Vane Minerals: Stalking elephants in America's porphyry copper province

VANE Minerals (LON:VML) is elephant hunting, but not in Africa or India.

Its stalking ground is America’s porphyry copper province.

This is an area that straddles the Arizona-New Mexico border and which is home to 60 per cent of all US production of the metal.

One hit could be transformational, according to newly installed chief executive David Newton, though so far the company has drawn a blank in its search for the big one.

VANE’s geologists aren’t working blind as they go after these elephantine deposits.

What they have is access to extensive database of the area compiled by Freeport McMoran.

And in directors Clark Arnold and Steven Van Nort they have the grey-beards with the knowledge and expertise required to successfully plunder this mountain of information.

And that’s the kernel of the investment – the opportunity, the asset.

The company owns uranium projects that are being used as benchmark to value the company, and Mexican gold and silver production helps bankroll the business.

But copper is the major focus. It was Van Nort, taking early retirement from Freeport, who negotiated the exclusive access to more than 7,000 world-wide exploration files assembled over 85 years.

VANE’s focus is the porphyry copper systems of the south-west US, and its targets on either side of the Arizona-New Mexico border.

The biggies to date, deposits such as the Morcini and El Chino mines, are outcropping at surface.

There are more than 30 in total.  And the theory suggests there’s a similar number hidden beneath the covered terrain of this metallogenic province. Around 60 per cent of this area is covered.

Using the Freeport database and other proprietary data VANE is identifying potential hotspots and drill testing them.

It is rapid and, at $100,000 to $150,000 a hole, it is relatively low cost.

The only problem thus far is VANE has drilled two targets and found nothing.  However this is two of 24 potential targets.

It plans another six to nine in the next 18 months, starting with McGhee Peak in New Mexico, which was finally given the green light by the local mining authorities on October 31.

“The cost of drilling for a negative hole is as little as $100,000,” CEO Newton says.

“If we found something and we dropped another two or three holes down to scope out whether there is something big in there, then that’s $150,000.
 
“But at that point we would be talking to a major (mining company). It is particularly cheap exploration with potentially binary returns. And there is approximately a one-in-twenty chance of finding something.”

A successful hole would be utterly transformational, Newton reveals. “We could spend as little $150,000 on exploration and end up with something worth between US$2.2 and US$40 billion.”

The valuations quoted by the VANE boss are benchmarked on the monster deposits that have already been discovered in the region and based on the current price of copper.

It’s not the most rigorous mine maths, but it gives a hint as to the scale of the opportunity. 

Suffice it to say a discovery will see the world’s big miners sniffing around with Freeport probably at the head of the queue.

“It has the right to buy 25 per cent if we find anything from their database,” Newton reveals.

So there’s the opportunity, the big idea. However there are two other legs to the company.

Uranium is the second. The group has assets in Utah and Arizona, where the uranium is found in breccia pipes. It has a JORC resource of 1.118 million pounds in its Wate Pipe and a joint venture with Uranium One.

They are exploring the Rose Project in northern Arizona.

Last month VANE unveiled results from three deep holes that were described as “encouraging”.  

However once it has discharged its drilling commitments, the uranium assets will effectively go on care and maintenance, though it will spend what is required to maintain its share of the U1 JV.

The uranium market is emerging from a period of fragility induced by the Fukushima disaster.

However, faint signs of life are returning and crucially consolidation is starting to take place.

And Newton is conscious of action occurring around him.

“There is an open question mark on what one does with the uranium,” he says. “There is some possibility for some corporate action. There may be some flexibility.”

The company’s gold and silver operation was developed with the aim of helping part finance the company’s exploration activities.

Its focus will be a joint venture with the Ruiz Brothers following the closure next year of the Diablito mine. The Ruiz JV is an 80/20 profit split in Vane’s favour until 150 per cent of capex costs are covered and then it moves to 60/40.

VANE also has an SDA mill and flotation plant capable of processing 100 tonnes of ore a day and a Merrill Crowe cyanide leaching plant.

In the quarter to September 30, Mexico’s total revenues were $433,691. The closure of the Peñoles smelter meant the company was left holding a concentrates inventory worth $1 million at that date, which have since been smelted and the revenue accounted for.

The figures illustrate Mexico’s potential to generate income. However VANE is unlikely to be totally self-sufficient.

In September it raised £1.16 million at 1 pence a share, which provides it with the funds to go after those big copper porphyries.

The plan initially was to drill six holes per year, although the VANE CEO believes a more realistic target is one hole per quarter.

“The excitement here is our drill programme, and the value-added is the access to the Freeport database and the individuals we have with the expertise to interpret that database,” concludes Newton.