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Kincora Copper now has a solid base from which to embark on a serious elephant hunt

Tuesday, November 22, 2016 4:47
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Copper porphyries rarely occur on their own, they occur in clusters focused on key geological structures within established belts.

This salient fact about geology lies at the root of everything that’s been done by Kincora Copper (CVE:KCC) in Mongolia’s South Gobi desert, which is generally recognized as one of the last under explored copper frontiers and a relatively attractive operating environment within trucking distance to the worlds largest consumer of copper.

The template is Chile, which hosts seven of the world’s top ten copper mines by production, all of which are porphyries. The geological model is also proven in other more mature porphyry belts.

The largest of Mongolia’s porphyries, Oyu Tolgoi, which is one of the worlds largest (and most gold-rich) has now gone into production and is being expanded after the largest project financing of its kind in the hard rock industry. A second porphyry project in this belt is in development.

But will there be others? That is the question that Kincora is seeking to answer and which it has now moved much closer to resolving, following a lengthy period of financial readjustment and project-level transformation.

In the wake of positive legislative developments and the likely impact of Oyu Tolgoi’s expansion on international investor attention towards Mongolia, a strong majority result in a Parliamentary election and a low point in the commodity cycle, it fell to Kincora to become the consolidation vehicle of choice for South Gobi copper licenses, and the vehicle of choice too for some of the best mines in copper porphyry exploration.

At the head of it all is Sam Spring, a former mining analyst of the year out of London and Australia. Spring has been plugging away in Mongolia for some years now, supported by major shareholder Origo Partners (LON:OPP) and a unique register for such a stage company.

More latterly though, High Powered Ventures (HPV), controlled by High Powered Exploration (HPX, CEO being Robert Friedland), has come onto the share register, following a deal that was done to combine the Kincora South Gobi land package with that of IBEX, a local subsidiary of HPV.

HPV is the Mongolian vehicle associated with people who discovered Oyu Tolgoi, long since taken over by Rio Tinto, but nonetheless confident they can come round for a second time and do it again.

But times have been tough in mining over the past few years and it’s been necessary for more than a few companies to club together and focus on core priorities.

Kincora picked up the IBEX licenses in scrip transaction that initially valued them at US$900,000, which looks well when set against the +US$25 mln of spend that’s been historically invested.

But it’s not just the spend, it’s the ground itself and data that comes with it.

“IBEX has the dominant position in this belt,” says Spring. “It’s great real estate but with a large and high quality dataset, between and on strike from the two copper mines in the South Gobi. This ground is prospective, although it’s pre-discovery, and you’re seeing increased similarly stage activities in the belt already, despite the current state of the commodity cycle.”

The transaction with IBEX was first announced back in May, and all things being equal, the closure of the deal on 7 November means it hasn’t actually taken that long to complete, although there was a 5 month void of news flow.

While all the boxes were being ticked and the lawyers made happy, Kincora was busy in the background pulling together an industry-leading technical team, undertaking a detailed technical review and workshop, undertaking various exploration activities and hosting other discussions for further consolidation opportunities.

Now though, the gloves can come off. Kincora raised C$1 mln in the summer at the same time as clearing off its outstanding debt to Origo and tightening up its corporate structure. That gives it plenty of room for manoeuvre when it comes to designing a work programme for the newly enlarged landholding.

The first move came on 14 November when the company announced the appointment of two leading copper porphyry experts as senior managers. Peter Leaman is a former head of BHP Billiton Mongolia, responsible for the JV with Ivanhoe in the Gobi, while John Holliday is a former chief geoscientist at Newcrest. Then there is Imants Kavalieris, one of the 6 executive exploration team during the exploration and delineation of the Oyu Tolgoi.

According to the official literature, Leaman and Holliday have “extensive exploration experience and are credited with the discovery of multiple Tier 1 assets and other economically important porphyries”, including the giant 1 Reko Diq copper-gold and and Cadia/Marsden copper-goldporphyries.

Next, says Spring, will be a reappraisal of all the combined data that now exists inside the company.

“What’s the low-hanging fruit here and what are the priorities?” he says. “There are large-scale targets that have the potential to be similar to other mines in the area. Geological expectations would say there would be two mines at least in this belt. The similar size and structural setting belt in Northern Chile has 15 copper mines.

Kincora’s Bayan Tal target sits on the right big picture geological structure, which is found in Chile, other mature porphyry belts and the two mines in the South Gobi.

“Recent activities have confirmed similar Devonian stratigraphy to Oyu Tolgoi, the first target since with such attributes that we are aware of,” says Spring.

“Advancements in geology and geophysics support multiple drill ready targets at Bayan Tal, which is one of the best candidates for a new Tier 1 porphyry discovery in the Southern Gobi.”

While there are no certainties when it comes to exploration, Spring does sounds very excited about this target and the prospect that current activities will support potentially multiple more targets like this.

And will the recent movement in the copper price have any immediate material impact on the company? It might affect sentiment in the market, but the nature of the copper deposits that Kincora is hunting means that the current comparatively low copper price isn’t as important as it might be for smaller deposits.

“The reality is that in this belt with the targets we are hunting that you’re not going to need copper to go to US$3.00 or US$4.00,” says Spring.

“But of course it’s going to take time for interest and capital to come back into the sector.”

And whilst that is happening, Kincora will be building value advancing a unique regional portfolio of targets that sit between and on strike from the two mines in the belt, all under the watchful eye of some copper experts who have a track record of knowing what they are looking for.

With some investors banking 12x on SolGold’s year to date performance, they may be looking at Kincora as the next earlier stage candidate to similarly offer Tier 1 copper porphyry potential.


Story by ProactiveInvestors


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