Kincora Copper Limited is a Canadian listed (KCC: TSXV) copper exploration company focused on its wholly owned Bronze Fox project in southeast Mongolia. Kincora recently completed one the most active copper exploration programmes in Mongolia during 2013, on one of the most advanced, prospective and youngest licenses. Bronze Fox hosts an extremely large and strategically located mineralized footprint covering a known 40km2 with extensive lower grade copper-gold mineralization, with localized areas of higher grade, intersected across an extensive and open strike over the last three years. We recently caught up with Sam Spring, Kincora’s President and CEO.

Emerging Frontiers: Sam, of late there has been some positive momentum in Kincora’s share price and trading volume, can you provide any insight?

Sam: The results of our 2013 field season have been positive and so far this new year we have been trying to ensure the story is better understood by both current shareholders and in the wider market, this is very much work in progress, so hopefully the recent strong volume and share price performance continues.

Our presentation is expected to be shortly updated again, further positive updates are in the pipeline and some broker coverage is targeted. To the best of my knowledge it would appear that in the last couple of weeks there has been both an element of new retail investors active in the market (helped by EBRD’s funding agreement for up to $10m with Altan Rio, another Mongolian copper exploration play) and some averaging down in existing shareholder’s entry price.

Emerging Frontiers: Things are still looking up for Bronze Fox, it’s a sizable, well known property that is relatively advanced by Mongolian terms. Can you provide an update?

Sam: Last year we undertook one of the most active copper exploration programmes in Mongolia, with very positive findings confirmed from three independent consultants, further reinforcing an independent groups review late 2012 that lead to a new significant institutional shareholder at our last capital raising. I know our most recent exploration press release (January 6th) is pretty technical but from a compliance perspective we needed to get it out, and we are currently working on our internal interpretations and simplifying the message. Last years activities have helped “explain” previous geological and geophysical results and lead to a reinterpretation of some target zones.

A number of new high priority large, potentially world-class size, copper-gold porphyry targets, often with supporting geology, have been identified. In my view last years exploration results very much differentiated us from the vast majority of exploration plays, both in Mongolia and globally, with a number of analogies between the current stage of exploration and results at Bronze Fox and Oyu Tolgoi in 2000/01 pre the “discovery hole” having emerged. I think our current corporate presentation helps outline the latter point.

This is the message that we need to start clearly, communicating to the market in the upcoming months, so the story is both known and understood. It has been over 12 months since our last drilling activities and results were announced where there were both some extremely encouraging higher grade (localized +4% copper in our last hole – F72) and broad lower grade (eg +1000m @ +0.40%CuEq, including 37m @ >1% CuEq – F62) intersections. Not many projects can claim to have these sorts of results, let alone be located in the center of a proven but under explored productive porphyry corridor with the fertility signature convincingly proven by Professor Tony Crawford’s work late 2013 (this work is a key tick of approval for any technical group).

Emerging Frontiers: Can you provide an overview for plans going forward?

Sam: We are in the later stages of refining our internal interpretations of last years programme and integrating them with previous geology and geophysical results. Shortly we expect to outline our proposed follow up plans to advance a number of potential significant bulk tonnage targets this year. There are also a number of other initiatives we are working on in the upcoming months to also help create shareholder value and highlight us as the leading copper exploration play in our region.

Internally we are very excited because drilling in late 2012 was extremely encouraging and we have learned a lot following last year’s field season activities. In 2014 we hope successful proof of concept activities could provide visibility for Bronze Fox being the next commercially viable porphyry in a corridor which most industry experts expect will emerge with multiple significant new discoveries in the upcoming years subject to political/legislative stability, license security/availability and systematic exploration efforts. The recent discovery of Hugo West at Oyu Tolgoi, announced only in November, helps highlight the exploration upside both at that project and in the/our associated corridor.

Emerging Frontiers: I see insiders continue to buy the Company’s stock; can you discuss how you see Kincora’s valuation?

Sam: For me, the technical progress is evident from the active approach we continue to take with Bronze Fox, which looks better and better with further exploration (recently confirmed by these consultants reports), and the fundamentals of the project will be the key value driver in the medium-longer term. In the last 12 months volatility and uncertainty relating to Mongolia and also the 106-license issue has distracted from this. As you say, all directors have over the last six months been buying in the market and very much believe in the potential of our Bronze Fox license.

When I last updated our corporate presentation in mid Dec’13, Kincora was trading at a >60% valuation discount to our Mongolian listed peers and there is an argument, due to the age, level of activity and results to date at the Bronze Fox license, that Kincora should trade at a premium.

When we last issued options to management and the board we had no hesitation in our view that “par” was 10.5c, the last private placement price and well above the price at the time, and that no one internally should be rewarded/in-the-money until that floor was reached. That said, the share price is still a reasonable way away from that price but I know a few retail shareholders see that as an important level/signal and this is obviously something we as a company want to get back to sooner rather than later but for the right sustainable reasons.

Emerging Frontiers: Porphyry deposits seldom occur in isolation with the South Gobi’s geology and tectonic setting highly prospective for large size discoveries. Can you provide an update on other developments in the immediate region?

Sam: The Bronze Fox project is situated only 250km from the Chinese border and ~140km along Oyu Tolgoi mineralization structural corridor and ~40km from Tsagaan Suvarga (with potential cross cutting faulting). The immediate region is one of the most rapidly developing mining centers anywhere in the globe despite being one of the last underexplored frontiers and a productive copper porphyry belt.

Oyu Tolgoi (“OT”) is a world-class copper-gold porphyry, which has invested capital to date +$7bn with current production of 100,000t/day of ore ramping up to potentially 160,000t/day with discussions regarding Stage 2 project financing and approval ongoing with apparent progress. Tsagaan Suvarga, is an open pit copper-moly deposit, with an estimated capex of $1bn and a target production of 40,000t/day and, with OT, is one of two greenfield construction projects that are expected to enter initial production within a 3-year construction period, a proximity unlikely to be achieved within a comparable region anywhere else in the world in the near-medium term. Despite recent Mongolian macro concerns and the previous lack of infrastructure in the region, these developments help high the South Gobi and an attractive region for mine development as well as being highly prospective for future copper related discoveries.

Emerging Frontiers: Can you provide some thoughts on the current business environment in Mongolia and investors appetite?

Sam: As even the World Bank has recently stated, unsustainable government activity has emerged over the last year or two which has supported relatively attractive headline economic numbers. However, the underlying private sector environment has significantly deteriorated as evidence by FDI decreasing by over 50% and the +20% devaluation in the currency. Various private sector uncertainties, individual detentions and third party legal actions regarding security of tenure have emerged. This has adversely impacted foreign investors appetite for Mongolian asset class exposure with the recent TRQ rights issue absorbing capital that could otherwise been deployed for other Mongolian related opportunities.

That said, there are tentative signs that the tide is beginning to turn with the new investment law, securities law and activities from the government to revive FDI and private sector activities both recently enacted and further activities planned. Indeed, a shareholder this week told me that Petro Matad (MATD.LN) is the best performing stock in the UK AIM market YTD driven by farm-out rumors with a Chinese SOE – this would not have been possible before November when the new Investment Law came into affect. We are also seeing this in some degree with discussions with the financial and strategic investors.

In my eyes, Mongolia really needs a catalyst to get the markets attention again and prove that the Government means what it was saying on its roadshow late 2013 that it is learning from recent mistakes. Resolution on Stage 2 financing for Oyu Tolgoi for me is the largest and most needed catalyst. Other events like a successful Chinese SOE acquisition, a new discovery and the resolution of the 106-license issue would also be significant positives.

Those that have experienced previous similar cycles in Mongolia often comment that they see the current environment as a entering a good opportunity given most asset valuations are cheap, even on a risk adjusted basis relative to other markets.

Emerging Frontiers: How do you see the exploration sector progressing going forward?

Sam: Mongolian exploration activities have been impacted by the recent global trend and cut backs but also magnified by various Mongolian specific factors such as the political and legislative environment since prior to the 2012 Parliamentary election, security of tenure concerns, the unresolved 106-license issue and the declining size of tenure under license (from c.50% in 2008 to 9.1%) and age of these licenses since the moratorium of exploration licenses. Without overdue change in the near term the exploration sector in Mongolia will basically become non-existent in the next few years.

While exploration appetite globally remains challenging, feedback from the Mongolian Ministry of Mining 2025 Roundtable event held last week was refreshingly positive. Prime Minster Altankhuyag stressed Mongolia has become a mining country and spoke about nurturing mining and use the revenues to diversify the economy. He acknowledged his government needs to create a stable legal environment for foreign investment and will support the mining sector.

There was an apparent awareness that more attention is to be paid to exploration; it is a different skill set and risk profile to mining, and that the State will not be actively participating in this. The Ministry is working on the tendering procedures, which could be a major catalyst to see increased exploration activities and turnaround the outlook for the sector. Last week a new Minerals Policy was approved by the Parliament, full bill not yet available, that is expected to provide the framework for a revised Minerals Law in the first half of the year. Like OT, while the tone has markedly changed in the last year, much needed action is required to support these statements.

Emerging Frontiers: Thank you Sam, sounds like both Mongolia and Kincora might be worth keeping an eye on in the next six months.

Sam: Hopefully we soon see a rising tide lifting all boats in Mongolia; it has been a long 12-18 months of headwinds. It was great to discuss and thanks for the opportunity.

Source:Kincora Copper


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