MBG is being featured in current "Bulletin",reads well: THE TIN DRUM
Quote: 'Marlborough's Ardlethan mine will be one of the lowest-cost tin producers in the Western world'
Marlborough Resources is a misunderstood company that is trading significantly below its real worth. On June 29, it produced its first low-cost tin from the re-opened Ardlethan mine in the NSW Riverina, and in the same week sellers dumped it down to 8.5¢. The shares have since recovered to 10¢, following the exit of probable end-of-year tax loss sellers.
To be sure, the price of tin in $US terms is near a seven-year low. But in $A terms, it is robustly profitable for a low-cost producer and, in the case of Marlborough (ASX code: MBG), a hedging scheme is in place that assures the company's success over the next two years.
We added Marlborough to the portfolio (B, May 15) at 7¢, with the observation it was just about the safest bargain on the mining boards. At that price, the shares were selling at less than half their realistic then net present value, which various mining analysts were estimating to be in the 14¢ to 16¢ range as long as six months ago.
On June 30, Marlborough's managing director, engineer Chris Storey, announced the Ardlethan mine had been brought into production ahead of schedule, with an eight-hour daily shift producing "significant quantities" of tin from June 29. It is planned to ramp up the project to a 12-hour shift, then two such shifts a day over the coming weeks.
The secret to the project's success is low-cost open-cut alluvial operations. The old Ardlethan mine closed in 1986 due to high costs. Under Aberfoyle management, it was then producing 800 tonnes of tin a year from underground operations employing 300 staff.
The new project will employ just 15 people to produce 800 tonnes of tin from its first year out of mechanised open-cut extraction of 500,000 tonnes of alluvial ore a year from what is known as the Yithan lead. This ancient drainage channel extends from 100m to 300m wide containing tin-bearing sands 5m thick with an equal thickness of overburden. The lead stretches 4 kilometres south-west of the mine and contains 6000 tonnes of tin (3512 proven or probable) with another 3500 tonnes identified in associated leads.
After Storey and his associates put together the feasibility study, the Commonwealth Bank was sufficiently impressed to provide 100% loan funding to bring the mine back into operation. The company then covered the entire production costs for two years plus 150% of interest and principal repayments through a floor price scheme with Barclays Bank of London.
As Storey explained last week, under the scheme, Marlborough is assured of a base tin price of at least $8000/tonne. As a further enhancement, it also has the option of selling all of its production on the basis of the spot price, which currently exceeds $9000/tonne.
With the start of production, the company confirmed its earlier estimate of a cash cost of production of less then $3000/tonne of contained tin in concentrate. That will make Ardlethan one of the lowest-cost tin producers in the western world (and about half the cost of Tasmania's Renison operation).
Marlborough acquired the idle mine assets from then owner Western Metals in April 2000 for the sum of $1 plus liability for $500,000 in environmental clean-up costs. The total $4.2m cost of re-opening the mine should be recovered in the first year with another $2m to be invested to double throughput to a million cubic metres a year by 2002-03. That should yield 1400 tonnes of tin in concentrate a year for a further six years. Even at current low world prices, Marlborough could then generate close to $7m a year pre-tax, yet at 10¢ the company's 147.8 million shares are valued at just $14.8m.
