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.
This week in our Mining News Review we’ve chosen to spotlight International Tower Hill Mines (AMEX: THM; TSX: ITH)
On September 28th International Tower Hill announced up to C$105.4 million in equity financings in a serious attempt to pick up the pace at the Livengood project in Alaska. It’s not that things have been progressing slowly — the project went from early stage exploratory drilling in 2007 to preliminary economic assessment earlier this year. That is quite an accomplishment and management rightfully expected the market to recognize the progress. Well, after many months of little traction in the share price, they finally gave up trying to go at it alone out of frustration at the lack of attention. Although moderately dilutive, the proposed financing will ensure that the money is there to take the project through feasibility and, perhaps just as importantly, that brokers like Cannacord will be on board to help spread the Livengood story to the market going forward.
The story is certainly a solid one. In an announcement last month, the company revealed that a staged heap-leach-only option at Livengood may generate a 7.5% discounted NPV of well over US$1 billion at current gold prices along with an IRR of over 50% based on an initial capital budget of US$638 million. Project development might be possible in an accelerated timeframe due to the property consisting of leased private and State of Alaska Mental Health Trust lands, the presence of nearby infrastructure and a straightforward (open pit heap leach) mining plan.
The company is also contemplating a combined large mill and heap leach operation, which is the scenario we assume in our detailed comparative analysis found below. Although this mining option is more sensitive to lower gold prices due to the significant capital cost of building a mill and tailings impoundment, initial capital expenditures are similar to the heap-leach-only option and would allow for the possibility of funding the expansion through cash flow. The large mill and heap leach mining scenario leads to a calculated NPV of over $2 billion at the current gold price and would see Livengood produce an average 833,000 ounces of gold per year, making it larger than either Detour Lake or Canadian Malartic — the flagship assets of multi-billion dollar market darlings Detour Gold (TSX: DGC; Pink Sheets: DRGDF) and Osisko Mining (TSX: OSK; Pink Sheets: OSKFF).
Besides the eventual recognition that should come from a positive feasibility study and mine development, International Tower Hill continues to conduct an aggressive exploration program designed to expand the Livengood deposit even further. This effort is being ignored by the market for now, but should the company successfully translate drilled meters to resource tonnage to longer mine life, a substantial near-term upward revaluation in the share price seems inevitable.
Peer Group Comparison
The following series of comparative valuation charts illustrate International Tower Hill’s relative positioning among a chosen peer group of gold developers.
The above chart illustrates production profile on a gold-equivalent basis. The terminal year represents the average annual production once mines are in operation for the period 2012 and beyond. The stacked gold coins represent the companies that were recently bought out: Brett Resources (TSX-V: BBR; Pink Sheets: BBRRF) was purchased by Osisko, Terrane Metals (TSX-V: TRX; Pink Sheets: TRXOF) by Thompson Creek Metals (NYSE: TC; TSX: TCM), and Continental Minerals (TSX-V: KMK; Pink Sheets: KMKCF) by Jinchuan Group.
Capital cost figures represent remaining capex to be spent, which results in artificially low capex figures for both Great Basin and Osisko since they have both already spent hundreds of millions of dollars on their respective projects. Also, both Great Basin and Osisko’s production figures represent combined production from 2 projects, Hollister and Burnstone for Great Basin and Canadian Malartic and Hammond Reef for Osisko. All the other companies have only one development asset that is in an advanced stage of development.
The above chart clearly shows that Osisko with Canadian Malartic and Hammond Reef (which is estimated at 350,000 ounces of annual gold production starting in 2015) is joined by International Tower Hill and Chesapeake Gold (TSX-V: CKG; Pink Sheets: CHPGF) as the Big 3 monster junior gold development projects. In the case of Chesapeake, however, there is the distinct disadvantage of a significantly higher capital cost compared to peers.
The above chart provides 3 data points. The blue bars represent the weighted average mine life of each company’s combined operations (since most of the companies have only one development project, you can basically ignore the “weighted average” part). The green line tells us roughly when we should expect the company to brings its mine(s) online — with its 2015 startup estimate, International Tower Hill’s Livengood is one of the last to come online but this would still be a fast pace of development for a mine of this size. Finally, the red line represents an estimate of the production mid-point, which is another way to visually compare project longevity.
The above chart illustrates different valuation measures based primarily around a company’s gold-equivalent resource, adjusted for assumed metallurgical recoveries.
Osisko is obviously trading at a significant premium to peers. There are reasons for this (e.g. funds have been raised, permits received, production expected in 2011) but we would argue that at such a valuation level there is very little room for error, and even if everything goes smoothly the upside appears limited to gains resulting from a higher gold price.
On the opposite end of the valuation spectrum we have Continental Minerals, recently sold to a Chinese mining conglomerate for cash at an extremely low valuation. Terrane looks to have been acquired on the cheap as well, but this is a bit deceptive since our valuation includes the Berg project, which is a less advanced molybdenum-copper project that nevertheless makes up about 50% of the company’s resource base.
International Tower Hill appears to have room for revaluation to the upside.
The above chart illustrates the total gold-equivalent resource size and grade of each company’s projects. With the exception of Great Basin, as a result of its high-grade Hollister project, resource grades are generally similar at 1 gram per tonne gold equivalent or below. Resource size doesn’t necessarily tell the whole story because some projects have more of the resources within the pit limits. Indeed, this is one of the more positive aspects of the Livengood project.
The above chart shows distribution of resource base by commodity, revealing the copper-heavy nature of Continental and Terrane and possibly explaining why those two have the lowest valuation among the peer group. International Tower Hill’s 100% gold profile can’t hurt, and if the company decides to move forward with the project on its own, we should eventually see a premium valuation similar to Detour and Osisko. The last thing we want to see is an $8 all cash offer with gold above $1,300 per ounce!
In the above chart we can see that International Tower Hill is trading in a similar range where Terrane and Brett were acquired, but we think that the 500,000+ ounces per year production profile of the Livengood project should generate a significantly-higher premium in the event of a buyout.
We round out our peer comparison analysis with the above chart illustrating a valuation range for each company based on a discounted cash flow calculation of each company’s development projects at various metal prices. As you can see, the three takeover targets did not receive full value for their shares — not even close. It could be argued that Terrane and Continental Minerals are different animals since copper makes up the bulk of their anticipated future revenue, but even Brett let go of its independence with 80% base case upside still on the table in exchange for shares of Osisko, which currently looks overvalued on a peer comparative basis.
All things considered, a $10 buyout of International Tower Hill would look opportunistic but not without precedent. Hopefully the recent financing and storytelling support from the brokers will help the company realize its full value, which is closer to $18 although that would probably require the company to move Livengood into production on its own. Since management has already indicated that they are not interested in building or operating a mine, we are left with a buyout target somewhere between $10 and $18 per share.
and the rest . . .
Fire River Gold (TSX-V: FAU; Pink Sheets: FVGCF)
Results of Preliminary Economic Assessment for Leaching Historic Tailings at Nixon Fork Gold Mine, Alaska – September 29, 2010
A $7.7 million net present value at $1,200 gold isn’t going to win you many friends when your market capitalization is over $30 million. To be fair, the leaching of historic tailings is not the main attraction of the Nixon Fork Gold Mine. As we have noted in the growing Company Index area of our website, the company expects to define a 150,000+ ounce high grade underground resource in 2010 to be followed by a preliminary economic assessment. This would be incremental to the leaching of tailings, and would hopefully have a much more substantial net present value attached. [Zurbo]
St. Eugene Mining (TSX-V: SEM)
Announces Private Placement Offering at C$0.12 Per Unit for Gross Proceeds of up to $750,000 – September 29, 2010
This explains why the price rose as much as 50% the past few days. It is good news that St. Eugene is attempting to raise some money at C$0.12 rather than C$0.08, but this is still only in the offering stage and would only represent a small slice of the estimated $6 million to bring the small Tartan Lake mine back into production. More information on the company is available at our Company Index page. [Zurbo]
Goldgroup Mining (TSX: GGA; Pink Sheets: GGAZF)
New 18,500 Metre Drilling Program Begins at San José de Gracia – September 29, 2010
Combined with the recently announced 30,000m drilling and exploration program at its Caballo Blanco project, Goldgroup is heading well the words of Brad Neely’s comic creation named Baby Cakes, “Be aggressive, b…e… aggressive”. The company is on our radar screen as a well financed junior gold producer with the right attitude and a will to get things done. [Zurbo]
Capstone Mining (TSX: CS; Pink Sheets: CSFFF)
Reports Exceptionally High grade Copper-Zinc Intercepts from Kutcho Project – September 27, 2010
Without question, the highlight of this release was hold KC10-184, grading 10.3% copper, 19.8% zinc, 2.9 g/t gold, and 666 g/t silver over 11.2 meters. Results from the remaining 17 holes were reported on September 28, 2010. Although nothing nearly as eye popping as hole KC10-184, several greater than 10m intercepts of 3-5% copper were reported.
Kutcho is a known high grade copper deposit, so besides hole KC10-184 and some other highlights from recent drilling to better define inferred resources, the results aren’t completely unexpected. According to our comparative valuation model, Capstone is significantly undervalued but nevertheless not to the same extent as plenty of other copper producers and developers–see last week’s Mining News Review where we profiled Taseko Mines (TGB) for more details. But if the company can successfully upgrade Kutcho’s inferred resources into the mine plan and potentially at higher-than-expected grades, Capstone could eventually move to the front of the pack. [Zurbo]
Baja Mining (TSX: BAJ; Pink Sheets: BAJFF)
Signs $858 Million of Financing Facilities for the Development of Boleo Project – September 29, 2010
This time it wasn’t just talk. Baja appears to have finally mustered up the financial means to advance its Boleo project towards eventual production. But be careful. Beyond the project’s metallurgical complexities that can only be ultimately resolved during production, the project debt will require a significant amount of hedging and is an awfully heavy burden for a sub-$200 million company if things don’t go as smoothly as planned.
Boleo is expected to produce significant amounts of copper, cobalt and lead, with the potential to recover manganese currently being evaluated. It will be an interesting one to watch as the project is advanced, but we’re comfortable on the sidelines for now. [Zurbo]
Quest Rare Minerals (TSX-V: QRM; Pink Sheets: QSURD)
Preliminary Economic Assessment (PEA) of the Strange Lake B-Zone Rare Earth Element Project – September 27, 2010
In this press release we’re informed that Strange Lake B-Zone boasts a net present value (NPV) of over $2.3 billion using an 8% discount rate, all at a capital cost of under C$600 million. If this were a gold or silver project without any significant caveats we’d be rushing out to buy shares. But this is a rare earth elements project ladies and gentlemen, and with that comes some serious caveats.
For starters, rare earths are a highly complex market with obscure pricing information. Even Quest admits the difficulty when disclosing that “pricing used in the study is based on 2010 projections reported for a similar Rare Earth project”. Then there is the small size of the rare earths market. If too many projects are developed, there is a real possibility that without a huge increase in demand, the market for these metals will be overwhelmed with supply causing a collapse in prices. At the project level there is the question of where material will be processed. If the company is assuming that processing will take place in China, what will the terms be, and what about the possibility that China decides it no longer wants to process material from Strange Lake opting instead for domestic supply? In conclusion, be careful not to get carried away with the headline NPV figure at this stage in the game. It shows us that the project is robust if all the other pieces fall into place. Now it’s time to start paying attention to all those other pieces. If things progress to the point where we’re comfortable taking a position, then our Subscribers will be the first to know. [Zurbo]
Catalyst Copper (TSX-V: CCY; Pink Sheets: CATXF)
Catalyst hits 0.42% Copper over 634.8 meters – September 29, 2010
The company is currently conducting a program to verify the historical results that defined approximately 75 million tonnes of 0.7% copper (about 1 billion pounds). Catalyst’s ~$40 million fully diluted market cap is probably fairly priced for that size of deposit. Upside would come from new discoveries to be targeted in subsequent drilling although apparently the company plans to test, during the current program, an induced polarization anomaly identified during the 125 line kilometers of surveying that has been completed to date. Odds of hitting something major with an initial drill hole are remote but we should review the results for mineralogical or other indications that a new copper porphyry might have been discovered. [Silverax]
Intrepid Mines (TSX, ASX: IAU)
Maiden Porphyry Copper-Gold Resource Estimate 500 Million Tonnes at 0.4% Copper, 0.5g/t Gold – September 29, 2010
As we noted a couple of weeks ago, this looks to be a large deposit but very close to shoreline. The resource estimate includes a high grade zone that only appears reachable by an open pit whose western lip would extend into the ocean. [Silverax]
Rare Element Resources (AMEX: REE; TSX-V: RES)
Positive Results of Scoping Study on Bear Lodge Rare-Earths Project – September 28, 2010
From under $2 in July to hitting a high of $9.58 on Tuesday (currently about $8), it has been one heck of a ride for those lucky enough to be on board. The Bear Lodge project certainly looks interesting and potentially a cash flow powerhouse not unlike Quest’s Strange Lake project, but with many of the same caveats.
Of particular interest to us is that the scoping study provides us with some statistics on the size of the rare earth elements (REE) market, compliments of the Industrial Minerals Company of Australia (IMCOA). Specifically, we are told the following:
[IMCOA] forecasts growth in global demand for REE at a rate of nearly 10% per year until 2020, from approximately 125,000 tonnes in 2010 to 200,000 tonnes by 2015 to 280,000 tonnes by 2020, expressed as “TREO” (total rare-earth oxides or the sum of all 14 REE plus yttrium). During this period, primary supply sources located mainly in China are not expected to increase production significantly, creating a growing supply/demand gap. China has been reducing its exports of rare earths for several years and announced a major reduction in exports in early July 2010. These policies have already caused significant price increases for most REE and created opportunities for new primary suppliers to enter the market. [emphasis ours]
Based on these demand assumptions, the Bear Lodge project would provide about 5% of the world’s supply of TREO at its assumed annual production rate of 11,400 tonnes of REE contained within concentrates. Strange Lake is of similar size, so together they would make up about 10% of projected demand in 2015. Goes to show you just how small the REE market, and that assumptions like “primary supply sources…in China are not expected to increase production significantly” are extremely important to get right.
Prices of many rare earth metals have risen exponentially during the past few months, as is shown in REE’s scoping study as well as a composite chart that can be found in a recent article appearing in The Economist. Have we reached a new plateau, or will prices fall back once new sources of supply are developed? In such a small and esoteric market — due to China’s overwhelming and precarious influence, and a rapidly changing demand landscape — it is difficult to tell.
Certainly some rare metals will be favored over others, and it will take a fair amount of expertise to successfully navigate the investment waters. In the words of John Kaiser of Kaiser Bottom-Fish Online, “the problem of supply is easily solved. It just takes three to five years and billions of dollars.” Which projects will those billions flow to? Time will tell, and hopefully next time a Rare Element Resources is trading at $2 we’ll be brave enough to pull the trigger, knowing that you can’t wait until you have all the answers if you want to make money riding the waves of sentiment. [Zurbo]
International Minerals Corp. (TSX: IMZ)
Net Income (Before Taxes) of US$15.5 Million for the Fiscal Year Ended June 30, 2010. Equity Earnings of US$27.5 Million from Pallancata Silver Mine, Peru – September 28, 2010
International Minerals is a mid-tier silver producer, with a 40% ownership interest in Pallancata, the 5th largest primary silver mine in the world. Pallancata is expected to produce 10 million ounces silver and over 30,000 ounces gold in 2010. Assuming current resources are converted to reserves, the mine should produce for at least another 7 years, and there is good potential to expand the mine life further.
Following its acquisition of Ventura Gold and Metallic Ventures in 2009, IMZ now owns 5 projects besides Pallancata, 4 of which are in the development stage, as well as a 3% NSR on Barrick Gold’s (NYSE: ABX) Ruby Hill mine — providing cash flow of $3+ million per year. A quick overview of IMZ’s development projects is shown below:
(1) Goldfield (100%, Nevada) is expected to produce over 50,000 ounces gold per year beginning in 2013.
(2) Inmaculada (70%, Peru) is expected to produce 114,000 ounces gold and 3.9 million ounces silver per year beginning in 2014.
(3) Rio Blanco (100%, Ecuador) is expected to produce 71,000 ounces gold and 400,000 ounces silver beginning in 2014.
(4) Gaby (60%, Ecuador) has the potential to produce over 300,000 ounces gold per year beginning as early as 2015. However, Gaby is a marginal project due to its high capital cost, and therefore significantly riskier than the other 3 development assets.
Our valuation model estimates fair value to be about C$8 per share. That’s nothing to write home about considering that about 70% of the target comes from development projects 2+ years away from production. But certainly worth keeping an eye on, especially considering the company’s willingness to pursue M&A opportunities. Metal Augmentor subscribers know which silver producers we like best, and we’ll be sure to include IMZ in the next version of our Silver Producer Report. [Zurbo]
Cream Minerals (TSX-V: CMA; Pink Sheets: CRMXF)
Endeavour Silver (TSX: EDR; AMEX: EXK)
Endeavour Silver To Make All Cash Offer to Acquire Cream Minerals – September 27, 2010
It’s interesting to see the pace of mergers picking up in the junior space even if this is a case of unrequited love. Just last week we had the marriage between Silvermex (TSX-V: SMR; Pink Sheets: SLVXF) and Genco (TSX: GGC; Pink Sheets: GGCRF) and we’ll probably see some more soon. Cream’s’ Nuevo Milenio project is cheap at $10 million but needs some tender care before it is ready to be a mine. A company like Endeavour Silver is capable of providing the necessary love and Cream management shouldn’t be too quick to straight-arm them unless there are other suitors waiting in the wings. Even then one should consider the competence of the suitor before going with the highest bidder especially if it is a share deal. I would guess they eventually agree to a buyout south of 20 cents that is part or all shares. [Silverax]
Cream Minerals (TSX-V: CMA; Pink Sheets: CRMXF)
Endeavour Silver (TSX: EDR; AMEX: EXK)
Cream Minerals Responds To Endeavour Silver Announcement – September 28, 2010
Translation: Give us a lot more cash or at least some shares. [Silverax]
Timmins Gold (TSX-V: TMM; Pink Sheets: TMGOF)
Capital Gold (TXS, AMEX: CGC)
Timmins Gold Corp. makes proposal to merge with Capital Gold Corporation – September 27, 2010
Sure enough, the merger mania among juniors seems to be on. Hopefully this is not a sign of an intermediate market top. In any case, despite the fair price being offered to Capital Gold (Timmins is arguably just as undervalued), this is another instance of unrequited love. The combined company would have a ~C$600 market cap producing shy of 200,000 oz. of gold per year but with some growth plans. That said, both Timmins and Capital Gold need to expand mine reserves. If they can, the potential is not multi-bagger upside but still decent. [Silverax]
Timmins Gold (TSX-V: TMM; Pink Sheets: TMGOF)
Capital Gold (TXS, AMEX: CGC)
Capital Gold Responds to Timmins Announcement – September 27, 2010
Translation: We have the Toronto and AMEX listing and you guys are offering us Venture Exchange paper. We should be acquiring you, not the other way around. [Silverax]
Seabridge Gold (TSX: SEA; AMEX: SA)
Drills Upgrading Large Resource at Seabridge Gold’s Courageous Lake Project – September 27, 2010
This press release makes some confusing statements about resources and reserves so we’ll correct them. Here is the main offender:
Seabridge President Rudi Fronk noted that “our 2008 Preliminary Assessment on Courageous Lake demonstrated that the FAT deposit has outstanding economic potential at current gold prices. The issue is to upgrade the deposit’s large inferred resource. We have now drilled 22 consecutive holes this summer containing significant widths of gold mineralization well above the resource cut-off grade. It is increasingly clear to us that most of the Courageous Lake resource should qualify as reserves in our Preliminary Feasibility Study scheduled for completion in early 2012.”
What’s missing from the above is the logical progression that an inferred resource must first be upgraded to indicated or measured before it can be further upgraded to reserves (proven or probable). Confidence level only applies to resources, not reserves, with inferred having the lowest level of confidence followed by indicated and finally measured having the highest level of confidence. Meanwhile, reserves have nothing to do with confidence, they have to do with the portion of the measured and indicated resources that can be mined for a profit given a feasible mining method and realistic pricing assumptions. The economic portion of indicated resources becomes probable reserves and the economic portion of measured resources becomes proven reserves based on the results of a feasibility study. This isn’t the first time Mr. Fronk has conflated these concepts.
The Courageous Lake drill results themselves appear to be quite good but the better grades, with a few exceptions, seem to be located at depths of 300 meters or deeper. This is relevant because a significant portion of the drilling might not be within the economic pit limits — in other words, upgrading the resource from inferred to indicated or measured will not automatically result in conversion to reserves upon successful completion of a positive feasibility study. Neither will finding more mineralization “well above the resource cut-off grade”. In any case, the company has a long way to go before a preliminary feasibility study is completed at Courageous Lake and meanwhile the best thing the project has going for it is a rising gold price (at sustained $1,500 gold and current energy/capital costs, a project like this would be worth quite a bit). [Silverax]
U.S. Gold (TSX, AMEX: UXG)
El Gallo Continues to Expand in Multiple Directions. 116.5 gpt Silver over 50.5 m. Updated Resource Estimate Due in 4 Weeks. – September 27, 2010
Frankly these are minor results for a company that has a market cap of US$600 million. El Gallo is okay as far as Mexican silver-gold projects go but it doesn’t seem particularly exciting and we aren’t convinced that it is going to be a 5-10 million ounce silver producer (plus gold) in 3 years. Even then, the silver-dominant El Gallo at this point overshadows U.S. Gold’s Nevada properties on the Cortez Trend to such an extent that the company should change its name to “Mexican Silver” instead (conveniently, that name is now available as a result of a recent merger in which Rio Alto — TSX-V: RIO — was the survivor). In any case, if your idea of a gold company is one where the main pride is the CEO owning 22% of the shares and whose main goal is to become a member of the S&P500, go for it. For my part, I am the petulant type, prone to constantly asking “what have you done for me lately?”. In the case of Rob McEwen, the answer is “not much since handing off Goldcorp”. Maybe it’s time for another miracle? [Silverax]
VMS Ventures (TSX-V: VMS; Pink Sheets: VMSTF)
VMS Receives First In-Fill Drill Results From Reed Lake Joint Venture Project-Reports 9.90 Metres of 5.56% Copper and 38.55 Metres of 3.81% Copper; $3 Million Exploration Program Approved – September 27, 2010
VMS Ventures is another Manitoba volcanogenic massive sulfide play similar to Halo Resources (TSX-V: HLO; Pink Sheets: HLOSD.PK), which had exploration news last week. Like Halo, VMS Ventures has a joint venture with Hudbay on part of its land position. The initial drill results reported here are quite impressive but keep in mind these are infill holes intended to support an initial NI43-101 resource estimate. The 20 hole program is being drilled on a 40-50 meter grid totaling 250 x 250 meters maximum. Assuming a 10 meter thickness of mineralization, that amounts to about 1 million tonnes. In other words, these are early days and like Halo we’ll watch the results with interest but for now will not be dipping in our toes unless the company makes significant new discoveries confirming the presence of a large VMS field on its properties. [Silverax]
Crowflight Minerals (TSX: CML: Pink Sheets: CMLGF)
Crowflight to Introduce Own Mining Equipment and Mining Team at Bucko Lake Mine; Will Temporarily Suspend Operations to Facilitate Improvements – October 1, 2010
Oh yeah, if you make it to the end of the press release after all the great news they have for shareholders, you will find that the Jinchuan offer is effectively terminated. Crowflight is in a death spiral and it looks like Kings Place will get the Bucko Mine after all — in bankruptcy. [Silverax]
Gabriel Resources (TSX: GBU; Pink Sheets: GBRRF)
Rosia Montana Project Update – October 1, 2010
Rosia Montana is starting to move through the permitting process and so we will look at the project to see if it meets our criteria for speculative or investment purposes. The shares have risen steadily for the past year but preliminary back-of-envelope calculations suggest there is still upside based on comparative value, assuming the project gets permits and construction go-ahead. [Silverax]
Aldridge Minerals (TSX-V: AGM; Pink Sheets: AGMIF)
Aldridge Minerals Announces Extension to Option Agreement with Anatolia – October 1, 2010
We aren’t very familiar with the recent happenings at Aldridge but our preliminary view is highly favorable. The gold-rich VMS deposit in Turkey looks like it could become a highly-profitable, moderate-sized mine with relatively-low capital costs. We suspect the preliminary economic assessment due in 4-6 weeks will be quite positive and may drive new investors to the story. There are some other prospective projects in the property portfolio as well but the near-term focus is Yenipazar VMS project. The shares have been beaten up during the past few years, just recently bottoming at 50 cents (now recovered to almost C$1) after managing to stay above C$2 during the 2008 financial crisis. The stock has the mark of a large shareholder or group of shareholders dribbling their position into the market over a period of many months but that seems to be over now. Perhaps one uncertainty is management but we can’t fault the current corporate strategy or the progress made during the past few months. The market isn’t providing many obvious value plays like Aldridge these days. [Silverax]
Habanero Resources (TSX-V: HAO; Pink Sheets: HBNRF)
Habanero Acquires 5,400 Acres Bordering Beaufield Resources Tortigny Prospect – October 1, 2010
“Closeology” is a special discipline within geology based on the premise that the closer your property is to a bona fide discovery the greater the likelihood you will make a discovery yourself. Closeology also holds that the market will give a damn if you chase rainbows. Habanero Resources is a faithful believer in closeology, but who knows, even faulty theories can sometimes succeed when carried to an extreme. [Silverax]
Gammon Gold (NYSE: GRS; TSX: GAM)
Capital Gold (TXS, AMEX: CGC)
Gammon Gold and Capital Gold Sign Definitive Merger Agreement -October 1, 2010
Back in March ’09 Gammon signed a letter of intent to acquire Capital Gold. The price on offer was 0.1028 Gammon shares for each Capital Gold common share outstanding, equivalent to about US$0.76 per share at the time. Those merger discussions ended on March 31, 2009. Apparently Timmins’ merger proposal announced earlier this month lit a fire under Gammon, because now a definitive merger agreement has been signed at about 6x the price on offer 19 months ago. Whereas previously Gammon was offering 0.1028 shares, it is now offering 0.5209 shares plus a cash payment in the amount of US$0.79 per share. Way to call their bluff Capital Gold! [Zurbo]
Looking at the share price performance of Gammon Gold vs. Timmins, it’s possible Capital Gold execs are looking for an exit instead of a long-term relationship. Gammon Gold has had the “anti-Midas touch” for a long time now — wherein everything they touch turns from gold to rust. Perhaps this acquisition will mark the turnaround but I’m not holding my breath. [Silverax]
Bullion Monarch Mining (OTCBB: BULM)
Eurasian Minerals (TSX-V: EMX; Pink Sheets: ESMNF)
Bullion Monarch Receives Acquisition Offer from Eurasian Minerals & Eurasian Minerals Responds to Bullion Monarch -September 30, 2010
Considering that Eurasian Minerals is probably mostly interested in Bullion Monarch for its royalty on the Leeville mine, and we calculate fair value on this royalty to be in the area of C$0.90-C$1.00 per share, this sounded like an excellent proposal. After all, 0.44 shares of Eurasian is currently equivalent to about C$1.14 per share.
But in the press release we are told that after receiving the initial proposal on August 4, 2010 and then again verbally on September 14, 2010, Bullion’s board of directors still decided this offer was not in the best interest of shareholders. That’s dissappointing news, especially given that it was an all-share proposal by a high quality company that is arguably undervalued itself.
What’s interesting about Eurasian’s response is that they say the indicative proposal expired on August 10, 2010 and give no mention of a verbal reiteration in September. In the end we’re told that discussions are over, and there is no outstanding offer after all. Say it ain’t so Bullion Monarch. [Zurbo]
Aluminum Corp of China (NYSE: ACH)
Jiangxi Rare Earth and Rare Metals Tungsten Group
Chinalco to Invest $1.5 Billion in Rare Earths – September 27, 2010
Aluminum Corp of China, known as Chinalco, plans to invest $1.5 billion into Jiangxi over the next 3-5 years to help it develop its rare earth projects in southern China and become its controlling shareholder as a result of the investment. Chinalco aims to become a leader in the rare earth metals sector, and considering the small size of the rare earths market (est. $5 billion in sales per year) this is a huge step in the right direction. This of course isn’t good news for juniors trying to develop their own projects because there is the risk that investments like that being made by Chinalco will lead to significantly greater production within China to the extent that exports are freed back up and prices fall back down to earth. But since we’re likely to be several years away from anything like that happening the rare earths frenzy could easily continue to bid up share prices in the juniors to far greater heights even despite the reality that even the most advanced juniors are several years away from production themselves. [Zurbo]
Centerra Gold (TSX: CG; Pink Sheets: CAGDF)
Centerra Gold Kumtor Mine Work Stoppage – October 1, 2010
I suppose when you are operating in Kyrgyzstan, a strike at your flagship gold mine is not going to have a big impact on your share price. Still, Centerra’s C$3.5 billion plus market cap leaves plenty of room to the downside. We don’t mind geopolitical risk in our gold or resource stocks but we prefer to own them at a big discount so that we have a good balance between risk and reward. Our subscribers know about a company with substantial geopolitical risk and a similar future gold production profile that trades at about 1/20th Centerra’s valuation. [Silverax]
Fission Energy (TSX-V: FIS; Pink Sheets: FSSIF)
Fission Summer Drill Program Successfully Expands J-Zone to ~120m x 50m Remains Open in all Directions Hole WAT10-111D Identifies More Off-Scale Radioactivity – September 27, 2010
Fission is on its way to defining a resource of perhaps 5-10 million pounds of U3O8 based on the currently-known extent of its J-Zone at the Waterbury Lake property in Saskatchewan’s Athabasca Basin. The deposit is located right next to Hathor’s (TSX-V: HAT; Pink Sheets: HTHXF) Roughrider discovery that also continues to grow. The J-Zone appears to have better continuity because it is basically a pancake but so far it is significantly smaller in size compared to the 25 million or more pounds of U3O8 delineated thus far at Roughrider (including Roughrider East). On a combined basis, the J-Zone and Roughrider have now approached a size that begins to look very interesting to the uranium producers like Cameco, AREVA and Denison, and of course the Korean nuclear utility KEPCO’s involvement with Fission adds to the possibilities. There will be a deal announced on these projects at some point in the future and we expect it to be at a significant premium to the companies’ current share prices. For now, we believe Hathor is the better value and we do hold a position in the shares but Fission under 60 cents looks pretty good as well. [Silverax]
Santa Fe Gold (OTCBB: SFEG)
Columbus Silver (TSX-V: CSC; Pink Sheets: CSLVF)
Santa Fe Gold To Acquire Columbus Silver & Columbus Silver To Merge With Santa Fe Gold Corporation – September 27, 2010
Yet another junior merger! Columbus Silver has had limited success making a significant new discovery at the Mogollon (pronounced “muggy-own”) silver project in southwestern New Mexico. There is still some silver there, but it seems to be located in ore shoots that have little vertical continuity. In any case, Santa Fe Gold is looking for additional gold and silver to feed its Lordsburg mill in the longer term, and the Columbus Silver properties represent decent, if uninspiring, exploration targets. The strategy of a central processing location being fed by several nearby mines is similar to that being pursued by Gold Resource Corp (AMEX: GORO) in southern Mexico and Barkerville Gold (TSX-V: BGM; Pink Sheets: BGMZF) in British Columbia. All three are in the start up and/or ramp up stage and all three will need several quarters of stable operations to establish viability. Of the three, Gold Resource has the highest quality project but it also faces the greatest risk due to its US$1 billion market cap. That said, production isn’t really the main story at any of these companies, it is actually exploration success, given the relatively short mine lives and limited resource bases. [Silverax]
Hana Mining (TSX-V: HMG)
Assay results from RC drilling confirm copper-silver mineralization is continuous over entire 64.0 km strike length at the Banana Zone – September 27, 2010
The Ghanzi project in Botswana covers an apparently huge mineralized area but as we understand it the most prospective ore zones are limited to discreet folds and limbs in the sedimentary package that have brought the primary “redox” horizon near surface and where the copper-silver mineralization has been upgraded through secondary hydrothermal action. Still, the strike length of the prospective ore zones is impressive and a substantial amount of high-potential ground remains untested. That said, even though the grades in some zones appear high enough to support underground mining, the apparently-weak hanging wall rocks and moderate pitch of the mineralization combine to create an extraction challenge. Therefore the likely target of a mining effort, at least initially, would be the near-surface, wider zones where open pit mining might make sense. Future test mining could establish an underground extraction method that would work for this type of deposit and that could bring the deeper mineralization into play. At such point, extending the mineralized zones downdip would make sense and that could result in a major increase in the potential resource base. We look forward to reviewing upcoming reports on the ongoing technical work (preliminary metallurgy, scoping, etc.) as well as the evaluation of underground extraction methods. [Silverax]
Valdez Gold (TSX-V: VAZ; Pink Sheets: VLDZF)
Valdez Gold Announces Proposed Acquisition of Ryan Gold – September 27, 2010
Well, it turns out the halt had nothing to do with any of Valdez Gold’s current projects but rather a merger with Ryan Gold, which is the namesake of Yukon prospector Shawn Ryan, the man responsible for originally staking both Underworld’s (now Kinross — NYSE: KGC) White Gold property and Kaminak’s (TSX-V: KAM; Pink Sheets: KMKGF) Coffee property. In any case, this isn’t as much an acquisition of Ryan Gold by Valdez Gold as it is a reverse IPO of Ryan Gold using Valdez Gold essentially as the shell. Whichever way you look at it, the property portfolio of the combined company means lots of exploration possibilities in the Yukon far into the future. Can Shawn Ryan perform a hat trick by having a third vended property become a market darling? The answer is yes, although we must recognize that the man has been quite prolific, vending properties into a multitude of companies and not just Ryan Gold. Most of the properties and most of the companies will not have a big gold discovery and our preference with respect to these Yukon Gold Rush plays is to keep our ears peeled for the whistle and only board the train as it is leaving the station. [Silverax]
Golden Tag Resources (TSX-V: GOG; Pink Sheets: GTAGF)
Golden Tag Reports Initial Rulings of Arbitration-ECU is Removed as Operator of San Diego Joint Venture – September 27, 2010
Here we have the other side of the story and sure enough Golden Tag claims that it is “pleased to announce” what we must assume are considered positive results by Golden Tag from the arbitration hearing with ECU Silver (TSX: ECU; Pink Sheets: ECUXF). Last week, ECU Silver claimed that it considered the arbitration to be positive for its own position in the litigation but reading over Golden Tag’s perspective on the situation certainly takes the shine off ECU’s supposed victory. We repeat that until ECU Silver cleans up its management practices there is little reason to own the shares despite the potential that a significant mine can be eventually built and profitably operated at Velardeña. [Silverax]
Advanced Explorations (TSX-V: AXI; Pink Sheets: ADEXF)
Advanced Explorations and XinXing Pipes Group Execute Formal Agreement to Develop Roche Bay Project- September 27, 2010
Advanced Explorations has seen its share price rise over 200% since forming a strategic relationship with XinXing Pipes Group (XXP). Specifically, Advanced Explorations and XXP have established the basis for collaborative development of the Roche Bay Project, with XXP able to earn a 50% interest in the project by providing $20M to complete a feasibility study and a further $30M of working capital upon its completion. XXP would also provide up to $1 billion in financing to build the project. In return, XXP will also have the right to 50% off-take on all iron products.
It appears the company now has about 175 million shares fully diluted, which is still relatively cheap given the potential of Roche Bay not to mention a host of other opportunities that are now likely to be considered with XinXing as a strategic investor in the company.
More generally this news is further confirmation that iron ore juniors and their development projects are in play, and similarly explosive growth is likely to happen more or less overnight for other explorers in this peer group such as our favorite iron ore play which arguably possesses several projects of similar merit as Roche Bay. And did we mention that it is debt free and yet it is still trading for less than the value of its cash and investments? Seller beware. [Zurbo]
Advanced Explorations (TSX-V: AXI; Pink Sheets: ADEXF)
Expands Development Options through Agreement with Shandong Fulun Steel – September 30, 2010
The deals are coming in rapid fire succession for Advanced Explorations — this time it’s an agreement with a Chinese steel company to co-develop the junior explorer’s secondary iron ore projects. These are strategic, long term relationships that clearly demonstrate Chinese appetite for commodities will continue long into the future. [Silverax]
Dynasty Metals & Mining (TSX: DMM; Pink Sheets:DMMIF)
Completes Additional Shipment of Gold and Comments on Ecuadorian Police Protest – September 30, 2010
Lots of drama over in Ecuador these past few days with a coup attempt by ex-President Lucio Guitierrez. We had hoped skittish investors would give us more of a buying opportunity, but alas Dynasty has weathered the storm well and continues to ramp up production at its flagship Zaruma project. Our thanks go out to Mark of Inka Kola News for his timely updates on the situation. [Zurbo]
China Gold International Resources (TSX: CGG; Pink Sheets: JINFF) – Formerly Jinshan Gold Mines
Support for Purchase of Jiama Mine Recommended by Two Leading Independent Proxy Advisory Firms – September 30, 2010
On the surface this looks like a wildly expensive acquisition, especially considering that the Jiama Mine is a polymetallic operation and typically polymetallic producers trade at significantly lower multiples to primary gold producers. Then again, Jinshan already looks overvalued in our model, so the fact that it is attempting to buy the Jiama Mine in an all-share transaction may even turn out to be accretive. But it is important to recognize that if the transaction turns out to be accretive under reasonable long term metal price assumptions because China Gold is buying Jiama with overvalued currency (i.e. China Gold stock), this still doesn’t make China Gold a good value just less bad of one.
Once we have time to crunch the numbers on China Gold and its peer group of mid-tier gold producers we’ll be able to make more definitive statements about which gold companies represent the best value. As a subscriber to the Metal Augmentor service you’ll be the first to know. [Zurbo]
Gammon Gold (NYSE: GRS; TSX: GAM)
Capital Gold (TXS, AMEX: CGC)
Law Offices of Howard G. Smith Announces Investigation On Behalf of Shareholders of Capital Gold Corporation in Connection with the Proposed Acquisition of the Company by Gammon Gold – October 1, 2010
Looks like not everyone is taking so kindly to the proposed acquisition. We’re not altogether surprised at the opposition, but considering our base case valuation target for Capital Gold is US$5.36 per share, we think Gammon is making a very fair offer. Nevertheless, all three of these firms are conducting an investigation into alleged breaches of fiduciary duties, with two of them referencing unnamed analysts who set price targets for Capital Gold of $9.00 and $12.13. These targets are very rich, and statements about this offer being unfair because of such targets existing removes credibility. Other law firms are also getting into the act:
Levetown & Jenkins, LLP Announces an Investigation of the Acquisition of Capital Gold Corp. by Gammon Gold – October 2, 2010
Shareholder Alert: Faruqi & Faruqi, LLP Announces Investigation Related to the Acquisition of Capital Gold – October 4, 2010
Our research shows that both Capital Gold and Gammon Gold are about fairly valued based on their current operating and development projects. If they merge, a larger company is born that is still fairly valued. No surprises here. [Zurbo]
Lexam Explorations (TSX-V: LEX; Pink Sheets: LEXEF)
VG Gold (TSX: VG; Pink Sheets: VGGCF)
VG Gold and Lexam Explorations to Combine – September 29, 2010
Other than owning a few early-stage oil & gas and uranium projects, Lexam is essentially a shell with $10 million cash and 75 million shares of VG Gold. The combination then isn’t something that’s particularly strategic, just an obvious move to consolidate. Enough has already been said about the potential of VG Gold in our Mining News Review for the Week of September 13th. [Zurbo]
Typhoon Exploration (TSX-V: TYP; Pink Sheets: TYPFF)
Aurizon Mines (AMEX: AZK; TSX: ARZ)
The Typhoon-Aurizon Tandem Intersects 112.5 g/t Au on 6 Meters on Fayolle Project – September 29, 2010
While impressive, the current drilling program on the Fayolle project is putting holes into an area where an inferred resource has already been defined. What interests us is the fact that Aurizon Mines is interested, having signed a $27 million option agreement back in May 2010. Aurizon wouldn’t be involved if they only thought the area had the potential for a few hundred thousand ounces of gold. Obviously $27 million is a lot of money, but there is the risk that Aurizon walks away from the project well before that much spending takes place, and this decision could come suddenly at any time over the next several years.
Typhoon may have less than 20 millions shares outstanding, but having rallied from C$0.50 to C$1.50 over the past couple months, even with its tight share structure it is starting to look expensive. Perhaps it should consider raising a few thousand dollars at the current price in order to upgrade its website and get a new domain name. Now that would be a good investment. [Zurbo]
Aurcana (TSX-V: AUN; Pink Sheets: AUNFF)
Aurcana Reports Positive Feasibility Study on Shafter Silver Mine – September 30, 2010
We will plug the slightly-revised feasibility numbers into our valuation model in preparation for the updated version of our Silver Producers Report but we still feel that a project site visit and detailed review of the mine plan with the company’s technical representatives are required before we can properly evaluate the odds of success. [Silverax]
Sandstorm Resources (TSX-V: SSL; Pink Sheets: SNDXF)
Sandstorm Resources Provides Gold Production Updates – September 30, 2010
Record gold prices are certainly timely for Sandstorm, and with the generation of royalty payments at two of the company’s projects, we will be entering the details into our Royalty Company Report that we are in the process of updating. [Silverax]
Beaufield Resources (TSX-V: BFD; Pink Sheets: BFDRF)
Beaufield Drills 322.15 Metres of 4.20% Zinc, 2.72% Copper, 72.02 g/t Silver and 0.53 g/t Gold at Tortigny – September 30, 2010
There is really not a lot of new information being provided by this drill program that wasn’t already known more-or-less — the headline assay represents a hole drilled, according to the company’s own statement, parallel to the hinge fold of a deformed massive sulfide (probably VMS) body representing the length of the mineralization instead of its width or thickness. It’s still impressive but not worth sending the shares 200% higher over the course of a couple hours. Even a clarification press release issued a short while later was able to dampen the enthusiasm only to the tune of a sustained 100% gain on the day’s trading. So what did Beaufield do? Why, what every good exploration company knows to do: seize the money when it is being handed to you. Thus, a C$3 million flow-through share deal was put together the very next business day. Despite all the hooplay, Beaufield actually appears to be a decent junior explorer although it will need to extend the known deposit at Torgigny in order to get much more share price follow-through.[Silverax]
Geologix Explorations (TSX: GIX; Pink Sheets: GXEXF)
Tepal Oxide Cap Metallurgical Test Work Delivers 78.4% Gold Recovery – September 30, 2010
Here we have another small gold project in Mexico that is in early development but appears to have a good chance of eventually making it. Hard to say what value to assign to something like this at a relatively early stage: a 40,000 oz. gold plus 20 million pound copper annual production profile with decent exploration upside. An eventual market cap of $100 million or more seems reasonable but how much of that would come from share dilution instead of share price appreciation? It can’t hurt to pick the stock up cheap — a market cap closer to C$10 million rather than C$50 million — because that obviously gives you the better odds of snagging a 10x gain, which is what you’d want to have a shot at in order to balance out the risk. [Silverax]
Macusani Yellowcake (TSX-V: YEL; Pink Sheets: MCYWF)
Macusani Yellowcake Announces High Grade Discovery at Kihitian Uranium Property, Peru – September 30, 2010
These are excellent grades for a near-surface, potentially-bulk-mineable uranium deposit. Grades on the Macusani Plateau in Peru can vary but they tend to be quite low on average owing to the volcanogenic source of the uranium mineralization. Indeed, the occurrence of U3O8 grades above 3% in a volcanogenic setting is very interesting because such high grades are typically associated with intrusive-related mesothermal deposits like those of the Athabasca Basin in Saskatchewan. The company reported adit sampling assays earlier in the year that originally revealed the occurrence of high-grade uranium at the Chilcuno zone so these drill holes cannot be considered a true discovery, but whatever you call it, this is one of a few interesting uranium exploration stories currently out there. [Silverax]
Goldbrook Ventures (TSX-V:GKB; Pink Sheets: GBKVF)
Jilin Jien Nickel
Jilin Jien Nickel Announces Funding Terms of its Subsidiary, Jien Canada Mining – September 28, 2010
What a mess. Goldbrook recently stated that Jien’s attempt to increase its interest from 75% to nearly 96% on the developing Nunavik Nickel project is not permitted under the joint operating agreement. Nevertheless Jien is still going ahead with its plans to raise $122 million and unless Goldbrook can come up with its fair share of the money within 30 days it faces a David vs. Goliath battle to avoid near extinction. The real worry is how two companies could have such a different understanding of a joint operating agreement. One thinks they are free carried and the other that both parties are fully responsible for project funding? It seems like this should be pretty standard boilerplate language, but it somehow got muddled along the way with this one. However this one turns out, relations are going to be strained. [Zurbo]
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.