Red Metal’s objective is to discover giant base metal deposits in Australia and the company’s strategy to reach that goal is to explore Proterozoic terrains with proven metal endowment.
Red Metal has a diverse portfolio of assets across Australia accompanied by a potash play in North America. But the explorer’s strategy is focused, targeting Australia’s most productive Proterozoic terrains for giant copper, copper-gold and silver-lead-zinc deposits.
It listed on the ASX in 2003 and was a spin-out of Australian assets held by US copper major Phelps Dodge (now Freeport-MacMoRan Cooper & Gold), where Red Metal’s managing director Rob Rutherford spent nine years before founding Red Metal. The company now maintains an enviable portfolio of base metal projects in Australia.
“The Proterozoic period in Australia, the Middle Proterozoic particularly, hosts a number of giant base metals deposits and is the most prospective geological period for big deposits. That is where we focus our exploration; South Australia, Queensland and Northern Territories predominantly…these states contain most of the highly prospective middle period terrains, rich with giant copper and silver-lead-zinc deposits. While our focus is base metal exploration, of course we don’t ignore geological potential for other commodities while in those terrains and typically joint venture these opportunities to other companies,” explains Rutherford.
He points to the Maronan project in Mount Isa Inlier, Queensland as the company’s focus for drilling following the intersection in the first quarter this year of significant high-grade silver-lead mineralisation of a similar type to the nearby Cannington deposit, home to one of the world’s largest and lowest-cost silver and lead mines owned by BHP Billiton.
“Maronan offers the potential at depth for one of those types of deposits, and recently we have come up with a new interpretation on the plunge direction of the main mineralisation there. We have won proof of concept recently with the identification of significant high-grade mineralisation at a similar tenor to Cannington,” says Rutherford.
By “new interpretation” he means that previous attempts to find mineralised zones led to drilling deep to the south of the prospect but after recent drilling and another look at the data, all signs point to the north. A rig is secured to start in the second quarter this year.
“The objective now is to find greater thicknesses of the high-grade mineralisation and a strong off-hole conductor, detected in one of the deeper holes, supports the interpretation that there might be thicker bodies of sulphides down dip. Over the next six months we want to repeat those high-grades but over larger widths and continuous zones” he says, adding that company geologists are very optimistic about this project.
If that was not enough, last year, Red Metal discovered intersections of wide zones of significant copper, gold and silver mineralisation, which share similar geological characteristics to the large Ernest Henry copper-gold ore body 100km southeast where Xstrata Copper is currently mining.
“Xstrata Copper moved quickly to secure access to Red Metal’s new discovery through an earn-in agreement and has allocated $1 million over the next few months for a three deep hole programme and is planning regional geophysics surveys on some other comparable targets. It is going to be a pretty active project over the next six months,” Rutherford says.
Rutherford adds that one of the popular operational models for exploration companies is to make a discovery and sell out to a major, but Red Metal has the skill set and experience on the board to take any discovery through to development if the project warrants it. When an explorer finds something really big there are plenty of options and Rutherford explains that those options will be reviewed on a case-by-case basis. In the short-term, however, he sees that significant capital growth for the company can be captured with discovery.
At the same time, Rutherford does see some obstacles in dealing with the Australian government’s lack of understanding of exploration industry dynamics.
“The problem with Australian exploration industry is that the government perceives the mining industry and the exploration industry as the same thing, but in many ways they aren’t. We as junior explorers don’t have a cash flow and rely on the sentiment of the market. The exploration industry has been pushing for some kind of flow through share scheme similar to Canada’s, which stimulates and directs high-risk investment into the exploration sector,” Rutherford notes.
The programme he is referring to provides tax incentives for investors who acquire flow through shares (FTSs), which are newly issued shares similar to common shares. The FTS mechanism allows the issuer corporation to transfer resource exploration expenses to the investor, and junior explorers in particular tend to benefit from the programme since they have no mining revenue to offset their exploration expenditure against.
Whether or not such an idea gets picked up by the Australian government remains to be seen. For now, Rutherford is looking at the next targets for year’s end.
“We measure our success by making ore grade intercepts, which with further drilling may turn into deposits. By the end of 2012, I would love to have a wide, high-grade intercept hit on Maronan,” he says. “One that will turn the market’s sentiment and remind investors of the great leverage and opportunity for capital growth offered by exploration success when in the hands of dynamic junior exploration companies.”