Uncut gem Adjacent to De Beers South African Finsch diamond mine, TAW has a 40% interest with BHP Billiton in the diamondiferous Daniel alluvials and kimberlite projects, and a 100% interest in other diamondiferous alluvials and kimberlites in the district. Project schedule 2005 Quarters
Diamondiferous Daniel alluvials and Falcon kimberlite targets Tawana has a 40% interest (BHPB 60%) in the Main Channel of the diamondiferous Daniel alluvials project, which is located 4 km from De Beers Finsch mine, and extends over 7km downstream, up to 2km wide. The main focus for this project is evaluation of potential kimberlite targets, defined by BHPBs proprietary FalconR system. Drilling is scheduled for mid 2005. Early development options for alluvials TAW has a 100% interest in the Feeder Channel upstream of the Main Channel, and in the Eastern Gravels, with BHPB holding a 2.5% royalty. Drilling of 2.5m diameter holes in the Feeder Channel has recovered 217 diamonds, the largest 1.54cts, from processing 28% of the 9,000 cubic metres extracted by Bauer drilling. In the Eastern Gravels, processing 15% of the 4,000 cubic metres of material from drilling has recovered 42 diamonds with the largest 2.02cts. Processing continues, and ongoing drilling will evaluate potentially high grade alluvial potholes, and underlying kimberlite targets. Determining grade, size distribution and value The preliminary feasibility study into the Kareevlei Wes and Perdevlei diamond projects will be completed Dec Q 05. Processing of 6,500 tonnes of kimberlite from the 5 Kareevlei pipes has commenced to more accurately define the grade, stone size distribution and value. Previous work involving underground exploration and sampling of the K1 pipe one of the two Perdevlei diamondiferous kimberlites returned grades of 15 to 18 cts per hundred tonnes, and as with Kareevlei, TAW will continue to process kimberlilte to more accurately define grade, size distribution and value. Corporate & finance TAW reported cash of A$2.3m at 31 March. Now that the processing plant has been completed it can maintain its evaluation programme until the exercise of A$0.75 options in November, which will contribute a further A$13m. Further funding is required to step up the programme. Mining Australia www.abnamromorgans.com.au Analysts Chris Brown ABN AMRO Equities Australia Limited +61 7 3334 4885 [email protected] John Moorhead +61 7 3334 4557 [email protected] Important disclosures regarding companies that are the subject of this report and an explanation of recommendations and volatility can be found at the end of this document. Priced at close of business 8 June 2005. ABN AMRO Morgans Limited (A.B.N. 49 010 669 726) AFSL235410 A Participant of ASX Group Price A$0.85
Market capitalisation A$49.04m Avg (12mth) daily turnover A$0.68m Reuters TAW.AX TAW50608 Wednesday 8 June 2005 Tawana Resources (TAW) T A W A N A R E S O U R C E S N L 8 J U N E 2 0 0 5 2 Background Tawana Resources NL (TAW) holds diamond exploration and evaluation projects in South Africa, Australia and Botswana. Recent results have focused the company on the projects in the Limeacre district, approximately 130km west of Kimberley, South Africa, centred on De Beers Finsch Diamond Mine. The Finsch mine commenced operations in the mid 1960s, and is currently in production at 2 million carats per year. It is the largest kimberlite pipe in the Kimberley region with a surface area of 17.9 hectares. Drilling and sampling programs undertaken by Tawana confirm that the Daniel gravels downstream from the Finsch mine are diamondiferous. Proprietary Falcon geophysical surveys undertaken by BHP Billiton identified a number of anomalies interpreted as kimberlite pipes, beneath the diamondiferous alluvials. The drilling and sampling of the alluvials by Tawana has supported this interpretation. Tawana has a structured joint venture with BHP Billiton within the defined area for both alluvials and kimberlite pipes. It holds a 30% interest in the exploration for kimberlite pipes, which it can increase to 40% by taking a 25 tonne bulk sample of a kimberlite. It also holds a 40% interest in the alluvials, sourced in part from the eroded Finsch diamond pipe. In a move designed to enable TAW to move into early production at a lower size threshold than is of interest to BHP Billiton, BHPB has ceded a 100% interest in two of the alluvial areas within the joint venture area the Feeder Channel and the Eastern Gravels to Tawana, subject to a 2.5% gross royalty. TAW is currently processing material from these alluvials to evaluate the commerciality of diamond production from the Feeder Channel and the Eastern Gravels. It is also evaluating the Falcon-defined kimberlite pipe targets beneath the Main Channel of the Daniel alluvials in which it has a 40% interest (BHP Billiton 60%) as well as beneath the Feeder Channel, and drilling has now commenced. A Dense Media Separation Plant has been constructed to enable TAW to evaluate the Kareevlei Wes kimberlite pipes and the Perdevlei pipes. Both lie outside the BHP Billiton joint venture area. The initial evaluation has proven positive, and the current programme is designed to determine the grade, stone size distribution and value of the diamonds from the KV2 and 3 pipes at Kareevlei, and the K1 pipe at Perdevlei. Map 1 : Project overview Limeacre district Source: Tawana Resources T A W A N A R E S O U R C E S N L 8 J U N E 2 0 0 5 3 South African projects Daniel Alluvial Project TAW 40%, BHPB 60% The currently accepted geological model is that 1,400m of the originally emplaced Finsch pipe has been eroded, with this 2.1 billion tonnes of diamondiferous kimberlite estimated to contain US$170 billion of diamonds. Some of the material, including diamonds, is transported to the ocean. Much of the pipe material (and associated diamonds) is deposited in the stream and river valley, and forms diamondiferous alluvial deposits. The Main Channel was located by BHP Billitons proprietary Falcon airborne gravity gradiometer survey technique, and has an interpreted length over 7km and a width over 1km. The Bow River Mine in Western Australia, which was an alluvial channel fed from the Argyle deposit, was 5.5km long and 1km wide. TAW is operator of the Daniel Alluvial Project, with a 40% interest. Sampling by percussion drilling has proven the Main Channel alluvials to be diamondiferous, with the diamonds distributed throughout the alluvial profile, and not restricted to the base. Map 2 : Landsat image of TAW projects Source: Tawana Resources Feeder Channel and Eastern Gravels TAW 100%, BHPB 2.5% royalty These two project areas contain more limited volumes of alluvial material than the Main Channel. As with the Main Channel, the bedrock is dolomite, and drilling confirms the formation of potholes which can provide preferential depositional sites leading to higher diamond concentrations in the alluvial material. Both project areas have been drilled with Bauer rigs, which drill 2.5m diameter holes, and recover significant quantities of alluvium. T A W A N A R E S O U R C E S N L 8 J U N E 2 0 0 5 4 The Feeder Channel is estimated to contain 100 million tonnes of material, and to date 93 holes have been drilled to recover 8,728 cubic metres. Of this, approximately 2,500 cubic metres has been processed, with 217 diamonds recovered. The largest stone is 1.54 cts. These results confirm the presence of the pot holes in the profile, and have also confirmed higher grades associated with these traps. In the Eastern Gravels, containing an estimated 80 million tonnes, 3,819 cubic metres of material has been recovered by Bauer drilling, with 570 tonnes processed. This has yielded 42 diamonds, with the largest stone 2.02 cts, and the highest grade reported from surface. To eliminate the nugget effect on sampling, and accurately predict mining grades, stone size distribution and carat value, further processing and sampling is required. This is now underway, with a scoping study scheduled for completion in the December 2005 quarter. Daniel Kimberlites TAW 40%, BHPB 60% TAW currently has a 30% interest in the Daniel Kimberlite Project, covering exploration for and exploitation of kimberlite pipes within the joint venture area. This area incorporates the area of the alluvials as well as surrounding areas. TAW can earn a further 10% in the project by taking a 25t bulk sample. BHPB has flown the region with their proprietary Falcon technology and identified a number of gravity anomalies. Kimberlites are readily weathered and commonly from topographic depressions. Drilling of the alluvials, and analysis of the bedrock profile, confirms that some circular structures identified by the Falcon survey are coincident with areas where the depth to bedrock is greater than would be anticipated. In a number of cases, drilling was unable to penetrate to fresh bedrock. In at least one instance, high diamond grades were reported from samples at the bottom of the hole. Profile 1 : Cross section of northern feeder channel Source: Tawana Resources The A65 anomlay is coincident with a crater-like pothole, 5km south of the Finsch mine. It is located beneath the Feeder Channel alluvials, and covers an area of 18 ha, compared with the Finsch pipes 17.9ha. The A64 anomaly is 200m south of A65, with an area of seven hectares. The third target, A31, is a 19ha anomaly located 3km south-west of Finsch. North T A W A N A R E S O U R C E S N L 8 J U N E 2 0 0 5 5 Kareevlei Wes and Perdevlei kimberlites TAW 100% Outside the Daniel Project Area, TAW has a 100% interest in the Kareevlei Wes and Perdevlei kimberlites. Kareevlei Wes comprises a cluster of five kimberlite pipes which vary in size from 5.8ha to 0.3ha. Previous work has shown two of these pipes to be diamondiferous. The pipes at Kareevlei Wes are of interest because of the relatively large size of the pipes in the cluster and the exceptional quality of the contained diamonds. A 40.9ct parcel of diamonds has been judged as containing 85% gems, with an average value of all the diamonds at US$116 per carat. In late 2004, a bulk sample of 6,500t was taken from the five pipes to a depth of 40m. Construction of a Dense Media Separation Plant is nearing completion, allowing testing of the sample to begin in late May. Based on the results, a project pre-feasibility study will be prepared, with TAW contracting Snowden Mining Consultants to facilitate this study. The Perdevlei project comprises two kimberlite pipes which are both known to be diamondiferous. Further analysis and re-treatment of some of the bulk sample acquired in 2003 is required to confirm grades, stone size distribution and average diamond values. Based on the results, TAW expects to complete a pre-feasibility study incorporating operating and capital costs on one of the pipes by October 2005. The Perdevlei and Kareevlei Wes pipes are 25kms apart, allowing any potential mine development to share the X-Ray treatment plant and saving overheads, capital and surveillance costs. Australian Projects Timber Creek, NT TAW 100% The cluster of 5 kimberlites was discovered by Stockdale Prospecting, De Beers exploration subsidiary, in the early 1990s, and retains the right to purchase a 70% interest by paying TAW an amount three times their exploration expenditure. Diamonds were recovered from the TC 1 pipe, as well as from two of the other intrusions. Stockdale subsequently drilled the TC1 pipe to a depth of 60m, and interpreted a grade in excess of 100 carats per hundred tonnes (cpht), with modest diamond values and coloured stones. Processing of a bulk sample of 3,802 tonnes recovered 17,387 diamonds with an aggregate weight of 839 cts 22 cpht. While this remains an attractive project, it ranks below the South African projects. Flinders Island and Eyre Peninsula , South Australia TAW 80% Flinders Island was originally targeted by TAW, and represented a high priority target at the time of listing on the ASX. Soil sampling identified kimberlite indicator minerals. This was followed by the discovery of 7 diamonds at surface locations. A drilling programme tested 11 targets, with an anomaly west of the Gem Pan area returning highly encouraging mineral assemblages. Subsequent geophysical testing has defined an anomaly, which was further tested by drilling. A concentration of kimberlite indicators was confirmed by this work. Tenements on Eyre Peninsula, considered geologically similar to Flinders Island, were subsequently acquired in partnership with Orogenic Minerals (20%), the JV partner in Flinders Island. Sampling has reported encouraging mineral assemblages, indicative of the presence of kimberlites. While both of these remain attractive projects, they are less advanced than the South African projects. T A W A N A R E S O U R C E S N L 8 J U N E 2 0 0 5 6 Botswana diamond exploration. TAW has been granted Exploration Licences covering 2,000 square kilometres extending from the Orapa diamond mine in the west to diamondiferous kimberlites in South Africa and Zimbabwe. Kimberlite indicators have been recovered from soils overlying geophysical targets. This is highly prospective ground, at an early stage of exploration. The people Managing Director Wolf Marx has been a Board Member since 1998 and has over 25 years experience in geology, particularly in exploration for gold and diamonds. Wolf was a part of the team to discover the Bow River diamond mine and the Aries Kimberlites. Chairman Brian Phillips recently joined the board of TAW and brings wide technical and corporate experience gained as a mining engineer and director with Australian mining companies will benefit Tawana enormously as we move forward. Brian was the Managing Director of MPI Mines until the takeover from LionOre in December 2004 and is currently the Non-Executive Chai of Leviathan Resources and Indophil Resources. Director Operations Leon Daniels is a South African national living in Botswana who has over 25 years experience in gold and diamond mining exploration. Leon has discovered many kimberlites in Botswana and South Africa. Financials At the end of the March quarter, Tawana had A$2.36m cash. Current rates of expenditure on exploration are $250k per month and $200k per month will see this cash reserve last until November 2005. TAW currently has 18.3m options on issue with an A$0.75 strike price and 30 November expiry. Exercise of these options will raise A$13.5m at that time. With their surface location, easy mineability and low capital expenditure for startup, the type of deposits currently being evaluated by TAW provide an excellent opportunity for early cash flow. T A W A N A R E S O U R C E S N L 8 J U N E 2 0 0 5 7 RESEARCH TEAM
SOPHIE MITCHELL - Director, Head of Research CHRIS BROWN - Senior Analyst FIONA BUCHANAN - Analyst MICHAEL KNOX - Director of Strategy & Chief Economist ROGER LEANING Analyst GRANT McCASKER - Analyst Fixed Interest AMANDA MILLER - Senior Analyst BELINDA MOORE - Analyst JOHN MOORHEAD - Trainee Analyst SCOTT POWER - Senior Analyst TANYA SOLOMON - Analyst REBECCA SULLIVAN - Retail Strategist ABN AMRO MORGANS OFFICES BRISBANE (07) 3334 4888 COFFS HARBOUR (02) 6651 5700 BRISBANE INVESTOR CENTRE (07) 3334 4888 HURSTVILLE (02) 9570 5755 BUNDABERG (07) 4153 1050 MERIMBULA (02) 6495 2869 BURLEIGH HEADS (07) 5520 8788 NEUTRAL BAY (02) 8969 7500 CAIRNS (07) 4052 9222 NEWCASTLE (02) 4926 4044 CALOUNDRA (07) 5491 5422 NEWPORT (02) 9997 3232 CAPALABA (07) 3245 5466 ORANGE (02) 6361 9166 CHERMSIDE (07) 3350 9000 PARRAMATTA (02) 9615 4500 EMERALD (07) 4988 2777 PORT MACQUARIE (02) 6583 1735 GLADSTONE (07) 4972 5599 SCONE (02) 6545 9811 GOLD COAST (07) 5592 5777 WOLLONGONG (02) 4227 3022 HERVEY BAY (07) 4128 2288 MELBOURNE (03) 9947 4111 IPSWICH (07) 3202 3995 BERWICK (03) 9796 2676 MACKAY (07) 4957 3033 BRIGHTON (03) 9592 4555 NOOSA (07) 5449 9511 CAMBERWELL (03) 9813 2945 ROCKHAMPTON (07) 4922 5855 GEELONG (03) 5222 5128 SUNSHINE COAST (07) 5479 2757 TRARALGON (03) 5176 6055 TOOWOOMBA (07) 4639 1277 CANBERRA (02) 6232 4999 TOWNSVILLE (07) 4771 4577 ADELAIDE (08) 8464 5000 UNDERWOOD (07) 3841 4011 PERTH (08) 9261 0888 SYDNEY (02) 8259 6400 BUNBURY (08) 9791 9188 ARMIDALE (02) 6772 1288 DARWIN (08) 8981 9555 BALLINA (02) 6686 4144 HOBART (03) 6236 9000 CHATSWOOD (02) 9411 8988 DISCLAIMER - ABN AMRO MORGANS LTD This report was prepared as a private communication to clients and was not intended for public circulation or publication or for the use of any third party, without the approval of ABN AMRO Morgans Ltd (ABN AMRO Morgans). 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TAW Price at posting:
0.0¢ Sentiment: None Disclosure: Held