Fledgling explorer about to crack producer ranks

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 01 Dec 2011   Posted by admin


SILVER and base metals explorer Cobar Consolidated Resources is on the cusp of becoming one the world’s largest silver producers, with its first silver pour anticipated by the end of this year.
In mid-September, Cobar officially accepted the offer terms from the NSW Office of Resources and Energy for a mining lease encompassing its Wonawinta silver project near Cobar in western NSW.
Cobar managing director Ian Lawrence said that with the mining lease in hand, construction of the processing facilities was already under way.
The company has evolved since it listed in July 2006, when it initially focussed on base metals in the Cobar region.
According to Mr Lawrence, the company purchased the Gundaroo project in Cobar, which hosts a large base metal geochemical anomaly.
Mr Lawrence said that after conducting initial exploration at Gundaroo, Cobar sought an ASX listing to raise capital in order to carry out more a detailed investigation of the tenement. “The first deep hole we drilled was a very good 6 metre at 10 per cent zinc equivalent hole,” Mr Lawrence said. “The history then took a bit of a turn because the follow-up drilling from that first hole produced lots of mineralised
intercepts but none of it at any economic widths, even though the grades were pretty high.
“Our conclusion was, while it was technically successful, there might be more difficult exploration to carry out, which would be well and truly outside the scope of our resources with the available
funds we had left.” While exploring its original project, Cobar discovered a silver deposit that it named De Nardi. The company drilled 24 reverse circulation holes totalling 1931m and seven diamond drill holes
amounting to 1730m. From those holes a 2.7 million ounce inferred resource had been defined.
“We did some preliminary scoping studies to see if it might work as a leach project because the ore was mostly oxidised, and we could actually have a small project that could sustain some cashflow for the company and allow it to go back and continue exploring.”
Unfortunately, the ore’s metallurgy wasn’t amenable to lower-cost leach processing, so Cobar turned its attention elsewhere.
While exploring for base metals at Gundaroo, Cobar had observed significant silver values in many of the mineralised intercepts.
Additionally, assessing De Nardi had given Cobar a better understanding of the grades and depths of silver mineralisation required to develop a mine that would be economically viable. “We felt there was a fair silver footprint in our 1350 square kilometres of tenement,” Mr Lawrence said. “Having got interested in silver, and with silver prices starting to move – we are talking about mid-2007, we started to look around us to see if there was anything else that had similar grades to De Nardi.”
Mr Lawrence said a previous owner that had been exploring for lead and zinc had uncovered interesting silver grades at a property adjacent to Cobar’s tenure known as Wonawinta. “Based on our previous work at De Nardi our interest was piqued and we negotiated a joint venture with CBH Resources. A drilling program was committed to and preliminary metallurgical test work undertaken to evaluate whether there were sufficient ounces of silver and whether the ore was amenable to cyanide processing. Economic analysis was carried out in parallel to the technical studies. “So, since 2007, we’ve been in the process of completing various studies and carrying out the drilling, and now we are actually in the development phase of the project and we’ll be looking to be commissioning the plant by the end of the year,” he said.
Exploration drilling at Wonawinta has defined a 51moz silver resource. “Of those 51 million ounces, we converted 14 million ounces to probable reserves and we have, at this stage, a five-year mine life.” Around 2.5moz of silver is anticipated to be extracted from Wonawinta annually.
“Our strategy was to get in to production quickly rather than increasing the size of the resource,” Mr Lawrence said, adding that “the initial mining operations will be a series of four open pits”.
He said there was still a lot of exploration potential at the project site and, if successful, the mine could be expanded. The initial ore will be a clay material that will first go through a log washing circuit and then across a double-deck screen.
“We’ll recover a little by-product lead with a gravity circuit. There’s about 1.2 per cent lead in the ore. We expect to get somewhere between 10 and 20 per cent of that, which equates to around 10,000 tonnes of lead a year. Not a huge amount, but it’s a nice little kicker from an operating cost point of view.”
The majority of the ore will go through the carbon-in-leach circuit. “We’ll dissolve the silver in cyanide and absorb that silver complex on to carbon, and then strip the carbon and produce silver bullion.
“It’s all a very standard gold processing circuit, but being applied to silver.” In the meantime, the company will continue exploring for silver and polymetallic sulphide ore bodies within its tenements.
A reinterpretation of an earlier gravity survey highlighted several new anomalies, which have been followed up with an airborne geophysical survey. The results of the airborne survey were still under review at the time of writing.
Although Wonawinta was initially a joint venture between CBH and Cobar, Cobar finally became the sole owner of the project in April this year when it completed the paperwork for 100 per cent of the project rights, buying back its former JV partner’s royalty for $1.7 million. Major financial movements The 2010-2011 financial year brought some major advancements for fledgling explorer Cobar.
By the end of the December last year, Cobar had completed a bankable feasibility study on Wonawinta, spending about $3.5 million on the exercise. Also in December, Cobar issued a private placement to its major shareholder Magna Resources Corporation, raising $6.5 million.
A few months later, in March this year, Cobar agreed to a three-year, $22 million finance facility and, a few weeks later in April, initiated a $28 million equity raising.
The first $15 million was raised via a private placement and the remaining $13 million was raised via an entitlement offer.
By the end of June 2011, Cobar had net assets worth almost $43 million, with $33 million of that comprising capital raisings after costs. Silver price The silver price is often considered unpredictable, but it has been steadily rising during the last year. At the time of writing, the spot silver price was trading at more than US$31 per ounce, or A$32/oz, up from around the US$22/oz mark that it was trading at the same time last year.Mr Lawrence said that despite silver’s changeability, he believed the silver price would rise in the short to medium term.
“An important thing to note about silver is a very significant proportion of it gets into industrial applications, and that share of the market is in fact growing at a faster rate than the new supply coming on board.
“While there is some volatility in the realm, the fundamentals, to me, seem pretty strong. I’m obviously more bullish on the silver price than others, but the issue for silver is the volatility of the price. “The question is: how do you best manage that volatility? And that’s the question we are wrestling with now.” Another positive for silver is that despite the current global economic uncertainty and the falling price of base metals, silver and gold are strongly weathering the storm.
“Gold and silver prices have held up relatively well from a current market point of view and we’ve got a pretty low cost of production. We have a very attractive operating margin and we are fully funded.”

 

By Lorna Seatter


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