Southern Arc Strikes First Joint Venture Deal
October 4, 2010
Southern Arc just announced the signing of an option/joint venture agreement with Vale on its East Elang and Sabalong properties.
See the News Release at:
http://www.southernarcminerals.com/news/news_releases/index.php?&content_id=240
My key takeaways:
-
From the release: “The East Elang property, covering 9,670 hectares, adjoins immediately to the east of Newmont Mining Corporation's Elang-Dodo property, host to a porphyry copper-gold discovery of size greater than one billion tonnes (with yet undisclosed grades). Newmont acquired the East Elang property (currently held by Southern Arc) in 1986, explored it up to 1993, and then relinquished it to the government in 1999 under the requirements of its license…Mineralization on the adjacent Newmont property comprises a complex of polyphased felsic to intermediate intrusives which generated multiple mineralized porphyry centres (Elang, Gergang, Kuning, and Sepekat) along a NNE trending structural corridor. Rock geochemistry of surface and drill hole samples demonstrate a NE-SW elongate copper zone more than 1.5 km long by 0.8 km wide (Maryono, 2005)…Remote sensing studies together with modeling of airborne magnetic data indicate that the controlling NNE trending mineralized structural corridor (present on the Newmont property) extends on to Southern Arc's property. [OOPS!] Limited surface evaluation work and airborne studies by the Company support this finding.”
-
Boldfaced text and the blue oops, I must confess, is mine. Having discovered this NNE trending corridor after having relinquished the property, Newmont geologists must really be kicking themselves in the collective backside. Situated immediately adjoining Newmont’s Elang Dodo, I look forward to seeing the rollout of the final dynamics in how this collective discovery is ultimately taken into production, vis à vis Vale and Newmont. “Your place or mine?”
-
Vale is the 2nd largest mining company in the world. This is the first of what I expect to be a number of meaningful outside validations of SA’s various properties.
-
John Proust actually can make deals. This question has been a nagging topic for some naysayers. End of discussion.
-
Played out fully, Vale’s commitment is for $26.7+ million on the two properties (collectively), through to Bankable Feasibility Studies. No cap on the cost of the final stage.
-
Properties revert fully back to SA if completion of the final stage (BFS) is not achieved.
-
No cost to SA to carry the properties all the way to the production decision node.
-
I have spoken with the Company for more detail on this deal. A notable point not included in the release is that SA will be the operator for Phase 1 on both projects. This will ensure that things move along in the early going at a good pace. Don’t count on Phase 1 taking a full year to complete.
-
These properties have literally not been on anyone’s radar screen. Just imagine what’s coming for West Lombok! I have a funny feeling that ‘oops’ is a word soon to be visited again in Newmont’s executive suite.
-
Time to get out the old calculator again. I have it from a mining analyst at a major Canadian brokerage house that major mining companies would not be much interested in making deals on properties in Indonesia for which they don’t see the potential for at least 5 million ounces of gold equivalent. Given that East Elang and Sabalong are not adjacent properties, I have to think that this framework of thinking applies twice, once for each property. This does not, of course, mean that each property will be proven to contain such an amount of metal, just that somebody significant sees enough potential to pursue it. So, let’s crunch some numbers to see what 5 million AuEq would look like and what it would be worth to SA shareholders. Let’s look at East Elang, since we know that Newmont’s adjoining property has been advanced to a level where they (Newmont) see more than 1 billion tonnes of ore, and describe it as bigger than Batu Hijau. With Sumitomo (the Japanese conglomerate) having already pledged $2.5 billion in support of that project, let’s just plug in Batu Hijau grades, reduced by 10% for conservatism: copper (.44% from .49%) and gold (.35g/t from .39g/t), noting that Newmont has not yet released the grades on their Elang discovery. In view of the current market, I’m valuing the gold in the ground (the volume of which is, for the sake of this exercise, assumed) at $150 per ounce. I figure this is not unreasonable, given some of the deals witnessed in recent weeks. Copper, I’ve pegged at $0.22, noting that Batu Hijau copper in the ground is valued at $0.50. The construct, below, is only to show what the per-share-value impact would be for just one property, with an equivalent of 5 million ounces of gold. Copper and gold together, in this table (incorporating both volume and value per unit estimates), amount to that figure. Note that this comprises only 200 million tonnes of ore, or just 1/6th of the total Elang estimates, including Newmont’s side of the fence. As you can see from the bottom right corner, such a property would be worth $9.17 per share to SA shareholders. On one hand, this is just me spitballing here. At the same time, it looks like someone has formally assumed the position on the stump next to me. From where I sit, Vale has just declared that they see two potential such properties. Two times $9.17 per share for secondary properties in the Company’s portfolio. That’s one heckuva spitball. Hmmm…
Feel free to punch in your own assumptions and see what comes up. See the ‘in situ’ valuation tool at: