By Conrad Windham
20th May, 2004
Company: Beowulf Gold PLC (BEO)
Market: OFEX, and planning to move shortly to AIM
Shares In Issue: 35 Million + 14.3 Million Options
Share Price: Bid ~6.25p, Offer ~6.625p
Market Cap: £2.36 million
The beauty of Ofex is that every so often it throws up an under researched gem that the market has overlooked and under-rated, Beowulf Gold is one such example.
I am focussing on Beowulf Gold now, as a move to AIM appears imminent, as new funds will soon be needed to be injected to finance its planned drilling and development operations. Management meanwhile could always elect to make a further small placement of shares if financing needs in the interim so warranted.
Typically companies listed on AIM receive greater coverage from investors and reporters, the stocks bring with them attractive tax breaks such as exemption from inheritance tax and accelerated relief from CGT, for those who treat them as longer term investments. I believe Beowulf Gold is already worth a closer look before it moves from Ofex to AIM, it receives forthcoming news of the results of its recent drilling operations, and the market wakes up to the exciting potential of the company.
Beowulf is focused on the exploration and development of gold and copper in Northern Sweden. The company has two exciting exploration acreages, the first at Jokkmokk, exploring for gold and copper, and the second at Grundträsk, focussing on finding economic gold deposits. The combined size of these two acreages is just shy of 125 km².
Jokkmokk is a municipality in Norrbotten County, Northern Sweden. Field work at the region in the summer of 2003 discovered boulders containing large amounts of copper and gold. Subsequent analysis of the boulders showed copper levels as high as 15.75%, and quartz vein mineralization with gold yields of up to 9.4 g/t.
Beowulf has four exploration permits at Jokkmokk located about 45km north of the Arctic Circle: Majves 1, Majves 2, Kårvo 2, and Tjäula 1. The four permits cover 82 square kilometres of highly prospective ground in the Jokkmokk region. The area is considered to be so prospective due to geological data that has suggested Beowulf’s acreage may contain the so called “Olympic Dam–type iron oxide” related polymetallic deposits.
Olympic Dam-type iron oxide is a unique class of ore deposit, characterised by iron-rich titanium rocks formed in extensional tectonic environments. Typically Olympic Dam style deposits harbour significant amounts of iron oxide. Such deposits are being actively sought by companies including BHP Billiton, Phelps Dodge, Boliden, and Anglo American. This is the reason as to why Beowulf was swamped with offers from the mining majors offering themselves as Joint Venture partners at Jokkmokk.
The proposal from the billion dollar NASDAQ listed Phelps Dodge Exploration Corporation was considered the most attractive, and on 18th February 2004 Beowulf signed a Letter of Intent to form a Joint Venture Exploration Agreement. Under the agreement Phelps Dodge have the right to earn up to an 80% ownership in the four permits at Jokkmokk. In order to achieve this 80% ownership Phelps Dodge are required to fund all the exploration costs, which include a full (“bankable”) feasibility study. The expenditure associated with a feasibility study is considerable; the fact that the agreement requires Phelps Dodge to fund the entire costs of exploration is of fundamental importance to Beowulf. Following a decision being made to proceed to development Beowulf is obliged to fund the subsequent development costs associated with its 20% interest, or revert to a 1.5% Net Smelter Return.
I am of the opinion that Beowulf intends to become a serious mining company and will choose to fund the development costs associated with its 20% interest. When the time arrives for such a decision to be made Beowulf’s shares should be considerably higher, and I envisage no problems for the company raising equity to fund its development costs at Jokkmokk. Alternatively, the Jokkmokk assets might be sold to Phelps Dodge in order to provide funds for Beowulf to bring its smaller but equally exciting project at Grundträsk online.
There have been three holes drilled at Jokkmokk on Majves 1 thus far, with the results to be announced to the market imminently, and in joint agreement with Phelps Dodge. At the recent AGM, Chairman, Bob Young, informed shareholders that the first hole had been drilled to a depth of 200 metres, and that the results were “very interesting” on first analysis.
The Jokkmokk municipality is served with a good existing infrastructure, with roads that connect the region to the main regional cities of Luleä, Arvidsjaur and Kiruna. Beowulf’s acreage is easily accessible, with roads and gravel tracks passing through the project area. Should a decision be taken in the future to mine the Jokkmokk exploration areas then the existing infrastructure is able to support such an operation.
Exploration companies can go to considerable lengths in order to attract a Joint Venture partner; it speaks volumes for the geology of Jokkmokk that Beowulf is already tied in with a major company of Phelps Dodge’s stature.
Beowulf’s other operation is its Grundträsk Project, which consists of three permits covering 43 square kilometres. Grundträsk is located on the border between the Malå and Norsjö municipalities, Västerbotten County, Northern Sweden.
They say in mining that it is best to look for a potential new mine next to an old one, this is the case with Beowulf’s Grundträsk acreage. The licences are located on the north side of the renowned Skellefte Mining District, a 150 x 50 km zone which supports six base metal mines and two gold mines. Modern mining of the Skellefte district dates back to as early as the 1920’s, when Boliden Mineral AB extracted the base metals of copper and zinc. In more recent times the Storliden mine was discovered in 1997 by North Atlantic Resources AB and subsequently moved into production in 2002. The region is also host to MinMet’s gold producing mine at Bjorkdale.
When assessing the potential of Grundträsk it is important to look at the resource deposits that other companies have recovered in the region. The nearest mine is at Holmtjärn, located less than 5km east of the Grundträsk acreage. Holmtjärn is a relatively small scale mining operation with 0.5 million tonnes of proven reserves. Holmtjärn has returned an average grade of 7.4 g/t of gold and 92 g/t of silver. The high grades of both gold and silver recovered at Holmtjärn bode well for Beowulf’s prospects at Grundträsk.
Having reviewed the geological data available on Grundträsk, acquired from Scanex and the SGU, Beowulf commenced scout drilling of the area in November 2003. Beowulf drilled three holes before Christmas, and in recent weeks completed the drilling of two further holes, the results of these latter two being earmarked for release also within the next two to three weeks. Drilling targeted a NW-SE striking conductor defined by earlier Induced Polarization surveys. The results of the drilling returned significant widths of sulphide mineralization over 30 metres, along with gold grades of 2.2 g/t and 2.4 g/t.
Further exploration is planned at Grundträsk which will seek to identify bedrock targets that can be drilled. The target is for Beowulf to establish economic gold deposits; due to the mineralization of Grundträsk being close to the surface, full operating costs including drilling will be in the region of $175 per ounce. Again, as with Jokkmokk, there remains the possibility that a takeover situation could emerge for Grundträsk if a good economic resource is discovered.
The Geological Survey of Sweden organise an annual “mineral hunt” in the Skellefte Mining District, the winning prize for 2003 was awarded for a boulder with a gold grade of 11.6 g/t and a silver grade of 208 g/t. The boulder was found within the extension of Beowulf’s Grundträsk acreage!
There are considerable attractions to developing an economic mine in Scandinavia, which directly benefit Beowulf’s acreages in Sweden. The greatest attraction is that the Swedish government charges no royalty fee for resource extraction to mining companies; there are no plans to change this rule. The government is very welcoming towards mining and exploration companies as they see their presence as an opportunity to create jobs for the local citizens. The government even contribute towards the wages of the citizens hired by a company. There is a good availability of experienced and well trained people in Sweden; this is a result of joint efforts by Swedish Industry and Government to invigorate research and technical development at their academic institutions. This helps to explain why Scandinavia is proving such a popular region with mining and exploration companies.
Beowulf retains an indirect interest in platinum, having signed an option agreement with Agricola Resources on 26th February 2004 to sell its exploration rights on the Isle of Unst in the Shetland Islands for 7,500,000 ordinary shares in Agricola, plus a $1 per ounce royalty on any future production of platinum on the island. Beowulf’s stake in Agricola is currently worth £150,000, based on the current bid price of 2p.
To conclude, Beowulf has two exciting areas of exploration at Jokkmokk and Grundträsk in Northern Sweden which are progressing at pace. It is unusual for a company of Beowulf’s size to have an attractive joint venture with a major mining company like Phelps Dodge. This joint venture at Jokkmokk is where the excitement lies; progress will be quicker due to Phelps Dodge paying the entire exploration costs at the area than if there were no partner funding such costs. Grundträsk also holds high potential, the surrounding geology of the area and initial early stage results bode well for an economic gold resource to be located and mined.
With the company envisaging a future move to AIM in coming months, I believe that now is a good opportunity to consider an investment in Beowulf. The company will receive greater attention and will be a more attractive investment once listed on AIM, as well as investors being able to trade the stock through popular online brokers. How easily and quickly it can raise the likely £1.5 - £2.5 million for its needs over the next year or two, will clearly depend on its forthcoming release of drilling results.
As with all small mining exploration companies it is important to recognise that there are risks attached, and as such it is important to allocate only a small percentage of your portfolio to this area of investment. However the economic and political risks attached to an essentially Swedish operation are minimal when compared to those faced by investors in the many new overseas mining concerns currently being promoted on the London market.
No Lemming associate has an interest in Beowulf shares.
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