morning coffee with john morris

August 17, 2009

The Numbers Are Suddenly Starting To Add Up At Kingsrose’s Way Linggo Gold Project In Indonesia.

By Our Man in Oz / www.minesite.com

Discovery is not a pleasure that’s confined to geologists. Every now and then a journalist joins in, and that’s what happened when Minesite’s Man in Oz caught up with a man who almost put Sardinia on the world gold mining map. For the best part of a decade John Morris struggled to build a big business out of Gold Mines of Sardinia, only to be caught in that classic Italian trap - too much government. With much to offer, but burdened by a low gold price and multiple layers of government, Gold Mines of Sardinia faded into a small business, before re-inventing itself as a South American oil explorer, only to have a new management team lead it into the Colombian jungle, from whence it is yet to emerge.

Interesting as that history might be Minesite’s conversation with John quickly skipped along to his first love, gold, though Sardinia still lurked in the background as a potential business proposition. However, the real purpose of taking morning coffee with John in the delightful Pronto restaurant in the leafy Perth suburb of Claremont, was to discuss a company Minesite’s Man had never heard of, and a gold project that he had hitherto never even contemplated, but perhaps ought to have done.

Kingsrose Mining is the company (ASX code KRM), and Way Linggo in Indonesia is the project. Within a few minutes of the conversation starting a comment along the lines of “why haven’t I heard of this before?” was floating across the table. The answer is that very few people have heard of the company and its project, though some professional investors including those in the Sydney stockbroking firm of Southern Cross Equities, certainly have. Earlier this year, when everyone else was wondering if the sky was falling in Southern Cross, with some help from Evolution in London, calmly orchestrated a A$20 million fund raising for a company and project that had flown so low it was underneath everyone’s radar screen.

“We have kept it pretty low,” was John’s description of his corporate reincarnation. “But, the more work we do at Way Linggo the better it looks.” To test that claim Minesite’s Man in Oz went exploring through the very limited literature on Kingsrose, discovering that it floated in late 2007, mainly to partner with Reed Resources on the small, but high-grade, Comet Vale gold mine in outback Western Australia. Long believed to be a potential winner, Comet Vale has been hard yards for anyone associated, and has never quite lived up to its theoretical promise.

Of secondary interest back then was Way Linggo, a project that had found its way onto the books of the once prominent Muswellbrook Energy and Minerals as long ago as the mid-1980s.

Other owners of the project came and went, all chasing what seemed to be rich epithermal veins of gold of the type for which the jungles of southern Sumatra, and other parts of the Indonesian “ring of fire” are famous. No-one struck it rich, until now. Persistence on the part of the team at Kingsrose, and its team of Indonesian geologists, has nailed down what is (on paper) a small, but rich seam which consultants have measured at 669,000 tonnes of material assaying a modestly attractive 8.4 grams a tonne of gold, plus rich silver credits.

It is an understatement to say that this is not much to write home about, and no-one is going to get rich on such a small pod of mineralisation. This information caused Minesite’s Man in Oz to fear that he might have to find the spare change to pay for the coffee.

Nothing of the sort, as John then took his guest for a personal trip through the Kingsrose story, starting with the fact that the material in the main “north vein” at Way Linggo has been very difficult to assay. How difficult? Well, so difficult that it seems that about half the gold was missed. Over the past few weeks, preliminary mining has started at Way Linggo as a process plant is built nearby.

So, as at 30th June a total of 4,075 tonnes of gold ore was sitting on the run-of-mine pad, and it had a gold grade of 18 grams a tonne, plus 245 grams a tonne of silver.

Given that the current silver:gold ratio is about 66 grams of silver to a gram of gold, that equates to a gold equivalent in the stockpile of around 21 grams. To take the arithmetic a step further that means that on 30th June there was roughly 85,000 grams of gold in the Way Linggo stockpile, or about 2,750 ounces of gold equivalent, worth about US$2.6 million.

As the numbers tumbled through the coffee-infused brain of Minesite’s Man in a Claremont coffee shop, the beauty of a mine with a gold grade of more than 20 grams a tonne slowly became clear. Fresh assays from underground work which has accessed the North Vein continue to reveal tantalising numbers, such as 14.4 metres at 32.3 grams of gold a tonne (the old magic one ounce to the ton), plus 225 grams of silver (toss another three ounces of gold on the pot). Way Linggo really is a gold mine, in every sense of the word.

Work at site progresses. The plant is under construction with the first gold pour due sometime early next year. The ore in the North Vein, which is running at widths of between three and five metres, should be sufficient to feed the mill for seven years at a rate of about 140,000 tonnes a year, indicating annual gold output at between 40,000 and 50,000 ounces at a cash cost in the region of US$300 per ounce. It does, as anyone who knows epithermal vein gold deposits will imagine, get better because chasing veins is a devilishly tricky, and painstaking job. But, as a general rule, where there is one vein, there are more (perhaps even a swarm), and where there are veins there might even be a trail to the motherlode.

Little wonder that Kingsrose, even if only for the clients of Southern Cross and its London associates at Evolution, has been a wonderful winner, skating along from A7 cents in late December to recent trades at A53 cents, a price which capitalises the company at around A$81 million.

More interesting for Minesite’s Man than the profits made by the faithful few who knew about Kingsrose is that fact that he has made several discoveries over one cuppa. First, the company and its gold project; second, that John Morris is not living under a tree near his beach shack on Australia’s south coast; and third, that something Sardinian continues to lurk in the back of his mind. But as to what it is, well you’ll just have to wait for the follow up cuppa later this year.