MGO 0.00% 14.0¢ marengo mining limited

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    Marengo Mining (MGO)
    Initiating Coverage
    Speculative Buy
    $0.29

    Several Exciting New Exploration Projects
    We have watched as MGO's share price has firmed over recent weeks on the back of the negotiation of several new exploration projects in PNG and the Northern Territory.

    We believe these projects are getting a better understanding by the market. Despite MGO's recent price strength it's market cap is still quite modest at $11m and the stock is worth a a look at current levels of ~30 cents.

    We had a recent briefing by MD Les Emery, a long-time WA mining stalwart and the former MD of Lynas Gold. The company has rejigged its exploration portfolio, dropping a fair proportion of the exploration portfolio that it took to market in its IPO in November 2003.

    The company's focus in now on two newly acquired PNG projects and a uranium-gold project in the Northern Territory. These comprise the Yandera project in PNG (earning 90%)(copper-moly), the Bolubolu project in PNG (100%)(gold) and the Bowgan project (100%) in the NT (uranium-gold). All of these projects could provide immediate upside.

    In terms of activity, MGO aims to commence drilling on all three of these projects over the balance of 2005, with the most interest in the short-term focusing, in our opinion, on the Bowgan project in the NT. It will see drilling this quarter on a coincident magnetic and electromagnetic anomaly targeting uranium mineralisation. Results will be expected shortly after.


    Impact
    MGO's flagship project is Yandera in PNG and it represents a major target of huge scale. MGO has the right to initially earn a 50% stake in the project by spending A$0.5m on exploration and can then earn up to a 90% stake.

    The Yandera porphyry system contains one of the largest undeveloped copper-moly-gold deposits in the southwest Pacific region and since its discovery in the 1950s has seen ~US$20m worth of exploration. MGO is getting this work and extensive database for nothing.

    More than 32,000 metres of diamond drilling (102 drill holes) at Yandera formed the basis of a very comprehensive mining study by BHP during the mid-1970s. This work pre-dated the JORC code, but we feel it is likely that there is a target size of at least 300 million tonnes with copper grades of ~0.45% and moly grades of ~200 ppm. At today's prices 200ppm moly is conservatively equivalent to 0.2% copper. Moly prices have soared in recent times are are trading at over US$30/lb.

    MGO aims to undertake drilling before the end of 2005 continuing into 2006 with the aim of announcing a JORC-compliant resource grading 1% copper equivalent.

    Drilling at MGO's other PNG project, Bolubolu, is anticipated once access is granted. It is a high-grade gold target where little drilling has been undertaken but where high-grade indications are present.

    We initiate coverage of MGO with a Spec Buy. Although PNG is not everyone's favourite investment destination, if projects are of sufficient quality and scale then they in our opinion can outweigh overall risk perceptions. We certainly believe this to be the case with Yandera, which will likely rank as one of the world's largest undeveloped copper projects.

    When one compares MGO with a similar company like Tethyan Copper (TYC) with an emerging, large-scale copper resource (Pakistan) and a market cap of $100m, one sees the possible upside in MGO.

    The start of uranium drilling shortly will drive interest in the short-term.





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