MINING MARKETS & INVESTMENT NEWS — INVESTMENT COMMENTARY — Minco gets nod for pioneering venture into China

The winds of change have not had an easy time blowing into China, and numerous North American mining companies active there continue to run up against a Great Wall of Frustration.

However, mining analyst George Topping of Sprott Securities believes the Asian nation may finally be getting its act together: “Long a graveyard for Western mining companies, China finally appears to be open for business. The new mining act is similar to that of Australia and Canada. The country risk is deemed acceptable for companies such as McDonald’s, Kodak, Volkswagen and Phillips Petroleum.”

Topping was prompted to take a close look at China when Teck (TEK-T) made another investment in Minco Mining & Metals (MMM-T), a junior company that has three main projects in the country.

The most important of these is the White Silver Mountain project in the mining district of Baiyin. In 1998, Minco formed a joint venture with state-controlled Baiyin Mining, allowing it to earn an 80% interest in the non-producing areas of the property by spending US$4.8 million on exploration over four years.

The existing, 750-tonne-per-day Xiaotieshan mine extracts ore from the upper portion of the deposit, which has reserves of 10.7 million tonnes grading 1.1% copper, 3.3% lead and 5.1% zinc. Since taking on the project, Minco has carried out a drilling program to confirm the downdip extension of the Xiaotieshan deposit.

The first-phase program returned encouraging results, including: 24 metres of 1.8% copper, 3.7% lead, 6.4% zinc; 17.7 metres of 2.1% copper, 5.4% lead, 9.7% zinc, plus 4.8 grams gold and 120 grams silver per tonne; 10.1 metres of 1.5% copper, 9.3% lead, 16.3% zinc, 3.3 grams gold and 223 grams silver; and 29.9 metres of 1.3% copper, 2.9% lead, 7.7% zinc, 1.6 grams gold and 70 grams silver.

“The potential for materially increasing the orebody size is excellent,” Topping notes in a recent research report. “The gross metal value per tonne intersected so far is high and should be highly profitable.”

Topping rates Minco a “speculative buy” and sets a 12-month target price of $3.50, more than double its current trading prices. His reasons for recommending the project include: the high-grade nature of the deposit; the potential to expand the existing deposit and find new deposits in the surrounding land package; and low technical risk.

Teck’s recent investment of $500,000 in Minco can be interpreted as another endorsement of the project, Topping adds. This follows a $750,000 investment made in mid-1998. The major also has the option to earn a 56% interest in White Silver Mountain by funding the project from phase-one to production. This would leave Minco with a 24% interest in the project. Cominco (CLT-T) has a back-in provision that would reduce Minco’s interest to 19%, for 150% of expenditures to date. Teck is also managing all exploration at the project, including work to test a favourable geological horizon believed prospective for massive sulphide deposits.

The second phase of work at White Silver Mountain will include 8,000 metres of drilling to test the extent of mineralization along strike, as well as geophysical surveys.

Another plus for the project is Baiyin’s existing metallurgical complex, which includes a 13,000-tonne-per-day concentrator and smelter running at 30% of capacity. The contract binds the smelter to process the joint-venture reserves at commercial rates.

“The smelter, power, water, roads, labour, etc., are already in place in an existing mining camp,” notes Topping, who also gives the thumbs-up to management, including President Ken Cai, a Chinese native who earned his PhD in mineral economics from Queen’s University, and director William Meyer, the former head of exploration for Teck.