Believing In Alchemy

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(This story was first published earlier this week but only made available to paying subscribers. We now re-publish the story in its original form while making it freely accessible on our service.)

By Greg Peel

Alchemy dates back to early Mesopotamian civilisation, and was practised in various civilisations across the globe. A combination of science and spirituality, alchemy had at its root three major goals – to find the universal solvent, to find the elixir of life, and to successfully transmute common metals into gold. By the Middle Ages lack of immediate success had led to the belief in a legendary as yet missing substance that could achieve all three, dubbed the Philosopher’s Stone. While success continued to prove an unattainable goal, alchemists have actually proven rather valuable in history, given their scientific efforts have inadvertently assisted in the creation of such things as ceramics, glass and gunpowder.

There is no truth in the rumour that Alchemy Resources’ ((ALY)) managing director and geophysicist Michael Hannington may have actually stumbled upon the Philosopher’s Stone during his time as contracts manager at Oxiana’s (OZL) Golden Grove deposit, however there was a purpose in mind in giving his new company a name that seems to instantly suggest failure. For Hannington believes there is yet to be found a “company-making” gold deposit lying under Alchemy’s extensive tenements in the Murchison region of WA, right next door to where other companies have long since set up successful mining operations in what has proven the most abundant gold region in the state, outside the famous Eastern Goldfields. The reason there has been little interest to date in mining the tenements Alchemy has acquired, from Jindalee Resources (JRL), is because the gold lies deep under cover rather than conveniently close to the surface. If it is there. Resident miners have simply scorned the area in favour of simpler goals.

Gold exploration can be a hit and miss affair, and extensive time can be spent on drilling for samples, and then sitting around and awaiting the results from time-consuming testing processes. However at Murchison, Hannington intends to use new technology that is more accurate and greatly speeds up assessment. The company has formed an alliance with the Geological Survey of Western Australia, which has provided Alchemy with its entire Murchison sample database. With access to all previous explorer and GSWA sampling records for the district, Alchemy is in the process of creating a comprehensive three-dimensional model of the resource, using modelling techniques “unlocked” by Alchemy, which should lead Hannington to the extensive gold reserves he expects to find.

Alchemy indeed.

It is no longer good enough in the twenty-first century, however, to raise money in the stock market on hope and aspiration alone and expect eager shareholders to patiently wait it out until one day a faint cry of “eureka!” is heard from across the dirt. Or not. Nor is it possible given the events of the last twelve months to fund an exploration program with debt. Today’s junior miner with aspirations of becoming a less-junior miner realises it is incumbent upon them to establish a reliable cashflow which can  fund exploration, development and expansion but also provide shareholders with a clear earnings record and perhaps even a dividend.

The formula has not been lost on Alchemy, and since listing in November last year the company has acquired the Three Rivers gold project in the highly prospective Gascoyne region of WA, and more recently the Boorara gold and Nimbus silver projects near Kalgoorlie.

The Three Rivers gold project features are number of prospective deposits, including the televisually-named Hawkeye and Trapper deposits containing a JORC-compliant 131,000oz of gold. The project was acquired from Troy Resources (TRY) on a cash/scrip exchange. Troy needed a partner with the professional, technical and operational skills required to exploit their MASH duo, and Alchemy won the tender. The project was originally owned by Barrick Gold, but the giant global goldminer became disinterested when native title complications emerged.

It will still take some months of approval process to secure heritage title and various requirements before Three Rivers will be a going concern, but Alchemy has retained the services of Carey Mining P/L as a contractor. Carey’s CEO Daniel Tucker is both a respected businessman and an indigenous community leader. But gold is not the Three Rivers’ only source of potential cashflow.

One leg of the original Troy tenement happens to conveniently stretch into the Robinson Range – the range from which Midwest Corporation (MIS) is currently building an enviable iron ore export business. Last week Alchemy announced the results of tests conducted on its share of the Robinson Range which confirmed the presence of high-grade haematite (iron) ore.

While Alchemy is looking forward to exploiting the gold in its medico acquisitions, the presence of a commercial iron ore deposit implies an early cashflow stream which can be quickly put to use towards further developments at Murchison – where the real excitement lies waiting.

But wait, there’s more.

Early this month Alchemy also announced the acquisition of the Boorara gold and Nimbus silver projects from Polymetals Group P/L. Boorara was extensively drilled up to 1997 but Alchemy is confident it can exploit its newer focused drilling techniques to quickly upgrade the project to production status, again providing early cashflow. However, it is Nimbus which is the more enticing.

The Nimbus silver project was also once in Barrick’s sites, but Barrick decided it was too small. Polymetals spent $1m drilling down further into the Nimbus mine once the main silver vein ran out. Having done so, Poly made an unusual discovery, and soon realised the company needed to spend a further $5-10m on drilling and it didn’t have the money, nor the expertise it needed.

Enter Alchemy, which was about to live up to its name once more. What Poly may have found is a rare volcanic-hosted massive sulphide (VHMS) deposit. A VHMS – when it’s at home – is a subclass of the volcanogenic massive sulphide ore deposits which were once created via volcanic activity causing hydrothermal events underwater. There are very few people in the world who are experts in VHMS deposits, for there are very few VHMS deposits. However, Golden Grove is one, and that makes Michael Hannington a rare expert. Hannington is confident that the similarity of Golden Grove and Nimbus deposits points to great potential at Nimbus. Together, Alchemy and Polymetals can provide all aspects of expertise required. Thereafter, a “big boy” joint venture partner can be summoned.

And another little bonus from the Polymetals acquisition was the Nimbus 250ktpa mobile processing plant that came with the deal. (Mobile hospitals, mobile processing plants, what’s next?). Alchemy has nothing to put through the Nimbus plant at present, however we’re almost in Kalgoorlie, and there are plenty of nearby mining operations who will pay $200,000 per month for its services. And because its a mobile plant, it can be packed up and shipped off to Three Rivers in due course. And perhaps one day…

All of this is to provide for happy, patient shareholders, and to provide funding for the ultimate prize – the as yet unconfirmed Murchison mother lode. Someone else has also been sniffing around the Murchison tenements, Hannington suggested at a lunch presentation this month, and it’s probably Newcrest (NCM) who had once earlier shown some interest.

Michael Hannington and his team are no bunch of pie in the sky dirt kickers, and they exude confidence. Potential investors are nevertheless warned that Alchemy is a speculative stock and all eggs should not be placed in one basket. Riches are not guaranteed.

Of 39.6m shares on issue there are 28.16m available to trade, with Jindalee holding 10m, the top twenty shareholders holding 55%, and 521 shareholders (at last count) in total. There is also a listed option over new stock, which provides a low cost entry alternative or – if you haven’t learnt anything at all over the last twelve months – a means of leverage.

The last traded price of Alchemy was 12.5c but trading is not very liquid.

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