In August, we highlighted three quality junior mining stocks that we believed represented outstanding buying opportunities amid sector weakness - the proverbial babies being thrown out with the bathwater. That week, the sector selling hit a climactic bottom, and these three stocks have since rebounded very nicely, rewarding those investors who took advantage of the market weakness to buy them, rather than selling out with the panicking crowd. We believe these 3 "babies" still have a long way to go as they grow up.
Metalline Mining (NYSEMKT:MMG)
Metalline Mining has rebounded over 50% from the August panic low, but still needs to rally over 35% just to recover to its June high. After that August low, the company issued a project status report (pdf) full of very positive developments:
Geotechnical analysis results confirmed earlier analysis (pdf) indicating that "either underground or open pit mining of the rocks is feasible." If Metalline can use open pit mining for a portion of this first zinc project and efficient underground bulk mining methods for the rest, mining costs will be extremely low.
The water exploration program confirmed that it would have enough water to support the project. We believe sufficient water availability was the one issue that could have been a showstopper for the project, so the resolution of this issue was a huge development. We discussed this issue in previous updates over the last year.
The geological review of both the Iron Oxide, and Smithsonite mantos were incorporated into the resource model by Ken Hart, who had been the lead geologist at the Skorpion Mine in Namibia. We had met Mr. Hart on our May site visit, and learned quite a bit from him about the many advantages Metalline's project had over Skorpion's, which GTI (the contractor doing Metalline's feasibility study) had put into profitable production 4 years ago when zinc was at a historically low $.35/pound. This first zinc project was already of world class size based solely on the Iron Oxide manto, so the inclusion of the very high grade Smithsonite manto ("5,431,050 metric tons with a grade of 12.08% zinc" using a very conservative 5% cutoff grade) in the resource model means this zinc project could be the biggest in the world scheduled to start production in the next few years.
With the completion of the geotechnical drilling, the Hagby diamond drill was moved back to silver/copper exploration as part of the previously announced aggressive exploration program. Local workers have been trained to drill using the company's own equipment, which was to include another diamond drill that was scheduled for delivery last month. The aggressive silver/copper drill program should now be ramped up to 4 drills owned by the company using its own local workers, avoiding the issues of very high costs, and lack of availability of drilling contractors and equipment that other junior miners have been facing. With the implementation of a number of improvements to the drilling and analysis process, and the highly prospective nature of its enormous property (over 2 1/2 times the size of Manhattan), Metalline should be able to efficiently add to its proven resources in coming the months, years, and decades.
Unlike other companies that would announce such project developments with multiple promotional news releases, Metalline Mining continued its history of understated yet pithy news releases by including all of this news under one unassuming headline, "Metalline Mining Company Announces Project Status."
Given its conservative promotion, and the market perception of it as just another zinc explorer, MMG remains severely undervalued, but we believe that will change soon with the completion of the zinc mine plan (expected by year end), and the release of the first estimates of its silver/copper mineralization. We believe the numbers from those 2 events will establish Metalline as a future world class size and extremely low cost zinc producer, as well as potentially a future world class silver producer. With the premium valuations assigned to world class size projects, which are prime takeover targets for major mining companies, MMG is far from just another zinc explorer, and should soon be the object of significant market attention. MMG investors should be very handsomely rewarded in coming years as its projects advance to production.
Victory Nickel [VNCKF.PK] has rebounded nearly 50% from the August panic low, but still needs to rally over 74% just to recover to its June high. Earlier this month, Victory announced impressive drill results from its high-grade Lac Rocher project, possibly extending the volume of massive sulphide mineralization. It also announced a Memorandum of Understanding with the Waswanipi Cree First Nation, whereby the two parties have agreed to work together to support the Lac Rocher project. Roche Engineering is evaluating the economics of the project in a Preliminary Economic Assessment. Although Lac Rocher is the smallest of its 3 projects, the cash flow from this low capex project should help finance the development of the Minago (one of the largest nickel projects in Canada), and Mel projects with minimal equity dilution.
Investors looking for a future mid-tier producer of nickel, few of which remain after several recent takeovers, should consider Victory Nickel, which we believe should move much higher in coming years as its projects advance to production.
Pediment Exploration (OTC:PEZFF) has rallied over 135% from the August panic low, consistently making new highs in recent weeks. Pediment has had consistent news flow in recent weeks, with impressive drill results and last week's announcement of the acquisition of La Colorada, a promising past-producing gold-silver mine property in Mexico.
We believe Pediment's acquistion of La Colorada is by itself a potential company making deal. Bob Moriarty of 321Gold wrote a great description of this project this past week, saying "Pediment has moved into the big time with the purchase of the La Colorada gold mine and mill:" http://www.321gold.com/editorials/moriarty/moriarty102607.html
In that article, Moriarty also discusses the San Antonio project in Baja, which we believe is another company maker. Every drill hole has hit gold mineralization, and the deposit remains open in every direction.
Pediment has been receiving more and more recognition as its exploration success continues, and as awareness of the company spreads. It remains a top pick of several newsletter writers, including Greg McCoach and Jay Taylor, both of whom highlighted Pediment on Canadian television network BNN recently. Canadian brokerage firms are beginning to cover the company, and more should do so following the La Colorada acquisition. Pediment should be getting listed on the Amex in the U.S. soon, so they should start to get the attention of U.S. brokers then as well.
Pediment Exploration is still an early stage explorer, and the stock has moved up significantly recently, but we believe it still has a lot of upside, especially if it continues to have as much exploration and acquisition success as its had recently. Despite the very strong price performance recently, we continue to like Pediment for the more risk-tolerant investors, and view any pullbacks as buying opportunities.
Others Mentioned in August
We also mentioned Crowflight Minerals [CMLGF.PK], Metanor Resources [MEAOF.PK], and Mantle Resources (OTC:MTSZF) in August as other great juniors to buy in the August weakness. Since the August panic low, they have rebounded 49%, 68%, and 48% respectively. We continue to like them all for long term investors.
Roxmark Mines Update
Roxmark Mines [RMKMF.PK] has rallied 124% since the August panic low, which was a retest of the temporary sale price we highlighted in February, but still needs to rally 45% to recover to its price when its shares were first listed on the Toronto Venture exchange in April.
The recent strength in Roxmark shares has been driven by the excellent gold exploration results from neighboring Kodiak Exploration (KXL in Canada). KXL has rallied to over 10 times its August low (about 8 times Roxmark's current market cap) based on its very successful gold exploration work, and other junior explorers in the Geraldton-Beardmore area have also rallied strongly.
Interestingly, in Kodiak's drill results press release last week, it emphasized that it may have gold in extensions of structures hosted by several former-producing mines: http://www.usetdas.com/TDAS/NewsArticle.aspx?NewsID=9784
Gold bearing quartz veins which have been exposed on surface through removal of overburden on other properties acquired by Kodiak include extensions of the structures that host the Leitch Mine, which produced over 1,000,000 ounces of gold from meter wide quartz veins mined to a depth of 1.4 km with average grades of 31.5 gpt (0.92 opt) gold, the Little Long Lac gold mine which produced over 600,000 ounces at a grade of 11.7 gpt (0.34 opt) gold and the Magnet gold mine which produced over 152,000 ounces at an average grade of 14.4 gpt (0.42 opt). These mines were operated to depths of up to 4,600 feet and remain open at depth and on strike.
Savvy investors will recognize that Roxmark owns all 3 of these mines, and the claims around them. Here are more details on these mines and others from Roxmark's website: http://www.roxmark.com/prop_gold.html. Roxmark is actively working to put them back into production, using their fully permitted and operational mill.
Last month, Roxmark announced a joint venture on several of their Geraldton properties with Premiere Gold whereby Premiere's proven mining team will aggressively drill and move those properties to production to earn their interest in the partnership. Premiere already has 2 drills actively drilling in the Geraldton camp. Meanwhile, Roxmark is actively drilling to prove up more 43-101 resources in the Beardmore camp, and is also assessing production techniques on its Nortoba-Tyson molybdenum resources.
There has been a lot of excitement in the market recently surrounding "area plays" near recent high-grade discoveries in Canada, with exploration finds by Noront (NOT in Canada) in the James Bay Lowlands, Kodiak, and VMS Ventures (OTC:VMSTF) in Manitoba sending nearby junior miners rallying by as much as 12 times its prices of just last month. With Kodiak bringing much attention to the Geraldton-Beardmore area, news from Roxmark's drill programs should be very well-received.
With the only operational and permitted mill in the area, and with a huge amount of existing infrastructure, Roxmark is much closer to production than any other juniors in the area. As the Geraldton-Beardmore area attracts more attention, and as Roxmark and Premiere advance Roxmark's properties to production, Roxmark shares should move much higher.
Aggressive, risk-tolerant investors who would like to participate in the area plays that have grabbed the market's attention recently should consider an overlooked junior that has projects in all 3 of the hot Canadian mining areas. Mantis Minerals (MINE on the CNQ in Canada) has a joint venture with Probe Mining (PRB in Canada) on the Tamarack project near Noront's Double Eagle discovery, has the Orphan property neighboring Kodiak's discovery in the Geraldton-Beardmore camp, and recently secured the Grass River project bordering VMS's Reed Lake Discovery. Its flagship property, Rottenstone, was mined by Inco in the 1960's, and has very high grades of Nickel, Copper, and Platinum Group Elements.
Mantis is planning to drill all 4 properties in the coming months, and to also do exploration work on its many other properties. Thursday's press release summarized (doc) the work programs on each of its main projects: http://www.cnq.ca/Storage/1118/99607_Mantis_planning_to_drill_promising_projects_neighbouring_Noront.doc
To finance these programs, Mantis had to raise money via equity financings. Fortunately, one of the sector's prominent institutions, Pinetree Capital, provided much of this financing to become a major shareholder. This press release from last week provides details (doc) on Pinetree's investment in Mantis: http://www.cnq.ca/Storage/1118/99562_Pinetree_Capital_Ltd.doc. Pinetree's involvement brings institutional support and credibility to Mantis, and should help them more easily finance future work.
For more details on Mantis Minerals, see this detailed article by David J. DesLauriers, Overlooked Junior Exposed to Noront, Kodiak and VMS Area Plays: http://www.resourceinvestor.com/pebble.asp?relid=37100. Mr. DesLauriers' analysis, with a breakdown of each project, suggests that Mantis shares, which closed Friday at $0.76, "should be trading at around C$3.00, immediately." "And if in the next 4 months Mantis gets a whiff of a big hole on any of its 5+ anticipated drill programs, MINE could have a market capitalization the size of Noront, and a share price in the double digits."
Until its shares get listed in Toronto, Mantis, with no U.S. symbol, will be more difficult to buy than stocks on other exchanges, but most brokers can accept orders for the CNQ exchange over the phone. Although as an early stage explorer, it's more speculative than we normally prefer, we do like the risk/reward ratio for aggressive investors, and think there's a very good chance Mantis shares will move much higher in coming months.
With the decline of the U.S. dollar, and the growth of the global economy, especially in developing nations such as China and India, along with a limited supply of mines, we believe the mining sector represents the best investment area for coming years, and we particularly like the huge potential of high quality junior mining stocks that should reward investors based on the success of their projects even if metal prices move lower. We believe the ones we've highlighted here represent some of the best investment opportunities in the current climate.