Frontier Mining Might Not Be Averse To A Merger With Another Junior Mining Company
By Our Man In The City
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It’s been a long haul and plenty of unfulfilled promises, but Frontier Mining claims to be ‘just a couple of months’ away from finally starting commercial production at the Naimanjal gold/silver project in Kazakhstan, which has been pilot mining for nearly three years. Financial results due later this month won’t show a pretty picture in terms of revenue, as gold and silver production has been hampered by permitting issues and bad weather reducing the amount of ore it could stack. Chief executive Brian Savage says that times have been tough but he believes that Frontier is turning the corner. Indeed, the presence of a second project, the Benkala copper porphyry deposit, makes the company look more interesting. But can shareholders put three years of disappointment behind them and give Frontier a second chance?
Frontier’s IPO prospectus when it floated on London’s Aim market in 2004 said the company would be producing 100,000 ounces of gold annually within three years of admission to the stock market. That goal should have been celebrated at the forthcoming results, which cover full-year operations for 2007. The reality is that Frontier may report just five per cent of this production level. In the first half of 2007, it only produced 816 ounces of gold. The full-year target was then placed at 5,000 ounces.
“The delays to achieving commercial production are mostly administrative,” says Mr Savage. “The Kazakh government wanted more details of our silver recovery from Naimanjal, to make sure we got the highest recovery grades possible.” It is easy to see why the Kazakh authorities held off upgrading Frontier’s pilot permit. Silver recovery rates ranged between five and 40 per cent, with leaching taking up to 270 days compared with the 45-90 days for gold, explains Brian. He says a carbon circuit has now been installed to improve recovery rates.
Naimanjal was displaced as the company’s lead project last year when Frontier paid US$21 million for a 50 per cent stake in Benkala. However, Naimanjal is still highly influential towards Frontier’s future as the company must prove to the Kazakh authorities that it can bring a project into commercial production. Achieving this will help in the quest to start Benkala.
A pre-feasibility study on the copper project is now in Mr Savage’s sights. “We’ve just finished a scoping study on Benkala. We’ve started some drilling, so effectively we have already begun the pre-feasibility, but we’ve not really jumped into the work properly yet.” He explains that the study will be completed by the first quarter of 2009. A reserve update will be published towards the end of this year as Frontier tries to prove up historical drilling. “The market is interested in us being able to compare State Committee reserves with the figures produced by Wardell Armstrong in their competent person’s report in March 2007,” says Mr Savage. The consultancy reckons that Benkala contains 47.75 million tones at an average grade of 0.36% copper oxide, and 873.75 million tones averaging 0.3% copper sulphide.
Brian declares Benkala to be “the value driver” for Frontier. Interest is also mounting in the Koskuduk gold project which is at the pre-feasibility stage. “We’ve found lead and zinc as well as gold, so we’re now considering whether to develop Koskuduk as an open pit heap leach project or a base metals deposit,” reveals Mr Savage. “We probably don’t need more drilling. We just need to understand the data.” He says that if Koskuduk were to be developed like Naimanjal, then around US$5-10 million investment would be needed. “We may be able to leverage Naimanjal gold production and get a credit to cover this funding.”
Like many junior mining companies, Frontier insists it is undervalued. “We paid US$21 million for half of Benkala, yet our market cap is only around US$25 million. If we were forced to sell Benkala, we could get at least US$60 million, potentially even US$120 million.” While a disposal is not on the cards, Mr Savage does see benefit in consolidation, saying it makes sense for juniors to combine forces to create a mid tier company that commands a higher rating. Conversations have been held and while there’s nothing in the pipeline at the moment, don’t be surprised if Frontier does eventually strike a deal. It’s hard work on your own and Frontier certainly needs a shoulder to lean on if it is going to make a success of commercial mining. |
