Back to that gold in the PNG hills

By Barry FitzGerald in Business Day 

March 7, 2011

There's plenty of potential in picking up where the Mount Kare alluvial gold rush left off.
IT HAS been a case of back to the future for Stephen Promnitz, chief executive of the south-east Asia and south-west Pacific copper-gold explorer Indochine Mining (ASX: IDC). Indochine raised $20 million in its December float on the strength of a big copper-gold exploration tenement package in little-explored Cambodia as its main go.
The float attracted the backing of the mighty fund manager BlackRock and hedge fund Och-Ziff as substantial shareholders, with holdings of 7 per cent and 14 per cent respectively. Drilling gets under way at the Cambodia properties later this year, but in the meantime Promnitz has secured an option for Indochine over the Mount Kare gold project in Papua New Guinea.
As a young geologist with CRA (since merged with Rio Tinto), Promnitz witnessed at Mount Kare one of the great alluvial gold rushes of the modern era.
The 1988-89 rush left an impression.
 ''It was the most astounding thing I have ever seen,'' Promnitz told Garimpeiro.
''There was more gold than you could poke a stick at. So much so that I thought I would never be looking for gold again.
''The locals were shaking gold nuggets from the roots of the grass. Some of the nuggets were the size of goose eggs. It was on for young and old.
''We saw the place go from having nobody there to having more than 6000 people with picks and shovels in the space of six weeks.''
Gold was well understood in the region, given Barrick's 25-million-ounce Porgera deposit some 20 kilometres away. Porgera hadn't been developed by then but it had been a gold exploration project for 30 years. What eventually got Porgera into production was the discovery there of Zone 7, with its amazing grade of 40 grams of gold a tonne.
In the end, the locals who swarmed onto the alluvial patch at Mount Kare plucked more than 1 million ounces of gold from thick, sticky clay. The alluvial gold eventually petered out, but the underlying hard-rock potential remained. And there was plenty of work for everyone at Porgera.
Books can and have been written on the Mount Kare alluvial gold rush. Fascinating stuff it is too, as you would expect: spivs and conmen were quick on the scene; they love a gold rush as much as anybody else.
For today's purposes, all we need to know is that CRA eventually walked away from Mount Kare, with the forced abandonment of its Panguna copper mine as attacks by secessionist rebels over on Bougainville Island encouraged the exit from all things PNG for the company. (Rio's listed subsidiary Bougainville Copper still harbours ambitions of returning Panguna to production.)
Canadian groups secured title to Mount Kare and in the 1990s and the opening years of the new century, they set about assessing the hard-rock potential of the site.
The Canadians outlined, under their national reporting requirements, a 1.7 million ounce hard-rock gold resource (1.9 million ounces if you give the silver in the mineralisation a gold equivalent value).
But the 2008 global financial crisis clipped their wings and Mount Kare ended up for sale in the hands of a liquidator. Indochine has now secured an option over the deposit in a deal with the private Aussie-PNG syndicate that acquired Mount Kare from the liquidator, with an initial payment of $4 million made by Indochine last week.
Full details of the expected shares-and-cash deal that will give Indochine control of Mount Kare are expected to be released within 21 days or so. When that happens, stand by for a re-rating of the stock.
At Friday's closing price for the stock of 30¢ a share, Indochine was being valued at $82 million. Compare that to the fancy market values of any number of ASX-listed West African gold explorers with similar-sized projects to Mount Kare under their belt and you'll see why the re-rating potential is there.
PNG can be a hairy place, as can West Africa. But if Garimpeiro had to be dropped into either of them, PNG would (now) be his choice. He says now because of the $20 billion being pumped in to developing PNG's gas export business by Exxon Mobil and others. It is transformational stuff for PNG in terms of all the things that will make the country less difficult to get things done. Things such as telecommunications, air services, and technical and legal support, not to mention the new casino and hotels that are going up in Port Moresby.
Once the Indochine option over Mount Kare is bedded down, the plan is to start work on an ASX-compliant resource. The estimate by the Canadians was largely in the drill-indicated category, so the swap from their assessment to one that suits local reporting requirements should be plain sailing.
More to the point is that the Canadians' assessment was based on a gold price of $US300 an ounce and a silver price of $US5.50 an ounce. Both metals now trade at multiples of those prices, so you would have to think there is now potential to add a sizeable open-cut resource to the underground resource.
It is also worth noting that while ''nearology'' is a dangerous practice, Mount Kare does have similar geology and geological setting to the Porgera deposit. Whether or not Mount Kare too has a Zone 7 that will be uncovered by further exploration remains to seen.
What is known is that the current Canadian resource estimate (it has a high-grade portion of 740,000 ounces of gold in 4.6 million tonnes of material grading 5g/tonne gold) is good enough for Indochine to get working on a feasibility study of Mount Kare's development.