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(AGM) Allegiance Mining Announcement

  1. 121 Posts.
    Chairman`s Address to Shareholders
    21-05 1035

    Quite a number of shareholders have asked for a review of just where
    we are at this time, but in terms that everybody can relate to. This
    short review is my attempt to do just that.

    I would like to touch on two topics, namely, the nickel price and the
    Tasmanian exploration scene prior to discussing the projects.

    Firstly, the Nickel price.

    Since all base metal prices reached their lows in the third quarter
    of 2001, nickel has made a significant recovery from US$4,500 to
    trade in the range of US$6,800 to US$7,200 by the end of April 2002.
    This is better than a 50% increase in just six months! By way of
    contrast, copper and gold were up 25% and 20% respectively, over the
    same period while zinc and tin showed little change from their lows
    over the same period.

    The question is why has nickel performed so outstandingly? Is this
    price level sustainable?

    Total annual world production of nickel is only 1.1 million tonnes
    and demand is expanding at about 4.3% per annum or about 47,000
    tonnes per annum. Demand is forecast to outstrip supply for at least
    the next 5-6 years. The demand means that one project the size of
    Anaconda's Murrin Murrin must be successfully brought into operation
    each and every year going forward! Therefore, firm nickel prices can
    be expected for the foreseeable future.

    Secondly, Tasmania (and the West Coast in particular).

    There are and have been many significant World Class deposits on
    Tasmania's rich West Coast including Mt Lyell* (copper gold),
    Renison* (tin), Rosebery* (zinc, lead, copper, gold), Henty* (gold),
    Que River and Hellyer (zinc, lead, copper, gold, silver), Mt Bishoff
    (tin), Beaconsfield* (gold). (*presently operating)

    In fact, Tasmania's West Coast Region represents one of the world's
    smallest most variously and intensely mineralised areas (by the way,
    it is an area I have been exploring in for forty years!).

    Because exploration has been actively pursued for over 130 years,
    there is superb infrastructure in place. Allegiance's prospect areas
    lie in close proximity to all required facilities, including road,
    rail, electricity, drilling contractors, accommodation and a skilled
    mining workforce. In addition, Burnie is the loading port for
    transhipment of concentrates from most of the Tasmanian working mines
    (see above).

    Of particular value to the Allegiance prospects is the mining culture
    on the west coast dating back more than 120 years. This, together
    with there being no native title issues and no identified
    environmental impediments to any future mining operations make the
    Zeehan area a dream compared with many other mining areas. Of great
    significance is the most helpful support provided by a
    development-minded State Government.

    Our Prospects:


    To date, we have spent about $4 million on the ground we hold around
    the town of Zeehan. What have we achieved for the money spent you
    ask! Let's talk about Avebury first.

    At Avebury, we have identified a resource of about 3 million tonnes
    of 1.54% nickel, a third of which is in the Indicated Category and
    two-thirds in the Inferred Category. It will require significant
    additional drilling programmes to convert the Resources to Reserves.
    This upgrading of the resource is a necessary and normal step to
    advance the project to mine production. What is special about Avebury
    is that it is a new type of deposit not previously identified
    elsewhere. The mineralisation consists of a nickel sulphide
    (pentlandite), magnetite (magnetic iron oxide), a small amount of
    iron sulphide (pyrrhotite), the host rock (serpentinite), and very
    little else! Because the grain size of this nickel sulphide is
    coarse, we believe it will be one of the simplest and lowest cost
    milling operations known from which to produce the nickel sulphide
    concentrates. Initial test work shows about a 90% recovery of nickel
    into a 22% nickel concentrate, which represents just about the best
    available on the market.

    Some people have said that a 1.54% nickel resource grade is low! In
    fact, it is equivalent to about 10 g/t gold, 2.4% tin (they are
    mining 1.8% down the road at Renison!). 5.7% copper (they are mining
    1.3% Cu down at Mt Lyell right now!). In fact, in the particular case
    of Avebury, with its excellent infrastructure and low cost milling
    characteristics, 1.54% Ni is quite attractive and our studies show
    that currently at US$6,000/tonne, the deposit is economic.

    But Avebury gets better! 800 m east at East Avebury, we have good
    surface indicators and drill hole intersections which infers similar
    nickel mineralisation to Avebury. Also, 4,000 m to the west of
    Avebury at Burbank, preliminary shallow drilling again infers the
    presence of yet another such body. Regional geological and
    geochemical, and geophysical surveys have revealed a number of
    look-a-like footprints but no detailed work has been carried out to

    In brief, the Avebury history of the discovery was that after the
    initial discovery Hole A001, we drilled 35 drill holes to outline the
    known Resources (3 million tonnes @ 1.54%) But the Resource is open
    to depth and to the west. So, even at Avebury, the resource has not
    yet been delineated. At Avebury itself, even though we have now
    drilled 35 holes, the resource remains open along strike to the west
    and at depth.

    The Avebury series of deposits represents a new type of nickel
    deposit. The ultrabasic the host to mineralisation is naturally rich
    in nickel mostly in silicate form. At Avebury (and elsewhere in the
    area), we believe the ultrabasic itself contained low levels (0.2%+/-)
    of disseminated nickel sulphides. The heat from a later intrusion of
    granite at depth remobilised the nickel sulphides and concentrated
    them on the limits of the anticline. It is also possible that the
    granite added sulphur to the system converting some of the silicate
    to sulphides.

    In summary, the resource potential of the Avebury district is
    exciting with excellent opportunities to substantially expand the
    resource base beyond the already identified 3 Mt 1.54% nickel.


    Enough about the Avebury series of deposits now for Melba Flats. At
    Melba Flats, along a three kilometres of strike length, some five or
    so locations have been identified where high grade nickel and copper
    sulphides with cobalt, gold, platinum and palladium have been
    defined. Much of our work to date has been concentrated at Nickel
    Reward at the southern end, where a pipe like massive sulphide body,
    typically 1-3 m wide, carrying typically 6% (+/-) Nickel, 3% (+/-)
    Copper and 2 g/t (+/-) of combined of gold, platinum and palladium
    has been intersected. Now, this mineral assembly is considered high
    grade by any standards. In terms of gold, it is equivalent to about
    1-2 ounces of gold to the tonne!

    It is important to consider the genesis of the deposit. The type of
    mineralisation is similar to that found at Kambalda, WA Thompson
    Manitoba, Norilsk (Russia) or Sudbury (Ontario). We believe that it
    has been remobilised from depth by the same granite responsible for
    the Avebury series of deposits 15 kms to the west. The difference
    between Melba and Avebury is that the granite at Melba remobilised a
    conventional deposit up conduits within a series of reactivated shear
    zones. The importance for Allegiance is two fold. Firstly, we are
    attempting to locate shallow deposits of the grades mentioned above
    which can be readily mined and concentrated for shipment. But we are
    also intent on progressively chasing the mineralisation downwards
    towards its source. The present programme at Melba Flats is designed
    to better understand the structures containing and controlling the
    near surface manifestation of the mineralisation with the objective
    of (a) defining economic near surface accumulations and (b)
    subsequently follow the high grade shoots to the source. Genetic
    considerations suggest the source may represent a very significant

    How long is all this going to take?

    Well, firstly we must concentrate our efforts on firming up the
    tonnage at Avebury itself and expanding the potential for additional
    resources in the immediate vicinity. Secondly, we must progress our
    exploration at Melba with a view to delineating a high grade sulphide
    resource of say 100,000 tonnes close to surface. Thirdly, we must
    drill the Burbank prospect to depth as it may be an Avebury Type
    deposit but much closer to surface.

    With the recently raised $750,000 at 4.5 cents plus 1/3 Option, we
    intend to do all of the above by end of December this year.

    Should progressive results be satisfactory and funding be available,
    we may be able to accelerate our work at Avebury and Melba between
    now and December.

    The current year will be a critical one for Allegiance. The nickel
    price is predicted to be excellent going forward, this should
    encourage the market to recognise just what a positive picture we
    have on the West Coast. This in turn, will make it possible to
    progress the project towards a mining operation which we all


    Against this background of a strong future nickel market, Allegiance
    has assembled a portfolio of tenements containing prospects with
    substantial identified nickel resources and excellent scope to expand
    this resource base.

    We have a vision for the future growth of Allegiance based on this

    * advance these individual prospects to the point where their
    demonstrated commercial viability is marketable.

    * attract appropriate joint venture partners to these projects to
    operate and manage their commercial mine development, thereby
    generating a positive cash flow for Allegiance.

    * continue to identify and acquire high class exploration and mine
    development opportunities where Allegiance can use its expertise to
    add value and then market the opportunity.

    A W Howland-Rose

    The information contained in this release is based on information
    compiled by Tony Howland-Rose who is a corporate member of the
    Australasian Institute of Mining and Metallurgy and who has more than
    five years' experience in the field of activity being reported on.
    Lindsay Newnham consents to the inclusion in the report of the
    matters based on their information in the form and context in which
    it appears.

    ends - AAP

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