Mining News Review: Week of November 22nd

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.

Great Basin Gold (AMEX/TSX: GBG)
Hollister Operation on Safety Watch-List – November 23, 2010

Judging by the price action on Tuesday afternoon the market doesn’t seem too concerned about this notification from the Federal Mine Safety and Health Administration. Meanwhile an interesting article was just published that slams Great Basin and a host of other companies operating in South Africa for a worrisome habit of over-promising and under-delivering. In our opinion Great Basin is the least of offenders considering the teething problems that were to be expected at Burnstone, but if significant downward revisions to production continue into 2011 then we’ll have a problem (or perhaps an opportunity?). [Zurbo]

Victoria Gold (TSX-V: VIT; Pink Sheets: VITFF)
Victoria Gold Notifies of Apparent Error in the Calculation of Cove Upper Zone Resource – November 23, 2010

Basically there was a transcribing error related to the grade of 4 of the 15 historical holes used to calculate the upper zone resource at Cove. Some analysts at the conference call were confused as to why Victoria couldn’t just plug the correct data into the resource model (remember, it was just a transcribing error so the correct data is readily available), but we can understand that this might not be so simple if after adjusting for the errors it turns out that grades are much less consistent throughout the upper zone and due to limited drill data such things as the cut-off grade would have to be revisited. Remember, this is a very recent development (less than 2 days old), so if nothing else Victoria’s fast response with a press release and CC is impressive if not a bit premature (they were unable to answer several questions to our satisfaction).

Okay, so back to the potential impact. Let’s assume the transcribing error involved moving a decimal place in those 4 of 15 holes. That might reduce the inferred resource by 30%, or about 100,000 ounces. Worst case scenario Victoria is unable to report the resource at all, but even then we think the 30 cent drop is way overdone. After all we’re talking about an inferred resource that would have to be more closely drilled in the long run anyways if it were to be incorporated into a mine plan. That doesn’t mean we’re on the verge of buying, but we’re much more interested here than we were at $1.50 (in fact, we were selling out our remaining position at that level a few weeks ago, see: http://www.metalaugmentor.com/eforum/?p=5155). No hard time lines were given, but it’s expected to take less than a few months to resolve this issue.

These things happen. In fact, we recently uncovered an arguably more substantial error in a technical report released by another  company in the mining sector. We give credit to Victoria for being as open as possible about the mistake. Along those lines we’d like to see Victoria be more open about sharing historical drill data going forward so we have a chance at spotting something like this ourselves.

It’s currently unclear what effect if any this will have on Newmont’s back-in right for 51% of the Cove project. [Zurbo]

U.S. Silver (TSX-V: USA; Pink Sheets: USSIF)
Third Quarter 2010 Results – November 26, 2010

More of the same from U.S. Silver. Head grades continue to be problematic, leading to lower production and a higher overall production cost per ounce. This ends up resulting in minimal net income at record silver prices. Those investing in U.S. Silver need to be aware that the company is highly vulnerable to a drop in silver prices, especially given its current market capitalization of about C$200 million. If production can be brought in line with expectations, the share price sits near our calculated fair value, all else equal. In other words the market already seems to be pricing in improved head grades and productions costs, such that we’re left to ask ourselves what share price drivers are left beyond higher silver prices. [Zurbo]

Taseko Mines (AMEX: TGB; TSX: TKO)
Tories Reject Talk of Leak – November 25, 2010

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.