On 21 Jan 2004, Leyshon Resources, the Australian ASX-listed gold miner, announced the acquisition of 100% of a privately owned exploration company, China Metals Ltd, and its business was never the same again!
Once a successful Australian miner, Leyshon is now a China-focused explorer with no Australian assets and its main operational office in Beijing. Through China Metals, they gained first mover advantage in China?s Heilongjiang province, via an agreement with Heilongjiang Provincial Bureau of Geology and Mineral Resources Exploration and Development (HLJ-BGMR), which gave them first right to explore and develop all existing and future projects under the control of HLJ-BGMR. The resulting JV company, a Chinese registered cooperative known as the Black Dragon Mining Company, is owned 70% by China Metals/Leyshon and 30% by HLJ-BGMR, with all funding to bankable feasibility provided by Leyshon. Leyshon can increase its interest to 90% by funding through to production. Two key established projects were earmarked for initial development ? the Zheng Guang gold deposit and the nearby well-advanced copper porphyry project at Duobaoshan, both situated on the highly prospective eastern extension of the Tien Shan belt.
The deal for China Metals, completed in May 2004, cost Leyshon 20 million shares and 15 million share options with prices ranging from 20 to 30 cents, with a further 10 million shares to be issued on completion of a successful BFS at Zheng Guang. It also brought them a new MD in the person of Paul Atherley, the 50% owner of China Metals, and Greg Jones, ex-Sino Gold, as Chief Operating Officer.
By the end of 2004, Leyshon had taken the decision to refocus its activities solely on China, and the Australian assets were spun off into a newly floated ASX company, Echelon Resources. In October last year, the company also listed on AIM, to be closer to its main institutional investors and to gain exposure to the London capital market.
Work at Zheng Guang commenced in mid-2004, with the aim of delineating strike length and depth of the mineralisation already identified by the Chinese following the deposit?s discovery in 2000. First results were promising, and included intersections of 44 meters @ 3.16 g/t Au and 16 meters @ 6.09 g/t Au in the central area. The second batch of results was even more encouraging, reporting an outstanding 24 meters at 28.6 g/t Au from a newly discovered breccia area in the west of the main ore zone.
The 10,000 metre 8-rig programme planned for 2005 ? eventually expanded to over 12,000 metres of drilling - was to establish the immediate resource potential of the Main Ore Zone at Zheng Guang. The final assays for this campaign were published on 17 January and according to Leyshon, provided confirmation of the project?s near term development potential. Certainly the tenor of the more significant gold intersections is good at all depths, ranging from 45m at 3.49 g/t to 20m at 3.52 g/t. Several bonanza grades showed up, including 1 metre at 120.55 g/t and 2 metres at 91.26 g/t. There were also significant potentially economic amounts of zinc and silver linked to the higher grade gold, with levels up to 18% zinc and 150 g/t silver.
Leyshon have now commenced feasibility studies for the near surface Main Ore Zone, using resource engineering company Ausenco Ltd of Brisbane, Australia. Estimated target revenue for Zheng Guang is £24 million per annum. Assuming cash costs of under $200 per ounce, full op costs of approx $275 an ounce and gold at $500, that implies a net profit before tax of just under £11 million, of which £7.5 million would be attributable to Leyshon.
Exploration plans for 2006 include drilling to the north of the Main Ore Zone, towards the Zhang Guang North zone, where the company believes a 1.25 km mineralized corridor exists, offering high potential for additional precious and base metal development.
For better understanding, we recommend a review of Leyshon?s published drill results for this project, available on the website, which are accompanied by maps and modelled diagrams ? a practice which UK companies could do well to copy! A recent presentation given in London last month is also extremely informative (see link below) as are the Quarterly Reports demanded by ASX rules.
Meanwhile, at Duobaoshan, initial expectations of successful development of one of China?s largest copper projects have not been met in the manner foreseen. It appears that the lure of ever higher copper prices has brought in a development proposal from two Chinese mining companies. Leyshon clearly feel that their JV agreement with HLJ-BGMR entitles them to at least a share of this project, perhaps in consortium with the Chinese companies and HLJ-BGMR, but are awaiting the results of Ausenco?s current scoping study before they make a decision on whether they wish to participate.
Additional projects are being sought, but at the moment Leyshon would seem to have their hands full at Zheng Guang, a project which is thus far exceeding expectations, and if initial revenue estimates are borne out by the on-going feasibility study, will generate good returns.