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.