AusQuest On A Copper Mission
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Advanced West African gold explorer that’s pursuing aggressive appraisal and development of its Mankarga 5 gold deposit in Burkina Faso, where maiden gold production is targeted during 2016.
|Status: Emerging Producer|
|Size: Small Cap|
|Commodity Exposure: Various|
|Share Price: $0.017|
|12-month Range: $0.007 - $0.035|
|Shares: 496m, Options: 216m|
|Top 20: 38%|
|Net Cash: $2.4m|
|Market Value: $8m|
|Key Parameters||Rating (✓out of 5)||Quarterly Statistics|
|Management Quality||✓✓✓✓✓||Q2 2015 Exploration Spend: $0.65m|
|Financial Security||✓✓✓✓✓||Q2 2015 Administration Spend: $0.296m|
|Project Quality||✓✓✓✓✓||Exploration Spend 69%, Admin Spend 31%|
|Exploration / Resource Potential||✓✓✓✓✓||Q3 2015 Forecast Exploration Spend: $0.32m|
|Project Risk||✓✓✓✓✓||Q3 2015 Forecast Admin. Spend: $0.15m|
The introduction of AusQuest to our Portfolio after several years of closely following the company’s progress was based on the negotiation of potentially company-making joint venture deals with respect to its Peruvian and Burkina Faso exploration projects. These joint venture farm-out deals have the potential of providing tens of millions of dollars worth of exploration expenditure to enable project advancement, whilst simultaneously minimizing equity dilution for existing AusQuest shareholders.
AusQuest has always impressed as a company with big exploration ambitions. It previously held large acreage positions within Western Australia in the search for iron ore and manganese, with the support of its then major shareholder and joint venture partner, US-based Cleveland-Cliffs. The ‘big brother’ concept worked well for AusQuest for a number of years, until a rapid change of fortunes in the iron ore market and plunging profits led Cliffs to an exit of all non-core projects - and a cessation of all non-core expenditure.
AusQuest has since successfully revitalised the ‘big brother’ concept with respect to its Peru and Burkina Faso exploration projects. Not only is there set to be robust exploration activity (with AusQuest shareholders free-carried through all work programs), the introduction of well-credentialed partners means AusQuest has teamed up at an early stage with the sorts of groups that have the experience, credentials and financial backing to successfully appraise and commercialise resource projects.
Peru Drilling Update
AusQuest has this week provided an update on planned drilling activity at its recently-established copper-gold exploration joint ventures in southern Peru, where work is on track to begin during October.
Lana prospect - final Government approval for access and drilling is now expected during the second half of September, allowing diamond drilling of a large gravity target to commence during late October.
Puite-Colorada and Cardonal joint venture projects - amended drilling programs have been submitted and community consultations have been undertaken. The number of possible drill-holes at each site has increased from 24 to 40, diamond holes will be drilled instead of RC, hole depths will increase from 300 metres to ~500 metres, and the number of porphyry copper targets to be tested has grown from 2 to 4.
Ventana prospect - the program includes drilling of up to 15 holes, where strong indications of porphyry copper mineralisation are evident in road cuttings recently excavated on the property.
The graphic above highlights the location of the key drilling prospects in Southern Peru
The commencement of work is a major milestone that will generate strong market interest. The high level of activity is also a reflection of the recent expansion of AusQuest’s joint venture portfolio, following the signing of an amendment to its Cardonal Agreement with Compania Minera Zahena SAC (Zahena) that will see a fifth porphyry copper target tested over the next 12-18 months. This fourth agreement has the potential to generate total joint venture expenditure over AusQuest’s Peruvian projects of ~US$28 million (~A$39 million), with five porphyry copper prospects to be drill-tested over the next 3 to 4 years.
Project Background - Peru Copper-Gold Joint Ventures
AusQuest (through its wholly-owned subsidiary Questdor) has been active in Peru since 2011, assembling an extensive portfolio of high-quality targets for porphyry and IOCG-style mineralization, utilising its proprietary airborne geophysical data-sets. The targets are all situated with the southern coastal belt of Peru, close to existing infrastructure and major world-class deposits.
Over the past three years, AusQuest has assembled a large portfolio of copper-gold prospects, with up to eight targets identified for drilling as possible iron-oxide copper-gold (IOCG) and/or porphyry copper targets, with significance size potential. Peru is one of the world’s most prominent destinations for international copper exploration and is considered to be a prime location for world-class exploration opportunities.
The graphic above highlights the locations of AusQuest’s project and joint venture locations
AusQuest now maintains four landmark joint venture agreements covering fiver of its large-scale porphyry copper-gold targets in southern Peru, with Compania Minera Zahena SAC (Zahena) and Southern Peru Copper Corporation Sucurs del Peru (Southern). Both Southern and Zahena are quality partners, being leading companies in the copper industry in Peru, with Southern producing more than 300,000 tonnes a year of copper (~US$2.0 billion a year revenue) from its Toquepala and Cuajone mines in southern Peru, whilst Zahena is a major explorer in the region with strong technical expertise in porphyry copper exploration and a number of active exploration joint ventures.
AusQuest further expanded its joint venture portfolio during July following the signing of an amendment to its Cardonal Agreement with Compania Minera Zahena SAC (Zahena) that will see a fifth porphyry copper target tested within the next 12-18 months. The inclusion of an additional three mineral concessions that are contiguous with the original Cardonal Agreement area has resulted in several substantive changes to the original joint venture agreement signed earlier this year.
Under the Amended Cardonal Agreement, Zahena can earn a 70% interest in the increased title area (7 mineral concessions) for an up-front cash payment of US$120,000 (originally US$70,000), a structured series of cash option payments over a four-year period totalling US$2.995 million, and a total drilling budget of 30,000m (originally 20,000m). The value of the Amended Agreement is estimated at approximately US$10 million (~A$13 million).
When Zahena or Southern complete all agreed drilling and make all agreed payments, they will have earned a 70% interest in the project and a new Peruvian company will be formed (NewCo) into which the tenements will be transferred, with the shareholding being Questdor (AusQuest) 30% and Zahena 70%.
The agreements are structured to include both staged option payments to Questdor and expenditure towards drilling, with the farm-in companies to earn a 70% interest in the respective projects. If either Zahena or Southern elect to withdraw from an agreement before completing all agreed drilling and making all agreed payments, the titles for that project will remain 100% Questdor and Zahena or Southern will have no residual equity in the project.
Both Zahena and Southern have the right to earn a further 10% equity in their respective projects by completing a Bankable Feasibility Study (BFS) within an additional four-year period. If either party fails to complete the BFS within the four-year period, their equity in NewCo will remain at 70%.
Joint Venture Benefits
The joint venture arrangements are enormously significant for several reasons. Firstly, they provide AusQuest shareholders with free-carried exposure through a series of aggressive exploration programs, whilst simultaneously aligning the company with a series of established major companies in the region.
Secondly, AusQuest shareholders benefit from having access to the financial and technical capabilities of these local companies, which have ability to advance any discovery through to development and production. Furthermore, the farm-out deals eliminate the risk of AusQuest having to access funding in what is an extremely difficult ASX resource equity market environment, whilst minimizing shareholder dilution.
It is a very exciting time to be an AusQuest shareholder, with credible, big-picture exploration activity taking place on three fronts – Peru, Burkina Faso and Fraser Range. The stock offers exposure to up to $50m worth of combined exploration funding in Peru and Burkina Faso, yet with a market value of just $8m.
After a decade as a broking resources analyst with Intersuisse, Gavin helped establish the Fat Prophets Mining Report during 2005, writing and producing the report until he established MineLife during late 2010. He writes about mining and energy companies via his MineLife reports.
Disclaimer: Gavin Wendt, who is a director of Mine Life Pty Ltd ACN 140 028 799, compiled this document. It does not constitute investment advice. In preparing this report, no account was taken of the investment objectives, financial situation and particular needs of any particular person. Before making an investment decision on the basis of this report, investors and prospective investors need to consider, with or without the assistance of a securities adviser, whether the information is appropriate in light of the particular investment needs, objectives and financial circumstances of the investor or the prospective investor. Although the information contained in this publication has been obtained from sources considered and believed to be both reliable and accurate, no responsibility is accepted for any opinion expressed or for any error or omission in that information.