Sunday, September 19, 2010

Mantle Mining (ASX: MNM)

I would consider Mantle Mining one of my more speculative holdings, however there is potential for a huge payoff if any one of their exciting projects comes to fruition.

Initially placed on my watch list as a Gold/Silver micro-cap with potential (they have a JORC Gold/Silver resource), recent developments have made it clear that the big value may come from their Coal assets.

Firstly a few numbers:

149.2m Shares x .046 = $6.85m market cap
30.8m Listed Options (MNMOA), 7c by 31/12/10 strike
Cash at end of June quarter: $843k + $300k since received in tax offset = $1.14m (approx cash burn has been $400k per quarter).

If the share price appreciates to 7c+ before the end of the year and all options are exercised this would add another $2.15m to the cash position detailed above.

They have Gold and Silver resources (JORC compliant) across two of their projects:


Great Britain Gold Resource:
125,000 @ 1.8 g/t Au

Granite Castle Gold and Silver Resource:
79,301 @ 2.91 Au & 1,530,803 @ 56.2 Ag

Applying a basic in ground valuation (comparatively valued to Mantle's peers) on this resource provides a value higher than their entire market capitlisation:

Total Gold: 204,301 ounces x $30 = $6.1m
Total Silver: 1,530,803 ounces x $.80 = $1.2m
Total value of resource: $7.3m (compared to market cap of $6.85m)

A definition drilling program for Granite Castle is in the early stages of planning for later this year.

Their third and potentially most exciting Gold tenement is the Haunted Stream Gold & Base Metals project. Located in Victoria, this tenement is in an area with a rich history from the Gold rush era.

Bush fires in 2008 uncovered some 200 old mine workings under which they are currently drilling an anomaly (Anomaly 4), which is a major target for possible deep vein gold or porphyry copper-gold mineralisation. The drilling program has intersected multiple shear zones with visible base metals. Lab results are pending, an announcement surrounding the results is expected shortly.

The Heritage Victoria website details some of the grades from the Gold rush era in this area:

HAUNTED STREAM GOLDFIELD NOTES

March 1884
: Ernestine Co. - 'I am informed on reliable authority' that 1,281 tons from their mine yielded 320 oz (approx 7.75g/t)

December 1884
: Hans Co. - 460 tons yielded 200 oz gold. Rob Roy Co. had trial crushing at Ernestine battery - 40 tons yielded 169 oz (approx 13.5g/t & 131.4g/t)

June 1885
: Hans Co. employing 30 men - 750 tons crushed for 216 oz. Rob Roy Co. tunnel in about 120 ft - about 140 tons yielded 560 oz (approx 8.95g/t & 124.4 g/t)

Heritage Victoria

The g/t figures above were calculated by myself from the details provided, there are more examples if you follow the link.

Further to the above precious & base metal projects MNM also has promising developments occurring with their coal project at Bacchus Marsh. They've executed a significant MOU with Exergen. Here is an article that covers the news:

Mantle, Exergen to develop clean brown coal

Mantle Mining Corporation Ltd has signed a non-binding memorandum of understanding with Exergen Pty Ltd for the development of its 100% owned Bacchus Marsh brown coal project in Victoria.


Mantle, which has recently been granted priority over an application for EL5294 at Bacchus Marsh, believes the tenement could contain an exploration target of between 1 and 2 billion tonnes of brown coal.


Exergen has developed a breakthrough clean coal technology known as continuous hydrothermal dewatering (CHTD).


Exergen's cornerstone investors include Tata Power, Theiss (Leighton), Itochu and Sedgman.
Mantle and Exergen have formalised a 50-50 joint venture for exploration and subsequent mine development.

Exergen will construct a 50 tph demonstration drying facility and an export project on its 50% of the coal deposit.


Mantle will be licensed to use the CHTD on its 50% of the coal deposit.

Business Spectator

Also of interest is this excerpt from Exergen's website:


The LV-NG Project
Having successfully proved the CHTD concept in its 4tph Pilot Plant, Exergen has completed a Detailed Feasibility Study for a proposed 50tph Demonstration Scale Plant and a 4000tph Commercial Scale Facility.

Once a suitable Latrobe Valley brown coal resource has been identified and secured, LV-NG intends to invest up to $100m over the following two years completing the Development and Demonstration Phase. During this phase, LV-NG will secure all necessary project approvals, commercial agreements and also construct a 50tph, Commercial Demonstration Plant in the Latrobe Valley.

In the following Commercial Construction Phase, LV-NG intends, over a three year period, to develop a new 30m tonnes per annum brown coal mine and an adjacent CHTD Processing Plant in the Latrobe Valley.

The CHTD plant will produce 12m tonnes per annum of enhanced Exergen brown coal and 16 gigalitres per annum of industrial / agricultural quality water. The treated Exergen coal will be transported in a slurry form, in a new pipeline constructed by the consortium, to a location adjacent, at The Port of Hastings Authority on the Mornington Peninsula.

A Final De-watering Facility will remove excess water prior to the finished product being loaded via covered conveyors onto ships for export.

Exergen

An intention to spend $100m on the plant/development for 50% of the project that Mantle currently owns outright and Mantle has a market cap of less than $7m? Mantle is incredibly under priced at today's share price if this MOU develops into the arrangement planned.

Interestingly Mantle's MD is formerly from Exergen. One can't help but wonder whether there has been a plan all along for Mantle to be partnered with Exergen.

Recent comments from Australia's new Climate Change Minister (Greg Combet, former coal engineer) should assure investors looking at companies with Coal based projects that there is someone looking out for them at the top:

Australia minister reassures coal industry

Australia's new Climate Change Minister Greg Combet has vowed to bring 'common sense' to the climate change debate, and has warned that he will fight for coal industry jobs as he pursues a price on carbon.

The Australian newspaper says the former union leader has predicted the coal industry 'absolutely' has a future as he pursues his three key policy reform objectives: pursuing renewable energy; energy efficiency; and the development of a carbon price for Australia.

Insisting the Climate Change portfolio is an economic reform challenge, he said: 'You don't take the back of the axe to the fundamentals of the Australian economy.'


UPI

Further to the above Mantle has also begun drilling at their Barkly Phosphate project. Drilling is expected to be complete by early October.

It should be noted that Mantle Mining has commenced proceedings in Queensland’s Supreme Court to enforce an agreement for the assignment of their Trafford Coal tenement (not one of those projects detailed above). I've read through the details and looks pretty open/shut to me (for a Mantle Mining victory & hopefully they recoup their costs in the process), but it's not always that simple.

Mantle Mining has other projects that I have not covered in this post, I would suggest trawling through some of their recent announcements for further information about what they have to offer.

This is not the sort of company that you dump your life savings into, but in my opinion the risk here is far outweighed by the potential for huge rewards.

With a whole swag of announcements likely on the way in the next few months Mantle not only provides an opportunity for the value investor but also for the short term trader. Although Mantle can be relatively illiquid at times it also often spikes higher on positive news as can be seen in the below chart when the MOU was announced (also on a longer term chart you will notice a tendency to spike higher on news).

Chart:




If you found value in the above blog I would encourage you to add my site to your favourites and return frequently to read new entries.

BB.

Disclosure: Position Held. Not investment advice. Do your own research.

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