Far East Capital Report - “Deeply discounted gold asset play potentially worth 5x current market cap, page-2

FAR EAST CAPITAL LIMITED
Suite 24, Level 6, 259 Clarence Street
SYDNEY NSW AUSTRALIA 2000
Tel : +61 2 9230 1930 Mob : +61 417 863 187
Email: [email protected]
AFS Licence No. 253003 A.C.N. 068 838 193
The Mining Investment Experts
This research report is provided in good faith from sources believed to be accurate and reliable. Far East Capital Ltd directors and employees do not
accept liability for the results of any action taken on the basis of the information provided or for any errors or omissions contained therein.
1
Company Review
14 March 2016 Analyst: Jean-François Bertincourt
West Wits Mining Ltd (ASX: WWI)
“Deeply discounted gold asset play potentially worth 5x current market cap”
INVESTMENT PERSPECTIVE RECOMMENDATION SPECULATIVE BUY
Current Share Price $0.020
12 Month Price Target $0.080
Potential Investment Return 300%
Market Capitalisation $9.1m
Cash (31 December 2015) $1.5m
Debt Nil
Enterprise Value $7.6m
Ordinary Shares 456.20m
Options [$0.03-$0.10, Exp. May 16-Nov 18] 62.15m
PRICE CATALYSTS
South Africa
• WWI currently drilling top two targets selected in the
Soweto Cluster
• Initial assay results expected this quarter
• Additional mineral resources expected soon after
• Mining study
• Development or sale of assets
Indonesia
• Resolution of site security issues that have delayed the
commissioning of the alluvial circuit. Getting those
resolved is key to generate cash flow and direction to
further exploration
• Performance of the alluvial circuit, cash flow and
exploration
SHARE PRICE PERFORMANCE
WWI presents itself as an asset realisation play with flagship
gold projects in South Africa. Those projects are brownfield
with outstanding production track record, excellent
prospectivity and operating nearby treatment infrastructure.
Based on geologically well behaved ore bodies, the mineral
resource estimate for open pittable and shallow underground
gold mineralisation amounts currently to 1.2 million ounces
The confidence in the mineral resources is high with 71% in
the measured and indicated categories and the delineation of
additional resources in the order of half a million ounces is
highly likely in the medium term. Then, given the existing
underground workings, we can see a clear pathway to
production with limited capital expenditure, through toll-treating
or an asset sale to established South African gold producers.
A trade sale could potentially attract a price tag of A$40
million (see details page 3). The new mineral resource
estimate announced in January 2016 followed by assay
results from the current drilling campaign should be the
catalyst for a significant re-rating in the short to medium term.
KEY POINTS
South Africa
• Key project in the Central Rand Goldfield of South Africa’s
Witwatersrand Basin
• JORC 2012 compliant mineral resource estimated at 1.2
million ounces
• Additional mineral resources expected from current drilling
• Established treatment plant infrastructure in the vicinity of
the deposits
• Government keen to have the economic gold recovered as
part of a clean-up exercise to redevelop the mine site
• Gold production could start within 18 months
Indonesia
• High grade placer deposit, in the West Papua province
• Project show early stage similarities with discoveries such
as Porgera, Edie Creek, Wau
• Independent geologists believe source of gold likely to be
local, based on the size and shape of the nuggets
discovered
• WWI is progressing setting up an initial alluvial operation
at Derewo
• The presence of illegal artisanal miners (non-local) while
demonstrating the prospectivity of the area is a cause of
concern at this point. Accordingly, the asset represents an
option play at this point
BOARD & MANAGEMENT
Michael Quinert Chairman
Vincent Savage Executive Director
Niel Pretorius Non-executive Director
Hulme Scholes Non-executive Director
0
1
2
3
4
$0.00
$0.01
$0.02
$0.03
$0.04
Millions
Volume
Price
Far East Capital Ltd – March 2016 Mining Research – West Wits Mining Ltd (ASX: WWI)
This research report is provided in good faith from sources believed to be accurate and reliable. Far East Capital Ltd directors and employees do not
accept liability for the results of any action taken on the basis of the information provided or for any errors or omissions contained therein.
2
TABLE OF CONTENTS
1. Benchmarking and Target Valuation 3
2. History 4
3. Strategy 5
4. Soweto Cluster, South Africa 6
Geological Setting 6
Previous Mining History of the Soweto Cluster 7
JORC Compliant Mineral Resources 7
Historical Resource Estimate 7
Exploration Target 8
Mineral Resource Statement 8
Current and Future Work 9
Target Areas 9
Drilling Campaigns 9
Circular Shaft 9
No. 11 Shaft 11
5. Derewo River, Indonesia 12
Background 12
Project Location 13
Geological Setting 14
Alluvial Operation 14
Latest Development 15
6. Board and Management 16
Board 16
Management 17
7. Investment risks 17
Far East Capital Ltd – March 2016 Mining Research – West Wits Mining Ltd (ASX: WWI)
This research report is provided in good faith from sources believed to be accurate and reliable. Far East Capital Ltd directors and employees do not
accept liability for the results of any action taken on the basis of the information provided or for any errors or omissions contained therein.
3
1. Benchmarking and Target Valuation
“Using the average of $53/oz, WWI could see its enterprise value increase to about $30m
Fig. 1.1 - Benchmarking of WWI vs. peers
Source: SNL Mining & Metals, Terra Studio. * Selection of Explorers and Developers with either an ore treatment plant or toll-treating options.
In the absence of any feasibility or scoping study, we have undertaken some
benchmarking of WWI against a number of peers, based on the Enterprise
Value/Resource multiple. To reflect the level of confidence associated with
the mineral resource, the multiple has been calculated using the measured
and indicated (M&I) resources. Furthermore, considering that the Soweto
Cluster is close to some treatment plants, a subset of the explorers and
developers has been selected.
For the selected peer group, the average EV/Resource stands currently at
$38/oz. Based on the M&I resource announced in January 2016 by WWI,
i.e. 868,700 oz (66.6%), the EV/Resource multiple stands at $13/oz, Using
the average of $53/oz, WWI could see its enterprise value increase to
about $30m.
In terms of market capitalisation and share price, this increase would
represent a quadrupling in value. Hence, we determine a price target of
$0.080 within a 12 month period.
Further valuation increase will be justified as WWI should be able to quickly
develops those mineral resources, secures toll-treating agreements with
near-by processing facilities and move to producer status, for which the
EV/Resource multiple is currently averaging $183/oz. Alternatively, WWI
could sell the assets to a nearby South African operator and derive a similar
valuation multiple.
A trade sale could potentially attract a price of A$40 million based on
the following assumptions:
• US$1,200/oz gold price and 0.71 US$/A$ exchange rate
• 1.2 million ounces current mineral resource
• 3% of in situ value
• 66.6% WWI interest
No value has been assigned to the Derewo project at this point.
$53
$45
$0
$50
$100
$150
$0
$50
$100
$150
EV/Resource (A$/oz)
Entreprise Value (A$ millions)
Entreprise Value
EV/MR
E&D Average *
E&D Average
Far East Capital Ltd – March 2016 Mining Research – West Wits Mining Ltd (ASX: WWI)
This research report is provided in good faith from sources believed to be accurate and reliable. Far East Capital Ltd directors and employees do not
accept liability for the results of any action taken on the basis of the information provided or for any errors or omissions contained therein.
4
The options expiring in 2016 are assumed to be not converted (out of the
money).
Options over Ordinary Shares
Amount Exercise Price Expiration Date ASX Code
1,150,000 $0.100 26 May 2016 WWIAS
30,000,000 $0.080 28 Jul 2016 WWIAK
19,000,000 $0.080 30 Sep 2017 WWIAY
5,000,000 $0.025 19 Feb 2018 WWIAA
5,000,000 $0.030 19 Feb 2018 WWIAA
2,000,000 $0.030 4 Nov 2018 “new class”
62,150,000 Total
2. History
West Wits was originally formed to explore, evaluate and potentially extract
gold and uranium from project areas located on the Central Rand Goldfield
of South Africa's Witwatersrand Basin. Historically this South African project
area has collectively produced 31 million ounces of gold over the past 120
years. On 16 April 2012 West Wits sold a number of its exploration leases
for $9m. The Company also has a significant uranium target which remains
intact from surface and up to 10km in strike. An initial drill program returned
assays of up to 2,000 ppm of U3O8 of confirmed and strike extent of 3.3km.
Fig. 2.1 - Location of the Soweto Cluster
Source: WWI. The Soweto Cluster comprises two historic leases, namely the DRD and Rand Leases.
A sample of the quarts pebble conglomerate from the Main Reef is shown in the top right.
WWI entered 2015 with some significant challenges with respect to its gold
projects in Indonesia and South Africa. In South Africa the Company had
clear strategies in place to restore its Prospecting Right over the DRD and
Rand Leases collectively known as the Soweto Cluster. However on 14 April
2015 its application for renewal of its Prospecting Right over the Soweto
Cluster was granted for a further 3 years. This was a tremendous outcome
for the Company as it believes there is significant value to be unlocked from
the Soweto Cluster.
1
31 million ounces have been
mined from two mining leases
alone from six parallel reefs
South Africa: strategy focussed
on open pittable and shallow
underground resources
Far East Capital Ltd – March 2016 Mining Research – West Wits Mining Ltd (ASX: WWI)
This research report is provided in good faith from sources believed to be accurate and reliable. Far East Capital Ltd directors and employees do not
accept liability for the results of any action taken on the basis of the information provided or for any errors or omissions contained therein.
5
Whilst West Wits had continued to review and evaluate targets prior to its
Prospecting Right being extended it was unable to undertake any significant
work due to the uncertainty surrounding the ownership of the leases. With
this uncertainty now removed, the Company has advanced exploration
activities at the Soweto Cluster.
2015 was also a challenging and frustrating period for the Company as it
continued to work through local challenges associated with establishing an
alluvial circuit at Derewo in West Papua, Indonesia. The Company
experienced a number of false starts through outside influences preventing
sign-off on security at the site.
In late 2014 the board made a decision to replace its local partner in order
advance the Derewo River Gold Project, Papua Province, Indonesia
(“Derewo”). The new partner, PT Intan Angkasa Aviation (“PTIA”), is
responsible for delivering a safe and secure project site. Whilst the timelines
to providing access have been delayed PTIA remain confident in its ability to
deliver safe access. This confidence continues to be demonstrated by their
willingness to meet all expenditure obligations for delivering site access as
well as the local costs of the Company’s Indonesian subsidiary. On that
basis the Company has continued to support PTIA who are working
tirelessly with all stakeholders at Derewo.
3. Strategy
In South Africa, WWI aspires to identify and develop significant gold
resources at the Soweto Cluster, focusing on open pittable and shallow
underground resources (to 400m below surface). Future mine development
should benefit from the existing mining infrastructure as well as the
presence of treatment plants in the vicinity of the projects.
Fig. 3.1 - Location of the South African gold treatment plants
Source: WWI
In Indonesia, WWI intends to commence exploration work and develop a
hydraulic gold mining project by introducing modern mechanised production
methods. These activities are expected to enhance the Company's
knowledge of the regional geology and assist with targeting the primary hard
rock source of the gold.
2
Indonesia: looking for the
primary source of the gold
mineralisation
South Africa: strategy focussed
on open pittable and shallow
underground resources to take
benefit of the existing mining
and processing infrastructure
Far East Capital Ltd – March 2016 Mining Research – West Wits Mining Ltd (ASX: WWI)
This research report is provided in good faith from sources believed to be accurate and reliable. Far East Capital Ltd directors and employees do not
accept liability for the results of any action taken on the basis of the information provided or for any errors or omissions contained therein.
6
All reefs are dipping about 30°
to the south
The Main Reef is the most
economical (highest grade) and
widely mined reef in the Central
Rand Goldfield
4. Soweto Cluster, South Africa
Geological Setting
The Witwatersrand Supergroup consists of the lower West Rand Group,
comprising mainly shale with subordinate quartzite, and the upper,
predominantly arenaceous Central Rand Group. A total of approximately
600m of conglomerate represents about 8% of the thickness of the
Witwatersrand Supergroup. With the exception of those in the Government
Subgroup in the West Rand Group, all Witwatersrand conglomerate occurs
in the Central Rand Group.
The lowermost reef in the Central Rand Goldfield is the North Reef. This
reef forms part of the Blyvooruitzicht Formation and limited mining occurred
in the goldfield.
Fig. 4.1 - Schematic Cross Section through the Main Formation
Source: WWI. The Pyritic Quartzite fills an erosion channel
The Main Formation (Figure 4.1), the most economical and widely mined
package in the Central Rand Goldfield, occurs near the base of the
Johannesburg Subgroup. It varies in thickness, decreasing from west to
east (Figure 4.2), and consists of quartzite, conglomerate and, to a lesser
extent, shale.
Fig. 4.2 - Schematic Cross Section through the Central Rand Goldfields
Source: WWI. The diagram shows the intra-reef thickness variations between the North and South
reefs (modified after Wethmar, 1957)
Far East Capital Ltd – March 2016 Mining Research – West Wits Mining Ltd (ASX: WWI)
This research report is provided in good faith from sources believed to be accurate and reliable. Far East Capital Ltd directors and employees do not
accept liability for the results of any action taken on the basis of the information provided or for any errors or omissions contained therein.
7
31 million ounces historical gold
production
12.82 million ounces reported
by DRD Gold in 2000
Previous Mining History of the Soweto Cluster
The Soweto Cluster comprises two historic mining centres known as the
Durban Roodeport Deeps (DRD) and the Rand Leases on the northern
edge of the Witwatersrand Basin in the Central Rand Goldfields immediately
west of the city of Johannesburg. Mining has been taking place within these
areas since discovery of the goldfields in 1896. During that time up to six
parallel gold bearing conglomerate horizons or reefs have been mined from
surface down to a depth of 3,100 metres and total production for the
combined Durban Deeps and Rand Leases area was over 30 million ounces
of gold at a grade in excess of 5 g/t Au (ASX: West Wits Mining Limited
prospectus 15 Nov 2007). The Main Reef carries the highest grade and was
discovered first. Underground mine workings were developed in the hanging
wall of the Main Reef and led to the discovery of other reefs.
Fig. 4.3 - Location of the Mine Auriferous Lodes in the Soweto Cluster
Source: WWI. The white boundary marks the extent of the WWI tenements in the area.
Mining operations from all sites within the Durban Deeps lease and the
Rand Lease had ceased by June 2000. WWI acquired the project in 2007.
JORC Compliant Mineral Resources
Historical Resource Estimate
On 28 August 2015, WWI released the historical estimate for its 66.6%
owned Soweto Cluster in Gauteng Province of RSA that had been compiled
by DRD Gold Limited and initially released in its annual report to the ASX in
2000:
Historical Mineral Resource Estimate for the Soweto Cluster (JORC Code 1997)
Category Tonnes Grade Gold
Measured 27.1 Mt 5.03 g/t 4,380,000 oz
Indicated 29.4 Mt 3.88 g/t 3,670,000 oz
Inferred 31.4 Mt 4.72 g/t 4,770,000 oz
Total 87.9 Mt 4.6 g/t 12,820,000 oz
Far East Capital Ltd – March 2016 Mining Research – West Wits Mining Ltd (ASX: WWI)
This research report is provided in good faith from sources believed to be accurate and reliable. Far East Capital Ltd directors and employees do not
accept liability for the results of any action taken on the basis of the information provided or for any errors or omissions contained therein.
8
It should noted that the historical mineral estimate includes all mine levels
compared to the exploration target and the new mineral resource estimate
(further below) which is solely focused on the zone between the surface and
400m depth.
Exploration Target
In September 2015, WWI announced an Exploration Target for its 66.6%
owned Soweto Cluster in Gauteng Province of RSA. The Exploration Target
includes only the zone within the top 400m below surface which at this stage
is considered potentially viable for exploitation from open pit and or shallow
underground mining.
Exploration Target for the Soweto Cluster
Category Tonnes Grade Gold
Low range 9 Mt 3.5 g/t 1,000,000 oz
Upper Range 15 Mt 4.5 g/t 2,200,000 oz
Mineral Resource Statement
On 21 January 2016, WWI brought the historical Mineral Resource estimate
into alignment with the JORC 2012 Code. This new estimate relies heavily
on a detailed review of an extensive database generated by Durban
Roodeport Deep (DRD) for the Mineral Resources published under a
previous version of the JORC Code to the ASX in 2000. Importantly this
Mineral Resource estimate forms a subset of the 2000 resource in that it is
constrained to less than 400m depth from surface and does not include
deep underground material previously considered in the DRD estimation.
Mineral Resource Statement (JORC 2012, using a 2 g/t Au cut-off grade)
Category Tonnes Grade Gold
Measured 2.214 Mt 4.25 g/t 302,300 oz
Indicated 5.317 Mt 3.31 g/t 566,400 oz
Inferred 3.452 Mt 3.15 g/t 350,000 oz
Total 10.98 Mt 3.45 g/t 1,218,700 oz
The Witwatersrand gold reefs display excellent geological continuity. This is
reflected by a portion of the total resource being classified in the Measured
category. Overall, the Measured and Indicated categories represent 868,700
oz or 71% of total resource.
Furthermore there are additional areas of interest identified by the Company
that sit outside this mineral resource. Some of these areas of interest are
part of the Exploration Target but were not taken into consideration in the
original DRD Mineral Resource Estimate due to the presence of mine
infrastructure on surface and crown pillars. The old mills have been
removed and many crown pillars are largely redundant due to the resource
limit of 400m depth in these areas.
WWI is currently undertaking drilling campaigns in these areas, as
described further below.
In addition, WWI is in the process of assessing the historic Bird Reef
database and the exploration undertaken by WWI in 2008 and 2015. So far,
WWI has delineated a substantial zone of unclassified target mineralisation
in a previously unmined area that is excluded from both the JORC compliant
resource and the Exploration Target.
Exploration Target in the order
of 1.0 to 2.2 million ounces is
based on a portion of a
previous mineral resource
estimate
The mineral resource is in line
with the Exploration Target in
terms of tonnes and grade
Excellent geological continuity
translates into higher
confidence in the mineral
resource estimate: 71% in M&I
Far East Capital Ltd – March 2016 Mining Research – West Wits Mining Ltd (ASX: WWI)
This research report is provided in good faith from sources believed to be accurate and reliable. Far East Capital Ltd directors and employees do not
accept liability for the results of any action taken on the basis of the information provided or for any errors or omissions contained therein.
9
Current and Future Work
The Company is committed to a full technical evaluation of the project area,
this work will include:
• Evaluation of water level in the underground workings
• Documentation of all existing mine openings
• Review of historic plans at the close of mining
• Limited drilling to test relatively shallow (<400m) targets
• Review of sampling methodology and QAQC results for underground
sampling
• Reconciliation review between underground grades and tonnes and those
achieved through the process plant.
As part of this work, WWI has identified 17 target areas.
Target Areas
Target areas of un-mined ground were defined (Figure 4.4) for the various
reefs above 400m below surface across the WWI right. The historical shaft
names were retained to identify the different areas.
Fig. 4.4 – Target Areas Identified by WWI
Source: WWI
The defined conceptual resources represent predominantly open cast
prospects, with shallow underground resources being defined for the Bird
and Kimberley reefs. Additional unmined areas have been identified but are
not yet quantified.
Drilling Campaigns
Circular Shaft
Out of the 17 targets identified by WWI, the Circular Shaft Project is the first
target.
A review of historic sampling and geological data by the Company’s South
African consultants Shango Solutions, together with data from the
Company’s previous exploration program (2008) indicates the likely
presence of the Bird Reef in the north of the Soweto Cluster. The current
diamond drilling program will test for a remnant section of the Bird Reef
located at the historic “Circular Shaft” for a total program of approximately
400m. Four trenches perpendicular to the strike of the geology will also be
excavated and sampled across the Bird Reef outcrop.
Numerous targets identified
and ranked between surface
and 400m below surface
The Circular Shaft target is a
potential displaced extension of
the known Bird Reef pay shoot,
which was successfully mined
by the former operator at Rand
Leases
Far East Capital Ltd – March 2016 Mining Research – West Wits Mining Ltd (ASX: WWI)
This research report is provided in good faith from sources believed to be accurate and reliable. Far East Capital Ltd directors and employees do not
accept liability for the results of any action taken on the basis of the information provided or for any errors or omissions contained therein.
10
Fig. 4.5 - Bird Reef – Location of Circular Shaft and No.11 Shaft high priority
targets
Source: WWI. Gold grade contours based on historic mining data for the Bird Reef.
West Wits completed a drilling program in the area in 2008, and the
information generated from that program has assisted in planning the
current exploration effort at Circular Shaft. A compilation of the Company’s
2008 data combined with a complete review of historical activity including
published historic resources has enabled the Company to declare a new
Exploration Target for the Circular Shaft Project in accordance with the
JORC Code. This Exploration Target is not based on new exploration data
but rather has considered the drilling completed by the Company in 2008
and previous operators as well as the past mining activities, including
reconciled mined tonnes and grade versus actual gold production from the
Bird Reef in other areas within the lease.
Exploration Target for the Circular Shaft Project
Category Tonnes Grade Gold
Low range 1.5 Mt 3.0 g/t 130,000 oz
Upper Range 3.0 Mt 6.0 g/t 540,000 oz
The holes are being drilled at 600 to intersect the reef approximately 125m
below surface. The three current diamond drillholes and four trenches are
planned to close up the sample spacing of previous exploration and to
generate the additional data required to complete a resource estimation run
on the Circular Shaft Project. The drilling program should also intersect the
three further gold bearing horizons; the Middle, Monarch and Upper
Monarch reefs that are also prospective for uranium mineralisation. These
reefs were the target for the previous West Wits investigations in this area of
the Central Rand Goldfields.
West Wits has completed the program consisting of three holes for 373m
and four trenches. Some of the intercepts include:
• BR121: 1.1m @ 4.32 g/t Au from 89m
• BR122: 1.0m @ 2.14 g/t Au from 115m
• BR123: 1.9m @ 0.75 g/t Au from 102m
Considering the Wits geology, one should note that the thickness and grade
of the intercepts are not as important as the actual confirmation of the reef
presence. In this case, the Bird Reef has an extensive gold production track
record from a reef which has excellent geological and mineralisation
continuity.
CIRCULAR SHAFT
No 11 SHAFT
Exploration Target for the
Circular Shaft Project estimated
between 130,000 ounces and
540,000 ounces
Far East Capital Ltd – March 2016 Mining Research – West Wits Mining Ltd (ASX: WWI)
This research report is provided in good faith from sources believed to be accurate and reliable. Far East Capital Ltd directors and employees do not
accept liability for the results of any action taken on the basis of the information provided or for any errors or omissions contained therein.
11
No. 11 Shaft
“No.11 Shaft” is the second target, where mineralisation over a 1000m strike
length in the form of a crown pillar is targeted. The area was previously
mined on both sides of No.11 Shaft and underground. With the shaft and its
associated metallurgical plant no longer operational, there is an opportunity
to mine the remaining outcrop by means of an open pit and the remaining
underground resources from existing infrastructure.
Map of the Rand Leases Bird Reef project
Source: WWI
Exploration Target for the No. 11 Shaft Project
Category Tonnes Grade Gold
Low range 600,000 t 4.5 g/t 85,000 oz
Upper Range 700,000 t 6.0 g/t 140,000 oz
WWI plans to drill the centre of the planned open pit area on 50m intervals.
The Bird Reef dips at 450 to the southwest. Drillholes are planned with a dip
of -600 at right angle to the reef strike. The holes are expected to intersect
the reef approximately 25m below surface. At the end of February, the 14
hole drilling program is complete and the holes have been cut, sampled and
sent off for assay.
No.11 Shaft targets a
significant unmined portion of
the Bird Reef that is centred
around the existing
underground infrastructure
The drilling aims at delineating
mineralisation over a 1000m
strike length and focuses on
where the Bird Reef outcrops at
surface
Shallow open pit and small
underground operations could
be developed
Exploration Target for the
Circular Shaft Project estimated
between 85,000 ounces and
140,000 ounces
Far East Capital Ltd – March 2016 Mining Research – West Wits Mining Ltd (ASX: WWI)
This research report is provided in good faith from sources believed to be accurate and reliable. Far East Capital Ltd directors and employees do not
accept liability for the results of any action taken on the basis of the information provided or for any errors or omissions contained therein.
12
Planned Bird Reef drilling relative to open pit and underground areas
Source: WWI.
WWI is in the process of ranking the other 15 targets.
It is important to note that given the historical drilling undertaken, limited
new drilling and QA/QC work should quickly convert the relevant portions of
the historical resource estimate into JORC 2012 compliant mineral
resources.
5. Derewo River, Indonesia
Background
The Derewo River Gold Project is situated on the Derewo River within the
central mountains of the Papua Province, Indonesia. The project is located
approximately 110km north west of Freeport McMoRan's Grasberg complex.
This is a promising placer gold project based on evidence from existing
artisanal operations, but the real opportunity and focus of this project is in
the potential of discovery of the primary source of nuggets being found.
WWI believes that Derewo River exhibits many similarities consistent with
the early stages of several large gold projects on the PNG side of New
Guinea. This project area exhibits favourable geology with significant gold
deposits nearby, including Wabu and Grasberg. The exploration target is a
Porgera Zone 7 and Wafi/Gopu type deposit.
Whilst many well known discoveries have been made on the PNG side of
the border relatively few have been made on the Indonesian side for a
variety of historical reasons including political environment and physical
isolation. Derewo River provides a promising setting for the pursuit of a wellknown
pattern for development of placer style deposits established over
several decades in PNG but not yet undertaken on the Indonesian side.
West Wits currently owns a 50% interest in the alluvial gold project and 80%
of the exploration rights for the hard rock source of the alluvials. The
Derewo River Gold Project is owned through its local Indonesian subsidiary
PT Madinah Qurrata'ain (PTMQ) with local partners PT Intan Angasa
Aviation (PTIA). The project consists of one granted 40ha mining licence, a
granted exploration licence of 86,000ha and two further exploration
applications encompassing 43,000ha. PTIA has also executed a
Landowners Agreement with the local indigenous Wolami People which was
one of the first of its kind in Papua Province.
Far East Capital Ltd – March 2016 Mining Research – West Wits Mining Ltd (ASX: WWI)
This research report is provided in good faith from sources believed to be accurate and reliable. Far East Capital Ltd directors and employees do not
accept liability for the results of any action taken on the basis of the information provided or for any errors or omissions contained therein.
13
This mining area was discovered in 2004 with local artisanal miners mining
isolated alluvial gold pockets in the downstream of the Derewo River close
to Nabire. This led to the discovering of high concentrations of alluvial gold
in the Derewo River where it exits the central mountains of Papua. This area
has shown potential with reports of several tonnes of gold having been
extracted over the last few years.
The gold is occurring in the form of coarse nuggets which show clear signs
of fluvial transport. These nuggets are found in Derewo River terrace
deposits. The composition of the alluvial gravels does suggest a mixed
alluvial and colluvial origin in that they are likely to be the product of
slumping from the sides of the valley. Mining of these colluvial/alluvial
deposits is possible using hydraulic recovery methods and sluice boxes to
provide a relatively low cost method of gold recovery.
The source of this alluvial gold is potentially local, based on the size and
shape of the nuggets discovered and the evidence of gold mineralisation
from float samples observed within the mining area by independent
geologists. The float samples consist of graphitic slates with associated with
quartz veining. Evidence of silicification and hydrothermal alteration with
fresh massive pyrite and disseminated chalcopyrite, sphalerite and galena
indicate the potential for a larger mineralised system nearby which could
provide a target to explore for a hard rock source.
West Wits intends to commence exploration work and develop a hydraulic
gold mining project by introducing modern mechanised production methods.
These activities are expected to enhance the Company's knowledge of the
regional geology and assist with targeting the primary hard rock source of
the gold nuggets. The development strategy consists of initially mapping
and sampling for alluvial assessment and development of the long term
mining plan. WWI has completed the construction of an access road and
water storage facilities have been established.
Project Location
The project is located on the northern tributaries of the Derewo River
situated roughly 85 kilometres southeast of the town of Nabire, on the north
coast of Papua and about 110km northwest of the Grasberg copper mine
operated by Freeport McMoran.
Derewo River Project Location Map
Source: WWI
Far East Capital Ltd – March 2016 Mining Research – West Wits Mining Ltd (ASX: WWI)
This research report is provided in good faith from sources believed to be accurate and reliable. Far East Capital Ltd directors and employees do not
accept liability for the results of any action taken on the basis of the information provided or for any errors or omissions contained therein.
14
Geological Setting
Why is there only one gold producer on the Indonesian side of the New
Guinea border? Essentially Papua has suffered from political and physical
isolation under democratisation of the provinces began within Papua in
1998. This has meant that aside from ground held by Freeport very little
exploration has been completed in a geological setting that is very
prospective for world class gold deposits.
Mineral Deposits of New Guinea
Source: WWI
Alluvial Operation
West Wits plans to use a combination of sluicing (hydro-licking) and
earthmoving equipment for the alluvial operation at Derewo. It plans to move
the matrix material and small gravel by high pressure water delivered to the
mining face using water cannons and passing this material over multiple
sluice boxes to recover the gold. Sluice boxes can effectively recover this
gold due to its exceptionally coarse nature. If made long enough with riffles
and a suitable matting base, the sluices would be able to recover any finer
gold found in the upper levels of the gravels.
The boulders and larger sized gravel will be moved away from the mining
face using a 20 tonne excavator and a 15 tonne wheel loader. The removed
boulders and gravel will be placed below the sluice box outflow to build
tailings retention dams and settling ponds to reduce the sediment load
impacts in the Derewo River. The Derewo River constantly carries a high
sediment load of black graphic clay and silt and as there are no agricultural
areas downstream and therefore any increased sediment loading in the river
should have negligible impact.
This proposed mining approach is considered appropriate for this size and
type of gravels. The mining method is simple and relatively low cost which
will allow mining of quite low grade provided economies of scale can be
achieved.
Far East Capital Ltd – March 2016 Mining Research – West Wits Mining Ltd (ASX: WWI)
This research report is provided in good faith from sources believed to be accurate and reliable. Far East Capital Ltd directors and employees do not
accept liability for the results of any action taken on the basis of the information provided or for any errors or omissions contained therein.
15
Schematic of Mining & Processing
Source: WWI
The alluvial operation will form part of data compilation for searching for the
hard rock source.
Over the last few months the Company’s staff has been on site preparing to
establish the first circuit which will be situated in the 81 Creek. This
preparation has included initial work for water storage facilities, placement of
the sluice boxes and site preparation for processing of the alluvial gravels.
The Company previously established a base camp, a 650m airstrip and road
access to the mining area.
Latest Development
Early January 2016, as the Company was about to begin full commissioning
of the initial alluvial circuit, illegal miners entered the site and caused
damage to the mining equipment, including an excavator.
WWI has recently met with its local partner to be briefed on the failure of
security arrangements at site. The local partner has reaffirmed its
commitment to the project and is currently preparing a revised security
strategy for the site. We share the view of the Company that such strategy
must include the complete removal of the illegal mining population, which
comes from a different Indonesian island.
Far East Capital Ltd – March 2016 Mining Research – West Wits Mining Ltd (ASX: WWI)
This research report is provided in good faith from sources believed to be accurate and reliable. Far East Capital Ltd directors and employees do not
accept liability for the results of any action taken on the basis of the information provided or for any errors or omissions contained therein.
16
6. Board and Management
Board
Michael Quinert (Executive Chairman): Michael Quinert graduated with
degrees in economics and law from Monash University in 1984 and 1985
respectively and has over 30 years’ experience as a commercial lawyer,
including three years with ASX Limited and over 20 years as a partner in a
Melbourne law firm. He has extensive experience in assisting and advising
public companies on capital raising and market compliance issues and has
regularly advised publicly listed mining companies. Michael sits as
Chairman of the Remuneration and Nomination Committee and Chairman of
the Audit, Risk and Compliance Committee. Michael is also a Director of
Manalto Limited (ASX:MTL), Covata Limited (ASX:CVT) and Victorian
Livestock Exchange Pty Ltd.
Vincent Savage (Executive Director): Mr Savage has over 35 years
experience in the building and mining industries, coupled with 20 years
working within the insolvency and business advisory sectors. Mr Savage's
experience has seen him lead company reconstructions, refinancing and
development projects for mining clients throughout Australia and
internationally. Over the last three years Mr Savage has been intimately
involved in all governmental and regulatory issues involving the Derewo
River Gold Project as well as working closely with the Company's local
Indonesian partners. The Company looks forward to Mr Savage being able
to provide further support to the Company as it continues to develop the
Derewo River Gold Project.
Niel Pretorius (Non-executive Director): Niel Pretorius was appointed Chief
Executive Officer of DRDGold Limited on 1 January 2009. After joining
DRD on 1 May 2003 as legal advisor, he was promoted to the position of
Group Legal Counsel on 1 September 2004 and General Manager,
Corporate Services on 1 April 2005. Niel was appointed CEO of DRDGold
SA on 1 July 2006 and Managing Director on 1 April 2008. Niel is also a
director of Rand Refinery Limited. Niel has 15 years experience in the
mining industry.
Hulme Scholes (Non-executive Director): Hulme Scholes holds a BA Law
and LLB degree from the University of the Witwatersrand and is an admitted
attorney of the High Court of South Africa. Hulme specialises in mining and
mineral law, has practised exclusively in the field for 18 years and is
regarded as one of South Africa's experts within mining law. Hulme was a
partner of Werksman Attorneys based in Johannseburg from 1999 to 2008
and is currently a senior partner at Malan Scholes Attorneys. He started his
professional career as a learner official for Harmony Gold Mining Co.
Limited in the 1980's which provides him with a unique blend of experience.
Hulme currently holds a number of non-executive directorships at mining
companies, including Aquarius Platinum Limited's operating South African
subsidiary, Aquarius Platinum South Africa (Proprietary) Limited where he
used to hold the Executive position of Commercial Director and Randgold
and Exploration Company Limited.
Far East Capital Ltd – March 2016 Mining Research – West Wits Mining Ltd (ASX: WWI)
This research report is provided in good faith from sources believed to be accurate and reliable. Far East Capital Ltd directors and employees do not
accept liability for the results of any action taken on the basis of the information provided or for any errors or omissions contained therein.
17
Management
Patrick Harford – Country Manager – South Africa. Patrick Harford has
extensive experience in diamond and gold exploration, project development
and production in countries as diverse as Vietnam, Australia, China,
Portugal, the DRC, Sierra Leone, Zimbabwe, South Africa and Botswana.
Mr Harford has overviewed the technical review undertaken by WWI and the
now exploration programs being implemented as part of the broader
development plans by the Company for the Soweto Cluster. Patrick Harford
is assisted by a local consulting firm, Shango. Shango’s team include Manie
Swart who was heavily involved in the compilation of the original DRD
resource and also have access to Mike Mc Wha, now retired, who oversaw
all resources estimation work for DRD Gold at that time.
Trevor Neale – Country Manager – Indonesia. Trevor Neale is a mining
geologist, who has been based in Papua New Guinea for 25 years . He
managed the Edie Creek alluvial gold project for 14 years. He is now based
in Indonesia for the past six years and is now the key driver in establishing
an alluvial project at Derewo.
Dr. Andrew Tunks – Consultant Geologist. Andrew Tunks has been a
geologist for over 25 year, with a particular emphasis on gold throughout his
career. He previously held CEO and directorship positions at a number of
Australian gold and resource companies, including his current role as CEO
of Auroch Minerals. Andrew Tunks reviews progress and work programs in
both regions.
7. Investment risks
WWI is exposed to a number of risks including:
• Geological risk: the actual characteristic of an ore deposit may differ
significantly from initial interpretations.
• Resource risk: all resource estimates are expressions of judgment based on
knowledge, experience and industry practice. Estimates, which were valid
when originally calculated may alter significantly when new information or
techniques become available. In addition, by their very nature, resource
estimates are imprecise and depend to some extent on interpretations, which
may prove to be inaccurate.
• Capital cost and operational cost risk: an increase in capital costs and
operating costs will reduce the profitability and free cash generation of the
project.
• Commodity price and exchange rate risk: as with all mining and mineral
exploration companies, commodity price and exchange rate risks should also
be considered.
• Management and labour risk: an experienced and skilled management team
is essential to the successful development and operation of mining projects.
Disclaimer and Disclosure: This Research Report has been prepared exclusively for our clients and is not to be relied upon by anyone else. In
compiling this Research Report, we are of necessity unable to take account of the particular investment objectives, financial situation and needs of
any of our individual clients. Accordingly, each client should evaluate the recommendations obtained in this Research Report in the light of their own
particular investment objectives, financial situation and needs. If you wish to obtain further advice regarding any recommendation made in this
Research Report to take account of your particular investment objectives, financial situation and needs, you should contact us. We believe that the
advice and information herein are accurate and reliable, but no warranty of accuracy, reliability or completeness is given and (except insofar as
liability under any statute cannot be excluded) no responsibility arising in any other way for errors or omissions or in negligence is accepted by Far
East Capital Limited or any employee or agent. For private circulation only. This document is not intended to be an offer, or a solicitation of an offer,
to buy or sell any relevant securities (i.e. securities mentioned herein or of the same issuer and options, warrant, or rights with respect to or interests
in any such securities). We do not guarantee the accuracy or completeness of the information herein, or upon which opinions herein have been
based. At any time we or any of our connected or affiliated companies (or our or their employees) may have a position, subject to change, and we or
any such companies may make a market or act as principal in transactions, in any relevant securities or provide advisory or other services to an
issuer of relevant securities or any company therewith. Unless otherwise stated all views expressed herein (including estimates or forecasts) are
solely those of our research department and subject to change without notice. This document may not be reproduced or copies circulated without
authority. Far East Capital Ltd and associated parties own shares and options in West Wits Mining Ltd. Far East Capital Limited receives fees for
corporate advisory and capital raising services provided to West Wits Mining Ltd. A fee is being paid to the author for the preparation of this
research. The author does not own shares or options in West Wits Mining Ltd. Copyright © Far East Capital Ltd 2016.