Smart money seeks out Kincora

Author Chris Cann

TSX-listed exploration company Kincora Copper Ltd closed an over-subscribed C$5 million (US$4.48 million) capital raising this week ahead of a highly anticipated drill program on its Brown Fox project, 140km down the road from the monstrous Oyu Tolgoi (OT) operation in Mongolia. Given the lack of enthusiasm for exploration and Mongolia at present, this must represent the ‘smart money’.

“Some people have suggested our success with this raise was a sign that people’s sentiment toward Mongolia is improving,” Kincora chief executive Sam Spring told the Mining Journal. “[But] going through the problems in Russia, uncertainty in China, and the volatility and rumours around the OT situation … I haven’t heard anyone say they’re attitudes [toward Mongolia] have changed.

“It’s really about good assets, good management teams and good strategies continuing to get funded. It’s not really about Mongolia.”

The full C$5 million from the raising will go into the ground in the form of a season-long drill program to test the majority of nine identified targets. At this stage, Kincora plans to drill 16 holes over the field season from April to early-November. Some of these holes may test down to 1000m.

The non-brokered private placement was over-subscribed, with about C$400,000 having to be returned to investors. There were also several parties looking to get involved that couldn’t be accommodated at all. The majority of the funds came from existing institutional shareholders looking to retain their positions, though new institutions are represented. The management and executive group has also topped up individual holdings in anticipation of a ground breaking year at Bronze Fox.
The reason 2014 could prove pivotal for Kincora can be traced back to a decision to spend 2013 trying to better understand the project geology without engaging the drill rig. At the centre of this geotechnical work was an induced polarisation (IP) program that Spring said, in hindsight, “really should have been done earlier”.

Previously, the geophysics ran to a maximum depth of 400m. Given some of the targets in the coming drill program start below 400m, that was clearly inadequate. The geophysics profile now covers down to 1000m.

Kincora backed up the IP studies with two independent consultant reports that centred on geochemical work and, crucial to porphyry exploration, alternation studies. A year’s geotechnical work overlain by previous drilling results produced the group of nine, high confidence targets on which the company is now focused. Each target represents a potentially economic porphyry system based on a 1-2km anomaly.

Kincora drilled four near-discovery holes in 2012 that ended in mineralisation including an 800m intercept grading >0.4% Cu equivalent (including 37m grading >1% Cu equivalent) but did fully understand the geological context of those results. Geologists now know they were 500m from what should have been the target zone.

“It’s really positive that there are big systems here and when you’re in the outer reaches you’re still seeing almost economic grade,” Spring said. “But with the IP, there are other areas that we weren’t drilling that alteration analysis shows should be in the right part of the system for better continuity and grade.”
The process Kincora is moving through mirrors that experienced at OT around the turn of the century. This is another reason for the building excitement around the Bronze Fox project.

BHP Billiton and then Ivanhoe Mines had both focused on a certain porphyry model of a certain depth, which they drilled without the geophysics below that depth. Ivanhoe ran the extended geophysics in 2000, redefined targets, and the OT discovery hole was drilled in 2001. OT is currently made up of 10 mineralised zones that began as porphyry targets based on 2-3km anomalies at varying depths. The similarities with Brown Fox are clear.

Spring would not dare suggest that all nine of the Bronze Fox targets will prove to be economic porphyry systems but just one would underpin a mid-tier copper operation. Like at OT, Kincora is looking for a combination of shallow openpit mineralisation to be followed by an underground operation based on one or more of the deeper targets.

Mongolian-based investment bank ResCap drew comparisons with OT in a note last month and also pointed to the Tsagaan Suvarga copper mine, which is smaller than OT but just 40km away. All three project areas sit within the Gurvansayhan island arc intrusive terrane. The bank also pointed out that “insiders are buying” the stock, with directors tucking in in January following the full results of the company’s 2013 program.

“[Kincora] is backed by the best technical team in Mongolia, arguably one of the best in the junior copper space [with] former Rio Tinto and BHP Billiton [professionals],” ResCap analyst Enkhbayar Davaatseren said. “[This is] a direct play on exploration success, not to be confused with a play on Mongolian politics/macro-[economic environment].”

Spring remains ultimately confident in the ability of Bronze Fox to deliver an economic deposit but is keeping his short-term expectations in check. A series of holes that prove up the geological model without a discovery hole that sets the market alight in 2014 would be fine.

“It’s nice to be in charge of our own destiny because things have largely been out of our control for some time in terms of the macro situation,” he said. “To come out of that with a story that is compelling enough to attract people in and not rely on a Mongolia story or an improving exploration back-drop is important for us.

“We’re at that place in the S-curve where exploration success means a 20-50-bagger and that’s what people are putting their money in for.”

Source:Mining Journal