Awakening A Giant: Marengo Mining Plugs Away At Yandera In Papua New Guinea
By Alastair Ford
minesite.com
“We’re quietly confident that there’s a world out there that still needs metals”. So says Les Emery, managing director of Marengo Mining. Let’s hope he’s right, for his sake as well as ours, because at the Yandera copper-molybdenum project in Papua New Guinea Marengo has a whole lot of metal that it will be looking to start selling within the next three years. Specifically, 3.4 million tonnes of contained copper. Or perhaps we should say 3.4 million tonnes and counting, as drilling is by no means over. No wonder a recent presentation given by Les Emery was entitled “Awakening a Giant”. As things stand, at the end of the 2008 season, and using a 0.2% cut-off, and combining copper and molybdenum, Marengo was able confidently to inform the market that Yandera holds 527 million tonnes of ore grading 0.38% copper equivalent in the indicated category, and a further 766 million tonnes of ore grading 0.33% in the inferred category. There are also significant gold, silver and rhenium by-products not included in the copper equivalents. What’s more, Les Emery isn’t even convinced that at Yandera the company has been working up the best of the prospects on its sizeable project portfolio. But you’ve got to start somewhere.
That Yandera will definitely go into production is not cut and dried yet, of course, especially at these metals prices, but things are progressing apace, and a definitive feasibility study (DFS) is scheduled for completion by December 2009. Les Emery reels off a list of issues that are currently under investigation, ranging from pit design through to infrastructure, and fine-tuning of the economics. The plan is for a 25 million tonnes per year operation, with an initial life of ten years. Separate copper and moly circuits will be installed in plant near to the minesite, and the resulting copper concentrate will be piped in slurry form to Madang some way to the west, a town that’s described in Marengo literature as “a thriving seaport”. On the current timeline, commissioning is due for the early part of 2012, a date which, says Les Emery, “fits in with what the various off-take partners we’ve spoken to want”.
Of course it all looked a lot easier when metals prices were in the stratosphere. But although things are tight now, they are not yet desperate. “We ran the numbers on US$1.50 copper”, says Les Emery. “It isn’t easy, but it works”. When Les made that statement, towards the dying days of 2008, copper was still hovering just above US$1.50. Now, it’s dipped slightly below. Still, no-one said 2009 was going to be easy.
And, given that everyone knows we’re in for a tough year, even if there are slightly more bulls on the Australian side of things than there are elsewhere in the world, now may well be the right time for Marengo to revise the approach it takes to its calculation of metals equivalent grades. A re-working through the DFS would be one option, and would be useful in that it would allow the market to be able to see through to the real underlying value of Yandera as the company begins to move closer to funding options. The equivalent copper grades quoted above aren’t wildly out of kilter, but were calculated using a copper price of US$2.00 per pound and a molybdenum price of US$20 per pound. For a brief period during the last boom using US$20 moly looked a conservative approach. But long-term moly watchers will know that that over the years the average price has been much closer to half that, and that since moly fell off a cliff at the end of October, the current price, at not far north of US$10, seems to bobbing about at around average. US$2.00 copper looks a bit distant too, now, although in percentage terms copper's not off as much as moly over the last few months.
In any case, however shifting metals prices mess about with equivalent values, the real issue for Marengo is simply that both moly and copper are down. Not only does that put the squeeze on the economics, but it hurts sentiment in the investment community – indeed some of the company’s options have just lapsed, underwater by a long way. Still, says Les Emery, the company can’t do much about metals prices. What it can work on is grade, and he’s fairly optimistic that here Marengo does at least have room for manouevre. “If we increase the grade by one per cent,” he says, “the amount of extra cash that throws off is significant”.
So reasons to be cheerful, and we can look for more news on that in the months ahead and in the DFS when it comes out. More significantly for the immediate outlook and for long term survival prospects, Marengo’s money situation isn’t too gloomy. There’s A$18 million in the bank. So as far as new money’s concerned, says Les, “we’re in the fortunate position that we don’t have to do anything at the moment. We just have to do the study”. And as that study progresses Marengo may well also find ways to cut the likely US$1 billion capital cost that will be required to build a mine at Yandera. “There’s potential to shave a bit off that. Ideally I’d like to knock 10 per cent off that, but if you tried to tell people you could do it for much less they could tell you didn’t know what you were talking about.” Les is not a man you’d be inclined to say that about at all. If he can increase the grade and cut the capital expenditure, then by the time first production hits the market we may be looking at a lean-and-mean Marengo that’s sailing slap-dang into the next upswing. |
