High Level Meeting Does Not Resolve Issues Related to Renewal of License for Haib Project

After securing ownership of the Haib copper-molybdenum project, Deep-South Resources Inc. (CA:DSM – $0.05 & US:DSMTF – $0.04 & GER:DSD – €0.07) has been effectively advancing the deposit along the value curve. The ultimate objective is to develop a mine and restore production at this historic porphyry copper deposit. A compliant resource estimate has been presented. An updated PEA has also been reported for the project. Deep-South recently stared a significant drill program to confirm potential higher grade structural zones of the deposit and perhaps expand on the previously defined resources. This program had already encountered some attractive intervals of copper-molybdenum mineralization with further results pending.

The Company was also active with studies to consider economic variables. Metallurgical testing of sample material was underway, including analysis for bio-leaching processing technology. METS and CSIRO were collaborating to design a Flow sheet for a recovery plant. Knight Piesold was appointed to complete four scoping studies to investigate water usage, alternative power options, leach pad assessment and environmental considerations to achieve ESIA standards. The decision to advance on multiple levels was also backed with a substantial funding commitment. More than $2 million has already been spent to achieve the various work underway from 2017 to the present.

Deep-South was on track to deliver on all of the planned requirements to move the project forward until an unexpected setback was reported last week. The renewal for its Exclusive Prospecting License 3140 (EPL) was denied by the Ministry of Mines and Energy (MMEN) for Namibia. The explanation provided for this decision included the inability to advance a Pre-Feasibility Study (PFS) and that drilling work had not been completed. This news was of course a major disappointment for Deep-South and it resulted in a sharp decline in the market value for the Company.

Meeting Held with Namibian Mining Officials

This week Deep-South reported that representatives of the Company participated in an online meeting with the Minister of Mines and Energy, along with other officials of the Ministry. This meeting provided an opportunity to clarify the status for the significant work currently underway.

The Company confirmed that the recent drilling campaign, that had been fully permitted by the MMEN, was proceeding on schedule. Another objection specifically cited by MMEN related to the change from the original plan to prepare a PFS for Haib. Deep-South instead had opted to move directly towards the completion of a Feasibility Study for the project, because this provides a greater level of confidence than a PFS. The Ministry had been fully apprised of the decision to proceed with the Feasibility Study instead of a PFS and no objection had been communicated prior to the denial of the License. Finally, the significant funding requirement of $7.1 million is also worth highlighting as this demonstrates a much greater commitment to the advancement of this project than was mandated as part of the License renewal process.

Yesterday, however, Deep-South announced that the Minister confirmed that the Company’s application for the renewal of its EPL had been refused.

The Company intends to vigorously contest this decision by all means necessary and available under the applicable laws of Namibia. As a result of the Minister’s refusal to renew the License, the Company has also terminated all work on site and has proceeded with the retrenchment of its employees on site.

Conclusion

In a perfect world no unexpected threats would emerge in the path of a mine development prospect. However we know that many challenges are common. A solid management team will work effectively to resolve the various issues that arise. So far, the management of Deep-South has positioned the Company to handle numerous important objectives to move the Haib project forward. This includes securing the funding necessary for the various programs, the selection of reputable and competent consulting firms to prepare reports and studies, along with the technical expertise to plan and execute a significant drilling program.

Unfortunately, we don’t live in a perfect world. This is yet another example of how an excellent story can go wrong. The Company undoubtedly will go to court. But it will take some time before we have a verdict and there’s always the possibility that it is not the verdict you had hoped for.

If you haven’t sold your shares yet, consider holding on to them, as the price has dropped dramatically. It is important to remember that the Company isn’t dead. It has several millions of dollars in the bank, with which it can acquire and develop other properties while the Haib issue is being handled in court. Smallcaps Recommendation: HOLD.

Smallcaps.us Advice: BuyPrice Target: $0.67Latest Company Report (pdf)
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