Interview transcript with Connemara Mining

So, why zinc, why Ireland?

Well zinc is very easy because zinc is used for things like galvanising and die casting brass. A car uses about 80lbs of zinc; so it's a fundamental metal used in the growth of economies and, of course, the growth is coming in India and China now and that's what you're seeing, and that's going to continue. There's 25 million Chinese cars, there's going to be 400 million Chinese cars by about 2015, or maybe 2020. So, the fundamentals are very strong. Supply is good at the moment because zinc can be found - it's a question of price and effort. But, the mines tend to be relatively short-lived so you would imagine from about 2011 on, another shortage would appear in zinc. Why Ireland? Ireland is highly prospective for zinc; something that most of your listeners wouldn't know. Three of the largest zinc mines in the world are in Ireland. I was associated with the Tara mine, which was discovered in 1970, and for many years was the biggest in the world - it's still the 5th or 6th - it's owned by Boliden. Anglo American has a huge zinc mine called "Lisheen" and European Zinc, The Lundin Group, have the Galmoy producing mine. So Ireland is prospective for large zinc discoveries, not small.

What is Connemara Mining's business strategy?

Very clearly focused; it's focused on zinc exploration in Ireland and the reason is simple in that, together with some colleagues about five years ago, we saw that there was very little activity in Ireland and we moved to acquire ground. So, this early mover advantage gave us some very prospective ground and, given the results we're achieving from the 38 licenses we have, there's no need for us to move outside of Ireland at the moment. So, the strategy at the moment is zinc exploration and development in Ireland.

Tell us about Connemara's joint venture with Teck Cominco and how that could be significant.

Remarkably, how it happened, the European Exploration Director of Teck Cominco was in the office talking about something totally different - about gold, in fact - and he asked if there was anything else. When we told him we had a private company with some zinc licenses he said they were very keen to go into zinc, being the main zinc company in the world (Teck Cominco has been famous for zinc for one hundred years) and would we joint venture it, and we did it on the spot. It's one of those things - before he left the office we had a joint venture for C$3 million to earn a 75 per cent interest. Now, this was "green fields", and they're a superb partner. If you want a partner in zinc you go for Teck Cominco because they have all of the skills, and the experience and the expertise. But they were lucky, so they got six blocks, and then a further nine blocks, and then another; so they have 16 blocks in the Limerick Area Joint Venture. They've just spent C$3 million to earn 75 per cent which is a very good deal now for Teck Cominco, a very good deal. It was a very good deal for us before they found something. But, then they hadn't had a major discovery. So, so far it has been a wonderful joint venture for both sides.

Connemara has a zinc discovery near the Xstrata/Minco Pallas Green project. How could that be significant?

In 2001, Xstrata - which at that stage was Noranda; Noranda was acquired by Falconbridge, and Falconbridge was acquired by Xstrata - had a joint venture with Minco which is an AIM stock. They had a discovery in a bigger area, and since that time they've been working on the discovery. They have a number of big pods and it looks very attractive. So, we have the adjacent ground and our discovery is less than a kilometre away from the main Xstrata discovery, which is "Caherconlish". It has similar characteristics and it's very big, so if you were an industry specialist and you were looking at discoveries in Limerick, you would be "odds on" at this stage - maybe 60 per cent - that there is a commercial mine in the Limerick area. The question is, "is it on our side?"

Is it on your side?

Yes, there is a fault. The actual licenses are separated by a geological fault, and one of the concerns was, of course, that the mineralisation disappeared when they went south-west. But, in fact, we're on the south-west side and the two very good holes that we've reported are very supportive of the idea that we have a substantial discovery.

So John, bring us up to speed on Connemara Mining's recent activities.

Two areas we reported, let me give you the big one first: Teck Cominco drilling on the Stonepark discovery in Limerick, where they had the discovery hole in November - a very, very good discovery hole reported in December - had a step out programme as it's called; we're drilling in the area and the second hole of this second programme discovered 40 ft of zinc mineralisation, of which about 14 ft was very high grade. Now, this is very significant because it means that the first discovery wasn't isolated. It also means that it stretches at least 100 metres and it is also very thick which means it's going to stretch further, it's not the tail end of this. This is at least as significant as the first discovery and it suggests that, at worst, there is a significant pod of zinc on that particular license. So, it was very, very encouraging to us. You can find isolated, good drill holes in various parts of the world, but we now know we have a system here. So, that was very significant. The second one, which was a very pleasant surprise to us - we were drilling the Lough Sheelin block, which is a block that some of us have known for many years about 20 kilometres north west of the Tara mine, the huge mine that all of us were involved in; massive mine, 10,000 tonnes a day even now, 37 years later, and it has a similar geology. So, we put in five holes to just scout, and low and behold, we discovered some mineralisation - not high grade but interesting, we discovered zinc - and we extended the programme to eleven holes, and we have zinc in nine of the eleven holes. Now, what we think we have is the "halo effect", in other words, we haven't found the main ore body and we have to go and find that. But, we were fairly lucky that in our first year of operation that Teck Cominco discovered Limerick, and we re-discovered Lough Sheelin - it had been drilled in the 1980's. So, it's quite a substantial advance for a small company in twelve months.

What is the financial position of Connemara Mining?

We raised £1 million when we went public and we spent about £400,000, so £600,000 in the kitty. Teck Cominco pays for everything in Limerick, and will continue to pay for the next year or two. We have financing for all of our current programmes, which will involve drilling in Lough Sheelin probably another twenty holes if we can get the rigs, and maybe - if we can do the work in time - drilling one of the other blocks we have. I also suspect that there is some joint venture in one or more of our other blocks, joint venture interest. So, it's possible that we would joint venture out our exploration expenditure to a major.

What can we expect from Connemara Mining in the short to medium term, John?

You want to watch, very carefully, the next set of results that will come from Limerick, and what we will expect and hope - maybe not in each hole, but over the next three or four or five holes - that you will start to see a pattern of size and grade emerging. There will be a flow of results right through this year. They're going to drill - I think it's 50,000 metres of exploration in the area - so, Teck Cominco will be drilling right through 2008. The second area of interest you'll have will be the second phase drilling of Lough Sheelin, which will take place in the latter half of the year. One of the restrictions in Ireland, at the moment, is the availability of rigs because the success of Limerick and the price of zinc has meant there's been a huge land rush in Ireland and a lot of work's been done.

Where do you hope Connemara Mining will be in five or six years' time, John?

We should be developing a mine and there's a good chance that we will be doing that. Assuming that we continue to get the good results in Limerick, you would need to drill maybe 100, 200, 300 holes to scope out the actual size of it, and then you need to go for planning and various areas like that. If you look at our annual report you will see that Teck Cominco have already done preliminary work by looking at the logistics like rail links, and road links, and port links in the area. So, five to six years' time, either in Limerick, Lough Sheelin or one of the other blocks, we will have a commercial discovery which will be in the stage of being developed, and possibly be close to completed development, but that's a lot to ask in five to six years. But there will be a big zinc mine coming into production.

What are the licensing, fiscal and environmental regimes for mineral companies in Ireland?

That's one of the big pluses of Ireland. It has very clear commercial rules and very good title, so you can get clear title which in most parts of the world you can't. It has low tax rates, 25 per cent, no state participation, and it has a strong environmental position, as you'd expect in an advanced country with a strong belief in its green lands. But, that's not a bad thing and we're comfortable with that. It has an excellent infrastructure in the areas where we are working - now this is relative to, say, some parts of the developing world. So, as a place to drill, the first thing you want to know is, "can you find something?" - and Ireland is very prospective for zinc. The second point to raise is, "can you develop it profitably?" - and Ireland is a very good place to mine when you get yourself through and established. It has to be mined to the highest international standards, which is not a bad thing.

Is there any downside for mining companies in Ireland?

Yes, there are. One of the concerns that you have in any advanced economy is the NIMBY effect ? "not in my backyard" - and that is exacerbated in Ireland by the fact that our agricultural land is very highly prized, and there's blood spilt on it, and people don't like anything done to it. So, your planning period tends to be longer here than it would be in many African countries; for instance, around the Middle East, where you have to go through an extensive consultation period with the locals, and with the state, and the environmental impact agencies, and things like that. Again, as I say, perfectly comfortable if you're going to operate for 30 or 40 years. This takes time and costs money, so for a junior exploration company, the concern is that once you make the discovery you then have a 3, or 4, or 5 year period where you're in the valley of death while you're developing something, and this really has to be funded by equity. So, that's the downside of this but the upside is that when you do develop it you own it, you know the tax terms, you're not going to be nationalised, and they tend to be very big.

What are the characteristics of zinc mines in Ireland?

Two words: "big" and "rich". Very, very, very simple - you would look at Ireland and you find that Ireland provides about 40 per cent of all of Europe's zinc at the moment, which people find very hard to believe. Naven is one of the biggest in the world, Lisheen is one of the biggest in the world, and Galmoy is the fifth biggest mine in Europe, and the characteristics of these are is that they tend to come in very big dollops - they tend to come in pods. Now, this is difficult to explain - in other words, like large teardrops, but they are very large teardrops, and you can be lucky and find something like the Naven mine that was just a massive zinc load of, maybe, 300 ft thick. It's just one of the discoveries of the twentieth century, it was the biggest discovery for about eighty years in the twentieth century. But the rest of the mines in Ireland come in these pods, but the pods tend to big. The grade of zinc tends to be fairly high; you have about 20 per cent lead associated with it. The odd mine has silver; Tara would also be the biggest silver mine Europe. So, you find big and rich, and they're important characteristics. If I can put this in perspective for you, what we will be looking for in Limerick is about twenty million tonnes of contained zinc in the ore body. Now, if you look at a Mexican mine, or a Peruvian mine, two million tonnes would be the target that they would have because they don't find 20 million tonne mines. But, whoever develops Limerick, it is likely to be a mine that will be a world-class, world-sized mine, of a minimum of 20 million tonnes.

What makes for a profitable zinc mine in Ireland?

Anywhere in the World, one word - "grade". The cost of extracting a tonne of rock is the same whether the grade is high or low. If you take the type of grade you will be expecting in Ireland - say you got 12 per cent zinc, and say zinc is US$2,000 a tonne - that gives you a value per tonne of rock in the ground of US$240. Now any miner will tell you that's profitable to mine, and you have a big deposit, so the costs are relative. So the important thing in Ireland is grade because you'll get the size, you're not going to develop a small mine. The negatives in Ireland are that it's high cost. Now, it's high operating cost would be on a par with anywhere in Canada or Australia. Environmental security and protection is extremely high and costly, and as I said before, we're comfortable with that, and CAPEX tends to be quite high. The offsetting of that is that you have no infrastructural costs; you don't have to build roads, you don't have to build power stations, you don't have to maintain these. The average cost in a developing country's CAPEX would be one third for infrastructure, which is dead money. So, overall, Ireland is relatively high cost, it's good grade, but the grade is what makes them profitable.

What are the prospects for zinc in the medium to long term, John?

One of the better metals, simply because - I'll give you one statistic: the 400 million Chinese cars. It's 25 million at the moment, and they need 80lbs in zinc per car. On top of that it's used in galvanizing, it's used extensively in building, and in India the main use of it is in galvanising for roofs, and there's a lot of Indians. The third use is it's used in appliances. There's a certain amount of zinc in every appliance - a fridge, a washing machine - and the demand for these is limited (in the West). So the demand for zinc is moving rapidly to the Far East, and if you look at the statistics - and I spent forty years of my life doing this - you see statistics coming from the western world where we've become a service economy. Europe is, basically, service economies; the USA is going that way rapidly, and service economies don't use a lot of zinc. So zinc demand has stabilized, if not declined, in the West and is rising in the East. To add to the positives for zinc, in the medium to long term, is the fact that zinc mines have an average life of less than 20 years, so the zinc mines that are currently in operation will not be there by 2028. So you must keep continually replacing them by exploration and discovery, and that just gets more expensive and takes time. But, zinc is not like other metals it can be found. There's zinc and lead to be found in the World, it's a question of finding it profitably.

What are your thoughts on the AIM market and how it could be improved, John?

Well as a founder member of AIM, we listed two companies on AIM on the first day it started - I think it was September 1st 1995 - and have been associated with it in one way or another with up to, maybe, 10 or 12 AIM companies. So, I have been very positive about AIM. I thought it was a very well constructed and crafted market for many years, and it was highly successful. The proof of the pudding is the fact that there's 1,400 or 1,500 companies on it, and further proof is now that they're having to regulate it. What people like me, and explorers, hate is regulation and cost because every dollar or pound we have really has to go into the ground, and what's been happening over the last two or three years is that AIM is maturing. It's becoming kind of an older teenager, and it's being more and more regulated, and regulations lead to more cost. An AIM listing now  is probably going to cost you £150,000 per year. That's' not cheap - that's exploration money that could be used elsewhere. So, I'm sorry to see this happening, it's a natural progression. I would suspect that in the next five or ten years, AIM will not be able to become a market for junior high-risk, entrepreneurial companies, and that will either become a function of the PLUS market or, indeed, a fourth market will be created that will service start up, high-risk, high-return companies.

Any thoughts about how AIM could be improved?

I'm sure you will hear this from others, but for people like myself, leave us alone. Don't regulate us. Don't have us to fill out forms. We worked very well for ten years - from 1995 to 2005 we worked for a small Nomad out of Bristol called "Rowan Dartington". Excellent, really had a wonderful relationship with them; they were cost effective, we didn't bother them much, they supported us when necessary. In the last year or two that has changed, we're with a different Nomad now but they, in turn, are having to regulate us tighter, and as a consequence its costs have doubled. But, also reporting restrictions have increased - are these for the good? Maybe they're for the good, but AIM should not be a widows and orphans market at all. This is a market for people who can afford to take some risk with their investments and the regulations should actually reflect that. So, I would like to see them understanding this particular thing and try to minimise regulation, which they've done to some extent by using the Nomad (Nominated Advisor). But, the Nomad is now becoming as bad as the stock exchange. I fear that they won't be able to go back to the more freewheeling days of the mid- 1990's. So, I think another market will be created.

Do you have any thoughts of listing on another exchange?

Yes, for Connemara the obvious exchange to list on is in Dublin, on either the full market or on the IEX, and we thought about it and, indeed, we were going to dual list when we listed. But, there were only two Irish stockbrokers that were also Nomads, and this was going to take time and was going to be costly despite the fact that you use the same prospective. I think that the Irish stock exchange probably needs to get itself a little bit more stream lined to be able to handle junior companies. But, I would think that within the next 18 months you will see us listing in Ireland because Irish investment houses and brokers will understand Irish zinc probably better than anyone else.