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Gold Mining: Massive Gold Mine Could Boost Tiny Australian Company

Posted November 21, 2007

A Today’s Financial News Research Report:
BHP will unearth more than 100,000 metric tons of ore a day, and it will need a global leader to salvage as much gold as possible…

by Sara Nunnally, Editor, Material Profits

Today’s Financial News feed provides an independent and practical perspective on the U.S. and global investment markets. Subscribe in a Reader or Subscribe via e-mail

 

The world’s fifth-largest gold mine has just been turned into the largest construction project in the world. With estimated reserves of more than 80 million ounces of gold buried deep in an underground mine, and the price of gold at $786, this resource is worth in excess of $62.9 billion!

This $62.9 billion treasure is buried under enough earth that it would take miners four years to remove it all, even at a rate of 1 million metric tons a day.

And by the time BHP Billiton (BHP:NYSE) gets to all that gold, this will be the largest open pit mine in the world.

There are already 20 diamond drill rigs at the mine now, and another 10 will be needed in the coming years to handle all the new work. Ten shovels will also be needed, and pre-split drills, processing equipment, sampling equipment and a huge capacity expansion for processing an increase of 100,000 metric tons of ore a day.

That’s how huge this project will be.

So how do you play it? Do you buy BHP?

BHP’s risen more than 85% since December 22, 2006, so BHP could still be considered a good bet for your portfolio. And it’s been metals that have been driving the value of BHP.

Just listen to these accolades:

• World’s largest supplier of steel-making raw materials…
• World’s third-largest copper producer…
• World’s third-largest producer of nickel metal…
• World’s fourth-largest producer of uranium…
• World’s sixth-largest producer of aluminum…

Not to mention, BHP is the second-largest export of energy coal. We were on track, but should have taken the company’s extensive mining capabilities into account and watched metals prices. Since December 22, copper prices have risen more than 80 cents a pound. And get this: Gold prices are up more than $156 (as of mid November)!

Rarer Than Gold, More Valuable Than Diamonds! 

Although this little-known asset was banned from Wall Street in 1961, it’s now legal again and could deliver 755% in the next 12 months. Find out how to claim you share of this lost treasure…

 

The Veritable Mother Load

And then there was the news:

“The Veritable Mother Lode for BHP,” reads a Forbes article.

“BHP Billiton Strikes Gold at Olympic Dam,” reads a MarketWatch article.

BHP revised its Olympic Dam mine reserves. The 100% BHP-owned mine is the largest underground mine in Australia. Previously, it has confirmed deposits of 4.43 billion tons of ore. This ore is graded at about 1.1% copper, 0.5 gpt of gold, and 0.4 kilograms per ton of uranium oxide.

Just before the news broke, BHP climbed $11.71 in just five trading days, with a huge +$5 jump on September 24!

BHP has a seven-year, five-stage plan to double the Olympic Dam’s production. Currently, the company is in Stage 2: Pre-feasibility. This is when BHP selects a development plan and furthers its Environmental Impact Study (EIS). This stage should be completed by the end of 2007, and the EIS done by mid-2008.

Only then, after receiving earthworks approvals (also expected in mid 2008) and construction approvals (expected in mid 2009), can BHP begin to dig that open pit.

Could you buy BHP Billiton? Certainly, but that quick +$11 jump at the end of September could mean that a good chunk of its move higher due to this massive discovery could already be priced in.

There might be a better way to play the world’s largest open pit mine: with sampling technology.

(Report continues below…)

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Essa Australia, Ltd. (ESS:ASX)

Talk about a flying leap in profits! Essa Australia’s net profits after taxes increased an amazing 79% in 2007! And sales jumped 57%…

ESS is a world-leading specialist in the design and manufacture of sampling and sample preparation equipment for the international minerals and mining industries. No surprise, really, that the company is based in Perth, Australia.

But this growing company is expanding on a global scale. It now has subsidiaries in Africa, South America and Europe. Its top-notch standardized equipment has also been chosen by Russian mining company Polyus for use in its Olympiad mine.

ESS’s equipment is at the cutting edge of mine-sampling technology. “There are very few companies internationally that can boast such a wide range of necessary sample preparation products as well as the understanding of the requirements of a total installation package,” says Essa Australia.

This superior technology has allowed ESS to enter every major mining area of the world, including Australia, Russia, South America, Canada, the United States, Africa and the Middle East. Because of its strong presence in Australia, and its acquisition of Australia’s STACE Pty. Ltd. a year ago, ESS is at the top of the list for mine-sampling equipment and technology.

BHP Billiton contracted ESS to upgrade its Robotic Sample Preparation System at Port Hedland. ESS provided new equipment and control systems for $1.45 million.

Essa Australia Limited Level 1 63-69 Abernethy Road Belmont WA 6104 AUSTRALIA Phone: +61 8 9475 3000 Web site: http://www.essa.com.au/

But its real strength lies in looking at its financial performance. Since IPOing in 2004, ESS has seen increased revenue growth in the double digits: 10% in 2004, 38.2% in 2005, 10.4% in 2006, and 57% in 2007. In fact, 2006 was the only year in which net profits fell, and 2007’s performance certainly made up for that with an increase of 79%!

In short, this new BHP gold mine is only one of any number of global opportunities that Essa Australia has solutions for, and with metals continuing to increase in value, sampling technology will become an increasingly important part of the mining process.

Buy Essa Australia Ltd. (ESS:ASX) at or below AUS$1.40. Use a 25% trailing stop with this recommendation.

Learn more about Sara Nunnally’s investment research newsletter, Material Profits…

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