I have today emailed my report below to ABU for comment and to ASIC; ASIC did not give me the opportunity to submit a report but I submitted it anyway; I feel it at least needs to go on record.
It's a long read; some has already been posted; maybe a few errors; had a go though!
Background to the project; ABM Resources (listed on the ASX as ABU) are principally involved in exploring gold tenements in the Tanami region of the Northern Territory; they have now moved from explorer to gold producer and are currently mining the Old Pirate Gold mine and processing ore through the Coyote processing plant. ABU has made a number of ASX announcements regarding their progress from explorer to gold producer starting from 2013 to September 2015 which appears to relay information that at first paints an upbeat image of the company’s progress however later announcements (circa Nov 2015) appear to conflict with earlier information supplied to shareholders. To understand the latest developments one must go back in time to circa 2013, 2014 & 2015 as follows (not in any order);
On the 13/3/2014 (see ASX announcement) ABU announced that Pacific Road Capital would invest $19.6M in ABU at 2.4 cents per share (pre consolidation of 15:1) giving Pacific Road Capital a stake of 19.9% in ABU. In the announcement the funds would be used to conduct an extensive drilling program as follows;
“This drilling program will be carried out in April, May and June of this year (2014) and has been designed to reduce risk through grade control and infill drilling and extend known areas of mineralisation. This work will underpin resource to reserve conversion and shall be completed ahead of mine optimisation, design and scheduling.”
Note the announcement states that the drilling work will underpin ore resource to ore reserve conversion and shall be completed ahead of mine optimisation design and scheduling. However mining commenced at Old Pirate (OP) high-grade gold deposit in June 2015 (see below) the conversion of the ore resource to the much more accurate ore reserve did not happen. The above statement gives an indication of how the money raised by the Pacific Road Capital (PRC) would be spent but it was not spent as described in the ASX announcement. Shareholders were also un-expectably diluted by the PRC announcement yet they gained no benefit because as shown later the ore resource statement for Old Pirate is totally incorrect; had a reserve statement been issued prior to mining of OP then I doubt this mess would have eventuated.
Taking a step back in time trial mining was conducted and results were presented in the 31st Dec 2013 quarterly (see ASX);
“Trial Mining and Processing Complete a total of 9,844 tonnes of material was processed as part of the trial mining with 3,094 ounces of gold sold to date and a further 130 ounces (estimated) delivered to the Perth Mint pending finalisation of out-turn. Gross proceeds to date are $4.23M.” Also; “17.8g/t gold average plant feed (head grade) exceeded expectation. (1)”
Also see note 1. “Head grade average is based on sampling from feed conveyor.”
Trial mining (stage 1) was conducted using the ABU owned on-site gravity processing plant at the OP mine in 2013; the tonnage information of ore processed through the plant was changed in ASX announcement dated 30/4/2013 from 9,844 (31/12/2013) to 8,122 tonnes and the head grade of gold processed was changed from 17.8g/t (31/12/2013) to 15.4g/t. Yet head grade is evaluated in a lab from samples taken each hour from the main conveyor entering the ball mill; how can a lab evaluated head grade sample result be changed? Also the amount of ore entering the mill would be measured using a weightometer; how can a measured weight of ore entering the mill be changed? It is apparent that some doubt now exists as to the grade of ore and the quantity of ore processed in the stage 1 mining of the OP high-grade mine.
Also as will be shown later there is now a huge disparity between the stage 1 trial mining grade stated as 15.4g/t and the grade shown from stage 2 mining of OP (in 2015) which only achieved 6g/t; a 60% reduction in recovered gold; yet ABU has not made any comment on the disparity between stage 1 & stage 2 mining to date.
In 2014 (see ASX 7/7/2014) ABU announced that it will not use the on-site gravity processing plant for stage 2 mining but will use the Coyote processing plant which is located 70km away from the OP mine. Shareholders were dumbfounded by this action, no consultation about this decision occurred, the Coyote plant is owned by Tanami Gold NL (TAM), the plant required extensive refurbishment at significant costs plus lease costs would be $2M per year. Also the transportation costs to the Coyote plant have shown to be high and these costs have now become a major reason together with a lower than expected grade of gold (6g/t) being achieved meaning the mining of the OP mine has become un-economical (see ASX 21/12/2015) and will shut down operation by April 2016.
Yet in the ABU 2013 annual report (see page 17) ABU states they will use the on-site gravity processing facility located at the Old Pirate mine site for stage 2 mining of Old Pirate and upgrade the plant to 150,000 tpa; see extract below;
“Subject to successful completion of the Stage One Trial Mining and Processing, ABM intends to continue mining at Old Pirate. It is intended to initially be open pit mining using the same processing facility as used in Stage One with minor upgrades to increase plant capacity to 150,000 tonne per annum (refer released dated 18/03/2013).”
ABU goes onto say in the 2013 annual report (see page 20) that they will upgrade the on-site gravity processing plant for stage 3 mining to 300,000tpa; the 2013 Ann report contains 10 plus pages of a mine plan to mine OP yet 8 months later they then decide to make a deal with Tanami Gold NL (TAM) and use their processing plant at considerable costs and considerably increasing the risk for shareholders; this means the ABU 2013 Ann report regarding the OP mine plan can only be considered as 10 plus pages of market deception as the deal with TAM was not announced till after the deal was signed. Yet ABU promoted a staged approach to mining and chartered a course stated in the 2013 annual report that would minimise risk to shareholders by using their own on-site gravity processing plant; see extract from 2013 Ann report below;
"The staged approach to mining takes advantage of low engineering risk and allows the company to keep up-front capital expenditure to a mininum. An objective is for each stage of development to be profitable / quick payback periods and to provide capital for subsequent stages from cash flow"
Yet in 2014 they did a complete about face and entered into a deal with TAM to use their Coyote processing plant located 70 km away??? I doubt any feasibility study was undertaken prior to the TAM deal being signed; the results of the deal as shown in late 2015 were clearly not in the best interest of shareholders and clearly it was a deal that was not proposed in any ASX announcement prior to the deal being signed. Also ABU made market sensitive announcements in the 2013 Ann report about their intentions for Old Pirate and they did not follow through; they did not make alterations to the 2013 Ann report in early 2014 before the deal with TAM; as a result the only conclusion that can be drawn is ABU deceived investors.
As will be shown later I put forward a claim that the trial mining information supplied to shareholders was highly flawed in 2013-2014 and the results of the trial mine did not reflect the overall or average gold grade for the OP mine. The results of the trial mining enhanced confidence in the ore resource statement yet results from stage 2 mining totally discredited the ore resource statement. ABU could discount my claim of highly flawed results from stage 1 mining by announcing why the stage 1 results do not correlate with stage 2 yet no ASX announcement to date has touched on this subject. A claim of false or misleading reporting from stage 1 mining could be justified as stage 2 mining in 2015 – 2016 (see ASX March 2016 quarterly) only achieved an average gold grade of approx 6g/t.
Note the grades exhibited as early as the 1st gold pour amounted to only approx 6g/t which is now the stated grade from the OP mine. This result is highly non-consistent with the stage 1 trial mining reported grade of 15.4g/t reported in April 2014. This result likely indicates that ABU likely new as early as June 2015 that gold grades were non-consistent with stage 1 mining yet did not advise shareholders of this inconsistency. Also note below the statement by ABU (see ASX 18/6/2015) that the OP deposit has been mined to below stage 1 and the high-grade zones mined in stage 1 are yet to be exposed; also geology was broadly consistent geological interpretation; this statement seems enhance confidence in the ore resource statement yet only a few months later confidence in the OP ore resource statement has been totally destroyed.
“The Old Pirate South and Golden Hind pits have now exposed the ore-system to below the 2013 trial mining levels (5 metres below surface) with the geology broadly consistent with the geological interpretation. Excavation at the Old Pirate Central and Western Limb pits is still progressing in the top 5 metres and the main high-grade zones mined in the trial mine are yet to be exposed.”
On the 16th July 2015 ABU announced (see ASX) again its first gold pour;
“Tonnes Processed (15/07/2015) 12,972 tonnes
Head Grade 5.73g/t gold; note grade never really surpassed 6g/t todate!!!
Total Gold 74.3kg (2,388 ounces)
Tailings Grade 0.08g/t gold Gold Produced (from gravity circuit only)
2 47.6kg (1,530 ounces)
Gold In Circuit 3 25.7kg (826 ounces) Mill recovery 98.5%”
Note head grade is only 5.73g/t yet they continue to refer to Old Pirate as the “Old Pirate High-Grade Gold Deposit” Head grade is reported as 5.73g/t yet head grade (presumably the conveyor head grade) was not reported since this date in fact ABU only reported the mine call grade of 10.8g/t in Sept 2015. This indicates that ABU had the capacity to report conveyor head grade at the Coyote plant but apparently failed to do so after July 2015.
In the Sept 2015 quarterly (see ASX 30-9-2015) ABU stated a very confusing announcement; mine call grades (or mine call factor) as 10.8g/t yet mill recovery grade was only 7.6g/t (it is likely that only 6g/t was being achieved; the 7.6g/t is again likely a false statement per the revised mine plan statement dated 21/12/2015); also they state;
“As of the end of September 2015, approximately 51,000 tonnes of mineralised material had been mined from all four pits (project to date including mining in May and June 2015) with an unreconciled mine call grade of 10.8g/t gold (including low-grade material used for commissioning the processing plant).”
Note ABU reverts to quoting the unreconciled mine call grade (which is not as accurate as the mill head grade) of 10.8g/t gold however ABU does not quote mill head grade sampled at the top of the conveyor as they did in July 2015; this sample would be the most accurate sample before the ore entered the mill yet ABU likely had this data but failed to publish this information; why would they do this unless they were trying to cover up the grade inconstancy. By publishing only the mine call grade I believe ABU was again trying to cover up the grade inconsistency and IMO stall for time. Head grade is likely sampled every hour by an automated system; the samples are then sent to a lab for detailed analysis; ABU would have this data but failed to supply this information to shareholders since July 2015.
In the Sept 2015 quarterly; mill recovery is now vastly different from mine call grade estimate (as mentioned the far more accurate mill conveyor head grade is not quoted???) as follows;
“As at the end of September 2015, a total of 41,000 tonnes of Old Pirate material had been processed through the Coyote Processing Plant, which included low-grade material used for commissioning the processing plant (announcement of 16 July 2015). From this material, 8281 ounces of gold had been recovered and a further 1732 ounces was in the carbon circuit pending stripping, thus indicating an overall mill-accounted grade of 7.6g/t gold.”
It was proposed by ABU that the difference between mine call grade and mill recovery was due to gold lock up; yet as stated earlier head grade at the top of the conveyor would give the most accurate assessment of grade yet ABU failed to disclose this information. ABU claims gold lock-up as the source of the grade variation as follows in Sept 2015;
“A significant component of the difference between recovered gold and mine estimated production is considered to be a result of the lock-up of coarse gold in various gravity traps within the plant including behind the ball mill liners, in pump boxes and in sumps. However, over time the amount of gold being locked up can be expected to plateau as the natural gravity traps fill to capacity.”
Yet as stated head grade data at the top of the conveyor to the mill would have alerted ABU to the discrepancy in the mine call grade to mill grade as early as July 2015. Yet on the 20th Nov 2015 ABU (see ASX) announced that gold lock up was not the likely cause of the mine call grade to mill grade recovery discrepancy as follows;
“It has become evident that production from the areas mined to date has fallen short of the mining inventory model forecast by a greater amount than initially thought. Performance varies markedly between different mining areas, with some sections outperforming forecast and others significantly below.”
ABU in Dec 2015 state it is not economically viable to cut back the walls of OP; also they mention nothing about Golden Hind??? The 2015 Resource statement states OP having 640,000 oz (225,000oz indicated & 410,000 inferred) yet mining till mine closure (April 2016) will likely only result in 30,000 oz. This is staggering insult even using only the indicated resource of 225,000 oz the error is a whopping 750% if they walk away from mining OP; I believe in geological circles if a geo (competent person signature) was in error by 30% then it is considered shameful.
To date there has been no update of the resource statement for OP so currently we are on Hotcopper debating whether they should keep mining OP as the price of gold is rising and it maybe in the best interest of the company to keep on mining and produce cash flow thus increasing the SP. However we don't know if the 2015 ore resource statement for OP is a complete load of rubbish.
I think management needs to address concerns even with a downgrade of gold grade at OP there should still be at least over 300,000 oz of gold at OP according to the 2015 resource statement; alternatively they must come clean and revise the resource statement and then try and explain why an error likely above 350% or much more occurred with the ore resource statement. One must not forget ABU promoted OP as the highest grade un-touched mine in Australia (see 2013 ann report); again likely mis-reporting way way beyond acceptable ASX standards.
Conclusions
1. ABU planned a staged approach to mining; stage 1 was trial mining at Old Pirate; head grades sampled at the top of the conveyor to the gravity mill was reported as 17.8g/t then changed to 15.4g/t; yet stage 2 mining from the same mine & same locations only produced an average of 6g/t grade. This is a staggering anomaly and the only conclusion that could be drawn was that the stage 1 mining results were highly flawed; the results from stage 1 enhanced confidence in the ore resource statement yet stage 2 mining totally discredited the ore resource statement. To date there has been no comment by ABU as to the large discrepancy between stage 1 & stage 2 results from OP.
2. ABU via ASX on many occasions (circa 2013-2015) referred to the Old Pirate mine as the “Old Pirate high-grade gold deposit”; this is an apparent false and mis-leading statement as grades as early as June 2015 and as late as Dec 2015 never realised the high grades of 15.4g/t as reported in 2013 stage 1 mining in fact grades from stage 2 mining only realised approx 6g/t average.
3. ABU reported their 1st gold pour in June 2015; head grade was only 5.73g/t which is non-consistent with stage 1 mining grade of 15.4g/t; there was no reporting in June or July 2015 as to the discrepancy between stage 1 grade & stage 2 commissioning grade.
4. In Sept 2015 ABU reported a mine call grade of 10.8g/t yet head grade at the top of the conveyor to the Coyote mill was not reported. Yet head grade from the top of the conveyor in stage 1 mining and the 1st gold pour from stage 2 in July 2015 were reported. ABU had the capacity to report mill head grade but failed to do so.
5. In the Sept 2015 quarterly ABU knew that the mill was only producing 7.6g/t when the mine call factor was suggesting 10.8g/t; ABU proposed in Sept 2015 that the discrepancy was due to “mill lock-up” yet discrepancies between stage 1 mining and mill grade results from Sept 2015 were already alarmingly evident; possibly as early as July 2015. Yet ABU advised the grade discrepancy was caused by mill-lock up; yet if head grade from the top of the conveyor was sampled and the results presented then how could a conclusion be drawn that the missing gold was due to mill lock-up. This statement appears to fall under the realms of mis-reporting & would therefore likely be in breach of the Aust Corp Act laws for disclosure.
6. In October 2015 MD Darren Holden stepped down; he was the geologist who produced the Old Pirate ore resource statements which were likely presented to the BOD. It now appears as events have unravelled that ABU BOD’s put too much faith into Mr Holden; yet Mr Holden reported to the BOD and as such the BOD as a whole are responsible for Mr Holden’s actions. Also the deal with TAM caused significant risk for shareholders and there was likely no feasibility study done as required for the ore resource statement; in contrast the 2013 Ann report devoted 10 plus pages for the development of OP to minimise such risks; for instance the gravity processing plant was to be used to minimise shareholder risk. The current SP of 3.4c down from 33c shows the TAM deal realised a risk to shareholders of at least a factor of 10.
7. The 2015 ore resource statement for OP quotes at least 225,000 oz (indicated) & 410,000 oz (inferred) yet it is likely that only 30,000 oz will be produced from OP. This is an outrageous anomaly meaning the ore resource statement is completely flawed; yet the JORC code 2012 is designed to minimise such outrageous errors; the competent person who compiled the ore resource statement needs to be investigated before the JORC committee for such incompetence.
The only conclusion from this sorry debacle is that those responsible for this mess must resign; Mr Holden has gone but others who were just as responsible for the decision made must go as well.
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