as Les worked his audience of 600 wealthy, self-funded retirees, in Australia’s beachside equivalent of God’s Waiting Room. 
 
What the conference hall at the Royal Pines Resort heard was largely a summary of recent events at Yandera, including the potential effect of the “re-domiciling” of Marengo to Canada, a move Les freely admitted was about widening the company’s investor base.
 
Whether it was members of the audience (average age 70+) who drove the Marengo share price sharply higher is unknown. The Canadian connection is the more likely explanation, especially as the number of Marengo shares traded in the week in question appears to indicate institutional buying. For five consecutive days the volume exceeded two million shares. Sales on Monday and Tuesday set fresh 12-month records at more than seven million on each day, with another five million changing hands on Wednesday.
 
What investors, of all ages, are warming to is the “tipping point” that Marengo is fast approaching- the stage at which it’ll cease to be an interesting exploration story and will switch instead to a development and copper demand story. 
 
On that score Les is acquiring more listeners every day because he is able to point to several points in Marengo’s favour. These include the rising price of copper, excellent recent drilling results with improving grades, the finalisation of feasibility studies, the latter of which will trigger receipt of a fixed-price engineering and construction contract from the big Chinese company, China Nonferrous.
 
Regular Minesite readers will be familiar with basic numbers behind Yandera, but for newcomers here is a snapshot. Discovered more than 40 years ago by BHP, the resource was abandoned after being rated too remote, too difficult and not supported by the then prevailing low copper price. 
 
BHP also had the luxury of other copper projects, including the giant Escondida mine in Chile. Enter Marengo which acquired the asset in 2005 and set about spending A$100 million drilling 150 kilometres of diamond core in 500 holes to prove that just one central part of its tenement contains a world class 500 billion (yes, billion) pounds of copper, plus more than useful quantities of molybdenum, gold, silver and rhenium.
 
The development plan, which will be fine-tuned in the feasibility study, calls for a mine costing up to A$2 billion, that will process 25 million tonnes of ore a year for the production of around 100,000 tonnes of copper, plus 15,000 tonnes of molybdenum and other metals in two separate product streams. 
 
Mining in the first 20 years will involve lowering a hill rather than digging a hole. The ore will then be concentrated on site, and then sent via a slurry pipeline to an export facility in the port of Madang, where Marengo has recently acquired a berth, complete with a ship-loader previously used by a wood-chip company.
 
Sometimes criticised as a project which is a long way into the future, Les now has the perfect answer. “The future is almost here,” he said, a comment which points to the start of a period of accelerating news flow. “We’re targeting financing and approvals on this project in 2013,” Les said. “That will see us in full production in 2016, entering the world copper market at just the right time.”
 
Long before first exports, Marengo is likely to have its backroom team working on an expansion phase which could result in a doubling of the current annual target of 100,000 tonnes of copper. “The feasibility study is coming to an end, but that’s not the end of the drilling,” Les said. “While I’m on watch at this company we will keep on drilling because every hole we drill we just get better and better.
 
“Recently we did some infill drilling within the resource zones and we had some amazing success. When you look at the average mine grade we’re predicting around 0.45% copper, which is the average of 25 copper mines globally. But the results we achieved in some of the latest drill holes are more than double our predicted mine grade. They were a surprise to us, and showed the advantage of continuing to infill drill. An increase in grade in this deposit creates an exponential increase in value.”
 
If the domicile shift to Canada, the imminent completion of the Yandera feasibility study and the high-grade infill drill hits are still insufficient to grab the attention of investors, then what lies ahead in regional exploration should, because Marengo really has only just scratched the surface of its tenements. 
 
“On the exploration front we have a set of licences which straddle a structure called the Bundi Fault,” Les said. “It’s around 100 kilometres long. We’ve done very little exploration outside Yandera Central.”
 
For investors with time horizons longer than a few years the exploration potential of the Yandera region looks more exciting than Marengo’s mine development plan. “We’ve completed two low level aeromagnetic, radiometric surveys in recent years. They have identified a number of what we call Yandera look-alikes. Any of those could be equal, or bigger than the Yandera deposit.
 
“I remind people that the Grasberg mine in Indonesia started life as the Ertsberg deposit. Once they started construction, exploration discovered Grasberg just along strike. We went to Yandera and started drilling where BHP left off, and for all we know Yandera Central may be the baby and a Grasberg may be sitting right next door, and that’s where we’re starting to focus.”