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Richard is host of aheadoftheherd.com and invests in the junior resource sector. His articles have been published on over 200 websites, including: Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine,... More
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AheadOfTheHerd
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  • DONNER-XSTRATA MINE SHOWS INCREASED UPSIDE
    DONNER-XSTRATA MINE SHOWS INCREASED UPSIDE

    Richard (Rick) Mills
    Ahead of the Herd

    As a general rule, the most successful man in life is the man who has the best information

    In July 2010, Xstrata (XTA-L) and Donner Metals (DON-TSX) began construction of a joint venture zinc mine on the Bracemac-McLeod deposit in Quebec. They started without a completed feasibility study.

    Since neither company has a reputation for impulsive behaviour, industry observers assumed that the early (unpublished) geological data was positive.

    That assumption was confirmed on Sept 3, 2010 with the late release of the feasibility report which revealed a magnified resource base and significant upside to the original economic projections.

    According to the International Zinc and Metal Study Group, global zinc consumption is due to rise 740 tonnes (7%) in 2010 while mine production is predicted to rise only 623 tonnes (5.5%).

    Zinc is a required ingredient in galvanized steel. Demand is tied closely to the construction industry.  While U.S. housing starts are flat, the BRIC (Brazil, Russia, India, China) construction market is growing at an annualised rate of 11%.  By 2013 it is forecast to have a value of $610.7 billion.


     

    The Bracemac-McLeod deposit feasibility study highlights measured and indicated resources of 3.39 million tonnes grading 11.31% zinc.  Based on the deposit's current reserves, life-of-mine production is estimated at 570,400 tonnes zinc worth about $1.2 billion at today’s spot price of $.98 a pound.

    But the Bracemac-McLeod is a Volcanogenic Massive Sulfide (VMS) deposit forged in the earth millions of years ago by a rare hydrothermal event. It contains rich veins of copper (39,000 tonnes), silver (46,000 kgs) and gold (445 kgs), adding about another $340 million in value.

     VMS deposits can offer investors a mine-specific metal diversification strategy, which sees amplified gains on a small shift in metal prices.

    NPV
     

    Total capital costs for the mine are estimated at US$163.7 million.

    Xstrata and Donner are trying to identify additional resources across the 4,750-sq.-km Matagami project, they are hoping to keep the Matagami mill busy for the next fifteen years. Two drills are currently active on the property.
     

    Donner Metals has the option to earn a 50 percent participating joint-venture interest in the Matagami project by spending $25 million on exploration and related work before May 31, 2011.  They have already spent $24.1 million and have the cash to exercise its option.
     

    In total the Matagami mining camp boasts historical production of 8,600 million lbs. zinc and 853 million lbs. copper.
     

    The Bracemac-McLeod mine is destined to replace Xstrata’s Perseverance zinc mine which is closing in 2012.  The new mine will feed Xstrata’s 2,600-tonne-per-day Matagami mill complex.
     

    Donner is currently trading at $.26, with a market cap of $29 million.
     

    With the Bracemac-McLeod deposit going into production and Donner so close to earning a 50 percent interest in the Matagami project I’ve got Donner on my radar screen. Is it on yours?
     

    If not, maybe it should be.
     

    Richard (Rick) Mills
    rick@aheadoftheherd.com
    www.aheadoftheherd.com
     

    If you're interested in learning more about the junior resource market please come and visit us at aheadoftheherd.com.

    Membership is free, no credit card or personal information is asked for.

    ***

    Richard is host of aheadoftheherd.com and invests in the junior resource sector. His articles have been published on over 200 websites, including: Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell.com, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor and Financial Sense.

    ***

    Legal Notice / Disclaimer

    This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

    Richard Mills does not own shares of Donner Metals TSX.V - DON
    Donner Minerals is an advertiser on his website aheadoftheherd.com.



    Disclosure: no position
    Sep 15 10:14 AM | Link | Comment!
  • Management, Company Stage and Risk v. Reward
    Management, Company Stage and Risk v. Reward

    Richard (Rick) Mills
    Ahead of the Herd

     

    As a general rule, the most successful man in life is the man who has the best information
     

    When looking for an investment the approach I take involves looking at the global - big picture - conditions. I study trends, read the news, basically watch and listen to what’s going on in the world. Then I study the different sectors in order to select the one that I think is going to match up well with, what I think is, the soon to be overriding theme. This is top down investing.

    The second part of my search for the dominant investment is a bottom up approach. This is where I find individual companies in the specific sector I have chosen to invest in. I pick the company I want to invest my money in based on the quality of its management team.

    If you’ve done your homework all the necessary ingredients for a potentially successful investment - the right place/time and a high quality management team with projects that need to be worked - should be in place.

    Always remember everything about a company flows from management - the ability to find a project or have projects or joint ventures (JV) offered to the company, development of the project in a timely efficient manner, financings done at a higher and higher share price, control over the share structure along with  management interests aligned with shareholder interest.

    Three Sides to Every Management Team

    It’s a fact in the mining world that most discoveries are made by a) junior mining companies and b) old time individual prospectors. Why are the juniors so successful at finding mines? Well the good ones are lean mean boots on the ground exploration and development companies run by people who have been out there and know what it takes. They know how to raise money from the suits and they know how to get the story out to the retail investor.

    They are not tied up in bureaucratic red tape and can make the important decisions without commissioning a six month study or running it up through 12 layers of pencil pushers and then sitting on their butts waiting for an answer while somebody else scoops the prize. They can and do make up their minds very quickly and can execute immediately on plans.

    The most successful management teams have three complementary but very different sides. The first side of the team is the people who can find the quality projects and who have the technical expertise to explore, develop and advance them. But a good all round junior isn’t comprised of only these people - there has to be more.

    The second side of a successful team are the members who have the ability to make deals for projects, go into the board room and sell the story to the institutional investor, the suits, and raise the money needed for acquisitions, exploration and development.

    The third side of the team are the people with the ability to tell the story to retail investors.

    Officers of the company make up side one and side two, they should be experienced business persons, geologists, mining engineers, lawyers and accountants. The president and or the chief executive officer should be the public face and voice of the company. They do not have to be geologists or engineers, they do have to be smart businessmen and strong salesmen or women who can make the best deal possible on acquisitions and go out and sell their company to the different brokerage houses who can than raise the needed money from their own clients to acquire, explore and hopefully advance the company’s projects.

    Do not make the mistake of thinking side one and side two management can do side three. Giving dog & pony shows to a group of brokers and mining analysts, an institution or group of high net worth individuals, being on TV and doing interviews is a much different skill set than running a promo campaign to retail investors and actually picking up a phone and talking to them all day.

    Make sure the company you are interested in has all three skill sets. There’s nothing worse than sitting in a junior with an excellent project but no money to advance it and a market cap that should be many times higher than it is due to a lack of or just plain terrible promotion efforts.

    Company stage – risk v. reward

    Only you can decide the level of risk you can tolerate and how much patience you have to sit while developments, the story, plays out.

    The most upside (and by far the greatest risk) comes from buying a junior when they are exploring and make an initial discovery. Great drill assay results can send a juniors share price skyrocketing. The reverse can also be true. Junior explorers, the green field plays, are the riskiest plays by far. Strike out on assay results and it could be goodbye to a share price rise for a very long time - till the company finds another project they can work on. If you’re buying into this kind of play make sure the company has another fallback project in its portfolio.

    My favorite stage junior is a junior in the post discovery resource definition stage (also known as brown field stage companies). These companies have all ready found something, the share price has settled back after the initial discovery (never chase a company whose share price has already exploded, the share price has had its run, for now the moneys been made. I try and enter after the excitement has died down and the share price has settled back) and the company is going in to see what they have and hopefully produce a 43-101 compliant resource estimate and build upon it. The risk has been greatly reduced, the waiting time for a discovery non-existent and the reward very nice considering the much lower amount of risk.

    For nearer term producers - for those further down the development path towards a mine - you have:

    • Preliminary Economic Assessment (PEA) or scoping studies are done to examine potential mining scenarios and economic parameters - A PEA or scoping study is an important milestone for a mineral project, it’s the first step in a company’s  economic and technical examination of a proposed mine
    • Preliminary feasibility studies or pre-feasibility studies are more detailed than PEA’s and are used to determine whether or not to proceed with a detailed feasibility study. They are also used as a reality check to determine areas within the project that require more attention
    • Feasibility studies will determine definitively whether or not to proceed with the project. A feasibility study or bankable feasibility provides budget figures for the project and will be the basis for raising capital to build the mine

    Remember all these different stage studies are only yes/no decisions on whether to move to the next stage. NONE of them mean you are going mining, there’s no mine till every stage is completed, permits approved and the necessary financing has been arranged.

    Because these companies are well advanced along the development path a lot of the guesswork about grade, size, costs and metallurgy have been taken out of the equation for us. They have done sufficient work to give investors a certain level of confidence that their project will successfully move towards being a mine. The later stage companies (those doing feasibility, permitting and money raising) can have an excellent entry point for investors - they often enter a quiet period when they are doing the advanced studies and raising money to go into production. They often base (a flat share price) for quite a while through this period - possibly a good time for accumulation of their shares if you believe in the story. After the money is raised for production investors can see they are going mining - cash flow is just over the horizon - and the share price will often break out of its trading range.

    With producers you have to look at the balance sheet, consider their plans for the future and judge for yourself the ability to meet those plans. Remember cash flow is king, but can they grow that cash flow? These large well established producers have the least risk and the least upside. But gains could be steady and maybe they pay a dividend.

    Conclusion

    I spend the majority of my due diligence time and effort on:

    • A top down theme - discover the dominant overall global theme(s)
    • Bottom up searches - find the companies involved at the stage your comfortable investing in
    • Management due diligence

    Is a global theme - top down, bottom up investing and the best management teams you can find, in the soon to be hottest sectors, - on your radar screen?

    If not, maybe it should be.

    Richard (Rick) Mills
    rick@aheadoftheherd.com
    www.aheadoftheherd.com

    If you're interested in learning more about the junior resource market please come and visit us at aheadoftheherd.com.

    Membership is free, no credit card or personal information is asked for.

    ***

    Richard is host of aheadoftheherd.com and invests in the junior resource sector. His articles have been published on over 200 websites, including: Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor and Financial Sense.

    ***

    Legal Notice / Disclaimer

    This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

    Richard Mills does not own shares in any company mentioned in this report.
    No company mentioned in this report is an advertiser on his website aheadoftheherd.com
     



    Disclosure: no position
    Sep 12 10:52 AM | Link | Comment!
  • Merchant Bank Becomes Gold Producer
    Merchant Bank Becomes Gold Producer

    Richard (Rick) Mills
    Ahead of the Herd

    As a general rule, the most successful man in life is the man who has the best information
     

    For the last decade, Endeavour (EDV: TSX) has been the architect of numerous equity financings and acquisitions in the junior gold sector. Over the years, the company has proven to be a savvy dealmaker, participating in M&A transactions valued at over US$28 billion.

    In October 2009, EDV paid US$58.3 million for 55% ownership (average cost of C$0.33/share) of Etruscan Resources (EET-TSX) – a West African gold miner.

    A few months later, EDV had acquired 43% of Crew Gold (CRU-TSX) for approximately $135 million at an average cost of 15 cents, whose primary asset is the LEFA Gold mine in Guinea, West Africa.

    On August 24th, 2010 the Supreme Court of Nova Scotia approved EDV’s purchase of the remaining 45% of Etruscan common shares.

    Major Stake in W. African Gold mines


    Suddenly the wily merchant bank is looking like a gold producer but the market seems unsure how to assimilate this news.  All summer the stock has oscillated around $2.20 as the institutional investors ask themselves: what does a merchant bank know about running a gold mine and can a leopard change its spots?

    From the early evidence, the answers appear to be: quite a bit and yes it can.

    The former Etruscan’s producing Youga mine in Burkina Faso has total reserves of 474,000 oz and is currently producing at an annual rate of 80,000 oz with a life of mine (LOM) of 5 years.

    EDV Cash Flow
     


    Before acquiring Etruscan Endeavour’s analytical team identified Youga as an excellent turnaround story. Currently a program is well under way to improve operations and maximize value for shareholders by reducing costs at the Youga Mine:

     

    • Replace underperforming drill and blast contractor
    • Better grade control
    • Fuel savings from improved operating efficiencies
    • Lower power costs with grid power vs. gensets
    • Solve CIL tank sanding problems
    • Improve inventory and supply of machine parts
    • Higher mill throughputs
    • Upgrade management team
    • Tighter control on requisitions and spending

    Mining Costs

    According to a July 27, 2010 OB Research report, Endeavour “is viewed and priced by the market today as a merchant bank...this view is no longer valid.  We are of the view that the Etruscan assets alone justify most of the current EDV market cap of $220 million.”

    If this research report is correct, and the increased operational efficiencies at Etruscan are not a mirage, then the current valuation of EDV offers the following assets for free:

    • 46.21 million shares of Crew Gold (43.2% of the company) worth about $210 million.
    • The book value of the merchant banking business is worth about $90 million.

    Endeavour Financial Corporation will release its financial results for the year ended June 30, 2010 on Wednesday, September 8, 2010. Endeavour currently has a P/E of less than one - the market always assumes that a leopard can’t change its spots. I guess time will tell.

    Is this merchant bank AND gold producer on your radar screen?

    If not, maybe it should be.

    Richard (Rick) Mills

    rick@aheadoftheherd.com
    www.aheadoftheherd.com

    If you're interested in learning more about specific gold juniors and the junior resource market in general please come and visit us at aheadoftheherd.com.

    Membership is free, no credit card or personal information is asked for.

    ***

    Richard is host of aheadoftheherd.com and invests in the junior resource sector. His articles have been published on over 200 websites, including: Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor and Financial Sense.

    ***

    Legal Notice / Disclaimer

    This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

    Richard Mills does not own shares in any company mentioned in this report.
    No company mentioned in this report is an advertiser on his website aheadoftheherd.com



    Disclosure: no position
    Sep 03 10:17 AM | Link | Comment!
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