Kalamazoo Resources Ltd (KZR)

Research Report

Kalamazoo (KZR) is a gold exploration and development company with projects located in Western Australia. The flagship Project is Snake Well, a gold and base metals project acquired in 2014 from Atlas Iron Ltd (AGO-AU), with established resources (JORC 2012), development options and extensive exploration upside. Potential exists for KZR to treat oxide and fresh ore through a neighbouring processing plant, with the potential of short-term cashflow to provide further exploration funds. We view this optionality within KZR as a big positive which clearly distinguishes KZR from many of its peers.

Key Points

  • KZR lists as a developer/explorer: KZR listed on the ASX in January 2017 after a $5m IPO at 20c per share. Prior to listing the company has been privately run and grown from being director-funded to generating $5m in revenue in FY16 from a trial mining exercise a the Mixy Deposit.
  • Snake Well has completed initial production: KZR conducted a Stage 1 trial mining exercise from its established Mixy Lode at the Rabbit Well Prospect. Approximately 4,400 ounces of gold was recovered at 6.83 g/t netting $2.1m for the Development JV. Minjar Gold is currently undertaking a preliminary mining study on a much larger parcel of material from the advanced A-Zone Project. An A-Zone development would generate cash flow to help fund future exploration and development.
  • Minjar paying for development works at A-Zone: Minjar are again providing considerable funding to undertake the mining and associated feasibility studies. Minjar and KZR have entered into an agreement that gives Minjar, through its Golden Dragon processing plant, first-right-of-refusal over the processing of ore generated from A-Zone and a phase 2 (expanded) development at the Mixy Deposit. This reduces KZR’s working capital requirements and means more funds can be directed towards exploration to increase the resource base.
  • Existing JORC resources: KZR has existing inferred and indicated, mineral resources reported in accordance with JORC 2012, totalling approximately 107,000 ounces. There is a demonstrated potential to significantly increase the mineral resource base as existing deposits are not closed off and there are numerous high grade intersections requiring follow up close to the existing resource outlines.
  • Good exploration potential: KZR’s tenement package at Snake Well covers 45km of strike of the highly prospective Tallering Greenstone belt, prospective for both gold and base metal mineralisation. Several advanced prospects with high-grade intersections, are yet to be followed up and the Cork Tree Project near Doolgunna offers copper exploration potential.
  • Strategy:
    • Finalise a mining study for potential A-Zone development to produce circa 15,000 ozs.
    • Complete negotiations with a nearby mill to secure processing agreements.
    • Commence follow up drilling on high grade intersections down plunge and along strike of existing advanced-stage projects.
    • Undertake new exploration on areas that have shown high grade gold mineralisation.
    • Undertake new exploration on areas of base metal mineralisation at Snake Well and Cork Tree

Kalamazoo Summary

  • Kalamazoo Resources (KZR) is a gold development/exploration company with two resource projects in Western Australia. KZR’s flagship is the Snake Well Project, located in the Murchison Region, approximately 450km north of Perth. The Project is north west of the well-known Golden Grove base metal operation and the Deflector gold and copper project recently commissioned by Doray Minerals Ltd (DRM-AU).
  • The advanced Snake Well Project covers an area of approximately 300km2 and controls a 45km strike length of the prospective Tallering Greenstone Belt, comprising five granted mining leases, one granted exploration licence and two exploration licence applications. Native Title agreements are in place.
  • Existing mineral resources, reported in accordance with JORC 2012, are estimated for several deposits within the Snake Well project portfolio. Major deposits are open along strike and down dip and there are numerous exploration targets outside of the main resource areas.
  • KZR has already undertaken a trial mining exercise from the Mixy Lode, producing circa 4,400 ozs at 6.83 g/t Au. KZR is in the planning stage for a much larger, second phase mining exercise from the A-Zone Project within the next 12 months. Ore is expected to be processed through the Minjar Gold plant, located adjacent to Golden Grove.
  • KZR is also exploring at the Cork Tree Copper Project in the Doolgunna region, south-east of the Talisman / Sandfire Monty Project. Here a surface copper anomaly has been identified over a 2km x 1km area.
 
Figure 1. KZR Project Locations (Source: KZR)

Figure 1. KZR Project Locations (Source: KZR)

 
 

Capital structure and cash

KZR listed in January 2017, raising $5m at 20c per share. As at 31 March 2017, KZR had circa $4.0m in cash.

Table 1. Capital Structure (Source: DJC)

Table 1. Capital Structure (Source: DJC)

 
 

Board and Management

Luke Reinehr (LL.B, B.A)
Chairman and Co-founder

Luke’s core legal experience compliments mining and resources, project development and information technology skills.

Peter Benjamin (B.Sc. (Hons), Grad Dip (Exploration), (Bus Admin), GAICD, MAusIMM, AFAIM)
Managing Director

Peter is a geologist with over 30 years' experience in senior exploration, project, operational and executive management roles for both junior and mid-tier resources companies.

Angus Middleton (SA Fin, MSAA)
Non-Executive Director

Angus is a fund manager and former stockbroker who has extensive experience in the capital markets sector in Australia.

Lance Govey (B.SC. (Hons), M.Sc., MAusIMM)
Exploration Manager

Lance is a geologist with 40 years’ experience in exploration and mining across Australia, Indonesia, Zambia and the Philippines, predominantly for gold but including alluvial tin, copper and emeralds.

Bernard Crawford (B Com, CA, MBA, ACIS)
Chief Financial Officer and Company Secretary

Bernard is a Chartered Accountant with over 20 years’ experience in the resources industry in Australia and overseas.

 

Snake Well Gold and Base Metal Project

  • The Snake Well Project was acquired from Atlas Iron Ltd (AGO-AU) in April 2014. AGO had acquired the asset after its takeover of the ASX listed Giralia Resources NL (Giralia) in 2011.
  • Current mineral resources reported in accordance with JORC 2012, are estimated at 1.9Mt at 1.8 g/t for circa 107,000 ozs. All deposits have been estimated by independent geological resource consultants.
  • The historical spend on the Snake Well Project is estimated to be in excess of $20m with most of the modern exploration expenditure made between 2003 and 2008. During this period, drilling on the project totalling 624 RAB/ Air-core holes, 338 RC holes and 42 diamond drill holes.
 
Figure 2. Location of Snake Well and surrounding projects (Source: DJC)

Figure 2. Location of Snake Well and surrounding projects (Source: DJC)

 

Disclosure and Disclaimer

RCAN 1397

This Research report, accurately expresses the personal view of the Author. 

DJ Carmichael Pty Limited, members of the Research Team; including authors of this report, its directors and employees advise that they may hold securities, may have an interest in and/or earn brokerage and other benefits or advantages, either directly or indirectly from client transactions in stocks mentioned in this report. DJ Carmichael Pty Limited acted as Lead Manager in a pre-IPO round of funding and the IPO and was paid a fee for that service. Kalamazoo Resources Limited has engaged DJ Carmichael Pty Limited to act as corporate adviser and is paid a fee for that service. DJ Carmichael Pty Limited holds 697,500 restricted securities in Kalamazoo Resources Limited and 7.025m options in Kalamazoo Resources Limited. Kalamazoo Resources Limited paid the cost of a visit to the Snake Well project by representatives of DJ Carmichael Pty Limited in October 2016 valued at approximately $10,000. 

DJ Carmichael Pty Limited is a wholly owned subsidiary of DJ Carmichael Group Pty Limited ACN 114 921 247. 

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The Author of this report made contact with the Kalamazoo Resources Limited for assistance with verification of facts, admittance to business sites, access to industry/company information. No inducements have been offered or accepted by the company. 

The recommendation made in this report is valid for four weeks from the stated date of issue. If in the event another report has been constructed and released on Kalamazoo Resources Limited, the new recommendation supersedes this and therefore the recommendation in this report will become null and void.

Recommendation Definitions

SPECULATIVE BUY – Anticipated 10% or more outperformance, high risk
BUY – Anticipated 10% or more outperformance
HOLD – Anticipated 10% underperformance to 10% over performance
SELL – Anticipated 10% or more underperformance

Period: During the forthcoming 12 months, at any time during that period and not necessarily just at the end of those 12 months. 

Stocks included in this report have their expected performance measured relative to the ASX All Ordinaries index. DJ Carmichael Pty Limited’s recommendation is made on the basis of absolute performance. Recommendations are adjusted accordingly as and when the index changes. 

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Paul Adams

Head of Research

Paul joined DJ Carmichael in 2006 as a Resource Analyst. Paul has an honours degree in Geology, is a member of the Australian Institute of Mining and Metallurgy and has 16 years experience in the mining industry in exploration, open pit, underground and operational roles, both in Australia and overseas. Before joining the company, he was Chief Geologist and Evaluations Manager at Placer Dome's Granny Smith mine. Paul has a Graduate Diploma in Applied Finance and Investment, fromthe Financial Services Institute of Australasia.