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Ardea weighs potential spinout of noncore gold, base metals projects

Australian explorer Ardea Resources Ltd. plans to evaluate a potential demerger of its noncore gold and base metals projects.

The company's key focus is its Kalgoorlie project in Western Australia, which is prospective for both nickel and cobalt, and it recently raised A$5.5 million to accelerate drilling to define a reserve and upgrade the resource for the KNP cobalt zone.

Ardea was spun out of Australian base metals explorer Heron Resources Ltd. in 2016 and listed on the ASX in early February this year.

Although a possible spinout of its noncore projects, including the Lewis Ponds gold-zinc project in New South Wales and the Mt Zephyr and Bardoc Tectonic Zone gold projects in Western Australia, is on the cards, Managing Director Matthew Painter told S&P Global Market Intelligence on Oct. 17 that a decision is still quite a way off.

"We need to see what they actually are before we can do any sort of deal with them if that's what we choose to do," he said on the sidelines of the Australian Nickel Conference in Perth. "So part of the money that we just raised will go back into drilling some of those, just in a very cursory sort of way, to see what we're actually dealing with."

At Lewis Ponds, Ardea is investigating the potential for a bulk, lower grade mining operation.

"We're applying a thesis to it whereby instead of going in and mining the high-grade mineralization as has been done in the past, we're looking at a bulk lower grade-type arrangement, as most of the mines in the region are, and it's coming up very nicely so far," Painter said.

The executive said that while Ardea believes all of its projects can "stand on their own merit," the company needs to assess whether they would be better in a new company or whether more work is needed.

Ardea is looking to take advantage of battery market growth through the development of the high-grade cobalt zone within its Kalgoorlie project.

"The battery market is certainly going to drive the nickel price to some extent," Painter said. "It's almost certainly going to push the cobalt price quite a lot."

Global cobalt production is around 100,000 tonnes per annum, and the price is sitting around US$60,000 per tonne, which is well below 2008 levels of over US$110,000 per tonne.

The Democratic Republic of the Congo accounts for about 60% of global cobalt supply, but Australia is well placed to help fill the gap.

"Without doubt the DRC is the Saudi Arabia, to use an oil analogy, but they've got to get their act together on a number of fronts, it's politically very unstable and there's a number of issues there," Painter said. "In Western Australia in particular, and in Australia in general, we're probably the equivalent of the Gulf of Mexico or the North Sea, we have lots of potential here and it's going to be realized. Kalgoorlie has long been the gold capital of Australia, it's going to become the battery capital of Australia as well."

The company expects to complete a pre-feasibility study on the Kalgoorlie project in the first quarter of 2018 and a definitive feasibility study in 2019.