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Additional	Information
Market:	ASX
Sector:	Gold Mining
Epic:	TGF
News:	Latest news
Web Site:	Tianshan Goldfields
Other Articles:	26-11-200817-11-200811-08-2008

Tianshan Goldfields: More than a pretty name

by David Rowland

Here's the headline: Tianshan Goldfields (TGF) owns 90% a of 2.7m oz gold deposit in Northern China.  2m of those ounces are Measured and Indicated.  Tianshan's current market cap is £35m, or around US$35 per attributable ounce of M&I resource, equivalent to 4% of the gold price.  Interested?  Read on.

The 90% ownership refers to the holding company Xinjiang Gold Mountain Mining, with Chinese partners XGMRTD owning the other 10%.  Their sole assets are a suite of properties encircling an established goldmine in northwest China.  The company's lead project, the extensive Gold Mountain tenement, sits right next door.

History and Management.
Tianshan is a company with an interesting history, and equally interesting personnel.  It began life in 2003 as a spin-out from ASX-listed investment house Mineral Securities (often abbreviated to Minsec).  Quick work, as the ink had barely dried on Minsec's brand new joint venture agreement with XGMRTD. 

A couple of years beforehand, the Chinese had seen previous partners Western Mining pack their bags and go, AUD$10m lighter, having bequeathed all their drilling and sampling data to XGMRTD.  At the time, a rock bottom gold price and weak grades persuaded WMC to more or less abandon gold.  Hindsight makes the whole world wise, but in 2001, commentators were querying whether the gold price could ever breach $300 again.

Minsec director Keith Liddell then became Tianshan's Chairman, whilst remaining a Minsec Director.  Minsec still retains a 28% interest.  So close remains the tie that the companies still share offices in Perth.

Does the name Keith Liddell sound familiar?  It should do.  Apart from directorships in Tianshan and Minsec, and in CopperCo – another of Minsec's investments, recently re-absorbed – Keith was also MD of a little company called Aquarius Platinum.  During his tenure, he oversaw the development of the Kroondal mine and is clearly no mug.  David Evans is another Kroondal export, while MD Grant Thomas is ex-Rio Tinto at high levels.  In fact it was Grant who first identified the potential of Gold Mountain.  Altogether, the board looks to have the full range of skills.

The Tian Shan Gold Belt
Mining afficianados will recognise that the company is named after the famous eponymous gold belt, located within the Tian Shan, or Tien Shan, mountain range.  Rather than rush past this, let's pause to take in the macro view.

Tian Shan's 'Celestial Mountains' form a rough double spine traversing Central Asia.  The gold belt starts in Uzbekistan in the west and traces a 2,800km course through Kyrgyzstan, touching Kazakhstan and onward into China and Mongolia to the east before petering out.  Compare that with the Andes, at 7,200km the longest chain the world, and you have an idea of scale and geographical importance.

Earth scientists tell us that great mountain ranges are created by powerful subterranean upthrusts resulting from titanic collisions between tectonic plates.  Here, the plates concerned are the Indian and Eurasian plates; the same collision which spawned the Himalayas.  Such junctions are weak, unstable areas in the earth's crust, the results being earthquakes and volcanoes.  Volcanism, whether ancient or modern, often forces significant metal deposits to within striking distance of the surface.  As in Tian Shan's case, these plate boundaries often host gold deposits.

The Tian Shan metallogenic belt is one of the most prolific in the world, housing numerous multi million ounce gold / silver deposits.  You will know the names of several of the big mines.

Muruntau 170m oz
Kumtor 9.2m oz
Jerooy  3.2m oz
Arxi mine 3.8m oz

Arxi is the name to note here.  All of TGF's exploration tenements cluster round this established mine.  The southern edge of the Gold Mountain tenement encroaches to within a kilometre of Arxi, but the main Gold mountain deposits – there are several – lie 10-12km north.

Problems?
Earlier we hinted at the low average grade of 0.9g/t Au.  This, combined with the gold price, was the reason WMC hoisted the white flag, and it may still put off some investors.

That is, those gold investors who are only used to epithermal gold deposit hosted in quartz veins.  Gold Mountain is a near-surface, breccia-hosted hydrothermal deposit which should lend itself to open pit mining and an inexpensive heap-leach operation.  The company likes to make comparisons with Peru's world class Yanacocha mine which is of similar grade and boasts cash costs of under $150/oz, but there are plenty of other examples. 

Infrastructure won't be an issue either because of the proximity to Arxi, immediately south of Gold Mountain.  Arxi has water, grid power, and good all-weather roads with year-round access.  Yining city, population 400,000, lies 58km away.  Despite the altitude (1.6km), the terrain is undemanding.  The only snag is that two rivers separate these properties, but that is just an inconvenience.

Arxi comes with the advantage of a 5.8g/t average grade – much higher than at Gold Mountain.  The steep difference in grade is thanks to identification of a large feeder zone at Arxi.  If discovered at Gold Mountain it would be game, set and match.  Excitingly, Grant Thomas reckons they are on the cusp of doing exactly this and will go all out to prove this up in 2008.

Following a placing of 31m shares at 50c – a substantial premium to the current ASX share price of A41c – cash stands at A$17.5m.  One less risk factor for the potential investor, then.  This will be plenty to see pre-feasibility study through to completion in Q2 and comfortably fund all of Tianshan's drilling this year.  When the time comes to fund mine development, assuming positive economics, existing major shareholders Macquarie Bank and Minsec are likely to reach for their cheque books in tandem.

Conclusion.
TGF appears to have almost everything going for it.  Top of the bill is proven management by serious mining men.  We can add to the virtue list a decent-sized resource, well-established local infrastructure close to another mine, and funding safely in the bank.

 The share structure is reasonable.  93% of the company is owned by just 20 shareholders, mostly institutions.  Options are not too heavily dilutive.  These total 31m, on top of 244m fully paid-up shares.

China itself is building an impressive track record of stable, successful partnerships with foreign companies, untroubled by green activists.  The standard free carry of 10% is one of the least demanding in the world.  To date there have been no expropriations of assets or revocation of licenses by the Chinese, who as predicted by Proactive have become the world's premier producer, sooner than almost anyone had anticipated.  TGF's exploration licence is renewable on a 2-year basis, currently valid until September 2008.  No problems are anticipated.

The major remaining risk is that economic feasibility has yet to be proved and a mining license obtained.  The company hopes to achieve both by June 2008.

The future.
In writing this article, one outstanding question leapt out.  Arxi is privately owned.  Despite its size and grade (over 5g/t), it produces a beggarly 30-40,000oz per annum.  It is screaming to be bought and operated professionally.  When questioned, Grant Thomas reckons relations are very friendly, but Arxi is not currently for sale.  One for the future, perhaps?

 

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