The Banana grows for Hana

For Hana Mining (HMG-V), 2010 is shaping into a banner year.

It was only at the end of last year that The Northern Miner first visited Hana’s Ghanzi project in the heart of Botswana’s Kalahari Desert, and since then the company has kept a torrid pace of activity.

Back at the time of the site visit, Hana had no analyst coverage and was proving up a project that, while large on potential, was still relatively short on tonnage and exploration dollars.

Fast forward a year and the company now has $23 million in its coffers, is covered by 10 analysts, has doubled its resource estimate and is on the verge of adding even more tonnes in a resource update due out in November.

With all of that activity, it isn’t surprising to see the company’s share prices riding steadily higher.

In late 2009, Hana’s shares were trading in the 80¢ range. They now regularly trade between $3.00 and $3.30.

That steady incline allowed the company to close a financing in late April of this year at $2.10 a share in a private placement that was oversubscribed and done without Hana having to issue any warrants as a sweetener.

Such growing enthusiasm around the company can be connected to several factors, but chief among them is that with Ghanzi, Hana is proving up a copper and silver project which shows the early signs of one day becoming a mining camp, and it is doing it in one of the world’s best mining jurisdictions (Botswana) at a time when investors the world over are bullish on the red metal.

Hana’s chief executive and founder of the company, Marek Kreczmer, and the company’s recently hired vice-president of corporate development Pat Donnelly, sat down with The Northern Miner to discuss the project’s progress and its prospects.

On the progress side, Hana has been focusing its dollars on the sizable task of drilling up the entire Banana zone. “Sizable” because the zone, which is in the shape of a banana, is more than 32 km in length.

The last round of drilling completed around its entire circumference with a 200-metre spacing, allows the company to now focus in on Banana’s juiciest areas.

“Because we have all these data points for the entire Banana zone, we were able to select three areas for potential open pits,” Kreczmer says.

Those three zones, known as New Discovery, Northeast Fault and South Lense, are the areas that appear most amenable to open-pit mining thanks to their potentially low-strip ratios, higher than average grades and greater thicknesses of mineralization.

The New Discovery alone, which would be the deepest pit at 250 metres and which has a strike length of 2,000 metres, appears to have enough copper to generate cash flows that would pay back all of the initial capital needed to build a mine.

While hard numbers won’t be out until the first quarter of 2011, the company believes that a future open-pit mine will have capex in the neighbourhood of $300 million.

That would be for a project with the capacity to mill 7 million tonnes of ore per year, from a series of open pits around the Banana zone.

If investors are searching for comparables to Hana, they don’t have to look too far from Ghanzi. Hana’s neighbour to the north is Australian-based Discovery Metals (DML-A). A company that recently put out a feasibility study on its project which estimated capex of $225 million for a mine that will process 3 million tonnes per year.

The grander scale of Ghanzi in comparison to the Discovery project is due to Hana’s corporate strategy of proving up more of the ground through the drill.

The strategy bore fruit in April of this year when it announced it had increased its resource estimate by 81% to 3.9 billion lbs. copper and 62.1 million oz. silver.

And all of that tonnage is near surface. The company is only now drilling two fences to deeper depths, with one fence going down to 400 metres and the other down to 600 metres.

Whatever Hana finds deeper down won’t, however, be of much economic concern at this point.

That’s because the company has enough near-surface mineralization on its hands to safely project 10 to 15 years of copper production from open pits alone.

Beyond the Banana zone, the company has what are known as Zone 3, Zone 5 and Zone 6 as key areas of interest.

Drilling at all zones has confirmed copper mineralization, but Kreczmer says of the three, Zone 3 will get priority in terms of future drilling due to its proximity to the Banana zone and any future mill that may be constructed.

Zone 3 sits 6 km north of Banana while Zone 5 sits 70 km north, and Zone 6 sits 90 km north.

Those greater distances would make trucking any ore to a site at Banana un-economic and so the company is considering the areas as potential standalone projects.

With such an embarrassment of copper richness on its hands, investors may be wondering if Hana’s capital resources are getting spread too thin.

“That’s why we are focused on Banana and are doing engineering work there instead of exploration,” Kreczmer says.

In keeping with that strategy, the company plans to spend the bulk of its $12 million budget for next year on converting resources at Banana into measured and indicated from their current inferred status.

Another question that a junior company having so much copper on its hands begs is whether or not it actually has any intention of developing the project itself.

“We’re getting ourselves ready to do it ourselves,” Kreczmer says. “We’re building a team and the capex is such that Hana can raise that kind of money. And the project, from an engineering point of view, looks reasonably simple, which would allow us to do it ourselves. So at this point in time, we’re not out in the market looking for anyone to acquire the company.”

And while Kreczmer concedes that some larger copper mining companies have come to investigate, don’t expect acquisition talks to start heating up until the company gets a preliminary economic assessment (PEA) out.

That was largely how things played out for Antares Minerals (ANM-V), which released a PEA on its Haquira copper project in Peru in July of this year and then announced a $460-million offer for the company from First Quantum Minerals (FM-T) on Oct. 18.