Given the current low market valuation our expectation is that this could lead to impressive capital growth, which is fitting to the MiningMaven investment ethos of security and blue sky potential.
The Value Proposition
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- Alchemy is still an exploration company, with projects in Western Australia. It has the prospect of moving into production, whilst making additional transformational finds. In short Alchemy offers security in its stated JORC resources, whilst providing blue sky potential through its quest for further copper and gold discoveries. Alchemy’s Value Proposition includes;
- 100% ownership of the Gascoyne Gold project, which contains the Hermes and Wilgeena deposits, containing JORC indicated resources of 196,650oz Au at Hermes and 49,536oz Au at Wilgeena;
- 100% ownership of the Bryah Basin Copper project, situated directly west of the prolific DeGrussa copper field, owned by Sandfire Resources, which contains roughly A$7billion of copper and gold in mineral resources;
- Bryah Basin Copper project set to double in size late February through acquisition of tenements from Grosvenor Gold, a subsidiary of Dutch hedge fund BlueCrest Capital
- Between 100% and 80% ownership of various prospects in the Murchison Gold Project, located in the highly prospective and under explored Murchison Province, host to several >1Moz gold mines;
- Well funded with approximately $6.4million cash following successful completion of Capital Raising announced 24th February
Recent change in management and a new plan
Details of Alchemy’s management team can be found here.
In November 2011 Alchemy appointed a new Board chaired by respected mining identity Oscar Aamodt. Mr Aamodt was a Director of Independence Group from August 2005, and was Chairman until his resignation in July 2011 following the takeover of Jabiru Metals. During his time at Independence the company evolved into a highly successful nickel and copper-zinc miner and emerging gold producer and its market capitalisation grew from $150m to $1.18b. The new Board represents a shift in direction and a fresh approach for Alchemy.
Our understanding of Alchemy’s renewed strategy is best encapsulated as follows;
- To make a transformational discovery of either copper at Bryah Basin Copper or gold at Gascoyne or Murchison.
- To increase its portfolio of JORC compliant gold resources in order to see these through to commercialisation;
Recent developments have been encouraging and Alchemy appears to be on track to implement this plan.
Company Funding
To achieve such a plan, the company needed to have the financial strength to see it through to completion. On 12 January 2012 Alchemy announced a 1 for 3 rights issue at $0.13 to raise $4.2m, before costs. The issue closed mid-February and was jointly underwritten by Jindalee Resources (Alchemy’s largest shareholder) and Mark Scott, Jindalee’s Chairman.
On 24th February the company announced the successful completion of the capital raising and that they had raised a total of $4,222,721 (before costs). Alchemy is now well funded and an aggressive exploration programme on its expanded land holding in the Bryah Basin will commence in March 2012.
Alchemy’s operations
Alchemy’s exploration activities are focussed in Western Australia on two projects to the North of Meekatharra, in the Bryah Basin, and one project just to the south of the town, covering multiple tenements. This region is highly prospective and contains numerous, substantial mining operations.
The Gascoyne Gold Project covers approximately 26,600ha. Acquired from Troy Resources in July 2008, Gascoyne contains the Hermes and Wilgeena gold resources (containing a combined indicated JORC resource of 246,186oz Au) and the prospect, Central Bore.
Alchemy is committed to attempting to increase the JORC resource at Gascoyne and is currently engaged in additional Reverse Circulation (“RC”) drilling at sites across its tenements to achieve this goal.
In the meantime areas of interest for investors at Gascoyne include the following;
Hermes gold deposit – In September 2011 Alchemy announced a 50% increase in the JORC resource at Hermes to an indicated level of 196,650oz Au. Preliminary economic analysis of both Hermes and the nearby Wilgeena deposit (currently 49,536/oz Au) suggests that a modest increase in the resource base will impact positively on the viability of gold mining at current gold prices.
In January 2012 the Company announced encouraging high grade gold intercepts from recent RC drilling below the current resource, including 12m @ 6.12 g/t, 12m @ 2.55 g/t and 8m @ 3.09 g/t, suggesting good potential to further expand the Hermes resource.
Developments at Central Bore – As part of Alchemy’s strategy to expand its JORC resource and to enact mining operations, further exploration for gold has continued at Gascoyne. The recently discovered Central Bore prospect is to the east of the project. In July 2011 encouraging drill test results were released and the indications are that this site could well add to quoted resource at Gascoyne. Further drilling is expected in the coming months.
Expansion of Gascoyne – In November 2011 Alchemy agreed to acquire fourteen tenements adjacent to Gascoyne from Grosvenor Gold, a subsidiary of Dutch hedge fund BlueCrest Capital. The Grosvenor tenements cover about 40,200ha
A bit of background to copper
Alchemy is interested in precious and base metals. Whilst the history of gold and its recent price performance is widely read and understood by many investors, base metals are not quite as familiar to many. Traded on the London Metal Exchange (LME), copper has been on an incredible bull-run in the last 10 years.
On February 7th 2011 it broke through the $10,000/tonne level to set an all time high.
Although copper has been used for at least 10,000 years, 95% of all that has ever been mined and smelted has been extracted since 1900. The top kilometre of the Earth’s crust is estimated to contain about 5million years worth of copper, based on current mining, but only a small proportion of this is economically viable, given current prices and technological constraints.
One occurrence of copper is in the form of Volcanogenic Massive Sulphide ore deposits (“VMS”). This formation of copper is especially relevant to Alchemy’s copper exploration efforts at Magnus.
VMS deposits are usually created by volcanic events underwater. As an underwater volcano erupts, this can push copper up from the Earth’s crust. When the magma comes into contact with the sea-water it almost instantly solidifies. This mass is then pushed further forward as the volcanic eruption continues, filling channels and ocean ridges, similar to the indoor snake firework children play with on kitchen tables on Bonfire Night. Over time, as the continental plates drift and the seas subside, this can leave such deposits exposed on land.
10 year Chart Source: http://www.lme.com/copper_graphs.asp
And it is exactly such a deposit that Sandfire Resources have been so successfully developing in recent years. The plan shows the detail of the Sandfire Resources tenements and the Alchemy tenements. The Narracoota volcanic sequence runs from the north of the Sandfire tenement through the south of Alchemy’s.
Although we covered Alchemy’s efforts at Gascoyne first, it would appear that it is in fact the Bryah Basin Copper project they are particularly excited about.
The geological connection to the Narracoota formation is encouraging, but it is the spectacular performance of Sandfire Resources’ share price, which really catches the eye. Since the discovery at DeGrussa was made and verified, Sandfire’s stock has risen from A$0.06 to a staggering intra-day high of A$8.62 in 2011, making the business worth at the time a touch over A$1billion.
In 2009 airborne VTEM surveys were conducted over the Bryah Basin tenements. Using what amounts to helicopter borne sonar, these provided Alchemy with targets for exploratory drilling. Since then several of these targets have been drilled, and whilst not yielding a significant find of massive sulphide accumulations the results provided Alchemy with valuable geological information on an emerging but as yet poorly understood district.
Although a number of VTEM targets remained undrilled, Alchemy then underwent a detailed review to assess all the data their efforts had gathered. This suggested that most holes had been drilled outside of the prospective Narracoota formation and led to a re-assessment of targets for drill-testing and a change in approach.
Specifically Alchemy decided to engage in a trial audio-magnetotellurics survey (“AMT”) of the Bryah Basin tenements. In very simple terms AMT is a technique for deep and more precise investigations than VTEM. The AMT survey was completed in November 2011 and has generated a number of conductors within the Narracoota formation that are potentially massive sulphide lenses.
Thanks to this renewed effort Alchemy will extend geophysical data acquisition to cover all of the Bryah Basin tenements , with test drilling of targets generated from the initial survey due to commence in the March 2012 quarter.
Located just south of Meekatharra, Alchemy holds licenses for six exploration areas in the Murchison District.
Murchison Province has been a major gold producing area in the past with roughly 8million ounces having been discovered at local mines. Alchemy’s plots cover 723sq km. Their operations are a combination of exclusive action and through a joint venture with Jindalee Resources Ltd.
Significant announcements about progress at Murchison were given by Alchemy in the September 2011 and December 2011 Quarterly Reports.
The headlines included:
Jeffrey Well (80% Alchemy, 20% Jindalee) – Initial results indicated the potential for large lode gold systems at Murchison as well as encouraging indications of gold at this site. Resampling has confirmed encouraging intercepts from an aircore drilling programme undertaken earlier in the year;
Gidgee South Project (100% Alchemy) – Results from an initial aircore drilling programme completed in September 2011 delineated a 4km long zone of gold anomalism which may represent the northern continuation of the highly mineralised Big Bell-Meekatharra shear zone, host to the 3.9Moz Big Bell gold deposit.
Wydgee, Ninden Hill and Gidgee Projects (80% Alchemy, 20% Jindalee) – Surface geochemistry testing at Wydgee and Ninden Hill have outlined several areas of gold and/ base metal anomalism at both sites.
Big Bell North (E20/667: 100% Alchemy. E20/594: 80% Alchemy, 20% Jindalee) – Drilling in 2010 demonstrated the presence of gold at Big Bell North with follow up drilling planned for this year.
Polelle Project (E51/1326: 100% Alchemy. E51/1042, E51/1225 & E51/1226: 80% Alchemy, 20% Jindalee) – Field assessment over Polelle commenced in June 2011. E51/1326, Alchemy’s exclusive licence, represents a favourable target for further exploration, with several zones of gold anomalism to be followed up in 2012.
Overall Alchemy is extremely hopeful that at least one of these projects could yield the next big gold deposit and is acting accordingly.
Upcoming Announcements
A slew of announcements look likely from Alchemy in the coming 6 months. Expansion of test drilling and exploration across Bryah Basin Copper, Gascoyne and Murchison will all generate newsflow. This, combined with the regular Quarterly Reports, will make Alchemy a stock relatively easy to keep track of. In particular we will be watching out for;
- Drilling reports from Bryah Basin Copper;
- Expansion of the JORC resource at Gascoyne;
- Developments across Murchison;
- Potential corporate activity
Some final thoughts
Trying to explain Alchemy’s relatively low share price is tricky. The Bryah Basin Copper project is highly prospective for the discovery of further DeGrussa style VMS deposits, the Company is well funded with A$2.4m at the end of December 2011 (increasing to approximately $6.4m on completion of the current rights issue) and has decent security in its stated indicated JORC resource of 246,186/oz Au with the likelihood of expansion in due course. It has three superb exploration areas, two of which could well yield transformational finds. It is in the proximity of world class mining operations and has clear geological links to these. Finally it is at a relatively developed stage of exploration across its portfolio.
Whatever the case, for investors who enjoy the action the exploration sector can offer, Alchemy offers an excellent opportunity. The blue sky potential for this stock is clear. If they discover the resources they hope to find, then today’s valuation could well be looked back on as a fantastic buying opportunity. The coming months should be an interesting period in Alchemy’s development.
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