Argonaut Resources NL
ABN 97 008 084 848
Annual Report - 30 June 2016
Corporate directory 30 June 2016
Directors P J D Elliott
L J Owler A W Bursill
M R Richmond
Company secretary A W Bursill
Registered office Suite 4 Level 9
341 George Street
Sydney NSW 2000
Share register Link Market Services Limited Level 12
680 George Street
Sydney NSW 2000
Auditor Ernst & Young
200 George Street
Sydney NSW 2000
Solicitors Addisons Lawyers
Level 12
60 Carrington Street
Sydney NSW 2000
Bankers National Australia Bank Level 36
100 Miller Street
North Sydney NSW 2060
Stock exchange listing Argonaut Resources NL shares are listed on the Australian Securities Exchange (ASX
code: ARE)
Website www.argonautresources.com
Dear Shareholders,
During the year we have carefully added to our exploration portfolio following the disappointing drilling results from our Lumwana West property in Zambia. The recent relatively depressed mineral exploration sector has provided opportunities to become involved in properties with sound prospectivity at modest up front entry cost. Our overriding intent is to use our combination of geological and commercial skills and experience to achieve exploration success. This necessitates participating in numbers of exploration programs as it is a high risk/high reward endeavour.
In particular, we have acquired the Crescent Lake and Greenbush Lake lithium properties in Ontario, Canada. Our approach is to let the drill bit do the talking and we have concluded an initial drilling program at Crescent Lake with very encouraging results. In our entry into lithium exploration we are very mindful of having assets that have a very good chance of "breaking out of the peloton". To this end we have evaluated numerous possible lithium prospects and rejected participation. We concluded that for the vast majority of these, the exploration prospectivity was limited and/or the entry terms too onerous. We will maintain this discipline in any new lithium assets we evaluate.
The lithium exploration interest has been driven by exceptional price increases since mid-2015, especially for lithium carbonate product. Lithium-ion battery demand created acceleration in demand ahead of the upstream supply capacity expansion. There will no doubt be an increase in the mine supply of lithium products in the near future. However, there is a strong chance that this may not be rapid enough to prevent further price increases in the next year or two. Against this backdrop, it is to be expected that any lithium exploration result that shows high enough grade to be a low cost supply will attract investor support. For open cut spodumene prospects, such as ours, we assess the hurdle is likely to be thick intercepts greater than 1.3% Li20.
For Torrens (30% Joint Venture interest) we are finally, after nearly 9 years of legal wrangling on Native Title matters, on the cusp of getting the necessary permissions to be able to resume exploration drilling. The most significant access battle has been conflicting Native Title claims. Our adversaries for Torrens access had their claim struck out from the register following a Federal Court judgement in August. We now have a pathway to resolve the necessary approvals under the South Australian Mining Act and Aboriginal Heritage Act. We have agreed the pathway with our Joint Venture partners, Aeris Resources Limited (previously named Straits Resources Limited).
Our Joint Venture must still secure access approvals but the greatly reduced standing of our adversaries makes this process relatively straight forward i.e. the same as any other South Australian mineral explorer.
It is timely to remind shareholders about why we have spent so much time and money in pursuing the exploration access to Torrens.
The Torrens anomaly is one of the largest and most geologically prospective Iron Oxide Copper-Gold (IOCG) exploration targets in the world. The Torrens anomaly is enormous. Specifically, it is estimated that the volume of subsurface rock with both the density and magnetic susceptibility of IOCG ore totals approximately 13 billion tonnes - potentially larger than Olympic Dam. The limited historical drilling by WMC and modern (2007/8) drilling by the Torrens Joint Venture has confirmed that the targeted geophysical anomalies are associated with IOCG alteration systems.
We are keenly looking forward to letting the drill bit get back to work on this massive and exciting iron-oxide-copper-gold target (IOCG).
Although Lumwana West drilling results last year were disappointing and failed to meet our Joint Venture partner's (Antofagasta) criteria we are looking at options to pursue further follow up of the Nyungu mineralisation where we established an Exploration Target of between 130Mt and 180Mt at a grade range of 0.45% to 0.65% copper (Estimated by independent technical consultancy RungePincockMinarco in accordance with the 2012 JORC Code). There are many additional targets in and around Nyungu that offer potential for additional mineralization.
Our progress has been against a backdrop of the usual market volatility.
Although the S&P/ASX Metals and Mining Index ended about 13% higher than one year ago, this was after it had fallen by 30% by January 2016. These movements were driven primarily by swings in metal prices and overall market sentiment. We note that there has been a sound improvement in sentiment since the January 2016 low as market liquidity and capital raising activity has picked up. There are plenty of signs that we have seen the worst and a resources up-turn has commenced.
Metals demand generally continues to grow modestly as Global Real GDP growth rates remain subdued and, in particular, China's metals demand growth has eased. Many metals markets appear to be at or close to demand/supply equilibrium and
reported stocks tending to be reducing. This augurs well for prices looking forward as long as the demand side continues even modest growth.
In this regards, most Central Banks around the world continue to run very accommodative monetary policies as they continue to argue that deflation is a serious economic threat and inflation is generally contained around 1 -2% in major developed economies. The US Federal Reserve is a potential exception where some increase in interest rates is being telegraphed. Overall, interest rates remain extremely low (or negative) by any historical comparison. However, these monetary policies have done little to stimulate real economic growth (and possibly the reverse) as the main beneficiaries of Zero (or Negative) Interest Rate Policies have been Governments who predominantly continue to run large deficits which are primarily driven by consumption and entitlement spending rather than investment. It seems almost impossible to see through to: what happens next? There does seem a good possibility of strong demand and prices for gold (and other hard assets) as an investment preference by many investors as they seek a shelter from negative interest rates.
Despite these uncertainties many commodity prices are likely to strengthen as prices have been below the cash costs of higher cost producers which sets the scene for the inevitable supply cuts. Certainly, for copper there is very limited supply expansion at current prices around US$2.15/lb. This augurs well for a sustained upswing in copper prices over the next couple of years.
We are looking to position ourselves for this upswing. Fortuitously, Torrens is now able to move ahead and we are confident that Tier-1 copper exploration targets like Torrens can now access the necessary capital. In addition, we continue to evaluate large scale copper opportunities (IOCG and porphyry style targets) in Zambia and other financeable jurisdictions.
We look forward to our exploration work gaining substantial momentum over the coming year. With the support of shareholders who participated in our capital raisings we are now preparing to let the drill bit do the talking.
Finally, I would like to acknowledge the continued dedication and hard work of our executive team Managing Director, Lindsay Owler and Chief Geologist, Tim Birt. They remain enthusiastic as they focus on applying their exceptional management and technical skills to our exploration activities.
I thank you for your continued support of our Company and look forward to reporting on our progress.
Pat Elliott
Chairman
