Gippsland Limited
www.gippslandltd.com
www.gippslandltd.com
Gippsland focuses on world-scale projects which have been over-looked by major resource groups. Projects which have undergone detailed exploration and which have the potential to be brought into production quickly are a prime target for the Company. Gippsland's success in this area is due in part to the Company's philosophy of entering into equitable joint venture arrangements with overseas nationals. The Company's prime assets are the 40 million tonne Abu Dabbab and the 98 million tonne Nuweibi tantalum-tin projects located in the Central Eastern Desert of Egypt, adjacent to the western shore of the Red Sea.
Gippsland – all set to be the world’s second largest tin and tantalum producer from 2010
For those whose geography knowledge is as diaphanous as my own, Gippsland is a region of Victoria state, South Australia. Now that you know, feel free to forget it. Beyond betraying the company’s Aussie roots, the name means next to nothing, as Gippsland’s focus is 90% Egyptian.
In a nutshell, Gippsland should be producing tantalum and tin in substantial quantities from Egyptian projects starting in late 2010. In fact, upon start-up the project will be the world’s second largest tantalum producer. These industrial metals lack the pizzazz of precious metals and diamonds, but their future looks rather healthy, as discoursed in Sam Kiri’s Proactive article in July.
Feasibility of Gippsland’s cornerstone project is done and dusted to Bankable level, a long term tantalum offtake signed and the Environmental Impact Assessment in the bag. In other words, most of the big boxes are already ticked, the stand-out remaining one being financing. Financing could be a big banana skin in current markets, but CEO Jack Telford reckons it should be settled well before the October page in my wife’s kitchen calendar gives way to November. That’s not long.
One of the more attractive features of Gippsland, to this author’s way of thinking, is its Board of Directors. The website boasts that the Directors possess a “blend of technical and commercial skills” with “a long history in the successful running of technically complex private and ASX listed companies”. Offhand it is difficult to disagree. Director experience covers all the must-haves and individual CVs do read well. Gippsland may not be big promoters, but actions need neither megaphone nor translator.
Abu Dabbab.
The headline project is Abu Dabbab’s 44.5MT of tantalum and tin ore grading 250g/t tantalum pentoxide and 0.09% tin. Almost ¾ of this is already in Measured and & Indicated categories - plenty to support a 20-year mine-life at 2MT per year. A little under 15MT was classified in the stronger proven and probable ‘reserve’ categories.
That was pretty good, but Telford has just announced the doubling of reserves to 30.2MT in parallel with pit design optimisation, which factors in an impressive strip ratio of around 0.8:1. Such a handsome reserve tail confirms Abu Dabbab as a genuinely world-class deposit and should soothe any last jitters at the banking end.
Since the original positive Feasibility study was published, quite a lot of further work has been rewarded with nice bonuses. Originally, the Abu Dabbab processing plant site was to be sited 5km from the Red Sea coast, to provide for a large seawater desalination facility. Happily, this is no longer considered necessary. Gippsland’s engineers have worked out a methodology that allows raw seawater to be used. This can be piped from the coast and desalinated water is now only required for the final stages of the process.
The result is big savings in both capital and operating expenses. Trucking distance shrinks from 20km to a mere 1km, cutting haulage costs by a cool US$4 million per year, not to mention capex savings on a heavy haulage road fleet. Using seawater means no desalination plant and immediate capex saving of around US$4m, plus operating savings of approaching US$1m per year.
Another nice spin-off from relocating the plant is that it also shortens the haulage distance from the Nuweibi tantalum deposit, located 16km south of Abu Dabbab. At 98Mt it is almost twice the volume of Abu Dabbab, but 40% poorer in grade. This secondary project will be developed after Abu Dabbab has reached its target start-up mill-feed rate of 2 million tonnes per year.
Both projects are further spiced by a feldspar by-product. This would have been waste, but apparently makes very nice ceramic tiles and is therefore saleable. At $15/tonne, feldspar promises to add another $20m in cashflow each year at Abu Dabbab alone, a factor that did not make the original feasibility study.
Other bits and pieces.
Gippsland also holds exploration rights to nine tenements in the Wadi Allaqi region, prospective for gold. These projects are for the future and remain on the back burner.
Of more short-term significance is the Heemskirk tin project in Tasmania. Known until recently as the Zeehan project after the nearby town, Heemskirk is a 40:60 joint venture with exploration company Stellar Resources. The project is to float on the ASX under the name Columbus Minerals, following a planned A$10m fundraising. Assuming it goes ahead, this neatly crystallises a value to Gippsland. Incidentally, Heemskirk lies 15km away from the historic Renison mine that produced tin for a century, so there is a chance that this investment afterthought may acquire significance.
Risks.
Risks should never be dismissed, though quite a few have been mitigated.
The stand-out risk is finance. Negotiations are well underway with two Germans banks and Telford is confident that the debt-to-equity will be 80:20 – as high as it ever gets. If this materialises, it will be a huge vote of confidence.
He has reasons to be upbeat. Last November, Gippsland signed a 10 year off-take agreement with German Tantalum major HC Starck GmbH. This and the newly-defined reserves underpin the project. Metals prices could in theory collapse, but few commentators think this is likely (see the Proactive article referred to earlier). The revised IRR and NPV figures have yet to be published; we expect these around the time that finance is closed.
Perhaps the biggest risk is geopolitical. The Egyptian Government are 50:50 partners in the venture and have made efforts to court western mining expertise - their economy needs it. The country’s mineral wealth is huge but largely undeveloped, thanks in part to an archaic mining code now in the process of a major overhaul. No-one can legislate for war in the Middle East, or the actions of radical Islamists, but the Cairo Government seem straight. At present, double dealing and Russian or South American-style expropriations look relatively unlikely.
The numbers.
With 306,354,325 shares in issue, Gippsland’s market cap is £14m. Capex should amount to US$125m or thereabouts. 20% of this, plus contingency and working capital, would leave the company looking for $30m, doubling the company’s market cap. This should be within reach, even today, and the big question is the share price at which a deal can be cut.
Several analysts have offered price targets. These range between 20p and 27p, prior to the latest reserves announcement. Such figures may or may not appeal to the reader, but considering the world-class credentials of Abu-Dabbab, at 4.5p there is certainly upside.
In a nutshell, Gippsland should be producing tantalum and tin in substantial quantities from Egyptian projects starting in late 2010. In fact, upon start-up the project will be the world’s second largest tantalum producer. These industrial metals lack the pizzazz of precious metals and diamonds, but their future looks rather healthy, as discoursed in Sam Kiri’s Proactive article in July.
Feasibility of Gippsland’s cornerstone project is done and dusted to Bankable level, a long term tantalum offtake signed and the Environmental Impact Assessment in the bag. In other words, most of the big boxes are already ticked, the stand-out remaining one being financing. Financing could be a big banana skin in current markets, but CEO Jack Telford reckons it should be settled well before the October page in my wife’s kitchen calendar gives way to November. That’s not long.
One of the more attractive features of Gippsland, to this author’s way of thinking, is its Board of Directors. The website boasts that the Directors possess a “blend of technical and commercial skills” with “a long history in the successful running of technically complex private and ASX listed companies”. Offhand it is difficult to disagree. Director experience covers all the must-haves and individual CVs do read well. Gippsland may not be big promoters, but actions need neither megaphone nor translator.
Abu Dabbab.
The headline project is Abu Dabbab’s 44.5MT of tantalum and tin ore grading 250g/t tantalum pentoxide and 0.09% tin. Almost ¾ of this is already in Measured and & Indicated categories - plenty to support a 20-year mine-life at 2MT per year. A little under 15MT was classified in the stronger proven and probable ‘reserve’ categories.
That was pretty good, but Telford has just announced the doubling of reserves to 30.2MT in parallel with pit design optimisation, which factors in an impressive strip ratio of around 0.8:1. Such a handsome reserve tail confirms Abu Dabbab as a genuinely world-class deposit and should soothe any last jitters at the banking end.
Since the original positive Feasibility study was published, quite a lot of further work has been rewarded with nice bonuses. Originally, the Abu Dabbab processing plant site was to be sited 5km from the Red Sea coast, to provide for a large seawater desalination facility. Happily, this is no longer considered necessary. Gippsland’s engineers have worked out a methodology that allows raw seawater to be used. This can be piped from the coast and desalinated water is now only required for the final stages of the process.
The result is big savings in both capital and operating expenses. Trucking distance shrinks from 20km to a mere 1km, cutting haulage costs by a cool US$4 million per year, not to mention capex savings on a heavy haulage road fleet. Using seawater means no desalination plant and immediate capex saving of around US$4m, plus operating savings of approaching US$1m per year.
Another nice spin-off from relocating the plant is that it also shortens the haulage distance from the Nuweibi tantalum deposit, located 16km south of Abu Dabbab. At 98Mt it is almost twice the volume of Abu Dabbab, but 40% poorer in grade. This secondary project will be developed after Abu Dabbab has reached its target start-up mill-feed rate of 2 million tonnes per year.
Both projects are further spiced by a feldspar by-product. This would have been waste, but apparently makes very nice ceramic tiles and is therefore saleable. At $15/tonne, feldspar promises to add another $20m in cashflow each year at Abu Dabbab alone, a factor that did not make the original feasibility study.
Other bits and pieces.
Gippsland also holds exploration rights to nine tenements in the Wadi Allaqi region, prospective for gold. These projects are for the future and remain on the back burner.
Of more short-term significance is the Heemskirk tin project in Tasmania. Known until recently as the Zeehan project after the nearby town, Heemskirk is a 40:60 joint venture with exploration company Stellar Resources. The project is to float on the ASX under the name Columbus Minerals, following a planned A$10m fundraising. Assuming it goes ahead, this neatly crystallises a value to Gippsland. Incidentally, Heemskirk lies 15km away from the historic Renison mine that produced tin for a century, so there is a chance that this investment afterthought may acquire significance.
Risks.
Risks should never be dismissed, though quite a few have been mitigated.
The stand-out risk is finance. Negotiations are well underway with two Germans banks and Telford is confident that the debt-to-equity will be 80:20 – as high as it ever gets. If this materialises, it will be a huge vote of confidence.
He has reasons to be upbeat. Last November, Gippsland signed a 10 year off-take agreement with German Tantalum major HC Starck GmbH. This and the newly-defined reserves underpin the project. Metals prices could in theory collapse, but few commentators think this is likely (see the Proactive article referred to earlier). The revised IRR and NPV figures have yet to be published; we expect these around the time that finance is closed.
Perhaps the biggest risk is geopolitical. The Egyptian Government are 50:50 partners in the venture and have made efforts to court western mining expertise - their economy needs it. The country’s mineral wealth is huge but largely undeveloped, thanks in part to an archaic mining code now in the process of a major overhaul. No-one can legislate for war in the Middle East, or the actions of radical Islamists, but the Cairo Government seem straight. At present, double dealing and Russian or South American-style expropriations look relatively unlikely.
The numbers.
With 306,354,325 shares in issue, Gippsland’s market cap is £14m. Capex should amount to US$125m or thereabouts. 20% of this, plus contingency and working capital, would leave the company looking for $30m, doubling the company’s market cap. This should be within reach, even today, and the big question is the share price at which a deal can be cut.
Several analysts have offered price targets. These range between 20p and 27p, prior to the latest reserves announcement. Such figures may or may not appeal to the reader, but considering the world-class credentials of Abu-Dabbab, at 4.5p there is certainly upside.
