The story of Frontier Mining is one of an amazing turnaround. Jane Bordenave finds out how the company went from bust to boom in just 12 months.
While it is listed on the London Stock Exchange, Frontier Mining is in fact a Kazakh mineral exploration and development operation that has been working in Kazakhstan since 1998. It is involved in gold and copper mining and was bought in 2009 by a group of investors led by entrepreneur Erlan Sagadiev.
The first 10 years of Frontier’s life were difficult, to say the least. The company was originally set up by a group of American mining experts and geologists who had been working in Kazakhstan on various projects largely related to the US government but who then decided to strike out on their own. While they had the technical knowledge, unfortunately regulatory constraints held the firm back and it was only able to bring online its poorest asset, the Naimanjal gold mine, located in the north-east of the country.
In November 2007 the company purchased 50 per cent of the Benkala copper project, situated in western Kazakhstan, in a joint venture with Coville Intercorp Ltd. This $21 million investment was made through cash and shares; however, it was not enough to put the mine into production, which had a negative impact on the organisation’s shares. Despite overtures made to the markets, no one was willing to invest due to the global economic crisis and by the end of 2008, with shares worth 0.1 pence, the organisation was on the brink of bankruptcy.
It was in early 2009 that Sagadiev stepped in with a rescue package, providing a much needed lifeline. Initially joining the company as president of Kazakh operations in the February, the following month he was made CEO and chairman. “Frontier Mining was a great opportunity for investment,” he says. “The company had some great assets which were near production and I saw that it could be turned into a very successful business.” By April, he announced he was giving the business a $10 million credit line, of which he had put in an initial $4 million cash investment. His investment in the company alone brought the value of shares up to 15 pence, although this has since settled to a stable five pence.
Having renewed the package earlier this year, the group of investors led by Sagadiev has in effect invested $20 million into the company, in order to make it viable once again. This was a distinct risk—although Frontier had at the time a 50 per cent share in the Benkala project, to date only exploratory excavations confirming the deposit have been carried out. However, this risk is mitigated by Sagadiev’s extensive knowledge of the Kazakh business landscape and how to negotiate the red tape that had ensnared the previous management.
The company is now in a position to merge with Coville Intercorp, which will give it 100 per cent ownership of the Benkala venture. This is a very significant development, as it will allow Frontier to bring Benkala online within the next 18 months. It will also facilitate growth without capital expenditure, as through the merger the firm will acquire a gold mine in Russia currently owned and operated by its joint venture partner.
The Benkala project is a $20 million investment that represents various challenges and opportunities for the organisation. It is an oxide/sulphide copper deposit located within the Urals copper/gold ore belt and, as it was a completely greenfield site when it was acquired, the firm has had to engage in an amount of traditional drilling to ascertain its quality and size. These investigations have revealed that the deposit contains just under 2.8 million tonnes of ore, worth $490 million. “Although we do of course have other assets, Benkala is the largest and is also, conveniently, the closest to the production facility. All these factors are very important and combine to make it our most significant and most valuable site,” Sagadiev explains.
The extraction process will take place in stages, with an initial extraction rate of 7,000 tonnes per annum starting in the final quarter of 2011, and gradually rising to full capacity of 20,000 tonnes. With this in mind, Frontier Mining is building a production plant that will be able to handle this capacity straight away, although initially it will be running at 35 per cent capacity.
The facility is being designed by Calder Projects Services, an Australian technical consultancy; however, components are being largely sourced locally in Kazakhstan. When it is completed, Benkala is projected to be the most technologically advanced site of its type in the country. Although investments have been made in bringing electricity and potable water to the site, there is much infrastructure already in place, particularly in terms of transport links. This is an important bonus for the company, as it will facilitate export of product to countries such as China without the need for extensive capital expenditure. However, the site is greenfield, so Frontier has brought in Wardell Armstrong, a surveying company that specialises in environmental development and management. This consultancy has helped Frontier ensure that its operations have as minimal impact on the environment as possible, as well as ensuring environmental safety such as preventing pollution of the water table.
Frontier also believes firmly in staff training and continuous professional development, with education for personnel taking two forms. Firstly there is the basic training that enables the company to comply with the terms of its mining licence—ensuring that its workers are aware of health and safety issues and how the plant works, even if they are already experienced. Secondly, it provides supplementary training related to each worker’s role. This could be basic skills such as first aid, or more specialised training such as sending a staff member on a university course. What matters to the company is relevance—enriching the knowledge base of its people in a way that will also bring new skills and expertise to the company. “Our goal is to become a world class company and unless we continue to improve our team we cannot get there,” says Sagadiev. “Therefore we understand the importance of strengthening our personnel and improving their overall knowledge and skills.”
While current production rates are small, Frontier’s plans for the future are big. Within five years, not only will Benkala be producing at full volume, there are also plans for expansion in that area and increased output. “By 2015 we should be producing 40,000 tonnes of copper and 40,000 ounces of gold per year. At this stage we will be generating a cash flow of over $300 million, giving us very substantial market value,” explains Sagadiev. Contracts selling copper to refineries in fast growing markets such as China are also in mind, and subsequent listing on the Hong Kong stock exchange if all goes well.
All of these factors will make Frontier Mining a significant player in the world copper markets, as well as an extraordinary example of a successful turnaround. To get from the verge of bankruptcy to becoming a growing company within 12 months has been impressive enough; but with Sagadiev at the helm, his expertise is bound to lead the firm on to even bigger and better things. www.frontiermining.com
