We’ll be updating this and all subsequent Mining News Review posts on a more-or-less daily basis, with the most recent updates appearing at the bottom. If there appears to be a significant news release that we have not discussed, please feel free to bring it to our attention in the comments section (subscribers only please) and we’ll make an effort to add it to the discussion if warranted.
Hudbay Minerals (NYSE: HBM; TSX: HBM)
HudBay Minerals Announces Agreement to Acquire Norsemont Mining – January 10, 2011
Unlike the poorly timed acquisition of the Fenix nickel project back in 2008 which has so far proven to be a terribly wasteful decision, Hudbay seems to have finally found something worthwhile to spend its growing warchest on. If copper can somehow manage to stay above $3 per pound in the long run then Norsemont’s Constancia project should prove to be accretive to the company. [Zurbo]
Gold Wheaton (TSX: GLW; Pink Sheets: GLWGF)
Franco-Nevada (TSX: FNV; Pink Sheets: FNNVF)
Gold Wheaton and Franco-Nevada Amend Terms of the Consideration and Sign Definitive Agreement for Friendly Business Combination – January 6, 2011
This is good news for Gold Wheaton shareholders, see below:
Gold Wheaton warrant holders will now have more flexibility in the form of consideration, in that, at the time of exercise, they will have the option to elect to receive either (i) 0.1556 of a Franco-Nevada common share or (ii) C$5.20 cash.
Whereas previously exercising the warrant would entitle you to a partial cash + share payment, now you can elect payment fully in shares which is what a warrant holder would want since the cash is fixed and takes away a considerable amount of leverage. Nevertheless, having done the math we find it highly unlikely that Franco-Nevada will be able to double or better in the next 2 years even if metal prices move significantly higher. The good news is that we are in the midst of preparing a Top Warrant report and we believe we’ve identified much more compelling opportunities. This report will soon be made available to subscribers of Metal Augmentor. [Zurbo]
Inmet Mining (TSX: IMN; Pink Sheets: IEMMF)
Lundin Mining (TSX: LUN; Pink Sheets: LUNMF)
First Quantum (TSX: FM; Pink Sheets: FQVLF)
Inmet and Lundin Announce Merger of Equals to Create Symterra Corporation – January 12, 2011
First Quantum Minerals Provides Update on Expansion and Development Objectives – January 25, 2011
With plans to approach 1 million tonnes of copper production per annum by 2015, First Quantum is currently trading with a forward looking price to sales multiple of about 1! Meanwhile, the combined Lundin + Inmet will be valued similarly, and only expect to grow to about 500,000 tonnes of annual copper production by 2017. Seems to imply that First Quantum is relatively undervalued. To be honest, we aren’t hot on copper at the moment, but First Quantum would certainly be one to watch in the event of any significant pullback. After all, as recently as September it was trading at $60 per share. [Zurbo]
Metanor Resources (TSX-V: MTO; Pink Sheets: MNEAF)
Metanor Resources Inc.: Bachelor Lake Gold Project’s Pre-Feasibility Study Confirms Profitability With an 85% IRR – January 4, 2011
Metanor has a long history of over-promising and under-delivering on production plans for its Bachelor Lake gold project. This study reveals that we’re now about 2 years away from 60,000 ounces annual gold production over an initial 3 year mine life. The small CAPEX delivers a robust IRR and the recent gold stream funding agreement with Sandstorm Resources (TSX-V: SSL; Pink Sheets: SNDXF) funds a significant portion of the expected cost. However, Sandstorm gains exposure to 20% of all future production from the Bachelor Lake project, significantly lowering the value to Metanor of future mine life extensions. Perhaps more will comes of Metanor’s preliminary discussions with Nichromet about a new treatment technology, but it’s dangerous to assign too much value here until the process is proven to work. [Zurbo]
General Moly (AMEX/TSX: GMO)
General Moly to Restart Liberty Project Evaluation and Development – January 3, 2011
If General Moly were to develop both its Mt. Hope and Liberty mines it would increase world molybdenum production by an estimated 10-15 percent (or about 60 million pounds). Just a reminder about the relatively small size of the molybdenum market and the fragility of balancing supply and demand when one or two projects can have such a major impact. [Zurbo]
Molycorp (NYSE: MCP)
Molycorp Announces Approval of Phase 2 Expansion at Mountain Pass, a Proposed Mandatory Convertible Preferred Offering by the Company and Proposed Secondary Offering of Common Stock – January 24, 2011
Speaking about small markets, a 40,000 tonne per year operation would increase the world’s supply of rare earths by about 25 percent. Simply incredible, and makes forecasting prices extremely difficult to say the least. [Zurbo]
SilverCrest Mines (TSX-V: SVL; Pink Sheets: STVZF)
SilverCrest Santa Elena Mine Start-Up Phase Update – January 6, 2011
SilverCrest currently looks about fairly valued, though the Santa Elena expansion to a 100,000 ounce per year gold/silver producer could transform the company into an interesting value play. But regardless of how the economics look we are still years away from a milling operation so we don’t see any need to rush here. Unfortunately for US Investors who purchased shares of SilverCrest through its pink sheets listing, you may be unable to trade the shares until the company resolves an outstanding issue with the SEC. Just another reason besides better fills and much improved liquidity that it’s definitely worth opening up a brokerage account capable of trading directly on the Canadian Exchanges. [Zurbo]
Strategic Metals (TSX-V: SMD; Pink Sheets: SMDZF)
Strategic Metals Ltd. Announces Spin-Out Transaction to Create New Company – January 11, 2011
This is an interesting arrangement in that it will distribute both shares and warrants in the new company Silver Range Resources. Unfortunately Strategic is no longer the bargain it used to be before ATAC Resources* (TSX-V: ATC; Pink Sheets: ATADF) struck gold at Rau.
*Strategic Metals owns about 9.8 million shares of ATAC Resources.
Northgate Minerals (AMEX: NXG; TSX: NGX)
Northgate Minerals Announces Production Growth for its Three Year Plan 2011 – 2013 – January 10, 2011
Higher than expected production at Stawell for 2011-2013 was offset by higher than expected cash costs at both Stawell and Fosterville. The main value driver continues to be the developing Young-Davidson project. [Zurbo]
Taseko Mines (AMEX: TGB; TSX: TKO)
Successful Drill Program at Taseko Mines’ Aley Property Indicates a Major Niobium Deposit With Potential to Develop a Significant Operation – January 10, 2011
Impressive results, but not sure how much more the market is going to give for this discovery until it is further advanced. Following a failed bid for the now vogue Copper Mountain Mining (TSX: CUM), the disappointment at Prosperity and a sloth-like ramp up of production at Gibraltar to the 115 million lb/yr level a perfectly understandable mood of skepticism seems to permeate this stock. With copper above $4.40/lb we think the lack of enthusiasm is probably overdone, but we can’t help feeling a bit skeptical ourselves. [Zurbo]
Avala Resources (TSX-V: AVZ; Pink Sheets: AVLRF)
Minera Andes (TSX: MAI; OTCBB: MNEAF)
Sulliden Gold (TSX: DUE; Pink Sheets: SDDDF)
Uranerz (AMEX/TSX: URZ)
Avala Resources Announces Completion of Warrant Acceleration – January 18, 2011
Minera Andes Reminds Warrant Holders of Accelerated Expiry on January 31, 2011 – January 24, 2011
Sulliden Receives Proceeds of Approx. $22.8 Million from Accelerated Expiry of Warrants – January 24, 2011
Uranerz Announces Accelerated Expiry Date of Warrants – January 26, 2011
Here you have several reminders that when investing in warrants it is extremely important to determine whether or not the underlying company has the ability to call the warrants back, since this severely limits upside potential. [Zurbo]
Disclaimer: We may own shares in several of the companies mentioned in this analysis (Metal Augmentor subscribers know which ones), but no compensation has been received from any of the companies mentioned. This is not investment advice; should you seek investment advice we recommend you discuss the company with a licensed investment advisor or broker.
Re: Terrex (TER.V), the oil junior spun out from Terra Ventures (TAS.V).
Perhaps it’s a good thing some of us held on to that little guy… as I received the following this morning:
Post says Terrex enjoys junior-oil “renaissance”
Terrex Energy Inc (C:TER)
Shares Issued 82,691,103
Last Close 1/28/2011 $0.15
Monday January 31 2011 – In the News
The Financial Post reports in its Saturday edition that inspired by $80 (U.S.) oil and technical advances in drilling, Canadian oil juniors like Terrex Energy are squeezing new, profitable barrels from Western Canada’s mature reservoirs. The Post’s Claudia Cattaneo writes that an increasing number of junior companies are starting up, recapitalizing and shifting their focus to oil. “I would say we have a junior renaissance,” said Gary Leach at the Small Explorers and Producers Association lobby group. Around 14,000 wells are expected to be drilled in Western Canada this year, UBS analyst Chad Friess said in a report, up from 12,152 in 2010 and 8,398 in 2009, the low point this decade. (The high was in 2005, when 24,752 wells were drilled.) Significantly, 70 per cent of wells are now directed at oil targets, up from 25 per cent in 2005, when everyone was convinced conventional oil in Western Canada had run out and junior companies were focused almost exclusively on finding natural gas. “I see a huge golden age coming here,” said Kim Davies, president and chief executive of Terrex Energy. “With the oil prices, the enhanced oil recovery – we are not as old and worn out as everybody thought.”
Waymar Resources (WYM.V)
-Optioned Property from Continental Gold Ltd. (TSX:CNL)
-Anza Project in Columbia 278km2 consolidated land package
-Former Gypsum Mine
-Geology = Sulphide Mineralization, VMS system
-Drilling is expected to commence during Q1/2011
-Recent $11m Financing
-Experienced management (led by) Pablo Marcet
-Hudbay Minerals 5% Ownership
-YTD runup of 70% with no major distribution/selloff suggests shareholders are holding steady
…might be worth taking a peak
I’d like to hear your take on Lumina Copper’s recent drill results as well as Richfield Ventures continued drill success.
@GL
Thanks for the info Gary! Yup, we consider this a hold and forget for now as it is a small position but might still get a bid and turn into something moderate-sized.
@Ibe mo
We like a different VMS play and will be discussing it with subscribers shortly.
@Jacob
With Taca-Taca, the issue was never size as this is a very large copper-gold-moly porphyry, what they needed for a value driver was higher grade or better recoveries or something else to “juice” project economics. Recent drilling may have located a higher grade core with improved grades of 1+% copper equivalent but these holes intersected quite deep so the next step may be to trace the zone closer to surface or at least expand it to a significant size. This stock has run a lot on $4+/lb copper so while a Beaty play is likely to succeed once again, personally I’d be inclined to wait for a pullback or settling down in copper prices before taking a big position. On the other hand, if copper is headed to $5-6 this year like many are predicting, there is still upside left especially since they are continuing aggressive exploration this year.
Richfield’s latest result is quite impressive in grade and length of intercept and probably means a moderate expansion to the conceptual resource as it remains open along a trend to the east. That said, I don’t think it represents blue sky as the high grade zone for now appears truncated on all sides and is influenced by a single 9 meter interval of very high grade (25 gpt). Some things to note is that the main body of this deposit is probably already defined and appears to be in the 2-3 million ounce range (given reasonable cutoffs). This is quite decent but probably doesn’t offer multiple return potential on the present share price given the $200+ million market cap. We overlooked buying this last summer when the shares got knocked down to the silly low price of 1 looney. We’d probably look again if somehow they got down to the $2.50 – $3.00 range. For about the same market cap (accounting for cash), one might look at Orezone (ORE.to) as they appear to have more significant exploration upside and the deposit there looks closer to being a mine. We don’t own that one either but we are seriously looking at it.
Silverax,
Thanks for your comments. They’re very insightful. With regards to Lumina, I certainly wouldn’t buy it here either having run from $1 this past summer to almost $6 today. That said, I’m in at a significantly lower price so I’m inclined to hold for the eventual buyout. Do you see anything that would lead you to believe that the project will be uneconomic under current conditions? It seems like a 20% IRR at $2.25 long term copper is more or less the sweet spot in the market today in terms of incentivizing takeout offers. The nice thing about copper is that there are plenty of recent take out comps to price against, even post 2008-2009 (Chariot, Antares, Noresmont, Corriente, etc). It seems like this deposit should eventually go between 4 and 5.5 cents per pound or roughly $9-11 dollars. I just received the annual report today and will be reading it over the next couple of days. I’ll let you know if there is anything of interest that I was previously unaware of.
Also, great job in general with the site. I’m very impressed by your work and market acumen. Please keep up the great work.
@Jacob
Thanks for the compliments, we have been hard at work on the quantitative side of things but also qualitative — meaning you should see a major redesign in the website very soon with much simpler navigation and better placement of information.
Regarding Lumina, I think the parameters you provide appear reasonable though usually with large deposits like this there is going to be some sort of strategic, accretive or synergistic angle that must come into play — meaning these projects are not taken out simply as blind development plays like sometimes happens with attractive gold projects (Gold Eagle, Aurelian, Underworld, Andean, etc). Taca-Taca is of a minimum size for a long-lived, economically-scalable deposit that could be fundamentally attractive under the right conditions — this is not by accident as Beaty and crew pretty much put together their projects originally with this in mind. One by one, the Lumina projects each fit into a particular peg hole of one copper mining company or another and Taca-Taca is likely to follow as well, assuming of course the copper price will continue to remain at substantial premiums to the average global marginal cost of production (which I believe is in the $1.50/lb range). It certainly won’t be at a large premium forever, but will it be so long enough for Taca-Taca to fit into somebody’s “peg hole”? That’s the risk to the $6 share price.
Re; Patricia Mohr’s monthly commodities report
for me,always an informative read:
http://www.scotiacapital.com/English/bns_econ/bnscomod.pdf
I’ve had a position in Metanor for some time and your comment that they have a history of ‘over-promising and under-delivering on production plans for their Bachelor Lake gold project’, really resonates with my feeling on the company. I thought the Sandstorm deal might bring a bit more credibility back to the company, but instead the shares have continuted down in a waterfall of pesimissm. Is the sky really falling though?
At a current price of 0.34 and 152 M shares outstanding they have a current market cap of just $51.7 M. This is really nothing for a debt free company that is going to produce 60,000 oz of gold per year, in mining friendly Quebec no less. Also they have the Barry Pit deposit and other exploration targets. Even with Sandstorm taking 20% of those 60,000 ounces, there seems to be plenty of long term upside if current plans can be executed with reasonable competance. They still need to raise about $15 million more to get Bachelor into production…
Any further thoughts would be very much appreciated. Thanks.
@SilverKnight
I think you have a decent view on Metanor’s prospects, and it could very well have good upside from here. We certainly aren’t immune from owning a few “cheap stinkers” — we have some smallish positions in Rusoro and Jaguar (yuck!, that was a mistake to “diversify” that far down the list!) to name a couple — but these stories can take a very long time to turn around and in the meantime other stocks are making 100%, 200% or bigger gains. If you are going to maximize returns you not only want to buy value but you also need to be highly selective, and this is something that probably everybody struggles with. It is one of the reasons why we are doing the comparative valuations. In any case, we’ll wait for the turnaround at Metanor before looking at it, and certainly we don’t mind trading a good portion of the upside for the opportunity to wait.
What’s up with Royal gold?
Did you ever figure that out?
http://finance.yahoo.com/news/Royal-Gold-Reports-Record-bw-773562322.html?x=0&.v=1
it seems to be executing it’s business plan well and has a blue chip stable of royalty flows coming on stream. Yet the stock has done nothing in over a year!
You had said someday you would get around to trying to value this co. I know your plate is pretty full but do you have a clue? I don’t and I’ve been patiently sitting on a decent sized position expecting it to do at least do as well as bullion. Thanks
@rob
This is very next on our list after modeling a few companies including those recently requested by Founding Members among the mid-tier gold — expect something in a couple of weeks. Generally, it looks like many of the royalties these companies hold lack leverage to gold prices. Also, the companies are not cheap to start with using conventional measures or otherwise. For example, Royal Gold had a great quarter but the P/E ratio is still 36. Some of the major golds are in the teens or low twenties for trailing P/E.
CGA Mining earns $39.01-million in first half
2011-02-07 09:20 ET – News Release
Mr. Michael Carrick reports
CGA ANNOUNCES 400% GROWTH IN NET PROFIT
CGA Mining Ltd.’s net profit from continuing operations for the six months to Dec. 31, 2010, was $39,019,000, up from $7,639,000 for the corresponding period last year. That represents a net profit increase by more than 400 per cent from the comparable period last year to $39,019,000 for the six months ended Dec. 31, 2010. At the same time, cash flow from operations (excluding taxes and capital), more than doubled to $46,952,000 from $19,759,000 for the six months ended Dec. 31, 2009. The final audited half year financial statements and the management discussion and analysis for the quarter ended Dec. 31, 2010, will be released later in the week.
National Instrument 43-101 and JORC compliance
Any breaking news on magma metals? Since shortlisting them, MMW has nosedived some 30% (while Great Panther, which I traded in for MMW, has been consistently heading north). It lost 15% today on over three times the normal volume after only one hour of trading today! Hints anyone?
@GL
That’s a pretty good half-year — consistent with our model.
@Mike
Magma Metals had a scoping study that disappointed the market, which shouldn’t have been the case given the moderate resource they have defined to date, but some of the results like metal recoveries were not very good. The stock really needs to remain an exploration play as that is where the market will give it value — if it moves forward with the scoping study toward development that will significantly reduce the speculative potential and we would likely sell. Regarding trading in a silver producer for a PGM explorer, I’d like to better understand your reasoning for that? These are two totally different situations and one should think there is no need for a “versus” analysis in a properly diversified portfolio.
Has MA ever had a look at Tradewinds twd. Seems awful beaten down for sitting on 2.7mm ozs Its down to its 200 ema today. The only downside I can see is that its future pretty much going to be decided by Detour. Is that what is suppressing the price?
Appreciate your comments.
Silvercrest SVL: Did it get dismissed from the silver producers consideration list? There have been a few “not quite, but we ought to look again” type mentions. Here is Canaccord’s comment from a days ago:
@You’re a sight for sore eyes. SilverCrest was a sight for sore eyes, rising after releasing the results of its preliminary economic assessment (PEA) on the expansion of the Santa Elena Project. The company has outlined a four-stage expansion program at the Santa Elena mine: 1) Development of a 2,500 tpd CCD processing facility; 2) Development of an underground operation at Santa Elena; 3) Development of a heap leach operation on site at the Cruz de Mayo silver deposit; and 4) Retreatment of the material on the heap leach pads to recover residual silver and gold. These initiatives should increase the production from Santa Elena to 39,000 oz Au and 1.6 Moz Ag annually or 3.7 Moz of AgEq, up from 35,000 oz Au and 600,000 oz Ag annually. The milling facility has the potential to be expanded to 3,500 tpd. With this further expansion, the mine has the potential to ramp up to 5.0 Moz AgEq annually. Capex for the expansion is estimated at US$84 million while sustaining capex is expected to be around US$21 million. A Bay Street analyst comments that while the lower-than-expected throughput expansion results in lower expected production from Santa Elena, shares of SilverCrest were not reflecting the expansion potential before this announcement. Further Santa Elena still has the potential to be expanded to 5.0 Moz AgEq with a further expansion. The analyst went on to say, as it is, SilverCrest could be producing 3.7 Moz AgEq by 2013. This is more than 50% higher production than Great Panther Silver (GPR), 3x the production of Excellon Resources (EXN) and 3x the production of ECU Silver (ECU). These companies have 2-4x SilverCrest’s market cap with 30-65% of its AgEq production. Even without factoring in any expansion, SilverCrest is trading at 3.0x 2012E CFPS versus the junior producer average of 10x. Canaccord Genuity Mining Analyst Nicholas Campbell sees SilverCrest as an overlooked silver-leveraged gold emerging producer. Campbell believes the company is one of the most attractively priced gold producers and points out that given the continued consolidation in the Mexican precious metals space, SilverCrest is a potential acquisition target for a larger cap producer”