June 18, 2013 Marengo Hits A Power Supply Problem And Revisits A Cheaper Tailings Disposal Option For Its Yandera Copper Project In PNG By Our Man in Oz Electric power is always a key factor in mining, and sometimes its Achilles Heel.
Camp at Yandera That at least has been the painful experience of Marengo Mining which has been forced back to the drawing board after what might be called a power failure at its potentially world-class Yandera copper and molybdenum project in Papua New Guinea.
Until last month Yandera appeared to be moving seamlessly towards a final feasibility study with the PNG Government providing strong support.
What’s more a big Chinese partner had signed up for construction services and an offtake arrangement for the bulk of the planned annual production of 90,000 tonnes of copper in concentrate.
For a small Canadian and Australian listed company Marengo has gone a lot further with Yandera than some people expected and certainly much further than Yandera’s discoverer, BHP Billiton.
Over the past few years a hectic drilling program has elevated the orebodies at Yandera to the status of one of the world’s biggest undeveloped deposits of copper which could theoretically have a mine life of 50 years, and more.
It’s the size of the massive of the Yandera structures such as the main Imbruminda orebody, and look-alike structures such as Gremi and Omora, which attracted China Nonferrous Metal Industry as a construction partner, and the George Soros controlled Sentient Capital as a major shareholder in Marengo.
But, sometimes even the biggest players in any game struggle to kick the goals they’re aiming for. Which is why Marengo’s announcement that it’s having problems with its power supply contractor and needs to undertake a fresh review of its tailings disposal options knocked the share price for six.
After switching its home stock exchange from Australia to Canada earlier this year Marengo performed reasonable well, climbing from around A14 cents to a high of A17.5 cents in mid-February, an upward move which coincided with a rise in the copper price to around US$3.70 a pound.
Since then it’s been one-way traffic with Marengo’s share price sliding in harmony with the copper price until the mid-May announcement that all’s not well with certain aspects of the project, at which point the shares fell away dramatically to touch a four year low of A4.7 cents on May 24.
More recently and the picture hasn’t got much better with the copper price stuck in the basement and Marengo’s shares limping along at A4.9 cents.
So, what went wrong and when will it be fixed? The what part of that question is easier than the when because there’s no doubt that many months have been added to Yandera’s timetable by the need to revisit basic issues such as power supply and tailings disposal, two of the fundamental components of a mine.
So what did go wrong? The genesis of it seems to lie in whatMarengo’s chief executive, Les Emery called “a review of the progress of recent technical work in support of a feasibility study in consultation with its major shareholder, the Sentient Group”.
Precisely why Sentient was involved in what would normally be a management matter has not been explained, but probably relates to the fund managers in George Soros’s office getting a little nervous about the trajectory of the copper price and the amount of client money they have directed towards Marengo.
What Les said is that the Marengo board has decided that additional work is required in a number of specific areas “before a final feasibility study can be prepared.”
Specifically, the board is interested in: “identifying an alternative cost-competitive source of power for the project after Marengo’s preferred third-party power provider decided to withdraw from the proposed power supply arrangement.”
Why the preferred power-supply provider would withdraw so late in the planning process for Yandera has not been explained but a fair guess is that it came down to a combination of the cost involved in setting up a power generation system and the priceMarengo believed was fair, or what it could afford.
Whatever the reason, the net result is that the technical studies into Yandera have been set back and that must mean that the overall timetable has also been set back too. Because even if another power supplier can be found quickly the second aspect of the review now underway could take longer.
That second aspect is tailings disposal, an issue which comes with a large environmental component thanks to the seismically active nature of PNG as an island on the western flank of the “ring of fire” which circles the Pacific ocean, and to the equally tricky subject of deep-sea dumping which has reappeared on theMarengo agenda.
Les said in his report about the fresh studies that Yandera has the potential to generate substantial cash flows. “However, in the absence of a power solution that can support the project it is exposed to escalating capital and operating costs.”
The three-point review to be conducted by Marengo and Sentient includes the questions of how to optimise ore throughput rates, a review of the deep sea tailings placement option rather than a land-based system, and further optimisation of the mine plan.
“The object of this review is to help ensure that the Yandera project is robust at all phases of the commodity price cycle,” Les said.
MMC Price at posting:
4.0¢ Sentiment: LT Buy Disclosure: Held
(20min delay)