Darshini Shah questions Rambler Metals and Mining's (RMM) vice president of corporate development, Peter Mercer, on the progress of the Ming mine, risks to the business, and what flexibility the investment from Tinma International has provided.
The Ming Copper-Gold Mine has a colourful history - can you expand as to what has been done on the mine?
Rambler Mining was listed specifically to bring this Ming Mine into production.
Ming Mine is a historic mine, operated between 1972 and 1982, specifically focused on the high-grade copper veins. During that time, it produced about 2.1 million tonnes (Mt) of copper with gold poured into the concentrate as credit. Average grade was 3.5% copper and 2.5 grams per tonnes (g/t) gold.
It closed down in 1982, not because it ran out of ore, but because the owners at that time couldn't negotiate terms to mine past the property boundary. Also, in 1982, copper prices were less than a dollar and gold was trading at about $200 an ounce.
It remained dormant until 1995, when over six months it produced 271,000 tonnes grading 4% copper and 5.8 g/t gold.
In 2003, we drilled in the north zone and showed that mineralisation extended to just over a kilometre where the previous owners stopped mining before. So this was our first target - to show that mineralisation continued well down below where they stopped mining.
Based on that, in 2004, we drilled two more holes in the lower south zone. Those two holes were focused on targeting the footwall zone.
The footwall zone was originally envisioned to produce three or four thousand tonnes per day with a 15-year mine life.
When Rambler came on board, the original plan was to have a look at this footwall zone. We came up with a resource of 18.6 million tonnes at a 1% cut-off. This gave us a 1.43% average grade of cooper.
What is the progress on the mine now?
We've divided the project into phase I and phase II.
We're in production with phase I right now. Phase I is a high-grade, low-tonnage start-up, exactly the way it was mined in the past. Right now, our mill can do 630 metric tonnes per day, but we have room for expansion. In the past, 1,000 tonnes per day were mined, which is what we hope to mine.
Why go through phase I?
First of all, it's a quicker route to production. We bought a gold hydromet mill in 2009, but it never had an ability to produce base metals. So what we did was build on a copper concentrator. All the other infrastructure at the mill is still in place.
So that saved quite a bit of time and capital. More importantly, it saved us environmental permitting time. We permitted this project in 45 days, which is the minimal amount of time that you can have a project under review.
We only spent $3.5 million (£2.2 million) on this facility. The replacement on this would be close to between $25 and $30 million.
First production from the mine began on 28 November 2011 from the 1806 gold zone, which is now being processed through the gold hydromet. Over 7,700 ounces of gold has been poured to date with a gold pour scheduled every two weeks. Production from this zone is expected to continue until May 2012 at which point the high-grade copper from the 1807 zone can be accessed.
Moving on to phase II...
Phase II focuses on the lower footwall zone.
The preliminary economic assessment (PEA) shows an pre-tax net present value (NPV) of $251 million with an internal rate of return (IRR) of 18%. Post-tax, these figures drop to $160 million NPV with an IRR of 14%.
What the PEA shows is that there is a 21-year mine life. Current production is 630 metric tonnes per day (mtpd). We would expand it over the next two years to 1,000 mtpd, with year four to the end of mine producing up to 3,500 mtpd.
Also in years four and five, the Nugget Pond hydrometallurgical facility will process all remaining gold ore from the 1806 zone within the Ming Mine.
Are there any challenges being faced by the company regarding these phases?
There are a few challenges that we have to work on, one of them being capital.
We knew right from the very beginning that building up a great big project without a mine set up would require a lot of capital. We have an initial capital requirement of $231 million.
But what we have the ability to do now is generate a lot of that capital from our own operations that we're running right now.
When you say "a lot", do you have a specific figure?
Well, we just put out the PEA figures on Thursday [15 March], so I won't have a specific figure on that right now.
But, over the next 12 months, from March 2012 to March 2013, forecasts should show over $30 million in free cashflow. So, if we continue operations exactly the way we're doing now for the next three to four years, we have the potential to fund a lot of the initial capital ourselves.
It also comes down to timing - when you want to expand versus continuing on the existing operations, because in expansion, we require a construction period.
So what we have to do over the next six years is continue with the optimisation studies for this PEA, decide how we're going to cut the capital requirement and decide what is the best way to approach this.
So does this mean that there is a probability of further fundraising from investors?
I can't really comment on that because I don't know what the final number is going to be until we go through the optimisation studies.
What I can say is that we can generate money from our own operations. We can also take on a small amount of debt and if we can raise a small amount of equity and keep the shareholding as it is right now, then that is the best for our shareholders.
Also, this is three to four years out.
So there is no risk of a capital raising in the interim period?
Right now, we've finished construction on the concentrator. We're just developing on the ground right now. Our primary [expense] per month is about $2.5 million, and that includes all capital development costs.
On the gold side, we're producing about 2,600 ounces a month, receiving about $4 million month. So we have between $1 million and $1.5 million a month. Once we get into copper concentrate production, our profit per month should be between $3 million and $5 million, so the need to raise money is pretty minimal in the medium term.
The investment from Tinma International probably also helps with the capital requirement?
That's exactly right.
Tinma wanted to invest in a mining company that was a near-term producer in a politically stable jurisdiction and had plenty of growth opportunities. Rambler fits those criteria.
The other thing is that they wanted a young executive group that was committed to the company.
What opportunities have arisen from Tinma International's investment in the company?
They are affiliated with the China Construction Bank Corporation, the second-largest bank in the world.
Being a copper mine, and with the footwall itself, we will be producing up to 65,000 tonnes of cooper a year. At that point, we become more of a player on the international markets. We thought it was very important to affiliate ourselves with the biggest copper purchaser in the world, which is China.
We talked to a number of different groups and a lot of them become very aggressive and want very big pieces of your company. That's not what we wanted. Tinma wanted to invest in our project and help it grow.
What are the benefits of the location of the Ming Mine?
There is no geopolitical or socio-economic risk in Canada. We have access to roads, water and port facilities. The distance from the mine to the mill is 40 kilometres, and from the mine to port is about 135 kilometres.
Port facilities are all constructed and we should be shipping our first concentrates in the third quarter.
Are you looking at any other projects?
We are looking at expanding this mine before looking at other projects. We have our existing operations to optimise on first before we start looking at any great big expansions.
What is your personal view on copper prices?
Well, being a copper mine, we're very bullish!
At the Ming Mine, for the high grade start-up, there isn't a price that we use below which we just wouldn't produce.
The break-even price at Ming Mine is between $1.10 and $1.20. With the footwall zone, the breakeven come to be $1.97. If you take the initial capital investment into consideration, then this goes up to $3.10.
The outlook is above $4 for the next couple of years.
Do you agree with that outlook?
Well, that's one of the reasons why we took on China. If China's expansion rate continues over the next five to 10 years, just based on what they need right now and without any growth, then $4 is sustainable.
I'm not trying to fool myself that we're going to have $3 or $4 copper for the next ten years. Markets are going to go up and down, same as they have done all the time. But I don't think $2 copper is conceivable anymore.
Look back to 2008/09 - copper bounced down to $1.30. It was there for a couple of months, and then shot right back up to $2.75 and now we're at $3.80.
What is your personal view on gold prices?
Gold right now is at a good price. I don't think gold is going to go back to $300 an ounce any time soon. A lot of people predict it could go to $2,500 an ounce. I'm not that sort of believer either. I think a sensible gold price is between $1,000 and $1,200 an ounce.
We can play copper versus gold. In recession, copper prices fall, but the price of gold usually increases.
This makes Rambler a very, very strong company because it's not as tied to commodity prices like a giant open pit mine would be. We can play one off the other. We've got high-grade abilities in order to continue the operations and survive if there happens to be a recession.
What are your plans for 2012?
We will continue our exploration and drilling programme. We will have a project update in the first few weeks of April, just on some more drill results and how close we are to production on copper.
We'll have an update on gold production. We've hit some very nice gold zones lately and had some great intersections, so we're doing things better than what we hoped we'd do. Recoveries are above 91% so we're very happy with that. So we'll update the market on that in the next month.
We're going to start copper concentrate production in mid-May.
After that, it will be a couple of months of announcements regarding optimisation, recoveries, through-put, etc. This brings us to the end of June. Our fiscal year-end is July.
Starting in August, which will be the first quarter of our fiscal year, we're going to have three full months of good concentrate production. We're expecting a good cash flow as long as everything goes as planned.
Some see Rambler Metals and Mining as a takeover target - what is your take on that?
We've worked on this company since 2005 to bring this mine into production. I feel like we're just beginning to get traction. Now is not the time to even consider selling the company. We have lots of potential. So unless somebody came in and offered us a ridiculous price, we would say no.
Is somebody came in and offered us £2 a share, [then] that might be a good deal. If someone came and gave us £5 a share, then yes, it's for sale! But it's all based on the value for shareholders. If somebody came in and wanted to offer us a deal, then it would have to be very competitive.
We are over 50% controlled by big institutions, management and directors. A lot of the shareholders have been with us for a long time as well. We have a very loyal base. Everybody understands now that what we've been working on and the money that we've raised over the last few years has all been for what we're about to enter into. I think that nobody wants to sell at this stage.
We have huge potential, and we know we can do this ourselves.
What do you think it will take for the share price to go back to the highs seen in 2007/2008?
At the end of the year, we will have a great quarter of copper concentrate production and see a re-rating of the shares.
Analysts are waiting for the balance sheet to show a good quarter of strong cash flow. Small mining companies usually trade on a cash-flow multiple of between three and four times for the year. So once investors see that strong quarterly balance sheet at the end of our first quarter next year, covering August, September and October, the share price will be reflective of this.
Typical exploration companies trade on speculation. We're not speculated on right now. We have to show what we're going to produce and how much we're going to produce, and get a multiple from that.
What are the key risks to your business?
We've taken a lot of risk in terms of permitting and capital requirements. But with the early production of gold, we've given ourselves a good cash balance.
In terms of the next 12 months, I guess the biggest risk factor is the world falling apart!
I think we're going to continue to see some volatility in the markets. Copper prices will go up a little bit and come down a little bit, but overall, I don't think you're going to see big swings.