February 08, 2011Beadell Resources Heads Towards Five Million...

February 08, 2011

Beadell Resources Heads Towards Five Million Ounces At Tucano In Brazil, And May Then Veer Into The Takeover Cross-Hairs Of A Major.

By Our Man in Oz / www.minesite.com

Imagine a gold mine where the waste rock could be as valuable as the gold. Before you accuse Minesite's Man in Oz of sipping too much cooking sherry, take a look at the Tucano project in Brazil, owned by ASX-listed Beadell Resources. The geological twist at Tucano is that the waste ore between the bands of gold mineralisation at Tucano is itabirite, the high-grade iron ore which forms the backbone of Brazil's giant iron ore industry. Just how important the itabirite is at Tucano is clear from the number of drill rigs that there are on site. A total of 12 rigs are now drilling down through the ore, six working for Beadell, ahead of a definitive feasibility due shortly, and six for Anglo Ferrous, a 70:30 iron ore joint venture of Anglo American and Cliffs Natural Resources.
Before we look closely at Beadell's gold project, which has made the company one of the top performers on the ASX over the past six months, it's worth considering what a joint mining effort would do to the economics of an open-pit development.

Rather than face a cost of hauling away waste, Beadell would be paid, or at least be able to share the digging and transport costs. By one estimate, a joint deal with Anglo Ferrous would knock up to US$120 an ounce off the mining cost, which works out at a reduction in the forecast cash cost from US$517 per ounce to less than US$400 per ounce. Little wonder that Beadell's shares have rushed up from a June 2010 low of A14 cents to a peak in January of A88 cents. Recent trades have gone through at around A70 cents, capitalising the three-year old business at A$432 million.

"The iron ore is the elephant in the room", said Beadell managing director Peter Bowler, when Minesite popped into his West Perth office for a chat the other day. "There is an opportunity for us to work closely with Anglo Ferrous, but exactly how we do that is yet to be worked out."
There is actually quite a lot for Beadell to work out over the next few months, particularly the details of the design and construction of the project. Currently the plan is that it will be a 150,000 ounce a year producer for a minimum of 10 years. But in all probability it will be bigger and last a lot longer. Be that as it may, there's certainly plenty of resource in the ground at the moment to encourage bigger thinking. A recent resource upgrade showed 4.3 million ounces at Tucano, comprised of 90.4 million tonnes of ore at 1.5 grams a tonne using a cut-off grade of 0.5 grams per tonne. That resource number will grow as drilling continues, which is one reason why some analysts are already talking about Beadell as takeover bait when it passes the five million ounce mark.

Enticing as the numbers are, and encouraging as the curious combination of iron ore and gold appear, there is a far better story to tell about how Beadell came to be the owner of Tucano. We'll start that story with the observation that if Harry Oppenheimer, the man who once ruled Anglo American when it also included a gold division, were alive today he would be furious about one that got away - Tucano.

Then known as Amapari, Tucano was once a project of AngloGold. In theory, and according to laboratory-scale tests, it should have been a very profitable dump leach project. But it wasn't. Why? Well, according to Bowler, the AngloGold boys had assumed a 90 per cent recovery rate of gold from the dumps. Unfortunately, they didn't allow for the 2.5 metres of rain which falls in that part of northern Brazil, or the effect of the rain on the clay in the ore which then congealed, in parts, into impervious balls. That meant that gold recoveries never got far above 70 per cent, which collapsed the economics of the dump leach at a time of lower gold prices. Other owners, including Canada's Goldcorp, then came and went, before the guys at Beadell arrived.

Beadell's plan is to go straight for a conventional carbon-in-leach processing plant. This will cost around US$100 million, and start with the processing of soft oxide ore, although there's also potential to re-process dump material, which still has 0.8 grams per tonne of gold in it waiting to be extracted. "CIL is a no-brainer", said Bowler. "There are no metallurgical issues. We plan to start at a rate of three million tonnes a year, with room to handle an extra 20 per cent. We've just placed an order for the mill, and if all goes smoothly from now, we should make a formal development commitment late this month, with first gold in February next year."

And it's all even more impressive, when Beadell's low cost of entry into Tucano is considered. The original cost was US$53 million, paid to New Gold, the freshly-formed Canadian-based miner which has properties around the world. From that up-front cost can be deducted US$8 million, being the value of gold left in the existing process circuit. Then deduct another US$31.25 million from the sale of an existing iron ore royalty to London's Anglo Pacific Group, then take off a few more million from the sale of earthmoving plant on site, plus a few other side deals, and the up-front cost fades from view. And that's before the savings made by not having to build roads, an airstrip and other infrastructure items which normally go with a remote mine development are even taken into consideration.

Major decision points, and news events, lie ahead for Beadell, but the road ahead looks pretty clear, given the gold price and a potential profit margin per ounce in the US$800-to-US$900 range. The Australian broking house, Ord Minnett, reckons earnings before tax and depreciation will kick off at A$36 million in the 2012 financial year, and rise to A$174 million in 2013. Optimistic as the broker sounds, there is a sting in the tail of its report. "Longer term", says Ord Minett, "Beadell could become a takeover target as the resource base grows beyond the magic five million ounces and a considerable reserve base (of plus two million ounces) is delineated."