Thor Mining PLC: Dundas = Tropicana 2?

Hardman & Co's research report outlines the purpose of the recent capital raising by Thor Mining (ASX:THR, LON:THR), which is mainly aimed at advancing its Dundas gold exploration project in Western Australia.

"Geologically this is the same region that is host to Anglogold Ashanti’s Tropicana gold resource (5Moz of gold at 2g/tonne). This remote geological province has long been overshadowed by the adjacent greenstone and shear zone gold deposits of the Yilgarn Craton and Tropicana will be its first gold mine. However, similarities to other old orogenic belts mean that there should be prospects, not only for gold but for other metals too.

With steel-making additives and speciality metal prices still recovering the company’s Molyhil Mine is now in a holding pattern with management maintaining relationships and permits in good stead ready for the moly and tungsten prices to break through a nominal barrier to resumption.

Of course this doesn’t mean that the company is closed to new offers, but in reality now that moly is a publicly traded commodity and with China still holding the majority of both supply and demand for tungsten, we are looking to economic fundamentals driving metals prices back up rather than any corporate activity to bring Molyhil into production. We understand that the company is still in contact with CITIC, the Chinese entity that had expressed a desire to off-take the mine’s production and that other organizations have also been in contact.

So while moly prices are stagnant in the $15-20/lb range tungsten prices are now back up to the $220-250/mtu range and look relatively strong. We should remember that it is natural for tungsten to lead moly as most marginal production is used in industrial tooling as a hard metal.

Moly should pick up later in the recovery when steel production for advanced infrastructure picks back up. With three large oil spills recently (two in the US) we fully expect standards to be reviewed for equipment used in North American drilling, completion and pipelines. This may or may not include higher materials specifications and the use of a higher proportion of steel that contains moly, but the punitive damages imposed on BP are likely to encourage the hydrocarbon industry to employ wider margins of safety when specifying new equipment.

For now though focus is on quickly advancing the Dundas gold exploration project. The recent capital raising should provide sufficient funds to fulfill the next stage of obligations as Thor works towards 100% ownership (from the current 51%).

In our review of The Dundas Project we show that Thor has managed to acquire some of the prime land in a 700km long trend and by Anglogold Ashanti’s own description looks to be well placed to discover a Tropicana analogue.

Conclusions

We can understand and share the enthusiasm that Thor has for this project. It is well worth pursuing its potential, but it is still a very early stage project and we shouldn’t get carried away by a new gold province in a mining friendly country. In fact we shouldn’t really be calling it a gold province when only one mine has reached Bankable Feasibility. It may be that other deposit types are more common along the roots of this old mountain chain and we would certainly not rule out a surprise or two along the way as Australian geos get their teeth into a new bit of the outback.

However, given that an area of land some 700km long by 100km wide, only 100km from well known historic gold and nickel fields, can still turn up a 5Moz gold deposit (as well as multiple others with million ounce potential) that can be taken from discovery in 2005 to production in 2012/13 perhaps it is worth sitting up and taking notice. Anglogold certainly have and including the Tropicana and Viking JV’s it has bagged the vast majority of available ground along the whole 700km strike. Thor did well to find a way in, and did exceptionally well to get a package of land that we consider highly analogous to that which is host to the discovery deposits of Tropicana and Havana South.

While Molyhil must remain to the core value of Thor for now (it is a fully permitted mine after all), the Dundas Project should be seen in a much better light than the recent capital raising would suggest. However those that did take part will hope to see shallow drilling by the end of 2010 since what was raised was sufficient to fulfil the next stage in obligations.

BP appears to be continuing to do its very best to encourage the moly price to rise. Market watchers will remember that a failure due to corrosion led to a spill from a pipeline from BP Prudhoe fields in Alaska was one of the primary reasons for an increased use of moly in the 2003-4. Further oilfield equipment failures can only re-enforce the regulator’s view on safety margins, which may ultimately lead to an increase uptake of moly-rich steel alloys. However it is still early days in that process and we have yet to see any significant market or corporate moves towards operational risk aversion covering the hydrocarbon sector as a whole.

Of course newer sectors such as desalination and solar power may also supplement existing demand for moly from the steel industry. In June Desjardines Securities estimated that 23lbs of moly is needed for every 100m3 of desalination capacity and in July Platts quoted Chinese sources as seeing a14% increase in Chinese 2010 moly demand being supported by its use as an electrode in CIGS solar panels. So while moly prices may still be about half their peak, we don’t see that lasting forever.

So whether Thor strikes it lucky finding a Tropicana analogue on its Dundas Project or we see the predicted moly price recovery back through $25/lb and Molyhil bursting into life, the company looks well placed to take advantage of economic recovery and gold price rise."

http://www.proactiveinvestors.co.uk/companies/news/20066/thor-mining-plc-dundas-tropicana-2-20066.html