• SBL
  • Buy
  • Highrisk
  • MARKET CAP
    $20m

Signature Metals 14 Jul, 2010

Driving towards 2010 production

SBL; Buy up to 1.9 cents

Signature Metals has announced the commencement of the recommissioning of its 350,000 tpa CIL plant located onsite at the Konongo gold project in Ghana. This is an important step towards gold production in a scheduled 6 to 9 month time frame – although we are optimistic that production will be in the early part of this time frame.

“Signature Metals has commenced mill refurbishment and is expected to achieve first gold pour by the end of 2010. While production will only be modest, it means that the company will become self funding and can then focus on proving up larger resources capable of supporting material production levels.”

One of the key issues facing the company is the anticipated gold production rates from the processing of 350,000 tpa and of course is highly dependent on the head grade. In discussions with the company, it appears the focus is on maximising cash margins – which doesn’t necessarily simply correspond to higher gold production rates.

This reflects the low cost of sourcing the mill feed from low grade tailings. The old Konogo Tailings Dam is estimated to contain around 1Mt at 1g/t. This doesn’t incur the open pit mining costs, and also includes a higher grade area with around 400kt grading 1.7g/t. Hence, this could provide a low cost – higher margin feed, but will produce relatively low gold production due to the lower head grade.

The attraction of reprocessing the tailings dam is that it provides early mill feed, with preliminary metallurgical testwork indicating recoveries in the 60% – 80% range are achievable. However, while the margins could be in the order of $500/oz, production would only be in the 10,000 to 12,000 oz pa range.

In a recent report, the company also highlighted that there are remaining stockpiles of ore which are potentially economic to treat. Ball park estimates of 200kt at say +3g/t could sweeten the tailings dam feed and lift production by several thousand ounces pa. Of course there is scope to commence open pit mining, but this attracts additional mining capital and operating costs and may be better pushed out further in time.

Nevertheless, a production rate of 12,000oz pa with a margin of US$500/oz, generates a healthy cash flow of around US $6m pa. This means the company becomes self funding and can focus on an extensive exploration program to build resources capable of supporting material production rates in excess of 100koz pa.

Mill Refurbishment
The mill refurbishment is budgeted to cost $3.6m and is being funded from the company’s recent $5m raising (see our May research report). The company has engaged the services of AMITAAB Limited to carry out the structural, mechanical and electrical refurbishment of the plant. AMITAAB is a Ghanaian construction and engineering company which has previously carried out plant construction and refurbishment work for several companies including Anglogold Ashanti and Gold Fields, as well as general engineering contracts within Ghana.

The company is hoping commissioning and first gold pour will be before the end of CY2010.

The mill refurbishment and move to production will be the focus of activities over the next half year for the company. Drilling has now stopped and while further assays will be released to the market in the next few weeks, further exploration work is now likely to be generative. However the company did report further encouraging results earlier in July and these included:

The company reports that the first intersection above is the first result from drilling at the Boabedroo South deposit. This drillhole targeted mineralisation at the southern end of the Boabedroo South pit and specifically tested the updip extension to mineralisation intersected in an earlier hole, which included 17 metres at 2.19 g/t gold, but was abandoned in mineralisation after drilling intersected an old stope.

The remainder of the results received were from drilling of the southern end of the Obenemase “D” Lode and from the Obenemase East area.

Stock Resource Recommendation
Despite a downgrade expectations for initial gold production levels, Signature will at least move to generating cash in 2011. This will then allow it to focus on the main game of drilling out the previously identified mineralised shoots which remain open at depth. Overall, Signature’s relatively low market capitalisation relative to the value of its prospective and coveted Ghana project means the downside risk remains limited.

Hence, Stock Resource recommends Signature Metals as a Buy up to 1.9 cents for Members without current exposure.

The Chartist’s Perspective

Combined support

sbl14Jul10

When the price dropped to 0.4c in late 2008 and early 2009 it produced a multiple turning point which became the pivot in a head and shoulders reversal. The first stage of the phase was completed with the rise through 2c in September last year, with the price exceeding a preliminary target to 4c with the stretch through to 5.5c a few weeks later. The action sapped the near–term momentum and the price fell back to seek support and broaden the reversal phase.

The drop to 1.6c earlier this month found a triple turning point from combined support and we suggest that the stock has the potential to rally through 1.9c to 2.3c where it may pause before heading higher to 3.4c and then towards the top of the broadened phase around 5c. A breakaway through 5.5c would signal the completion of the base and the ability for the stock to head towards 12c and possibly towards 25c later.

The risk would be a drop below 1.4c.

‘The Chartist’s Perspective’ has been independently derived by Regina Meani from charting and technical assessment, and has not taken into account fundamental analysis of the company.

Related Articles

Disclaimer

Breakaway Investment Group Pty Ltd, and its authorised representative Stock Resource, have made every effort to ensure the reliability of the views and recommendations expressed in this report. Our research is based upon information known to us or which was obtained from sources which we believed to be reliable and accurate at time of publication.

This report is prepared for general information only, and as such, the specific needs, investment objectives or financial situation of any particular user have not been taken into consideration. Individuals should therefore discuss, with their financial planner or advisor, the merits of each recommendation for their own specific circumstances. Not all investments will be appropriate for all subscribers.

To the extent permitted by law, Breakaway Investment Group Pty Ltd and its employees, agents and authorised representatives exclude all liability for any loss or damage (including indirect, special or consequential loss or damage) arising from the use of, or reliance on, any information within the report whether or not caused by any negligent act or omission. If the law prohibits the exclusion of such liability, Breakaway Investment Group Pty Ltd hereby limits its liability, to the extent permitted by law, to the re-supply of the said information or the cost of the said re-supply.

As at the date at the top of this page, Directors and/or associates of Breakaway Investment Group Pty Ltd currently hold positions in Adelaide Brighton (ABC), Beach Energy (BPT), Commonwealth Bank (CBA), Cooper Energy (COE), Cue Energy (CUE), Energy Metals (EME), Icon Resources (III), Integra Mining (IGR), Far Limited (FAR), KUTh Energy (KEN), Namoi Cotton (NAM), National Australia Bank (NAB), Northern Iron (NFE), Otto Energy (OEL), PanAust (PNA), Pluton (PLV), Regional Express (REX), Sipa Resources (SRI), Tiger Resources (TGS), Westpac (WBC) and Zicom Group Limited (ZGL). These may change without notice and should not be taken as recommendations.

Reference within the Stock Resource Report to the “Stock Resource Portfolio” is a reference to the hypothetical portfolio on the “Past Predictions” page, which includes details on the methodology used to derive the performance figures.