South East Asia's Gold Companies
One of my greatest pleasures in this job, if you can call it a job, is revisiting projects I have seen before. I just came back from a week in the Far East where I visited a company again that I wrote up last year. I called it Vietnam's Gold Company.
In hindsight I now realize I should have called them Southeast Asia's Gold Company because Olympus Pacific (OYM) and their sister related company, Zedex Minerals (ZDX.AX) [Barb's comment: "Now there's an unforgettable name] are well on their way to becoming a couple of the most important players in their markets in SEA.
First of all, I must fully explain the relationship between the two companies. Olympus Pacific is very much a family-run company. Zedex owns 16.9% of OYM. David Seton is the Executive Chairman of OYM while John Seton, brother, is on the board of OYM and the Chairman of Zedex. Third brother, Paul Seton, is the Managing Director of Zedex.
In a way, Zedex was a bit of a holding company for the Seton family while Olympus Pacific was the operating company. Insiders and institutions own some 80 percent of OYM and 75% percent of ZDX.
As I wrote last year, Olympus opened their first gold mine and mill in April of 2006. The mill was designed to operate at a 30,000 ounce per year rate but low grade feed and a below-standard recovery has limited production to about 1000 ounces of gold a month. That's not a bad thing because the mill has done something far more important for Olympus. It has given them total credibility with the government of Vietnam. As I said in my piece last year, government officials are wildly enthuastic about the jobs and economic benefits derived from mining. (Much like the United States. Not.)
Olympus has become the gold company of Vietnam by succeeding at jumping through all the bureaucratic hoops put in place by a government unfamiliar with the requirements of mining. They now have two major projects in Vietnam. They have an existing gold mine and mill at Bong Mieu and the rapidly-advancing gold project at Phuoc Son. Olympus has applied for licenses for gold projects at Khau Pum in the north of Vietnam and a gold project in the Southern Highlands. In addition, they are working on a gold project in Laos. And they love Ted.
Bong Mieu has about 600,000 ounces of gold in 43-101 resources while Phuoc Son has about 300,000 ounces. Olympus has major drill programs in place at both locations with the intention of bringing the resource up to over 1 million ounces at each project. An updated 43-101 for Bong Mieu should be released in a couple of months, or so.
As I suggest above, the most important product of them getting into production has been a vast increase in credibility. In late November of 2006, Olympus signed a joint venture agreement with AMIC and JABEL covering a 43 square kilometer gold project they call Capcapo on the island of Luzon in the Northern Philippines. The project is on strike some 85km from the 60 million ounce gold district at Baguio-Mankayan. The option allows for Olympus Pacific to earn up to a 60% interest in the project in exchange for them spending $5 million US In exploration.
Olympus has begun a major drill program at Capcapo. Hole #07-09 intersected 94 meters of $56 rock with 1.49 g/t au and .31% copper. Hole #07-12 intersected 28 meters of $156 rock with 3.06 g/t gold, .67% cu and 2.53 g/t ag. The deposit is open in all directions for expansion and step-out drilling is continuing.
Capcapo is the product of 40 years of work by AMIC, the Abra Mining & Industrial Corporation. AMIC is well aware of the potential for a massive epithermal-porphyry gold system similar to that of the Baguio-Mankayan district just 85 km to the south, on strike. But AMIC was looking for a financially-strong partner to pay for the massive drill program necessary to prove up the gold rich copper porphyry. Olympus Pacific's experience in Vietnam convinced AMIC that they were the best team to partner with.
Meanwhile, Zedex was doing the same thing in Malaysia on a project called the Bau Goldfield in Sarawak on the island of Borneo. Bau has been in production since 1864 and has recorded production of 1.5 million ounces officially and probably more like twice that. A local businessman has put together the entire district under a company called Gladioli Enterprises SDN BHD. In November of 2006, Zedex entered into a JV with Gladioli where Zedex has acquired 50.05% interest in Bau in exchange for payments of $1 million US and funding the exploration activities. The project encompasses some 828 square kilometers. Zedex is the operator of the project.
In addition, Zedex has a major gold project in Vietnam they call the Tiger Mountain Project. It consists of 150 square km in Central Vietnam. The Vietnamese Geological Survey did work on the project and found six parallel quartz veins. Their assays show gold values up to 157 g/t Au and over a third of the sample showed above 3 g/t Au.
At Tien Thuan, within the Tiger Mountains, there is found a prominent 4 km circular depression that appears to be a collapsed caldera and contains areas of primary and supergene zones of copper-moly-gold mineralization. The area is broadly analogous with large porphyry deposits elsewhere in the circum-Pacific region such as Bougainville and Alumbrera.
A month or so back, Jim Hamilton of Olympus contacted me and asked if I was interested in revisiting their Vietnam projects. Jim handles the Investor Relations work for Olympus and did such a wonderful job of organizing the tour last year. How could I say no? (And the place where we stay does a beautiful job of ironing my shirts).
I arrived in Singapore early in the morning the day before our tour was to leave. Getting there a little early was a really great idea. From Miami to Singapore required a 5.5-hour trip to LA, a 4-hour layover in LA and then a grueling 17-hour leg to Singapore. I'm not as young as I used to be and 24-hour trips leave me dragging. A day to recover helps.
In any case, there were about 27 people on the tour. By and large we pretty much had the entire management and technical teams from both companies and representatives from the banks and funds who were major shareholders or tempted to become major shareholders.
I should back up just a bit. Olympus and in turn, Zedex, are very much family companies unlike any other I know of. Since the very beginning of each company, the Setons have concentrated on building relationships with certain banks and funds. It works, and business with the Setons is a relationship first and a financial investment second.
Even as just a website operation and writer, I was made to feel part of the family. If you buy into either company, you are joining a family and are treated as part of the family. That makes raising money a lot easier for them than other companies and large shareholders play a large role in decisions in the company.
Olympus announced a $25 million dollar financing just prior to the trip and a major reason for the trip was to convince the banks and funds that investing at this time is a good idea. So I'd guess 12-15 of the people on the trip were part of the financing. In any case, we had some heavy hitters from Vietnam funds and from banks specializing in funding SEA companies. It was an important group.
I don't know how many trips I've been on, many dozens. But I have never been on a trip so well organized. Just the act of getting over two dozen people together from Canada, the US, Australia, Vietnam, and New Zealand was a feat. For them to all show up fairly sober, in time, and with all their bags, begs normal probability. We got checked out of our hotel in Singapore and headed to the airport to hop on our aluminum chariot.
Our first stop was Kuching in Sarawak on the island of Borneo. We got in late in the afternoon and all went out to dinner. The next day we were up and out early for our briefing.
Zedex had hats and shirts and a briefcase with some prezzies for us and we sat through about an hour background brief on Bau. It's been mined on and off for 150 years, it's a big area and there has been little professional exploration. Zedex has mobilized a drill and it's turning now.
Mike and his crew have done an excellent job of assembling all the data they have into usable form. We were shown temperature charts that I suspect will be very valuable in exploration. But it's an area that goes on for miles and miles. It's a very big system.
I saw something on this trip I have never seen before. I've seen lots of good projects that need lots of work. And money. But Zedex and Olympus kept showing us projects just screaming for exploration dollars. You could throw $50 million dollars at either company and the money could be spent wisely on exploration. The projects are that good and that big.
One area of the Bau project has a JORC resource of 417,000 ounces of gold. (JORC is the Australian version of 43-101) In any case, drills are turning and I expect a constant stream of information and drill results for a long time.
Zedex also has a 75/25% Joint Venture with the Binh Dinh Provincial Government covering two major copper-gold-moly projects in Central Vietnam. In the Tien Thuan sector, assays showed up to 157 g/t gold. Mapping and surface sampling is taking place now and Zedex expects to begin scout drilling by late 2007.
In the Tiger Mountains Sector, local authority is being sought to conduct a detailed ground mapping and soil geochemical survey prior to conducting a scout drilling campaign. In all of the Vietnam operations, the success of Olympus at Bong Mieu has opened doors and created a world of credibility for both Olympus and Zedex.
Zedex has a series of other projects in Northern Vietnam, Laos and in Australia. The stock is undervalued and as investors digest the stream of new data, I expect the stock to start a constant and steady climb higher.
After our Bau visit, we went to the airport and flew to Northern Luzon in the Philippines to visit another major Olympus Pacific project at Capcapo. We got in late and ate a quick dinner so we could be up early to see the project.
Capcapo is the diamond in the Olympus Pacific's crown jewels. OYM has 60% of the property and is in the midst of a major drill program of 7,000 meters. Results are coming in already and will continue for months. OYM wants to expand the resource and expects to have a new 43-101 resource calculation by early 2008.
Capcapo is a Baguio Gold District look-alike. It's an epithermal - porphyry gold-copper system and I have never seen anything as strongly altered. The results to date are great and Olympus geo Roger Dahn expects to be announcing holes monthly.
After Capcapo we headed to Da Nang. That brings back a lot of memories. I was there from July of 1968 until March of 1970. My daughter was born in 1968 and now she's a grandmother. Lots of water has passed under the bridge.
In Vietnam we chartered two Russian heavy lift helicopters to travel to the Phuoc Son project that I didn't see last year. It was the first time any company was allowed to charter the planes that belong to the Vietnamese Air Force. It was one more measure of the high regard the government holds the management of Olympus Pacific.
When I revisit any company, I'm most interested in how well the company has done what they said they would do. Production at Bong Mieu is only 12,000 ounces a year in comparison to the hoped for 30,000 ounces but the company explained to me last year that the project was a proof of concept. Before expending big amounts of money, OYM needed to know what hurdles they would run into. But aside from a few glitches the project has proven to be a roaring success in the eyes of the Vietnamese federal and provincial level. So while they aren't producing all the gold they would like, they know what to expect as they go into production at Phuoc Son. Everything else they promised a year ago they have done and more. To an incredible degree, they have leveraged success in Central Vietnam into a handful of project that could easily pole-vault them into a much larger company.
Olympus has applications in for a number of other major gold projects in Vietnam and one in Laos. In my view, Capcapo is going to be the home run; it has all the markings of a giant system, potentially ten million ounces or more.
The trip went incredibly smoothly. Jim Hamilton and his able assistant and did I say, lovely able assistant from Zedex, Selena Johnson, did an incredible job of tracking and catering to 27 different people. I was impressed.
The only real issue I have with either company is structure. The management is identical, the goals are identical and they trade technical staff back and forth. If you totally ignored blue-sky potential, I'd guess Olympus is fairly valued today with a market cap of about $125 million US. Zedex on the other hand is absurdly undervalued with a market cap of about $47 million. But remember, Zedex owns about 17% of OYM worth about $22 million.
You would be foolish in the extreme to ignore blue-sky for either company. It's enormous. But it simply doesn't make any sense for the two companies not to merge. Like most Americans or Canadians, I get really uncomfortable when you start talking about hundreds of millions of shares. But all companies hate rollbacks, even when it is in their long-term best interest.
Olympus and Zedex should consider merging. I've never written up an Australian company before, not because there aren't good mining companies in Australia, there are a bunch of them. But I work for my readers and most of my readers can't buy Australian companies no matter how good they are. But a merger would make a lot of sense because the merged company could roll back the number of shares to something Canadians would be more comfortable with and management could focus on building value for shareholders.
OYM is more or less fairly valued. Drill results will move them higher, eventually much higher. Companies hate it to be called fairly valued but for investors it means they can ease into a stock without fear it's going to double in the next week. Zedex on the other hand is a gimmie. It should be 200% or 300% higher. The insiders know what they have but the Australian public doesn't. When drill results start coming out of Malaysia, they will get it. If you can buy Australian shares consider shares in ZDX soon or watch it go.
A merged Olympus/Zedex has all the ground, technical staff, management and money to become a mining giant in the Pacific basin. Climb aboard; it's going to be an interesting ride.
I own shares in each company, Olympus are advertisers, and Zedex are going to advertise, and since they are also part of my family, I am hopelessly biased. Do your own research and invest your money wisely. There are no gurus in mining.
By the time you read this I will be winging my way to North Carolina and Belize, so I'd appreciate it if you'd hold off on sending non-vital email until the end of July.
Olympus Pacific Minerals
Zedex Minerals Ltd