July 17, 2002 BUSINESS AND INVESTING > THE SPECULATOR
SPECULATOR: FRENCH DRESSING
Dioro Exploration is a stock with at least three positives going for it: a gold mine soon to open, promising blue sky yet to be tapped and potential as a takeover target. Perth-based chairman Ian Burton visited Sydney and Melbourne three weeks ago to brief several brokers and analysts on his company's progress when the shares were holding around 14¢. But with the uncertainty in world markets and a weakening over recent weeks in the gold price to around $US312/oz, we picked Dioro up at 12¢, as reported last week (Call options, July 16). If the Dioro story appeals, patient punters should be able to pick up the stock at prices between 12¢ and 13.5¢ in coming weeks.
The company should then gain more support with the completion of a feasibility study by the end of September to open a new mine on the Frog's Leg orebody, just 25km west of Kalgoorlie. The Frog's Leg resource estimate totals 786,000oz (4.9 million tonnes grading 5gm/tonne gold) with an initial open-pit mine expected to open before the year's end.
The discovery was first identified two years ago within a 30 sq km block held in the Mungari East joint venture between Mines and Resources Australia Pty Ltd (MRA, 51%) and Dioro (49%).
As the accompanying map shows, it is located immediately south and apparently on the same trend as AurionGold's string of deposits to the north, including the existing Kundana mine (7.4mt of 4.38gm/t), Raleigh (1.57mt of 19.8gm/t) and the Hornet-Rubicon-Pegasus finds totalling 3.65mt of 6.6gm/t.
MRA is a wholly-owned subsidiary of Cogema of France. MRA's local exploration manager, Stephen Mann, is a bit of a wag, however. It's said that the deposit got its name after a French visitor slipped and sprained his leg. In line with that, the map shows the White Foil deposit on ground to the south-west held in another joint venture between MRA and AurionGold. That's for the foil on Pol Roger champagne.
Then, not shown on the map, is a new find on MRA/Dioro ground between Frog's Leg and White Foil, where four widely-spaced drill holes intersected gold values, the best being 11 metres of 4.69gm/t between 18m and 29m from surface. That's to be known as Winston Churchill, Pol Roger's upmarket cuvée. It also points to the blue sky potential in the Mungari East joint venture.
As part of the present feasibility study, an 11,000m program of reverse circulation and air-core drilling is under way plus 1000m of diamond drill core to aid pit design. It is estimated that Dioro's share of feasibility study and capital costs up to first production from the pit will be less than $1.5m, comfortably covered at this stage by current cash of about $3m. The joint venture may well avoid the cost of building a dedicated treatment plant, with eight existing plants within 8km to 30km with possible spare capacity.
Several Perth brokers (Carmichael, Hartleys and Hogan and Partners) have been recommending Dioro to clients at current prices. Dioro has on issue 361 million shares, which, at 13¢, gives the company a market capitalisation of $47m. With the ultimate boundaries of the Frog's Leg deposit yet to be fixed, plus yet-to-be-tested prospects and the potential for more ore discoveries in the drilling program, an extra 250,000oz added to the resource would be worth at least 5¢ a share. In addition, there's modest royalty income possible from the company's 10% interest in the Red Hill gold project near Kanowna from 2003. And its takeover potential? In January, partner Cogema took a share placement at 9¢ to give it 10% of Dioro for $3.2m. Immediately, St Barbara Mines announced it held 5% and soon after lifted that on market to nearly 13%.
Meanwhile, our oil favourite Hardman Resources picked up more than 10¢ a share last week after announcing it had been awarded 10 licence blocks covering 57,000 sq km south and east of the Falkland Islands in the south Atlantic. Hardman managing director Ted Ellyard said the southern basin had much thicker prospective sediments than the earlier fancied north (7km thick compared with a maximum of 4km in the north), enhancing the prospect of considerable oil generation. Hardman will hold 30%.
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