Focus Minerals Is On The Verge Of Pouring Its First Gold At The Three Mile Hill
Plant In Coolgardie
By Our Man in Oz
First gold pours are always a cause for celebration, and in that context it looks like
shareholders in Australia’s Focus Minerals will have cause to crack open the bubbly in a
few days time. But, rather than buy a single bottle those same shareholders might be wise
to buy a six-pack, because the imminent first pour at the company’s freshly-refurbished
Three Mile Hill plant at Coolgardie in Western Australia looks like being just the start of a
bumper year for Focus. Exploration news and strong production numbers will surely attract
plenty more attention during 2010, and beyond.
Astute investors have already reacted to the rapidly improving outlook for Focus – the
increased interest has doubled the company’s share price over the past four months. It
was A3.8 cents when we last took a close look at the company on September 16th. By
January 7th the shares had hit a 12 month high of A7.7 cents. Those seemingly low
numbers reflect the enormous number of shares on issue - 2.85 billion at the last count. A
better way of looking at Focus is to consider that its overall market value has risen from
A$50 million in late 2008, to A$205 million today, a four-fold rise in 14 months.
What’s driving Focus is the realisation that a bold business plan aimed at consolidating the
Coolgardie goldfield into a single company is starting to deliver, as promised. Tenement
acquisition started in 2003 and continued for five years. Production started last year,
initially through rented time on a third-party mill, a step which has not only proved
profitable but has also been crucial in developing a mining culture in the company, to go
alongside the established exploration culture. The next big step is being taken now, with
the first gold pour in the company’s own plant.
“It will be a pretty big day for us”, said a very chirpy Focus chief executive, Campbell Baird,
when Minesite tracked him down to the Three Mile Hill plant. “We’ve done a couple of
practice pours, but the real one will be early next week”, a modest scoop that Minesite’s
Man in Oz is only too delighted to deliver. But what happens after the formal statement
announcing the pour next week, and the obligatory picture of a man holding the first gold
bar will be the interesting bit. Saying you’re going to do something, and actually delivering,
are quite different, and it wouldn’t be a surprise to see investors taking a fresh look at this
company, after it has shown itself capable of quietly getting on with building a profitable
gold mining business.
Baird said that the early practice pours had gone well. “There was bit more iron in the bar
than was needed, but as soon as we walked out the door work started on the strip
[extracting gold from the process circuit] for the real pour which will be in a day or two, and
then an official pour next week”. And at that point Focus will be able to officially say it is
operating its own plant, and is on track to hit this year’s production target of 80,000 ounces
of gold, rising to 100,000 ounces in 2011.
It’s at this point, too that the money side of the Focus equation gets rather interesting.
Because, for about the next five weeks, as the Three Mile Hill plant is worked up to
nameplate capacity, toll treatment of the ore from the mines being worked by Focus will
continue at the nearby Greenfields plant. In other words, not only should there be a
seamless transition of gold production, there might even be a small output bonus in the
March quarter, if operations proceed smoothly.
No-one in mining ever expects everything to happen as planned, and Baird acknowledged
that in his chat from Coolgardie, as fine-tuning continued at Three Mile Hill. “It has gone
well, but if you look at today we’ve shut down three times to fix a pump, fix a crusher, and
fix this and fix that”, he said. “It’s because of the normal teething issues with any piece of
equipment that we kept the Greenfields arrangement in place, knowing that we have 35
days when we can do 10,000 to 12,000 ounces just as a back-up, but after that we’re
dropping it off.”
That comment about “back-up” gold production caused Minesite’s Man in Oz to wonder
whether Focus management wasn’t planning to do what all good management teams
should do and indulge in a dash of under-promising and over-delivering. After all, the
maiden profit of A$15.9 million last financial year was an upside surprise, as was the
10,000 ounces of gold left in stockpiled ore at the June 30 balance date. Then came
confirmation from Baird this week that not only has work on the Three Mile Hill plant been
completed in the time promised, with the plant “turned on” on Christmas Eve, but the cost
was “spot on” budget.
For investors the obvious questions are: what does this good news, which is being
carefully squirreled away, do for future production numbers? And, what’s happening on the
all-important exploration hunt, as Focus seeks to stitch together a coherent picture of one
of Australia’s great, but hitherto under-exploited, goldfields? All that Baird will give away on
production is that with the Greenfields toll treating contract in place for a little longer, and
with Three Mile Hill kicking in, the March quarter result “should be an absolute cracker” – a
measurement you are unlikely to find in an accountant’s handbook, or in the JORC code
for mine reporting.
On exploration, Baird is equally inscrutable. “It’s going well”, was the reply to a floating
request for news from the field. “In December we had four rigs going hard”, he said. “They
all took a break for Christmas. We got a couple of good numbers in yesterday, from two or
three holes. We’ll get those out in the quarterly, but I can say they were very pleasing” –
another reason to dust off your research files on Focus. A good place to start might be the
September 16 Minesite story which explained the grand plan which underlies Focus and
its Coolgardie project. After that, it’s also worth a look at Baird’s latest management
presentation, available here. -----------
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