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<br />thallium mineralization that led to
<br />five targets discovered during
<br />trenching: Korkan, Bigar, Kraku Pe-
<br />star, Strnjak and Umka.
<br />After jump - starting exploration
<br />at Timok, Avala isolated three prior-
<br />ity targets that form the nucleus of
<br />an180,000 -metre resource drill pro-
<br />gram costing US$25 million.
<br />Along with the infill drilling at
<br />Bigar Hill, the company is under-
<br />taking 35,000 metres at its Korkan
<br />deposit, 10,000 metres at its Kraku
<br />Prestar target and up to 35,000 me-
<br />tres of exploration drilling at aux-
<br />iliary targets.
<br />CLINE, From Page 1
<br />Cline reports 64,000 tonnes of
<br />saleable coal stockpiled at New
<br />Elk, which it can access to meet
<br />any demand during the shutdown
<br />period. Production to end April
<br />was recorded at 147,000 run -of-
<br />mine (ROM) tonnes, which
<br />equates to 51,000 clean tonnes of
<br />met coal. According to Cline's
<br />guidance estimates, New Elk was
<br />expected to produce 426,000
<br />clean tonnes in 2012, with a full
<br />mine plan potentially boosting
<br />production to 2.7 million tonnes
<br />of saleable coal per year.
<br />Cline's ramp -up plans were de-
<br />layed by falling realized met coal
<br />prices after plummeting demand
<br />from some of the world's foremost
<br />industrial economies. The com-
<br />pany released a preliminary eco-
<br />nomic model for the project in early
<br />2011, where New Elk carried a
<br />US$1.4- billion net present value
<br />and a 98% rate of return at
<br />a 10% discount rate.
<br />Cline had modelled its economic
<br />study on free -on -board (FOB) met
<br />coal prices around US$160 per
<br />tonne this year, but first - quarter
<br />results indicated a similar product
<br />was selling for US$130 per FOB
<br />tonne on spot markets, and de-
<br />mand was weakening.
<br />As a result of oversupply and
<br />difficult demand -side negotiations
<br />Cline recorded a first- quarter
<br />comprehensive loss of US$7.5 mil-
<br />lion, compared to a US$1- million
<br />loss during the first quarter of 2011.
<br />The company reported capital de-
<br />velopment costs of US$31 million
<br />over the quarter, with most ex-
<br />penditures incurred at New Elk.
<br />It's not hard to foresee Cline
<br />running into cash problems if coal
<br />markets fail to turn around this
<br />of L56 grams gold from 228 metres
<br />in hole 70.
<br />Kraku Pestar's drill program
<br />started up in early February, with
<br />the goal of establishing a resource
<br />on a 600 -by -300 -metre near -sur-
<br />face gold anomaly encountered
<br />during scout drilling.
<br />Kraku Pestar hosts the lowest
<br />grades from the three deposits so
<br />far, though the zone demonstrates
<br />lengthy gold intercepts near sur-
<br />face, with previous highlights in-
<br />cluding: 84 metres grading 1.28
<br />grams gold from 3 metres in hole 1;
<br />49 metres carrying 1.23 grams gold
<br />Cline hit hard
<br />year. The company reported a bal-
<br />ance of US$35 million in working
<br />capital at the end of April — in-
<br />cluding a second US$25- million
<br />debt financing — and expects
<br />combined operating and capital
<br />costs to exceed'kIS$52 million
<br />over the remainder of 2012.
<br />Cline was banking on selling
<br />227,000 tonnes of coal this year to
<br />cover its remaining operating and _
<br />capital costs, but with weaker mar-
<br />kets it appears the company is
<br />playing it safe by sitting on its cash
<br />and limiting operating expenses at
<br />New Elk.
<br />InOations of potential prob-
<br />lems+' tame on July 3, when the
<br />company announced it was re-
<br />viewing its mine plan under the
<br />leadership of new COO Stone.
<br />Cline had recently increased
<br />measured and indicated coal re-
<br />sources at New Elk to 619 million
<br />tonnes, and says that "it is envis-
<br />aged that this process could take
<br />ten to twelve weeks, and will in-
<br />clude short -term volume opti-
<br />mization for a defined life -of-
<br />mine value maximization. A
<br />forecast will also be developed
<br />during this period for the remain-
<br />der of 2012, and a budget for the
<br />2013 year," Stone commented on
<br />July 3. "As a result, Cline will not
<br />provide production or cost guid-
<br />ance at this time, and previous
<br />guidance is being reviewed."
<br />Though Cline has lost 75% of
<br />its value — or $1.09 per share —
<br />since early January, the initial
<br />mine review announcement had
<br />negligible impact on the com-
<br />pany's share value. Cline was on
<br />a bit of a rebound, having gained
<br />19 %, or 13¢ during the second
<br />quarter, and the company climbed
<br />2.5 %, or 2ct on the news, closing
<br />holds a 50.2% stake in the smaller
<br />company.
<br />The continued alliance with
<br />Dundee is paying off for Ayala,
<br />which maintains an unusually
<br />strong exploration budget, includ-
<br />ing US$31 million in its treasury to
<br />start the year.
<br />Ayala traded within a 52 -week
<br />range of 65¢ and $1.44, on modest
<br />6,000- share- per -day trade volumes.
<br />The company has 214 million shares
<br />outstanding with a presstime mar-
<br />ket capitalization of $150 million
<br />Ayala closed at 70( following news
<br />of the Bigar Hill resource.
<br />July 3 at 824.
<br />Suspension of activities at New
<br />Elk caught investors' attention,
<br />however, and triggered a massive
<br />sell -off. Cline's shares tumbled
<br />43 %, or 26 <ton the news, closing
<br />at 52 -week lows of 35ct on 8.7 mil-
<br />lion daily trade volumes.
<br />According to Salman Partner
<br />research analyst Mike Plaster,
<br />there may be some light at the end
<br />of the tunnel if Cline's mine re-
<br />view goes according to plan, and
<br />the hard - coking coal market picks
<br />up to end the year. Salman initi-
<br />ated coverage on the company on
<br />June 28 with a 12 -month price tar-
<br />get of $1.50.
<br />"We consider the current weak
<br />demand and pricing environment
<br />to be the biggest near -term issue
<br />for the company, and the greatest
<br />risk to its ability to meet these
<br />production targets," Plaster
<br />writes in his inaugural research
<br />report. "After the initial regula-
<br />tory delays, it now has the neces-
<br />sary permits, equipment and
<br />infrastructure in place to achieve
<br />the required output. However, if
<br />the weak pricing persists into
<br />2013, and particularly if it is ac-
<br />companied by challenges in
<br />securing sufficient customer or-
<br />ders to place all of its production,
<br />then New Elk's margins could re-
<br />main under pressure for some
<br />time, and management may be
<br />forced to further delay the ramp -
<br />up to full production."
<br />According to Salman analysts,
<br />there could be price stability for
<br />premium hard - coking coal grades
<br />as supply issues are addressed in
<br />Australia. The firm expects tight-
<br />ened price spreads and rising de-
<br />mands for alternative grades of
<br />met coal during the second half.
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