West Lombok – Selodong
June 7, 2010
Newmont was the previous operator of this property and drilled a fair number of shallow holes along with a small number of deeper holes. The property was relinquished in favour of focus on their Batu Hijau deposit. I’ve heard rumours that there may be some regret within the geologist ranks at Newmont for that choice over this property.
According to the Company, “Independent 3-D geophysical modeling has confirmed the potential for significant depth and size of all 15 targets.” As always, only time will tell.
- Type: Porphyry copper-gold.
- Size: This is a collection of at least 15 targets in an area of approximately 7 km by 3 km. Seven of these targets have been drill tested. With 30 holes completed by SA, perhaps another 20-30 will bring it to a 43-101 compliant resource estimate. My own back-of-envelope guestimates have it at between 225 million tonnes (at 0.30% Cu and 0.40 g/t Au) and 540 million tonnes (at 0.235% Cu and 0.33 g/t Au). I use the lower grades for both metals in estimates shown below.
- Valuation potential scenarios: I believe that the Company has been actively engaged in conversations about Selodong with multiple major mining companies. From independent sources, I’m advised that, to interest majors, such properties in this region of the World need to be thought to contain a potential minimum of 5 million ounces of gold. Well, this one has more money in the copper than in the gold, so without going into equivalency calculations, it becomes a challenge in setting a likely minimum. Assuming a 1 million ounces of gold minimum (to be ultra-conservative) and a maximum of 5 million ounces of gold, I’ve come up with the following tables, showing low/medium/high range of estimates. While smaller estimates would certainly involve higher average grades, I’ve opted throughout to use my lower end grades of 0.235% Cu and 0.33 g/t Au. As you’ll see, I’ve varied the dollar value of ounces of gold and pounds of copper in the three different scenarios, reflecting, I think, a range of what the current market is ready to pay junior explorers for these metals. Looking to the mid-points of tonnage and values/unit (see the red highlights in the table), 225 tonnes at $80 for gold (graded at 0.33 g/t) and $0.20 for copper (graded at 0.235%) would yield a value of $5.42 per share.
Mtonnes |
Au oz Cu lb |
$/oz $/lb |
$US |
$US/share |
$C/share |
94 |
1,000,000 |
60 |
$60,000,000 |
$0.74 |
$0.77 |
|
488,771,236 |
0.1 |
$48,877,124 |
$0.60 |
$0.62 |
|
|
Total |
$108,877,124 |
$1.34 |
$1.39 |
|
|
|
|
|
|
225 |
2,387,776 |
60 |
$143,266,560 |
$1.76 |
$1.83 |
|
1,166,178,446 |
0.1 |
$116,617,845 |
$1.43 |
$1.49 |
|
|
Total |
$259,884,405 |
$3.19 |
$3.32 |
|
|
|
|
|
|
471 |
5,000,000 |
60 |
$300,000,000 |
$3.68 |
$3.83 |
|
2,441,450,605 |
0.1 |
$244,145,061 |
$3.00 |
$3.12 |
|
|
Total |
$544,145,061 |
$6.68 |
$6.95 |
|
|
|
|
|
|
|
|
|
|
|
|
Mtonnes |
Au oz Cu lb |
$/oz $/lb |
$US |
$US/share |
$C/share |
94 |
1,000,000 |
80 |
$80,000,000 |
$0.98 |
$1.02 |
|
488,771,236 |
0.2 |
$97,754,247 |
$1.20 |
$1.25 |
|
|
Total |
$177,754,247 |
$2.18 |
$2.27 |
|
|
|
|
|
|
225 |
2,387,776 |
80 |
$191,022,080 |
$2.35 |
$2.44 |
1,166,178,446 |
0.2 |
$233,235,689 |
$2.86 |
$2.98 |
|
Total |
$424,257,769 |
$5.21 |
$5.42 |
||
|
|
|
|
|
|
471 |
5,000,000 |
80 |
$400,000,000 |
$4.91 |
$5.11 |
|
2,441,450,605 |
0.2 |
$488,290,121 |
$6.00 |
$6.24 |
|
|
Total |
$888,290,121 |
$10.91 |
$11.35 |
|
|
|
|
|
|
|
|
|
|
|
|
Mtonnes |
Au oz Cu lb |
$/oz $/lb |
$US |
$US/share |
$C/share |
94 |
1,000,000 |
100 |
$100,000,000 |
$1.21 |
$1.26 |
|
488,771,236 |
0.3 |
$146,631,371 |
$1.78 |
$1.85 |
|
|
Total |
$246,631,371 |
$2.99 |
$3.11 |
|
|
|
|
|
|
225 |
2,387,776 |
100 |
$238,777,600 |
$2.90 |
$3.01 |
|
1,166,178,446 |
0.3 |
$349,853,534 |
$4.24 |
$4.41 |
|
|
Total |
$588,631,134 |
$7.14 |
$7.42 |
|
|
|
|
|
|
471 |
5,000,000 |
100 |
$500,000,000 |
$6.06 |
$6.31 |
|
2,441,450,605 |
0.3 |
$732,435,182 |
$8.88 |
$9.24 |
|
|
Total |
$1,232,435,182 |
$14.95 |
$15.55 |
- Comparison properties: Batu Hijau, on neighbouring Sumbawa Island. 1.0 billion tonnes at 0.48% Cu and 0.37 Au. Newmont’s most profitable operation, worldwide.
- Disposition options: Make-ready costs for a large facility to process this kind of deposit could range to $2 billion. Consequently, I do not envision SA in a position to be a standalone producer on this property. Either a complete sale or a JV with a major are the likely alternatives for Selodong. I do not foresee an immediate disposition of this property, as the Company will need to better delineate its resource potential to be able to win good value in the exchange. Certainly, the proximity of Selodong to neighbouring Batu Hijau makes for an attractive JV or service-provider agreement, with crushed ore barged to Newmont’s facility for processing. Such an arrangement would likely knock some 80-90% of the make-ready capital costs right out of the picture.
- Current status/activities/obstacles: Currently awaiting what is thought to be the imminent issuance of the West Lombok IUP. The Company has generated for internal use a resource estimate for Selodong. I expect this estimate has been employed in conversations with would-be suitors under confidentiality agreements. Unfortunately, there are not enough completed drill holes to generate a compliant resource estimate. Plans for 2010 include IP/EM surveys and spectral analysis studies. This activity will not proceed before the IUP is issued. There are no Forestry issues for Selodong, as there is no forest left, having been stripped during the Suharto regime.
- Maps:
- See the Selodong property on Google Earth from the southwest (updated August 30, 2010).
- See the Selodong property on Google Earth from the west (updated August 30, 2010).
- The map, below, shows drill hole results for Montong Botek and Blongas II. These have been the principal Selodong targets for Company activity. I note, with interest, the similarities (100 metre bands) between SLD001 and SLD004, spanning the two targets. This map focuses on just two of the 15 porphyry targets. Mineralization is shown here to span (with some discontinuity) about 1,250 metres by perhaps 275 metres.
Other maps are available on the Company web site at: http://www.southernarcminerals.com/projects/lombok/west_lombok/maps/selodong_intrusive_complex/
