Wednesday, January 16, 2019

Serengeti - Buffing the Banana

Someone asked me to look at Serengeti's Kerwanka project in BC.

You have to give credit, Serengeti's team have been hard at pounding the the bald-headed moose, cranking the shank, and feeling their way around Kerwanka.

However, the problem with dancing with the one-eyed driller is that once in a while you have to consulting with your silent partner to see if the project is good enough for a one gun salute.

So why don't we stop serenading Mrs. Palmer and her five daughters by letting go of the one-stringed guitar and have a look:

what a load of crap
Wow, the open pit resources are terrible and the the underground "resources" are just a Cu(m) stain.

So basically, they could define >10 billion tonnes at a similar grade and it would still be too shit to put into production.

For amusement, here is the Kerwanka underground resource plotted against the mighty proposed block cave operations

Well, someone has to come last...

So basically, all that hard work milking the moose, fly fishing and hoisting the petard still means that the project is crap. That's enough to make the the bald man cry


  1. I looked at this one closely several times. I think you're being too kind.

  2. Can you provide sources for figures?

    1. yes
      Figure 1 is from the Kerwanika technical report
      Figure 2 is from the USGS open file report of grade tonnage analyses on porphyry copper deposits
      figrue 3 is from the Macquarie report on block cave operations

  3. I think this should have waited, and needs to be updated, when they release the new resource numbers in a few weeks. They realize the existing resource is too low grade and the u/g mine plan won't fly. Not saying they can make it work, but they are actively trying to improve it and at least that is a good thing.

  4. I thought your underground resource CuEq was low so I checked the technical report (PEA) and indeed you have the total resource grades correct, but not the production grades. Moose Mtn shows expected underground grades of 0.45% Cu and 0.52 g/t Au. The CuEq is closer to 0.8% but is still well below the threshold to be economic and at 42 Mt is too small to justify the investment. What they really need to make this project work is a much bigger Central Zone open pit tonnage, which is currently only about 12 Mt. The South Zone is too low grade to be economic unless copper returns to $4.

    1. I think you are stating something that the company is aware of, and that is why they have added drilling to better define the high grade portion of the central zone, and are looking to change the mine plan and sequence. Whether that works or not is a question, but they're actually going about things the right way and it would be helpful if AG at least acknowledged that.

    2. According to the McQuarrie chart they need to double the CuEq grade and then find enough tonnes to make this thing work. That's a tough order to fill. But there are other issues as well.

  5. PEA is 2yrs old now and South Zone has been dropped from the plan. No mention of this years extensive infill drilling to prove up grade and tonnage with updated resource estimate out in a few weeks.

    Check out the surface grades from this summer's drilling enabling open pit for several years.

    1. most of the drilling was infill and even though they got some good holes but they were just confirmed the historic numbers.

  6. AG, can I ask where your block-cave hurdle diagram is sourced? I've never seen this figure before.

    1. It comes from this well written report on Block Caving by McQuarrie.

    2. Sorry about the bad link. Go to the blog on Solgold and read it. There is a link to the McQuarrie report that works.

    3. This report, or at least the critical points it makes, needs to be read and thoroughly understood by anybody who wishes to opine on the subject. I've read it several times front to back and still make some mistakes that are clearly addressed in the report (for example, failing to adequately account for ramp up). It's not as simple as the hurdle rate, you only use that at a very high level. If you look at Table 14-18 in the 2017 PEA you see the resource at various cutoffs, I think 0.40% Cu is reasonable and that stands at 57.7 million tonnes. Too low, but if they can get that over 100 million tonnes in open pit with a decent strip ratio then it could be worth looking at closer.

    4. I've looked at Kwanika several times and concluded the underground idea won't work unless the grand and tonnes are substantially better.

      The 57 Mt you mention is about what they show from OP & UG in the mine plan in Section 16. It provides feed for the first 9 years, which is not enough to attract financing. Probably needs an additional 5 to 10 years at similar grades to make it through a complete copper price cycle.

      If you look at Marek's pit constrained tonnage he estimated 100 Mt indicated at about 0.3% Cu and 0.3 g/t Au and 0.13% cut-off. The Whittle parameters are reasonable, although they don't show the discount rate used nor the NPV or waste for the pit. It makes me wonder why they pursued an underground option.

      I like deposits this size. I was at Huckleberry for a few years....very similar size. Copper grade was much better but gold was less than 0.1 g/t. We did well at Huckleberry when copper price was rising back in '05 to '07. On this one the copper grade is so so but the gold grade is intriguing, particularly if the gold is not caught up in the pyrite.

      The latest drill pgm (7800 m) is primarily geotechnical so it probably won't add much if anything to grade or tonnes.

      The company also has some interesting early stage projects, including one near Kwanika.

    5. Sticky keys...first sentence should read "grade and tonnes".

    6. The latest resource estimate now shows double the open pit tonnage at 24.4Mt grading 0.67% CuEq @0.40% cut-off rate measured and indicated, or 63.2Mt grading 0.45% CuEq @ 0.25% cut-off rate.

      Any thoughts on what this does to the viability of the project?

      Pit & Underground material within PFS confining shapes now at 130Mt which adds 10yrs to the mine life, the first 5 of which will be focused on the open pit?

      Am I reading this right and does this move the needle enough?

    7. It seems positive but one needs to remember that this is a resource estimate only, and is based on metal prices 20% higher than their base case assumptions. In other words, it gives some idea of what is reasonably possible rather than what is economic. One wonders what the pit would look like if they used lower metal prices? A three year historical average is often used. And for financing, banks would probably want to use a much lower number...close to the lowest possible number to cover operating and corporate costs.

    8. The simple answer is no, the grades are still way too low.
      For open pit - you'll need ~0.6%CuEq and above (unless the deposit is huge), and for underground you'll want >1.0% CuEq.

    9. Thanks for the responses Tom and AG.

      Can anyone speak to the cut-off grades?

      What would be considered a best practice cut-off grade for the open pit/block cave?

      From the updated resource estimate, they show 24.4Mt of 0.67%CuEq @ 0.40% cut-off in the pit. Based off their throughput from the PEA, that would amount to 5yrs production. AG, this meets your threshold of 0.60%CuEq in the pit, but I gather that the tonnage is too small by your estimation?

      Additionally, in the pit they show 63.2Mt of 0.45%CuEq @ 0.25% cut-off rate and 104.6Mt of 0.35%CuEq @ 0.13% cut-off rate. How much tonnage is needed at this grade to become economic?

      In the cave, they show 64Mt of 0.62%CuEq @ 0.4% cut-off.

      This is far from your >1.0% CuEq target, but at 0.4% cut-off, how much tonnage is needed to be economical?

      Tom, you had posted thoughts that this might be worth another look if they could add another 10yrs to the mine-life at similar grades shown in the PEA from the high-grade zone. This latest estimate appears to have done that.

      Your point on the question of financing is well taken, and perhaps I am overly optimistic, but Daewoo has very deep pockets, so to them I think it either makes sense or not, and bank loans will never be an issue: If the project makes sense, Daewoo will secure the financing. If not, they walk away.

      I have a small position in this company and debating adding to it.

      I keep looking at $25-30M market cap with no debt and can’t help but think it’s worth $0.30 based on just the exploration prospects alone at ATTY/Croy Bloom, even if Daewoo walks away. $30M market cap?

      Thanks again for the replies.

    10. Sorry, I meant to refer to Bill, not Tom above (but Tom's input also appreciated)

    11. Due to the CAPEX required, they'll need 10 times the amount of resources at the same grade i.e. 250Mt @ 0.67% CuEq.

      For underground - >>100Mt @ >1% CuEq, or a smaller tonnage if they have a high-grade core. A good example would be Ridgeway which was 44Mt @ 2.6 gt Au and 0.82% Cu.

      For the current resources, the tonnages and grades are way to low to be of interest.

    12. I’m not following how an additional 200Mt of 0.67 @ 0.40% cut-off is required to manage $475M Capex.

      SIR has C1 Cash cost of $0.70/lbCu per PEA (and a lot lower with this updated resource estimate). I’m having a hard time finding a company with lower C1 Cash Cost/lb.

      With 5yrs in the open pit at .67% @.40% cut-off, that will push a large portion of that Capex out 5yrs minimum and easily fund the underground development whenever they decide to start.

      The underground has an additional 7yrs minimum at similar grades while the open pit continues to operate concurrently.
      I’m having a difficult time understanding how this project will ‘not’ move forward.

      I am admittedly a novice, and I know there are a lot of moving parts in these evaluations, so trying to compare apples to apples. When I look at your figure 12 above showing 'block cave making the grade', I do not see how the Padcal mine can be placed ahead of SIR:

      Padcal shows 59.7Mt of 0.20%Cu for 216.2Mlbs & 0.41g/tAu for 627.4koz.

      SIR shows 64.0Mt of 0.39%Cu for 550.0Mlbs & 0.43g/tAu for 884.0koz. SIR also has a kicker of 1.23g/tAg for 2,520koz….all measured and indicated.

      Padcal does not have a juicy 5yrs of 0.67%Cu open pit on top of it.

      I can’t reconcile a negative outlook on this company with apples-to-apples comparison, but I am hoping you can offer a few of the missing apples for consideration.


  7. AG, Where did the chart with Copper Grade Eq vs MT ore\copper come from? You have used it a couple of times now and I'm keen to know the source of it.

    1. Hello Anon,

      It is figure 4 in USGS Scientific investigations report (2010-5090-H).

      You can download it from here:

      I modified it to remove a few trend lines to make the chart less busy, but they show lines for +ve returns for development and exploration and some lines on how returns will change with depth to mineralization.

      Kind Regards

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