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.

Kentor Gold Clarification to Quarterly Report

As I just mentioned in my post on the Kentor Gold Quarterly Report there had been some discussion about the timeframes for the Burnakura feasibility studies. As chance would have it Kentor have just released a clarification.

The project is planned over two stages. Stage 1 is the expansion and restart of the CIL plant. Stage 2 is the addition of a heap leach operation to treat the low grade ore.

The feasibility study for stage 1 will be completed and released to the market in the next two weeks. Stage 2 of the project will be completed in April 2012.

So there we have it, we can expect another announcement on the Burnakura project very shortly.

Link to 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: Air Core Drilling Results From Burnakura

Yesterday Kentor Gold released a report on the results of a 60-hole air core drilling program at Burnakura. This was really the first round of exploration in areas where there are currently no known resources/reserves.

The exploration area was 2km north of the known gold Resource and it targeted a magnetic structure interpreted as containing a repetition of the Burnakura Thrust zone. The results were disappointing with low levels of gold anomalies (<0.2g/t) being identified.

There is however a more substantial 20,000 m RC drilling program that will commence in January 2012 which should yield some more promising result.

All in all it was a “nothing” announcement and the market moved on.

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/

Kentor Gold: Burnakura Gold Project Update

Another day, another announcement by Kentor Gold. If investing in the small/micro cap sector of the stock market has taught me anything, it is the importance of news flow. As long as a company is updating shareholders and the market and what is going on people remain confident and the share price somewhat supported (unless the news is bad of course). By contrast companies that don’t update holders often fall off the radar or face the growing discontentment amongst holders. So with that all said it is great to see Kentor Gold reporting on such a regular basis.

Today’s announcement marks a significant step towards production at the Burnakura Gold Project. The announcement reaffirms that production is on track for mid-2012 and provides some addition details on the refurbishment and recommissioning program. A contract for this work has been awarded and the dismantling and transportation of equipment from the Indee site has already started.

The CIP processing plant at Burnakua is being recommissioned and expanded and the additional plant acquired from the Indee site will facilitate the re-start of the project. A key component of the upgrade is the addition of a gravity circuit to recover free gold with a stripping plant and gold room relocated from Indee which enables gold production onsite.The announcementalso  reaffirms that a throughout of 250,000 tpa is being targeted for stage one with future expansion to 500,000 tpa being considered for stage two.

Finally the announcement goes on to state that a 60 hole air core drilling program commenced today to test structure targets adjacent to the magnetic anomaly north of the existing open pits and work approval has also been received for an 8,000m RC drilling program that is planned to commence in October.

All in all just another tick in the right box for Kentor Gold.

Link to the announcement.

Kentor Gold: Analysis on Burnakura Gold Project

After yesterday’s post on the background of Kentor Gold I have decided to post my analysis on one of Kentor projects, the Burnakura Gold Mine. Over the next couple of days/weeks I will post analysis on each of their projects and then bring it all together to provide my total valuation on the company.

The Burnakura Gold Project located 50km south of Meekatharra in Western Australia, it covers an area of $47.5km² of gold prospective tenements on pre-1994 mining leases. The project has historic open pit production of 216,205 oz (1.8 million tonnes at 3.8 g/t) and open pit mining ceased in 1998 when the price of gold fell below $440 per oz.

In 2005 underground production commenced with a new plant and camp installed in November 2005. The mine continued to operate until October 2009 when the operation was placed in care and maintenance mode pending the development of additional underground deposits. Underground production resulted in 50,637 oz of gold from 264,731 tonnes mined at 5.94 g/t.

As the project was owned by an unlisted mining company, Jinka Minerals, the mine was never bought back into production (even with the huge increase in the price of gold) due to a lack of funds/limited access to funds for further exploration. As a result the project (along with Gabanintha and Jervois) were sold to Kentor Gold in 2011.

Burnakua currently has a 160,000 t/pa CIL Gold Plant which can be easily upgraded to 400 to 500,000 t/pa should a suitable grade be defined. There is also a refurbished ninety person camp, offices and workshop.

Kentor is also considering the use of a heap leach plant to process lower grade ore and on 20 June 2011 announced that they had acquired a heap leach plant, previously owned by Range River Gold (in administration). The plant acquired included:

·         A two stage crushing plant

·         Heap leaching equipment including an agglomerator, conveyors and stacker

·         Carbon adsorption tanks

·         Elution column and gold room.

The elution column and gold room will be used in the processing circuit at the Burnakura project and provides Kentor Gold with an effective means of re-commissioning the plant.

Since the acquisition Kentor Gold have also announced a 500,000 oz resource at the Burnakura Project. See announcement for further details.

To arrive at a value for the Burnakura project I have analysed potential project costs provided by an Intersuisse Report and a variety of other industry sources. I have split my valuation into two sections, the high grade operations and the heap leach operations. I then ran a discounted cash flow exercise (using a spread sheet that I developed) on each operation to arrive at a net present value. This involved hours of work and I am happy to share the spread sheet with those interested. For the purpose of this post I will however summarise the key points. Please be aware that this is not intended as advice and you should do your own research. The points below does not represent all my research but more so a snap shot/summary.

My initial projections for the production are conservative and include the following:

1.    250,000 tpa production after year 1

2.    Mine life of 11 years until 2023

3.    Average grade of 2.9 g/t

4.    Average gold price over the life of the mine $1,550 (starting at $1,700 in 2012 and decreasing over time to $1,400 in 2023).

5.    AUD/USD exchange rate starting at 1.05 and decreasing to 0.90 in 2023.

6.    Cash costs of $850 per ounce including royalties.

7.    Production of approximately 21,000 oz per annum after year 1.

8.    Initial project capital expenditure of $2,500,000 in 2011 and 2012

9.    Sustainable capital expenditure of $2,500,000 from 2013 to 2023.

Now since I ran these figures the price of gold has increased significantly. It is likely that we will be going into production with a gold price of close to, if not higher than $2,000 per ounce which obviously improves the profitability and therefore value of the mine. Initial discussion with other investors in KGL has also indicated that cash costs will be lower than my estimate. Kentor Gold is expected to release the feasibility on this project within 4 weeks. I will then re-evaluate the above figures to be more in line with their forecasts. What the above does however highlight is a base case scenario which is how I like to analysis the future potential of a company. Any improvements in the projects financials is additional reward on top.

The Net Present Value of the High Grade Operations is $45.8 million based on the above. There are currently 1,061,592,950 shares on issue with 59,611,358 options. On a fully diluted basis this equates to a NPV of just over 4 cents per share.

We can then add on the Heap Leach Operations. The assumptions for the gold price, exchange rate remain the same. Those than differ include:

·         Plant capacity of 350,000 tpa

·         Average grade of 0.91 g/t

·         Average gold produced is just under 12,000 oz per annum.

·         Cash costs per ounce of $750 including royalties

·         Initial cap ex of $5 million in 2011

·         Sustainable cap ex of $3 million in 2012 flowed by $1 million each year after.

·         Mine life until 2029

This gives a Net Present Value of $33.9 million of 3 cents per share. Therefore the value can be summarised as:

High Grade Operations: 4 cents per share (fully diluted)

Heap Leach Operations: 3 cents per share (fully diluted)

Total Value: 7 cents per share (fully diluted)

On top of that if we say that cash on hand will drop to only $35 million within the next 3 – 6 months then we have another 3 cents per share value. That equates to the current share price of 10 cents which effectively means future upside from Gabanintha, Jervois and Andash is provided for zero, as long as Burnakura proceeds.

We also need to keep in mind that I am basing my analysis on the High Grade Operations on a 250,000 tpa plant and a gold price that is significantly lower than today’s spot price. It is likely that the plant’s capacity will be increased soon after production commenced and gold still appears to be in a long term uptrend that could provide further upside to for the project.

Finally this is the first time I have posted any figures on my blog so I will state again that you are required to do your own research, do not rely on my own figures as I am not a professional and I could have made mistakes. Investing and trading is risky and you should consult a licenced financial advisor.

I look forward to your comments and feedback and sharing my spread sheet with those who may be interested in comparing notes.