Seeking Alpha

David Zurbuchen's  Instablog

David Zurbuchen
Send Message
Metal Augmentor is an investment research and consulting service focused primarily on the commodities markets.
My company:
Metal Augmentor
My blog:
Metal Augmentor
View David Zurbuchen's Instablogs on:
  • Mining News Review: Week of November 1st

    The Metal Augmentor's weekly Mining News Review is updated daily at

    You are also welcome to sign up to our free mailing list at and you'll be sent updates whenever we add new content to our editorial forum.

    Sprott Physical Silver Trust (NYSEARCA:PSLV)
    Sprott Physical Silver Trust Completes IPO – November 3rd

    Just like the Sprott Physical Gold Trust (NYSE: PHYS), the Sprott Silver Trust (which actually began trading on October 29th) is currently trading at premium to its net asset value (NYSE:NAV). As of the close on November 3rd, this premium was calculated to be 7.42 percent. The obvious idea here would be to short PSLV and go long SLV hoping that the premium shrinks back towards zero. But the current premium of 7.42% is by no means a guaranteed top, which means such a trade would carry a fair amount of risk. To provide some additional context as to how high this premium could potentially go, the following chart illustrates the NAV premium distribution for Sprott’s Physical Gold Trust since its inception on February 25, 2010:


    The good news is that the PHYS premium has proven to be quite volatile, meaning that investors could potentially execute the above trade successfully multiple times every year. And if a similar pattern emerges with PSLV, then the opportunity doubles. [Zurbo]

    Romarco Minerals (OTCPK:RTRAF)
    Romarco Announces in-Shell Resource Estimate
    – November 2, 2010

    One would think with all the long, high grade intercepts being reported at Romarco’s Haile Gold Mine that the resource would have turned into something larger and higher grade than roughly 4 million ounces at about 1.7 grams per tonne.  Although 4 million ounces is quite formidable even if the deposit weren’t still growing, we’re simply left asking ourselves how much upside could possibly remain for a company already trading for about $1.3 billion on a fully diluted basis.


    With the open pit feasibility study not expected to be completed until sometime in Q1 2011 we still have a few more months of waiting before arriving at a more quantitative answer. For now our guess is not too much, but boy oh boy what a beautiful chart. [Zurbo]

    Cream Minerals (TSX-V: CMA; OTCBB: CRMXE)
    Endeavour Silver
    Cream Minerals Makes No Recommendation to Shareholders as to Whether to Accept or Reject the Endeavour Offer
    – November 1, 2010

    In our opinion Endeavour’s offer is superior to the offer being made by Minco Silver (TSX: MSV; Pink Sheets: MISVF).  Since Endeavour’s offer expires on November 9th, we’ll know soon enough what shareholders decide. All we know for now is that if we owned shares we’d be tendering them to the silver producer in Mexico, not the silver developer in China. [Zurbo]

    Seabridge Gold (NYSE:SA)
    Iron Cap Emerges as 4th Major Deposit at Seabridge Gold’s KSM Project
    – November 3, 2010

    It certainly isn’t bad news that the new Iron Cap zone potentially adds enough material to increase the throughput rate from 120,000 to 180,000 tonnes per day, but that is only going to further increase the already enormous capital cost of the project. We’ll have to wait until the new preliminary feasibility study is released in April 2011 to determine how significant the incremental capital cost is compared with production gains in terms of valuation. But the question remains of whether or not there are buyers out there capable of financing this $3+ billion project, and more than likely combining it with Silver Standard’s (NASDAQ: SSRI; TSX: SSO) equally capital intensive Snowfield-Brucejack project. [Zurbo]

    Rusoro Mining (TSX-V: RML; Pink Sheets: RMLFF)
    Rusoro Receives Final Permits to Commence Offshore Gold Sales and Begin Mining Activities at the 100% Owned Increible 6 Project
    – November 1, 2010

    This isn’t really new news. In fact, we originally discussed the implications for subscribers back in August when Rusoro was trading about 50% lower. Let’s be frank, Rusoro is an extremely risky investment but it is also extremely undervalued. After all you’re looking at a gold producer that has the potential to produce over 500,000 ounces of gold per year within the next 2-3 years and is currently trading for about $150 million. There are other outliers in our model besides Rusoro, but on average gold producers typically trade for at least $200 million per 100,000 ounces of annual gold production. Rusoro currently trades at about $25 million per 100,000 ounces of its expected gold production 2-3 years from now. That’s as cheap as it gets. [Zurbo]

    TNR Gold (TSX-V: TNR; Pink Sheets: TRRXF)
    Minera Andes (OTC:MNEAF)
    TNR Gold Corp.: Los Azules Copper Project Court Date Set for Summer 2011 – November 4, 2010

    There is probably very little that will happen with the Los Azules project while TNR Gold’s claim to a 25% back-in right to a portion of the Los Azules project is litigated over the next year or so. That isn’t necessarily a big deal since neither the present valuation of TNR Gold nor Minera Andes relies much if at all on Los Azules. On the other hand, Los Azules could start looking more and more attractive to mining companies as other large South American copper projects are developed in the next few years, leaving fewer major properties in the pipeline. As mentioned previously, we do consider Los Azules as a likely development prospect, despite its remote, high altitude location, because the “layout” of the mineralization is favorable in comparis0n to many other large porphyry copper deposits. Thus, we do expect that Los Azules will command a substantial valuation at some point in the future, making the outcome of the TNR Gold dispute a relevant matter for investors with patience.

    With respect to that dispute, Minera Andes appears to have an obvious legal edge based on a literal reading of the option agreement and this will be difficult for TNR Gold to overcome. By no means, however, does Minera Andes have a cakewalk on its hands given that it is unusual (even suspicious) for an optionee‘s back-in right to be for a minority non-operating interest conditioned on performance by the optioner. Since the 36 month condition was a modification of the original letter of understanding, which had an open-ended back-in right, the legal merit of the case could very well come down to determining what if any new value was received by TNR Gold in exchange for allowing the 36 month condition (which clearly works against TNR Gold’s benefit). As the hearing nears and assuming we think there is some speculative money to be made, we’ll try to find and read through the agreements to see if TNR Gold did indeed appear to receive something in exchange for the loss of benefit due to the 36 month restriction. [Silverax]

    Here is some additional information from “Sufiy” who closely follows TNR Gold. I think it still comes down to value exchanged when the letter of understanding was formalized in an option agreement, but this supplemental information does appear to be useful:

    TNR Gold vs Minera Andes:
    We are checking the new presentations and Los Azules Maps on Minera Andes website – it looks like, according to Rob Mcewen on page 22, stepping out hole with 1.12% Cu over 62.5m and four best holes:
    #46 1.08% Cu over 145 m;
    #48 1.01% Cu over 216 m;
    #49 1.05% Cu over 236 m and
    #61 1.04% Cu over 168 m
    are all based on the Northern Part of the property, which is under this litigation.

    It is important to remember, that now, according to this NR, all litigation around Los Azules between TNR Gold, Minera Andes and Xstrata is joined in one trial and TNR Gold will seek, according to the Statement of Defence above, not only rectification of the option agreement to reflect its true intentions – without 36 months condition, but that “production of a feasibility study, whether produced within 36 months or some other time, was a condition solely for the benefit of Solitario (TNR Gold sub – S.), and as such, could be waived”.

    Also at stake is Escorpio IV property:
    “We did not understand why Minera Andes did not accepted the back in right by TNR Gold and lost opportunity to consolidate the project and secure a very important Escorpio IV property, where according to Minera Andes mining plan part of mining facilities supposed to be located, but Rob McEwen must has his own strategy. With this kind of presentation it will be not cheap any more to settle out of the court, but it is always better then drag such a project in litigation for years to come.”

    Bottom line, this situation bears watching in the months ahead. Of course TNR Gold also has other projects, one of which (the Shotgun gold project in Alaska) is the subject of a recent bit of friendly promotion that could have the shares trading higher for a while. [Silverax]

    Vena Resources (TSX: VEM; Pink Sheets: VNARF)
    Vena Significantly Increases Uranium Resource Estimate at Macusani – November 2, 2010

    This 22 million pound uranium resource combined with  the resources already defined by a neighboring company that we recently featured for our subscribers strongly suggests that the Macusani Plateau will eventually be a uranium-producing region. [Zurbo]

    Golden Minerals (NYSEMKT:AUMN)
    Golden Minerals Report Q3 Results
    – November 3, 2010

    Spend and they will come seems to be Golden Minerals’ business philosophy:

    For the remainder of 2010 and through the end of 2011, pursuant to the Company’s long term business strategy, Golden Minerals expects to spend up to approximately $16.5 million to fund the completion of the initial feasibility work at the El Quevar project. The Company expects to spend approximately an additional $54 million beginning in 2011 to fund the continuation of exploration drilling, underground drifting, metallurgical studies and related technical, engineering and project assessments to further define the resource. The Company expects to spend approximately $12.5 million to fund exploration on its portfolio of exploration properties through the end of 2011. Depending on the success of the targeted exploration program and generative exploration activities, the Company could spend additional amounts for early and advanced stage drilling programs on its current or new properties. An estimated $9.0 million will be spent through the end of 2011 on general and administrative costs, working capital and other corporate purposes. [emphasis ours]

    That’s over $90 million in planned expenditures over the next 15 months. There are few if any junior exploration companies that can boast a budget that large (only one comes to mind, though the situation is a bit different). While this could lead to a fair amount of exploration excitement to support the share price at these levels, Golden Minerals’ track record of loose spending doesn’t exactly give us overwhelming confidence. For additional information see our previous comment on the company in our Mining News Review: Week of October 4th. [Zurbo]

    CIC Resources Inc. (private company)
    Titanium Market
    Paraguay Could Have the World’s Largest Titanium Reserve – November 5, 2010

    Until there is more information, one should consider this news to be a significant risk to any marginal titanium development project.

    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.

    Dec 06 8:00 AM | Link | Comment!
  • Mining News Review: Week of October 25th
    The Metal Augmentor's weekly Mining News Review is updated daily at

    You are also welcome to sign up to our free mailing list at and you'll be sent updates whenever we add new content to our editorial forum.

    Equinox Minerals (TSX/ASX: EQN; Pink Sheets: EQXMF)
    Citadel Resource Group (ASX: CGG)
    Equinox announces recommended takeover of Citadel & Takeover of Equinox by Citadel - October 25, 2010

    As any fool can see using Google Maps, the volcanic shield of western Saudi Arabia (and Eastern Egypt) is highly prospective for mineral deposits. Given its vast oil fields, one would think Saudi Arabia would be more advanced in mineral exploration but it turns out that Citadel is one of the first companies to obtain a mining license in that country. Citadel’s Jabal Sayid volcanogenic massive sulfide (VMS) copper deposit looks like a winner but Equinox is not paying AU$1.2 billion for only that project — much of the value lies in the discovery potential of this severely underexplored region of the world. We keep hearing this or that area is the last unexplored frontier in the world but it should be clear by now that the mineral resources of the Earth are virtually untapped in many places. This is good news for future explorers although probably not very good news for “peak ____” (fill in the blank) proponents. We certainly don’t believe in “peak copper” although that doesn’t mean we won’t see supply constraints from time to time in the future. In any case, we do believe that Citadel/Equinox could do for Saudi Arabian mineral exploration what Centamin (LSE: CEY; TSX: CEE; Pink Sheets: CELTF) has done for Egypt. [Silverax]

    Mantra Resources (ASX: MRU; TSX: MRL; Pink Sheets: MNRZF)
    Mantra Commences PFS On Heap Leaching for Phase 2 Growth - October 25, 2010

    Here’s proof that not all uranium explorers/developers are severely undervalued in this market. Mantra is in pre-feasibility stage on an inferred + indicated 80 million pound U3O8 deposit in Tanzania and has a healthy US$700+ million market cap equating to about $9 per pound U3O8. The deposit is a low grade sandstone hosted deal but preliminary economics point to moderate capital and operating costs. The updated pre-feasiblity will help bring the value proposition into better focus but Mantra should make it clear that it isn’t uranium per se that is boring to investors these days but rather the lengthy development and permitting timeframes that are often involved. Thus, other than a major new discovery, an obvious price driver for uranium explorers/developers in the current market environment is meaningful progress toward production. Another obvious one is consolidation (senior producers buying juniors with prospective development projects). We’ll be looking closely for companies with these qualities given that they are likely to be the first and perhaps biggest movers as the uranium sector experiences a resurgence in the years ahead. [Silverax]

    JPMorgan Chase & Co. (NYSE: JPM)

    J.P. Morgan to Launch Physical Copper ETF
     - October 26, 2010

    This should prove to be a great way to directly short copper, i.e. buying put options on the Copper ETF rather than having to identify less pure, company-specific option strategies. No start date or ticker has yet to be mentioned. [Zurbo]

    Geodex Minerals (TSX-V: GXM; Pink Sheets: GXMLF)
    Northcliff Exploration
     (a private company controlled by Hunter Dickinson Inc.)
    Hunter Dickinson’s Northcliff Finalizes Sisson Brook Tungsten-Molybdenum Project JV for $17 Million in Expenditures
     - October 25, 2010

    By spending $17 million Northcliff will be able to acquire a 70% interest in the Sisson Brook project, which implies a value of $7.3 million for the remaining 30% interest. Considering that Sisson is Geodex’s flagship property and Geodex has a market capitalization of over $18 million we’re not terribly impressed with the value on offer, especially in comparison to a certain zinc and lead developer that is trading at about 50% of its implied value. Since Hunter Dickinson is a quality partner, we might have come to a different conclusion if this were a gold or silver development project, but molybdenum and tungsten are metals with difficult supply/demand dynamics such that projects dominated by these metals are typically going to have to look very compelling economically using conservative price assumptions before we seriously consider them as a speculative investment. [Zurbo]

    Oroco Resource Corp. (TSX-V: OCO)
    Oroco Receives Cerro Prieto CAPEX Figures & Oroco Retracts Capital Cost and Operating Cost Estimates - October 26, 2010

    Oroco is an interesting little company with a market capitalization of around $12 million. With the capital and operating cost figures released today, we have enough information to determine that Cerro Prieto will produce around 20,000 ounces gold per year for probably at least 5 years at a cash cost of about $280/oz and capital cost of about $25 million. The retraction is inconsequential, and we’re assured that the preliminary economic assessment (PEA) is imminent (est. within a week) and will contain essentially the same figures. The company is simply waiting on the engineers to run the net present value numbers. Having plugged what information we can into our valuation model (making conservative assumptions for the rest), we arrive at a base case valuation in the range of C$0.50-C$0.60 per share. That’s not incredible for a development stage company with such a small production profile, but we’re told financing options are already lined up to the extent that we can expect progress on this front within several weeks of the PEA being published.

    Nearby Silvercrest (TSX-V: SVL; Pink Sheets: STVZF) is working towards declaring commercial production at its similar, albeit larger, Santa Elena gold-silver project. Its share prices jumped 20-30% in late 2009 when it announced project funding through a debt/hedge facility and a gold stream. One might expect a similar reaction out of Oroco, but before that happens the PEA may actually lead to a bit of a selloff if the market is anticipating a larger operation. We’ll be monitoring this one closely to take advantage of any trading opportunities, and our subscribers will be the first to know if we do decide to enter a position. [Zurbo]

    Callinan Mines (TSX-V: CAA; Pink Sheets: CCNMF)
    Callinan Proposes to Become a Royalty Company and Create a New Exploration Company
     - October 25, 2010

    Callinan is an institutional client of ours, and we’re happy to see it is finally spinning out its royalty assets into a new company. A little over a month ago we wrote an abbreviated report on royalty companies and singled out Callinan as the top pick with significant base case upside. Since publishing that report Callinan has risen an impressive 72%, even despite releasing some negative news that we commented on in last week’s mining news review. It will be interesting to watch for what types of royalties the new company will focus on acquiring in an attempt to expand its portfolio beyond a 6.67% net profits interest on Hudbay’s (NYSE/TSX: HBM) 777 mine. [Zurbo]

    Phoscan Chemical Corp. (TSX: FOS; Pink Sheets: PCCLF)
    Phoscan to Conduct Tests for the Recovery of Niobium and Rare Earths at the Martison Property
     - October 26, 2010

    At first glance this news seemed strange to us since we were under the impression that IAMGOLD had already investigated the potential for niobium recovery at the Martison project, and that this work had been deferred – see the June 8, 2010 press release – more or less implying that the potential was not great. But now we are told that this “deferral” was not the result of niobium proving difficult to recover, but more or less the result of IAMGOLD’s intentions on what to do with a niobium concentrate not being in the best interest of Phoscan shareholders. The following quote from Stephen Case, President and CEO, sums things up nicely:

    “The ability to economically recover niobium from the phosphate tailings could be a game changer for the Martison Project…This could yield a sufficiently large enough by-product credit to possibly revisit the Martison project as a standalone phosphate concentrate producer, thus substantially reducing the project’s overall capital and operating costs. The recovery of rare earths from the lateritic oxide cap, where the metal value per tonne has risen dramatically over the past year, could also substantially enhance the project economics.” [emphasis ours]

    To the best of our understanding, a niobium-rich concentrate would be desirable enough to entice someone else to deal with processing. The implication being that Phoscan could avoid building a phosphoric acid plant (est. cost of $130-$142 million*) and granulation plant (est. cost of $156-$200 million*). This would reduce capital costs by about 30-35 percent, and significantly improve the likelihood of being able to obtain project financing.

    *According to the 2008 Preliminary Feasibility Study on the Martison Project

    Stephen Case admits that the rare earths potential is more of a wild card bet at the moment, though we suspect that may be what made the market jump these past few days. [Zurbo]

    There are actually three things going on here. One, the rare earth potential of the laterite cap is not fully understood and may still require more drill testing or sampling. Of course it is not unusual to have niobium and phophate associated with rare earths considering carbonatites are a source of all three minerals, often in combination. At Martison, however, the phosphate, niobium and rare earths aren’t necessarily spread out evenly throughout the resource area, and that will obviously impact the sequencing of the process flow.

    Two, assuming rare earths are present in economic quantities, the ability to recover them in a concentrate needs to be investigated next. Here we’ll note that the Olympic Dam IOCG deposit in Australia contains about 0.50% rare earths and economic recovery has proved elusive so far (though at the current rate of rising prices that might not be the case for long). In the case of Martison, there is nothing to be lost by evaluating rare earth content and recovery especially if a modification of the strategic plan is being considered from a complex vertically-integrated fertilizer producer to a simpler mining operation selling concentrates to upstream industrial producers. By-product revenue becomes critical in the latter approach compared to the former.

    Three, a viable niobium concentration process needs to be designed and tested. There have been numerous studies in the past that have looked into phosphate and niobium recoveries in concentrate but none seem to have provided definitive data demonstrating viability of the niobium stream to the end product stage. For example, the niobium pentoxide concentrate at IAMGOLD’s (NYSE: IAG: TSX: IMG) Niobec facility is around 60% (compared to under 40% in historic studies at Martison), which is processed into ferroniobium using a thermite reaction.

    In sum total, Phoscan appears to be going back to the previous plan of producing phosphate and niobium concentrates and leaving behind for now the ambitious goal of becoming a vertically-integrated fertilizer and chemical producer. While this probably reduces the eventual upside, it does create a possible path forward where otherwise there wasn’t much of one and that might account for why the shares are finally trading above their cash value. [Silverax]

    Advanced Explorations (TSX-V: AXI; Pink Sheets: ADEXF)
    Advanced Explorations Moves to Close Strategic Partnership
     - October 27, 2010

    Not surprisingly XinXing Pipes Group fully subscribed to a placement at C$0.25 when the share price is currently trading for over C$0.80. It appears someone was listening when we said “[Advanced Explorations] 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”, considering Advanced Explorations promptly shot up over 100 percent. Now AXI is trading for about 3x the implied deal value with XinXing. Meanwhile our favorite iron ore play continues to trade below the value of its cash and investments. A real steal, but no one seems to be listening. Not yet at least. [Zurbo]

    VMS Ventures (TSX-V: VMS; Pink Sheets: VMSTF)
    VMS Reports 6.69% Copper Over 71.69 Metres and 3.74% Copper Over 21.77 Metres from In-Fill Diamond Drillholes Three and Four at the Reed Lake JV Property - October 28, 2010

    Needless to say these are very good results, confirming our initial estimate of the in-fill target of 1+ million tonnes with good continuity and possible upside within the known deposit envelope. Pitch and swell of the ore body combined with oblique drill angles makes it difficult to evaluate the true width intersected in these holes and ultimately expansion potential will be what drives Hudbay toward a development decision in the near term. The share price has at this point (more than) priced in a best-case scenario from the in-fill program but exploration potential does present some upside, such as at the Salis Lake project where exploration has recently commenced. [Silverax]

    Golden Predator (TSX: GPD)
    Golden Predator Intercepts 1.72 g/t Gold Over 146.3 m From Carlos Zone, Grew Creek Property, Yukon - October 25, 2010

    The discovery of multiple vein trends and optimal drilling orientation are consequential for demonstrating grade continuity and increasing overall grade of the mineralized envelope but it remains of limited size and must be supplemented by additional discoveries on strike or nearby before the Grew Creek property rises to the status of highly prospective Yukon play. That said, the $15 million financing does indicate Golden Predator is a serious Yukon player and must be on the watch list. It would be a decent idea to buy the stock should it approach 50 cents because at that price the company’s royalty portfolio starts to provide some downside protection. We hope to complete the update to our royalty model next week to include at least 5 more royalty companies, making it the most comprehensive royalty model out there to our knowledge. [Silverax]

    Queenston Mining (TSX: QMI; Pink Sheets: QNMNF)
    Queenston Announces Strategic Investment by Agnico-Eagle Mines Limited - October 28, 2010

    Queenston now must be considered a top take-out candidate with Kirkland Lake Gold (TSX: KGI; Pink Sheets: KGILF) chumping on one end and Agnico-Eagle (NYSE/TSX: AEM) on the other. There is still work to be done for the company to meet its goal of defining 2 million ounces of economic gold in the Kirkland Lake area but this entry by Agnico-Eagle is a strategic challenge to Kirkland Lake Gold and ups the stakes for control of the district. If I’m right about this, Queenston shares are headed over C$6.50 in a hurry and thus it might not be too late to get on board here. [Silverax]

    Amazon Mining (TSX-V: AMZ; Pink Sheets: AMHPF)
    Preliminary Economic Assessment for Cerrado Verde Provides Encouraging Results - October 28, 2010

    With its market capitalization of about $100 million, a net present value of over $450 million in the more conservative production scenario is very impressive. We didn’t have a chance to listen in, but we’re told the conference call held on November 3rd was well attended by a number of analysts that may soon initiate coverage of the company, and that a transcript of the call will be posted to the company’s website shortly. For now the main takeaways seem to be that (1) the company is in discussions with the government to help finance the project and potentially allow for certain tax exemptions, (2) the newly elected (this week) president of Brazil was formerly the governor of Minas state (where Amazon’s Cerrado Verde project is located) and is apparently well aware and supportive of the project, and (3) there is the potential to significantly reduce input costs by using limestone contained in the project rather than sourcing it on the open market. With production targeted for 2013 the future certainly looks bright for Amazon. But before we get too excited and assume it’s going straight up to $10 tomorrow, let’s not forget about the wild gyrations this stock is prone to on both the upside and downside:


    Orvana Minerals (TSX: ORV; Pink Sheets: ORVMF)
    Bolivian Government Agency to Audit Orvana’s Bolivian Subsidiary
     - October 29, 2010

    It is hard to say how much, if any, of a headache (or worse) this audit is likely to cause, but at least we can all be happy about the roughly US$7 million being granted to Orvana by the Spanish government because of the jobs the El Valle project will create. [Zurbo]

    Peregrine Diamonds (TSX: PGD; Pink Sheets: PGDIF)
    1.15 Carat Diamond Recovered from 840 Kilogram Microdiamond Sample Collected from Five Hectare CH-31 Kimberlite
     - October 29, 2010

    The day that this news was announced, John Kaiser put out a comment saying:

    …The market has not reacted [to the news] because it does not understand that recovering a 1.15 carat gem quality stone from an 840 kg sample along with several other big ones, while not indicating an overall high grade, has Victor style implications for CH31…the odds of critical mass for a large scale Ekati style diamond mining camp at Chidliak have improved substantially…If you have been waiting, don’t wait any longer. Initial mini bulk sample results for CH7 are expected during the second half of November. BHP must decide by November 30 [regarding earning additional 7% interest by funding project through bankable feasibility].

    We agree with Kaiser’s assessment, especially considering that the beautiful 1.15 carat diamond was found in drill core. The scale of CH31 taken by itself could be reason enough for BHP to fund the project through feasibility, especially now that their bid for Potash Corp (NYSE/TSE: POT) has been rebuffed and they may have a bit of extra money to play with.

    Nov 09 3:13 AM | Link | Comment!
  • Mining News Review: Week of October 18th

    The Metal Augmentor's weekly Mining News Review is updated daily at

    You are also welcome to sign up to our free mailing list at and you'll be sent updates whenever we add new content to our editorial forum.

    Minera Andes
    Hochschild Mining
    (LSE: HOC; Pink Sheets: HCHDF)
    Resource Life Up at San Jose
    - October 19, 2010

    Hochschild helps bring some additional context to the recent announcement by Minera Andes, telling us that the resource at San Jose has increased about 50% as a result of these vein discoveries. Assuming all resource categories can be converted into reserves, this increases the mine life at San Jose from roughly 8.4 years to 12.5 years as at September 30, 2010. The extended mine life gives us a base case valuation target for Minera Andes of about C$2.00 per share based on San Jose alone, i.e. zero value given to the early stage Los Azules copper development project. [Zurbo]

    Extorre Gold Mines (TSX: XG; Pink Sheets: EXGMF)
    Results for Cerro Moro Preliminary Economic Assessment
    - October 19, 2010

    When estimated undiscounted, pre-tax cash flow from a company’s flagship development project at current gold and silver prices comes in at barely more than the current market capitalization of the company it is probably fair to say that the company in question is overvalued. Cerro Moro does have exploration upside, but a project like Minera Andes’ San Jose arguably has more exploration upside and is already in production at a similar scale (factoring in for Minera Andes’ 49% interest). Since both companies trade at a similar market capitalization, Minera Andes seems like the smarter choice. And considering that there seem to be even better values out there than Minera Andes, we see no compelling reason to own Extorre at this time. [Zurbo]

    Greystar Resources (TSX: GSL; Pink Sheets: GYSLF)
    Greystar Announces Angostura Environmental Impact Study Public Hearing Date
    - October 18, 2010

    It is unclear what the time line will be for a decision to be made following the public hearing on November 21, 2010 to consider Greystar’s Angostura Project Environmental Impact Study, but hopefully we’ll have a better idea after the hearing takes place. More than likely trading in Greystar is likely to be relatively subdued over the next month barring any negative surprises as a result of the informational hearings to be held in early November. Following the formal hearing volatility is likely to pick up as speculators move into the stock in anticipation of a decision being made. Soon we expect to publish a more detailed analysis of Greystar for subscribers. [Zurbo]

    Argonaut Gold (TSX: AR; Pink Sheets: ARNGF)
    Pediment Gold
    Friendly Business Combination
    - October 19, 2010

    It was no secret that Argonaut was on the prowl for M&A targets, and as luck would have it a few days after plugging in both Argonaut and Pediment into our comparative valuation model they announced a friendly business combination.

    Our calculated fair value for both Argonaut and Pediment happens to comes in at about C$4.40 per share. Considering that the calculated base case value for Pediment gives only minimal value to La Colorada (since it has not yet been the subject of an economic study) this transaction should be highly accretive to Argonaut even when only considering the more advanced San Antonio project. [Zurbo]

    Callinan Mines (TSX-V: CAA; Pink Sheets: CCNMF)
    Hudbay Minerals
    (TSX: HBM; Pink Sheets: HBMFF)
    Callinan to Appeal Order of the Manitoba Court of Queen’s Bench
    - October 20, 2010

    It was a volatile ride for Callinan today, with shares trading as high as C$2.52 before closing near the low at C$2.16. There has always been a lot of talk about the potential behind the suit with Hudbay, and this decision by the Manitoba court of Queens Bench does not bode well for the likelihood of any sort of back payments or windfall payments being made in the near future. More delays to the process. Business as usual.

    Frankly we’re not sure how strong of a case Callinan has against Hudbay, but slow as the process may be it should prove interesting to watch the audit unfold. Meanwhile Callinan’s 6.67% net profits interest in Hudbay’s 777 mine is currently producing cash flow of over $4 million per quarter, such that with or without any settlement this royalty already more than justifies the current share price at current metal prices. For this shareholders can be thankful. Look for our upcoming report on royalty companies to see how Callinan’s current valuation compares to a group of its peers. [Zurbo]

    Hathor Exploration (TSX-V: HAT: Pink Sheets: HTHXF)
    Hathor’s Roughrider East Delivers Best Hole to Date, Intersecting 63.5 m of 7.75 % U3O8, including a 17.5 m interval of 24.3 % U3O8, with assays as high as 87.2 % U3O8 - October 21, 2010

    The results of this hole were roughly in line with our expectation that the preliminary scintillometer readings — released earlier — would not adequately foretell the eventual U3O8 assays for at least one of the drill holes from the summer 2010 program at Roughrider. That said, this hole is an infill and does not represent an extension of the mineralized system at Roughrider East, so its importance is mainly in helping to better define the uranium-bearing envelope for resource modeling. In my estimate, it does that quite adequately: possibly adding as much as 2.5 million pounds of U3O8 inferred resources to the initial Roughrider East estimate of 7.5 million to 15 million pounds. Combined with the main Roughrider zone where the sophomore resource estimate will probably come in around 15 million pounds, Hathor’s Midwest-Northeast project is reaching a critical stage as it knocks on the elite 30 million pound threshold. Combined with Fission’s (TSX-V: FIS; Pink Sheets: FSSIF) recent discoveries to the west in the J-Zone where an additional 5-10 million pounds have been delineated so far, we are definitely looking at a world-class uranium deposit.

    Hathor’s share price has rallied nicely in the past few weeks in sympathy with rising uranium prices and the uranium sector in general while the start of drilling at Russell Lake plus anticipation of new resource numbers at Roughrider and Roughrider East are keeping the market interested. This is a welcome change from the summer lows around C$1.40 and indeed we are inclined to square our sizeable position a bit on this recent strength. Our expectation remains for a C$3.50 to C$5.00 price level to be achieved in the medium term although at this pace we could get there sooner than later. More for subscribers. [Silverax]

    Oro Gold (TSX-V: OGR; Pink Sheets: OGRSF)
    Oro Gold Completes 1200-Metre Drill Campaign at Cimarron Gold Project in Rosario Mining District, Mexico - October 20, 2010

    Oro Gold is merging with sister Oro Silver (no longer trading as of today) in a clawback that reunites two small but decent flagship gold-silver projects under a single umbrella — El Compas in Zacatecas and Trinidad in Sinaloa, Mexico. This was a case where a spinout did not return significant value for shareholders — Oro Silver had been spun off Oro Gold in 2007. In any case, Trinidad is hosted on the same regional trend as Cimarron (which itself appears to be on the same local trend as the historic Rosario Mine) where Oro Gold has just completed 1,200 meters of shallow RC drilling. No doubt some of this drilling will return decent grades when the assays are reported in a few weeks due to being set up near historic gold-bearing holes but interestingly the company is also stating that they expect to have expanded the known mineralized zone with several stepout holes. At the end of the day, we are not likely to see barnburner results from this impromptu drilling campaign but owing to the near-surface and likely-oxidized nature of the gold, it does represent a valid exploration target. We are in the process of evaluating the speculative opportunities presented by the combined entity and will report our opinion shortly. [Silverax]

    Grayd Resource Corp. (TSX-V: GYD)
    Completion of PEA on La India Gold Project
    - October 21, 2010

    The economics of La India are impressive, and the share price of Grayd has largely reflected this reality. Although we calculate fair value at the current gold price to be about C$2.50 per share, since many other gold developers show similar upside to their base case targets we’re most comfortable on the sidelines for now. [Zurbo]

    Capstone Mining (TSX: CS; Pink Sheets: CSFFF)
    Significant Results in 200m Step-out Drilling on Mala Noche Footwall Zone, Cozamin Mine
    - October 20, 2010

    Using the term “significant” was not an exaggeration. The new zone being defined at Cozamin has the potential to greatly improve the economics of Capstone’s flagship mining operation. The company isn’t cheap, and remains vulnerable to a decline in copper prices. But if hole U235 is proves to be the tip of a much higher grade iceberg of mineralization at depth, then valuations will need to be revised upwards. [Zurbo]

    Virginia Energy Resources (TSX-V: VAE; Pink Sheets: VAERF)
    Preliminary Economic Assessment Indicated Outstanding Profitability Potential for the Coles Hill Uranium Project in Virginia
    - October 18, 2010

    The use of “outstanding” here is a bit deceptive considering that Coles Hill’s economics are actually quite marginal at the current spot price for uranium. To be fair such vulnerability/leverage is typical among uranium developers, where the success of a project is heavily reliant upon a higher uranium price. But be careful not to get carried away here. While the net present value figures given the in press release look very attractive when reported on a 100% basis, investors should be aware that Virginia Energy only holds about a 30% interest in the project. Oh, and don’t forget to factor in for the moratorium on uranium mining in Virginia? [Zurbo]

    Minera Andes (TSX: MAI; OTCBB: MNEAF)
    Hochschild Mining
    (LSE: HOC; Pink Sheets: HCHDF)
    Production Results from the San Jose Mine for Q3 2010
    - October 20, 2010

    Silver and gold production increased for the quarter, along with recoveries.



    As you can see from the above charts, recoveries are improving and greatly exceeding expectations. Meanwhile production is growing but still not quite up to the levels assumed in the 2009 technical report. [Zurbo]

    Antares Minerals (TSX-V: ANM; Pink Sheets: ANMFF)
    First Quantum Minerals (TSX: FQM; Pink Sheets: FQVLF)
    First Quantum Minerals to Acquire Antares Minerals in Cash and Share Transaction Valued at Approximately C$460 Million - October 18, 2010

    It was a great day for shareholders of Antares and it is hard to imagine anyone is complaining about the proposed arrangement with First Quantum. However, we would note that at the current copper price Antares’ Haquira project has a pre-tax net present value north of $5 billion using an 8% discount rate, which implies fair value of over C$30 per share. This is precisely what we mean when we say that it is not unusual for copper companies in this environment, especially developers, to trade at significant discounts to their calculated base case valuation. While extreme, this discount isn’t uncalled for in the case of Haquira. After all, the capital cost of Haquira is estimated to be over $2 billion, and since it is a higher cost operation the project fails to break even with copper prices of less than $2/lb (i.e. there is significant price risk). Another way to look at this arrangement is to determine what copper price results in a base case value for Antares of roughly $6 per share. This happens to be about $2.10/lb copper. The only other copper developer currently in our valuation model that boasts a base case valuation at $2.10/lb copper that is greater than 100% its current share price is Coro Mining (TSX: COP; Pink Sheets: CROJF). Coro would probably be one of our top picks if it were not for the particular risks associated with its project. It is now in the midst of some important public hearings on its flagship San Jorge project. It needs these to go smoothly, and then it needs a positive decision from the Ministry of the Environment. If that happens, the share price should do very well. We’ll be monitoring the situation closely to take advantage of any low risk entry opportunities. Our subscribers will be the first to know should we officially enter a position. [Zurbo]

    Jaguar Mining (NYSE: JAG; TSX: JAG)
    Jaguar Mining Declares Caete Operation Commercial; Provides Q3 2010 Operations Overview
    - October 20, 2010

    Another disappointing quarter from Jaguar, with increasing cash costs and lower than expected production. What else is new?



    For a moment there we thought Jaguar might find a spot in our speculative gold and silver portfolio, but results like this continue to repel us. Even assuming the September 2010 production targets are attainable and cash costs fall back in line with earlier expectations, our base case valuation target for the company is under $10. That’s not enough to interest us at this point, especially since a considerable amount of our valuation relies upon the successful development of the Gurupi project in 2013. That said, Jaguar is very leveraged to higher gold prices due to its high cash cost of operations, and this might open up some compelling options speculation opportunities if gold looks like it is about to move much higher. [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.

    Oct 27 8:15 AM | Link | Comment!
Full index of posts »
Latest Followers


More »

Latest Comments

Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.