Asian Mineral quietly opens new frontier in Vietnam

Diplaying a different philosophy than most juniors, Asian Mineral Resources (ASN-V, AIERF-O) decided to keep quiet when it finished its feasibility study for the Ban Phuc massive sulphide nickel project in northern Vietnam almost three years ago.

Also unusual is that all of Asian Mineral’s financings in its five-year existence have been at a premium to its share price — something unheard of for most juniors.

And although the company is on target to produce an average of 5,000 tonnes of nickel per year over about five years starting in early 2009, the Ban Phuc project has remained relatively unknown.

What’s more, the project has considerable upside potential with an adjacent, much larger, high-grade disseminated sulphide ore-body– part of the company’s 150sq.-km land package– with drill results of over 1% nickel.

But now that Asian Mineral has a fully funded project with strong near-term exploration results, it’s time for it to make some noise, says company chairman Jim Askew.

“We are really just now starting the investor process,” Askew says. “It’s a really unusual situation because we’ve been public for over three years and have done nothing (in terms of promotion).”

He says the company has had its reasons for keeping quiet. Of particular concern was the time it would take to get a mining licence in a country that has little mining history. Ban Phuc will be Vietnam’s first nickel mine.

“It was a strategic choice to lay low and not have the pain of disappointing people,” Askew says. “We knew the mining licence would take time and it did — it took two years.”

The licence finally came through in December, paving the way for construction of a 450- million-tonne-per-year underground operation.

The $75-million capital project will be commissioned in early 2009 with commercial production starting by the summer. The processing plant will initially run at 200,000 tonnes per year with room to increase production to maximum capacity.

Asian Mineral has a 90% interest in the project with the remainder held by Son La province, where Ban Phuc is located.

The project has an after-tax net present value (with a 10% discount rate) of US$170.3 million and an internal rate of return of 128% (net of minority interest).

Operating costs are estimated at US$3 per lb. nickel after copper and cobalt credits.

As the company waited for the mining licence from the central government, it was able to get a lot of predevelopment work done using provincial approvals to build roads, clear forest and build the camp.

More recently, a spiral access ramp was started in May and at last check had advanced more than 25 metres from the lower portal. Development of the upper access drive and the tailings dam are also under way.

The work completed while the company waited for the mining licence helped to more than just speed the project along; it won the company credibility with the local people, who live in one of the poorest regions in the country.

“We started to have an economic impact in the province so there’s an increased level of appreciation and support that we’re a genuine partner who’s actually going to do something,” Askew says.

But due to rising development and operational costs in that two-year waiting period, Asian Mineral also had to update its feasibility study in September 2007. Capital costs rose about 9% overall.

The updated study allowed the company to double capacity of its processing plant with a view to eventually expanding production.

“As we got more and more confidence about the adjacent high-grade disseminated zone, we made a strategic move to put the flotation capacity in to accommodate a much bigger throughput,” Askew explains.

The company is now trying to find out how to blend the disseminated ore with the massive sulphide ore without affecting the planned concentrate specifications, and is looking into developing an open pit in addition to underground mining. Metallurgical testing, under way in Perth, will be finished by the end of this year.

“We’ve got to absolutely get on top of the metallurgy before we can say with certainty,” Askew says.

The recovery rates of the massive sulphide zone are estimated at 86% for nickel and nearly 96% for copper, and the company plans to ship a concentrate grading 9.5% nickel, plus copper and cobalt.

Reserves for the massive sulphide deposit total 1.03 million tonnes grading 2.4% nickel, 1% copper and 0.1% cobalt for 24,000 tonnes of nickel, 10,000 tonnes copper and 810 tonnes cobalt.

Measured and indicated resources stand at 1.23 million tonnes grading 2.77% nickel, 1.13% copper and 0.09% cobalt for about 34,100 tonnes of nickel, 14,000 tonnes copper and 1,100 tonnes cobalt.

In the inferred category, the company has 260,000 tonnes grading 2.43% nickel, 1.16% copper and 0.09% cobalt for 6,300 tonnes of nickel, nearly 3,000 tonnes of copper and 230 tonnes of cobalt.

In 2005, indicated resources on the disseminated zone were 9.6 million tonnes grading 0.58% nickel (with a 0.4% nickel cutoff) for 55,500 tonnes of nickel metal. Inferred resources totalled 6.1 million tonnes grading 0.52% for 31,600 tonnes of nickel.

The mine site is located about 180 km northwest of Hanoi, a city of 4 million. The area is lush and mountainous but the infrastructure is very good, with wide paved highways, modern bridges, hydroelectric power and unlimited water available. Concentrate will be shipped by truck to the major ocean port at Hai Phong.

The company currently has a $7- million exploration program that will include flying a VTEM survey this summer and drilling a list of targets where surface sampling and drill intersections have returned prospective grades.

For example, a 3-metre channel sample from the Suoi Tao prospect returned grades of 1.1% nickel, 1.2% copper, and 2.09 grams combined platinum group metals (PGMs) per tonne.

An outcrop from the Ban Trang target measured 2.1% nickel, 0.14% copper and 1.1 grams combined PGMs per tonne.

And at the King Snake target, a 1.7-metre drill intersection graded 3.3% nickel, 1% copper and 2 grams combined PGMs per tonne.

Askew says platinum group metals can be found throughout the area surrounding Ban Phuc.

“We don’t understand what controls them or where the PGMs are at the moment, so that will take time,” he says.

But in true Asian Mineral spirit, the company hasn’t announced any of its latest drill results yet; it’s just not something that Asian Mineral does.

“We are not a company that you will see just announce holes,” Askew says. “We want to get a feel of whether something is worth talking about and then we’ll put out a press release.”

The Ban Phuc intrusion, discovered by Vietnamese geologists in the late 1950s, is one of the larger ultramafic bodies in the region, measuring 940 by 420 metres. The intrusion has a northwesterly trend that corresponds with the Devonian metasedimentary host rocks.

The deposit shows concave layering defined by low-grade nickel-enriched sulphide layers, which are conformable with the base walls of the intrusion. Along the northwestern end of the intrusion, which is a wider basal zone, the sulphide layers are flat-lying with only minor convexivity, while in the southwest section the layers are tightly oppressed and strongly concave, extending up the footwall and hangingwalls of the intrusion.

Asian Mineral reports that the massive sulphide mineralization occurs in a major shear-controlled vein structure in hornfels host rock along the southern margin.

The deposit was explored off and on over the years with Falconbridge working on it in the late 1990s until 2003 with Spectrum Resources. That was when Asian Mineral, then a subsidiary of Spectrum, took over.

The company has plans to expand beyond its current land package. Askew says Southeast Asia is underexplored — not surprising considering a recent history that includes war, communism and genocide.

“But
they are also by and large heavily populated countries so you have that challenge as well. You are not dealing with remote Siberia, Australia or the tundra here.”

Cultural issues have been significant, Askew says, and the secret to success is to employ local people as much as possible. But with locals having little experience in mining, Asian Mineral has had to start off using expats from Australia and the Philippines.

“In due time we’ll end up with all Vietnamese people,” Askew says.

This goal comes from his experience with Sino Gold (SIOGF-O, SGX-A), which is building a second mine in China. Askew says there isn’t a single expat working at Sino’s new project.

“The only difference is in China you have a much bigger pool with mining experience to draw from.”

Askew, a former academic, has started a scholarship program at a Hanoi university.

“It gives you a chance to pick the stars,” he says.

If Vietnam has the potential that Askew says it does, he’ll be needing those stars.

“We’ve attracted a really highly talented geo team because it’s so prospective. The word’s got out amongst the geos that you can make a name for yourself here and the Vietnamese geos are responding fantastically.”

After working extensively in China, as well as the Philippines and Africa, Askew found Vietnam to be a “pleasant surprise.” But building the first nickel mine in the country has forced the company to play the role of trailblazer just the same.

“It’s taken a bit longer to adapt to the local ways but we’ve had good guidance from the people at Olympus Pacific,” Askew says.

Olympus Pacific Minerals (OYM-T, OLYMF-O) is developing the Phuoc Son gold project and is operator of the Bong Mieu demonstration gold plant, both in central Vietnam.

“The other thing that’s been beneficial, in the agonizing amount of time it’s taken to get to this point, is that we’ve built up a lot of trust in the country, and in Asia that’s critical,” he says.

Askew says that Vietnam is a great place to work, as demonstrated by the fact that the expats who do work for Asian Minerals have either relocated their families to Hanoi or are in the process of doing so.

Asian Mineral is still about a year away from reaching commercial production but already, all the nickel it plans to produce is spoken for.

In May, the company signed an offtake agreement with Jinchuan Group to sell all nickel concentrates produced during the first five years of production from the massive sulphide deposit. Jinchuan has first right of refusal for any additional nickel concentrates from Ban Phuc as well.

At the same time, Jinchuan acquired a significant interest in the company by agreeing to buy 4 million units at $1.75 each for a total of $7 million; each unit is made up of one share and one warrant, which will allow Jinchuan to buy common shares for $2.10 each until July 31, 2008. If all the warrants are exercised, Jinchuan’s investment would total $15.1 million.

Investors like Jinchuan are the reason that Asian Mineral has not had to go to the market for money to develop its projects.

The company has been funded by a few large stakeholders and insiders.

“Every share I own, I’ve paid for,” Askew says. “Insiders have been involved in almost every financing.”

In fact, the company reports that the top 10 shareholders hold 85.6% of the outstanding shares with company directors holding 26% of outstanding shares.

The largest and most long-term shareholder has been Dragon Capital, which holds about 26% of shares, as estimated in a report by GMP Securities.

But Dragon’s investment caused Asian Mineral a bit of a headache earlier in the year when it increased its holdings to 37% and attempted — unsuccessfully — to overthrow the current board of directors through a proxy battle.

“It did destabilize us for a while but now it’s behind us,” Askew says.

In late April, Malaysia Smelting Corp. exercised the warrants it held from a December 2007 private placement for $20 million. Malaysia bought almost 6.8 million shares for $2.10 each, bringing the company’s total investment in Asian Mineral to $34.3 million, a total interest of 19%.

The company has applied to move from Toronto’s Venture Exchange to the TSX and Askew says that soon it could be looking to the public to raise some money in order to improve the liquidity of the stock, which is thinly traded.

For example, on June 4, Asian Mineral shares rose 15 each, or 10%, to $1.65 on a trading volume of 4,000 shares.

The stock has a rolling 52-week high of $3 and a low of $1 with more than 96 million shares outstanding, 18 million shares in escrow and a float quoted market value of $117 million.

Asian Mineral has about $40 million in working capital and no debt, but it’s looking into a $30- million bridge loan as a little protection as development moves ahead.

“It’s about trying to attract investors who are interested in what could develop into a fairly substantial nickel producer with a lot of first-mover advantages in Vietnam,” Askew says. “We don’t have to be promotional.”