On November 4th we released a report on Empire Mining Corp. We were invited by the company to visit their chromite project in Albania, and accepted their offer. Sign up to receive our exclusive follow-up report on Empire Mining.

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Empire Mining Corp., Site Visit to Empire’s Bulqiza Chromite Project

Introduction

Empire Mining is a mineral exploration and development company operating principally along the western segment of the Tethyan Belt which is a major porphyry-related mineralized zone, and in Albania, one of Europe’s most underexplored nations for mineral exploration. Empire’s primary objectives are the reopening and development of its chromite project in Albania and the exploration and development of mineral properties in Serbia and Turkey. The Bulqiza-project was a major producer of chromite, before the collapse of communism in the early nineties. During that communist era, Albania was in fact the third largest chromite exporter in the world.

Chromium

While many minerals contain chromium, chromite is the only commercial ore mineral. Chromium is alloyed with steel to make it corrosion resistant or harder. An example is its use in the production of stainless steel, a bright, shiny steel that is strong and resistant to oxidation. Stainless steel production consumes most of the chromium produced annually. Chromium is also used to make heat-resisting steel. So-called “superalloys” use chromium and have strategic military applications. Chromium also has some use in the manufacture of certain chemicals. For example, chromium-bearing chemicals are used in the process of tanning leather. Chromium compounds are also used in the textiles industries to produce a yellow color.
Chromium is essential in the production of stainless steel. Meaning that it has no substitutes in stainless steel production. No chromium simply means no stainless steel. The natural abundance of chromite in the Earth’s crust is high, but chromite with a high metallurgical quality which is produced mainly in Albania, Turkey and Kazakhstan, is rare.

Empire Project Locations

See pdf.

Why Empire’s chromite?

China is currently the biggest stainless steel producer of the world, but chromite is their largest metal deficiency. In the last few years, the Ring of Fire in Canada has drawn lots of attention, as it was the only known source of chromite in North- America. However, the companies exploring there are still a long way from producing and will require huge capex.
Empire Mining has a good advantage as it holds the rights to an advanced- staged chromite project in Albania, near the European Union. In fact, the Bulqiza- project is advanced to the point, that the company is looking to start small-scale production from early 2011 onwards, and to increase the production rate by using their own cashflow. The company estimates it only needs US$4-5M to bring the company towards a cashflow positive position.
Empire is also being backed by Anglo Pacific Group, a royalty company that bought a 3% royalty for 3.1M dollars, back in April. We have been confirmed they will announce a 20%-participation in Empire Mining in the very near future.
We are also impressed by the fact Empire Mining is being headed by David Cliff, a former Rio Tinto exploration manager for Europe. During his 26 years with Rio Tinto Mr. Cliff was involved in the discovery of three gold deposits and one copper deposit and gained experience in the exploration and development of a wide variety of minerals and deposit types. He has lead multinational and multidisciplinary teams in a variety of environments and jurisdictions, particularly in Central and Eastern Europe and Turkey and has extensive experience in the evaluation of mineral projects and in the negotiation of all forms of mining industry agreements.

The Bulqiza Project

During communist Albania, the Bulqiza orebody produced from different ends, the Bulqiza side and the Batra side. It then produced up to 500k tonnes annually from each of Bulqiza and Batra. Both ends together, produced 80% to 90% of all the chromite historically produced in Albania. As shown on the map, Empire’s Bulqiza-Batra licence covers both the old Bulqiza Mine and the old Batra Mine.
Empire Mining is currently drilling to confirm a viable resource estimate, based on interpretations of historic maps and drilling holes. Most of the infrastructure is still in place, and within the nearby villages the unemployment rate is rather high, and so we don’t think the company will have many issues finding employees. These locals are also previously skilled in mining Cromite.

As announced in the news release on September 29th, Empire Mining was successful in finding the East Limb of the deposit, whereas Albanian state geologists failed in the past. Because the state geologists couldn’t find this limb, they thought the Bulqiza Deposit ran out of useful chromite ore. So by discovering this East Limb, Empire Mining has refuted this assumption.
Empire Mining has hired SRK Consultants to produce a rolling series of resource updates to support the business plan. The company is presently rehabilitating two adits to access mineralization from different parts of the deposit. The drilling and development will take place as part of a process that allows the company to develop into ore, evaluate it and mine. The initial programme under exploration licences allow Empire to sell output from development drives, thereby defraying costs and allowing them to develop a market progressively. They aim to start a third adit as soon as the forestry permit is received and will explore and develop the Batra end of the deposit. The company is currently also in the final stages of recruiting a Chief Operating Officer, and hopes to announce him early next year.

The Economics of the project

It’s expected to cost US$4-5M dollars to bring Bulqiza back into production. After closing the placement with Anglo Pacific, the company is expected to have about US$4.2M in cash. Based on 42M shares and current price of C$0.300, that’s an Enterprise Value of C$8.4M. That cash position should be sufficient to bring the company towards being cashflow-positive from halfway 2012 on.
The Bulqiza ore is very high-grade (35%+ Cr-content), so very little processing is required, therefore we expect cashcosts to come in low (around US$85/ tonne). We calculate with a 15% error margin, so we’ll use US$100/tonne as FOB production cost for the Bulqiza Chromite. These are our own assumptions, and aren’t released in an official NI 43- 101 Economic Analysis.
We expect the costs of the project to rise to US$125/tonne from 2013 on, due to a toll-milling agreement to concentrate the ore.
We also expect the company to produce 40kt in 2011, 100kt in 2012, 250kt in 2013 and 375kt in 2014 onwards. David Cliff, CEO, thinks the ideal annual output for the Bulqiza Project is somewhere between 400-500k tpa, but we don’t expect the company to reach this output before 2015.

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Chromite prices for Albanian/Turkish chromite are steadily trading above US$200/tonne, currently at US$300/tonne. We’ll base our calculations at 250/tonne for the short term, and 400/tonne for the longer term, as we expect a deficit in the worldwide chromite-supply.
In our worst case scenario, Empire Mining dilutes with a further 100% increase in shares, to 100M shares. However, we are fairly confident Empire won’t need much more money after the impending Anglo Pacific- financing. We have a second scenario in mind with only 75M outstanding shares.
Based on our assumed cash-cost, production rate and received price, we have estimated the cashflows for the near future in the table on the previous page. Most of the cashflow will be reinvested in exploration and development, we expect the company to turn cashflow-positive halfway 2012.

Jurisdiction

Political risks in Albania have been diminished, the country is a NATO member and is a candidate to join the European Union, so the main risks that remain are financing and permitting. We do not expect permitting to be a problem, and we also think eventual additional financing will be easy, based on these extremely robust figures. Further, Albania has an extremely low corporate tax, fixed at only 10% of profits.

Conclusion

Considering all facts mentioned above, we strongly feel that Empire Mining offers an outstanding risk/reward-ratio. The minimal geopolitical risks are more than offset by the extremely low capital expenditures, and the probable high internal rate of return of the project. We are eager to see the company getting into production, thus minimizing dilution by using their own internal cashflow to fund operations. David Cliff is experienced in the mining sector, and we are confident he’ll lead this company towards a bright future.

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