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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]
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 (NYSE:EXK)
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 (NYSEMKT: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]
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)
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.