Core Exploration (CXO)

Transcription

1 Core Exploration (CXO) Exploration in world class mineral provinces 21 February 2011 Key Points Recommendation: Speculative BUY Gavin Wendt Research Manager Andrew McLeod Research Analyst Company Information ASX Code CXO Share Price A$ 0.21 Ord Shares 41.5m Unlisted Options 8.5m Market Cap A$ 8.7m Cash A$ 5.0m Total Debt Directors Non Exec Chairman Managing Director Non Exec Director Substantial Share Holders Nowak Investments Pty Ltd 12.65% GDE Exploration SA Pty Ltd 9.64% UBS Wealth Mgmt Aus Nom 8.43% Company Details Address Greg English Level 15, 45 Pirie St Adelaide, SA, 5000 Stephen Biggins Michael Schwarz Phone Web Exploration targeting IOCG U deposits in world class mineral provinces Recent $5 million IPO closed over subscribed Adjacent Hillside 0.7 % Cu discovery highlights regional significance of Yorke Peninsula Honeymoon South project is highly prospective for uranium Exploration success will define company valuation Core Exploration is an aggressive explorer searching for IOCG U deposits in world class mineral provinces. The successful A$5m IPO provides the funds for the company to now accelerate exploration and deliver results. Company Overview Core Exploration (ASX: CXO) is an aggressive explorer primarily targeting iron ore, copper, gold, uranium (IOCG U) projects on a portfolio of prospective tenements located in South Australia and the Northern Territory. The company, incorporated on 10 th September 2010, recently closed its $5 million IPO oversubscribed and entered into an agreement to acquire 100% of Sturt Exploration Pty Ltd and DBL Blues Pty Ltd. Core Exploration now holds all 5 granted exploration licences with a further 3 under application covering an area over 2,000km 2. CXO has 2 licences in South Australia, Yorke Peninsula and Roxby Downs, which are prospective for IOCG U minerlisation. Also situated in South Australia is the Honeymoon South (palaeochannel), Mount Painter (reccia) and Lake Frome (sandstone/palaeochannel) projects, which are all prospective for uranium. In the Northern Territory, Core Exploration has applied for a single exploration license (Amadeus Project EL28349) prospective for uranium across a 571km 2 area southeast of Alice Springs. The company s flagship project is the Yorke Peninsula project, which is located adjacent to the recent Rex Minerals Hillside deposit where an Inferred Resource of 0.7% Cu and 0.2g/t Au has recently been delineated. Core Exploration has allocated the lion s share of available funds for exploration within EL4177. Project Budgets Project Licence Number Forecast Expenditure (A$000's) Yorke Peninsula EL4177 1,125 Honeymoon South EL 4174, EL Mt Painter EL Roxby Downs ELA 227/09, ELA 55/ Frome EL Amadeus ELA Other Working Capital 2,300 Total 5,000

2 Project Review Yorke Peninsula: South Australia (IOGC U) Total historical production in the region estimated to be Cu and g/t Au CXO s flagship Yorke Peninsula Copper Project (EL4177) covers 243km 2 of the Gawler Craton province in South Australia. The licence covers three areas located on the central and western side of the Yorke Peninsula near the towns of Port Victoria, Maitland and Arthurton. The region has historically been a very significant producer of copper and gold, with an estimated total production of 5.21% Cu and g/t Au. The project area is located adjacent to Rex Minerals (ASX: RXM) Hillside project which has an Inferred Resource of 0.7% copper and 0.2g/t gold containing 1.2 million tonnes of copper and 1.1 million ounces of gold. Yorke Peninsula S.A Project Geology, Shear Zones and Copper Deposits Rex Minerals Hillside has identified 170Mt resource As sediment cover is quite thick, little is known about the underlying geology Best mineralisation has been identified at depth The company has identified the Pine Point Fault, which runs in a north south direction on the eastern side of the Yorke Peninsula as a highly prospective structure. Importantly, a number of southwesterly faults splay off of this feature into the tenements held by Core Exploration. Sediment cover is usually in excess of 25m and with little outcrop, geology poorly known. Explorers have been in the area since 1962 and have carried out various magnetic and IP surveys with limited drill testing on various anomalies. Importantly, in the past the area has only been drill tested to depths of 30m. Core Exploration has completed a detailed magnetic survey which is able to define geological structures with greater clarity within the tenement area. The recent IOCG Cu/Au discovery by Rex Minerals on the eastern side of the peninsula indicated that the best mineralisation occurs below 200m. This highlights a significant degree of prospectivity in the tenements which has not been tested by previous exploration.

3 Yorke Peninsula exploration program Modern Exploration techniques will be used Follow up drilling on identified anomalies Core Exploration intends to use sophisticated and wide ranging exploration techniques to identify target areas for follow up analysis. These techniques include ground gravity and magnetic surveys to define bedrock targets; shallow seismic or radar to define Tertiary palaeochannels and to map the depth of cover; surface geochemistry using MMI technology assay; shallow geochemical drilling such as aircore; and analysis of water from new and any existing drill holes looking for dispersion haloes associated with mineralisation. Where coincident soil, gravity and magnetic anomalies are identified, Core will follow up these targets with RC and diamond holes. Initial drilling is expected to be less than 200m deep, but as and when mineralisation is encountered, deeper drilling may be required. Proposed work program expenditure Activity Year 1 (A$000's) Year 2 (A$000's) Total (A$000's) Geological, Mapping, Geochemistry Geophysical surveys Drilling AC/RAB Drilling RC, Diamond Total ,125 Roxby Downs Project (IOGC U) The Roxby Downs project consists of two licence applications: (ELA 227/09 Roxby Downs) and (ELA 55/10 Horse Wells) and together cover an area of 522km 2 of the Gawler Craton, which also hosts the Olympic Dam mine. Both tenements are prospective for IOCG U type mineralisation. The company expects that the granting of these two licences will be formality, with approval likely within the next six months. Gravity Image of Roxby Downs project area Gawler Craton also hosts the world class Olympic Dam and Carrapateena deposits

4 Initial wide spaced gravity surveys have been completed across most of the tenements, as well as a number of more detailed surveys to determine potential targets for IOCG U mineralisation. The tenements have a number of anomalies which the company believes have yet to be adequately drill tested. Gravity Image Roxby Downs Any economic mineralisation from Acropolis and Aphrodite may extend into Core s tenements The Acropolis West prospect is a gravity anomaly and extends into ELA 227/09, although at depths in excess of 800m and with minimal associated magnetic anomalism. If economic mineralisation is located at the Horse Well prospect or Aphrodite prospect (owned by Minatour Exploration) it may extend into the ELA 55/10 tenement area. Other subtle anomalies also require drill testing in their own right. Mount Painter Project (Uranium) Mt Painter is situated 10km from Mt Gee, Australia s 5th largest Uranium deposit The Mt Painter Project comprises one exploration license (EL4569) covering an area of 106km2 and lies adjacent to the Mt Painter Inlier. The project area is located within 10km of Mt Gee, which is the 5th largest uranium deposit in Australia and hosts a resource of 615ppm U3O8. The Mt Painter Inlier is well known for its numerous breccia complex uranium occurrences. The project area covers areas of Radium Creeks Metamorphics and other prospective host rocks. This area of uranium rich rocks is a very prospective target for the company.

5 Mt Painter Geology of Project Area Potential exists for secondary uranium mineralisation in drainage channels Of particular interest to Core Exploration is the large channel which drains the western margin of the uranium rich Mt Painter Inlier northward through the project area. This area offers potential for secondary uranium mineralisation. Examples of nearby secondary uranium deposits are Beverley (Heathgate Resources) and Beverley Four Mile (Alliance Resources), to the east. There also exists potential for primary mineralisation which has been identified by rock chip samples in the northern block of EL4569 which assayed in excess of 50ppm. Honeymoon South Project (Uranium) The Honeymoon South Project comprises two exploration licences, (EL4174) and (EL4568). The project area covers 350km2 and is located 15km south of the Honeymoon ISL (In Situ Leach) uranium mine (owned by a JV of Uranium One and Mitsui) which is expected to produce at ~880,000 pounds U3O8 per year. Apparent palaeochannel extension into EL4174 Recent exploration has better defined the Yarramba palaeochannel which hosts the Honeymoon Uranium deposit and ISL mine. It appears as this palaeochannel leads upstream into EL4174 (see figure on next page). The Honeymoon South licences are highly prospective for various types of uranium mineralisation, both in older basement rocks and in the overlying younger sediment. Core Exploration will initially focus efforts on the apparent extension of the channel into EL4174. There is also potential to trace known palaeochannels and to locate new channels in the southern area of the exploration licences.

6 Honeymoon South Project area Frome Project (Uranium) The Frome Project comprises one exploration licence (EL4379) and covers an area of 331km2 within the area of Beverly Four Mile, Honeymoon, Goulds Dam and Oban roll front uranium projects and is situated on a similar geological setting. Frome Project (EL4379) and Honeymoon South Project Locations Exploration on the Frome project will initially consist of geophysics to look for channels

7 Roll front uranium deposits are located to the northeast and southwest of the Frome licences and it is likely that palaeochannels, or even multiple palaochannels on different sedimentary horizons cross the licence area. There is the potential to locate roll front type uranium deposits in these channels. Exploration in the Frome project area will initially comprise of geophysical techniques to identify channels. Follow up exploration will involve shallow AC or RAB drilling with radio metric logging. Amadeus Project (Uranium) The Amadeus Project consists of one licence application (ELA 28349) within the Amadeus Basin in the Northern Territory. Pamela Angela uranium deposit is 1200ppm The Amadeus Basin hosts a number of significant uranium deposits, including the Pamela Angela uranium projects held in a JV by Cameco and Paladin. The Pamela and Angela uranium projects are located along the Northern basin margin, approximately 10km west of the exploration licence and around 25km south of Alice Springs. Past work in the Basin has demonstrated the potential to hold significant uranium deposits. This, coupled with the limited exploration undertaken during the past 20 years, indicates the potential for further uranium mineralisation within the relatively underexplored southern parts of the basin. Amadeus Project and Pamela Angela Uranium Deposit Northern Territory Limited exploration work in the southern part of the Amadeus Basin holds potential for uranium mineralisation

8 Board & Management Non Executive Chairman Managing Director Greg English B.E. (Hons) Mining, LLB Mr. English is a Mining engineer and a Lawyer with 20 years experience in multi commodity projects throughout Australasia. As a Mining Engineer on both underground and open pit mines in the NT and WA, Mr. English gained a First Class Mine Mangers Ticket and worked in many roles involving mine production, mine planning, mine management and project management. Mr. English currently heads up the Corporate and Commercial team at Norman Waterhouse Lawyers and is also a non Executive director of Archer Exploration. Stephen Biggins MBA, BSc (Hons) Geol, MAusIMM Mr. Biggins has 20 years experience as a geologist and geophysicist in mineral exploration. He was the founding Managing Director of ASX listed Southern Gold (ASX: SAU) and a nonexecutive director of subsidiary spin out, Southern Uranium (ASX: SNU). Non Executive Director Michael Schwarz, BSc (Hons) Mining, AIG Mr. Schwarz is a geologist with over 15 years experience in mineral exploration. He was the founding Managing Director of Monax Mining Ltd (MOX), an IOCG U and base metal exploration company and a director of Marmota Energy Ltd (ASX: MEU). Mr. Schwarz has extensive experience on South Australian and Gawler Craton geology and mineralisation styles. He has also led research projects with the SA Government, Geoscience Australia and various universities. The Breakaway View Prospective tenement package IPO closed over subscribed Possible mineralisation exists at depth Apparent extension of palaeochannel into EL4174 Core Exploration is an early stage exploration company with multiple tenements in prospective regions based in South Australia and the Northern Territory. The strength of the Board bodes well for the company to deliver effective exploration programs. Encouragingly, the recent $5 million IPO closed oversubscribed indicating strong demand. Breakaway anticipates the share price to be highly leveraged to any exploration success in the forth coming exploration programs. The company currently has a market capitalisation of ~$8.7 million, which we believe is cheap considering the quality of its portfolio and its A$5 million cash. Of particular interest to Breakaway are the Yorke Peninsula and Honeymoon South Projects. Yorke Peninsula is a large tenement package within the mineral rich Gawler Craton which also hosts Olympic Dam. Past exploration in EL4177 has been relatively shallow and as evidenced by Rex Minerals recent Hillside discovery; significant mineralisation can be discovered at greater depths. Within the Honeymoon South Uranium Project, there is a high probability of palaeochannel extension into Core s EL4174. With the company initially targeting this apparent extension, Breakaway expects positive news flow. Core Exploration have put together a strong portfolio of exploration acreage and with the recent successful IPO, it is cashed up and can accelerate exploration. Breakaway views an investment in Core Exploration as speculative with share price appreciation largely dependent on exploration success.

9 Analyst Verification We, Gavin Wendt and Andrew McLeod, as the Research Analysts, hereby certify that the views expressed in this research accurately reflect our personal views about the subject securities or issuers and no part of analyst compensation is directly or indirectly related to the inclusion of specific recommendations or views in this research. Disclosure Breakaway Investment Group (AFSL ) may receive consultancy fees and commissions on sale and purchase of the shares of Core Exploration and may hold direct and indirect shares in the company. It has also received a commission on the preparation of this research note. Disclaimer Any observations, conclusions, deductions, or estimates of figures that have been made by Breakaway Research and the Breakaway Investment Group in this report should not be relied upon for investment purposes and the reader should make his or her own investigations. This publication has been issued on the basis that it is only for the information and exclusive use of the particular person to whom it is provided. Any recommendations contained herein are based on a consideration of the securities alone. In preparing such general advice no account was taken of the investment objectives, financial situation and particular needs of a particular person. Before making an investment decision on the basis of this advice, investors and prospective investors need to consider, with or without the assistance of a securities adviser, whether the advice is appropriate in light of the particular investment needs, objectives and financial circumstances of the investor or the prospective investor. Although the information contained in this publication has been obtained from sources considered and believed to be both reliable and accurate, no responsibility is accepted for any opinion expressed or for any error or omission that may have occurred therein. Breakaway Investment Group AFSL ABN T F PO Box H116 Australia Square Sydney, NSW 2001 Suite 505, 35 Lime Street, Sydney, NSW 2000