Asian Mineral capitalizes on first-mover status in Vietnam

VANCOUVER — It’s been a long journey for Asian Mineral Resources (TSXV: ASN; US-OTC: AIERF) at its Ban Phuc nickel-sulphide project, 160 km west of Hanoi in Vietnam’s Son La province, but the company’s patience is about to pay off.

Asian Mineral is finishing up its inaugural year of production at Vietnam’s first commercial nickel mine, and appears poised to explore a potentially prolific greenfield property package, with the government’s full support.

The company’s history at Ban Phuc dates to 1993, when it formed a joint venture with the Ministry of Heavy Industry of Vietnam. The property agreement has been adjusted a few times since its inception, but Asian Mineral now controls a 90% interest in the asset alongside Son La Mechanical Engineering.

Production was originally targeted for 2007, when an engineering agreement was signed to build a processing plant modelled in a 2005 feasibility study, but Typhoon Hagupit and the 2008 global financial crisis tossed a wrench into those plans.

“If you look at the first round there were a few difficulties,” explains president and CEO Evan Spencer during a phone interview. Spencer took charge of the company in January and previously held senior positions with Barrick Gold (TSX: ABX; NYSE: ABX).

“Just as the project was about to come into production, the government introduced an export tariff, the typhoon hit directly over the site and right [after] you had the Asian economic crisis.” he says. “It made funding at that stage difficult, so the operation was put into hibernation. The introduction of Pala Investments in 2012 really pulled the story back together.”

Pala is a private equity and venture capital firm based in Switzerland that operates as the investment arm for Russian billionaire Vladimir Iorich. The US$1-billion, multi-strategy alternative investment company holds a 75% equity interest in Asian Mineral. Thanks to the financial backing, the company began mining at Ban Phuc in May 2013, focusing development on the massive sulphide vein (MSV).

Most of the construction was done within four weeks, with concentrate trucked to the Port of Hai Phong beginning in August 2013. By mid-November the first commercial quantity of nickel concentrate was ready for shipment from the port warehouse.

By the start of this year’s third quarter, Asian Mineral was producing at an average of 30,000 tonnes of ore per month, and it cranked out 111,276 tonnes for the entire third quarter. The company sold four shipments for 20,600 wet tonnes of nickel concentrate. Sales revenues totalled US$23.6 million, while net income was US$2.8 million.

“I think the mine sequencing was a bit tight through the first quarter, but the beauty is that we were able to achieve rates and grades outlined in our mining studies,” Spencer says. “We’re a classic mid-stage operation when you look at the life cycle of a mine. You go through construction and ramp up to your steady state. Then you look for your business improvements, which I like to call ‘squeezing the lemon.’ It’s traditional optimization, where you look at what you have and try to get the most out of it.”

Underground mining at Ban Phuc is focused on the MSV, with most nickel mineralization — with or without copper — spatially and temporally associated with ultramafic intrusions.

The concession area lies in the Song Da rift, a major crustal suture zone that is part of a broader northwest-trending corridor of deep continental rifting known as the Red River fault zone. Mineralization is comprised of mostly steeply dipping northeastern lodes within MSV and ultramafic rocks.

Ban Phuc hosts proven and probable reserves of 1.6 million tonnes grading 2.2% nickel, 1% copper and 0.1% cobalt. Measured and indicated resources total 1.7 million tonnes of 2.7% nickel, 1.2% copper and 0.1% cobalt.

Asian Mineral’s most recent study is a feasibility dating to February 2013, which models a 450,000-tonne-per-year plant producing a bulk nickel-copper concentrate via a conventional base metals flotation flow sheet.

The plan carried capital expenditures (capex) of US$34.6 million, and is slated to produce 7,000 tonnes of nickel concentrate per year, along with by-product copper production of 3,000 tonnes and cobalt production of 180 tonnes. Average life-of-mine, by-product cash costs are pegged at US$5.21 per lb. nickel. The mine life is an estimated five years.

Under the study, Ban Phuc features a US$66-million, after-tax net present value (NPV) at a 12% discount rate, along with a 69% internal rate of return (IRR). Metal price assumptions include US$9 per lb. nickel, US$3.78 per lb. copper and US$9.85 per lb cobalt.

“I think the mill was over-designed for the phase of mine we’re looking at now. For me it’s about driving every ounce and controlling those marginal costs,” Spencer says. “But we brought ore through quickly, and we’ve achieved full-strength, steady-state production quite quickly. It’s always better to be mine constrained than mill constrained.”

And the production centre offers Asian Mineral a foothold in what Spencer believes may be a district play. In July the company was awarded exclusive exploration rights to a 50 sq. km slice along the Song Da rift that could help it become a “multi-mine nickel sulphide producer.”

Asian Mineral has identified magmatic nickel-copper-platinum group metals (PGM) targets within the regional Ta Khoa anticline, which could extend Ban Phuc’s mine life.

The most advanced occurrence is the Kingsnake target, which lies 1 km from the company’s processing facility. Historic drill highlights at Kingsnake include: 1 metres of 3.3% nickel, 1% copper and 2.16 grams PGM per tonne from 90 metres deep in hole 1; 0.3 metre of 2.6% nickel, 0.7% copper and 3 grams PGM from 138 metres in hole 5-03; and 0.3 metre of 3% nickel, 1.1% copper and 2.51 grams PGM from 249 metres deep in hole 1-12.

Meanwhile, the nearby Ban Khoa target is described as a “Ban Phuc look-alike,” and hosts an intrusive body and disseminated zone, and an untested electromagnetic (EM) conductor in similar association to the massive sulphide body at the MSV. Airborne magnetic surveys show a trend on magnetic anomalies extending for 2.8 km.

Regionally, the Suoi Phang/Ban Mong system — which lies 12 km from Ban Phuc — is another high-priority target. Exploration so far has identified two MSV outcroppings, which, if connected at depth, would represent a system with a strike length of over 4 km.

Rock-chip samples from the outcrops associated with these MSV deposits show nickel grades of over 5%, plus “material PGM occurrences.” The Ban Mong deposit returned MSV grades of up to 6.6% nickel sampled from within a historic exploration adit.

Asian Mineral has identified another eight regional targets based on rock-chip sampling and EM surveys, including: Ban Khang, Ban Trang, Suoi Tao, Suoi Hao, Adit 7, Ban Bo, Ban Change and Co Muong.

“It’s really untouched stuff, since the 1950s,” Spencer says. “We have a growth strategy for the regional package. We need to take our geological model, prove it up and leverage off that theory. There’s been so little work that we’re stepping out with down-hole electromagnetics and soil work to unravel structure and controls in the region. We’re looking around these main intrusive events that form into these sills where we’ve had the most reheating, re-cooking, and re-mobiliz
ation of the sulphides.”

Outside of its mineral prospects, Asian Mineral is poised to benefit from socio-political connections it has forged in Vietnam due to its commitment at Ban Phuc. Back in July 2011 the government adopted a mining law wherein an auction is needed for all mining areas. Asian Mineral’s standing in the country allowed it to obtain an exemption from the auction process.

The government is also working with Asian Mineral to develop a nickel smelter at Ban Phuc. In early 2013 the Ministry of Finance issued a circular that stipulated a 5% export tariff on nickel matte. The existing export tariff on nickel concentrates remains at 20%. Spencer says the government is allowing the company to work on permitting the smelter in tandem with its exploration activities.

Asian Metal says it could “significantly boost” economics at Ban Phuc with a relatively low-capital smelter development at the site that could cost US$30 million. The facility would have a capacity of 114,000 tonnes of dry concentrate per year, and produce a matte grade of 50% nickel and 24% copper.

“Our process has really become an educational role, where we work with the central government on frameworks and how these pieces of legislation should be interpreted. Then we support the transition of that knowledge down to the provincial and municipal levels,” Spencer explains.

“The government is working with us on leverage if we were to take further downstream processing in-country. It’s actually in our licences. We could probably justify a smelter today if we pushed a button, but the problem is that payback is linked to mine life, and I’m not sure we would want to take the extra risk right now,” he adds.

Spencer says he had always been a bit skeptical about the “beach head” or first-mover position in a country, but he has seen the benefits in Vietnam. Ban Phuc’s workforce is expected to have 95% Vietnamese nationals by the end of 2015, and Spencer says that he’s seen a high level of education and work ethic from the younger generation.

Vietnam has also cracked down on illegal mineral exports and monitored artisanal operations, and Asian Mineral has been approached by parties interested in the Ban Phuc facility.

“In the last two years I think we’ve seen a fundamental shift in Vietnam that’s been mirrored in a lot of other jurisdictions around the world. The country is really catching up and the government is starting to fully understand the value that can come from natural resources,” Spencer says. “And it’s funny because as we’ve been progressing over the past three or four months people are starting to contact us to see if we’re interested in deposits they can no longer ship over the border, because they have to modernize.”

Asian Mineral has a healthy capital position with US$10 million in cash and equivalents at the end of September. The company expects positive cash flow from Ban Phuc moving forward to fuel its exploration activities, and Spencer speculates it should be able to “self fund,” and avoid looking for capital in current markets.

Ban Phuc’s project financing was arranged through a US$20-million loan with Vietnam’s LienViet Post Bank in July 2013. The facility has a tenor of three and a half years, and carries a London Interbank Offered Rate, plus 6.5%. First principal payment on the loan was due in March 2014.

Asian Mineral has traded within a 52-week window of 3¢ to 10¢, and closed at 3.5¢ per share at press time. The company has 779 million shares outstanding for a $27.4-million market capitalization.