Update: Emerging Metal Producers

The lengthy period of time required to advance a project from discovery to production might be likened to "a journey of a thousand miles commencing with a few steps."  Many of the companies discussed in our 2008 Emerging Producers: Fall Season - Special Report are trading near their 52-week low, at levels similar to that at the outset of construction, suggesting reduced risk with significant near term upside.  The potential cash flow is important to fund exploration and development of other projects or complete additional expansion of operations while minimizing shareholder dilution. 

We have seen 2008 as important for several companies in our coverage universe to re-rate upward as they complete their journey of a thousand miles, ending with a final few steps.

NovaGold Resources Inc.'s Rock Creek Mine Now in Production

NovaGold Resources Inc. (NG) announced meeting regulatory hurdles and is now commencing gold production at its Rock Creek mine in Nome, Alaska.  The Rock Creek mine is designed to process 7,000 tpd, producing 100,000 ounces of gold per year at a cost of US$500 per ounce, which could generate $25 to $35 million in cash flow annually.  NovaGold's Rock Creek mine, has a Proven and Probable reserve of 510,000 ounces of gold, plus an additional 1.8 million ounces of gold classified as Measured and Indicated and 330,000 classified as Inferred in the Nome area, and are working to extend mine life to beyond ten years with further exploration and development. 

Ore Pile, Rock Creek Mine, Nome, Alaska

Source: NovaGold

NovaGold has two world-class projects, the 50-50 partnership with Barrick Gold Corporation (ABX) at the Donlin Creek gold project, and its 50-50 partnership with Teck Cominco Ltd. (TCK) at the Galore Creek copper-gold project.  Donlin Creek has 31.7 million Measured and Indicated ounces and 4.2 million ounces of Inferred ounces of gold, and should produce 1 million to 1.5 million ounces of gold annually for a period of 25 to 30 years.  NovaGold recently released from its drill program at Donlin Creek indicating the resource and pit is open to expansion.  The Galore Creek copper-gold project, which was suspended last fall pending a comprehensive engineering review, Teck Cominco management has reported encouraging progress and expects to make a new go-forward decision later in 2008 under a modified development plan. 

Etruscan Approaches Cash Flow Breakeven for Both Gold and Diamond Production

Etruscan Resources Inc. (ETRUF.PK) completed its first gold pour at its Youga Gold Mine in Burkina Faso in mid-June of 2008, and expects to reach operating breakeven in August of 2008.  The mine may now be operating closer to full capacity, capable of processing 83,000 tonnes per month, and producing 6,700 ounces of gold and one to two million dollars in free cash flow monthly.  Youga has reserves of 6.6 million tonnes, grading 2.7 g/t gold, and containing 580,000 ounces of gold.  Etruscan has the largest land position of any mining company in West Africa.

Scrubbers Feeding New Pan Plant Circuit

Source: Etruscan

Etruscan maintains a 52% interest in Etruscan Diamonds, which received an updated resource estimate on its Blue Gum Diamond Project in South Africa.  The update on the alluvial diamond deposit was made possible by statistical data gained from successful operations leading to an increase in the total diamond resource, conversion of the resource classification to Indicated from Inferred, and an increase in the average value per carat.  The update suggests that the project could become more profitable and demonstrates the potential for further expansion of the resource and land package.

Minefinders Now Placing Ore on Pad to Commence Leaching

Minefinders Corporation Ltd. (MFN) is nearing production at its gold-silver Dolores project in Chihuahua, Mexico.  They may commence leaching in the next couple weeks with initial production early in 4Q08.  They may produce over 10,000 ounces of gold and 350,000 ounces of silver in 2008, and meeting previously forecast production beginning in 2009.  An updated base case estimates production of 1.77 million ounces of gold and 64.35 million ounces of silver over a 15.5 year mine life. 

Stackers Place Ore on Leach Pad

Source: Minefinders

Minefinders is considering adding a 3,000 tpd flotation mill to enhance recoveries of high-grade ore in the open pit, and additional underground high-grade ore below or up to one kilometer peripheral to the pit.  The addition of a flotation circuit may increase recoveries to over 90% for gold and 85% for silver.  Recoveries from the existing 18,000 tpd heap-leach operation are estimated to be 72.25% for gold and 50.8% for silver.

Minefinders reported that the road to the Dolores project has been intermittently blockaded since May of 2008.  Out of concern for worker's safety they suspended operations and sought enforcement of laws from government authorities.  Upon receiving written guarantees from the government, and an increased police presence, Minefinders resumed commissioning and placing ore on the pad.  This followed intense lobbying by the company, Ejido members, local community representatives, as well as employees and outside contractors.

Mercator to Commence Production in October

Construction at Mercator Minerals Ltd.'s (MLKKF.PK) Mineral Park Mine near Kingman, Arizona is on time and on budget.  Management is commissioning the first stage (25,000 tpd) of its 50,000 tpd copper-molybdenum project, with startup expected in October, and breaking even by the end of 2008.  At conservative commodity prices, the Mineral Park Mine has estimated Proven and Probable mineral reserves of over one billion pounds of copper, 260 million pounds of molybdenum, and 12 million ounces of silver, with an estimated mine life of 25 years. 

Mercator Minerals' Mineral Park Mine, Near Kingman, Arizona

Source: Analyst

Mercator sold its life-of-mine silver production to Silver Wheaton Corp. (SLW) and received an up-front payment of US$42 million in cash.  The sale with other available cash should fund the second phase.  With copper at US$2.15 per pound, and molybdenum at US$20 per pound, receipt of the Silver Wheaton payment increases the IRR to 131% from 93%.  The Mineral Park Mine has a strip ratio is 0.18 to one, and located in Arizona, may be one of the lowest cost and lowest risk projects to be put into production in the current metal cycle. 

Acadian Resolved to Meet 2008 Production Guidance

Acadian Mining Corporation (ADAIF.PK) is confident that it is on target to be cash flow positive in 3Q08 and to meet its 2008 sales targets of 30,000 tonnes of zinc and 12,000 tonnes of lead concentrate.  Adverse weather conditions at Scotia Mine in the first half of 2008 led to flooding of the pit preventing access to the higher grade ore.  This resulted in processing lower grade material, increasing the cash operating cost of producing zinc to C$0.78 per pound in 2Q08.  Management took numerous steps to resolve issues to reduce costs to C$0.55 per pound in 3Q08. 

Zinc-Lead Scotia Mine, Nova Scotia

Source: Analyst

Scotia Mine is currently operating at a rate of 2,400 to 2,500 tpd with a goal of reaching capacity of up to 2,700 tpd.  The mine continues to experience higher recovery levels for both zinc and lead.  The current resource supplying Scotia Mine should provide feedstock for a mine life of 6.5 years.  However, this does not include other resources at or near the Scotia Mine.  In addition, Acadian controls over a 50 kilometer strike length of highly prospective claims which could extend mine life beyond most investment horizons.  Acadian also has numerous other gold and base metal projects it expects to advance in 2009.

Disclosure: The author is long NG, ETRUF, MFN, and ADAIF.  An affiliate of the author's employer provides corporate advisory services to NG, ETRUF, MFN, MLKKF and ADAIF.