Locals get a lift in PNG gas project

www.brisbanetimes.com.au
September 21, 2009

CANADA'S Talisman Energy has quietly been roaming the jungles of Papua New Guina assembling a package of exploration acreage to underpin its early stage planning to build what could be a third liquefied natural gas export project for PNG after Exxon-Mobil and InterOil build their nation-changing projects. Good luck to them, too. Garimpeiro's interest is in the two ASX-listed companies that have been cut in by Talisman on its LNG ambitions, New Guinea Energy and Horizon Power Oil. Both have signed big spending farm-in agreements in which the Canadians will pick up the running to find about 5 trillion cubic feet of gas in support of a potential LNG project producing 2 million to 3 million tonnes annually.

In the case of New Guinea Energy, Talisman could spend $US105 million ($121 million) to earn a 70 per cent interest in two of its prospective PNG exploration permits. For a company that closed at 23.5c a share on Friday, for a market capitalisation of $92 million, it is a nice position to be in, particularly as Talisman is known as a company that does not mess around. Same goes for Horizon Power, although its leverage to the PNG LNG upside is not as great given it is already a $350 million company thanks to its oil production interests in New Zealand. Still, its $US60 million deal with Talisman on the part sale of two of its PNG exploration licences was enough to push its shares 3c, or 10.7 per cent, higher on Friday to 31c.

Silver Secrets
Australia is the world's fifth-biggest producer of silver. But you would not know that by scanning the ASX lists to find a pure silver play. Our silver is produced as a byproduct at base metal operations such as Mount Isa, Cannington and the old Silver City itself, Broken Hill. All that has presented a bit of a marketing problem for the managing director of Cobar Consolidated Resources, Ian ''Mudguts'' Lawrence. He reckons the local market does not know how to value a silver play, prompting the metallurgist who was once general manager of operations for WMC, to spend time on a roadshow to eastern state investors outlining his thoughts on the matter.

CCU is well on its way to becoming a silver producer from its Wonawinta silver project near Cobar in central NSW, with a feasibility study into a 3.3 million ounce-a-year mine costing some $21 million under way. The initial annual output is a fraction of what comes from the mines named above, but with a market capitalisation of $16.5 million, CCU does not need the scale that the big boys like Xstrata and BHP Billiton need.

Lawrence believes the current gold/silver price ratio of 60:1 is a good starting point. Take the broadly agreed enterprise value/to resource valuation metric for gold stocks of $120 an ounce of the yellow metal, and the average enterprise value/resource valuation metric for silver stocks could then be said to be about $2 an ounce. Now comes the point. Take CCU's 44 million ounce initial silver resource base and the implied value you end up with is $88 million, or 75c a share. CCU closed on Friday at 14c.

Sandfire On Fire
We know the market is pretty keen on Sandfire Resources' Doolgunna copper/gold discovery to the north of Meekatharra in WA because the shares have raced from all of 5c back in November to $2.72 a share on Friday, a gain of 5340 per cent. But just how good it is remains open to conjecture, with more work needed to pin down just what Sandfire Resources is on to with the DeGrussa and Conductor 1 discoveries on the Doolgunna ground. Stephen Thomas, a mining analyst at Bell Potter, is one of the few to try to pin down a value for Sandfire Resources in light of the Doolgunna excitement, warning that when he does, any investment in Sandfire Resources remains speculative and is one only for investors with a ''higher tolerance for risk''.

He then goes on to value Sandfire Resources at $3.38 a share, or $5.22 a share if an upgraded copper price assumption of $US3 a pound is used. Thomas also has a stab at an initial resource estimate for DeGrussa/Conductor 1 of 6 million tonnes grading 5.1 per cent of copper and 1.6 grams of gold a tonne. ''With mineralisation still open in several directions, we expect that the size of the mineralisation is likely to grow as drilling continues,'' he said.

Downunder Power
Geothermal energy is all the go in these days of carbon awareness and global warming. Almost all of Victoria and large parts of South Australia and Queensland are covered by geothermal exploration permits. The only problem is that much of that ground is either a long way from the energy hungry metropolitan markets or the geothermal potential has to compete with the entrenched coal and gas-fired power industries. That's why New World Energy, a new and soon-to-be listed vehicle from the Ted Ellyard stable, has taken a different tack.

It has just secured geothermal exploration leases covering most of the prospective geothermal ground in the Pilbara in a coastal strip between Onslow and Carnarvon. The Pilbara is one of Australia's high-growth regions for energy consumption. The booming iron ore industry and the huge growth in gas export projects has made sure of that. You would think that with all the gas in the world in the offshore gas fields, gas-fired energy would be the answer. But those gas projects are all about capturing big bucks for exports, not supplying the low-yield domestic markets.

And besides, the ability to tap in to some geothermal power source would give all of those big power consumers in the Pilbara that warm and fuzzy feeling that comes with alternative ''green'' energy sources. It's a wonder that the Pilbara entrepreneur, big-picture thinker and, Fortescue Metals chief Andrew ''Twiggy'' Forrest didn't think of it himself. Then again, he can jump on board if he so desires as, after having just raised close to $2 million in seed capital, New World Energy expects to launch an initial public offering within the next couple of months.