Falkland Gold & Minerals

Source: Energy Digital

Date :23/10/2007 13:17:08

Hungry for Gold

Falkland Gold and Minerals Limited is an AIM listed company that was formed to undertake a very distinct project, but is now looking for wider opportunities.

Written by John O’Hanlon & Produced by Alex Smith

Though Falkland Gold and Minerals Limited (FGML) is only three years old its raison d’être lies in the early formation of the earth’s crust. 180 million years ago, to be precise, when Gondwanaland broke up and away from Pangaea. The west coast of South America and the east coast of Africa are still a pretty good fit. It’s not surprising then that geologists found similarities between the Eastern Cape of South Africa and the Falkland islands.

So there was a chance that some of the same mineral sources might be present. Kimberlite for example, that carries diamonds, or gold and some of the other valuable minerals in which South Africa is rich. Traces of gold had been found in some of the streams on the islands, but millions of years have made the Falklands very different from the African continent of which it was once part. They are covered with a thick layer of peat for one thing, which makes it difficult to trace the origin of the alluvial gold that had been found.

FGML was set up to find the source of gold, assess whether it would be economical to extract it, and in the process look for other economic mineral resources. As its executive chairman Richard Linnell says: “We would have been very delinquent if we hadn’t looked for other things apart from gold. Remember that a lot of other minerals are markers or tracers for gold – so we were also looking for arsenic, molybdenum, tungsten, high levels of potassium, uranium and so on. Minerals are often associated – you find one by finding the other.”

Linnell is a geologist with nearly 40 years’ experience in mining and the marketing of minerals. He is something of a specialist in Africa, having been responsible for Billiton Plc’s exploration and development activities on that continent, guiding detailed discussions in Guinea, Mauritania, Sudan, Morocco, and Democratic Republic of Congo and Zambia, as well as his native South Africa.

Indications of gold

The Falklands Islands are challenging geologically as well as politically. They are still claimed by the Argentine, as FGML is frequently reminded in letters from the Argentine authorities questioning the legality of their operations. However it’s well known that the British government has announced that it wants to extend its ocean and make submission to the UN Commission on the Limits of the Continental Shelf to be allowed to claim mineral rights on an extended area of the ocean floor around the Falklands and other British territories. Any economically viable mineral found on the islands themselves would be politically as well as commercially significant.

What was known was that there was a source of gold on the islands. Following extensive aerial electromagnetic surveys FGML started its gold and minerals exploration programme on the Falkland Islands in 2004 and commenced drilling in March 2005 at the same time setting up a core shed and the project and sample treatment facilities at Goose Green. The company’s two drilling rigs Falkland 1 and Falkland 2 were commissioned during this time. The onshore land mass of the islands is around 4,700 square miles, and the company’s exclusive exploration licence covers approximately half that area – operations are directed from an administrative centre at Stanley.

Falkland Gold was admitted to London’s Alternative Investment Market in December 2004, raising £10 million and subsequently having its licence extended into 2009 by the Falklands Islands Government. Currently around 75 percent of its shares are controlled by RAB Capital plc, the remaining shares being thinly spread across a large number of individual shareholders, and some institutional shareholders according to Finance Director Mark Fresson.

Sub economic

To date, the exploration has not sourced ‘economic’ quantities of gold, but some titanium rich gravel has been found. Gold remains the principal focus of FGML. Frankly, says Linnell, it is beginning to look as if there won’t be a future for commercial gold mining in the Falklands, and the indicators aren’t promising for other minerals either.

Looked at this way, one might be tempted to say the whole operation has been a failure, but the markets, and Richard Linnell, strongly disagree with that. “We estimate that by the end of this year we will have about £3.5 million in the bank, a competent exploration team, and a couple of drills. So we will be a very hungry junior mining company looking for new opportunities. I think we will have exhausted the Falkland opportunities, because, aside from our conclusions regarding gold deposits, in the last six months we have also done a fairly intensive uranium scan. We have tested all the variations we found, and they indicate that although there are small amounts of uranium there, they are also sub-economic.”

All this is not such a disaster for the Falkland islanders, he points out. The exercise brought employment and cash into the islands and has increased the sum of knowledge about their resources. FGML has enjoyed excellent relations with the authorities and the farmers whose disappointment at not being told they are sitting on a fortune may be mitigated by relief that gold, at least, is unlikely to be the cause of further invasions. The conclusion that the Falklands were unlikely to yield economic mineral resources was formally communicated to the shareholders on September 10 – regretfully, but not controversially – together with the declaration that, unless something significant turned up in the final months of the current programme, exploration would cease in the Falklands at the end of this year.

Practical opportunities

So where does FGML go from here? “Our original plan in going public was to raise five million pounds to do the basic exploration and perhaps go back to the market for follow-up operations, but when we floated the market was quite happy to give us £10 million,” says Linnell. “Now I am happy to go back to the shareholders to discuss how we should deploy the £3.5 million we have, and where we plan to focus our attentions in the future. I want a clean mandate. Having exhausted the opportunities of the Falklands, beyond this year I think we are honour bound to our shareholders to look for the most practical opportunities.”

The company is in an enviable position, he thinks. It has money in the bank; it has highly competent and experienced leadership; it has drills; and it has drilling teams to operate them – these last two, he says felicitously, are worth their weight in gold because demand currently far exceeds supply. FGML will probably have no difficulty disposing of its vehicles and non- essential equipment on the islands. The drills, lab equipment and personnel can be moved to a new arena of operations fairly easily, wherever that may be.

Though there is no lack of places to go, this decision will be driven by a straightforward balance of the likelihood of establishing a resource (this time he will be looking for a much higher probability of success) and physical and political factors. Richard Linnell sees Africa as containing the most interesting places in the world to look for minerals – gold in particular but not ruling out uranium, molybdenum, and even diamonds. “Africa is my comfort zone, and we will definitely be looking there, though not exclusively.”

Thinking aloud, he identifies a swathe of the continent from Uganda and Southern Sudan, across the Democratic Republic of Congo and into Cameroon: interestingly, he is not keen on South Africa, though he lives there, because of confusion in the mining industry there and the legal framework surrounding it. “There’s a lot of gold in northern DRC. Mali and Ghana are great places to operate in. We know there is a lot of uranium in Niger, though it is a bit over populated with explorers. In the Central African Republic there’s uranium and diamonds.” He is unaffected by the general alarm felt by many westerners who associate these countries only with unrest, misrule and inefficiency. “Africa contains some very large countries and to generalise on the stability of these countries based on a few hotspots is very dangerous – you lose opportunities that way!”