We’ll be updating this and all subsequent Mining News Review posts on a more-or-less daily basis. We will add to this review chronologically 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.
Sprott Physical Silver Trust (NYSE: PSLV)
Sprott Physical Silver Trust Completes IPO – November 3rd
Just like the Sprott Physical Gold Trust (NYSE: PHYS), the Sprott Silver Trust (which actually began trading on October 29th) is currently trading at premium to its net asset value (NAV). As of the close on November 3rd, this premium was calculated to be 7.42 percent. The obvious idea here would be to short PSLV and go long SLV hoping that the premium shrinks back towards zero. But the current premium of 7.42% is by no means a guaranteed top, which means such a trade would carry a fair amount of risk. To provide some additional context as to how high this premium could potentially go, the following chart illustrates the NAV premium distribution for Sprott’s Physical Gold Trust since its inception on February 25, 2010:
Source: http://sprottphysicalgoldtrust.com/Net-Asset-Value/default.aspx
The good news is that the PHYS premium has proven to be quite volatile, meaning that investors could potentially execute the above trade successfully multiple times every year. And if a similar pattern emerges with PSLV, then the opportunity doubles. [Zurbo]
Romarco Minerals (TSX-V: R; Pink Sheets: RTRAF)
Romarco Announces in-Shell Resource Estimate – November 2, 2010
One would think with all the long, high grade intercepts being reported at Romarco’s Haile Gold Mine that the resource would have turned into something larger and higher grade than roughly 4 million ounces at about 1.7 grams per tonne. Although 4 million ounces is quite formidable even if the deposit weren’t still growing, we’re simply left asking ourselves how much upside could possibly remain for a company already trading for about $1.3 billion on a fully diluted basis.
With the open pit feasibility study not expected to be completed until sometime in Q1 2011 we still have a few more months of waiting before arriving at a more quantitative answer. For now our guess is not too much, but boy oh boy what a beautiful chart. [Zurbo]
Cream Minerals (TSX-V: CMA; OTCBB: CRMXE)
Endeavour Silver (AMEX: EXK; TSX: EDR)
Cream Minerals Makes No Recommendation to Shareholders as to Whether to Accept or Reject the Endeavour Offer – November 1, 2010
In our opinion Endeavour’s offer is superior to the offer being made by Minco Silver (TSX: MSV; Pink Sheets: MISVF). Since Endeavour’s offer expires on November 9th, we’ll know soon enough what shareholders decide. All we know for now is that if we owned shares we’d be tendering them to the silver producer in Mexico, not the silver developer in China. [Zurbo]
Seabridge Gold (AMEX: SA; TSX: SEA)
Iron Cap Emerges as 4th Major Deposit at Seabridge Gold’s KSM Project – November 3, 2010
It certainly isn’t bad news that the new Iron Cap zone potentially adds enough material to increase the throughput rate from 120,000 to 180,000 tonnes per day, but that is only going to further increase the already enormous capital cost of the project. We’ll have to wait until the new preliminary feasibility study is released in April 2011 to determine how significant the incremental capital cost is compared with production gains in terms of valuation. But the question remains of whether or not there are buyers out there capable of financing this $3+ billion project, and more than likely combining it with Silver Standard’s (NASDAQ: SSRI; TSX: SSO) equally capital intensive Snowfield-Brucejack project. [Zurbo]
Rusoro Mining (TSX-V: RML; Pink Sheets: RMLFF)
Rusoro Receives Final Permits to Commence Offshore Gold Sales and Begin Mining Activities at the 100% Owned Increible 6 Project – November 1, 2010
This isn’t really new news. In fact, we originally discussed the implications for subscribers back in August when Rusoro was trading about 50% lower. Let’s be frank, Rusoro is an extremely risky investment but it is also extremely undervalued. After all you’re looking at a gold producer that has the potential to produce over 500,000 ounces of gold per year within the next 2-3 years and is currently trading for about $150 million. There are other outliers in our model besides Rusoro, but on average gold producers typically trade for at least $200 million per 100,000 ounces of annual gold production. Rusoro currently trades at about $25 million per 100,000 ounces of its expected gold production 2-3 years from now. That’s as cheap as it gets. [Zurbo]
TNR Gold (TSX-V: TNR; Pink Sheets: TRRXF)
Minera Andes (TSX: MAI; OTCBB: MNEAF)
TNR Gold Corp.: Los Azules Copper Project Court Date Set for Summer 2011 – November 4, 2010
There is probably very little that will happen with the Los Azules project while TNR Gold’s claim to a 25% back-in right to a portion of the Los Azules project is litigated over the next year or so. That isn’t necessarily a big deal since neither the present valuation of TNR Gold nor Minera Andes relies much if at all on Los Azules. On the other hand, Los Azules could start looking more and more attractive to mining companies as other large South American copper projects are developed in the next few years, leaving fewer major properties in the pipeline. As mentioned previously, we do consider Los Azules as a likely development prospect, despite its remote, high altitude location, because the “layout” of the mineralization is favorable in comparis0n to many other large porphyry copper deposits. Thus, we do expect that Los Azules will command a substantial valuation at some point in the future, making the outcome of the TNR Gold dispute a relevant matter for investors with patience.
With respect to that dispute, Minera Andes appears to have an obvious legal edge based on a literal reading of the option agreement and this will be difficult for TNR Gold to overcome. By no means, however, does Minera Andes have a cakewalk on its hands given that it is unusual (even suspicious) for an optionee‘s back-in right to be for a minority non-operating interest conditioned on performance by the optioner. Since the 36 month condition was a modification of the original letter of understanding, which had an open-ended back-in right, the legal merit of the case could very well come down to determining what if any new value was received by TNR Gold in exchange for allowing the 36 month condition (which clearly works against TNR Gold’s benefit). As the hearing nears and assuming we think there is some speculative money to be made, we’ll try to find and read through the agreements to see if TNR Gold did indeed appear to receive something in exchange for the loss of benefit due to the 36 month restriction. [Silverax]
Here is some additional information from “Sufiy” who closely follows TNR Gold. I think it still comes down to value exchanged when the letter of understanding was formalized in an option agreement, but this supplemental information does appear to be useful:
TNR Gold vs Minera Andes:
We are checking the new presentations and Los Azules Maps on Minera Andes website – it looks like, according to Rob Mcewen on page 22, stepping out hole with 1.12% Cu over 62.5m and four best holes:
#46 1.08% Cu over 145 m;
#48 1.01% Cu over 216 m;
#49 1.05% Cu over 236 m and
#61 1.04% Cu over 168 m
are all based on the Northern Part of the property, which is under this litigation.It is important to remember, that now, according to this NR, all litigation around Los Azules between TNR Gold, Minera Andes and Xstrata is joined in one trial and TNR Gold will seek, according to the Statement of Defence above, not only rectification of the option agreement to reflect its true intentions – without 36 months condition, but that “production of a feasibility study, whether produced within 36 months or some other time, was a condition solely for the benefit of Solitario (TNR Gold sub – S.), and as such, could be waived”.
Also at stake is Escorpio IV property:
“We did not understand why Minera Andes did not accepted the back in right by TNR Gold and lost opportunity to consolidate the project and secure a very important Escorpio IV property, where according to Minera Andes mining plan part of mining facilities supposed to be located, but Rob McEwen must has his own strategy. With this kind of presentation it will be not cheap any more to settle out of the court, but it is always better then drag such a project in litigation for years to come.”http://sufiy.blogspot.com/2010/11/tnr-gold-corp-los-azules-copper-project.html
Bottom line, this situation bears watching in the months ahead. Of course TNR Gold also has other projects, one of which (the Shotgun gold project in Alaska) is the subject of a recent bit of friendly promotion that could have the shares trading higher for a while. [Silverax]
Vena Resources (TSX: VEM; Pink Sheets: VNARF)
Vena Significantly Increases Uranium Resource Estimate at Macusani – November 2, 2010
This 22 million pound uranium resource combined with the resources already defined by a neighboring company that we recently featured for our subscribers strongly suggests that the Macusani Plateau will eventually be a uranium-producing region. [Zurbo]
Golden Minerals (AMEX: AUMN; TSX: AUM)
Golden Minerals Report Q3 Results – November 3, 2010
Spend and they will come seems to be Golden Minerals’ business philosophy:
For the remainder of 2010 and through the end of 2011, pursuant to the Company’s long term business strategy, Golden Minerals expects to spend up to approximately $16.5 million to fund the completion of the initial feasibility work at the El Quevar project. The Company expects to spend approximately an additional $54 million beginning in 2011 to fund the continuation of exploration drilling, underground drifting, metallurgical studies and related technical, engineering and project assessments to further define the resource. The Company expects to spend approximately $12.5 million to fund exploration on its portfolio of exploration properties through the end of 2011. Depending on the success of the targeted exploration program and generative exploration activities, the Company could spend additional amounts for early and advanced stage drilling programs on its current or new properties. An estimated $9.0 million will be spent through the end of 2011 on general and administrative costs, working capital and other corporate purposes. [emphasis ours]
That’s over $90 million in planned expenditures over the next 15 months. There are few if any junior exploration companies that can boast a budget that large (only one comes to mind, though the situation is a bit different). While this could lead to a fair amount of exploration excitement to support the share price at these levels, Golden Minerals’ track record of loose spending doesn’t exactly give us overwhelming confidence. For additional information see our previous comment on the company in our Mining News Review: Week of October 4th. [Zurbo]
CIC Resources Inc. (private company)
Titanium Market
Paraguay Could Have the World’s Largest Titanium Reserve – November 5, 2010
Until there is more information, one should consider this news to be a significant risk to any marginal titanium development project.
Disclaimer: We 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.
The market likely does not perceive that PHYS and GLD are perfect substitutes (the same is likely true for PSLV and SLV). The main differences between the Sprott closed end funds and their ETF cousins are: 1. Sprott does not allow the use of sub-custodians whose holdings may not be audited as is the case with both GLD ans SLV and 2. the Sprott funds have provisions for individual investors to convert shares into physical which neither GLD nor SLV offer. For these reasons one might well expect some premium between the Sprott funds and the ETFs. However under most circumstances any premium in excess of say 10 to 12% could realistically be arbed.
re “There are other outliers in our model besides Rusoro, but on average gold producers typically trade for at least $200 million per 100,000 ounces of annual gold production. Rusoro currently trades at about $25 million per 100,000 ounces of its expected gold production 2-3 years from now. That’s as cheap as it gets”. Although this shows the 8x discrepancy and thus the perceived risk, should the factor be a bit, somewhat even?, lower as to the gold sale restrictions price what is sold as if it less gold?
How much capital would one have to tie up to short PSLV to gain a few percent and for how long? I don’t think this makes any sense at all in this market unless you can use leverage and even then I think there are a lot better uses of capital.
Rusoro
It is interesting . . . I don’t think the factor will be even, perhaps lower. I would want to calculate NAV.
Notes
They recently revised 2010 production guidance from 142k oz at cash cost of $613 to 110k oz at cash cost of $831, and then repriced roughly 5 mm mgnt options to $.20 and paid themselves an additional 5 mm optns.
I guess most of the options & wrnts are so out of the money they don’t matter. There is $30 mm loan due June 2011.
If I understand correctly, they can sell 50% of production offshore but must sell the remaining 50% to the Venezuelan Central Bank at the official exchange rate.
The Isidora mine is a 50/50 jv. I didn’t figure out how they get to 500k oz, but I can’t download the ppt for some reason.
I haven’t figured out the $350 mm tax liability or the $146 mm forex loss in Q2.
Gold on fire today.
Both HL and CDE big gaps today. Interesting times.
Just a quick note on ORO Silver/Gold…. now showing up in my Ameritrade account with it’s new pink sheet symbol:
Oro Mining Ltd Pink OTC Markets Inc: OMRGF
Nov. 2, 2010 (Marketwire) — El Tigre Silver Corp. wishes to advise that Mr. David Greenway has resigned as a Director of the Company.
Is difficult not to lose patience with these bad guys, while all other silver juniors explode.
I am tempted to switch on Aura Silver (despite I feel a Johnny-come-lately to enter now), or simply redeploy a few of the resources from the many companies we are taking profits on these days: the JV partner Intrepid Mines has allowed its potential interest in the Taviche property to be diluted as Aura Silver continues to invest in exploration by fully funding Phase III drilling costs (ok, this is not exactly bullish).
Pan American Silver Corp. is expected to retain a 30% interest in the project once the joint venture earn-in is complete which could be as early as this year. So Aura could end up with about 50% interest in one of a few compelling primary silver projects, with Pan Am Silver as a partner, with intersections up to 36.6 meters of 303.9 g/t silver equivalent (Ag + Au, not base metals credits here). Unfortunately the market has already rewarded it with some +100% since september and the $3.0 Million Private Placement just closed on October 26 was at very lower unit prices (probably 0.18 c$, but I am not sure): even the (half) warrants attached are already in the money now (exercise price is 0.25 cad vs current price above 0.3 cad).
But last time I didn’t buy a company because the recent rally to avoid acting like Johnny-come-lately, it was with Orosur Mining at 0.9 c$…
I admit my interest in the company began when Silverax in the past mentioned his will to write an article on 3 microcaps explorers he liked at the time, AUU being one of them. So the question I was wondering if you could be so kind to answer to is: Tom do you still like this junior (assuming you ever liked it)? Any other cheaper silver explorer you are waching to boys?
(post script: I still own El Tigre Silver and have got no interest in Aura Silver)
NOTE: I have added some additional info on the TNR news review.
@Dave
Even if you add a substantial discount for uncertainty, it is still cheap.
@David
True, one would probably want to wait for something more like 20% premium to NAV.
@Drew
The production is coming from Choco 10 expansion via the Increible 6 deposit plus the SREP underground mine. Of course not guaranteed there will be no hitches but the same thing applies to all gold companies not just those in Venezuela, that is why you should always apply a discount. The sweetheart deals management gives itself are obvious problems and we own the stock with our noses pinched tightly for that and other reasons. The various agreements will effectively allow Rusoro to sell its gold for about 80% of US $ spot, the bigger problem is ongoing inflation in Venezuela. The big tax and FOREX charges were essentially related to hyperinflationary accounting. Note inflation remains very high (http://www.businessweek.com/ap/financialnews/D9JD04P00.htm), primarily a result of Hugo’s antics.
@Giuseppe
The slow poke can’t shoot straight bunch at El Tigre aren’t going to drill until early 2011 and it is going to be a much larger program than what was planned initially. The premise here was to get a few holes quickly into the high probability targets but these guys appear to have fallen into the routine exploration trap. It’s not long this one will stay on our radar. As for Aura, wish you would post stuff like this on the subscriber-only pages but basically I still think it looks very interesting. I don’t think they drill Greyhound up north until next year and at Taviche I wanted them to concentrate on the higher grade because small footprint underground mining is more ideal in Oaxaca. It is a positive step that indeed that is what their drill program will be doing. This is still on the radar and we would like it to back up a bit before taking it off the back burner. The next thing there is they have two potential partners apart from Pan Am in Fortuna and GORO, so it is really an ideal situation (I don’t think Intrepid wants to deal with underground mining, which is probably why they are not funding their portion of the JV going forward).