Barry FitzGerald: It's time to revisit South32's exploration partner

“Garimpeiro” columnist Barry FitzGerald has covered the resources industry for 35 years. Now he’s sharing the benefits of his experience with Stockhead readers.

It’s still a month before Xmas and already the sales are on – in (quality) ASX-listed junior explorers at least.

Take the thinly traded AusQuest (ASX:AQD) as a prime example. It has been around since listing in 2003 and is in the thick of its busiest ever exploration effort across a number of high-risk/high-reward projects.

Not that the market is taking much notice at the moment. The last time Garimpeiro looked AusQuest was trading for the princely price of 0.8c a share for a market cap of $8.4 million, or an enterprise value of $5.9m after taking account of its $2.5m in cash.

That’s not a lot for an exploration company of any description. And it goes without saying that AusQuest’s tiny market cap gives it extreme leverage to exploration success.

Having said that, the company has been around for 21 years, and its current market cap says loud and clear that meaningful discoveries have proved elusive, to date at any rate.

Still, it can be said that AusQuest is an honest toiler with a technical bent under managing director Graeme Drew, an industry veteran who co-founded the company after a long stint with CRA/Rio Tinto as exploration manager for Western Australia, and the Eastern states.

Strategic alliance

It is what attracted the $16.7 billion South32 (ASX:S32) to anoint AusQuest as an exploration partner of choice under a strategic alliance agreement (SAA) that is now in its eighth year.

Under the SAA, South32 provides up to $US4.5 million in funding to earn up to a 70% interest in exploration projects (plus 10% on completing a prefeasibility study) worked up by AusQuest, which receives a 15% fee.

South32 doesn’t take up what’s on offer under the SAA all the time and should it withdraw from a project, AusQuest assumes 100% ownership.

Implicit in all that is that the exploration projects forwarded to South32 to consider must have multi-billion dollar discovery potential. Having 30% of the action should such a discovery be made would obviously be a good thing for AusQuest.

Projects on the go

Currently there are five exploration projects managed by AusQuest which sit under the SAA umbrella.

The newly minted Coober Pedy copper-gold project on the northern end of South Australia’s iron-oxide copper-gold (IOCG) province – home to BHP’s Olympic Dam, Carrapateena and Prominent Hill mines – is the latest addition.

AusQuest got South32’s interest up for SAA purposes after completing a recent gravity survey which outlined target areas associated with IOCG-style alteration encountered in historic drill holes.

The plan is to conduct a large scale induced polarisation survey next year to identify possible sulphide mineralisation ahead of drilling the best targets.

Interesting stuff in itself for an $8.4 million company. But then there are the other projects under the SAA, as well as projects that AusQuest is pursuing on a 100% basis outside of the SAA.

All of the projects and the associated exploration plans for the next six months were outlined in a busy presentation by Drew at AusQuest’s recent annual general meeting.

One that caught Garimpeiro’s eye was the Balladonia (SAA) project about 50km south of IGO’s Nova-Bollinger nickel-copper mine in the WA’s Fraser Range.

AusQuest plans a major drilling program in the first half of next year after remote sensing work identified multiple targets.

Then there is the Morrisey (SAA) project about 100km from Geraldton in nickel-copper-PGE country. It has been yielding interesting magnetite results, with preliminary metallurgical testwork indicating the potentially large-scale mineralisation can be upgraded to more than 70% iron.

More drilling is planned starting in March, subject to approvals.

The first half of the new year will also be a busy one for AusQuest at a former SAA project in coastal Peru where copper-gold porphyries and manto copper targets are planned to be drilled, starting at the Cangallo prospect.

The views, information, or opinions expressed in this article are solely those of the columnist and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.