Olympus Pacific Has Several Options Ahead, But A Merger With Zedex Would Crown Everything
By Charles Wyatt
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David Seton the Kiwi boss of Canadian listed Olympus Pacific Minerals is very happy to be operating in Vietnam. And who would not be? It may still be a one-party communist state, but it is one of south-east Asia's fastest-growing economies and has set its sights on becoming a developed nation by 2020. It is difficult to know when a country qualifies as developed and Vietnam has a remarkable history, but things are definitely moving in the right direction, pushed by a young middle class generation which has grown up since war devastated the country. When north and south Vietnam became unified in 1976 this followed more than three decades of war against Japan, France and the US. It is amusing to note that after an experience like that the Vietnamese categorise the US as the most ineffective troops they fought.
Vietnam joined the World Trade Organisation in December 2007, but there is still a vast big gap in wealth between town and country as in China. No longer wedded to orthodox Communist philosophy it has been reinventing itself as a market economy. Geography, once a curse, is now a distinct blessing, given its location in the dynamic south east Asia region. Vietnam’s leaders appear to have taken the decision to turn the country into an investor friendly environment. Restrictions on foreign investment will be eased further as the government attempts to encourage foreign investment in listed firms. The fact that there is now a unified legal system in place for both foreign and domestic companies, goes a long way toward achieving government ambitions. This quick resume may help to explain David’s enthusiasm for the country and sweep away any lingering fears by investors. His only criticism seems to focus on the bureaucracy which is free of corruption, but still rather ponderous.
Olympus Pacific has two projects in Vietnam about 60 kms apart – Bong Mieu and Phuoc Son. Bong Mieu is already in production in a modest way with a pilot plant which should produce over 20,000 ounces of gold in the current 12 months after a disappointing start to the year due to weather. When Minews spoke to David he had just visited the mine and could confirm that underground mining had commenced and that the grade was between two and three times as high as the ore from the original open pit which was around 3 g/t. Bong Mieu was mined by the French from 1890 to 1941 when the Japanese entered the country. It covers an area of 30 sq kms and contains three deposits, Bong Mieu Central which is the open pit, Bong Mieu East, a potentially open-pittable deposit and Bong Mieu underground mine which has been redeveloped and refurbished by Olympus Pacific. The ore from this mine is currently being stockpiled and when output reaches an agreed level it will take over as feed to the pilot plant.
This plant, according to James Hamilton, treats the sulphide ore from underground more efficiently than the oxide ore from the open pit so throughput will be expanded steadily. David Seton reckons that it should be possible to increase production by around 10,000 ozs year on year without a major capital spend. Mention of money brings us to the interesting fact that Olympus Pacific has around C$20 million in the kitty and is only capitalised at C$50 million. This has to reflect North American sentiment about Vietnam in these difficult times rather then a realistic assessment of a company with one mine in production and another on the way. If Bong Mieu produces 20,000 ozs of gold in the current 12 months the gross revenue will be US$18 million so investors must ask themselves if such a project is worth only US$30 million, bearing in mind that the two mines have a combined resource of 1.48 million ozs gold and the Phuoc Son project could also be in production by 2010.
A positive feasibility study was carried out on Phuoc Son last year. It is a high grade property covering an area of 70 sq kms within which more than 30 gold prospects have been identified, many associated with artisan mining. Early this year Olympus Pacific announced an upgrade in the resource which doubled it to 637,000 ozs gold. Only 211,280 of these resource ounces, however, were in the measured and indicated categories and only 66,090 ozs were actually measured, but the average grade was 10.95 g/t. The reason is clear enough, the ore is in veins which are poddy which means that the high grade is not consistent and the resource is difficult to measure. Having said that, the high grade is certainly high grade as exemplified in a recent hole outside the evaluated area where there was an intersection of 0.6 metre at 28.8 g/t gold. Unfortunately bankers like to see reserves sufficient for a mine life of at least 5-7 years as Norseman Gold has found in Australia with a similar project. David Seton may therefore have a job on his hands when he tries to raise development capital as the bankers will try to hedge the project to bits.
The trump card that Olympus Pacific holds is its plant at Bong Mieu which can be upgraded with cash flow and funds in hand so the bankers do not hold the whip hand. One of the reasons for David Seton’s current visit to the mines is to gather information sufficient to debate whether it would make economic sense to truck the ore to Bong Mieu and we may hear more on this before long. In the meantime there is another fact which should never be ignored when discussing the company. Zedex Minerals, an Australian listed company run by the Seton family, considered making a bid for Olympus Pacific last year but was frustrated by the negative reaction from shareholder Dragon Capital.
Now Dragon’s attitude seems to have changed as it can see the sense of a combination which would be a power in gold mining in south east Asia as Zedex owns a controlling interest in the Bau gold project in Malaysia and a
majority interest in the Tien Thuan gold project in Vietnam. It is also a 13.51 per cent shareholder in Olympus Pacific and has a 2 per cent gross production royalty in respect of Olympus' share of gold production at Bong Mieu. Agreed it also has some assets in New South Wales, but that is no reason why this company should be worth nearly twice the market capitalisation of Olympus Pacific.
The situation becomes even more odd when the 60 per cent interest being earned by Olympus Pacific in the Capcapo gold property in the Northern Philippines is added. This property lies in the northern part of the Baguio Mankayan gold district which has recorded gold production and existing resources in excess of 60 million ozs so it can hardly be regarded as worthless. The crucial difference between the ratings of the two companies must therefore lie in the fact that Olympus Pacific is listed in Toronto and Zedex in Australia. Aussie investors understand the huge growth of south east Asia and the potential of countries like Vietnam, Philippines and Malaysia as it is from them and China that it is earning its current fortune. Merge the two companies and keep the ASX listing and shareholders in Olympus Pacific would be in for a very early Christmas in which investors from London might participate. |
