Kentor Gold – Andash Project

The other day I was informed on Hot Copper and Share Scene that Simon Milroy, the Managing Director of Kentor Gold, would be in the Kyrgyz Republic to meet the Prime Minister. Obviously you can never take anything you hear on a forum as gospel, but it was interesting to hear non-the-less.

A day or so later this article was posted (please excuse the poor English as it was translated using Google):

http://news.namba.kg/read.php?id=208851

*Translated to English*

The Australian owner of the field "Andash" discuss with the authorities of Kyrgyzstan future mine
February 28, 14:03 Source: K-News

Simon Milroy - the head of the Board of Directors "Kentor Gold", which owns the mine, "Andash", arrived in Kyrgyzstan to find the position of leadership on the development of the mine. This was announced today, February 28, the press service of OJSC "Kentor Gold."

According to her, Simon Milroy arrived in Kyrgyzstan today, and in early March, plans to meet with government and parliament, which banned the development of the field "Andash" in June 2011 due to the potential environmental threat.

The Government of Kyrgyzstan to the current date is not officially reacted to this decision, although in November 2011 the company "Kentor Gold" suggested the government to deduct 20% of revenues from the development of the field.

In this regard, Simon Milroy going to find out the position of the country's authorities with respect to the mine "Andash" and prospects for further work in the country of "Kentor Gold." It is planned that following the visit of the company's management decides to increase or decrease the amounts of investment in Kyrgyzstan.

"For the development of the field" Andash "has already received approvals, acquired by road and construction machinery, mining equipment ordered, social package is designed for the local population. Over the next 1.5 years, the company is ready to invest in the project is 106 million dollars, and payments to the budget since the start of production will amount to 1.5 billion soms per year, including dividends to the state ", - noted in a statement.

For the record : Simon Milroy - Managing director of JSC "Kentor Gold." Specialty - a mining engineer, has 20 years experience in metal extraction. Member of the Australian Institute of Mining and Metallurgy.

JSC "Kentor Gold" owns mines in Australia and Kyrgyzstan - mine "Andash." In Kyrgyzstan, the company has been operating since 1997 and has invested in exploration in the country of 10.8 million dollars.

This confirms that Simon Milroy has/had arrived in Kyrgyzstan and would be meeting the government and parliament. The “ban” which the article refers to was a decision that was forced through the parliament in the middle of last year and led to the delays we currently face. This was also at the time when the village was against the project, which now appears to have changed.

I remain confident that there will be a positive outcome for Andash and believe that this article is further evidence of that.

Kentor Gold - Updates 3 Emerging Near Term Projects

For those of you who keep a close eye on my blog and in particular the weekly reports you would know that since consolidation Kentor Gold has been a poor performer. It has come down off its highs of approximately $1.30 and on Monday almost hit $1.

Then came a Company Insight Announcement. I have mentioned in the past that these are a great communication tool that provides little snippets of information that we would otherwise miss out on. Anyway the market responded and the share price climbed 20% over the next two days. It settled down during the middle of the week and is now back up to around $1.20 where it will hopefully close for the week.

The report talks about each of our projects and really emphasises the fact that Burnakura is a multi-stage project and that we should not just focus on stage one. In Simon Milroy’s words “the second phase, heap leaching, oxide ore is what really makes the project perform as this will increase the gold output and reduce the operating costs”. It is also important that this second phase does not need a huge additional amount of capital expenditure as we will already have most of the equipment required.

The phase one will also only included mining from four of the twenty open pits at the project so there is plenty of upside in future mine life. To help assist with this goal Kentor is currently undertaking a 20,000m exploration program at the Murchison project. The program is designed to infill drilling around the initial mining areas to increase confidence and extend the resource. It will then move to Gabanintha.

There wasn’t a whole heap of information provided on Andash, but if one thing stood out it was “If we meet those target numbers we will produce free cash flow each year that is equal to our current market capitalisation”. If that doesn’t highlight the potential of this project and the rewards on offer for Kentor Gold shareholders then I don’t know what would.

On to Jervois and it is pretty clear by now that management are extremely positive on the potential of the project. In the announcement Simon Milroy stated “Jervois is shaping up as a pretty major multi-metal mine, and it could well emerge as the largest of the three current projects”. Kentor plans to complete a scoping study next month and then proceed straight into a full feasibility study. The scoping study is currently examining the economics of a 1.5 mtpa floatation concentrator producing a copper concrete with significant precious metal credits. Kentor is also investigating the production of a magnetite concentrate from the floatation tailings, which is pretty significant in my opinion.

Overall it was a well written and fairly well detailed report. The market obviously approved as we saw the share price respond strongly.

Linkto announcement.

Where Do I See Kentor Gold Going In 2012?

Kentor Gold is the stock that I believe offers the most potential (out of the three I hold) for 2012. I believe this is the case due to the strong news flow associated with the company’s projects and their move into “producer” status with their Burnakura project in the middle of the year.

In terms of specific things that I think will take place in the year I will be looking out for:

1.    Approval of the Andash project in the Kyrgyz Republic. Prior to the troubles surrounding the approval process at Andash KGL traded up in the high teens. On top of that they have also acquired the Australian Assets since then. So naturally, any approvals that allow Andash to move toward production could have a significant effect on the company’s share price.

2.    Updated Resource Statement and Pre-Feasibility at Jervois. Simon Milroy, the Managing Director and CEO of Kentor Gold, has mentioned in past announcements that Jervois has the potential to be larger than Andash. Early in the New Year we are expecting an updated resource statement which I believe has the potential to really excite the market. Later in the year we can also expect to see the Pre-Feasibility study.

3.    Potential acquisition of Atkash? When Andash was delayed Kentor Gold relinquished their option over the Atkash project, a small satellite project that is too small to be independently mined. If Andash is approved I would expect Kentor Gold to re-examine this project due to its higher grade and ability to improve the mine life/NPV of Andash.

4.    Burnakura moving into production. The feasibility for the Burnakura project is already overdue as the company has now decided to analyse an underground operation as well as the open cut mine first mentioned. This could have the potential to increase the grade of material mined and have a positive impact on this projects value in my opinion. Even though the feasibility study is delayed works at the mine are ongoing and production is scheduled to start in mid-2012 (i.e. no delay to production).

5.    The Geo-Thermal project. I have mentioned this numerous times on HotCopper and in my blog and it always fails to generate discussion. I realise it is a fairly “boring” project when we have so much else going on but I think this has the potential to surprise us all and deliver a nice little profit on the side.

6.    Further exploration at the Bashkol exploration project in the Kyrgyz Republic. Initial exploration work in the Bashkol licence area has indicated that there is significant potential there so I will be keeping a close eye out on any exploration data released throughout 2012.

On top of all that we will have ongoing drilling taking place at Burnakura, the proposed share consolidation on 10 Feb 2012 and hopefully an increase in the price of Gold. All of these items have the potential to substantially increase the value of Kentor Gold in my opinion and I will certainly be monitoring them all closely.

Kentor Gold: Andash Update & the Kurulti Process

A couple of days ago Kentor Gold released an update on their Andash project in the Kyrgyz Republic. The announcement stated that a general village meeting was held on the 16^th of December and that this meeting was attended by a number of village stakeholders including the council of elders, the women’s committee and the youth committee. The outcome of this meeting was that a formal Kurulti (a traditional decision making meeting) will be held regarding the development of the Andash project.

At first glance it appeared that this announcement was just saying a meeting had taken place to arrange another meeting and that Kentor Gold was prepping us for a slight delay in the outcome of the project. This belief was compounded by the fact that management had previously stated that a decision was expected before the end of the year and I therefore thought that this was their polite way of saying that a decision was close, but not here yet.

Anyway I have done some research into the Kurulti process and re-read the announcement a number of times and the thing that strikes me is that “Representative of government, parliament, regional and provincial administrations will be invited to attend. The one item to be considered at this meeting is the granting of a social licence for the development of the Andash project.” This now leads me to believe that this Kurulti process is more likely to be a formal way of the village saying “yes” to Kentor Gold. This obviously makes sense as whenever a decision is made a formal announcement/commitment to that decision needs to be released. I.e. It’s not like every member of the village is going to contract Kentor directly and let them know how they feel.

My opinion towards the announcement has therefore changed and I feel a lot more comfortable about the process. Obviously we don’t have any idea of timing, although Simon did hint that it may be in the New Year when he said “we anticipate moving the Andash project forward with a full social licence in the New Year” but it certainly seems like a positive outcome is almost within reach. But as they say a deal is not done until you see the signature on the dotted line so I’ll hold my excitement for the time being.

As always please do your own research and consult a financial advisor.  The above comments are purely speculation on my part.

Link to announcement

Kentor Gold Announcement: MD Updates on Company Projects

Yesterday Kentor Gold released an announcement to the ASX in the form of a Company Insight report. Normally I find these quite informative as they follow a more conversational tone and provided snippets of information not usually included in a standard company announcement. Unfortunately, yesterday’s one was fairly plain and did not offer too much additional information.

The update mainly focused on the Jervois project and mentioned that the first metallurgical test work conducted by Kentor Gold produced a 26% copper concentrate grade at a recovery of 94%. “This is a very good result and indicates that the ore is very amenable to concentration by flotation”. It was also achieved using a relatively coarse grind size of P80 90 micron. The benefit of this is that the coarser the grind size the lower the capital and operating costs. Obviously it is early days for the Jervois project so we really need more information and analysis before you can confirm any of the above.

The announcement also provided some details on the drilling that has taken place. The previous resource estimate was limited to a depth of 200 m below surface, with recent drilling going as far down as 470m. The ore body does appear to get narrower at depth, but is also higher grade. As a result of this drilling the insight report states “We expect to complete an updated Resource estimate for Jervois later this month”, so that is something we can all look forward to. Simon Milroy also stated that “the Jervois project has the potential to be the largest project for Kentor Gold. However further drilling is required”.

Secondly, onto Burnakura, the feasibility has been delayed for a number of reasons including the fact that it will now also examine the potential of resuming underground mining operations. It is now anticipated that this study will be release in January 2012, however it is important to note that this will not delay production which is scheduled to commence in June 2012.

The report then goes on to talk about the Kyrgyz Republic operations where Simon Milroy states that “The number 1 priority for Kentor Gold in 2012 is to get Andash into construction”.  Originally we were expecting approval on this project prior to Christmas. But the tone of the announcement was not as bullish as in the past so I feel this may be pushed into January 2012.

Finally, one of the more interesting parts of the announcement occurred at the end where Simon Milroy reaffirmed that the company’s strategy is to acquire, develop and operate advanced projects which have existing resources. He then goes on to say that “There will be more volatile times ahead, and we look forward to the opportunities that they will undoubtedly present to Kentor Gold”. This leads me to wonder if, once we are in production and generating cash, the company will look at further acquisitions.

Link to announcement.

Kentor Gold - September Quarterly Report

The other day Kentor Gold released their quarterly report along with MHM and OBJ. I have been so busy writing other posts and analysing the reports that I have not had a chance to post on Kentor Gold, until now.

The first paragraph really says it all in regard to the future potential of this company:

“Kentor Gold Limited advanced towards its goal of bringing three mines into production over the next three years”.

It is certainly an ambitious project but Kentor Gold has the cash ($40m), plus the debt facility ($50m) and can use the cash flow generated from Burnakura to help fund the second (Andash) and third (Jervois) mine.

I will breakdown my analysis and thoughts on the report under individual project headings.

Burnakura

During the quarter the program to restart production was commenced. This included recommissioning existing processing plant, the installation of additional plant, the completion of a feasibility study detailing mine planning and additional exploration drilling. Everything appears to be progressing nicely on this front and the power plant was also successfully restarted without any significant problems.

We can also expect assay results from a 60-hole air core drilling program that tested structural targets adjacent to the magnetic anomaly approximately 2 km north of the existing NOA open pits will be available early in the December Quarter (i.e. any week now). An 8,000 metre RC drilling program will also commence this month to infill and increase the confidence in the areas where production is planned to commence.

Jervois

Recent drilling campaigns have continued to produce high grade copper-silver results. And more importantly “high grade mineralisation is being extended to depths hundreds of metres below the current Resources”. We can expect an updated JORC resource sometime in the near future.

Andash

“Negotiations at community level continued during the quarter, aimed at achieving local approval for site access so that construction of the project can commence.

As soon as this occurs, geotechnical investigations will be completed and the 12-month construction program will proceed.”

The above statements continue to be very positive on the project. My confidence in Andash proceeding continues to increases and was aided by the positive election results which I posted on earlier today.

Bashkol Exploration Licence (Kentor Gold 80%)

This was a project that we had not heard much about lately. The report states that the exploration program for 2011 has been completed and results will be released to the market next quarter (i.e. any time now) as soon as the fire assay results have been received.

It will be interesting to see what happens with this exploration area. I doesn’t appear to be a key priority for management so it would not be unusual for this one to go on the backburner for a while, unless the results are truly great.

Geothermal Energy

The second forgotten project is the Kentor’s involvement in geothermal projects. Originally the company was looking at geothermal projects in Kyrgyzstan with the idea being to sell cheap/clean energy to China. This was then expanded to include other former soviet bloc countries.

Around the same time all this was happening, back in 2007, Simon Milroy joined the team and refocused the company. Prior to this it appears as though Kentor Gold had no clear strategy and was looking at anything and everything including Gold in Kyrgyzstan, Uranium in Australia and the above mentioned geothermal projects.

You can therefore understand my surprise when this popped up in the report, as I thought it had long been cut adrift. The report states that a review which stated two years ago found that Savo Islands in the Solomon Islands was the best project available and an application was lodged for a Geothermal Energy Licence. “It now appears that this licence is likely to be granted”.

The report then goes on to state that the application was made using a 100% owned subsidiary Kentor Energy.

I have reviewed the original announcements and my notes and at the time we were teeing something up with Panax. Whether this is still on the cards remains to be seen, however this project could deliver a little bit of extra cream for KGL shareholders.

The original announcements on the geothermal projects can be viewed here:

http://asx.com.au/asxpdf/20070411/pdf/311w7mgqb6pksn.pdf

http://asx.com.au/asxpdf/20070905/pdf/314d71bxgblglm.pdf 

You can also read up on Panax here:

 http://www.panaxgeothermal.com.au/

The Election Result – Kyrgyzstan

On October 31 Kyrgyzstan held their Presidential elections. Given the previous political instability in the country and potential for violence, the outcome of the elections was very important for the people of Kyrgyzstan and the future direction of the country.

It could also have a material impact on my portfolio due to my holding in Kentor Gold (who are trying to get the Andash project up and running) and was therefore closely followed.

Our preferred candidate, Almazbek Atambaev (the former Prime Minister), declared victory after 81.28% of the ballots had been counted. At the time he had scored 63.09% of the total votes, with the next closest rival Kamchibek Tashiev scoring 14.87%, followed my Adahan Madumarov in third place with 14.6%. To win the election it was a simple majority vote and if no candidate was able to get over 50% then the top two candidates would have gone to the polls again to ensure a clear winner.

Following the outcome I have been keeping on the news to watch for any evidence of violence following the result and so far everything seems to be ok. There has been a few articles saying that some people were unable to vote in certain parts of the country but the international monitors have reported that any irregularities would have been too small to affect the overall result.

The new President will take over in December and is considered a moderate who wants Kyrgyzstan to start mining/benefiting from its huge mineral wealth. The resource industry contributes a huge percentage of the country’s GDP and to grow wealth and prosperity for the people he realises that mining and foreign investment must be encouraged. Hopefully he remains true to his word and Kentor Gold can form part of the country’s future.

KGL: Company Insight - Significance of Outstanding Drilling Results

Yesterday Kentor Gold released an announcement on the significance of the Jervois drilling program through the use of a Company Insight interview. As an investor I really appreciate it when companies use this type of channel to provide additional information to the market. They typically provide a more general overview of the company’s operations and help clarify management’s thoughts and opinions on events that are likely to shape the company’s progress.

The first key bit of information focused on Jervois and the potential for an increase in the JORC resource estimate. We already knew this was on the cards but it today’s announcement stated that “recent drilling has confirmed that the mineralised structure is still continuing strongly at 450 metres below the surface”. The future potential of Jervois cannot be underestimated in my opinion with the Managing Director, Simon Milroy, stating “I believe that we are at the early stages of understanding a large mineralised system with the clear potential to be a major base and precious metals mine.”

Additional drilling results from Reward, Green Parrot, Bellbird and Bellbird north can also be expected in the near term. This should help maintain the current rate of news flow, something that I view as very positive and a significant contributor towards underpinning the share price in the short term.

The most exciting news for Kentor (at least in the short term) is skill the development at Burnakura. Today’s announcement has clarified the company’s previous guidance of completing the refurbishment of the existing plant and small expansion by  mid-2012 to June 2012. The announcement then goes on to outline an additional three phases of expansion. From this we can see that the heap leach operations are going to proceed (underlining my base case valuation of KGL), that there “will be an expansion to 500,00 tpa” by installing a second ball mill and that they are considering treating gold and copper-gold ore from Gabanintha at Burnakura.

As soon as we receive further guidance on the 500,000 tpa upgrade (in regard to timeframe and cost) I will update my discounted cash flow analysis to incorporate this. It stands without reason that a doubling of plant capacity from 250,000 tpa to 500,000 tpa has the potential to increase the value of the Burnakura operations and Kentor Gold by a significant margin.

Finally the most important line in my opinion is “we are planning to have three mines in operation with gold and copper production from Burnakura and Jervois in Australia and at Andash in the Kyrgyz Republic. Not only does this underline the future potential of the company (from zero to three mines in three years), but it talks positively about the Andash project. As I have mentioned in my previous posts if management had any major concern about Andash I do not believe they would refer to it in such a positive manner. It is my opinion that Andash is a greater than 50% chance of going ahead, however for the purpose of my valuation I will still attribute this project with a zero value.

Link to the announcement.

KGL: Court Decision on the Minority Ownership in Andash Mining Company

Yesterday Kentor Gold advised that the Chui Regional Court had handed down their decision in relation to the minority ownership in Andash Mining Company.

This minority ownership refers to the 20% of the project not owned by Kentor Gold and the previous transfer of this stake between the minority owners.

The court found in favour of the General Prosecutor “who asserted that the transfer of a 20% holding in AMC between the minority owners was invalid.” Furthermore the court now requires KGL to re-register Andash as a company owned 100% by Kaldora (100% Kentor) and then make an offer to the Kyrgyz Government to purchase this 20% stake.

This does not affect the project dynamics in any way as Kentor Gold, previously had 80% and will still have 80% if the government takes up their 20%. Furthermore Kentor has previously advised the market that if they were awarded 100% of the project that they would sell the 20% stake to the government for nil consideration.

In my opinion this is an important step forward in proceeding with the Andash project. Firstly it removes the legal clouds surrounding the project and provides Kentor with a valuable bargaining chip (the 20%) to get the government onside.

Should the government take up their 20% stake Kentor will pay for the entire development of the mine and oversee its operations, while the government gets the opportunity to rake in a considerable amount of profit. Given the importance of mining to the local economy and the nations GDP this has the potential to create a “win-win” scenario for all involved.

Finally it is important to note that the case can be appealed further, however “Kentor believes that the General Prosecutor’s legal case is now very well tested”. Hopefully more positive news on the Andash project follows in the near future.

Link to the announcement.

Kentor Gold: Andash Project & Combined Value For KGL

On 30 June 2009 Kentor Gold announced that they had secured the option to Purchase an 80% stake in the Andash Gold-Copper Project in the Kyrgyz Republic.

The project was considered “development ready” with the feasibility study, environmental and social impact assessment completed, mining licenced issued and mining and construction fleet purchased. The mine was projected to produce approximately 60,000 oz of gold per annum and 5,000 tonnes of copper. The JORC compliant resource estimate stood at 680,000 oz of gold and 77,000 tonnes of copper.

The cost of acquiring the 80% stake in the Andash project was broken down as follows:

·         US$10,000,000 to purchase the stake in the mining project.

·         US$5,000,000 to purchase the fleet of mining and construction equipment.

The major benefit of the Andash project is its low mine costs. Total cash costs per ounce stand at US$29/oz Au after Copper credits and royalties (as per they July 2010 investor presentation) and can theoretically go negative depending on the price of Copper.

Now I have analysed the Andash project using my own DCF model, however given the uncertainty of the project I am assigning it zero value when arriving at a combined value for Kentor Gold.

However, should the project proceed there is the potential for significant upside in my opinion. The July 2010 presentation stated the base case NPV was US$130 million based on a Gold price of US$1,000 and Copper at US$2.75/lb. At a price of US$1,300/oz gold and US$3.50/lb Copper the project would have an NPV of $241 million as the below table shows. Obviously current prices (gold and copper) are higher than this with the NPV easily north of $350 million.

The summary of all Kentor Gold projects is now therefore as follows:

Burnakura High Grade Operations (DCF valuation): $45.8 million

Burnakura Heap Leach Operations (DCF valuation): $33.9 million

Gabanintha Gold-Copper Project (in ground valuation): $10.5 million

Jervois Base Metals Project (in ground valuation): $23.3 million

Andash Gold-Copper Project: $0

Conservative Cash Figure: $35 million

Total: $148.5 million

This equates to a base case scenario of 13.2 cents per share on a fully diluted basis. It is important to note that this is the lowest value I could assign to Kentor Gold and totally ignores the increase in value that will flow from Gabanintha, Jervois and Andash coming online. It also ignores future upside from an increase in the resource estimates for each project and the potential of Burnakura to fund future project (i.e. limited risk of dilution).

The reason why I conducted my research this way is because it highlights that even when taking an extremely conservative approach Kentor Gold represents good value in my opinion. If/When it moves closer to production at Burnakura, Gabanintha, Jervois and Andash then we will see a significant re-rating of each project that is more in line with the NPV of each project. As per the Intersussie report and my previous commentary this could represent a share price of 48 cents plus.

As always the above information is not advice or a recommendation to make any investment. You should conduct your own research and consult a licence financial advisor before making any investment or trading decision.