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Mining News Review: Week of December 20th

|Includes:AMHPF, Baja Mining Corp. (BAJFF), EXK, FNV, GLWGF, MGN, TRX

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Cream Minerals (TSX-V: CMA; Pink Sheets: CRMXF)
Endeavour Silver (AMEX: EXK; TSX: EDR)

With all this cash it now seems unlikely that Cream is going to accept Endeavour’s latest attempt to get a piece of Nuevo Milenio through a joint venture agreement. Indeed, we find Endeavour’s latest proposal to be much less attractive for Cream Shareholders compared with the all-share offer which itself has already been rejected. Looking back Endeavour probably shouldn’t have been so greedy early on, but then again it wasn’t as if Endeavour could have known that silver was about to rise 50% between October 2010 and the end of the year when making their initial offer. [Zurbo]

Amazon Mining (TSX-V: AMZ; Pink Sheets: AMHPF)
Secretary of Finance Assents Special Tax Treatment for Cerrado Verde Potash Project – December 22, 2010

More great news for Amazon. The only things we have to be upset about is not buying even more shares when it was flirting with C$1.00 in the summer of 2010.

What a beautiful chart! [Zurbo]

Franco-Nevada (TSX: FNV; Pink Sheets: FNNVF)
Gold Wheaton (TSX: GLW; Pink Sheets: GLWGF)
Merged Gold Miners to Address Warrant Issue – December 22, 2010

The possibility that Franco-Nevada might sweeten the pot for Gold Wheaton warrant holders is interesting, and we will factor in for this potentiality in our upcoming Top 10 Warrants report for subscribers of Metal Augmentor. For now here’s an explanation of how to convert the $10 strike Gold Wheaton warrant (something which has led to plenty of confusion among warrant holders):

One way to look at this situation is to determine the number of warrants that will need to be exercised to receive 1 share of Franco-Nevada. To find this first divide the current 1:1 warrant conversion ratio (i.e. you need 1 Gold Wheaton warrant to receive 1 Gold Wheaton share upon exercise) by the 0.0934 takeover ratio (i.e. number of Franco-Nevada shares received per share of Gold Wheaton held) to arrive at a new warrant conversion ratio of about 10.7 to 1 (i.e you’ll need to exercise 10.7 Gold Wheaton warrants to receive one share of Franco-Nevada). Using this 10.7 warrant conversion ratio we can determine that the Franco-equivalent strike price is $84.80 (i.e. difference between the original $10 strike minus $2.08 cash portion of takeover offer multiplied by the 10.7 warrant conversion ratio).

To sum things up, here are the new Franco-Equivalent warrant parameters:

  • Strike: $84.80 (adjusted downwards for cash portion of takeover offer that would be received upon exercising the warrant)
  • Warrant Price: $0.28
  • Warrant Conversion Ratio: 10.7 to 1

And here’s a chart of how the Gold Wheaton warrants have performed over the past few months:

Interestingly Franco-Nevada currently has 2 warrants of its own, one of which does not expire until June 16, 2017 with an exercise price of $75 (not far from the converted Gold Wheaton warrant). We’ll have more to say in our upcoming Top 10 Warrants report.

Tanzanian Royalty(AMEX: TRE; TSX: TNX)
Tanzanian Royalty and Stamico Join Forces to Develop Advanced Stage Buckreef Mine Project
– December 21, 2010

This is all fine and well, but we’re talking about a relatively small project with a 30 month development timeline for a company valued at nearly $700 million. It’s not enough to get us interested. [Zurbo]

Mines Management (AMEX: MGN; TSX: MGT)
Positive Preliminary Economic Assessment Completed for the Montanore Silver-Copper Project
– December 22, 2010

Plugging the results of the PEA into our valuation model gives us a base case value using current metal prices of about $20 per share. So clearly there is plenty of upside in store for shareholders if Montanore can be brought into production. [Zurbo]

Baja Mining (TSX: BAJ; Pink Sheets: BAJFF)
Baja Closes Copper Hedging for Boleo Project
– December 20, 2010

Generally we’re impressed that Baja is now full funded and moving forward with Boleo. Using current metal prices and accounting for the hedge our model generates a base case valuation target of about $3.40 per share. With that said, Boleo is going to be a relatively complex mining operation so there’s no reason to expect the company to trade at its valuation target with so much left to prove. [Zurbo]

Disclaimer:  We may 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.