Eurasia Mining’s Schaffalitzky upbeat on prospects for platinum project

The recent placing by Eurasia Mining (LON:EUA) should be interpreted as a tacit endorsement of the company’s prospects and its plans.

Patient investors kicked in £468,500 via a placing, which will fund the group’s ongoing exploration in the Urals in Russia, where it is planning to establish an alluvial platinum mining operation. 

Eurasia is currently awaiting the conclusion of the permitting process so that it can obtain a production licence for its first project, but in the meantime it is also exploring the surrounding area. 

As a result of this work it recently booked Russian-classified reserves for two additional areas within its exploration licence.

It has subsequently applied to the authorities for a discovery certificate. Once these certificates have been received Eurasia will have the opportunity to apply for expanded production licence coverage for these two areas.

Speaking to Proactive Investors about the pivotal, yet protracted, licensing process, chief executive Christian Schaffalitzky said: “Most of our investors are waiting for that. The two additional areas will eventually add to the resource area we already have.

“However the next stage is to receive a discovery certificate for those areas and once that has happened we can apply for a production licences for there as well.

“Ultimately we are going to have a much larger production area footprint than we initially started out with.”

Exactly what form the production licences will take is unclear. It may be the case that, given the wait so far for the first application, the two additional licence applications are combined with the previous application.

That way it will receive one single production licence for the whole area, Schaffalitzky suggested.

“They (the Russian authorities) might find it of interest if we re-submitted a licence application for the entire area, once we’ve receive the discovery certificates. 

“There is paperwork that can be put in place to do that application. We have a lot of it ready, but we don’t really know exactly what shape the application may take yet.”

However Schaffalitzky says he ‘can’t pre-empt what the authorities will decide to do regarding the production licence coverage ’.

The key is patience, he adds: “There has been quite a lot of red tape and challenges throughout the application process, but we’ve tried to just go with the flow and keep our heads down. 

“Unfortunately this has taken some time and it has been moving at a slow pace so far.”

“That said, I am confident that we are going to get the production licence. It is just a matter of time and persistence.”

The company received its first discovery certificate after around 6 weeks from the initial application, and on that basis, Schaffalitzky believes Eurasia could be in a position to apply for the production licences sooner rather than later.

“I would hope that we would have the discovery certificates in our hands before Christmas.”

Initially Eurasia had wanted to convert the entire exploration area into a production licence, even though at that stage little resource definition had taken place. But subsequently it chose to apply for a smaller part of the area to get the ball rolling.

Given the nature of the alluvial platinum project, Schaffalitzky and his team remain comfortable with this initial tactic because of the low capex, and relatively low risks associated with such an operation.

Producing alluvial platinum is much more akin to a quarrying operation than mining.  

Using bulldozers and plant vehicles, which can be leased locally, much of the mineralisation can essentially be scraped from the sides of the river banks, gathered and processed into what is known as black sand.

“Alluvial mining is very straight forward,” Schaffalitzky explained. “It is simply about gathering and washing gravel to collect a “black sand” concentrate. The bulldozers and the loaders basically bring the material that contains the platinum into a washing plant for a particular stretch of the river. 

Black sand is made up of other heavy minerals, including platinum and some gold he adds. This mineral concentrate is then delivered for refining. 

“The whole process is very different from bedrock mining. And what’s most important, is the fact that the capital investment involved is minor because we’ll be using conventional equipment,  which can be leased or supplied by our local partner, who holds a 25% interest in the project.

“We already know what we have to do to put the project into production once the authorities have given the go-ahead.”

The only significant capital item that is required is what’s known as a drag-line, which is a piece of equipment that is used in pre-stripping. This bit of kit will allow Eurasia to get down to some of the richest platinum material, which is below about two or three metres of overburden.  

“This (overburden) is the only reason this particular area hasn’t been worked in the past. The local small- timers never went that deep.

“So we’ll need a drag line to remove that. They cost around seven hundred thousand dollars.

He emphasised: “The capex is modest and the payback will be quick, probably within one or two seasons, depending on the mining schedules.” In fact Schaffalitzky believes that the project’s start up costs will be sufficiently modest that Eurasia should be able to cover project financing with local debt arrangements.

“In Russia there are around fifty alluvial gold and platinum miners and they all start up with bank loans, which tend to have a maximum of a two year term. That’s probably what we’d expect to do also,” he explains.

While remaining coy about the rest of the project’s economics, Schaffalitzky added: “I don’t want to say too much about that, until we’ve had our production licences signed off and we’ve put concrete plans in place.”

“What I can say is that overall the project’s output volumes will depend on the size of the licence we are given. We would initially target annual production of around 5,000 ounces. With a view to more than doubling that in later years. 

“It is impossible to properly compare what we’re planning to do with a conventional bedrock platinum mine, which produces say half a million ounces a year. The margins are totally different.

It is this point that point is hard for investors to appreciate. Instead many simply overlook the company because of its apparently modest output aspirations. Schaffalitzky himself admits that it took a short while for him to appreciate the true value of the project.

“When I first came into the company I thought ‘what are we doing going for alluvial platinum?’, but then I sat down and looked at the numbers and it was like ‘ah I see!’

“It is still for a smaller company rather than a large company, but the operating margins are satisfactory to say the least.”

So with persistence and a certain degree of faith from his investors Schaffalitzky may be poised to achieve a seemingly improbable feat of switching the market onto the generally overlooked virtues of alluvial platinum mining.