FROM THE BROKING DESK
We commented on Toachi Mining’s success in ongoing drilling at its flagship La Plata Project in back in January. This is a gold-silver-copper-zinc-lead VMS project in Ecuador. The company has now announced further results showing the extension of mineralisation down-dip of historic drilling. Grades are impressive, with highlights including Hole CMLP-17-38, which intersected 3.58m of massive and disseminated sulphide mineralisation grading 2.38 g/t Au, 93.3 g/t Ag, 15.92% Cu, 2.31% Zn and 0.16% Pb from 119.3 m in the La Mina North Zone of the La Mina deposit. The gold equivalent grade is 29.25 g/t. This core interval was within a wider intersection of 13.7m grading 1.49 g/t Au, 30.55 g/t Ag, 5.63% Cu, 1.32% Zn and 0.11% Pb from 119.3m. The AuEq grade of the wider intersection is 11.35 g/t.
The current drilling programme is aimed at adding to the very high-grade gold/copper-rich — but relatively small — historical resource that exists at the project. This is based on work by Cambior (1996-99) and then Cornerstone (2006-07). The Inferred resources totalled 0.9Mt grading 8.0 g/t Au, 88 g/t Ag, 5.0% Cu, 6.7% Zn and 0.8% Pb.
This second set of results from the programme is very encouraging. The results point to the potential for the project to host additional discrete VMS zones and extended mineralisation.
Elsewhere, Peak Resources†† has re-issued the Mineral Resource Estimate for its 75%-owned Ngualla Rare Earth Project in Tanzania to include a further commodity — the industrial mineral barite. Metallurgical test-work has indicated that relatively pure barite is expected to report to one of the rare earth waste streams during processing and could potentially be an economic by-product. The rare earth oxide (REO) component of the Mineral Resource remains unchanged. The Mineral Resource Estimate for Ngualla now stands at: 214.4Mt at 2.15% REO and 16.6% barite, for 4.6Mt of contained REO and 35.6Mt of contained. This follows the 20 February announcement of the discovery of high-grade flourite (78m @ 37% fluorite from trenching) and further underpins the multi-commodity potential of the Ngualla complex.
The Ngualla deposit is already one of the world’s largest Nd/Pr deposits and the addition of barite presents another opportunity to add value to a future rare earth operation. Peak remains focused on the delivery of the impending BFS (its completion is expected around the end of 1Q17); this will exclude any barite by-product, but the mineral will form part of future studies.
ASX:BSE | A$0.29 | US$164m | Buy | TP : A$0.35
Results from First Exploration Programme since Commencing Production
Base Resources has announced the first results of its exploration programme on its expanded land tenure around its Kwale Project in Kenya, as well as the infill drilling and edge definition on the South Dune. A new dunal-heavy mineral sand deposit has been intersected in an area south-west of the South Dune called Mafisini, while additional exploration drilling covered an extension of the South Dune and the NE Sector. Further drilling around the NE Sector has been put on hold due to some community issues that the company expects to be sorted out after Kenya’s general election in August 2017.
COMMENT: These results show the potential to add resources at grades similar to the South Dune, where reserve grades are 3.8% HM; should this lead to an extension of the project’s mine life, significant value would be added. For reference, adding one year to the mine life of South Dune adds ~10% upside to our current target price, assuming grades and costs remain constant. However, economics are obviously sensitive to variations in grade.
There is potential at three areas around the South Dune: the extension directly south-west, the possibility to extend to the east and the newly-identified Mafisini (that appears to be a continuation of South Dune to the south-west of the extension). The company expects a resource update in the September quarter that will incorporate the latest drill results.
The NE Sector may also add to the mine life, but with only limited results available and any further drilling delayed, its potential is still uncertain. Early indications show that it is worth exploring, but we would need to see additional assays from the sector for greater clarity.
We are maintaining our Buy recommendation and A$0.35 target price, but we note the upside potential these latest results show. For details on the company’s latest financial results, please see: Base Resources*† — Strong Cashflow in Interim Results, 28 February 2017:
Exploration provides upside after having achieved steady-state production — In 2015 an airborne geophysics programme was conducted over the south coast region of Kenya from Mombasa to the Tanzanian border. This identified exploration targets, subsequently confirmed through ground reconnaissance. In June 2016 Base announced that it had been granted exploration tenure over a significantly expanded land area surrounding its existing Kwale operations, along with plans for its first exploration programme since commencing production. The announcement marked a shift towards extending the mine life at Kwale after having achieved steady-state production.
Reported drill holes similar to South Dune — The drill programme was primarily aimed at exploration, representing 6,850m of the 9,600m drilled. The balance was aimed at infill drilling and edge definition for the existing South Dune deposit. Exploration covered three areas: the South Dune extension area, the newly-identified dunal mineral deposit at Mafisini and the NE Sector. Many of the reported exploration holes sit at surface and show grades within the range of the October 2016 Resource and Reserve Update for the South Dune, where resources were at 3.5% HM and reserves 3.8% HM. Mining from the South Dune is expected to commence in 2020. The current operation is based on the Central Dune, where Resources are at 5.5% HM and reserves 5.8% HM.
Newly-identified Mafisini deposit has the potential to extend the mine life — Mafisini is interpreted to be a continuation of mineralisation at the South Dune, separated by a narrow, alluvial lowland. Mineralised intervals occur over a contiguous 1,240m of strike and up to 480m in width. Notable results for Mafisini include the reported Line 13 cross section showing 10.5m at 4.4% HM and 12m at 4.2% HM, both from surface, compared to a grade of 3.8% HM on the South Dune reserve. Other drill hole grades appear to be broadly in line with the South Dune.
South Dune dimensions expanded by exploration — Exploration drilling has increased the dimensions of the South Dune deposit, adding 950m to the south end at an average width of 700m. Notable results include the Line 7 cross section, showing 23m at 5.2% HM, 23m at 4.4% HM and 21m at 4.4% HM.
NE Sector shows longer-term potential, but has stalled due to community issues — Only four drill holes with mineralised intercepts were reported for the NE Sector, so the story is still developing. The company intersected a surface zone where 2 of 3 drill holes were low-grade and narrow, as well as a deeper mineralised zone sitting ~20m below surface with higher grades. Base is waiting on additional assays for the NE Sector, and has yet to complete most of the proposed drilling. Further drilling has been put on hold due to community issues; the company believes these have arisen as a result of increased political posturing ahead of the August 2017 general election in Kenya. Base intends to re-engage with the community after the election to obtain informed consent and access the target drill sites.
South Dune infill and edge definition — Drill results focused on edge-definition drilling along the eastern margin of the South Dune have led management to suggest that the deposit may be extended by as much as 500m to the east. Infill drilling has focused on upgrading of Inferred and Indicated to Measured. Results are expected to be included in an updated resource estimate in the September quarter.
Further drilling on hold, but assay results and resource estimate to follow — Drilling to date includes 9,600m out of a total 18,000m initially announced for the programme. Most, if not all, of the remaining drilling is intended to cover the NE Sector, but has been put on hold as a result of issues related to the upcoming August 2017 election. Base expects to receive additional assays for the NE Sector, which will provide further information on the target’s potential. It also expects drilling completed to date on Mafisini and the South Dune to form the basis of a new resource estimate in the September quarter.
Target price — We are maintaining our Buy rating and target price of A$0.35. We note, however, that the South Dune continues to extend and Mafisini offers additional resource potential. An extension of mine life beyond 2024 could potentially add significant value.