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Mining Maven Article: All that glitters.... is not only Gold!



Finding value in mining and exploration stocks is not always easy. Firstly, you need to know where to look; and that’s often outside the most obvious places. You also need to recognise that no two investment propositions are ever identical. So it’s rarely, if ever, a case of comparing apples with apples.

Companies who have successfully articulated their value to the market are usually well covered and well supported. Well covered in the sense that there are already a myriad of investor opinions, complimented by broker notes and perhaps, a sprinkling of media articles.  And well supported in that discussion boards will wax lyrical on the virtues of the company and how rosy the future is looking.

However, as befits the exploration business, to stay one step ahead of the herd one often has to venture off the beaten track and perhaps search out those companies which are not well understood, or loved by the market.

Obviously, the more straight-forward the business model, the easier it is to get your head around. So a company with an intricate portfolio of components is going to look like hard work from the off; demanding hours of diligent analysis before you will even know if there is any real value potential. And this is the point where most investors will simply give up.


It is most unusual for a company to actually set out to create a complex model; though it can often be taken down that route, either through adapting to challenges it has faced or through opportunities presented along the way. And it’s also not unusual to find that such businesses tend to be run by a more entrepreneurial and adventurous breed of management.

So when you do come across an interesting but complex proposition, it will pay to make your first approach with an open mind. This may seem somewhat ill-advised, given the conventional market tendency towards caution. And let’s face it; at the best of times, the small cap market can feel like it’s been booby-trapped with more tripwires than a “Mission Impossible” film set. But if there’s value to be had, you can be sure it won’t be staring you in the face and likely as not, hiding away in exactly these kind of places.

Take for instance Electrum Resources (LON:ECR) formerly Mercator Gold.  The company elected to change its name in order to avoid any confusion with a similarly named US organisation.  By the way, Electrum is an alloy of gold and silver .

We think the name change is particularly poignant because it marks the beginning of a new phase in the company’s development; a potential value inflection point for a business that has previously faced some challenging times.  We don’t intend to dwell on the past; it provides the investor little advantage in the fast changing exploration environment. But it is important to recognise how the business has evolved since the dark days of 2008.

Electrum Resources, as Mercator Gold, was previously focused on the development of its main project, the Meekatharra Gold Mine, in Australia.  Operational difficulties at the mine, combined with related cash flow problems, meant the mine operating company, Mercator Gold Australia Pty Ltd, entered voluntary administration pending refinancing.  Full information regarding this can be found from the 13.10.08 announcement.

As the old saying goes “If you fall off a cliff, you might as well try to fly. After all, you’ve got nothing to lose .......”

Mercator did indeed fall off a cliff and few held out much hope for their survival.  But survive they did, and for the last two years they have been working hard to build a diversified portfolio of assets, the breadth and scale of which, we would suggest, many investors are not fully aware. Such is the extent of its evolution that the company bears little resemblance to the original Mercator Gold.

So we thought now, would be a good time to produce a Value Proposition for the newly named Electrum Resources.  And as the title suggests, diversity is key as ‘All that glitters is not only gold’.

We would also point readers to the Podcast Interview we conducted with Patrick Harford, Managing Director of Electrum Resources which can be found here.

Stability through diversification

The lessons of over exposure to a limited project portfolio can be painful, but in the case of Electrum, well learnt it seems.  As a result the management team have built a diverse mix of assets which we, for the sake of clarity, have classified in groups as follows:

-          Multi Commodity Investment & Exploration

-          Renewable Energy

-          Metals Manufacturing

Each portfolio group brings different challenges and opportunities, but subject to successful operational and financial management, value crystallisation opportunities abound.

Dealing with each area in turn:

Multi Commodity Investment & Exploration

Silver Swan:

Electrum has experienced a material degree of success with regard to its investment in Silver Swan.  After selling certain licences constituting, amongst others  the Austin project near Meekatharra Western Australia, Electrum received 10million shares in Silver Swan Group Limited (ASX: SWN).  These have since been sold generating in excess of A$3million for the company, which is impressive when compared to the few hundred thousand dollars spent developing the licences up to the point of sale.

This kind of value crystallisation is what investors yearn to see and one hopes, will also be achieved from the 4 million performance shares Electrum still holds, which will immediately convert to ordinary (read saleable) shares in Silver Swan should the company identify Indicated Mineral Resources of 350,000 ounces of gold equivalent or more from the transferred tenements.

The question we had until recently was – how serious are Silver Swan in moving this project forward?  Well the company’s recent announcement demonstrates a certain keenness with regard to progress.  And with an initial resource statement of approximately 135,000 ounces gold equivalent (based on April 2010 prices) they are certainly well along the road already.

Moreover, the latest Silver Swan updates on 30th September and 27th October point to even more success with the latest drilling campaign.

So we are quietly optimistic that Electrum might just get its 4 million shares sooner rather than later.  If they do, at current prices (A$0.31 per share) the shares would be worth a further A$1.25 million to Electrum.  But by then, there is every possibility that the share price may be somewhat higher reflecting the demonstrable success of their exploration programme.

THEMAC- Copper Flat:

Copper Flat is a copper/molybdenum/gold/silver project situated in New Mexico, USA.  Electrum secured an option to acquire Copper Flat in July 2009 under a deal requiring a number of stage payments set with timescales that enabled the company to conduct extensive due diligence.

So extensive in fact that Electrum dispatched two drill rigs to the project shortly after the option was acquired and conducted drilling and assay testing to verify and evaluate the potential for expansion of the pre-existing 45million short ton historic Copper, Molybdenum, Gold and Silver reserves.

This due diligence went on for some time but, after an option extension, $1million in first stage payments were finally made by 31 March 2010.  Further stage payments of some US$8.85m were due to be made by 14 February 2011, extendable to 16 May 2011 subject to a $150,000 extension fee.

However events have since overtaken, with a reduction in exposure and change in strategy as announced on 16th March 2010 which means that the Copper Flat project is to be sold to THEMAC Resources Group (TSXV:MAC.H), and under this agreement THEMAC is to fund or reimburse (from the date of the agreement) all project expenditure by Mercator or New Mexico Copper Company Inc (the local holding company, since renamed Copper Flat Corporation) including option payments.

THEMAC agreed to raise additional funds of at least C$5 million and thereafter issue to Electrum 10.5million THEMAC shares and 10.5million warrants exercisable at C$0.28, valid for a period of five years.  Electrum also supported THEMAC through an initial placing completed in May, acquiring 4 million shares at C$0.15 per share, with attached warrants valid for one year and exercisable on a one for one basis at C$0.28 per share.

Electrum confirmed on 8th November that C$10.2m had been raised by THEMAC, subject to approval at THEMAC December 2010 AGM.

All in, reflecting the acquisition shares and those acquired under the initial placing, Electrum would hold 14.5million shares in THEMAC and, assuming a share price of C$0.255 (the placing price) at the time, this would have a market value of C$3.74million or £2.34million at current exchange rates.  This, readers will note, would equate to some .6 pence per Electrum share.  With the conversion of Electrum warrants the holding could be worth considerably more.

Through their additional work, including drill programmes, THEMAC and Electrum have been able to secure an increase in the latest NI43-101 resource estimate to 107 million short tonnes at 0.33% copper indicated and 46 million short tonnes at 0.24% copper inferred.  This resource was calculated by SRK Consulting and released to market on 25 May 2010.

Also, on 9th July 2010 THEMAC and Electrum announced the findings of a NI43-101 Preliminary Economic Assessment for Copper Flat which indicated a mine life of 17 years, a payback of just 20 months from start of production and an NPV (6%) of US$144 million.  This PEA only included the Copper and Molybdenum content; the Gold and Silver content has yet to be brought into account within the resource, though this is the next priority.

New Gold/Base Metal – Argentina:

On 7th October 2010 Electrum announced the acquisition of the Sierra de las Minas and Los Aquirres gold/base metal projects in La Rioja Province, Argentina.  Upon the announcement, we conducted an interview with Patrick Harford to which you may want to listen.  This acquisition effectively provides Electrum with key strategic territory in an exciting mineral Province where the company plans to undertake rapid exploration hopefully leading to mining operations.  As evidence of the potential, historic geochemical sampling results from the Sierra de las Minas licence include values up to 153g/t (approximately 5 ounces) per tonne and 9.4% copper.  It appears clear that successful development of this project could lead to a highly valuable asset for Electrum.


Paniai Gold is a pre-IPO company scheduled to list on the NSX in Australia in Q4 2010 and in which Mercator holds 50million shares.  The company’s primary asset is the Derewo River gold project in Papua Province, Indonesia. Over 100,000 ounces of gold has been extracted over the last decade using basic mining techniques and Paniai Gold intends to materially boost production using more sophisticated methods.

Further information can be gleaned directly from the 12 April announcement which outlines the planned listing. The announcement confirms progress made at the Derewo River project (in which Paniai Gold holds a 50% interest, with 50% being held by a local company) and notably the early stages of construction for the planned alluvial mining and additional exploration programmes.


The Meekatharra gold project was the key asset held within the Company’s portfolio until October 2008 when they announced that the holding company, Mercator Gold Australia Pty Ltd (MGA) had entered administration.

Cutting to the chase, Meekatharra Gold Corporation, a company that plans to list on the Toronto Securities Exchange, has submitted an offer to acquire the assets of MGA from the administrators and this has been accepted.Electrum is expected to receive a stake in the listed company thereby retaining an interest in its legacy asset going forward. Of additional significance are the substantial tax losses currently held within MGA and which, on completion of the asset transfer, should be available for MGA to utilise and from which Electrum will thus benefit.

There is some sensitivity regarding the amount of tax losses available and ultimately how these will be recovered. It is reasonable to assume however that the recovery to Electrum should be substantial.

Renewable Energy – Sticking it where the sun does shine!

We discussed earlier Electrum’s drive to secure a diverse portfolio of investment and exploration projects. On that note, on 15th June 2010 the company announced an intriguing deal which will add another dimension to their portfolio. Namely, renewable energy.

In essence, Electrum has entered into a strategic partnership with Remote Energy Solutions who specialise in providing Solar & Renewable energy solutions to the mining sectors. The partnership will develop the Warm Springs solar power project which, not exactly by chance, is rather close to the Copper Flat project.

The partnership was born out of a combination of factors which have presented an interesting opportunity:

The Copper Flat project is going to require a robust source of power, and typically this would be expected to come from connection to the grid. But being located in New Mexico, where sun does some serious year round shining, offers up one rather distinctive alternative to complement the projects grid connection (transmission lines for which remain in place from previous mining operation). Here we are obviously talking solar power.

Under a new government backed initiative to promote renewable energy solutions, New Mexico has been designated as a “Super Hub” for connecting electricity generated by Solar and wind sources to the US power grid and that obviously makes Copper Flat a prime target for a Solar power solution!

The plan is to build a plant with an initial production capacity of around 20MW, which would be sufficient to supply the needs of Copper Flat. But given the scale of the opportunity now envisaged, and the incentives available, it looks like a stand-alone solar power business may well be conceivable, feeding power to the grid for external consumption. This could see the plant expand and grow in scale to 80MW.

Feasibility and permitting are expected to cost up to US$750,000 with initial cost of plant construction around the US$60-80million mark, though if increased to 80MW, we would be talking about plant costs in the region of $250m. These are substantial figures, so how would a Company of Electrum’s scale expect to finance such an enormous project?

As referred to previously, in the US, the move away from fossil fuels to alternative energy solutions has now become a desperate priority. And particularly in the US, when needs must, the speediest and most effective drivers for change often employ some compelling financial incentives.

In this respect, there are currently some very creative financing mechanisms being developed which will enable these kinds of renewable energy deals to come together. In addition to direct grants and flip structures in the tax system, there is also a very useful mechanism called a “Power Purchase Agreement” (or PPA) which has been tried and tested worldwide. This is effectively an agreement with a major utility provider which confirms that, when built, the Utility Company agree to purchase power generated by a plant.

This is a key element in gaining project finance. Once a PPA is in place, such is its value as collateral that the project can effectively become self-financing from then onwards. According to MD Patrick Harford, the company are “well advanced in negotiations for securing a number of PPA’s”.

There is also the significance of up to 8 years’ worth of tax credits specifically in relation to Solar Power Purchasing Agreements (SPPA) as can be seen here.

With a PPA in place and back to back project funding secured, Electrum would then be able to move the project through an IPO process and then onto a listing. The end game would ideally leave the company with a significant stake in the venture with no on-going financial commitment.

You can read Remote Energy Solutions (RES) own comments on the project at the RES website here.

Electrum will hold a minimum stake of 70% in Warm Springs Renewable Energy Corporation with RES holding an initial 10% rising to 30% as they contribute to the costs of construction. The Warm Springs project is scheduled to undertake permitting in 2010 and construction is targeted to start in 2011.

Finally, another advantage, this time for the Copper Flat project itself, would be that by employing a Solar power solution, the project would be substantially reducing its own carbon footprint. So if successful, the strategic partnership with RES will not only substantially increase and diversify Electrum’s New Mexico interests, but it will also help smooth the way for efficient permitting/approvals at Copper Flat, whilst providing a source of sustainable and cost effective energy to run expanding operations.

Metals Manufacturing – ACS Asia

In November 2008, Electrum purchased, from Tyco International, a 70% stake in ACS Asia, a steel products manufacturing business based in Thailand. The total consideration paid for the business was US$2m. At the time the company was keen to acquire a revenue generative cash flow business which also had growth potential.

ACS looks like it fits the bill, with Electrum announcing in its interims on 12th May 2010 that turnover for the six months to 31st March 2010 was up 70% or £1.3m to £3.16m and that ACS's gross margin had increased to 28% from 24% in comparison with the six months to March 2009.

The business itself is primarily focused on manufacturing cable support systems which are used in commercial construction, infrastructure and also in mine construction. Put another way, every time a new commercial construction goes up – or an older one is refurbished - these sorts of products are required to support the miles of trunking and cables often hidden beneath the false ceilings.

It has to be recognised that this asset was purchased at the depths of the global recession and the price paid certainly looks to reflect this. The Tiger economies of the far-east were amongst the first to emerge from the down turn and activity, particularly in construction, is very much back on track. Therefore the company believes ACS Asia has considerable potential for expansion.

Furthermore, a new potential opportunity was recently recognised by the company, which would involve some cross-pollination between ACS and the Warm Springs project. It became apparent that the large scale construction project at Warm Springs will need the types of steel products which ACS are perfectly suited to manufacture. Whilst the specifications have yet to be established, it is understood that the scope of the project could represent a substantial opportunity for ACS. In the mean-time this development has now resulted in ACS quoting for work from a number of Solar energy providers.

Whilst the ultimate intention is to leverage the value of ACS as an asset, perhaps through a listing or, even an outright disposal, the current focus is on fattening up ACS through a growth in revenues and profitability. Based on the last reported accounts for the business, it would appear that this process is on track.

Money Money Money:

Well despite the aforementioned myriad of projects and interests, ultimately it all comes down to money. If the finances are perceived to be sound, investors relax and can begin to look to the value the company is working to create. Ergo, all things being equal, the share price should move to reflect shareholder appreciation.

If there are perceivable chinks in the financial stability going forward, investors tend to focus on any exposure and away from value potential across the portfolio. The key concern until recently was how the company would deal with a convertible loan of £2.565 million which was due for repayment in mid October 2010.

This convertible loan being a legacy issue which was originally set up in October 2007 to fund development of the Meekatharra Gold project. Of course the Electrum portfolio now includes potentially valuable assets, some of which could be well in excess of the convertible loan. By that we mean principally the THEMAC holding and the tax losses related to Mercator Gold Australia Pty Ltd.

However, the announcement on 14th September provided details of the proposed solution, involving an extension by three years and a revised conversion price of 1.1p per share. This, it must be noted, is significantly less than the original convertible price, but nearly 50% higher than the price at the date of announcement. The proposal was also subject to loan note holders approval on a meeting scheduled for 29th September. Having now been approved, this now draws a line under a highly material financial stability issue for the company.

We would note that as outlined in the audio interview, Electrum has a SEDA equity facility to draw down up to £4million if required and the company boosted its cash position with a £300k draw down during October. So working capital exists and with the loan extension confirmed, the company looks now to be on a secure financial footing, as it pursues its ambitions as a diverse mining house.

A final thought....

When a company sets out on an aggressive growth path, the risks tend to multiply and the route to shareholder value can often be an adrenaline ride.

Electrum Resources, is on such a route. It’s has an array of assets with significant value generative potential and it intends to waste no time in driving them up the value curve. To extend the nautical term, the fastest “tack” is always gained when sailing “close to the wind”, but that is also where the dangers are heightened. The current share price will obviously factor in and reflect the degree of risk involved.

If management can finalise the THEMAC Copper Flats deal; if they can secure the rights to the substantial tax losses in Mercator Gold Australia Pty Ltd; if they can continue to grow ACS and prime the company for a market listing or disposal at profit; if they can continue to build the other portfolio elements including gold exploration success in Argentina; then those investors buying shares at around 1.1p could achieve substantial capital appreciation.

Let’s not forget that Michael Silver, Chairman, purchased a further one million shares on 31 August 2010. £6,700 won’t exactly break the bank, but not a transaction for somebody to undertake without a certain degree of confidence in the future!

And just to help reinforce the message, it may be worth reading the latest Edison Research note dated 28th September which highlights a potential discount of 82.7% to 91.1% to certain ‘sum of the parts’ valuations.










Golden Argentina! - MiningMaven Interview with Patrick Harford

Patrick Harford talks to Paul Johnson of MiningMaven about the acquisition of the 100% interest in the Sierra de Las Minas and Los Aquirres gold/base metal projects in Argentina.

Interview published 7 October 2010

MiningMaven interview with Patrick Harford

Paul Johnson from MiningMaven discusses the Company name change, and Electrum’s investment strategy with our Managing Director, Patrick Harford.

Interview published 30 September 2010

Minesite article By Alastair Ford

Electrum Has The Assays It Needs In Argentina, The Trick Now Will Be To Get The Tonnes

“Electrum”, according to Wikipedia, “is a naturally occurring alloy of gold and silver, with trace amounts of copper and other metals”. Not everyone is convinced of the accuracy of its definition, however. The associated plea says it all: “please help improve this article by adding citations to reliable sources”. So here’s one, for Minesite readers, at any rate, from the Concise Oxford Dictionary: “an alloy of silver and gold used in ancient times; native argentiferous gold ore”. Your investigative-minded correspondent also searched for another, in the McGraw-Hill Dictionary of Geology and Mineralogy, but found, between “electroflitration” and “eleolite”, nothing but empty space.

As yet, there’s also an empty space where the “see also” link should be at the top of the Wikipedia entry, but one day that might change, because a new, or at least re-invented, company has just emerged on the scene, and taken the name Electrum to mark its new beginning. The company in question is the old Mercator Gold, which never went away, but, let’s face it, did endure a torrid time at just about the same time that the storms of the global financial crisis were at their worst. One way or another Mercator’s efforts to mine gold at Meekatharra came to naught, and the company’s efforts at recovery were stymied again and again by hostile market conditions. “Meekatharra was an absolute disaster, and it’s a long road back”, says Electrum managing director Patrick Harford. But he kept plugging away, and even though the operating company went into administration, the listed entity survived.

Deals were done, short-term, and long-term, and gradually, as the market picked up, Mercator’s fortunes revived too. “It’s taken some time, I don’t deny that”, says Patrick. But, he adds, speaking after the completion of his latest deal, the acquisition of two prospective gold and base metals licences in Argentina, “we’ve slowly and surely got all the ducks lined up”.

Prior to the acquisition of the Argentinian ground, the most important recent development was the renegotiation of the terms of nearly £2.6 million worth of convertible loan notes issued back in 2007. That issue was resolved when the loan note holders agreed to a three year extension based on a price of 1.1p per share and a 10 per cent coupon at a recent extraordinary meeting. And at that point, Electrum was really set free.

And it was Electrum by then: the name change came on 28th September; financial liberation on 29th. Until that point, the notes, exercisable at a strike price of 95p had been hanging like a sword of Damocles over the company’s future. And the noteholders can’t have been too overjoyed either, given that the shares have been bumping along at around a penny for several months, and haven’t been up at 95p since around the time the notes were issued. Back then the coupon was slightly less onerous, at 8.5 per cent.

All that’s done and dusted now, though, and the focus, at long last, can move on to the assets. All told, Electrum now has a 40 per cent stake in a copper development asset in New Mexico, a 10 per cent stake in an Aussie-listed gold explorer, a stake in a metal construction products business in Thailand, a stake in Uranio’s uranium tenements in Argentina, some exposure to renewables, an interest in an alluvial gold project being run by Warwick Grigor, and now this new ground in Argentina. Patrick appears to have learned a hard lesson from the global financial crisis: “We wanted to have a spread. We’re not a single asset company”.

Having said that, though, it’s the ground in Argentina – Sierra de las Minas, and Los Aquirres – that really seems to float his boat at the moment. “It looks like when we got to Kalgoorlie in the 1980s”, he says, enthusiastically. “I believe there’s a lot of high grade gold there near surface.” What Electrum needs to do now, he adds, is work out the scale of it. Of the grades there’s no doubt. Of 348 geochemical samples collected by a previous owner in the late 1990s, 163 showed up as being anomalous in gold. Some of the better numbers included 153.9 grams per tonne gold and 2.4% copper, and 44.6 grams per tonne gold and 9.4% copper.

Patrick is clear in his mind as to what’s on offer here. “I’m quite sure that near-surface, high-grade material is going to be available, and that it’s going to be valuable.” Will there be enough of it though? That’s the big question, and the one Electrum will now focus on, big time. “This project generates the assays. Now let’s see if generates the tonnes”, says Patrick. To that end, geophysics and mapping will now get underway, and newsflow should be fairly consistent from here on in. “We now need a little bit of luck”, says Patrick, and given the company’s recent history, perhaps it’s about due. “We’ve thrown the bones up in the air. They need to land in our favour.” Time will tell.

Mercator Gold Bounces Back to Life with a Series of Subtle Deals By Charles Wyatt

Publised 18 March 2010 in minesite.com

Mercator Gold had an unhappy 2008 at Meekatharra, when there was a margin call on its gold hedge and it could not deliver the bullion, as production had been suspended. One thing Patrick Harford, the managing director, made clear at the time was that the suspension of the shares and the placing of the operating subsidiary, Mercator Gold Australia Pty , into administration, were both undertaken voluntarily, and that neither Mercator Gold nor its subsidiary were in receivership or being liquidated. Effectively these moves gave management about six months grace to sort things out, and this they have clearly succeeded in doing. The first indication that the company would emerge from intensive care on its feet rather than in a box came last September when it sold off eight million shares in Silver Swan Group, which were in escrow at the time, to Hillgrove Resources and Citywest. These two were already shareholders in Silver Swan, which has projects not far from Meekatharra, so no hard sell was necessary. The sale realised A$2.64 milion and took the total raised from sales of Silver Swan shares to A$2.99 million.

Following these sales Mercator still had another one million shares and four million performance shares in Silver Swan, but most importantly it now had some ammunition and could think seriously about a new life. In fact, this outcome had been anticipated as Patrick had already acquired an option on the Copper Flat porphyry copper-molybdenum-gold-silver project in the Las Animas region of south central New Mexico, a project which had been introduced by his chairman Michael Silver. The payment was US$150,000, which the company could take in its stride after the sale of the Silver Swan shares, and it was then on to due diligence. The project had historical reserves of 45.5 million tonnes grading 0.45% copper, 0.015% moly, 0.15grammes per tonne gold and 2.25 grammes per tonne silver at a cut-off grade of 0.23% copper, and the plan once-upon-a-time had been to mine it by open pit to produce between 30 and 45 million pounds of copper.

Extensive feasibility studies on the restart of production wer carried out during the 1980s by highly reputable technical consultants. The most recent, a plan from Pincock, Allen & Holt for a resumption of production at Copper Flat envisaged the mining of 5.8 million tonnes of ore and four million tonnes of waste annually for 11.6 years. Over the months since the acquisition of Copper Flat, the historic data has been checked and some drilling undertaken, with a view to updating the resource estimate.

But a few days ago, however, Messrs Harford and Silver announced that the project is being sold to a Canadian-listed company called THEMAC Resources which has undertaken to exercise Mercator’s option and take the project through to production. Mercator is being paid in THEMAC shares and warrants, the shares alone giving it a holding of around 30 per cent in THEMAC. Mercator will also be repaid all money spent on Copper Flat to date. Thus the financial burden of a feasibility study and construction has been shed, yet Mercator retains exposure to a project with plenty of potential. It is a shrewd deal and the background gives an insight into why friends are so important in mining. Back in 1984 Messrs Harford and Silver were backed with seed corn money in a company called Colosseum Mining by Elders Resources Finance, the boss of which was Kevin Maloney. Kevin is now not only a director of THEMAC, but represents its biggest shareholder Marley Holdings Pty. For its part, THEMAC is a spin-off from The MAC Services Group which is making a bomb out of being Australia’s largest mining accommodation and services operation and has just been selected as preferred operator to build, own, and run a new village at Karratha which could consist of up to 1,200 rooms.

Before agreeing to sell Copper Flat, Mercator agreed a deal with Uranio AG to acquire up to a 70 per cent interest in all its exploration and mining licences and assets in Argentina. Interesting timing, as Argentina is now considered to be an emerging uranium hotspot. One of the licences is very close to the historic Los Mogotes Colorados uranium mine, but the twist in this particular deal is that Mercator already had three million shares in Uranio, which is listed in Frankfurt, Berlin and Stuttgart, from a placing last November. And Uranio is primarily focused on the development of its Bakouma uranium project in the Central African Republic next door to tenements held by AREVA. Read all this through again and it becomes clear that these two, Messrs Silver and Harford, are playing a subtle game of chess with Mercator, always thinking several moves ahead. AREVA paid very good money for Uramin a couple of years ago, and Uranio has positioned itself so that it could be the next target.

It’s also worth remembering that back in 2008 Mercator acquired a 70 per cent interest in a company called ACS Asia which makes cable support systems at a modern factory in Thailand, products which are used in facilities all around the world. ACS Asia is making profits approaching US$1 million per year, and it is this that has given Mercator the time, space and funding to embark on its current strategy. Sooner or later ACS Asia will be floated on the Thailand Stock Exchange or sold off, and another Mercator move on the chess board will have come to fruition.

There is yet another which also should not be overlooked, as Mercator has converted its interest in the Area 81/Derewo River high grade alluvial gold project 100 kilometres southeast of Grasberg into 50 million shares in Paniai Gold which plans to list on the National Stock Exchange of Australia. A low cost mining operation is being developed and production should reach around 40,000 ounces per year, but exploration is also being undertaken to identify copper-gold primary deposits.

Mercator recently placed 16.9 million shares at 2.5p each to raise £422,500 before expenses, and the shares have since held steady at 2.75p. A modest start, but when investors appreciate that the current Mercator is a very different animal from the one operating a single high risk mining operation at Meekatharra, the fan club should increase. There are other deals in the offing and each should add to assets and widen the portfolio.

Power Alternatives - Article by Charles Wyatt on Minesite.com

Poweralternatives: Mercator Gold Hopes To Use Solar Energy To Power Mining And Processing Work At Its Copper Flat Copper-Gold Project In New Mexico
By Charles Wyatt


For many a month now Mercator Gold has been wheeling and dealing its way back into contention after the dog days of 2008, and the company’s latest announcement reflects a useful bit of lateral thinking. It’s established a partnership with a company called Remote Energy Solutions to develop the Warm Springs solar power project, a project which lies very close to Mercator’s Copper Flat copper-gold-molybdenum silver project in New Mexico.

It would be easy enough to reconnect Copper Flat to the power grid, but New Mexico is an optimal location for solar power development, as far as the US is concerned. By getting involved in solar power, Mercator brings the authorities and public awareness increases to the benefit of the project when it is going through the permitting process. Copper Flat is a former producing mine which Mercator Gold has an option to purchase, although it is selling this option on to a Canadian listed company called THEMAC for paper, so it will retain an indirect interest.

Patrick Harford, managing director of Mercator, goes out of his way, however, to emphasise that the joint venture is not simply a tactical mining manoeuvre, it is very much a commercial venture. A lot of mines throughout the world are far from grid power and diesel is very expensive, in some cases accounting for up to 40 per cent of operational cash costs. Solar power has to be considered as an alternative and Mercator has the opportunity to demonstrate how it can be done. New Mexico has been designated as a hub for the US power grid, so it should not be difficult to obtain a power purchasing agreement by the end of this year. A power purchasing agreement is similar to an off-take agreement for metals or minerals, but it is an agreement with a utility, and lasts a lot longer. Payback time for the likely US$60 million to US$80 million of capital expenditure is probably around seven years, but thereafter there is another twenty years of tax efficient cash flow to look forward to, which would be worth a significant sum.

It looks a hefty sum for Mercator and Remote Energy Systems to raise, but there are a number of innovative potential financing mechanisms available which take advantage of available development incentives and tax schemes.

The joint venture company which will construct the proposed 20 MW solar power plant at Warm Springs is a subsidiary of Mercator Gold called Warm Springs Renewable Energy Corporation (WSREC). Remote Energy Solutions will be issued with a 10 per cent stake, rising to 30 per cent once certain funding considerations have been met and a power purchasing agreement is in place. It should be borne in mind, however, that the project could be a lot bigger if the 20 MW capacity of the solar power project is subsequently increased to 80 MW.

Anne Carpenter of Remote Energy Solutions, who will be chief operating officer of the joint venture, clearly thinks this is adequate and she has been around the renewable energy side of the mining business for some time – most recently at Goldcorp. She will co-ordinate the State and Federal permitting of the Warm Springs project, along with interconnection and transmission studies, stakeholder engagement, technology selection and financing. Her task may be made that much easier as President Obama is now clearly turning his attention to cleaner energy following the BP disaster in the Gulf of Mexico.

New Mexico should benefit significantly from this as it has already announced its intention of becoming a centre for renewable energy and related industries. Warm Springs should be offered grants, tax breaks and other incentives, and it should generate plenty of attention.

Construction will be undertaken by a company which already has experience in solar power plants. Both traditional flat plate photovoltaic power and newer concentrating solar technologies will be evaluated during the current permitting and feasibility process. What’s more, there could be an additional bonus. “In addition to electricity we are exploring the potential for the sale of Renewable Energy Certificates”, says Patrick Harford. Demand for these is expected to rise sharply in the States as utilities are increasingly required to generate a substantial proportion of the electricity they sell from renewable sources. If the utilities buy these REC’s it allows them to satisfy their obligations under Renewable Portfolio Standard regulations. It is a mad world in which companies pay each other to perform cartwheels, but don’t let’s go down that track. The nub of the matter is that Mercator Gold has lived successfully off its wits for some time and has now identified a new opportunity.

Renewable energy at Warm Springs is a long way from the company’s old Meekatharra project, but Mercator Gold is building an interesting portfolio to which a substantial interest in Canadian listed THEMAC Resources Group will be added shortly. In the background ACS Asia, the steel products business in which Mercator has a 70 per cent interest, should be churning out profits of around US$1 million this year, and it’s interesting to note that it has the capability of producing the steelwork used in solar power facilities. It has already quoted on a number of projects, but competition is keen as 20 per cent to 40 per cent of the cost of such facilities is accounted for by steelwork.

Mercator will have come full circle, however, if ACS Asia becomes an adjunct to Remote Energy Solutions as a fully capable developer of such systems.

In the meantime the next bit of news expected from the company concerns its uranium interests – more clean power. Mercator holds three million shares in Uranio, a listed Swiss uranium exploration and development company which holds a number of highly promising exploration stage uranium licences in the Central African Republic and Argentina. In the Central African Republic, Uranio has four licence areas located to the north and east of licences operated by AREVA of France, but for the immediate term it is Argentina which investors should be keeping their eyes on.