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

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.

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.

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.