With Copper Prices Where They Are, Marengo Is Sitting On A $20bn Project
By Our Man in Oz
minesite.com
As a general rule, “in-ground” valuations of metal in an undeveloped mining project are about as valid as Samuel Goldwyn’s famous logic-twister about a verbal contract being “not worth the paper it’s written on”. But sometimes the numbers involved are so eye-catching that perhaps even the famously ruthless Goldwyn would be forced to treat them with respect. That’s certainly the case with the copper and molybdenum held by Marengo Mining at its Yandera project in Papua New Guinea. On the latest metal prices there is at least US$20 billion worth of minerals in the ground, and almost certainly a lot more to be added as a six-rig exploration programme accelerates the flow of data from what might one day be one of the world’s biggest copper mines. What makes Yandera’s “gee whiz” in-ground metal valuation particularly interesting is that Marengo itself is valued on the Australian Securities Exchange at just A$50 million.
To put those numbers into perspective, the Marengo valuation comes out at about 0.25 per cent of the theoretical in-ground value of the minerals at Yandera. Some observers will, correctly, see the value gap as an indication of the hard work ahead for Marengo in converting Yandera into a profitable mine. Others will recognise that the China-led resources boom is underwriting the future of the project, and that even if it is a heavy lift for a small company, Yandera is an asset too good to remain undeveloped for much longer. Recognise those simple facts, and factor in the prices being paid for other undeveloped copper assets, and Marengo is a company worth very close attention, even if it is three to four years away from production.
One issue behind the value gap is the familiar old story that Australian investors are wary of assets too far from home. Canadians are less suspicious, which is why they have keen supporters of Marengo’s latest capital raising and plans to list on the Toronto Stock Exchange. The C$8.5 million tipped into the company last week will bolster Marengo’s cash reserves and ensure that it has sufficient funds to pay for the definitive feasibility study on Yandera, which got underway earlier this year. If all goes to plan that study will be complete by the middle of next year, clearing the way for a start on construction, with first production slated for 2011.
“We still have a lot of work to do, but the outlook is excellent,” says Marengo chief executive, Les Emery, after Minesite tracked him down to his Perth office this week. “All six rigs are on site, four are working in the pit area and two are undertaking sterilisation drilling on future rock waste dump sites. In all, we’re planning a 20,000 metre campaign for the year, both in and around the proposed pit, and to test a number of very interesting regional targets which could be look-alikes to the big porphyry system we already have outlined at Yandera.”
Yandera is not a new discovery. The early work was done decades ago by BHP Billiton, but the project was deemed too difficult at a time of low world copper prices. That game changed when China’s growth rate went ballistic, boosting copper from less than US$1 a pound to a recent price of around US$3.90 a pound – a price which is more than double the US$1.50 per pound used last year by Marengo in its first-pass feasibility study. The orebody itself is a classic bulk tonnage, low-grade, structure which is officially measured at 660 million tonnes of material grading around 0.55% copper equivalent, when the molybdenum content is thrown in too. In fact, even Australia’s legendary bushman, Blind Freddie (not to mention his dog) could see that Yandera easily contains more than a billion tonnes of material, and that a planned initial mine life of 10 years will stretch out to 20 or 30 years. All that’s needed is the drill results – and a copper price to encourage investors to continue supporting the programme.
“One of the aims of the current drilling campaign is to test the material at the pit boundary,” Emery says. “We need to look closely at that because it is of unknown grade and we need to know whether it’s waste or can be converted to ore.” Outside the pit there is an ongoing search for waste dump sites – important work, but not particularly exciting. And even further out is where investors have every right to get a little more excited about Marengo. It’s the regional work that the company is undertaken, looking for Yandera look-alike structures, which could substantially boost the shares, and the company’s appeal as a potential takeover target, in much the same way that Tethyan Copper became an object of desire - and a very high acquisition price - as it re-worked an old BHP Billiton project in Pakistan.
“The extensional drilling outside the pit area is certainly what has interested some of our new Canadian investors,” Emery says. “We’re expanding on what BHP Billiton did, and then to the south-east there are areas that have never been drilled. What we’re potentially looking at are repetitions, just more of these porphyry intrusions. There appears to be a cluster of them, prompting one question in the States when I was asked whether one of the other structures wasn’t better than what we’re working on, and I had to say I didn’t know. No-one knows.”
If all proceeds smoothly for Marengo it ought to pass a series of milestones over the next year. The company already knows it has a resource. The official global figure is 660 million tonnes. In the pit shell as currently designed there’s a resource of just over 400 million tonnes, sufficient to ensure a 10 year mine life with production of around 100,000 tonnes of copper a year. “The plan is for a 10-year mine life,” Emery says. “But we’re confident that if a mine can be developed we’ve got a lot longer than that. We are in a highly mineralised region and we have neighbours exploring steadily closer to our border.”
It is significant that one of those neighbours is Canada’s Barrick Gold, a partner in the acquisition of Tethyan, and a business keen to add to its resource base. “Over the past few months Barrick has been highlighting the fact that they’ve got a series of porphyry structures they want to explore which run north-west up into our ground, and they know the Yandera project,” Emery said. “Interestingly, our new prospects run south-east down towards Barrick. If nothing else, it’s certainly showing that there’s a very interesting copper-moly-gold camp occurring in that area.” |
