Hillgrove Is Gas Powered
By Our Man In Oz
Buy one: get one free. It sounds like the sales spiel heard in a fruit market, and not on a stock exchange. But if you look carefully at the emerging South Australian base metals miner, Hillgrove Resources, that’s pretty much what you get thanks to a well hidden asset. While most interest in Hillgrove is focused on its flagship project, re-development of the historic Kanmantoo copper mine on the outskirts of Adelaide, there appears to be little interest in a strategic position Hillgrove has in a company developing a coal-seam methane project in New South Wales. The oversight is understandable. Few investors with an interest in metals take much notice of oil and gas assets – and the other way round. It was a mistake made by Minesite’s Man in Oz when visiting Kanmantoo and chatting with the company’s chairman, Dean Brown.
After looking at the large hole which is what Kanmantoo is today, an openpit last worked in 1976 by the once-great Broken Hill South, conversation turned to funding the re-development given that the Hillgrove board expects to receive the results of a definitive feasibility study on the project in the next three-to-four weeks. That’s when Brown, a former Premier of South Australia, politely drops into conversation Hillgrove’s position in a business called Eastern Star Gas. Minesite confesses great ignorance, and Brown delights in breaking the news that Eastern Star has been somewhat of a star lately, and that Hillgrove’s stake in the business is worth close to A$100 million.
It’s that number which momentarily stops the talk because Minesite had just been looking at Hillgrove’s capitalisation which, at the time, was about A$100 million. Please explain, was the next question to Brown. How can Hillgrove itself be valued at A$100 million when it owns an investment worth A$100 million, plus Kanmantoo and an equally promising zinc project a few miles away called Wheal Ellen? The answer is simple. The market is either overlooking Eastern Star, or it’s assigning no value to Kanmantoo – hence the remark that this really is a situation where you buy one, and get one free.
“We see the Eastern Star position purely as an investment,” Brown said. “But it’s proving to be an extremely valuable investment.” Obviously! In fact, the investment will go a long way to providing the leverage Hillgrove needs to fund work at Kanmantoo, a project which it sees as being developed into a mine yielding around 20,000 tonnes of copper and year, plus a valuable by-product in large quantities of garnet, an industrial abrasive. Before looking at exactly what’s happening at Kanmantoo, a final word on coal seam methane. In Australia, as in the U.S. and in some other countries, coal seam gas is becoming a valuable energy source. Along Australia’s east coast, which houses the world’s biggest coal export mines, there is so much gas that Santos, the country’s second biggest oil company, is planning a liquefied gas export project based on coal gas. The Eastern Star asset, near Gunnedah in northern NSW, has the potential to be a major money-spinner as a source of energy for electricity generation.
With a handsome plum in his pocket Brown and his fellow directors at Hillgrove, including the highly-qualified chief executive, David Archer, will soon be faced with a decision on whether to commit to turning Kanmantoo back into a working mine after 31 years in mothballs, and a one-time role as a practical classroom for South Australian mining engineering students. If the re-development wins board approval it will commit Hillgrove to a major earthmoving exercise to “lay back” the existing walls of the 120-which metre deep pit to get at the orebody which averages about 1 per cent copper. In theory, the existing pit will be expanded from one measuring 400-metres by 600-metres (and 120-metres deep) into something double the size, being 1200m x 600m and 270 metres deep. For that effort, Hillgrove can expect to extract around two million tonnes a year of ore, and about 10 million tonnes of waste.
The good news for all that effort is that the Kanmantoo orebody appears to get richer as it gets deeper. The bad news is that it is regarded as a complex geological system, which explains why Hillgrove has undertaken a major drilling program to get the best possible understanding of the structures it proposes to mine – following in the footsteps of BH South, and generations of Cornish tin miners who migrated to South Australia from the 1840s on to try their luck in the minefields of a region better known today for its wine, beef and exquisite scenery. From the edge of the Kanmantoo pit it is possible to see mile-after-mile of rolling hillside farms, stretching almost to the south coast and prolific wine-producing country (when not in drought).
While the Hillgrove board waits on the results of the definitive study it has been tossed a wild card which might make a development decision a little easier. The latest drilling results from Wheal Ellen are very impressive, including individual assays of up to 21 per cent zinc, 11.1 per cent lead, and 4.5 grams a tonne of gold. Investors lapped up that report, lifting Hillgrove shares by about 12 per cent on the day to A42.5 cents. The overall picture of Wheal Ellen, after allowing for lesser, but still high-grade results, is that the project is fast taking on the appearance of a look-alike to the nearby Angas zinc mine being developed by Terramin.
More work is needed at Wheal Ellen, including a fresh drilling campaign when a rig can be located in a booming Australian exploration sector. But it is looking like Hillgrove might have a second hidden asset to join its Eastern Star investment. Wheal Ellen could easily become a Hillgrove’s second mine in a region which once dominated base metal mining in Australia, and is long overdue for revival, including a more detailed look at the regional geology and its excellent exploration potential.
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