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: Resource Increase Lifts Jervois Copper-Silver Gold Project to New Scale

The other day Kentor Gold released their long awaited Jevois Resource Statement Upgrade. Management had previous indicated that it would be released in December 2011, but there were a few delays at the lab and it was pushed back a few weeks.

The announcement was met by a brief rally in the share price (to 14 cents) that lasted maybe 10 or 15 minutes at most. I have previously indicated (on HotCopper) that I though this announcement may have been able to push the share price to 15 cents and beyond. Clearly I was wrong in this instance. I think this is largely due to the fact that short term holders took the opportunity to sell into the news. This would also have been compounded by those who are growing a little bit “nervy” about the Andash announcement that should be forthcoming in the next 3-4 weeks (based on the latest comments from management).

Anyway the resource upgrade was quite strong, especially when you consider that it was only based on the Reward and Bellbird Prospects. The total inferred resource increased to 11.9 Mt @1.3% copper for a total of 150,000 tonnes (33% increase) and silver came in at 9.66 million ounces (27% increase). The cut-off grade was 0.5% Cu.

In addition there is further exploration potential for both the Reward and Bellbird deposits in areas adjoining the current Inferred Resource. This totals to anywhere from 50 to 100,000 tonnes of Copper and 3 to 5 million ounces of Silver. The deposits are open at depth and there are additional possibilities along strike from the deposits based on interpretation of the recently completed detailed conductivity survey.

Given the lack of buying action on the back of the announcement it seems the markets focus is still well and truly on Andash. I believe this was change over time with the Managing Director, Simon Milroy stating that the results “have lifted Jervois to a new scale of potential development.”

We also have further upside to the resource statement as gold was not yet included in the estimate and grades also appear to be increasing at depth. Additional drilling is also scheduled to commence in March with a further 8,000 m RC and 3,000 m of diamond drilling designed to take place.

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 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.

Jervois Copper-Silver-Gold Mine Development Study Makes Strong Progress

Yesterday Kentor Gold announced some initial results on the scoping study being undertaken on the multi-metal mine at the Jervois Project in the Northern Territory. It is not a hugely exciting announcement by any stretch of the imagination, but is an important stepping stone that is required to take this project forward.

The best overall response from initial testing indicated the production of a concentrate with a grade of 26% copper at 94% recovery. Testing is also being carried out on some of the lower grade material to help measure the variability in metallurgical performance.

The announcement then does on to state that Hellman and Schofield who completed the initial inferred Resource estimate have commenced an upgrade to the recent resource model incorporating the recent drill results. They don’t provide any timeframe for when this will come out, but I assume it will be in Q1 2012.

Kentor has also appointed Auralia Mining Consulting to run pit optimisation and schedules on each resource deposit at Kentor. With other consultants engaged for geotechnical and water treatment assessments.

The results of the scoping study will be available in the first quarter 2012 and it is anticipated that this will lead to a full feasibility on the project in 2012.

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/

KGL: More High Grade Drill Results Confirm Jervois as a Significant Multi-Metal Project

Yesterday both KGL and OBJ made announcements to the stock exchange. I’ll keep this post short cause I am very keen to discuss the OBJ announcement (you will see why soon).

Anyway, onto KGL, the announcement wasn’t bad, nor was it spectacular. It basically confirmed that the final assay results from the preliminary diamond drilling at the Jervois Project in the Northern Territory had been completed.

The drilling continued to hit significant copper and silver intersections and the mineralisation is confirmed to the north, along strike, from the Bellbird Deposit.

Sometimes I think the most important information is contained within the heading. As a result I don’t think we can understand the importance of the words “significant multi-metal project”. At the very least we could be sitting on a Copper mine (subject to the usual feasibility study of course) with silver credits. On top of that you can throw in some lead and potentially gold (only minimal).

The completion of this drilling program should also lead to some further news shortly with an updated resources expected to be announced at some point in the near future.

Link to announcement

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.

Kentor Gold Announcement: Outstanding Drilling Results Confirm Jervois as a Significant Project

This morning Kentor Gold released the results of additional drilling that has taken place at their Jervois project. The result was certainly well received by the market with the share price hitting a high of 12.5 cents in early trade (currently trading around 11 to 11.5 cents).

The significance of this announcement cannot be underestimated as it goes some way to confirming the “potential for a major mine at Jervois”. Previous drilling results had only confirmed a mineralisation to a depth of 200m, although at the time management was confident that it extended further. This was confirmed today with “mineralisation at Reward Prospect open at depth of 450m below surface and to the north along strike.

The best drilling result was 72m intersection at 3.27% copper, 51.33 g/t silver and 1.16 g/t gold (true with of 16m). And assays of up to 8.8% copper, 276 g/t silver and 19 g/t gold were recorded from individual samples within the hole.

Not only does this highlight the potential for an ore body with a higher grade than the current resource estimate (113,000 tonnes at 1.3%) but also the potential for significant gold and silver credits as well. Management had previously flagged the potential of a gold mineralisation, however historical drilling focused on copper and there was not enough data to include gold within the initial resource estimate. This could allow for some significant upside from any future resource update.

So overall I am very pleased with the announcement and look forward to future drilling results from Jervois and Kentor Gold’s other projects.

Kentor Gold: Analysis on Jervois Base Metals Project

Today I am putting together my final thoughts on Kentor Gold’s Australian Assets. As part of the acquisition of Jinka Minerals Kentor Gold acquired three projects; Burnakura and Gabanintha and Jervois.

The Jervois Base Metals Project is located 280 km north-east of Alice Springs in the Northern Territory on a land holding of 38km². The project has Copper, Lead, Zinc, Silver and potentially Gold mineralisations.

The project is on a granted mining lease (issued prior to the introduction of Native Title Legislation) and has had over $5 million spent on past exploration. The project was also mined by Plenty River Mining Limited who commissioned a treatment plant and associated mine infrastructure in 1981. Between 1982 and 1983 2,000 tonnes of concentrate grading 50.4% Lead, 5.4% Zinc, 0.6% Copper and 680 g/t of Silver was produced. Mining was suspended in December 1983 due to a sharp fall in metal prices.

On 5 July 2011 Kentor Gold announced their initial resource estimate for the Jervois Project. In the announcement they stated:

“The copper resource was limited to a depth of 200m below surface. However, we have strong indications from previous drilling that the ore body continues at depth and along strike.”

And “Only 30% of the previous drilling was analysed for gold, hence it was not possible to include gold in the current resource estimate. However, it is intended to analyse for god with the hope of adding a gold resource as part of the copper resource estimate in the future.”

Both of these statements highlight the future upside that could occur once further drilling has been completed.

To value the Jervois Project I have analysed the in ground value of each commodity that makes up the overall resource. This is the same valuation that I used for the Gabanintha project. In addition to this I have run some back of the envelope numbers and a DCF model, however as this project is a number of years away from production I prefer to use the more conservative approach for the time being.

The approximate value (based on figures from the LME at the time of writing this post) of each commodity that makes up the resource is:

Copper US$9,000 per tonne

Lead US$2,500 per tonne

Zinc US$2189 per tonne

Silver $42 per ounce

For the purposes of my valuation I am discounting these figures to $7,500 p/t (Copper), $2,000 p/t (Lead), $1,750 p/t (Zinc), $30 per ounce (Silver). This is to take into account current market uncertainty, volatility and exchange rate risk. I then take a percentage of these figures to arrive at the following in ground value.

113,000 tonnes of Copper at an in ground value of $150 per tonne = $16,950,000

7,593,157 Oz of Silver at an in ground value of $0.60 per oz = $4,555,984

25,666 tonnes of Lead at an in ground value of $40 = $1,026,640

21,958 tonnes of Zinc at an in ground value of $35 = $768,530

Total in ground value = $23,301,154

I will admit that I do not have much experience with Lead and Zinc. I have therefore utilised 2% of the commodity to arrive at the in ground value (E.g. Lead $2,000 x 0.02 = $40). This is largely in line with the in ground value I assigned to Gold and Copper for the Gabanintha Project.

To summarise my previous research the valuation of Kentor Gold is 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

Conservative Cash Figure: $35 million

Total: $148.5 million

As per my previous notes I do not believe that the total figure is reflective of the true potential of Kentor Gold. My research is designed to highlight a base case scenario and as Kentor moves closer to production in each of its projects it is my belief that the market will switch from an in ground value to a DCF based valuation. As a result the share price should rise over time and be more in line with the Intersuisse report which has a target of 48 cents.

As always please do your own research and be aware that this does not represent all of my research. You should consult a financial advisor before making any investment.