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Metal Augmentor is an investment research and consulting service focused primarily on the commodities markets.
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  • Mining News Review: Week of November 8th 0 comments
    Dec 6, 2010 8:06 AM | about stocks: SCPZF, ARMZF, PAAS, SLW, PPP, PTQMF, USSIF, FURAF
    The Metal Augmentor's weekly Mining News Review is updated daily at www.metalaugmentor.com/eforum

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

    China to Spend $4.48 Billion on Domestic Mining Exploration – November 8, 2010

    In the context of spending hundreds of billions on infrastructure this hardly seems market moving in significance. And without additional context, e.g. data for spending in prior years, this is largely meaningless. [Zurbo]

    China’s Nuclear Power Capacity May Double by 2020 – November 8, 2010

    If true this is quite significant considering an incremental 40-80 GW represents a roughly 10-20% global increase in nuclear capacity. If my math is right, this represents an incremental increase in annual demand of about 16-32 million pounds — global annual mine supply is estimated at around 67,000 tons or 134 million pounds. [Zurbo]

    China Set to Control Moly Production – November 8, 2010

    I think the important thing to keep in mind here is that according to another article on the subject the Ministry of Commerce said on October 28, 2010 that they would set net year’s export quota at 25,500 tons, unchanged from this year. [Zurbo]

    USCorp (OTCBB: USCS)
    Additional Details of Proposed US$125 Million Joint Venture
    – November 9, 2010

    I smell scam. [Zurbo]

    Sprott Resource Corp. (OTCPK:SCPZF)
    Sprott Resource Corp. Agrees to Acquire Stake in Private Uranium Company – November 9, 2010

    Virginia Energy Resources’ (TSXV:VAE) Coles Hill uranium project looks interesting, but it is hard to ignore that it is in Virginia. We will have to look closer to see if there is a clear path forward that doesn’t involve a significant amount of permitting risk, but for now this new investment holding represents a relatively insignificant amount of Sprott’s total portfolio of assets.

    Sprott currently trades at about C$4.40 per share, whereas our calculated fair value is closer to C$4.90 based solely on the current value of its cash, bullion, and investment holdings. That isn’t nearly enough to get us excited, except that there a potentially lucrative speculative opportunity approaching in the publicly traded warrants. We have a strategy in mind, but the warrants haven’t reached our price point yet. If they do, we’ll make sure to notify our subscribers before entering into the trade ourselves. [Zurbo]

    Aura Minerals (OTCPK:ARMZF)
    Aura Announced Q3 2010 Financial and Operating Results – November 9, 2010

    Ouch, an average cash cost of $1,121 per ounce gold! Clearly there was a reason why Yamana (NYSE: AUY; TSX: YRI) sold these assets. We could see a lot more red tomorrow. Even if cash costs can be significantly improved, our model indicates that at its current $900 million valuation future upside for Aura predominantly relies upon the successful development of its large copper and iron ore Arapiraca project in Brazil. [Zurbo]

    Minefinders (MFN)
    Minefinders Announces Q3 2010 Results and Updates 2010 Production Guidance – November 8, 2010

    More dissapointing quarterly results from Minefinders, complete with a further downward revision of production estimates. What else is new?


    Calling all long-time shareholders. Perhaps it is time to swap horses?

    Silver Wheaton (NYSE:SLW)
    Record Quarterly Earnings – November 8, 2010

    This would be impressive if the stock weren’t already over $30 per share. In our opinion, the current P/E ratio of about 40 is far too expensive for a company that ought to more or less follow the silver price given the structure of its silver streams. [Zurbo]

    Brigus Gold (BRD)
    Sandstorm Resources
    Brigus Gold To Eliminate 100% of Gold Hedge Commitments; Sells Gold Stream for US$56.3M
    – November 9, 2010

    Having run the numbers, it looks to us like Sandstorm paid about full value for this gold stream. In other words, not particularly accretive to Sandstorm. For Brigus the transaction makes a bit more sense considering their high debt and hedge obligations that they are trying hard to repay. The beauty of a company like Sandstorm is that they seem to have found a way to pay 0% income tax by incorporating a subsidiary in Barbados, which means they can effectively overpay (from the seller’s perspective) for royalty streams and still do quite well. As we’ve pointed out in the past, Silver Wheaton employs the same clever strategy. But investors seem to forgot, or are at least heavily discounting the risk that this tax-free existence may one day come to an end. Not only would such an event knock off about 30% from these companies’ current valuation, but perhaps more importantly it would probably make it significantly more difficult to acquire accretive royalty streams going forward. We’ll say more about this in our upcoming report on mining royalty companies. [Zurbo]

    Petaquilla Minerals (OTCPK:PTQMF)
    Petaquilla Reaches Annual Production Rate of 100,000 Ounces and Increases Working Capital
    – November 10, 2010

    Couldn’t have said it worse myself:

    Within the past ten days, the Company produced in excess of 100,000 annual ounces of gold by pouring 2,762 ounces of gold. This equates to a monthly gold production rate of 8,562 ounces and an annual production rate of 102,744 ounces.

    At least the headline avoids being as deceptive. We’re also pretty sure it is a big no-no to be projecting out working capital balances:

    Based on today’s production rate and gold at US$1,300 per ounce, the Company projects to increment its working capital by US$10 million from production by December 31st.

    There are plenty of other reasons not to like Petaquilla Minerals. If you’re long, good luck. [Zurbo]

    U.S. Silver (OTC:USSIF)
    U.S. Silver Announces Hedging Transaction
    – November 10, 2010

    Could this be the beginning of a new trend towards protective hedging, at least among the smaller and higher cost producers? Given the size of the silver market, enough of these types of transactions could eventually have a meaningful impact on prices. [Zurbo]

    First Uranium (OTC:FURAF)
    First Uranium Stock Price Hops 74%
    – November 9, 2010

    Despite the name, First Uranium is primarily a gold producer (uranium is a by-product) with plans to expand annual gold production from the current 45,000 ounces to nearly 400,000 ounces in 3-4 years time. Plans to are the key words  here as First Uranium has a long history of over-promising and under-delivering. For example, this recent article explains that earlier this year First Uranium raised C$150 million in convertible debentures and that this recapitalization program was partially funded by Johannesburg-listed Simmer & Jack Mines, which holds a roughly 40% interest in the company. About a month before this financing was completed, both First Uranium’s CEO and Chairman, Gordon Miller and Nigel Brunette, stepped down after something of a shareholder revolt. A few months earlier in December 2009, the same Gordon Miller and Nigel Brunette stepped down from their positions as CEO and Chairman of Simmers & Jack Mines. Apparently Brunette went back to farming? Meanwhile Deon van der Mescht stepped down from his role as CEO of Simmers and Jack to become interim CEO of First Uranium. What a mess!

    Quoting from the article:

    First Uranium, which operates the behind-schedule uranium and gold producing MWS retreatment entity, and also the refurbished Ezulwini mine, both in South Africa, saw its stock smashed up over a period of years, following successive cuts in forecast production…First Uranium has several times slashed forecast production since April 2008, when for 2011 it anticipated production of 1.9m pounds of uranium, and 507,000 ounces of gold…It seems that gold production for 2011 could now be in the order of 152,000 ounces. [emphasis ours]

    With that kind of past, what reason do we have to believe First Uranium’s revised and equally aggressive production expectations? That said, it is definitely one worth keeping an eye on considering that fair value according to our model is in the range of $3-$4 per share assuming current expectations are met.  [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.

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