Frontier Mining: Benkala sharpens into focus after JORC upgrade

The Benkala copper project has sharpened into focus for Frontier Mining’s (LON:FML) investors in recent months.

Benkala is one of the AIM-listed mine developer’s most advanced projects in Kazakhstan.

Frontier hopes to add the copper mine to its production portfolio later this year, alongside the Koskuduk ‘test-stage’ gold mine, which achieved its first gold pour in July 2010.

While the early-stage gold mine came online at an opportune time - coinciding with gold’s record breaking rally above US$1,400 an ounce - Frontier has long thought of Benkala as is transformational asset. This is echoed by a recent deal to seize full control of the project - by buying out its JV partner Coville Intercorp.

Recently it has spent much of its time and effort converting Benkala’s Soviet-era resource into western standards, while simultaneously fast-tracking the mine into production.

On Monday, Frontier jumped another hurdle as it races to bring the Benkala copper mine online, as it unveiled a new JORC resource upgrade for the project.

Benkala now has a total JORC resource of 1.56 million tonnes of contained copper, with 183,000 tonnes from oxide ore and 1.37 million tonnes from sulphide ore.

In total the update added 75,260 tonnes of contained copper - split between oxide (9,720 tonnes) and sulphide (65,540 tonnes). 

Importantly it included a significant move up into the measured resource category for both ore types - it now has 38,000 tonnes of contained copper in measured resources. The inferred resource also got a meaningful uplift, adding 42,800 tonnes, or 7.6 percent, to 607,000 tonnes.

Edison Investment Research analyst Charles Gibson reckons Frontier is on target to produce 3,000 tonnes of LME grade copper from the mine by the end of 2011.

Importantly the upgrade opens the door for the next tranche of funding to take the Benkala development forward.

“We see this resource statement as yet another milestone reached and one that is required to allow further draw down on the remaining US$11 million of the US$15 million loan facility with HSBC,” Gibson said.

With this funding under its belt, a clear path to project development and full control of the project – the Coville merger is awaiting ratification in Kazakhstan –, 2011 is set to be a crucial year for the junior mine developer.

Indeed Gibson highlights: “Though the merger with Colville Intercorp is yet to be approved by the Kazakhstan government, the discount that is inherent in the copper tonnes at 100% ownership is clearly evident and one that the market is not yet willing to account for. 

“However, we consider all the development work undertaken on site as a clear indication of FML’s ongoing success at progressing Benkala towards first production as planned during the second half of 2011.”

The analyst reckons Frontier is heavily discounted, around 53 percent, to its peers. Gibson claims the market is not yet factoring in the added-value from the Coville transaction.

He surmises that FML’s current 50 percent share of the 1.56 million tonne resource is valued at US$195 a tonne, which is roughly inline with his industry derived average of US$210 a tonne. 

However adding Coville’s attributable resource takes the vale per tonne to just US$99.

Furthermore Gibson reckons this would drop further if FML can establish a JORC resource of 500,000 tonnes of contained copper at the Baitemir exploration project, which forms part of the Naimanjal license in north east Kazakhstan. 

Then he reckons the shares would be valued at US$75 for each tonne of contained copper, a 64 percent discount to the industry average.

Frontier drilled 8,000 metres at Baitemir in 2010. The results encouraged Frontier and they believe that Baitemir has the potential to be a substantial copper project. As such it is confident that the project can add to the group’s overall resource inventory.   

A scoping study is expected to give investors an early indication of the project’s feasibility and its economic parameters, when it is released in the second quarter of 2011.

It is possible that the economics for Baitemir may also get support from other nearby prospects, on the Naimanjal license.

The new resource statement was completed by Wardell Armstrong International (WAI). The resource update builds on December’s initial JORC resource and it encompasses all the drilling data gathered to date.

“The updated JORC resource statement now consolidates all drilling information and will set the basis for further infill and exploration drilling in both the oxide and sulphide zones and will provide the basis for reserve reporting and pit optimisation to support operations,” Frontier Mining director William Durand Eppler said on Monday.

“This marks an important stage in Frontier's development at Benkala, confirming the project's significant resource endowment and our commitment to the highest technical standards."