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[Dehai-WN] Jutiagroup.com: New Era of Stability in Some African Countries: Christopher Welch

From: Berhane Habtemariam <Berhane.Habtemariam_at_gmx.de_at_dehai.org>
Date: Sat, 14 Jan 2012 11:57:38 +0100

New Era of Stability in Some African Countries: Christopher Welch

By The Gold Report, on January 14th, 2012 in
<http://jutiagroup.com/categories/market-updates/expert-interviews/> Expert

The Gold Report: Most of your coverage universe at Ocean Equities consists
of precious metals juniors with exploration- or development-stage projects.
Why do you cover these types of companies?

Christopher Welch: It's the end of the market where our expertise has the
biggest effect, particularly since my colleagues and I are either geologists
or experienced industry professionals. We can look at ground where we know
it's going to be prospective. We can look at the very early-stage
exploration results and know if they are encouraging.

We still cover some big, producing companies. One of our biggest companies
under coverage is <http://www.theaureport.com/pub/co/630> Kirkland Lake
Gold Inc. (KGI:TSX), which is a growing intermediate producer. But we've had
such an effect on the junior exploration end because that's where our
strengths lie.

TGR: Most of your companies have sub-$100 million (M) market caps with
<http://jutiagroup.com/tag/gold/> gold and/or copper projects based in
Africa, Canada or Nicaragua. What criteria do you use to choose these
small-cap companies?

CW: We look at management, the ore body, exploration results, the geology of
the region and country risk. We don't have a mandate to follow specific
parts of the world, although we know where we feel comfortable operating. If
it's a country where one of the research teams feels quite happy jumping on
a plane, spending a few days in a tent on the ground and looking at the
grassroots exploration data, that's a country we wouldn't mind doing
business in.

TGR: You regularly go and visit these projects?

CW: Taking a job as a mining analyst is essentially getting a ticket on a
plane somewhere. I've been crisscrossing the Atlantic for most of the last
year. Our technical expertise and professional experience mean that when we
get to the ground, we know what to look for. It's not a case of taking
drilling results on trust. We look at the drill core and can see what's
good. It's a lot of gut instinct and knowing what feels right. You can look
at the lay of the land and say, "Yes, I can see the deposits here. I can see
that this could be an open pit or the plant could go here, and there are no
environmental or social issues." You have to get in and kick the tires to
add value.

TGR: Do you believe that African mining stories are underrepresented in
investors' portfolios?

CW: Yes. Over the last 10 years, contemporary exploration techniques have
been applied to parts of Africa that were considered high risk, like
Eritrea, Ethiopia and Liberia. However, there have been large-scale risk
profile changes in these countries. Liberia is one of the best countries in
Africa because of its transparency. There is now a combination of overlooked
resources with safer governments, so it's just another scramble to get into
these countries and establish companies that can turn natural resources into
profits for both the company and the host country. If you're not exposed to
the African mining story, you haven't missed the boat, but it's something
you should look at quickly.

TGR: Are you concerned about another Charles Taylor, the former president of
Liberia accused of war crimes, coming to power in these countries after
you've invested heavily in them?

CW: Charles Taylor's regime was definitely a product of ignorance of the
Western world to what was going on in that part of Africa. Now there is more
free press in Africa and there are a lot of African businesspeople who are
involved in making their countries better. I know that all the issues across
Africa aren't solved, but we won't go to a country where we think there
could be a risk. We have a very good understanding of what's going on across
Africa. African risk can't be painted with a broad brush. Every region
globally has its drawbacks. Some might say that laws in British Columbia are
perhaps overly onerous on environmental licensing, for example.

TGR: An interesting company in Ocean's stable is
<http://www.theaureport.com/pub/co/993> Sunridge Gold Corp. (SGC:TSX.V).
Tell us how you came across it and why you picked that one.

CW: It's definitely one of the more encouraging companies in that region
because it's so undervalued. I constantly ask, "Where am I going to go next
to find the overlooked or the best deposit?" That part of the Arabian-Nubian
Shield really comes to the fore as the most overlooked part of the globe to
find volcanic massive sulphide (VMS) deposits that have good grades. They
don't always have the biggest scale, but the grade means that the mines that
get developed can be quite profitable.

If you take just one of the components of Sunridge's project portfolio, its
contained zinc for example, it has a greater gross in-situ metal value than
the market cap of the company. So we think that Sunridge offers great

TGR: What were your thoughts after visiting the Asmara gold project?

CW: My colleague was there recently as part of a larger trip around Eritrea
and was very encouraged with what he saw. He said it looked very positive.
Sunridge is in the prefeasibility stage on the Asmara project, which is part
of a group of projects around the capital city.

TGR: Do you think that it will spin some of those assets out into a separate

CW: I think it will keep all of them under the same umbrella. It doesn't
have a huge footprint in Eritrea. It's big, but manageable. Those projects
will do very well when they combine and share infrastructure. Eritrea does
need a fair amount of infrastructure to get up to the standards required for
the mining. The company will likely build something centralized to take
concentrate from different parts of its portfolio.

TGR: Is it a takeover target?

CW: It's definitely enticing. It has ground in a great country with great
prospects. Any sort of mid-tier company that's looking to bolt on some
high-grade VMS targets and near-term gold production capacity should be
looking at it.

TGR: Are there plans to take <http://www.theaureport.com/pub/co/4064> Toro
Gold Ltd., a private junior with a gold project in Senegal, public?

CW: It's something the company would like to do, but not at the expense of
shareholders. It has quite a market-savvy management team. It has done
exceedingly well to get its Mako project on its feet. Recent results for
Mako show great grades: 3 grams of turnover into sections of up to 40
meters. It's one of the best grassroots discoveries in that part of Africa.
There are definitely plans to take it to market, but it has to be done at
the right time. I hope it will be within the next 12 months, but it's up to
the company to say.

TGR: Initial tests have shown that Toro's deposits host free gold.

CW: The bottle roll test results are very encouraging, but the ultimate
metallurgical process has yet to be determined. It looks like there is very
little arsenic in the area, so it should be free gold. Toro has a large
amount of ground, but it still has to do early-stage reconnaissance
exploration, so there's a lot of growth there. It's in a part of Africa,
which we call the Kenieba Window, which has been overlooked.

TGR: Many of our readers follow the junior mining sector quite closely, but
few would have heard of <http://www.theaureport.com/pub/co/3767> Nyota
Minerals Ltd. (NYO:AIM; NYO:ASX), which is conducting a definitive
feasibility study on its Tulu Kapi deposit in Ethiopia. Nyota is about to
announce a measured resource for the Tulu Kapi project in H112, as well as a
maiden resource for other claim blocks in the area. Tell our readers about
that story.

CW: It is in the same geological terrain as Sunridge, on the western half of
the Arabian-Nubian Shield, which is very old rocks that have been somewhat
agitated by the rift in the area. It's in a very geologically prospective
part of the world, but it's been overlooked simply due to the historic
Ethiopian-Eritrean conflict that's now resolved.

Nyota is progressing on its Tulu Kapi project. The new chief executive,
Richard Chase, who took the reins in mid-2011, really has a good handle on
what could be quite a robust open-pit project. It has a mineable grade after
internal dilution of over 2 grams/tonne. Tulu Kapi is going to be quite a
good story.

Nyota is also going to be the first public company to receive a mining
license in Ethiopia. It put in its application in Q311. Ethiopia is very
prospective, particularly parts of the western highlands. We've seen many
major mining companies coming into the country to try and grab ground and
capture the essence of the geology of Ethiopia. Nyota has this fantastic,
early-mover advantage in that it has a large land package with known
targets, but also it has the key to good exploration-high-level operating
geologists with Ethiopian backgrounds who can go and do the grassroots
exploration very well. Nyota has a great future ahead of it.

TGR: A lot of investors still perceive Ethiopia as a risk. Does it give you
a measure of confidence given that a number of larger mining companies are
coming into that country?

CW: Yes, it does. The Internal <http://jutiagroup.com/tag/finance/> Finance
Corp. (IFC) of the World Bank has been a shareholder in Nyota for a long
time, and the IFC has perhaps one of the most rigorous sets of due-diligence
tests for its investments. The area of Ethiopia that Nyota is operating is
lush, green pasture. It poured with rain the entire time we were there.
Ethiopia has a good future ahead of it. It acknowledges its natural
resources could be a key for developing and expanding its growth prospects.
Personally, I don't think the risk in Ethiopia is that high.

TGR: What are your preferred countries in Africa for mining development?

CW: Ethiopia, Eritrea and parts of Sudan are the most overlooked for ease of
operation. Mali and Burkina Faso are developing into good countries to
operate in, but my pick of the bunch is Liberia.

Just to give due respect to Ellen Johnson Sirleaf, the president of Liberia,
she's done an awful lot to clean up the country. In particular, the
Extractive Industries Transparency Initiative that she's taken on board in
Liberia has really set the country up to benefit from iron-ore price growth.
It has potential to be the largest iron-ore producer on the continent.

Liberia also has gold in the north with
<http://www.theaureport.com/pub/co/4065> Aureus Mining Inc. (AUE:TSX;
AUE:AIM), which is developing the New Liberty project.

TGR: That really is fascinating given that country's history.

CW: It just proves the point that the opportunities come up when you have
on-the-ground, grassroots operating knowledge from people who go into the
country and say, "Look, I know what you think about Liberia, but honestly,
go, see, look. Go to the country, visit it and when you get there, you'll
see that it's open for business."

TGR: <http://www.theaureport.com/pub/co/2798> Condor Resources Plc
(CNR:LSE) has the promising La India gold project in Nicaragua. The one
eyebrow-raising fact about Condor is that it's just a small junior with a
relatively small market cap, but it has about 560M shares outstanding. Are
you concerned by a management team that would allow that level of dilution?

CW: The large number of shares is just a legacy and something that the
company can do something about quite easily. A chief executive has a lot of
techniques in his arsenal to reduce that, and I dare say there will be some
form of consolidation in the future. Condor is a company that's changed
dramatically over the last two years. It's taken a small resource in
Nicaragua and grown it to a substantial 1.6 million ounces. In 2009 Condor
had a robust resource in Nicaragua but it suffered capital constraints due
to the global financial crisis and then the El Salvadoran moratorium on
mining. This was when it suffered the dilution. That is now water under the
bridge and it is moving forward.

TGR: Perhaps the most promising part of that project is the central breccia
zone. Tell us about what the company continues to find there.

CW: It's one of the largest scale mineralizations. Condor has plenty with a
narrow vein, but high-grade, gold currencies cross its property. What is
going to make a huge difference for the company is finding the bulk tonnage
deposits where it can do either open-pit development or larger-scale
underground development.

Condor found the central breccia toward the end of last year when it put in
a trench to look at the bedrock. The initial grades of that sampling were
very encouraging. Subsequently, it put in two drill holes and the results
are likewise encouraging. It also extended the trench, and we're waiting for
an update from the company on those results. All signs are that it found
something significant with a larger scale to it.

It's a very good sign for Condor that it's found the central breccia, but
there are other areas where bulk tonnage of mineralization exist, which it
could exploit through larger-scale mining techniques.

TGR: There are also other mines nearby, which could lead to a takeover.

CW: Exactly. Obviously, I don't think it's something that Condor is going to
aim for immediately. In our discussions with the company, it's all for just
keeping its head down. It has an objective, it has a strategy to achieve
that objective and it's going to take the La India project as far down the
development track as it can.

But it's an interesting part of the world. Obviously, there is a lot of gold
in Nicaragua, which in Central America is one of the more stable areas to
operate in. There are larger-scale operations in the country. Whether one of
the other Nicaraguan players would be the one to take Condor out or whether
there might be a rollup by another company, I don't know. At the moment,
Condor has a lot it can do to increase the value of its portfolio.

TGR: <http://www.theaureport.com/pub/co/3904> Rambler Metals & Mining Plc
(RAB:TSX; RMM:AIM) just started producing gold from its Ming mine in
Newfoundland and Labrador. It has already forward-sold some of its
production to Sandstorm Resources Ltd. (SSL:TSX.V). It's one of those that
quietly came into production. How did you find out about this story?

CW: It has the trifecta of things I look for in a mining project:
management, geology and a stable location. Newfoundland and Rambler have it
all in spades. It did come into production quietly, but that doesn't detract
from the story. It's just been overlooked. It's in a part of the world that
has the last of the low-hanging, high-grade fruit for the same reasons that
we look at parts of the Arabian-Nubian Shield. That part of Newfoundland has
the same VMS deposits with a strong grade. Rambler definitely has that in
the Ming mine, which has very good grades of copper, gold and some
associated silver as well.

Rambler took on a loan to keep the project moving forward at a time when
gold prices were much lower than they are now, and it did seem like a very
sound decision for the company to make at the time. Now that gold is at the
price it is, you can look back and say, "Well, I don't think it was a good
move," but you play the cards that you're dealt. I think George Ogilvie, the
chief executive of the company, has done very well to get it up and running.
It's in a gold production phase just because it can produce gold at the
higher price. It's giving some of its revenue of gold away, but the payoff
of the gold line is not having a dramatic negative effect on its cash flow.
Later on this year, it's going to go into a copper production phase where
it's going to increase its revenue.

TGR: How did you discover it?

CW: It came in through one of the mine organizers and management of a
company that we've dealt with for a good time and trust.

TGR: You're going to keep that a secret.

CW: The mining industry is a relatively small game. There is no better
commodity than knowledge and trust in certain mine managers.

TGR: Sprott Resource has put some money into that project as well. When you
get players like Sandstorm and Sprott involved, obviously the numbers add

CW: I know Sprott did an awful lot of technical due diligence on the
project, so it must be very comfortable. It's a very good deal for Sprott,
as well as for Rambler.

TGR: Looking at the small-cap mining sector into 2012, do you expect a
rebound or are we going to see more headwinds?

CW: We're going to get an overall flight to quality. There are a lot of
projects out there that are going to stand out from the crowd. We'll see
some re-ratings and some heads pop out from the parapet to show themselves
to be above-average mining plays.

The pullback in mining shares and mine management becoming more cautious are
going to pay dividends for the mining companies in the mid term. One thing
we know is that resources are scarce. It's getting harder and harder to find
the projects, particularly good gold and copper projects. We've lost another
field season in 2011 and a lot of people brought their drill rigs home
rather than overspend during a downturn, so it's going to be harder to find
the projects in the development pipeline that can fill the metal supply gaps
that develop.

When demand comes back to Asia or North America, there won't be a sufficient
number of projects in the development pipeline to feed that demand.

TGR: Thanks for your insights.

Christopher Welch holds a master's in international business management and
a Bachelor of Science (Honors) in geology from University College London and
an Advanced Certificate in economics from Birkbeck University. Before
joining Ocean Equities, Welch spent four years with Bloomsbury Minerals
Economics as a copper analyst, prior to which he worked as a geologist in

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1) Brian Sylvester of The Gold Report conducted this interview. He
personally and/or his family own shares of the following companies mentioned
in this interview: None.
2) The following companies mentioned in the interview are sponsors of The
Gold Report: Condor Resource Plc, Sunridge Gold Corp. Streetwise Reports
does not accept stock in exchange for services.
3) Christopher Welch: I personally and/or my family own shares of the
following companies mentioned in this interview: Condor Resources Plc,
Rambler Metals & Mining Plc and Nyota Minerals Ltd. I personally and/or my
family am paid by the following companies mentioned in this interview: None.
I was not paid by Streetwise for participating in this story.

( Companies Mentioned: AUE:TSX; AUE:AIM,




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