EXPLORATION 1997 — JCI expands past borders of South Africa, forms alliances with juniors

World-renowned gold producer JCI is learning that partnerships with junior companies are an effective means to pursuing projects beyond the bornders of South Africa.

Based in Johannesburg, the company turns out 1.8 million oz. gold per year from a minable reserve of more than 80 million oz. It also produces coal, antimony and ferroalloys (ranking second in world production of high-carbon ferrochrome).

Large South African mining houses, which have grown accustomed to operating only domesticallly, now realize they are in danger of being left behind in the current trend toward entering into new international mining markets.

It is for this reason that JCI has undertaken to form partnerships with smaller, foreign-based companies on projects in other African countries and even farther afield.

The company recently entered into joint ventures with the African subsidiary of Canyon Resources (CAU-X) and with Lone Star Exploration (LSE-V) and Australian-listed Kimberley Diamond Co.

In view of JCI’s financial stature, technical capabilities and century-old experience, it is not surprising that smaller companies should be lured by the prospect of working with the major. It is, after all, accomplished in virtually every aspect of mining — from prospecting and engineering to development and rehabilitation.

According to Robert Still, chief executive of JCI’s business development division, the deal with Canyon is a reflection of his company’s strategy of working with “selected juniors” in Africa.

JCI can earn 51% in three licences in Ethiopia by spending US$4.5 million on exploration. Canyon currently manages the joint venture, though JCI will assume that responsibility upon earning its interest. Moreover, JCI can earn up to 65% in any particular licence by financing an additional US$4.5 million, or conducting a bankable feasibility study.

Canyon is currently exploring the 60-sq.-km Megado Serdo gold property, near the Lega Dembi mine in the Adola gold belt of southern Ethiopia. The property is estimated to host 2 million contained ounces. Canyon also has licences covering 108 sq. km in the Meleka Abebe area, also in the Adola goldbelt, and 1,700 sq. km in the Tigray greenstone province of northern Ethiopia.

Local miners at each licence area are producing gold from stream gravels, and favorable bedrock geology could lead to the discovery of sizable gold deposits.

JCI took a different approach in its dealings with Kimberley Diamond. Rather than form a partnership with the company, JCI instead bought 5 million shares for A$1.1 million, becoming Kimberley’s single largest shareholder.

According to Still, the purchase was a “strategic early-stage investment,” and reflects JCI’s policy of “grubstaking competent teams of people, particularly where, as with the Kimberley Diamond team, they have an excellent track record of creating value in the resource industry.” JCI has not sought any seats on the board of directors of Kimberley Diamond; nor has it interfered with the company’s exploration programs. According to Still, JCI may become a larger shareholder and a more active partner if both companies wish to advance any of the mining investment opportunities they are investigating in Australasia.

Miles Kennedy, Kimberley Diamond’s deputy chairman, says the arrangement carries several advantages for his company. “JCI has a number of assets and a pool of technical and financial expertise, and I am sure Kimberley Diamond stands to benefit as a result.”

The partnership is allowing Kimberley Diamond to diversify and expand its interests beyond its diamond projects. “We will now target gold investment opportunities where we hope to rely on JCI for their expertise in the field,” says Kennedy.

Lone Star venture

In a more recent venture, JCI has turned its small stake in the Awak Mas gold project in Indonesia into a long-term relationship with project operator Lone Star.

JCI sold its 10% direct interest in Awak Mas for a purchase consideration of 25 million shares of Lone Star, a transaction that boosted JCI’s holding in that company to more than 27%. At the same time, Lone Star increased its holding in the mine to 100% after buying the 45% interest held by Australian company Gasgoyne Gold Mines.

Resources at Awak Mas, situated on the island of Sulawesi, stand at 3 million oz. gold, with significant potential for additional ounces. A bankable feasibility study of an operation with projected yearly production of 150,000 oz. (to start up in 1998) is nearing completion.

According to Still, the implications of the transaction are significant with respect to operation of the project. “The single ownership of Awak Mas will ensure more effective management of the project’s development,” he says. The arrangement is also expected to enable the companies to open a mine there by the end of 1998.

The benefits of the deal work both ways: Not only does JCI gain a partner that has proven itself in the field; the arrangement, according to Lonestar Chairman Robert Wilde, represents “a major vote of confidence in the company from one of the world’s largest mining houses.”

Although Awak Mas hosts sizable gold resources, Wilde believes the area will yield additional deposits, for which his company plans to explore this year.

To date, aerial magnetic surveys have identified promising geological targets in the contract-of-work area. Lone Star plans to add three drill rigs to the property, bringing the total there to six.

— The author is a freelance writer based in South Africa.