SouthernEra touts its promising president
SouthernEra Resources Limited
SUF
Shares issued 27,766,645
2000-02-09 close $2.08
Thursday Feb 10 2000
A NEW PRESIDENT, A NEW PRODUCT?
by Will Purcell
SouthernEra Resources announced this week that it had named Steven W. Banning as its new president
and chief executive officer, effective March 1, 2000. Mr. Banning replaces Christopher Jennings, who
took control of SouthernEra in 1992, and transformed it into a moderately successful diamond producer.
Dr. Jennings will continue with the company as non-executive chairman, and as a consultant.
SouthernEra senior vice-president, Lee Barker, said the company was pleased with its choice, and offered
up glowing platitudes to describe the man who will be his new boss. "Steve's an operator. He's worked
for a number of companies through his career, basically Noranda, Anaconda, Pegasus, and he has worked
in Australia. He's been mine manager and has been developing a lot of low-grade gold deposits in the
southwestern U.S., and in Australia." Mr. Barker went on to say: "(Mr. Banning is) quite highly thought
of in the mining community. He is a metallurgist by training, and he has been very used to making
money with low-grade deposits, which means he is a very cost-conscious and efficiency-oriented sort of
person."
Mr. Banning has indeed been involved with a number of low-grade gold deposits, but whether they were
money makers is another matter entirely. Mr. Banning was associated with Pegasus Gold Corp. from
1986 to 1995, last serving as vice-president of operations. Pegasus was a profitable gold mining
company through much of Mr. Banning's tenure, but failed spectacularly when the price of gold went
down. In 1996, Pegasus produced just under 500,000 ounces of gold from a number of low-grade
deposits. The largest project was the $250-million Mt. Todd mine, which contained about 430 million
tonnes of ore, grading just under one gram of gold per tonne. The low-grade mine was forecast to
produce 260,000 ounces of gold, at an average cost of $280 (U.S.) per ounce, but was shut down in
1997, not long after startup, due to the sagging gold market. By then, Mr. Banning was long gone. Mr.
Barker said, "He was with Pegasus for about seven years, but he wasn't part of the debacle when Pegasus
went down." Upon leaving Pegasus, Mr. Banning moved on to Golden Queen Mining, becoming its
president and chief executive officer late in 1995, charged with the responsibility of developing the
Soledad Mountain gold deposit. A feasibility study was completed in early 1998, but the required
$78-million (U.S.) was a formidable stumbling block, as the project was based on a $325 (U.S.) gold
price, and the project remains in limbo. Golden Queen shareholders did not appear to miss Mr. Banning,
as the market value of the company nearly doubled immediately following his departure, which coincided
with the recent increase in the price of gold.
In SouthernEra, Mr. Banning inherits a company with its fingers in many pies, but some of those pies are
beginning to develop a distinctly sour taste with many shareholders. The most pressing concern at the
moment is the deal for Messina Platinum Mines Ltd., which was announced last April, and was supposed
to close last fall. Mr. Barker said: "We're in the process of getting this Messina Platinum thing set up. It
will be closed, I hope, within in a week or 10 days. It's a hell of a good project." He went on to say: "The
feasibility study wasn't finished until about two weeks ago. It's been delivered, it's been accepted. The
mines minister didn't sign off on the thing until the end of December, and all the lawyers and bankers are
messing around now, producing all the documents to get the thing settled. There's the stock exchange
involved in Johannesburg, you've got banks involved in loaning the money, you've got the minister of
energy and mines involved." Add to that mix the minority shareholders who must now decide whether to
sell their shares to SouthernEra, and the issue of financing. "It's been a lot longer than it would normally
have taken, but this is Africa. It's going to happen. I think we're getting very close. It's in the lawyer's
hands now, and the securities regulators." Indeed, Messina Ltd. issued a cautionary statement in
Johannesburg this week, advising caution in dealing in Messina shares, as it was now anticipated that all
of the remaining conditions would be met by the end of this month. Mr. Barker said that the results of
the feasibility study would be made public, adding, "Once we do the press release to announce the
closing of the deal, we will give some specific numbers."
Those numbers could be quite different than the earlier prefeasibility study, which outlined a reserve of
51 million tonnes, containing 11 million ounces of platinum group elements, and gold. The study
proposed yearly production of 120,000 ounces of platinum group metals and gold, 1,400 tonnes of
nickel, 850 tonnes of copper, and 27 tonnes of cobalt. The prefeasibility study indicated that after-tax net
income of $23-million was likely. Based on a platinum price of $400 (U.S.), $280 (U.S.) for palladium,
and $4,000 (U.S.) per tonne of nickel. Those prices are far lower than those prevailing today. Platinum
and palladium are now worth well in excess of $500 (U.S.) per ounce, and nickel has doubled to $8,000
(U.S.) per tonne. At current prices, the gross value of the ore is approaching $100 (U.S.) per tonne. The
prefeasibility study suggested a mining rate of 2,000 tonnes per day, although the company said last fall
that it was considering a mining rate of 2,600 tonnes per day. With potential annual gross revenues near
$130-million, the estimated $23-million after-tax income contained in the prefeasibility study seems
likely to be revised sharply higher. That news may reverse SouthernEra's sagging fortunes. Mr. Barker
noted: "When we get the platinum project, then we can stop talking about getting it, and say we have it.
That's the time I think when people are going to have to take notice."
While platinum is front and centre in SouthernEra's plans today, diamonds still figure in the company's
future. Mr. Barker said that the underground development work was progressing well at the
100-per-cent-owned Klipspringer property, and more production was now coming from the stopes. As a
result, the diamond grade was now climbing. He said: "We're doing a feasibility study to try to make a
recommendation to extend the thing deeper. It's not scheduled to be finished until the end of the first
quarter. I think once that's successful, we'll announce it and then make a decision about advancing the
funds to go deeper on the thing." A positive result would come as a great relief to the company, which
previously painted the Klipspringer dykes as their long-term source of cash. Mining also continues at the
40-per-cent-owned Marsfontein property, operated by De Beers. The pit will be mined out late this
summer, but production from the stockpiles will continue for another year to 18 months, although with
sharply lower revenues.
Meanwhile, the company continues to explore the Camafuca pipe in Angola, the land of murder and
mayhem, where it holds a 51-per-cent stake. Mr. Barker said: "We're working on the Angolan thing,
finishing the feasibility study. We're looking to finance that in the offshore holding company as well."
Camafuca, the world's largest undeveloped kimberlite, has also been a very large cash drain, as
SouthernEra has now sunk about $30-million into acquisition and exploration. The pipe has been
minibulk tested and portions of the body do show interesting results. Late in December, the company
announced that a bulk sample from pit T-99-1 gave an average grade of 0.31 of a carat per cubic metre,
yielding 1,081.17 carats from the 3,544 cubic metres treated, or about 0.14 carats per tonne. The
diamonds were valued from $126 (U.S.) to $140 (U.S) per carat, thanks to an abundance of larger
diamonds. Nearly 32 per cent of the diamonds were over one carat in weight, and 21 per cent were over
two carats weight. Testing and evaluation continues, and results should be available in the second quarter.
Unless high-grade zones can be identified, and Angola becomes a peace-loving country, Camafuca may
well prove to be an expensive mistake.
SouthernEra has long been involved in the diamond play in Canada's north, but has not met with much
success over the years, and its annual expenditures are falling as a result. The company has two projects
currently active, one at Yamba Lake, and another at Munn Lake with junior partners Island Arc Resources
Corp. and Kalahari Resources Ltd. now footing the bills. Mr. Barker said that the company planned to
keep trying in the Territories. "There's nothing going on because it's winter, we're planning on going back
and doing some work in March, up in the Territories," he stated, adding: "I think mainly at Yamba, but we
still have the deal with the other partners who can earn a bigger interest at Munn, by spending some of
their money. They're interested in doing that, and they're out trying to raise it right now." The chances for
success in Canada are low, a fact that the company appears to recognize. Only a token effort will be made
at Yamba, which has been picked over by several explorers for eight years, all with poor results, and
Munn is now seemingly left to its junior partners.
SouthernEra is active in Brazil as well. The company can earn a 50-per-cent interest in the Canabrava
project by spending a total of $20-million (U.S.) over seven years, with a firm commitment of
$1.5-million (U.S.) in the first two years. Approximately one-third of that has been spent to date.
SouthernEra may reduce its earn-in obligation to $15-million (U.S.) by subscribing for $1-million worth
of Canabrava shares by June 10, 2000. The company evaluated a number of alluvial and primary targets
on the property, including several breccia bodies, which possess promising kimberlitic indicator mineral
chemistry. Just before Christmas, the company announced it had selected five alluvial areas and two
breccia bodies for bulk testing, with about 25 tonnes of sample to be collected from each. Mr. Barker
said: "We're bulk sampling those targets now, about eight of them. These are deposits in the ultramafic
breccia that appear to be draining into some of the creeks that have alluvial diamonds in them. So we're
working on that. They took some bulk samples before Christmas, and built a small plant to test them."
As if activity on three continents was not enough, SouthernEra formed a partnership last fall with Caldera
Resources Inc. to explore one of that company's Australian properties. Mr. Barker said: "It's going
along. Right now in the area they're working in it's 45 to 50 degrees Celsius during the day, so in March
we'll probably be doing some drilling there. We have lots of targets, and I think it's an exciting play." He
said that the company planned to spend about $250,000 this year, and added, "You can get a lot of work
done there for that, because you can drive around with trucks. It will be mid-year before the company has
any serious results to report from that program."
While SouthernEra enjoyed another profitable year in 1999, the company's shares did not fare as well
last year. The stock, which once traded for more than $20 in the fall of 1997, had declined to below $5 in
the summer of 1998. A subsequent rally took SouthernEra to a high of $9.10 as 1999 began, but the
share price has been in a freefall since then, hitting a low of $1.55 in mid-January. SouthernEra traded
down five cents Tuesday, closing at $1.80. Mr. Barker said, "It's quiet, but when you make news now, it's
just like blowing in the wind anyway, because nobody cares about the mining business." Beleaguered
SouthernEra shareholders can only hope that their new president will generate interest in the company's
most promising plays, and cut costs at the others.
(c) Copyright 2000 Canjex Publishing Ltd. canada-stockwatch.com |
