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Oct 2012 - Transform Focus P2

The transformation of Focus - part 2

When we wrote "the transformation of Focus - part 1" that was contained in last month's (October 2012) issue of Paydirt, we had not anticipated Focus announcing on 20 September 2012, a $227.5m placement of 4.55bn shares @ $0.05 to Shandong Gold International (a 65% subsidiary of Shandong Gold Ltd, which owns 56.4% of Shandong Gold Mines that produces >700,000ozpa with a market cap of  ~$9bn). 

That placement greatly simplifies and enhances the transformation of Focus by providing it with the ability to have its own plant at Laverton, exploration capabilities, and an acquisition war chest if it wants to use it for that purpose.

The management changes at Focus' Laverton (previously Crescent Gold) operations have already reduced operating costs, however, they may reduce significantly by mining an overlooked area called Burtville.

Burtville was an active mining centre from about 1898, with numerous workings, however, it has been relatively barely mined by modern methods and largely overlooked. Sons of Gwalia (SGW) mined an open-cut consisting of three interlinked pits there between 1994 and 1996 based on two main NNW/SSE striking mineralised shear zones, and recorded disappointment that the expected grade of ~1.7g/t was closer to ~1.4g/t. 

Examining the location of the SGW pit amongst the numerous old workings shows that most of the historic highest grade areas lie outside of the SGW pit, such as "Away From Home Leases" : initially 6.5oz/t, averaged 2.2oz/t (1900 to 1909), "Sudden Jerk" ~1.5oz/t (1902 to 1904), and "Bell" ~1oz/t (1901 to 1903).

Prior to its closure, due to SGW becoming distracted by Red October and its then newly acquired properties and mines in the Southern Cross region such as visible gold-rich Yilgarn Star, SGW had a number of nearby encouraging intersections in the Burtville region of >10g/t over widths of >8m.

According to notes we made on a site visit to Burtville in 1994/95 ..."the grade is low, but so is the strip ratio". The low strip ratios are still expected to occur at Burtville (they may average ~2 times compared to the region averaging closer to 6 times - a cost difference of possibly $12/t to $15/t milled). Apart from some possible private mining in a re-timbered old head-geared shaft at Merolia (South Burtville) the area seems to have remained untouched for over 15 years.

Focus drilled the western end of Burtville and had more than doubled the Burtville ore resource by June 2012 to 5.7mt @ 1.4g/t for 235koz. Testwork has shown that it has an ~80% gravity gold component, but more importantly it does not have to pay the WMC royalty. Also the old Barnicoat area adjacent to the old Barnicoat plant, and the old Euro area with its stamp battery footings still apparently present, do not have to pay the WMC royalty either.

It seems that Focus' Laverton operations can be turned around and costs materially reduced, especially once it has its own operating plant.

As announced on 28 September 2012, the Laverton operations made a profit of $3.8m in the 9 months to June 2012 under Focus management, compared to the ~$51m loss in the year to June 2011 under Crescent Gold management.

At its original Coolgardie operation, Focus has also made significant progress through focusing on an area that has been an enigma in terms of grade and delineated resource expectations, and hence been left untouched for many years, namely Dreadnought.

Aside from unexpectedly encountering visible gold, the open-cut that started in 2012 has exposed the Dreadnought shear and aided by the discovery of an old  1924 mining plan (that was updated in 1940, using 1934 information), a series of significant cross-cutting structures have been identified as shown in Figure 1.

Tracking these structures through the bush outside the NE corner of the pit led to an intersection called "metro", with an old shaft and recent grab samples assaying mostly 3g/t to 6g/t in a quartz-rich old pit area.

A cut-back had already started on the SW corner of Dreadnought and conceptually the pit may evolve into a "mega" pit along with a future underground mine, as there are a number of deeper encouraging intersections.

Although it was reported to the ASX on 7 June and contained within FML's June Quarterly 2012 report, the market seems to have missed or misunderstood the significance of the Bayleys / Prices observational discovery, that has been followed up with intersections at Bayleys North, immediately west of the old Prices underground.

Bayleys was an underground mine with workings to a depth of ~450m and was mined on the Lindsays basalt / ultramafic boundary, while Prices (to the NW on strike, offset by a NNE/SSW fault), was mined within the ultramafic. The orebodies were clearly mined separately as there is no near surface connection, only one at depth.

Logically an open-cut could occur over Bayleys North and then connect with the Prices underground (to the east), where according to old long sections there appear to be a number of ~13g/t unmined stope areas. There may also be a Prices South, (being parallel and east of Bayleys).

Focus has established a possible ~ 5 to 10 year life at both of its operations (Coolgardie and Laverton), and appears to have the capability of enhancing its production and life, while reducing cash costs. With the injection of material cash (from Shandong Gold), the transformation of Focus from an ugly ducking into a swan becomes significantly easier.

Disclosure and Disclaimer : This article has been written by Keith Goode, the Managing Director of Eagle Research Advisory Pty Ltd, (an independent research company) who is a Financial Services Representative with Taylor Collison Ltd.

Figure 1. New structures being identified at FML's Dreadnought open-cut at Coolgardie

  • Written by: Keith Goode
  • Thursday, 01 November 2012