September 18, 2002 BUSINESS AND INVESTING > THE SPECULATOR
SPECULATOR: NICKEL AND GRIME
A firming world nickel price has encouraged a nervous smile to the face of geologist Tony Howland-Rose, managing director of Tasmanian prospector Allegiance Mining. For Allegiance is in need of asking its shareholders for more cash to continue drilling the company's promising nickel project near Zeehan, on Tasmania's west coast. For months, the only news about nickel has concerned the failure of expensive treatment plants to commercially extract nickel from difficult-to-treat lateritic ores. While that has infused investors with negative sentiments about the metal, it should enhance the prospects of companies holding trouble-free nickel sulphide deposits, particularly since the world is projected to face tightening supplies of new nickel in the next few years.
Recent drilling on Allegiance's Avebury project has identified significant nickel over more than 500 metres of strike length, with 95% of the nickel contained as pentlandite, a coarse, easy-to-extract nickel sulphide. The deposits, comprising two parallel lenses, are open to both the east and west, with further results to come by the end of September from a nine-hole drilling program over 3500m.
The most recently reported hole, A007, yielded a 23m true width intersection of 1.6% nickel from a depth of 260m. A 23m intersection of 1.6% nickel sulphide would be equivalent in value to 7.1% copper or 10 grams/tonne gold. Allegiance is yet to announce a reserves estimate but earlier this year it carried out a scoping study based on a 3 million tonnes resource at Avebury, with a six-year mine life to process 500,000 tonnes of ore a year producing 7000 tonnes of nickel-in-concentrate. Based on a then nickel price of $US6000/tonne ($US2.72/lb), an exchange rate of $1 to US55¢, a capital cost of $37m and a cash cost of $US2.02/lb, a net present value for the project was assessed at just $12m. But if reserves and throughput could be doubled, net present value rose to $80m. Hence the emphasis on drilling, which is bearing fruit.
With 200 million shares trading below 5¢, Allegiance is capitalised at less than $10m. Existing shareholders may take up between $1000 and $3000 of new shares at a 15% discount to market by October 8, which will hopefully raise between $300,000 and $500,000. This column will top up its holding.
In a letter sent to shareholders last week, Howland-Rose observed that the nickel price was up 50% from its September, 2001 lows at $US6700/tonne. The day after his letter went out, the world nickel price surged 5% to $US7132.50/t, still far short of its peaks in early 2000 of more than $US10,000/t but making a far more robust recovery than other base metals.
As reported last week, Lakes Oil was seeking a North American joint venturer to unlock the gas potential of the tight reservoir sands in its extensive tenements on Victoria's onshore Gippsland basin. Although Lakes' share price surprisingly failed to react, chairman Robert Annells came good with the news AusAm Resources would spend $10m on exploration to earn a 50% interest in three onshore permit areas. AusAm is described as a non-listed public company with American personnel that was formed in 1999 to acquire and exploit "tight" gas resources in onshore Australia using technology developed in the United States and Canada.
In other encouraging news, Advantage Telecommunications announced a better deal for the purchase of Britain's pre-paid telephone card company, First National Telecommunications. In early July, when AdvanTel's shares were trading at 42¢, the company announced an agreed bid for FNT – which accounts for 30% of pre-paid call cards sold in Britain – of $77m in cash and shares, including various future performance targets. Last week, AdvanTel said the bid had been renegotiated for a maximum of $25m cash and $15m in scrip, representing a 33% cash reduction and a 3% paper reduction on the original offer, before renegotiated performance bonuses. AdvanTel has appointed a London-New York investment bank, Griffin Capital, to lead the deal to completion.
Correction: Thanks to an alert reader (Roy N. Jones, of Bayview, NSW), who has picked up an error by which I belatedly wrote in a subscription for 5000 1¢ Independence Gold options (Sand bank, Sept 3). But I had already exercised my entitlement (Golden dreams, April 23) and later sold (Serum Island tonic, June 11). The over-booking has been cancelled from the portfolio, representing a value loss at last week's close of $950. Improvements in Hardman Resources and Chemeq this week have more than covered the write-off.
Bought as ordered
20,000 Rimfire Pacific @ 5¢ $1050
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