Chris Cann in London, 27 October 2011
Mineralisation in drill core from recent drilling at Bronze Fox.
IT’S been an eventful start to Kincora Copper’s public life since it listed its potentially mammoth Mongolian copper-gold project in July. The explorer has celebrated corporate triumphs including securing a decorated chief executive; has suffered at the hands of Mongolian politics and commodity markets; and, most importantly, has extracted good news from rocks within its Bronze Fox project, which, after all, is the reason the company exists.
It’s difficult to know where to start so we’ll work our way back to the present chronologically.
Kincora hit the ground running mid-year when it listed in Toronto through a reverse takeover of Brazilian Diamonds, which also delivered the group its inaugural chief executive in Stephen Fabian (who is, by the way, a partner with UK fund Baker Steel Capital Managers). The company’s 22,000-hectare Bronze Fox prospect was the discard of a reluctant Ivanhoe Mines in 2005 as that company sought to push forward with its flagship copper-gold monster, Oyu Tolgoi. The potential at Bronze Fox had never been doubted and, with copper back at close to $US1000 per tonne, the market latched on with both hands.
Shares in Kincora more than doubled in two weeks to $C0.65 in early August, helped along by news late in that month that the company had secured the outstanding 25% of Bronze Fox it didn’t already own.
Fabian must have been thinking life was all too easy until September, barely six weeks after listing, when the bottom fell out of the market, again, and commodity prices shrank back to pre-crash levels. More than 30% was stripped from the company’s value in just over a week.
Then, with timing that demonstrated either spectacular ignorance or cruelty, the Mongolian Government told Ivanhoe and its Oyu Tolgoi joint venture partner Rio Tinto that it planned to renegotiate the contract terms for a bigger piece of the pie. To this point, Mongolian bureaucrats though slow, had done commendably well in their attempts to regulate and encourage a sector that has exploded in the past five years. This announcement, however, had the potential to derail much of that good work.
Shares in Kincora slipped further and continued to drop even after Ivanhoe, Rio and the government jointly announced that the status quo would be maintained. About mid-October Kincora’s shares were worth less than on its first day of trading.
Frustration would have been rife within Kincora’s Vancouver office as management watched first the economic policy of Europe and the US, then the ‘learn-as-you-go’ politicians in Mongolia skittle their early work in a matter of weeks.
Since then, the company has taken matters into its own hands. Released last week was firstly news on a new chief executive and secondly assay results that provided early validation of management’s optimism and the market’s initial enthusiasm. The stock was back up to $C0.38 by the end of the week.
The appointment of Igor Kovarsky as chief executive is both a coup and somewhat unexpected. It is unlikely that Kincora would have planned on shuffling its board so soon after listing but when an opportunity to snag someone of appropriate experience is presented most companies don’t have to think too long before grabbing it. A mining professional of more than 30 years, Kovarsky’s relevant credentials lie principally in the development and commissioning of the Kumptor and Boroo mines. Kumptor in neighbouring Kyrgyzstan is one of the world’s largest gold operations, while the success at the Boroo gold mine makes Kovarsky one of a handful of executives with a Mongolian operation on their curriculum vitae. Having this experience at hand when time comes to develop Bronze Fox is likely to prove crucial.
This addition may have come further down the track in Fabian’s predicted timeline, but not much. When he spoke to HighGrade in July, Fabian was very clear that Bronze Fox was also a development story, rather than a typical exploration play. Fabian, by the way, remains chairman, while David Cowan has graciously stepped down to make room for Kovarsky.
Though the value to the company is clear, how much of the recent market appreciation is down to the bolstering of the board is disputable. More likely, investors have responded to the healthy drilling results that came out the next day because, whether Fabian wants to admit it or not, Kincora is still an exploration story and punters are buying it firstly for that initial resource.
The company has focused in on an area that makes up just 13% of the entire tenement block. Within that area, it has a favourite prospect where most of the drilling has been targeted called West Kasulu, which it hopes to develop into a large, bulk-tonnage open pit copper operation with gold credits. It is from West Kasulu and the nearby, higher grade, Leca Pass that the results are flowing.
The headlining hole pierced 750m of consistent copper mineralisation – locally with higher molybdenum mineralisation zones up to 0.9% – and ended in mineralisation. Of equal importance was that the other four holes drilled potentially connected mineralisation zones that are up to 6km apart; that a one-off hole hit higher grades at depths greater than 500m; and the fact that the deposit remains open in all directions. Limited results from the surrounding gold prospects have also impressed.
Not surprisingly, Kincora has developed a reasonable following amongst the investment community already and these latest numbers have not disappointed those looking for the next Oyu Tolgio, or at least something similar.
“The current activities of Kincora are akin to defining and starting to put together the pieces of what appears to be a very large jigsaw puzzle with various known mineralised targets already identified on a small section of the tenement,” Ocean Equities’ Sam Spring wrote last week.
“While we do not expect this year’s drilling program to define a maiden NI 43-101 compliant resource (further drilling early in 2012 is likely to be needed), the company in our view has already very successfully advanced four key elements of its strategy. It has consolidated and increased its presence in highly prospective and advanced exploration targets in Mongolia, now owning 100% of BF and being in advanced discussions regarding a number of other potential targets.
“Surface and drilling at depth to date has further indicated prospective alteration/structure and suggests there has most likely been a large multiphase copper and copper-gold-molly mineralisation event at Bronze Fox. Greenfield exploration at the Bronze Fox asset has been advanced with follow-up drilling in 2012 most likely defining potential maiden resources at the West Kasulu and other targets, and scout testing a number of high priority targets.”
The fact that the maiden resource is likely to come next year rather than this year as Fabian had predicted will not concern the chairman, particularly after the introduction to the market his company has endured. It is impossible to determine what the market will do over the coming months or years, but as long as the drill bit keeps turning and reviews such as that from Ocean Equities continue to come in, there will be an underlying interest and support for what Kincora is trying to achieve.