Frontier Mining looks to exciting future as reaches milestone first production at Benkala
Aug 21. Proactive Investors USA & Canada
By Giles Gwinnett
Frontier Mining (LON:FML) has not only reached the milestone of first production in Kazakhstan but is in the enviable position of sitting on a flagship asset it can exploit for years to come.
Speaking to Proactive Investors, chief executive Erlan Sagadiev declared himself “very happy” with the firm’s recent progress and spoke of the busy and exciting months and years ahead.
In reaching first production at the Benkala mine in the north west of the country, the firm becomes one of just a handful of copper producers in Kazakhstan.
“All we have to do now is ramp up production (at Benkala) and go up in volume as much as we can,” he said.
The company produced its first copper sheets on Saturday (August 11) at the solvent extraction-electro winning (SX-EW) plant at Benkala.
The AIM is to now increase the daily production rate up to the 7,000 tonnes of copper capacity for this year, then hopefully increase this capacity to 10,000 in 2013 and up to 20,000 tonnes after that.
The company already has a 7,000 tonne capacity plant but Sagadiev said half the work needed to get that capacity up to 10,000 tpa had already been completed. And it is making good progress on ramping up operations at Benkala.
But, as Sagadiev pointed out, these numbers are just the tip of the iceberg in terms of Benkala’s potential production.
“Going on the reserves we have, we could easily support up to 100,000 tonnes per year, but our plans, of course, are initially more modest,” he said.
However, he did highlight that it was definitely the firm’s intention to keep increasing production at Benkala year-by-year.
What makes the project really stand out though is the dynamics of the ore itself on site. The material currently being mined and put through the plant is of oxide type, which is close to the surface. This alone has a JORC resource of 183,300 tonnes.
However, underneath this lies a sulphide deposit with 1.378 million tonnes, or a whopping 3 billion pounds of contained copper, which Frontier hasn’t even touched yet.
This part of the deposit and its future treatment is currently the subject of a feasibility study, and all processing options including the possibility of bacteria leaching are being considered.
Processing of sulphide ore is usually more expensive than oxide ore as is the capital expenditure needed for a flotation plant.
“Between Benkala and South Benkala (another deposit 8km away acquired last year with an estimated resource of 94,500 tonnes oxide and 515,100 sulphides) we have enough oxides for ten years production at our planned capacity” he highlighted.
“We have time to work on a study that allows us to fully analyse the best development approach for the sulphides, and that is now our strategic focus,” explained Sagadiev.
Frontier already has off-take agreements in place for the produced oxide copper from Benkala and mining operations there are already producing around 8,000 tonnes of ore per day.
Sagadiev said the company was already working on arrangements for the first shipment of copper from the Black Sea, which should be completed shortly.
Frontier’s recent success has not gone unnoticed by City analysts.
Austin McKelvie, at broker Daniel Stewart, said he expects the shares to re-rate on the back of this development.
“…Frontier Mining is one of only a few copper developers on the AIM market to have made the successful transition to copper production,” he said, adding that first production would result in valuable cashflows.
Meanwhile, Rob Broke at Westhouse repeated a ‘strong buy’ rating, saying the market had not yet had time to acknowledge the development in terms of the shares.
“We expect the company to produce around 3,000 tonnes of cathode-grade copper during 2012, increasing to 7-10,000 tonnes in 2013 and 20,000 tonnes thereafter,” he said.
“We expect an average cash cost of around $3,000 a tonne over the seven year LOM (life of mine) of the deposit.”
Broke forecasts pre-tax profit for the year to December 2012 at $10.3 million on sales of $40.1 million, rising to an estimate of pre-tax profit of $22.9 million on sales of $64.3 million for 2013.
He added: “Funding for future project expansion will come from internal cash flows and the investment loan and credit facility with Sberbank Kazakhstan.
“In our view this should prove attractive to potential investors looking for exciting growth companies which are well set-up to achieve growth without the need to come back to the market.”
As well as the Benkala and South Benkala deposits, Frontier also has the Baitemir project in the north east of the country.
Here, extensive exploration has taken place, with almost 16,000 metres of drilling already completed.
Sagadiev said establishing a JORC resource on this deposit is now one of the company’s main AIMs.
It will also be undertaking further drilling at Benkala and South Benkala to increase the company’s overall reserve base.
“The AIM is to go all the way up to about 30,000 tonnes per year production on our deposits we have and we are also going to be looking in to new acquisitions. Sagadiev told Proactive.
“However in uncertain markets it may take a while for us to get there but that is our goal.”
Speaking of weak and cautious markets, the chief executive said he could not say when the firm’s shares would once more reach the 6 pence high seen in March this year. It is currently around the 4 pence mark.
But for now he is happy that the company is profitable, and, he said, able to grow organically, if required.
“We can if necessary stay at the 7-10,000 tonne capacity for a while and keep generating money, paying back the debt and financing the growth in an organic way,” he pointed out.
Frontier Mining Limited is a copper exploration and development company with a focus on Kazakhstan. The Company’s main activity is the Benkala Copper Project in North West Kazakhstan, which forms part of the Urals copper gold ore belt. Frontier has a 100% interest in Benkala through its subsidiary KazCopper LLP.