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Malaysian mining: Peninsular Gold Ltd

10 June 2008

Ask Patrick Watson about his views of the Alternative Investment Market and he tells a familiar tale of mixed blessings on London’s junior exchange. For the finance director of mining group Peninsular Gold plc, crucial access to capital comes with a stock price that can occasionally swing wildly on the back of a few shares changing hands.

“AIM has worked well in terms of getting us our initial couple of rounds of funding,” he says. “But it’s a less transparent market in terms of dealing. Share prices can seem to move quite a lot on very small volumes at times – that’s probably our main concern. Having said that, as we continue to grow and our shareholder base grows with us then hopefully those liquidity issues will start to dwindle.”

Having just raised £2.5 million of working capital though the market, and with a key mining asset due to kick off production later this autumn, the next phase of growth for Peninsular appears to be just around the corner.

The company’s projects are based in Malaysia, with its key asset a gold mine and production facility at Raub, 75km north of the capital Kuala Lumpur. Thirty-five kilometres further north it has another project at Tersang.

Raub alone has Joint Ore Resource Committee (JORC) compliant gold resources of 430,000 oz, including reserves. The company is currently working on proving up the resource even further with an eye on identifying 1 million ounces by mid-2009.

Proving the potential

Watson was brought into the venture three years ago. Originally a mining engineer, he worked in Anglo American’s gold division before a change in career saw him train as a chartered accountant which later saw him working with PricewaterhouseCoopers. Having previously lived in Malaysia for 17 years, the chance to return to the country was clearly too tempting an offer to turn down.

Since joining AIM in June 2005, Watson and Peninsular’s chairman and chief executive Dato' Sri Andrew Kam, have led a two-pronged strategy. First was to keep proving the potential of the company’s gold resource and inventory and, second, secure the financing for, and then construct, a Carbon-In-Leach (CIL) gold processing plant at Raub. After securing the financing for the plant last August, production is now set for the third quarter of 2008.

As something of a bonus, the company qualifies for five years of 85pc tax relief once production at the CIL plant starts. “That means we’ll pay tax at just under 4pc,” Watson says. “So the current plant makes an awful lot of sense just looking at the tailings processing. But we’ve actually got richer oxides nearby and we’d like to get to a level where we can start mining those and putting them through the plant. The idea is about maximising our profit during that five year window. So that’s the other key thing we want to get going on at Raub as well.

“In terms of the gold resources Raub is our jewel in the crown,” he continues. “That mine generated 8 million tonnes of tailings that we have there as a proven reserve and which formed the basis of a bankable feasibility study for the CIL plant.

“From our point of view it is a great cornerstone project and makes a lot of sense financially. This was a very interesting project back when the gold price was $400 - $450 and since then it’s just improved really.”

Elsewhere in Malaysia, Peninsular’s AIM peer Avocet Mining plc is only other main mining operator, with its Penjorm project just 45 minutes down the road. Watson resists any suggestion of a tie-up between the two companies. “We keep an eye on each other,” he says. “But they have got their strategy and we have got ours.”

Longer term, Watson reinforces Peninsular’s aims of proving up the resources even further at Raub with a view to bringing them into production through the current plant. “Then, if it makes sense economically, we’ll look to expand the plant as well,” he says.

“Up at Tersang there is more exploration and drilling and proving up to be done, but again that appears to be a significant deposit. If other opportunities come up then obviously we’ll look at things with a view as to what’s best for shareholders. But we think we’ve got significant areas to be getting on with for the next couple of years.”

Ben Hobson, SmallCapNews.co.uk