Mill changes pay off for GobiMin

Venture-listed GobiMin (GMN-V, GMNFF-O) posted earnings of US$879,000 on revenue of US$3.5 million in the quarter ended June 30, a net result of US1.4 per share.

GobiMin’s sole producing operation, the Huangshan Dong (or Yellow Mountain) nickel-copper mine in the eastern part of the Xinjiang Uygur autonomous region in China, saw its costs fall to US$13.50 per tonne from US$20.90 in the second quarter of 2005. The steep decline in costs came from higher revenue for copper, which Huangshan accounts for as a byproduct.

Market copper prices were higher, but realized prices increased even more because Huangshan, which previously shipped a nickel-copper bulk concentrate, is now producing a separate copper concentrate. In the second quarter of 2005, GobiMin received an average of US$1,060 per tonne (US48 per lb.) for copper; a year later, that figure grew to US$6,040 per tonne (US$2.74 per lb.).

The upshot was that byproduct copper concentrate grew from 6% of the project’s revenue stream to 17%.

The result offset poorer revenues on the nickel side, which rose out of a mining plan — in hindsight, infelicitously timed — that had Huangshan mining lower-grade ore during a quarter when nickel prices were abnormally high. Head grade of the 51,000 tonnes of ore processed in the quarter was 0.65% nickel, with 85% recovery in the mill. In the corresponding quarter of 2005, Huangshan processed 55,000 tonnes grading 0.85% and recovered 90%.

As a result, the US$879,000 profit in the recent quarter was lower than in the second quarter of 2005, when GobiMin posted earnings of US$1.8 million on revenue of US$3.9 million.

The mining plan goes back into higher-grade material in the second half of the year.

A year-on-year increase in the quarter’s general and administrative costs — amounting to US$463,000 and reflecting additional costs that go with operating a public company — also took a bite out of revenue before it reached the bottom line.

Construction is scheduled to finish on Huangshan’s new concentrator plant, which will have a capacity of 1,000 tonnes per day. With shaft-sinking on schedule, the company expects to process 400,000 tonnes annually starting in 2007, up from 150,000 tonnes in 2006.

GobiMin also has a 15,000-metre drill program now under way on Huangshan, in aid of producing a legally compliant resource figure for the deposit. Six holes were finished by quarter-end. Pre-privatization Chinese government estimates on Huangshan put the size of the resource at 68 million tonnes grading 0.48% nickel and 0.31% copper, in two lenses at the base of a harzburgite (orthopyroxene-olivine peridotite) in a layered ultramafic intrusion. The resource figure probably corresponds most closely to an inferred resource under current Western practice.

GobiMin, in which Chinese nickel producer Jinchuan Group has a 13.5% interest, has a 97% stake in Huangshan, with the other 3% held by private interests. It also picked up a 30% interest in the Malonglang copper-zinc deposit in Tibet during the quarter.