Rose Petroleum plc by Alistair Ford


VANE Minerals Begins To Acquire Some Critical Mass, With Gold Production Set To Double

It’s been a busy couple of weeks for VANE Minerals, as one news release after another has flowed out relating to projects all across the VANE spectrum of activities – production in Mexico, copper porphyry exploration in the USA, and uranium development projects in Arizona. However, investors who’ve spent the past months waiting for one meaningful announcement, only to find that, in accordance with the old adage, three have come along at once, oughtn’t to take their eyes of the newswires just yet. The rest of the year is likely to be almost as busy as VANE seeks to consolidate the gains it’s made and is making, at long last, on its gold and uranium projects.

Matt Idiens is a busy man, too, running the company’s London listing on a shoestring, whilst maintaining a constant eye on progress in the Americas. He has other interests, too, but lest anyone doubt his commitment to VANE, he’s lately been buying shares at the fairly modest market price of 3.65p. His latest purchase, as reported to the market on 9th June, takes his overall holding in VANE up to 1.74 per cent. And why not? He clearly believes in the path to growth that VANE now offers, and it may well turn out that his recent purchases will in retrospect look very well timed.

The pitch is simple. From being an exploration company supported by a certain amount of limited cashflow, VANE is instead transforming itself into a cash generative production company with serious exploration upside. The process is only just getting underway, but it’s one that should eventually meet with approval in London, once investors wake up to the news, and especially since the transformation won’t be at all expensive.

To date, the company’s production at Diablito in Mexico has been limited, but following a joint venture with a couple of local entrepreneurs, that’s all set to change. The background to the transformation, according to Matt Idiens, goes to the very heart of the mining scene in Mexico. Until very recently the country boasted two smelters, one run by Penoles, in the north, and another run by Grupo Mexico.

However, due to environmental concerns, the Grupo Mexico smelter has recently been shut down. That leaves the Penoles smelter in a position to set whatever prices it likes, a development understandably not greatly to the liking of those of the country’s miners that are dependent on it. Consequently every man and his dog, including VANE, was casting around for alternatives.

The mining heads at VANE, with their Freeport McMoRan pedigree, are certainly not new to the game, and it didn’t take long for them to come up with a solution: add a Merrill Crowe plant onto the end of the Diablito process and switch the end product to a precipitate. The advantage of such a move, of course, is that a precipitate can be marketed around the world, while at the same time the need for a smelter is removed.

And VANE’s bosses weren’t the only ones who could see the benefits. As soon as it became known that VANE was planning to add a Merrill Crowe plant to Diablito VANE was inundated with offers of ore and requests for joint ventures. With gold at a punchy US$1,200, what better time to be gearing up the Diablito operation? The plan was duly hatched, with a company called Met-Sin to ramp up the Diablito operation, from the current 100 tonnes per day to 200 tonnes per day. Met-Sin will provide the additional ore from its own mines, but VANE will book the majority of the profits – 80 per cent until its recouped 150 per cent of its outlay, and 60 per cent thereafter. Given that, at US$450 per ounce, mining costs from the first Met-Sin mine are considerably lower than they are at Diablito, the arrangement has plenty going for it. The costs of expanding the Diablito capacity should be fairly modest – the big ticket items will be US$100,000 or so for a bigger ball mill, and around US$125,000 for the Merrill Crowe capability.

Meanwhile, it’s all systems go on the company’s uranium ground in Arizona, where drilling is currently working up the resource at the Wate breccia pipe from inferred to indicated. The target is to establish a resource of a one million pounds U3O8 in the indicated category, and then to move straight into a pre-feasibility study, work which will involve moving the resource up a further category, into a probable reserve. While all that’s going on, VANE will turn its attention to the next pipe off the rack, the Miller pipe. Long-term the aim is to prove up 10 million pounds from three pipes, at which point VANE’s joint venture partner Uranium One, will press the go button for a mill.

Coming along behind all that, the company’s blue sky is encompassed in its copper porphyry exploration work in New Mexico. At the moment this is a numbers game, as VANE checks off each of its 24 potential targets with a short drilling campaign. "We can test them quite quickly!, says Matt, "and move on to the next until we find one". Statistically, he reckons, the odds are quite good. But, as ever, the drill-bit will have the last word.

All told, though, there’ll be plenty to keep investors interested in the coming months, and several potential triggers that could set the shares off on a run. Best of all would be a big leap in the uranium price, but we may have to wait a while yet for that to happen.