Colossus Minerals Is Brewing a Perfect Storm 7 comments
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In tiny Colossus Minerals (CSIMF.PK) this June, we appear to have a perfect storm of a summer rally brewing.
First, no one has ever heard of the stock. Second, the company is cashed up with roughly $20 mm, fresh from its IPO. Next, it just hired an IR firm to make investors aware of the stock. But most importantly, it controls up to 75 percent of what is left of the richest pit on planet earth. And that could be about $2 billion worth of gold, platinum and palladium in one tiny 100 hectare (246 acre) patch of ground in Northern Brazil called Serra Pelada.
You owe it to yourself to watch the Australian 60 Minutes video from the 80s on this one.
We also learned that some very interesting and talented mining people are joining the company in one way or another.
For example, in March the company announced that Greg Hall had joined the board as a director.
Greg Hall is a seasoned geologist with over 35 years of international experience. From 1988-2005, he was employed by the Placer Dome group of companies, of which the last five years he served as Chief Geologist -World Wide. Placer Dome was acquired by Barrick Gold Corporation in early 2006. Over the course of his illustrious career, Mr. Hall was directly involved in a senior capacity in the discoveries of both Barrick Gold's Granny Smith mine and Rio Tinto's Yandi iron ore mine. In addition, he took part in the discoveries of Keringal and Wallaby in Australia's Eastern Goldfields, as well as the definition of AngloGold Ashanti's Sunrise gold mine.
Catch that? 18 years at Placer Dome of which he spent the last five as "chief geologist-worldwide." I would say that if Greg Hall cares enough about what happens at Colossus to join the board, that is a good sign.
If you have not read the Midas Letter report on Colossus that is posted on the company website, you should.
Adding to the perfect storm is the very thin float: 43 percent of the stock is owned by institutions or management and directors. So that leaves a float of 57 percent of the 42 mm shares outstanding, or ~ 24 mm shares.
And I suspect the insiders have bought even more since that report came out in April.
Disclosure: Long CSIMF.PK.
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How likely do you think it leads to full development and this company gets the full benefit. Looks like they need to pay a big sum to get their percentage share. Do you worry about the inevitable financing will dilute the shares?
PAL's recent drill result is almost as good, also world class ore grade. But the market is not responding. I don't know why.
You are right that James West, writing both as Midas Letter and as ResourceXInvestor.com, and Blackmont Capital, an underwriter of CSI, wrote up this stock. All three can be read through links within the Colossus site. And I did indeed read all three before investing.
My comment was to the effect that the general public, and even the more sophisticated mining investors and speculators, remained largely unaware or only vaguely aware of this stock even three months after its February IPO.
You asked me how likely I think it is that the current process would lead to full development. By that I take it you mean a mine.
Frankly, I am not sure it matters to the Colossus investor whether the project leads to an actual Colossus mine or to a sale of the asset for a real-world price.
For example, what if one of the bigger PGM players like Anglo Platinum, which must be getting fed up with South Africa and its electric power problems, wanted some quick and easy production in South America?
Serra Pelada was a ripe plum waiting to be picked. The value of Colossus is in the fact that they grabbed the rights to 75 percent of the plum.
I think it is quite possible that Colossus will monetize the pit and use the proceeds as a company builder. That way, CSI would suffer no further dilution while exploring and developing the other two properties, which are both intriguing district sized pieces that encompass many old surfacy gold mines, some dating back to Colonial days. They have indicated an interest in acquiring more properties as well.
One way to monetize the asset is to sell Serra Pelada outright for cash or stock or both. Another way is the way Virginia Mines sold itself to Goldcorp. Goldcorp acquired Virginia whole, took the asset it wanted which was the Eleonore gold field in Quebec province, and then spit out the rest of Virginia as a newly capitalized company to the orignal shareholders, with Goldcorp taking a piece of the action and actually injecting cash into the new Virginia. It was an amazing deal. Virginia shareholders got Goldcorp stock plus new shares of Virginia.
Michael
This is the first time I have added a comment here and I thought my logon would take care of the ID. It didn't, so I am a "User" with a number. Where I come from that means something else. A drug addict in a prison.
I have some PAL (PDL.TO, PDL-WT.TO) warrants, which I think I started trading after reading a piece by you on this same site! They perked up today, not sure why.
I am also into Crosshair CXZ (CXX.TO) , Denison DNN (DML.TO), and Kodiak Exploration KXLAF (KXL.V).
Michael
Longer term (as an investment), the main issue here is tonnage, which is probably why CVRD let the exploration license lapse in 2007. A rough conservative guess would be there is a couple million ounces of combined gold plus PGMs down there, which probably isn't enough to get a major excited, but could be interesting for a mid-tier producer. Figure $1,000 per ounce in gold/PGMs and that gets you a $2 billion deposit. The high grade, oxide nature of the ore (should be easy to process) could make it worth up to 25% on a valuation basis so there you have $500 million. Times 75% Colossus share is $375 million, less the approx. $150 million purchase price leaves $225 million, or about $3.40 per Colossus share. So the upside is not in drilling where CVRD has already drilled but in finding new zones of gold/PGMs (including above or below the central zone), which would be required to justify an SP above $4 or so.