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Sector:	General Mining
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Web Site:	CopperCo Limited
Other Articles:	18-07-200815-07-200806-06-2008

Mineral Securities: diversified investments reaping dividends

by Ian Mclelland & Harry Norman

The curricula vitae of Minsec's Chairman, Robert Champion de Crespigny, and CEO Keith Liddell, are like mining industry fairly tales - both have been involved in some incredible success stories. Robert spent fifteen years developing Normandy Mining before it was bought for mega bucks by gold mining heavyweight Newmont, and Keith Liddell made his name with Aquarius Platinum – one of the great success stories of both the South African platinum industry and the AIM market. If you think we are tempted to harp on about the management of Minsec - you are right - but we don't have the space!

Proactive last looked at Minsec just before the merger between Keith's Mineral Securities and Robert's Scarborough Minerals was finalised. The merged company is positioning itself as a mining house; financing projects in return for a substantial stake in the project or company with the aim to benefit from strong cash flow operations. This makes for interesting speculation about what the new Minsec will do with some of its inherited assets and where it will invest next. There are many reason's Mineral Securities if focusing on cash flow, but one of the core motivators is its own valuation. Keith told Proactive that the group wants to focus on cash flow, so it can be valued on a cash flow multiple, rather than valued like an investment vehicle - which would typically be valued by a discount to the Net Present Value (NPV) of its equity investments. Even so, Minsec currently trades at a 50% (yes, 50%!) discount to its NPV - so there could well be a posse of value investors forming as I write. Minsec however is less interested in pondering the discount to NPV is should receive and more interested in developing cash flow.

Looking at Minsec from the discounted cash flow angle does throw up a few questions about its investments. The company has already begun to divest some of its interests that don't fit the cash flow criteria – however a number of these assets have performed very well in the last few months and may now fit the long-term plan for bigger stakes in fewer entities.

A point beautifully demonstrated last week when Minsec signed an agreement to increase its 15.7% stake in TSX and AIM listed Platmin to 27.2% by the end of January 2008. Platmin can be described as "Aquarius Platinum on steroids" as the company holds multiple reef types in the Bushveld that yield platinum concentrate with low chrome content - making it relatively easy to make smelt and refine in-house using off-the-shelf technology. Keith believes Platmin has the capacity to produce 600,000 ounces per annum for over 20 years – which could propel it into the top the platinum producers league. This belief combined with South Africa's platinum industry struggling to meet current demand - makes Platmin a very interesting part of the Minsec puzzle.

Minsec also has two investments exposing it to Zinc. One is Herencia Resources, which Keith expresses optimism for " Herencia has made pretty amazing progress to date, which bodes well for finding further resources." The Herencia team recently stated it was confident that there are half a billion US dollars worth of zinc-silver-lead mineralisation within 150 metres of surface at the Patricia prospect, which it believes will be particularly amenable to low cost open pit mining. But the main jewel in Minsec's "zinc crown" is a 25% interest in the Lady Loretta Zinc project in Australia, which is the highest grade undeveloped zinc project in the world. Xstrata, who hold the balance of this project, is considering a small underground development and trucking ore to its nearby Mount Isa facilities. "We are very happy to be involved in the project, which could be a fairly painless cash flow generator in the next few years".

Minsec's stake in ASX listed CopperCo also adheres to the group's cash flow ambitions. The company recently increased its shareholding in CopperCo from 8% to 20%, which just commenced production with plans to ramp up to around 1900 tonnes per month. Copper Co is producing copper cathode at US 70 cents/pound and has a multi-project development pipeline of satellite deposits.

In order to control cash flow projects, Minsec is not afraid to get involved in earlier stage projects either, and currently has controlling interests in two ASX listed company's that have put in a good run since listing. First there is a 45% interest in Niplats, which owns the Speewah prospect in the Kimberley region of Western Australia. The discovery of a platinum and vanadium horizon (or reef) by Niplats has sent the shares rocketing. Keith's take is that the "geology looks like the outer periphery of a massive intrusion …could be a Voisey's Bay style project." Which is mining speak for "this could be very big". Second up is a 60.6% interest in Minsands, which recently listed on the ASX too. The company owns 17,000 square kilometres of mineral sands prospects, including some advanced exploration prospects. AngloGold Ashanti and the Independence Group are developing the nearby Tropicana gold project and, as things turn out, Minsands may well be holding a strike extension of this project. Keith reports being "very happy with progress at Minsands".

Minsec is not afraid of operating in China either, and has a 30% (fully diluted) interest in ASX and AIM listed Tianshan Goldfields, which in turn has a 90% interest in 2.8 million ounces of gold contained in "heap leachable" ore - at just under 1g/tonne. The ore outcrops at surface so it could well be more like a quarry than a mine. Two deposits will be developed to produce 80-100,000 ounces per annum in Phase 1. Phase 2 moves production up to 250,000 ounces per annum in 2010-2011. Keith says Minsec is "very chuffed" with progress at Tianshan to date, and is looking forward to the revised resource update based on the current season's drilling, before the end of the year. Also in China, Minsec has a gold joint venture agreement on the Shandong Peninsula, which is in the biggest gold province in China. Tenements are now being transferred to the joint venture - Minsec is earning in 75% of the project for an expenditure of $1.2m. So far, a geophysical survey has been competed and a geochemistry survey is underway, with a plan to start drilling in 2008. There are three gold mines operating nearby which have free milling ore with high grade shoots.

Last and not least, but certainly looking a bit out of place with the "controlling interest" model is Minsec's 12.18% interest in AIM newcomer Chaarat Gold. Chaarat owns outright a gold project located in western Kyrgyzstan that covers an area of more than 600 square kilometres and has only been lightly explored. However, a mineralised system with elevated gold values over a 10 kilometre strike length has been identified and the company expects to identify further resources as exploration continues.

On a fair value basis, Minsec is worth between £1.70 and £1.95 per share, post tax. If Lady Loretta goes into development this would rise substantially. The deal flow of the new company has begun, and as the group moves more towards a cash flow quasi net present value valuation, the journey could be exciting.

Plenty of chapters left in this book.

Links
Platmin Limited www.platmin.com
CopperCo Ltd www.copperco.com.au
Tianshan Goldfields Ltd www.tianshangoldfields.com.au
Herencia Resources Plc www.herenciaresources.com
Mineral Sands Ltd www.minsands.com.au
Illuka Resources Limited www.iluka.com
Buka Gold Limited www.bukagold.com.au
NiPlats Australia Limited www.niplats.com.au
Chaarat Gold Limited www.chaarat.com

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