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Long-term, Prairie Downs Has Exciting Potential in Vanadium; Short-term It’s a Good Job That Mine Development Work is on Hold
Long-Term, Prairie Downs Has Exciting Potential In Vanadium; Short-Term It’s A Good Job That Mine Development Work Is On Hold
It’s not often that you can look at an emerging base metals miner and think how fortunate it is that a commitment to a mine development hasn’t been made. But a perfect example of what might be called a financial near-miss comes from the experience of small Australian explorer, Prairie Downs Metals. A few months ago, Prairie Downs Metals came close to proceeding with development on the Prairie Downs silver-lead-zinc project near BHP Billiton’s big Mt Newman iron ore mine in Western Australia. If it had, Prairie Downs, both the company and the mine, would be struggling to make ends meet in an extraordinarily depressed market for all metals. Instead, the company has been able to re-organise its affairs and continue with a resource upgrading exercise and an exploration programme which continues to reveal tantalising indications of additional mineralisation, and all with enough cash parked in the bank to ride out the global financial storm.
“The downturn has certainly prompted us to wind back our drilling programme, but not lose sight of the potential,” says Prairie Downs director, Alex Pismiris. He explains that the primary objective of current work is to boost the high-grade component of the orebody. “We’re targeting a resource to support a minimum of five years of high-grade production,” he says. “Conceptually, we can see expanding the resource from 1.6 million tonnes to between two and 2.5 million tonnes of material grading between 8 and 12% zinc, between 1 and 2% lead and between 10 and 20 grams of silver a tonne. But, to get those numbers we need to carry out more drilling and resource studies, and get the results from a lot of drill core still waiting to be assayed.”
While work continues on the silver-lead-zinc potential of Prairie Downs, the company’s geologists have also picked up the first sniffs of what might be a world-class vanadium structure within the main project area. In mid-October Pismiris re-kindled interest in the company with a brief report outlining the presence of unusually rich vanadium mineralisation. Surface sampling which followed preliminary x-ray fluorescence analysis yielded rocks grading more than 1% vanadium over a 3.7 kilometre strike.
“The problem we’ve had with the vanadium is that local laboratories couldn’t handle the material because it was above their detection limits,” Pismiris says. “They’re sent the material to Canada where it can be tested. We’re waiting on the results, but we suspect the samples are in the order of 2 to 3% vanadium.” If that estimate is right it would be one of the world’s richer vanadium structures. The Windimurra mine to the south of Prairie Downs assays at around 0.46% vanadium and the best mines in the world, on South Africa’s Bushveld, assay 1.5%. “We need to gather a lot more data on the vanadium before we know whether we’re on to something significant, but it’s certainly encouraging so far,” Pismiris continues.
Perhaps of more immediate interest, though, is the potential of the company’s zinc business which, at the last global estimate, currently stands at a resource of 4.7 million tonnes of material at a grade of 6.3% zinc, 1.8% lead and 18 grams of silver a tonne, using a 1% zinc cut-off. Given the crash in the zinc price, and slightly smaller crash in the lead price, it is a good thing that Prairie Downs did not proceed to develop what would now look to be a rather skinny project. “What we’ve outlined so far represents a resource of 295,000 tonnes of zinc and 83,000 tonnes of lead, but we need more of that, or more of the higher grade material, to go the next step towards development,” Pismiris says.
He continues by explaining that the company plans to release an upgraded resource estimate soon, based on the most recent drill results. “We still have a lot of core in assay labs,” he says. “It’ll probably take a month or two to catch up with the assay work. But once we get that data we can plug the numbers into a model and spit out a new resource number. We’re reasonably confident that we will grow the resource quite significantly, especially of the high-grade material.”
“The work underway on site now is really to test the mineralisation along the Prairie Downs fault,” he says. “But, rather than hitting that with a diamond rig or RC we’re looking to cut costs by using a smaller, lightweight, air-core rig. That work will test the depth of vanadium mineralisation along strike, as well as giving us more information on the zinc and lead. We’re still exploring, but at a much lower spend.” Pismiris says the work to date has only touched on part of the main fault zone, but has nonetheless revealed a number of mineralised hot spots. “Our goal has always been to prove up the main lode, and then step out from there once we get a substantial resource.”
For investors the key messages coming from Prairie Downs are that it is close to having a mine, but not yet close enough, especially in this environment of low metals prices. Indeed if the company had decided to follow through on the results of a feasibility study that was completed in the June quarter, it might now be in a spot of bother. That study found that a project processing 500,000 tonnes of ore, expandable to one million tonnes, would have a capital cost of around A$86 million. It included a detailed mine plan, costings, and a development schedule pointing to a production start-up at the end of 2010. A few weeks after the release of that report Prairie Downs started a senior management change process, which ended with the 2nd October resignation of managing director, Mark Hansen, and the start of a search for his replacement, with Pismiris in charge until a full-time replacement is found.
On the market, Prairie Downs Metals has suffered the same as other base metal explorer/producers. Since peaking at A$1.40 at this time last year, the stock recently slipped to a low of A11 cents, a price which values the business at an untaxing A$8 million, not much above the cash backing of A$6.8 million. In other words, each dollar in market capitalisation is backed by about A85 cents in cash, with the Prairie Downs orebody assigned limited value – a reflection of the current state of the overall market, but certainly making Prairie Downs a stock to keep an eye on as markets settle
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