To All
Canacords Morning Coffee had the following today:
SouthernEra Resources (SUF : TSE : $12.55 : Issued 30.4M)
On Friday, SouthernEra made the following release:
"Postponement of Application Concerning Farm Marsfontein
SouthernEra Resources reports that it and its joint venture partner
Randgold and Exploration Company Limited will be seeking a
postponement in the Application contesting certain mineral rights on
the farm Marsfontein, part of the Company's Klipspringer Project
property holdings, and the location of the M-1 kimberlite pipe. A
corporation, which is believed to be a corporate vehicle of the
original Applicants, purporting to be the registered holder of the
private mineral rights on the farm Marsfontein, has applied for leave
to intervene in the present proceedings. This development creates a
new dimension to the proceedings and raises additional issues which
necessitate a review of the approach adopted to the Application by
SouthernEra and Randgold. SouthernEra's legal counsel are
investigating the validity of the underlying transaction pursuant to
which the private mineral rights have been registered in favour of the
intervening Applicant. The validity of the basis for the Application
for leave to intervene is also being investigated. These steps are
likely to cause a delay in the hearing and finalization of the pending
Application."
This "litigation" was first announced on Jan. 15/98 and was to be
heard by the South African Supreme Court in Pretoria beginning Feb.
24/98. On Feb. 25, a postponement of the hearings was announced to
the (this) week of March 16, and now we are in a wait-and-see mode.
The essence of the litigation outlined on Jan. 15/98 was, "An
application has been brought against the Minister of Mineral and
Energy Affairs for South Africa, the Master of the Supreme Court of
South Africa, Randgold & Exploration Company Limited and SouthernEra
Resources Limited to prohibit the Minister of Mineral and Energy
Affairs from issuing a certificate authorizing the transfer of the
mineral rights to Randgold, SouthernEra's joint venture partner, in
respect of the portion of the farm Marsfontein 91KS on which the M1
deposit is situated. The application has been made by a number of the
heirs of the original owners of the mineral rights. The applicants
are seeking to prevent the issuance of the certificate on the basis
that the Minister may not exercise his discretion to issue the
certificate, and that South Africa's new constitution protects their
rights, despite the existing legislation." We understand that the
heirs in the application number 29 (and there are more) and are the
descendants of the four original purchasers of the Marsfontein Farm in
1920. These four immediately sold the surface rights, but retained
the mineral rights. The state owns 100% of the surface rights at
Marsfontein, and when Randgold undertook the property as an
exploration project, it acquired the state and private mineral rights
and was granted a prospecting license in Nov/95. SouthernEra's
subsequent title research did show the existence of heirs of the
original (1920) owners, but not the passing on of mineral rights.
Last fall, Randgold did reserve approximately R1.0M as a provision for
any claims (a figure approved by the Department of Mines and Minerals).
For those not familiar with the situation, the M-1 pipe is a
high-grade, key component of SouthernEra's Klipspringer project. The
Klipspringer kimberlite fissure/blow project is located in South
Africa's Northern Province approximately 235 km NNE of Johannesburg.
The property consists of 33 farms where mineral rights are held under
option or wholly owned; these farms cover an area of approximately
30,000 hectares (74,000 acres). The initial discovery of an east-west
fissure was made by De Beers in 1985 and was rediscovered in 1996. To
date, SouthernEra has spent over $40.0M at Klipspringer in the
delineation and bulk sampling (partial) of the Leopard (Main) and
Sugarbird fissures, other fissures and blows (mini pipes), and the
completion of a 100 tonne/hour (2,000 tpd) processing plant which
began operating in early March. Early results from the treatment of
material from the Sugarbird Blow have been quite encouraging, with a
large population of plus 4-carat stones recovered.
On June 19/97, SouthernEra announced a revised joint-venture agreement
with Randgold & Exploration Company under which it could earn a 65%
interest in the Farm Marsfontein by funding and completing all of the
work through a bankable feasibility study. At the completion of the
feasibility study, Randgold can elect to either contribute its 35%
pro-rata share or be diluted. Marsfontein covers an area of about
1,763 ha and lies approximately 12 km east of the Leopard
Fissure/plant site area. At the time of this release, geochemical
sampling identified seven distinct anomaly centres on the farm, and
reverse circulation on four of these identified two kimberlite pipes,
40 m x 150 m and 100 m x 30 m in dimension, as well as at least two
kimberlite dikes.
Results from processing the first 31.5 tonnes of M-1 kimberlite were
released on July 11 (1.89 c/t; average stone size, 0.35 carats), and
by Sep. 25/97, a drill-inferred resource of 685,000 tonnes to a depth
of 100 m and with a grade of 3.35 c/t was published; carat values
averaged US$142.58. The 2,000 tpd plant had already been ordered (Aug.
21/97). In a descriptive report on Klipspringer for the early Feb/98
analysts' visit (litigation announced Jan. 15), M-1 was assigned a
resource of 512,400 tonnes to 100 m grading 3.083 c/t with an average
stone size of 0.20 carats (0.313 carats have also been reported).
Depending on one's grade assumptions, M-1 ore may range in value from
US$280-465/tonne, and with open pit mining, all-in cash operating
costs should be well under US$25/tonne. SouthernEra's 65% interest in
operating profits from the M-1 pipe would provide a one (() year cash
bonanza for the long-term development of the fissure operation, as
well as funding for the Angolan projects and other African exploration
ventures. Without M-1, SouthernEra may make US$5.0-10.0M mining the
Sugarbird Blow over the next 4-5 months, but full development of the
fissures to 2,000 tpd would require 25-30 active stopes developed over
18 months at a cost of US$20.0M.
Using a diluted grade of 0.6 c/t for fissure material (high grade by
fissure mining comparisons) and a US$120/carat average value, the
following rough, pre-tax profit figures at different production rates
can be generated:
M-1 Proposed Profit Figures
(Pre-tax, at 0.6 c/t and US$120/carat)
Tonnes per day 750 1500 2000
Carats per year 148,500 297,000 396,000
Operating profit US$ $12.8M $25.7M $34.3M
Apart from M-1, two other aspects of short term interest come to mind:
1) the early results from processing Sugarbird Blow ore in the new
commercial plant have indicated, at least initially, almost a doubling
in the average stone size to a remarkable 0.38 carats, up from 0.21
carats previously estimated, with 25% of the stones recovered being
over 4.0 carats in weight. If the average carat value for Sugarbird
goes up, one wonders about the stones in the rest of the Klipspringer
system. (2) Early in April, SouthernEra begins its 1998 drill program
in the NWT at Munn Lake where the target priority appears higher than
in recent past years (juniors associated include Kalahari Resources -
KLA, and Island Arc Resources - IAR).
As we claim to have no value-added expertise in matters of litigation,
we have (successfully) avoided being pinned down in Hemlo, growing old
with Gold Standard, or learning Spanish at Kilometre 88 (Crystallex),
and do not plan changing course for Marsfontein. A year ago, however,
M-1 was not in the picture, but Klipspringer, albeit with a more
modest profile, looked highly promising, particularly as a "support
project" for the newly acquired Angolan assets. Some might agree
there are still times when the concept of having shareholders is
important to a company. Prior to Friday's announcement, SouthernEra
was ranked a SPECULATIVE BUY and we maintain that opinion.
David James (204) 988-9602
Regards |
