CAE - CANNINDAH RESOURCES LIMITED

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Created by request:

QUEENSLAND ORES LIMITED (QOL)

 

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[woteva]

Since I requested this be kicked-off I suppose I had better make a comment.

 

I have been doing some research into QOL.

Seems they have some very good potential most notably the Wolfram Tungsten/Molly project.

 

I like the low float and having just kicked-off they have a bit of cash on hand.It will be interesting to see how their cash burn goes.

Also with the prospect for further increases in the price of Mo and further good drill results this company has a real future.

 

Definately one to watch IMO.

[vegemite]

In reply to: woteva on Friday 14/10/05 01:27pm

Hi Woteva, I will join you as the second poster on this forum. If the metal prices stay strong (???) then seems to be on a prospective PE of about 1 which was tempting enough to me to take a small punt.

 

Far East Capital report of 30th Jan by Warwick Grigor.

 

Queensland Ores Ltd (ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“QOLÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚ÂÂ)

ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Â¦ÃƒƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…âہ“Tungsten Better Than a Gold Mine ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ 6 Month PaybackÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚ÂÂ

 

QOL was a rather demure IPO back in May 2005,

traditionally the worst time of the year to list. The 25ÃÆâ€â„¢ÃƒÆ’ƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¢

shares have never traded above the issue price and the

Company appears to have been completely overlooked

by the market. However, within the first five minutes

of the recent presentation it was obvious to us that

QOL has at least one, if not two, promising projects

that could generate strong earnings within the next

year or two.

 

The most impressive of the two is the Wolfram Creek

tungsten project because of the high profit margin at

current metal prices, which equates to an open pit gold

mine at 17 gpt. The low capital cost, the six month

payback and the technical simplicity provide an

excellent launching pad for a new producer.

 

Wolfram Camp Field (tungsten, molybdenum)

 

The Wolfram Camp tungsten field, located two hours

drive west of Cairns in Queensland, has a rich history

going back about 100 years. Its numerous mines were

famous for high grades and clean concentrates. The

last period of operation was in the 1970s and 1980s,

when Metals Exploration and then Mt Arthur

Molybdenum operated the field until low metal prices

(and land speculation in the case of Mt Arthur)

brought production to a halt.

 

Historical Mining Left The Halos Behind

 

Traditionally, the old mines worked on pipe-like

structures from underground, extracting very rich

grades up to 5% WO3 and MoS2, combined, at a ratio

of 4:1. The deepest mine reached 170m depth, at

which point metal prices and water inflows made

business uneconomic, though the mineralisation is

understood to continue deeper.

QOL is taking a lower risk strategy in its efforts to

rejuvenate the field. Just as we found with the low

grade horizon around the old underground gold mines

throughout WA in the 1980s, the Wolfram Camp field

has demonstrated a low grade halo around its old

workings, averaging 1% WO3 and MoS2. This enables

larger scale, lower cost mining methods than

historically achieved, albeit at lower grades.

QOL has drilled 36 diamond and 15 RC holes, adding

to the database that is expected to result in the

calculation of about 400,000 tonnes of ore, to the

shallow depth of 60m. Half of this should be in the

measured and indicated category, based on a 20m x

20m pattern, and the balance would be inferred on a

40m x 40m pattern. This tonnage would be sufficient

to support a 100,000 tpa operation for four years.

Beyond that there is potential at depth and further

along the 3km strike length of old workings. Repetitions

could result in 2-3 mill. tonnes of ore to a depth of 60m.

 

A Possible Mining Operation of 100,000 tpa

 

QOL has a mind to develop a 100,000 tpa operation

and it is working on studies to this effect, with plant

design being undertaken by Lycopodium. The

resource calculations should be finished in February

and a feasibility study may be finished by April. On a

fast-track timetable that assumes no delays in the

procurement of capital items, production could

commence early in 2007.

Open pit mining could be conducted in annual, 2-3

month campaigns, by contractors. The shallow pits to

60m would probably have a waste to ore ratio of 7:1

due to the ability to cut into the side of the mountain.

The ore is visually distinguishable from the country

rock, so grade control cost should be negligible. Drill

and blast would be required from the first flitch. The

average mining width of ore zones could be 5m, but

there is expected to be multiple zones being mined

across the pit floor.

 

Plant Could Have Excess Capacity

 

A 100,000 tpa plant would be rather small. It would

make sense to have a 300,000 tpa crushing and

grinding section to give capacity for expansions at a

later date, and this is understood to be under

consideration.

The plant would comprise simple crush, grind and

gravity recovery circuits for the tungsten concentrate,

expected to carry a grade of 70% (based on historical

records). A subsequent flotation circuit would recover

the molybdenum to a 50% Mo concentrate. Plant

recovery to concentrates is expected to 80% for WO3

and 75% for molybdenum. Wolfram Camp

molybdenum is particularly suitable for flotation due

to its large flakes (whereas many other molybdenum

deposits are fine grained, leading to recoveries of only

50-60%).

The selling of specialty metals like tungsten and

molybdenum is not as easy as it is for gold. There are

very few buyers and most of the sales are on spot

arrangements. In the past, European companies such

as Sandvik and Axel Johnson were active buyers of

the Wolfram Creek product. It is anticipated they will

be interested in buying again. They may even be

interested in providing quasi-equity.

 

Very Attractive Prices

 

The long term, 15 year average price for tungsten has

been US$52-65 per MTU (metric tonne unit). In 2004,

the price was US$60/MTU. It jumped to US$90 early

in 2005, and then it rose even higher, peaking at $295

in June. Over the last six months it has averaged

US$247/MTU, with the December range being $260-

265/MTU. As with many other metals, the strong

price has been attributed to the Chinese demand ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ and

that is not expected to dry up at any time soon. The

financial effect is quite dramatic on a project like

Wolfram Creek.

 

Impressively Profitable Economics

 

The capital cost estimate for an operation described

above is $9m, though this is subject to verification via

further studies. This means that the banks wonÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢t be the

gate-keeper for this project. Equity markets can handle

this level of funding.

On the expected production of 800 tpa of 70% WO3

concentrates and 210 tpa of 50% Mo concentrates,

QOL could earn US$17m p.a. of revenue (at

US$220/MTU ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ 15% less than the December price).

Assuming cash operating costs of $50 per tonne, the

net cash flow to QOL would be A$15m (its 85%

share, AUD/USD 0.7500). Based on the issued capital

of 44.8 million shares and 10 mill options, this would

give diluted cash EBITDA of 27ÃÆâ€â„¢ÃƒÆ’ƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¢ (my note - cf current price of 24.5 c).

Low capital costs

mean high conversion to net profits and EPS.

Cash payback for the mine would be approximately 6

months based on these numbers, making it a very

profitable situation. Though the starting mine life

would be four years, there is no reason not to look

forward to a multiple of this figure, and expansion of

throughput with the addition of more gravity and

flotation circuits.

 

Mt Cannindah Copper/Gold (100%)

 

Also in Queensland, 100km south of Gladstone, this is

a copper project that proved too small for the likes of

MIM; but could be quite profitable for a junior

company, particularly with high copper prices. There

is a total resource base of 16 mill. tonnes within a

2.5km x 2.5km area, in four locations. Only the Mt

Cannindah mine itself has been upgraded to an

indicated resource of 4.5 mt at 0.98% Cu and 0.36 gpt

gold, containing 44,000 tonnes of copper and 52,000

oz of gold (gold equivalent at current metal prices is

320,000 oz at 2.21 gpt, using 70% payment terms for

copper). The inferred resources contain another

62,000 tonnes of copper and 33,800 oz of gold.

 

Feasibility Study in July 2006

 

QOL is planning to conduct in-fill drilling as part of a

feasibility study with outcomes to be available in July

2006. The early indicators suggest a profitable

500,000 tpa operation costing $25m to develop, with a

life of nine years based only on the indicated resource

at Mt Cannindah. Annual production could be 4,500

tonnes of copper metal and 5,000 oz of gold.

Attractive Economics on First Pass

Mining and treatment costs could be $30 per tonne,

with another $6 per tonne overheads and concentrate

transport. The estimated net cost is 46ÃÆâ€â„¢ÃƒÆ’ƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¢/lb. Metallurgy

is simple with expected recoveries of 93% and 90%

for copper and gold respectively. At current metal

prices QOL could be looking at revenue of $30m p.a.

and net cash flow from operations of $13m or 24ÃÆâ€â„¢ÃƒÆ’ƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¢ a

share (diluted for options).

 

High Metal Prices are the Key

 

There are many prospective copper companies around

trying to get to the starting line, with a number of

them in the Cloncurry region of Queensland. We have

previously commented that copper projects are often

too hard for junior companies to finance because of

the banks using copper pries of only 90ÃÆâ€â„¢ÃƒÆ’ƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¢/lb in their

modelling. While the larger projects might offer better

economies of scale, their capital costs mean that banks

will always hold the whip hand e.g. Universal and its

capital expenditure of approximately $250m. Capital

rationing and sequential development are the main

themes.

With Mt Cannindah, QOL seems to have a modest

size project that can get off the ground if copper prices

stay firm. The ability to sell copper forward today, at

US$1.70/lb (compared with spot prices of $2.05/lb),

means that the entire capital cost of a mine could be

covered by hedging output for three years. It may be

in the right place at the right time.

 

The Bottom Line ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ Metal Price Dependent

 

Like a number of companies out there QOL looks to

be a beneficiary of high metals prices. It has two

projects which can be fast-tracked to achieve

production in the next 1-2 years. The potential cash

flow could easily be in the range of 30-40ÃÆâ€â„¢ÃƒÆ’ƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¢ a share on

existing diluted capital. (my note - if value the

company at a reasonably conservative 5x cash flow

then valuation of $1.50-$2.00)

 

We are more enthused by the Wolfram Creek tungsten

/molybdenum project due to the high profit margins,

the low capital costs and the potential for expansions

of throughput and mine life. On this project alone the

shares look like an excellent speculation with the

potential to be several times the current share price of

18ÃÆâ€â„¢ÃƒÆ’ƒÂ¢Ãƒ¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡ÃƒÆ’â€Å¡Ãƒƒâہ¡ÃƒÆ’‚¢, which takes no account of the potential earnings

stream (particularly when you consider the $8m

market capitalisation is supported by a $4m cash

balance). It is priced at little more than an option.

The critical element for a rising share price is an

expanding information stream. This looks quite busy

for the next six months with drilling and feasibility

results likely to confirm our early view. As investors

are becoming more attuned to the mining sector, and

are more able to see that it doesnÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢t just comprise gold,

coal and iron ore companies, we will find that stocks

in speciality metal companies attract more attention.

Consolidated Minerals is an example of what can

happen. The super profit margins on projects like

Wolfram Camp should not be ignored by those

seeking value-based investments.

[vegemite]

In reply to: vegemite on Sunday 05/02/06 11:26am

From the Dec Qtly.

 

Wolfram and molybdenum grades expressed as gold equivalent values:

 

9.26m at 12 gpt (gold equiv)

7.45m at 15 gpt "

2.41m at 57 gpt "

1.90m at 50 gpt "

5.42m at 44 gpt "

5.00m at 36 gpt

 

If it was a gold mine, these would be rather exciting grades.

 

 

[skiddy]

Not many posts for an interesting stock, i purchased today after much research just a toe in at this stage 30k @ .275 will put away for the rerating that i believe much surely come:-)Good fortune to the other 3 holders http://www.sharescene.com/html/emoticons/biggrin.gif

[skiddy]

Nice buy 200k stock @ .29c @1458 somebody a little keen to get today. Look's like i maybe chatting to myself :-) for a while http://www.sharescene.com/html/emoticons/king.gif

[crystal]

QUOTE (skiddy @ Thursday 16/11/06 05:27pm)

hi skiddy

 

you are not alone ! http://www.sharescene.com/html/emoticons/devilsmiley.gif

 

i have it in my watch list for a breakout over.30

 

the chart doesnt show todays close

 

i understand the feasibility study is due shortly?

 

good luck

 

 

mick

[skiddy]

Thanks mick/crystal nice not to be alone:-) Some interesting posts on HC as well http://www.sharescene.com/html/emoticons/rolleyes.gif

[skiddy]

Nice announcement today from QOL re more positive drill results friom Wolfram Camp,good vol, finish @ .30 1/2c with only 10k to sell @ .33c.She is becomming a little tight with so little on offer. If was a gold mine with these grades one would get a little excited :-) http://www.sharescene.com/html/emoticons/rolleyes.gif

[crystal]

hi skiddy

 

yes looks good on the chart ,but not if there is no stock to buy http://www.sharescene.com/html/emoticons/thumbdown.gif

 

looks like i may have to pass

 

good luck anyhow

 

mick