To be clear and upfront. I don’t like the direction the
company has gone in the last six months. There has been very little
communication. News is infrequent and poorly presented. Xtract is run like a
fiefdom. Is it an exploration company? Is it an investment company? Is it a
producer?
I’ve been very clear that set quarterly market updates,
change in nomad, better more independent BOD etc etc would make a world of difference to the
company, but I will park that for now.
This is mainly about the JORC and the controversy around it.
The market hoped for 600m at 0.3 copper. It would have
accepted 500m at .3 imo. In the end it got 500m at .2 (there or thereabouts).
So, the share price dropped.
Now, I am going to park whether the JORC was still good or
not. IMO we simply don’t know and that is part of the problem. We don’t have
the information we need. We don’t know about Ascot. We don’t know what
parameters the economic study will get or come up with. We don’t know whether
more drilling we be needed. On a wider point, we don’t know the success of
Manica, the impact of the lower gold price. We don’t know how much revenue we
will get this year. Simply the market knows nothing. The market isn’t convinced
that Colin Bird can meet deadlines and so the share price has suffered.
Hands up if you remember the diagram that was on most of the
RNS’s at the start of the phase 1 drilling, the one with the green section and
the dip? What was it showing?
If you said Anglo American’s (AA) JORC, then well done!
A JORC is a very specific thing. It is created to defined
standards, based on the knowledge of some independent expert, which in turn is
based on the geology. If you’re producing a JORC on a geological formation that
acts in a very predictable way, you need less drilling than if you’re following
mineralisation which widens and then narrows all the time.
Second question. What does the modeller do, the one who XTR
employed?
If you said he creates a model of the resource, then well
done!
There is a defined process for exploration. You do lots of
drilling. You then input the drilling results (assays) into the software, and
it comes up with a model of where the resource exists. You normally tell it to
ignore grades below a certain cut off. You can extrapolate as well using
certain parameters to fill in gaps that might exist in your drilling. This data
is then given to the independent expert who uses it to create the JORC. Not all
of the data will be used in the JORC. Not all the resource will be in the JORC.
Now let’s move on to the next point, the economic model. The economic model is independent, it is based on the resource model. “Open pit modelling was carried out using the currently defined JORC (2012) compliant Inferred Resource of 71Mt @ 0.44% Cu and 0.064 g/t Au at a cut-off of 0.3% Cu, as well as additional unclassified resources at the Racecourse prospect”
taken from the XTR RNS 26-07-21.
In this
statement XTR is clear that the model was made based on the resource model,
which in turn is the JORC of 71Mt and xxxMt which is the unclassified
resources. Just to make it completely clear the unclassified resource is the
resource model which was of insufficient information to be included in the
JORC.
Now an economic model, is just the
start of the road that leads to a legally recognised PFS (pre-feasibility
study). Unlike the economic model, only JORC resources can be included in a PFS.
Now, lets jump around again. I know
that Steve has done quite a bit of research into the JORC that has just been
released. I want to make it completely clear ALL research is good and valuable.
At the very least it should make you think and check your own research. The day
you just ignore research you don’t like, is the day that you treat AIM
investing like a casino. I have not been reading the forums as much as I would
like, due to very limited free time, so I am sorry if these points have been
made.
The table above is taken from Steve’s research.
By and large, I don’t have too many issues with the figures and
maths. A bit here and there, but I don’t think comparing like this is
particularly helpful. I do think the research is good. One of the problems with
Xtract is communication. Steve is going from the figures that have been provided
(apart from comparison). If we take what has been presented in RNS’s they are
pretty accurate.
The original JORC was 71Mt
@ 0.44% Cu and 0.064 g/t Au at a cut-off of 0.3% Cu. The tonnage above is the
original JORC plus the resource that wasn’t drilled enough to get into the
JORC, but was included in the resource model.
The new JORC figure is JUST the JORC
figure, it doesn’t include any of the resource model which was not drilled
enough in phase 2 to make it into the JORC. As the original JORC and model
shows, this could be substantial.
If we take the 0.15% cut off
example above, we get the following.
Original Pre phase 2.
JORC 71Mt + 91Mt of none JORC
resource model = 162Mt
New post phase 2.
JORC 335mt * but to compare like
for like, we to need to add all of the none JORC resource model which we simply
don’t know yet.
To recap, if we imagine the picture
that I mentioned at the start of the green AA JORC, the new picture has nearly
8 times the amount of rock. Yes, some of that was resource that we knew about,
but knowing about it doesn’t mean much if we can’t actually report against it. Simply
people don’t pay for the resource model, they pay for the JORC as that it
official and independent.
So what did the phase 2 drilling
prove.
Drilling out a porphyry so that it
counts as an independent resource that can be official reported in an RNS takes
time and money. Xtract managed to convert probably most of AA’s resource model
into official reportable tonnage.
As well as the above, XTR added
about 50% to the tonnage and copper *roughly.
XTR almost certainly drilled quite
a bit that was added to the resource model, but hasn’t made it to the JORC
(maybe another 100-200m tonnes at .2 – conservatively…maybe as much as 200-300m).
It has added a second resource
(Ascot) JORC Tonnage and Grade unknown.
In total with the JORC tonnage at
Racecourse, the unJORC tonnage at Racecourse, the future JORC tonnage at Ascot and the
unJORC tonnage at Ascot we are probably around 1 billion tonnes.
As we have drilled and discovered that
Racecourse is more complicated than originally thought (for example it is made
up of multiple porphyry waves, each with different mineralisation characteristics)
we have undoubted taken what was a simple porphyry JORC and turned it into a
more granular picture which will be worth more. i.e more drill results are
probably needed for the XTR JORC per 100sq metre than the AA one.
If we finish with the biggest
unknown, the economic viability.
The initial economic study was
incredibly simplistic – probably one of the most simplistic I’ve ever seen. It
is very rare that a company just digs a massive hole and processes it. I can easily
see a real mine design having 3 or 4 separate stages (or mines). The first stage
will need to produce an IRR of 20% minimum – for it to be economically desirable.
This means that revenue will be front loaded. It will a much smaller, focused
open pit. It will likely have a modular copper processing facility (i.e bolt on
aspects to increase TPA). As yet I don’t know whether the finished design would
be better to just concentrate on copper or include copper and gold.
The capex is highly uncertain. Copper-gold
project in BC interior has $795 million capex - MINING.COM has a capex of $795m,
but for Xtract it could be anywhere from $500m to $1.5bn.
The opex is also highly uncertain.
If Ascot has a better, higher grade core, then maybe Ascot
will be the initial stage 1 mine on the bushranger license. Which pays off the initial
capex at say an IRR of 25%. A company can then mine the high grade core at Racecourse
with very little capex and an IRR approaching 50%, before deciding whether to
mine the lower grade sections of Ascot and Racecourse.
To conclude my opinions.
The JORC has slightly missed the market expectations. It is not and
never was a tier 1 project.
The Phase 1 and 2 drilling by Xtract at Bushranger has created more
tonnage and more copper, particularly if we compare like for like JORC or JORC
plus resource model.
I mainly agree with Steve's research, but the JORC+Resource model v just JORC is fatally floored IMO.
We don’t know yet whether it will be economically viable, however I
think it should be.
Xtract isn’t helping itself with the way its run and sets
expectations to the market. I make no predictions wrt the share price.
