A hugely-credentialed exploration company with a $15m farm-out JV with Sandfire Resources over its Bryah Basin acreage. More recently it has acquired the advanced Sinclair nickel project from Glencore.
| Corporate Details |  |
| Status: Emerging Producer | |
| Size: Small Cap | |
| Commodity Exposure: Nickel | |
| Share Price: $0.35 | |
| 12-month Range: $0.091 – $0.45 | |
| Shares: 132m, Options: 6m | |
| Top 20: 38% | |
| Net Cash: $6m | |
| Market Value: $46m |
| Key Parameters | Rating (✓out of 5) | Quarterly Statistics |
| Management Quality | ✓✓✓✓✓ | Q1 2015 Exploration Spend: $0.63m |
| Financial Security | ✓✓✓✓✓ | Q1 2015 Administration Spend: $0.367m |
| Project Quality | ✓✓✓✓✓ | Exploration Spend 67%, Admin. Spend 37% |
| Exploration / Resource Potential | ✓✓✓✓✓ | Q2 2015 Forecast Exploration Spend: $0.75m |
| Project Risk | ✓✓✓✓✓ | Q2 2015 Forecast Admin. Spend: $0.75m |
We introduced Talisman Mining to our Portfolio at $0.12 during January 2014, based on our long-standing belief in the company’s proven board and management team, combined with its high-quality Bryah Basin project portfolio and robust cash position. The company has since undertaken two significant corporate deals – the first involving a $15m farm-out of its Bryah Basin acreage to Sandfire Resources (ASX: SFR) – and the second involving the acquisition of the Sinclair nickel project.
Talisman boasts proven in-house exploration and appraisal expertise, comprising a large chunk of the former management team that was involved with hugely successful ASX-listed nickel explorer/producer, Jubilee Mines. The team was involved in the discovery of multiple high-grade, sulphide nickel deposits that transformed Jubilee into an established producer, prior to its eventual takeover by Xstrata. The Jubilee board accepted Xstrata’s $23-a-share cash offer during 2007 – a far cry from its minnow status at $0.20.
Talisman maintains a dominant and enormously prospective ground position within the Doolgunna region of Western Australia and has formulated a farm-out JV with Sandfire Resources, whereby Sandfire can earn up to a 70% stake in three of Talisman’s projects by spending at least $15 million over a 5½-year period. Talisman has also secured the advanced Sinclair nickel project from Glencore for $10 million, a project that Talisman’s board knows intimately, having been involved in its initial discovery.
Recent Activity
Doolgunna Project Update
In our most recent coverage during May 2015, we highlighted the completion of reconnaissance diamond drill-hole TLDD0002A at the Monty prospect, hosted within Talisman’s Springfield copper-gold project approximately 10km east of Sandfire’s DeGrussa copper mine.
TLDD0002A forms part of a new exploration program undertake by Sandfire at both the Monty and Homer prospects, with TLDD0002A drilled to test a subtle, discrete off-hole electromagnetic (EM) conductor identified from both a high-powered surface FLEM survey and a high powered DHEM survey completed on a historical Talisman drill-hole – SPD021.
A subsequent high-powered DHEM survey on TLDD0002A identified a highly-conductive, late-time anomaly approximately 15 metres off-hole that’s potentially indicative of an accumulation of mineralised massive sulphides.
Talisman subsequently commenced drilling of diamond drill hole TLDD004A, as a follow-up hole to TLDD002A. Encouragingly, Talisman today advised that TLDD004A has intersected 14 metres of massive sulphides from 411m down-hole to 425m – with its share price surging from $0.24 yesterday to an intra-day high today of $0.45. Based on field observations by JV partner Sandfire, the interval contains visible chalcopyrite and is similar to the massive sulphides seen at DeGrussa.
Technical Significance
Both Talisman and Sandfire are very encouraged by the intercepted massive sulphide within TLDD004A, as it represents the first significant accumulation of massive sulphides to be intersected within either Talisman’s or Sandfire’s Doolgunna projects, outside of the four existing lenses of VMS mineralisation at DeGrussa.
Drilling is continuing with the hole currently in fragmental siltstone and basalt with trace chalcopyrite and pyrrhotite to 427m down-hole. Current reported widths are down-hole widths, as true widths cannot be accurately determined. Drill-core from TLDD004A will be dispatched for priority assaying, with results expected in the coming weeks. Sandfire have advised that follow-up diamond drilling will be undertaken as a priority.
Project Background
SPD021 was drilled by Talisman back in the June 2011 quarter as part of a diamond drilling program conducted within the Monty Corridor. The hole was a follow-up to diamond hole SPD020, which intersected a narrow zone of potentially remobilised copper (including an intersection of 0.3 metre @ 7.6% Cu (502.0 metres – 502.3 metres)). SPD021 was drilled up-dip of SPD020 and also intersected a narrow zone of potentially remobilised copper, including an intersection of 0.5 metre @ 1.3% Cu and 1.0g/t Au (347.5 metres – 348 metres).
Encouragingly, the recent high-powered DHEM survey on Sandfire hole TLDD0002A identified a highly-conductive late-time anomaly measuring 50 metres by 50 metres, approximately 15 metres off-hole centred at a down-hole depth of 410 metres. As we highlighted in our May coverage, this highly-conductive anomaly (of the order of 5,590 siemens) had the potential to represent an accumulation of mineralised massive sulphides.
Logging of subsequent diamond drill-hole TLDD0002A identified a zone of haematitic siliceous jasper nodules with trace disseminated chalcopyrite and significant magnetite between 379.05 metres and 387.64 metres down-hole, within a broader sedimentary package of approximately 38 metres. Importantly, the zone closely resembles that of the exhalite adjacent to the massive sulphide mineralisation at DeGrussa.
Sandfire Joint Venture
The deal is hugely significant as it provides the potential to unlock a new generation of copper-gold discoveries, by combining Sandfire’s emerging geological knowledge (gained from the discovery and development of the high-profile DeGrussa discovery) with Talisman’s extensive Doolgunna datasets and geological knowledge.
Sandfire has the right to earn a 70% ownership interest in Talisman’s interests within the Doolgunna region by spending $15 million on exploration across the projects within a 5½-year period. As part of the deal, Sandfire has a minimum expenditure commitment of $5 million within the first two-year period.
Sandfire can elect to either withdraw from the agreement with no further commitment and no project equity interest, or spend an additional $5 million within a further two-year period in order to earn a 51% interest in the projects. Following this period a joint venture will be formed – with Sandfire holding a 51% stake and Talisman a 49% stake – in the projects.
Sandfire then has the option to sole-fund a further $5 million worth of exploration expenditure within a further 18-month period, which will see it acquire a further 19% stake in the projects – taking its total stake to 70%.
Sinclair Nickel Project
Talisman announced during October 2014 that it has reached agreement to acquire the Sinclair Nickel Project from Xstrata Nickel Australasia Operations Pty Ltd, a subsidiary of Glencore. Total consideration comprises a cash payment of $8 million payable at completion of the transaction (complete), along with a contingent deferred payment of $2 million if production recommences within six years of transaction completion.
Talisman has commenced the formal process of registering the transfer of the associated mining and exploration tenements with the Department of Mines and Petroleum, following which ground-based exploration activities can commence at Sinclair.
The Sinclair acquisition is a major game-changer for Talisman, providing it with a major medium-term avenue towards production, whilst complementing its exciting DeGrussa exploration activities. A review of potential development pathways for the Sinclair project commenced during the March 2015 quarter, which will improve the company’s understanding of critical-path issues that will need to be addressed should production recommence.
Talisman has engaged external consultants to assist with the next steps in terms of exploration at the highly prospective Skye and Stirling prospects, with a view to defining and confirming potential drill-targets. This work will include the creation of a three-dimensional geological model and a review of high-priority historical geophysical data in this near-mine area.
The massive nickel sulphide mineralisation at Skye and Stirling shows good down-plunge continuity with a strong electromagnetic (EM) response. Importantly, several strong late-time EM conductors remain to be tested for thicker and/or higher grade mineralisation beneath the Sinclair deposit. Talisman has engaged nickel geophysics specialists Newexco to review and validate high-priority EM targets, and to identify possible massive nickel sulphide targets relative to previous mineralised drill-holes.
In conjunction with the geophysical review, Talisman has also recently engaged geological consultants SRK to assist with the development of robust 3D models of the key rock types, mineralization and controlling structures at both Skye and Stirling. This 3D geological model is intended to enable Talisman to better constrain ore-bearing positions and to assist in facilitating accurate drill-hole targeting.
Elsewhere, the Delphi prospect and surrounding area hosts the southern continuation of the prospective Sinclair Ultramafic channel and has historically returned several nickel sulphide intersections in limited drilling over a strike length of at least 8km. The widespread distribution of heavily disseminated, stringer and, in some places, massive nickel sulphides highlights the prospectivity of the area, and Talisman is prioritising exploration activities at the Delphi prospect accordingly.
Talisman is currently reviewing the Delphi prospect data, whilst Newexco have been engaged to review geophysical data at the prospect. The objective of this combined review is to develop systematic exploration programs to gather further geological and geochemical data and to potentially test existing EM targets away from mineralised drill-holes at Delphi.
Finally, Talisman has engaged a consultant to evaluate the potential for JORC code (2012)-compliant resource estimates, based upon existing historical drilling, for both the Sinclair deposit mine area and the Sinclair deposit extension. Due to the complexity of the Sinclair ore body, definition drilling needs be closely-spaced in order to better define higher-grade shoots associated with tight folding and remobilised massive sulphide.
It is considered that the existing historical broadly-spaced drilling traverses across the mine extension position are wide enough apart to miss significant high-grade massive sulphide mineralisation. This has been demonstrated by the last four northern-most drill traverses which intersected high-grade mineralisation with grades greater than 2.5% Ni over widths of up to 6.34 metres and evidence that underground mining in some of the final mining levels yielded significant increases in mineralised volume compared with the geological model (as defined by surface diamond drilling).
Given the above, it is possible that a JORC-compliant resource may not be possible at this time for the Sinclair extension. However, this could change with further in-fill drilling in the future.
Project Background
The Sinclair nickel deposit was discovered by the formerly highly successful nickel miner and explorer, Jubilee Mines, during October 2005. Sinclair is therefore an asset that Talisman knows extremely well, with several key members of its team (Brian Dawes, Alan Senior and Gary Lethridge) were closely involved in the project’s evaluation.
The Sinclair mine was developed and commissioned in 2008 and operated successfully before being placed on care and maintenance during August 2013, having produced approximately 38,500 tonnes of nickel at an average life-of-mine head grade of 2.44% Ni.
It offers an exceptional nickel development and exploration opportunity, including potential immediate extensions of the Sinclair deposit itself, advanced near-mine targets within close proximity of the existing mine infrastructure, as well as a number of drill-ready emerging exploration prospects within a 30km radius of the mine.
Talisman will assume all environmental liabilities and obligations associated with the project and it has agreed to grant Glencore the right to make an offer for off-take for the first 20,000 tonnes of contained nickel-in-concentrate produced from the project. Talisman may accept or reject this offer, whilst Glencore has also been granted the right to match the best third-party off-take offer should Talisman elect to seek alternative offers.
The Sinclair nickel project includes extensive new-near infrastructure including an existing open-cut and underground mine, an on-site 300,000tpa concentrator, sealed airstrip and +200-person accommodation village. The process plant and mine were placed on care and maintenance in August 2013 and have been maintained to a very high standard.
Summary
Talisman has put enormous effort over the past five years into its overall exploration approach, its review of exploration models and prioritisation of exploration targets. The company has invested more than $20 million in exploring its Doolgunna regional projects over the past five years. At the end of the day however, intensive large-scale regional exploration is best suited to a company like Sandfire, which possesses both deep pockets and the very strong incentive of adding to its DeGrussa resource base and extending overall mine life. Talisman retains exposure to a potential minimum of $15 million worth of exploration and appraisal expenditure at no cost. The results being generated by the current diamond drilling program at Monty are clearly demonstrating the soundness of the farm-out strategy – with Talisman’s share price more than doubling this week.
With respect to the Sinclair nickel project, it hosts a known resource extension and vast untapped regional exploration potential, along with established mine infrastructure and two emerging exploration discoveries immediately adjacent to the current mine. We therefore retain our Speculative Buy recommendation on Talisman Mining around current price levels of $0.35.
