Proactive investors

Epic & Msn data

Epic	GGG
Time:	12:40:41
Mid Price:	2.13
Change Today:	-0.13
Change % Today:	-5.56
Fifty Two Week High:	8.50
Fifty Two Week Low:	1.38
Market Capital:	3.09

Period & price data

Period	Price
Now:	2.13
3 Months ago:	3.13
6 Months ago:
1 Year ago:

Additional information

Additional	Information
Market:	AIM
Sector:	General Mining - Gold
Epic:	GGG
News:	Latest news
Web Site:	Central China Goldfields
Other Articles:	26-11-200811-11-200804-11-2008

Central China Goldfields Interview

by Harry Norman

Would you tell us about the sale of the Snow Mountain Project and how this relates to Central China Goldfield's business model?

Yes, let me start by saying Snow Mountain is a good project - there's nothing wrong with it. It can probably go up to 1.0 or 1.5 million ounces of gold; but it will take a few more years to get to that point and also quite a lot of money. In these tough market conditions we decided to re-focus our efforts on two types of projects: one is early cash-flow, such as Dong Mao Ho, and the other one is a project with huge potential, and this is the Nimu project. In other words, if a project doesn’t suit the business model we are prepared to sell it, and in the case of Snow Mountain we actually sold it, at a profit, for roughly £1.0 million.

What happened with the Nileke copper project?

We dropped the Nileke project in about March 2008. There were quite a lot of delays in getting the permit, the business license and, essentially, the transfer of the mining license for that. We were looking at, potentially, September/October before we got the license transferred, which meant that we couldn’t really be doing any work until 2009, and that was just a bit too long for us. Also, given the market conditions and the fact that we wanted to focus our efforts on Nimu, we decided to drop that project - and incidentally, we managed to get our initial investment of 3.5 million renminbi back and that money's in use for work at the Dong Mao Ho project.

Last time we spoke, Jeff, you'd just done some geophysics at Dong Mao Ho, in Inner Mongolia, and you were hopeful that you could develop a small open pit gold project there. Please would you bring us up to speed with Dong Mao Ho and tell us what the plan is now?

Yes, since we spoke we've done three rounds of drilling in Dong Mao Ho – that was in October and December 2007 - and we completed the resource definition drilling in June 2008. What we found confirmed an open pit oxide mine at the top of the pit and, in the process, we also kept finding really high-grade sulphide underneath it, and these are running three to four metres, 25-30 grams per tonne, very high, good grades. We are in the process of doing the metallurgy - we should get all the metallurgical tests done shortly. The next step is bulk sampling to replicate the metallurgical tests and see the metal recovery rate when we mine on a small scale. We've just raised some money and that will enable us to do the bulk sampling. We still aim to do the full production in the first quarter of 2009, and the reason we can do it that quickly is that most of the infrastructure is already at the mine: there is a power grid straight across the mine roads, about 800 metres from the mine, there are leach pads, there is a crusher on site, there is a gold recovery unit on site, and we're also talking to various contract miners. So, we're still hopeful that we'll put this back into production in the first quarter of 2009.

Last time we spoke you'd just identified eight copper porphyry targets at Nimu, in Tibet, and drilled two, and were waiting for the results. Would you bring us up to date with Nimu and tell us what the plan is now?

Yes, of the eight targets we drilled two last year, and now we are just concentrating on one of them at Gangjiang and it is this one that we get extremely excited about. So far we have drilled eight holes and we are now on the ninth hole. A lot of those eight holes are concentrated in one area called Guqing – which is the southeast corner of Gangjiang. In that area we've already defined an area 460 metres long, 150 metres wide and 250 metres deep of mineralisation; that mineralisation starts three or four metres from the surface and will eventually be open pitable. What is really exciting is that the top layer appears to be copper oxide and the level of enrichment at the top can potentially make the area easier to mine, providing a quicker return on capital. What we've done now is moved the drill rig 900 metres north of there; we've drilled that and we're just waiting for the assay results. We also moved the drill rig another 800 metres to the north of the regional area - again we've finished drilling that and we're waiting for the results. The concept here is that we think we're looking at a series of porphyry mineralisation even within that one exploration license called Gangjiang. We've identified one area already and moved into the second one, and we think the second and third may be connected, and the plan over the next few months is to drill between the second and third targets. If the first area we are talking about contains millions of tonnes of resource, then by doing this, hopefully, we can demonstrate that we can move into the hundreds of millions of tonnes of resource, and this is an area that we are extremely excited about.

How many new possible projects do you look at each year and do you only look at copper or gold projects?

Last year we looked at about thirty projects; now we look at copper, we look at nickel, we look at gold, we look at zinc and silver. But, the likelihood of finding another Nimu is very small, so let’s stick to what we have now - develop Dong Mao Ho so we can get some cash, 'lock the back door', and carry on at Nimu where we think there is huge potential. So, moving forward, we are not looking for more projects. If something comes across our desks, and it’s something extremely good, we will be looking at joint-venturing it with somebody else almost immediately. But, unless conditions change completely, we'll be happy to just carry on with Nimu.

What is Central China Goldfield's financial situation please, Jeff?

Last week we announced that we raised £680,000 and that will be used to put Dong Mao Ho into rock sampling, and also for UK Plc working capital. We originally raised £650,000 and then shortly after that, once we announced that we got requests from some market makers to release some equity, we raised an additional £30,000 off the back of that. We also sold the Snow Mountain project for about £2,8 million and that money is what we are using for drilling the Nimu copper projects. Nimu is taken care of by the proceeds of Snow Mountain and what we raise now is for working capital in the UK, and also to put Dong Mao Ho into bulk sampling.

What can we expect from Central China Goldfields over the next year or so, Jeff?

In a year’s time I'd like to see us producing some cash from Dong Mao Ho and let me qualify that by saying it’s not going to be a lot of cash; the whole concept here is that we look after all of our overheads from Dong Mao Ho, we move into production status we underpin the share price by being a producer and limit dilution in the future. But the main thing, really, is Nimu; that's the biggest value in the company. Nimu - in a year’s time I'd like to see us looking at the potential of hundreds of millions of tonnes of resource and, by that stage, we will definitely need to get a partner, and potentially a Chinese partner.

I've heard Tibet described as “like a new Andean region”. What could that mean for investors, Jeff?

Geologically, Tibet is very, very similar to the Andean belt; without going into a lot of geology - in short, there are a lot of porphyry deposits there. Just as an example, within our Nimu area alone there's already one operating mine and there is another Chinese company looking at the deposit, literally one kilometre north of our exploration license. Within our exploration license we have identified a series of at least eight targets already. Within that belt there is a deposit called Qulong - I think the last report I heard there was 10 million tonnes of contained copper; Yulong, I think the last report stated 5 million tonnes of contained copper; then there's another deposit called Xietongmen - that one I heard was 182 million tonnes at roughly 0.65 per cent copper equivalent. There's another one called Zhunou that the Chinese are drilling. So, there are certainly some significant copper deposits in that belt, and geologically, that connects with the rest of the porphyry belts all through Iran, Afghanistan and down to Burma, and all the way out to Indonesia.

What are the chances of a world-class copper discovery at Nimu, Jeff?

We have always believed there are potential world-class deposits at Nimu and, basically, with every hole drilled, the odds of that happening are getting better and better. So in short, the chances of finding a world-class copper deposit at Nimu are, I think, very high. Let me qualify that by saying that we are still in exploration. But, we feel comfortable that we have found one area where the resource could be tens of millions of tonnes. If the next few drill holes hit then we can certainly look at the potential for hundreds of millions of tones, and that whole area is only two kilometres long out of the whole four-kilometre target area in Gangjiang alone. Then we've got another target area roughly the same size in the next exploration license called Bairong and there's another one Dubuqu, and Xiaqing etc. This is a porphyry district; we're not just looking at just one deposit, we're potentially looking at a series of deposits in the Nimu area. So, when you weigh all of that up we can definitely see potential for a world-class district in the Nimu area.

What is the development model for Nimu, Jeff?

In short, if we're half correct on this we're looking at a Capex of hundreds of millions dollars. We're a small company and I don't think we're in the position to even think about putting this into production ourselves. The development model for Nimu is that we concentrate on what we do best which is exploration. I'd like to, at some stage, joint-venture this (most likely with a Chinese company) and let them do the detailed drilling, let them deal with the development costs - they have the capacity to do that. Then we carry on and find the next deposit, and for that we'd like to have a percentage of the whole action - the bigger the percentage the better!

Turning to Dong Mao Ho - how does the discovery of high-grade sulphide material below the open pitable zone affect your plans there, Jeff?

Let me start by saying that we are still working on the mining plan, because we just finished the resource definition drilling in June. By some time in September we should come up with a more definite mining plan. But, based on what we know so far, there is definitely an open pit oxide deposit sitting at the surface and that would probably run at something like 1 to 1.5 gram per tonne and yes, you can make a bit of money off the back of that. But what really excites us is all this high-grade sulphide underneath it; if we're looking at thirty grams per tonne - US$800 per tonne of value - mining costs in China are still roughly US$20 per tonne, so we can look at, potentially, a very, very good return from the sulphide underneath it. Whether that will become an open pit or an underground mine - at this stage, I can't tell. I have an inclination, but just put it this way - some of the high-grade sulphide is still situated about twenty six metres below ground, so it’s not too difficult to mine that, and I think the deepest sulphide we hit so far was about 110 metres below the surface, so it’s not too difficult to exploit that.

What does “corporate social responsibility” mean for a company operating in China, Jeff?

From our point of view, this is a very critical part of the development of the company it’s an important part of exploration. We like to share the benefit with all stakeholders involved; not only shareholders but the local community, the government, the employees and, of course, our own partner. We're not the Red Cross [laughs] - we're not a charity organisation. But, what we believe in is 'win-win' situations and this is why we put a lot of effort into employing local people. We do consult and talk to them and explain what we are doing in terms of exploration and also in terms of land compensation. We talk very closely to them. Just for example, Harry, just in Nimu before we started drilling we visited every single house in the area - granted there are only about one hundred houses, but we visited every single house and told them what we were doing. So, we can manage the expectation and they don't think we are a big mining company with millions of dollars. They know how big we are and what we do, and if we don't hit mineralisation we may not be there tomorrow; if we do hit good mineralisation then we can carry on that conversation with them. But at least they know what we do, and we are also employing them and we give preferential treatment to the local labor force.

What can you tell us about doing business in China, Jeff?

Perhaps I can answer that question, Harry, by putting it into context. China is a place of 1.3 billion people so, by nature, there’s going to be a lot of rules and regulations. China also has evolved from a country which had a centrally planned economy a few decades ago, to become one of the most vibrant market economies in the world. The whole thing goes through an evolutionary stage – in other words, there are going to be a lot of regulations, there are a lot of rules, and there's also going to be a lot of changes as 'doors' open and the rules and regulations change. So, we need to be on top of that and the key to success in working in China is relationships: knowing the people who understand what’s going on, who can guide you through the rules and regulations, and through maintaining good relationships you build a lot of trust. This is the case at the Sichuan Bureau (Sichuan Bureau of Metallurgy and Geological Exploration) - we've been working with them for the last three years; they trust us and we trust them - they bought Snow Mountain back from us. This is the only case I know of where a western company sold an asset back to the provincial government. Again, there was a delay in the payment of Snow Mountain because of the earthquake, but we trust them and they trust us, and we can continue drilling in Nimu because we know the money will come and that money will be used to pay the drillers. So, it is all about trust in China - but it’s a fantastic place to work in and the country is moving at such a fast pace!

Register here to be notified of future Central China Goldfields articles.