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Mining News Review: Week of September 20th

Taseko Mines (AMEX: TGB; TSX: TKO) Taseko Files Preliminary Base Shelf Prospectus - September 20, 2010

Previously we have written about an intelligent options strategy to leverage what is likely to be a significant market reaction in the event of the Prosperity project receiving a positive development decision from the federal cabinet. With this latest news, management continues to communicate to the market that they strongly believe the Prosperity project will be developed, and yet the company still trades at levels arguably too low even if we only consider its producing Gibraltar copper mine. Franco-Nevada has already agreed to play over $350 million for a gold stream on 22% of Prosperity's gold production, subject to full financing of the project and receipt of all material permits to construct and operate the mine. Combined with estimated cash flow from Gibraltar and cash on hand, Taseko estimates that additional financing requirements come in at less than $200 million. This $300 million base shelf prospectus could easily fill that gap. But investors should bear in mind that there is vehement First Nations opposition to the project due to the loss of a lake that has historical significance to local tribes. It appears the First Nations across Canada are increasingly focusing on this one project as an expression of indigenous rights and that creates long-term issues for Prosperity. We do expect a federal decision to be handed down by as early as November, and we maintain that the best way to play the potential of a positive decision is through an intelligent options strategy. [Zurbo]

Gold Resource Corp.
$55.6 Million Private Placement to Accelerate Production Profile and Exploration - September 20, 2010

Our problem with GORO isn’t in understanding their math. Our problem is with believing it. These guys are good at building and commissioning plants, that is what they do and they have done an excellent job in building one of the prettiest plants that I have ever seen. They also have a nice bit of gold right at surface that they can mine by simply scooping it out. Next comes the hard part — underground mining in multiple stopes in a deposit they have only drilled to indicated level and in many places only to inferred level. They are using polygons to estimate in some cases 100 meters or more of mineralization in zones where they plan to be actively stoping within 1-2 years. They are also making very aggressive estimates about continuity at depth and laterally despite indications the deposit is pinching out or at least becoming more variable and discontinuous away from the core.

Other potential problems include the wet climate in this part of Mexico during the rainy season. There are signs of recognition in plant construction such as covered conveyors but you can’t deal with many of the problems until you are actually in production and exposed to the elements.

The big question remains, what will Hochschild be able to do to help them when the underground mining proves to be every bit as difficult and dastardly as it has for every other mining company on Earth? Perhaps they will pull off a miracle and in that case the share price deserves to be $40. More likely they will be just another victim of over-promise and under-deliver except with perhaps one difference being that they have made numerous statements not permitted under SEC rules and thus they are at risk of being fined by SEC and successfully sued by shareholders if things don’t go well.

It is true there are some very high grade shoots in this system and it is also true that during the next few months the operations might look miraculously profitable as they process the stockpiled ore they scooped off the surface prior to commencing commercial production. So there is probably a couple of quarters of partying left before the really hard work begins and in the meantime it is possible they will build up a good stockpile of easy-to-get underground ore as well. The crapshoot starts after that so I suppose there is plenty of time to ride the shares between now and then. That still leaves the question of how much the next year or so of operations has already been baked into the share price. If nothing else, great timing on the equity raise. [Silverax]

Bullion Monarch Mining
Royalty Payment from Third Mine in Carline Trend and Updates to Newmont Litigation - September 20, 2010

Considering that no dollar amount was given for the headlined royalty payment and Bullion Monarch has made no projections for the amount or duration of these royalty payments, the real news here relates to the company’s litigation against Newmont Mining (NYSE: NEM).

We recently introduced Bullion Monarch to our subscribers in a piece entitled Uncle Franco May Be Rich — Good News for the Royalty Juniors. Some of what was said follows below:

[Bullion Monarch's] royalty interest in Newmont Mining’s (NYSE: NEM) Leeville mine is currently generating $5-$6 million per year in revenues, which is enough to pay overhead, advance some early stage exploration projects, slowly move forward its interesting EnShale subsidiary, and buy back a few shares now and then. But this royalty doesn’t appear likely to take the price beyond $1 in the short term without some positive newsletter or broker coverage. What entices us here beyond unlocking value over the longer term is the potential for a substantial windfall payment from Newmont/Barrick if the ongoing litigation leads to a favorable ruling for Bullion Monarch. Such an outcome would mean that a 1% royalty is due retroactively on production since 1991 on a a 250 sq. km area within the Carlin trend containing several major mining operations.

We are now told that the courts have granted summary judgment in favor of Newmont on its defense of laches*. There is no denying that this is a major setback, and it now seems highly unlikely that Newmont will settle the suit rather than risk letting it go to trial. Bullion Monarch is seeking clarification of the extent of the ruling and will seek reconsideration of the ruling while continuing a similar case against Barrick Gold (NYSE: ABX), which means this may drag on for a while yet. Meanwhile there are other royalty companies that we currently find more compelling.

*The person invoking laches is asserting that an opposing party has “slept on its rights,” and that, as a result of this delay, that other party is no longer entitled to its original claim. [Zurbo]

Romarco Minerals
(TSX-V: R; Pink Sheets: RTRAF)
Romarco Intersects Bonanza-Grade Gold In Upper Portions Of Horseshoe - September 20, 2010

Whenever I see drill results like this — 19.2 meters of 46.5 grams per tonne gold — I give myself a mental kick in the butt if I don’t already own the stock. The Haile Gold Project in South Carolina is the real deal — a world-class gold deposit in the making — despite its somewhat unexpected location. It helps that the project is on private land but it doesn’t help that a federal wetlands permit will be required or that a suitable location for tailings disposal has yet to be identified. Overall, we like the project and plan to keep close tabs on it (from the sidelines at this point, unfortunately). [Silverax]

Eagle Hill Exploration
(TSX-V: EAG; Pink Sheets: EHECF)
Eagle Hill Continues to Extend Zone 27 and Intersects 12.0 Meters of 17.36 G/T (Uncut) in a New Mineralized Structure at Windfall - September 20, 2010

There is still no notable continuity to the gold mineralization at the Windfall Lake project despite claims to the contrary based on the idea of wider zones containing lower grades of gold. It was neat thinking but Eagle Hill is basically getting the same haphazard gold distribution that confounded the prior operator. Speaking of which, Noront Resources (TSX-V: NOT; Pink Sheets: NOSOF) spent (more like wasted) $15 million building a 1400 meter exploration ramp to test gold continuity at Windfall Lake and failed spectacularly. That’s when they sold 75% of the project to Eagle Hill for C$1 million in cash plus a 2% NSR. [Silverax]

Silvermex Resources
(TSX-V: SMR; Pink Sheets: SLVXF)
Genco Resources (TSX: GGC; Pink Sheets: GGCRF)
Silvermex Resources Ltd. and Genco Resources Ltd. Enter into Business Combination Agreement & Silvermex Resources Ltd. and Genco Resources Ltd. Enter into Business Combination Agreement - September 20, 2010

The deal terms are somewhat convoluted and partially as a result the shares have been trading upside down as described in our recent post to subscribers. Regardless, this deal makes fundamental sense: combine a company possessing a solid management team but underwhelming projects with a company possessing essentially a non-existent management team but a potentially major gold-silver deposit. Make no mistake, Genco’s La Guitarra project within the Temascaltepec Mining District in the State of Mexico is going to be difficult to develop. There are community and surface right issues. The mining plan will need to be carefully developed and implemented given the multi-phase nature of the operation that will likely include both open pit and underground mining and processing of both oxide and sulfide mineralization. Gammon Gold’s (AMEX: GRS; TSX; GAM) Ocampo Mine is a pretty good example of how things can go wrong with a complex mining operation in Mexico. Bottom line, Genco was desparately in need of credibility and the Silvermex management team has provided it. Although the combined pro forma market cap is not cheap (around C$100 million), competent project development at La Guitarra should reward shareholders more than amply. [Silverax]

Gold Fields
Gold Fields signs option agreement for 60% interest in Philippines Gold-Copper FSE Project - September 20, 2010

Investors in companies with wannabe world-class gold (+/- copper, moly, silver) porphyry deposits please pay attention here. Remember when the company was extolling the virtues of the latest drill results — typically something like 300-500 meters of 0.4 grams per tonne gold and 0.3% copper — and comparing them to successful porphyry mines (if it’s the East Asian Pacific Rim, the benchmark is usually Newmont’s Batu Hijau)? Well, here is what an early stage world-class porphyry deposit looks like, from the Gold Fields news release:

More than 80 diamond drill holes totalling more than 35,000 metres have intersected a mineralised zone with approximate dimensions of 900 metres east-west by 900 metres north-south by 900 metres vertical. Within this zone Gold Fields considers that mineralisation is continuous. While grades are variable, the following historic drill intersections are considered typical of the mineralized zone: 691m at 2.5g/t Au, 0.9% Cu; 906.8m at 1.5g/t Au, 0.5% Cu; 613.1m at 0.8g/t Au, 0.8% Cu; 733.9m at 0.7g/t Au, 0.4% Cu; and 517.4m at 0.6g/t Au, 0.4% Cu.

If your company’s project has something approaching the above, it’s good odds they might have a world-class mine on their hands too. With respect to the Gold Fields deal, we think they are getting a steal by acquiring 60% of the project in staged payments of US$340 million. [Silverax]

Minera IRL
Minera IRL Update on Pan de Azucar Gold Exploration Project, Santa Cruz, Patagonia - September 20, 2010

Last week we decided not to comment on Minera IRL’s press release announcing the discovery of a new gold system at its Escondido project in Patagonia, Santa Cruz Province, Argentina. After some further consideration and analysis, we believe that both last week’s news and the latest announcement — that exploration will shortly commence at the company’s Pan de Azucar project — are significant and warrant our attention. Minera IRL has quite a few things going for it: modest but profitable production of 30,000 oz. gold per annum at its Corihuarmi mine in the high Andes of Peru, a competent exploration team pursuing common sense exploration strategies, prospective land positions in emerging mining districts in Argentina, Peru and Chile, and possibly several important gold discoveries in progress. There are very few shares available for trading on the Toronto exchange due to significant institutional ownership and a triple listing on the Bolsa de Valores in Lima. This tight float could significantly leverage any upcoming discovery news. On the flip side of the same coin, the shares appear to be held in strong hands and that might limit downside risk. In conclusion, this might be a neat little company in which to own a few shares for patient investors who would like combined exposure to current gold production, mine development, ongoing discoveries and early stage exploration. [Silverax]

Barkerville Gold
(TSX-V: BGM; Pink Sheets: BGMZF)
Barkerville Makes New Gold Discovery And Drills 22.6m of 6.93 g/T Gold at Bonanza Ledge - September 20, 2010

We are not talking about big gold deposits here, but as with Minera IRL, a sub-100,000 oz. gold producer with ongoing exploration and development programs seems like an okay way to have gold exposure in a stock portfolio. We’ll call the Barkerville’s and Minera IRL’s — and there are certainly others as well, like Gold-Ore Resources (TSX: GOZ; Pink Sheets: GREXF) — the “GORO-lights” of the world. GORO of course is in reference to Gold Resource Corp (AMEX: GORO). We’ll note that about 8-10 GORO-lights will currently fit into the market cap of GORO and that looks a bit lopsided to us. [Silverax]

Tahoe Resources
(TSX; THO; Pink Sheets: THOEF)
Tahoe Resources Announces New Drilling, Extends Mineralization - September 20, 2010

We wonder how much higher Tahoe’s share price would be if Escobal were not in Guatemala where legislators are currently drafting a new mining law that is expected to implement stricter environmental and local community considerations. Escobal is a true world class silver deposit containing at least two ore shoots that are remarkable for their lateral and vertical extent with a 5-20+ meter vein width of bonanza-grade silver. At a contemplated 3,500 tonnes per day of mining, Escobal could produce 15-20 million ounces of silver per annum over a 10+ year mine life at a low cash cost thanks to the significant gold and base metal credits. Those kind of numbers arguably mean fair value for Tahoe at its current market cap of around C$1 billion especially considering MAG Silver (TSX: MAG; AMEX: MVG) is trading at a similar valuation. Of course MAG’s comparable (in terms of grade, size, and blue sky expansion potential) Juanicipio property is perfectly located and the only risk there is whether and how Fresnillo (LSE: FRES) might again try to take advantage of its junior JV partner. In our view, the worst-case outcome for MAG shareholders would be another buyout offer from Fresnillo, but that would have to be at a much higher share price (Fresnillo made a “take-under” offer of US$4.54 at the height of the 2008 financial crisis). By contrast, the worst-case outcome for Tahoe shareholders is outright rejection of a mine at Escobal by local communities and/or the federal government. It seems to us that such a risk has not been factored into Tahoe’s present share price. [Silverax]

Anfield Nickel
(TSX-V: ANF; Pink Sheets: ANCKF)
Anfield Reports Interim Mineral Resource Estimate for Mayaniquel Nickel Project, Guatemala - Significant Increase over Previous Estimate - September 20, 2010

As if on cue, here comes news from another Guatemalan project. This time it is nickel laterite in the northeastern corner of Guatemala surrounding Lake Izabal. The chance of a new open pit mine being developed at this property under the current circumstances is almost nil. We’d say ditto for Hudbay’s (TSX: HBM; Pink Sheets: HMBFF) Fenix property but they already have a mine construction permit. Thus, the main question for Hudbay is how much local and international opposition would they be able to withstand. The answer is “a lot” judging by the company’s aggressive involvement with other projects that are environmentally controversial. [Silverax]

Minera Andes
Minera Andes Resolves Lawsuit with Hochschild Mining and Will Receive Cash Payments This Year of $5.9m - September 20, 2010

The good news: it looks like Minera Andes will start getting some money back out of the San Jose joint venture this year. The bad news: the terms of the “settlement” seem to simply reflect what one would reasonably expect from a mining joint venture in the first place, so it doesn’t look like Hochschild gave up much of anything. The contrary news: Rob McEwen appears to be jealous-yet-excited by the recent developments over at Andean (TSX: AND; Pink Sheets: ANDPF):

The timing of our resolution could not have been better: the other remarkable development was Goldcorp Inc.’s recent $3.6 Billion bid for the neighboring Cerro Negro project owned by Andean Resources, this property is located approximately 20km away. This massive bid highlights the exploration potential of the region, and of our property.

Yet if the exploration potential is so great, why exactly is the joint venture putting all free cash flow toward the repayment of debt?

Metanor Resources
(TSX-V: MTO; Pink Sheets: MEAOF)
Metanor Updates the Resource Estimate of the Barry Gold Deposit - September 21, 2010

A classic “buy the rumor, sell the news” event. Technically there really wasn’t a rumor so much as an advanced notice by Metanor that a resource estimate would be published during the week of September 15th. That notice was given on August 24th, a day on which Metanor closed at C$0.44 within a few pennies of its 52 week low. Metanor then went on to rally to a high of C$0.71 on September 20th, a rise of over 60 percent in less than one month. But here we are on the 21st of September following the much anticipated resource estimate update and after less than 1 hour of trading the stock has already fallen by over 20% on 5x average daily volume. More generally speaking, Metanor’s suffers from persistent dilution and an inability to achieve meaningful production despite plenty of promises to the contrary.


It has been a long see-saw ride for shareholders. [Zurbo]

Carpathian Gold
(TSX: CPN; Pink Sheets: CPNFF)
Signs Project Financing Mandates for Up to $97 million for the Riacho dos Machados Gold Project
- September 21, 2010

A big step in the right direction towards bringing Riacho does Machados (RDM) into production, but nothing is finalized just yet. According to our valuation model, the RDM project alone justifies a share price greater than $1.

Carpathian also owns 100% of the 4.7 million ounce (after assumed metallurgical recovery of 68%) Rovina Valley gold-copper project in Romania. The road to production at Rovina Valley will not be easy, and at this point it makes sense to heavily discount Rovina due to country risk factors and its significant expected capital cost. But considering the recent drilling success as well as progress being made by European Goldfields (TSX/AIM: EGU; Pink Sheets: EGFDF) and Gabriel Resources (TSX: GBU; Pink Sheets: GBSDF) on their respective development projects in the country, the situation is clearly improving and Carpathian share price arguably has some catching up to do.

We’re admittedly kicking ourselves a bit for not biting on the 30-35 cent prices on offer in August, but perhaps we’ll still get another chance for a low risk entry. We’ll be keeping close tabs on this one. [Zurbo]

Decade Resources
(TSX-V: DEC; Pink Sheets: DECXF)
Mountain Boy Minerals (TSX-V: MTB; Pink Sheets: MBYMF)
Decade Resources Ltd.: 49.2 Grams Per Tonne Gold Over 18.45 Meters Intersected in DDH-UMON-2010-1 & Mountain Boy Minerals Ltd.: 49.2 Grams Per Tonne Gold Over 18.45 Meters Intersected in DDH-UMON-2010-1 - September 21, 2010

No need to sell all your other shares to get on board the Red Cliff train just yet; the headline hole is a 20 meter stepout from the area drilled in 2009 and consists primarily of 0.3 meters of 2,847 grams per tonne gold. In other words, we are still looking at a small deposit with a high grade core that amounts at best to several hundred thousand ounces of gold. Such projects look a lot better to the market when being drilled compared to developed; see Jayden Resources (TSX-V: JDN; Pink Sheets: PNMLF) and its Silver Coin project nearby. [Silverax]

UEX Corporation
(TSX: UEX; Pink Sheets: UEXCF)
UEX Outlines the 58B Deposit and Expands Mineralization at the Kianna Deposit, Including Intercepts of 12.40% eU3O8 Over 3.7 Metres and 1.39% eU3O8 Over 34.3 Metres - September 21, 2010

Slowly but surely Shea Creek in the western Athabasca basin is becoming one of the most significant undeveloped uranium projects in the world. In this part of the basin the unconformity is pretty deep (about 600-800 meters) and so building a mine will be no small feat. If it weren’t so, UEX’s joint venture partner AREVA would probably have lobbied for a construction decision by now. Even then, advancing the project toward production will make more and more sense as the Shea Creek resource exceeds 100 million pounds U3O8 sometime in the near future. We note that currently worldwide there are only 5 major underground hardrock uranium mines in operation or development (one of which, Cigar Lake, has certainly seen its share of catastrophic problems). AREVA did operate the Cuff Lake mine near Shea Creek in the 1980’s and 1990’s and it does operate one of the few remaining underground uranium mines, at Akouta in Niger, but the mining there is relatively shallow at around 250 meters. In any case, it’s hard to believe that a company like UEX can still be down more than 90% from its all-time high achieved during the short-lived uranium boom of 2006-2007, but we suppose this shows how much room there is to the upside if and when the uranium boom returns in the years ahead. We hope to be there (not too far) in advance with companies like UEX firmly planted in our portfolios. [Silverax]

Valley High Ventures
(TSX-V: VHV; Pink Sheets: VHVLF)
Levon Resources (TSX-V: LVN; Pink Sheets: LVNVF)
Valley High Reports Additional Drill Results At Cordero JV Project, Mexico: Pozo De Plata
& Levon Reports Excellent Phase 2 Bulk Tonnage Ag, Au, Zn, Pb Drill Results, Open to Expansion in Two Discovery Zones at Cordero Project, Chihuhua, Mexico - September 21, 2010

The tonnes are starting to add up at Cordero with the completion of phase 2 drilling but there is still a long way to go before this is proven to be a world-class deposit. The Pozo de Plata diatreme represents the most significant discovery so far but continuity of mineralization between drill holes appears limited to tabular, flat-lying zones with vertical and lateral constraints. We are not looking at another Penasquito yet — the large Penasco diatreme hosting most of the tonnage there has remarkably consistent mineralization in all three dimensions for several hundred meters with lower grade mineralization forming a shell around a central higher grade core. We don’t appear to have the same thing at Cordero but the mineralization does appear to be widespread and there seems to be plenty of open space in the favorable geological setting to provide blue sky potential during the phase 3 drilling program, for which both joint venture partners have recently raised a significant amount of money. Speaking of the partners, there are several “interesting” aspects to this joint venture. For one, Valley High is unable to command a similar valuation as Levon despite the two being nearly equal partners in the project and in spite of Valley High having an arguably better project portfolio outside of Cordero. Perhaps the valuation disconnect can be explained by Levon being more promotional and investor savvy. Another thing is that each company writes its own title and tweeks the content of the press releases about Cordero instead of releasing the exact same information as most joint ventures tend to do. This indicates that some internal differences and perhaps even a rivalry exists between the joint venture partners. If so, that would be an additional reason for the joint venture partners to realize value for shareholders sooner than later. [Silverax]

Rockhaven Resources
Rockhaven Resources Ltd. Announces Expansion Of The Klaza Zone And Discovery Of A New Zone At Its Klaza Property - September 21, 2010

Although this is yet “another Yukon gold play”, what seems interesting about the Klaza property is the consistent elevated gold grades from the surface channel sampling program. Perhaps this is due to surface weathering and/or oxidation given that visual core analysis from the summer drill program reveals the mineralization at depth to be primarily base-metal-rich sulfides. Depsite the recent manic run up in the shares, Rockhaven is still relatively cheap but will need substantial assay results from drilling to maintain its momentum. [Silverax]

East Asia Minerals
(TSX-V: EAS; Pink Sheets: EAIAF)
East Asia’s EMD040 Adds to Miwah With 2.22 g/t Gold Over 82 Metres Within 117 Metres of 1.68 g/t Gold, and Bottoms EXD003 in 11.78 g/t Gold Over 3.5 Metres - September 21, 2010

This is the first time a drill hole at Miwah has come back without any gold but that was made up for by several others holes that continue to meaningfully expand the gold system as well as establish internal continuity between the first pass holes. As the program moves away from the central, near surface, disseminated core of the main Miwah zone, we are starting to see some higher grade sections such as the 11.78 g’t over 3.5 meters in hole EMD040. East Asia should eventually discovery several wide zones with similar grades as the drills target the deeper north-south trending structures. That could be a good time to take profits. [Silverax]

Metalline Mining
Metalline Mining Updates Progress on the Sierra Mojada Project - September 22, 2010

It’s never the best of signs when the first paragraph of a company’s press release makes note of a new investor presentation being posted to the website as if that was a major accomplishment. Metalline has never been good at the investor relations aspect of things, and we are still hopeful that the recent change in top managment will remedy the situation. But as in the past, Metalline is still a place where things happen over years rather than months, and that is not investor friendly.

We like the potential of the Sierra Mojada project a lot, but we were extremely disappointed with the irresponsibly dilutive deal struck with Dome Ventures earlier this year. In our opinion, Metalline could have done better for shareholders. Worse still, even after all that dilution we’re not sure the money received from the Dome transaction will be enough to see them through completion of the feasibility study they’ve been promising for years now, as there still remains a significant amount of drilling, mine and plant design and metallurgical work to be done. At some point this may once again become an attractive investment opportunity, but not today folks. [Zurbo]

Rio Tinto
India Diamond Project Is Biggest Global Find in Decade - September 22, 2010

It says something about the lack of major diamond discoveries being made when Rio comes out touting its Bunder project in India as the largest find in the past 10 years, measuring in at a current inferred resource of 27 million carats. After all, consider that the Diavik mine owned by Harry Winston (NYSE: HWD) is expected to produce nearly 8 million carats in 2010 all by itself. We’re not saying this lack of discovery implies diamond prices are about to skyrocket. After all, there is still that pesky problem of supply overhang. But it certainly can’t hurt those in the business of discovering diamonds–like one of our favorites that has the potential to one-up Bunder in size and grade–when the $110 billion Rio Tinto is getting excited about 27 million carats. [Zurbo]

WorldVest, Inc.
Iron Mining Group to Acquire 70% of Chilean Iron Sands Reserve Project - September 22, 2010

We think it’s probably a bit presumptuous for WorldVest to be signing $15 billion iron ore sales contracts. After all, they only expect to begin production at a rate of 200,000 tonnes per month sometime in 2011. That’s not bad, and we wish WorldVest the best of luck, but the following statement which sounds more like it came from a newsletter pump and dump than a company news release sends chills up our back:

IMG believes that by acquiring new mining properties, coupled with the existing CIM reserves and the development of increased port capacity, the Company can ultimately grow its annual iron ore production and export capacity in excess 25,000,000 metric tons. Such production has the potential to push annual revenues toward $3.5 billion based on today’s CIF iron ore prices and make IMG a major player in the global iron ore marketplace.

The company appears to have about 100 million shares outstanding adjusted for the recent deal with Chile Inversiones de Minerales (NYSE:CIM), which makes for a market cap of over $200 million. Yikes! Could someone please let investors in WorldVest known about Cardero Resource Corp. (AMEX: CDY) which has already sold one of their iron ore projects to the Chinese for $100 million, is trading below the value of its cash and investments, and still retains its most promising Iron Sands project in Peru. More for subscribers. [Zurbo]

Sacre-Coeur Minerals
Executes Agreement for its Acquisition by Severstal - September 22, 2010

Having recently bullied its way into control of Crew Gold, Severstal is now moving aggressively into South America with its acquisition of Sacre-Coeur. Will the buying spree continue, and who are some likely targets? Input welcomed. [Zurbo]

Golden Hope Mines
(TSX-V: GNH; Pink Sheets: GOLHF)
Intersects 34m at 3.68 Au g/t and Significantly Expands the Mineralized Structures at Bellechasse-Timmins - September 22, 2010

Hopes were dashed when the best result Golden Hope could pull out of its long overdue assays was 34 meters of 3.68 g/t gold. Sounds decent except for the fact that 82% of the gold lies within a 1 meter intercept grading 103 g/t. Whoops, now that’s a different story altogether. Someone must have been pumping this one given the run up in price from around C$0.50 to C$0.98 in a few short weeks. Now it’s time to pay the piper.

Click here for more information on “grade smearing”, a key concept to learn for anyone investing in junior exploration stocks. [Zurbo]

Strategic Metals
(TSX-V: SMD; Pink Sheets: SMDZF)
$15 Million Private Placement - September 22, 2010

Personally we think the more “strategic” way to raise funds would be to sell a few million shares of ATAC Resources (TSX-V: ATC). Strategic owns 9.8 million shares of ATAC at a cost basis of just $3.4 million–now worth over $64 million. In the words Bernard Baruch, “Nobody ever lost money taking a profit”. Hey Strategic, time to pat yourself on the back for a job well done rather than adding to the share count and enriching the banks while your share price still barely gives any value to the company beyond its cash and investments. After all, what’s the good of the project generator model if you’re afraid to realize some profits on a very big winner. [Zurbo]

Strait Gold
(TSX-V: SRD; Pink Sheets: SAIDF)
Strait Gold samples 9.27% copper, 0.83g/t gold over 4.0 metres at Alicia Project - September 22, 2010

This thing has a tiny market cap of under $5 million and a tiny amount of cash (under $500,000) to explore the Alicia Project, a copper skarn deposit in the Cusco department of Peru. Although located near a cluster of world-class copper porphyry-skarn projects headlined by Xstrata’s (SWX: XTAN) Las Bambas deposit, the target at Alicia is just the skarn due to the porphyry stock being only weakly mineralized. Still, the Alicia skarns may turn out to have decent value as suggested by historical trenching across decent widths (up to 50 meters) at significant copper grades (typically 2-5%). Drilling will need to establish that the skarns extend to depth, and if so, whether they contain oxides or sulfides and at what grade (surface sampling could reflect copper enrichment associated with oxidation and weathering). We suspect the skarns will extend to depth given the widespread presence of skarn exposure at the periphery of the outcropping porphyry. Moreover, the porphyry appears to extend under the limestone country rock at a shallow dip in many places, indicating that the intrusive body may expand at depth like an iceberg does under water. If so, drilling should be relatively straighfoward. Ideally, the outcropping skarn will represent the upper portion of a system that has not eroded to any significant extent. In any case, there isn’t likely to be much happening to get the market excited before the commencement of a drill program. [Silverax]

Globex Mining
(TSX: GMX; Pink Sheets: GLBXF)
Test Work on Refractory Gold Ore Highly Successful - September 22, 2010

If the “Eco Refractory” process does indeed work and can be applied efficiently and effectively to many different and complex mineral assemblages that are refractory, there could be a significant new gold rush into gold projects that are either currently dormant or are not being moved forward due to the cost or complexity of constructing processing plants that can treat refractory ores. We’ll keep close tabs on the Globex process — we suspect final development is still months if not years away — as well as projects that may benefit from it. [Silverax]

East Asia Minerals
(TSX-V: EAS; Pink Sheets: EAIAF)
East Asia Minerals Announces Initial Gold Resource Estimate for Sangihe - September 22, 2010

The initial gold resource at Sangihe has been long in the making, originally promised for summer of 2009. The 1 million ounces of gold and 20 million ounces of silver are pretty much what everybody was expecting. Taking the project to the next stage will require even more extensive drilling in order to define 3 million ounces of gold equivalent. Expanding the deposit to such a significant size appears entirely possible based on the ubiquitous nature of the near-surface mineralization on this property. Yes, releasing the resource estimate now may have been anticlimactic, but one would hope it will be followed up with another round of aggressive exploratory drilling soon. And although we like what East Asia has so far accomplished here and at Miwah, we’ll lay another bit of mild criticism at the feet of management by pointing out that neither the Sangihe press release nor the property section of the website has clearly disclosed the protected forest status of the company’s projects despite the recent media knock (unfairly to a large extent) at East Asia for being somewhat cagey about the subject. The shares clearly continue to be pressured by uncertainty and perceived risk surrounding the forestry issue and as a result the company would do well to proactively define it instead of letting the market define it for them. [Silverax]

Arian Silver
(TSX-V: AGQ; Pink Sheets: ASLRF)
Arian Silver Commences Silver Production - September 22, 2010

This is an interesting strategy: contract mining at 500 tons per day with custom milling at 400 tons per day in order to generate monthly revenue of approximately US$1 million with an apparent mining cost of approximately US$500,000 to US$600,000 per month. We’re not sure if this will work or be worth the trouble when the “hidden” costs start getting added but we’re fairly certain it does not deserve the excitement and consequent rise in share price since the announcement. [Silverax]

Metanor Resources
(TSX-V: MTO; Pink Sheets: MEAOF)
Drilling Campaign of 25,000 Meters
- September 23, 2010

This was supposed to reassure investors? Metanor made a big mistake. They over-promoted upcoming results and those results did not end live up to expectations. Now it’s probably too late to bandage over the damage done, even when the bandage is an impressive-sounding  25,000m drill program. Either this drilling should have taken place already to prove up a more substantial initial resource at Barry in the first place, or else expectations should have been brought in line with reality. [Zurbo]

I note that the biggest component of the increase in resources at the Barry Pit came from a reduction in grade. The reason this is not positive is that Metanor’s processing plant at Bachelor Lake is not high capacity and it probably doesn’t make sense to run 1-2 gram per tonne material through it. [Silverax]

East Asia Minerals
(TSX-V: EAS; Pink Sheets: EAIAF)
East Asia Minerals Advances Miwah’s Block M Towards Moon River With 149.7 Metres of 1.05 g/t Gold - September 23, 2010

The grade and length of hole EMD-043B continues to suggest that the gold system at Miwah may consist of several flat-lying layers persisting for significant distances, possibly stacked with the same layered sequence outcropping over an area of 2 kilometers by 2 kilometers.  This suggests the presence of a very strong hydrothermal system with a strong possibility that multiple high grade feeders exist somewhere in the vicinity. We continue to expect that East Asia will stumble across one or more of these high grade zones as it systematically steps out its drilling with the result being fireworks for the share price. [Silverax]

North Country Gold
North Country Gold Corp. Final 2010 Drill Results; High-Grade Intercepts of 12.51 g/t Au over 19.41 m and 7.84 g/t over 10.00 m - September 23, 2010

The summer drill program at Three Bluffs has ended on a downer since merely solid results are not enough to captivate this market. It is hard to determine how far along the company has progressed this summer toward its goal of increasing the gold resource at Three Bluffs to 1.5 million ounces but our guess would be that a revised NI43-101 will come in around 1.0 million ounces (including inferred resources). That’s not shabby and certainly well ahead of Kaminak’s (TSX-V: KAM; Pink Sheets: KMKGF) progress at the Coffee project in the Yukon but it is also not something that will imminently capture the market’s imagination. Given the share price differential and similar project profile, we prefer North Country Gold over Kaminak for long-term exposure to gold exploration although we are going to take our time should we decide to establish a position. The boredom that is likely to infect NCG shareholders during the long Nunavut winter should give us plenty of opportunity to accumulate shares although the release of the revised NI43-101 resource as well as promotion surrounding a financing could create some renewed interest in the shares before the next drill program commences in the spring. [Silverax]

Vale S.A.
Sagging Steel Demand Spells Trouble - September 23, 2010

Steel demand may not actually be sagging that much as this other article points out but nonetheless there does appear to be a weak patch directly ahead. Longer term we expect iron ore and steel to be positive and perhaps even among the better performers in the mining and metals sector. So while Vale might be a profitable short in the next several months, it’s probably a buy-and-hold for the next several years. In addition, the recent unsolicited buyout offer for Baffinland Iron Mines (TSX: BIM; Pink Sheets: BIMGF) suggests that juniors active in iron projects may increasingly become prime acquisition targets. Companies for futher research include Labrador Iron Mines (TSX: LIM; Pink Sheets: LBRMF). [Silverax]

Caerus Resources
(TSX-V: CA; Pink Sheets: CAEUF)
Caerus Resource Sets The Record Straight On Buritica Gold Project - September 23, 2010

This is excitement of the wrong variety and has deflated the near-term prospects of the Antioquia property in proximity to Continental Gold’s (TSX: CNL) Buritica project where recent drill results (which we anticipated months ago) were smoking hot. We don’t believe Caerus breached confidentiality but it appears there may have been something questionable, unethical or perhaps a contract law violation going on. It’s risky enough speculating on the outcome of exploration without also having to speculate on the outcome of litigation. Cheap as it is, we are inclined to avoid Caerus for now. [Silverax]

Dorato Resources
(TSX-V: DRI; Pink Sheets: DRIFF)
Dorato Receives Highly Positive Lucero Results from Cordillera del Condor, NW Peru - September 23, 2010

Although we don’t always do so, this time we are inclined to agree with Otto of Inka Kola News that local community relations and environmental considerations likely pose too great a risk in the case of Dorato and its exploration in the Cordillera del Condor region of northern Peru. Yes, the case being made by the indigenous population is over-reaching but the enthusiastic opposition is quite impressive. Generally speaking, we prefer to speculate in areas where the local opposition to mining doesn’t involve kidnapping and property destruction. After all, how would it play out on Bay and Howe Streets if the mining analysts on a Dorato property tour came back with spear and arrow wounds? [Silverax]

Midland Exploration
(TSX-V: MD; Pink Sheets: MIDLF)
Exploration Mildand and JOGMEC discovers two new rare earth bearing mineralized systems on the Ytterby Project, south of Strange Lake, Quebec. - September 23, 2010

It isn’t the rare earth project in particular that makes Midland interesting but rather the prospect generator model along with the number of quality joint venture partners (Angico-Eagle, Goldcorp, SOQUEM, Osisko) working on early- to mid-stage exploration projects throughout Quebec. There should be little doubt that a major discovery will be eventually made by a Midland JV given the prospective areas being explored. This is a stock you buy and put away in the sock drawer although it would be nice to get it at a lower price just in case the recent runup is a temporary phenomenon. [Silverax]

Halo Resources
(TSX-V: HLO; Pink Sheets: HLOSD.PK)
Halo Extends Cold-Lost Mineralized Trend - September 23, 2010

Halo is exploring the Sherridon volcanogenic massive sulfide (VMS) field in western Manitoba with a portion of the property already under joint venture with Hudbay Minerals (TSX: HBM; Pink Sheets: HBMFF). VMS deposits tend to occur in clusters and it looks like that is what they have here. A short while ago it appeared that Hudbay’s Flin Flon smelter might be a perfect match for the base metal concentrates that would be produced from a mining operation at Sherridon but the closure of the smelter this past summer removes some strategic value from the play. The project is still prospective, as is the West Red Lake property optioned from Goldcorp, but we will watch from the sidelines while the company completes its reverse split and readies itself for follow-up exploration programs. [Silverax]

Crowflight Minerals
(TSX: CML; Pink Sheets: CMLGF)
Private Placement Financing Announced - September 23, 2010

Things don’t look good for Crowflight. As Silverax recently remarked in our Editorial Forum:

At this pace Jinchuan and Kings Place will be fighting over the carcass of the crow, with perhaps Xstrata also buzzing overhead. This thing is trading like it is going into receivership.

This past April Jinchuan made an offer to buy the company for C$150 million, or about C$0.22 per share. But Jinchuan has since been dragging its feet, and meanwhile Crowflight has been forced into desperation financing. As a result the shares have taken a beating as the company’s future becomes more uncertain. [Zurbo]

Skyline Gold
(TSX-V: SK; Pink Sheets: SYGCF)
Skyline Gold Announces Positive Preliminary Assessment Report Update for Bronson Slope Gold-Copper-Silver-Magnetite Deposit - September 23, 2010

The addition of magnetite to the resource model seems to make a major difference but it is the rising gold price that has the Bronson Slope project starting to look like a potential mine. We’re not sure how well-thought-out it is to bolt a magnetite recovery process onto a gold-copper project — novel approaches typically don’t get assigned a decent value by the market until proven a success in actual operation. Barrick proposed a magnetite processing plant at its Osborne Mine in Australia a couple of years ago but in the end they opted instead to sell the project to Ivanhoe Australia for about AUD$50 million. Skyline is probably not a buyout candidate given the modest annual production profile and resource base but with the addition of a few competent minebuilders a company like this has a reasonably good shot of going it alone and eventually becoming a profitable junior producer. On the other hand, gold play aggregators like Dundee Precious Metals (TSX: DPM; Pink Sheets: DPMLF) or Endeavour Mining (TSX: EDV; Pink Sheets: EDVMF) could certainly take interest in a cheaply-priced development story like Skyline. Speaking of development, an important piece would fall into place with the construction of the Northwest Transmission Line along Highway 37 (though the project has other options for power). [Silverax]

Millrock Resources
(TSX-V: MRO; Pink Sheets: MLRKF)
Millrock Samples 9.1 Grams Per Tonne Gold Over 27.4 Meters At Estelle Project, Alaska - September 23, 2010

The Estelle project is interesting given the number of significant gold discoveries that have been made recently in the Pacific Northwest on the basis of soil or outcrop sampling. There isn’t much to go on so far at Estelle, where Millrock is the operator pursuant to an earn-in being funded by Teck Resources (NYSE: TCK; TSX: TCK-B,) but the progress warrants our attention. Millrock is another prospect generator like Midland Exploration (TSX-V: MD; Pink Sheets: MIDLF) and Kaminak (TSX-V: KAM; Pink Sheets: KMKGF). In addition to a joint venture with Kinross (NYSE: KGC; TSX: K), Millrock has a project with Valdez Gold (TSX-V: VAZ; Pink Sheets: VLDZF) at the Bluff property near Nome in Alaska. Valdez Gold has been halted since September 21 pending review of a news release announcing exploration results, but since Millrock is the operator for this program, the halt is unlikely to be related to the Bluff project. That leaves the Flume property in the White Gold District of the Yukon joint ventured with Valley High Ventures (TSX-V: VHV; Pink Sheets: VHVLF). [Silverax]

Anglo Pacific Group
(TSX: APY; ASX: AGP; Pink Sheets: AGPIF)
Agreement to Acquire Brazilian Iron Ore Production Royalty - September 23, 2010

Although not primarily a precious metals royalty company, Anglo Pacific has recently popped up on our radar as an active royalty aggregator and we will be adding the company to our royalty model shortly. The summary results of this model are available to Metal Augmentor subscribers in the form of a periodic report that includes comparative peer valuations and leverage to changes in metal prices. The royalty model and data are also available to institutional clients for whom we can construct detailed scenarios and provide in-depth analysis to assist with their investment and business decision-making. [Silverax]

ECU Silver
(TSX: ECU; Pink Sheets: ECUXF)
ECU Silver Receives Favourable Ruling in Arbitration Hearing - September 23, 2010

It’s probably worthwhile hearing how the opposing party (Golden Tag Resources — TSX-V: GOG; Pink Sheets: GTAGF) views the court ruling before concluding that ECU Silver has emerged untarnished and victorious from what is admittedly a distraction and nuisance in the grand scheme of things but might still be a good guide for understanding how ECU management operates. Among other things, the fact that ECU was removed as operator of the joint venture does not paint a pretty picture. Until these guys start operating and acting seriously, ECU doesn’t look like a serious company even despite (or is it in spite of?) the sweet promises of a billion ounces of silver*.

*”Silver” is defined by ECU as gold and silver along with a heap of base metals thrown in for good measure — in other words, ECU Silver should rather rename itself “ECU Silver Equivalent Mining Inc.”. [Silverax]

(TSX-V: XAG; Pink Sheets: XRESF)
Xtierra Reports on Drilling at Bilbao - September 24, 2010

The Bilbao project represents an interesting segment of the junior resource world: modest to moderate size deposits without a lot of exciting features to captivate investors but enough going for them to eventually become a small-scale mine assuming metal prices can hold up longer term. We are just now starting to see quite a few small gold deposits being developed given the potential profits that can be generated even from small operations at sustained $1,000 plus gold prices. Base metal (with silver by-product) deposits like Bilbao are a bit more complicated than the average small gold deposit and arguably require a more serious and competent management team than is usual in order for them to be successfully developed; Xtierra would arguably fit that bill. It will be some time yet, however, before these types of projects and companies deserve close attention from investors. We will be prepared should that time eventually come by keeping companies like Xtierra warm on the back burner. [Silverax]

(TSX-V: SOL; Pink Sheets: SLTOF)
Soltoro step-out drilling returns 259.7 metres of 50 gpt silver including 87.5 metres of 72 gpt silver at the El Rayo Primary Silver Project in Mexico - September 24, 2010

Thanks to the excellent cross-sections provided by the company, it is obvious that the Las Bolas deposit on the El Rayo property was extended both toward surface in the northwestern portion of the system and also along the NE-SW rhyolite-andesite (fault?) contact at depth. This has likely added relevant tonnage to the ~25 million ounces of silver currently defined in the indicated and inferred resource categories (at a 40 gram per tonne silver cut-off). That said, the deposit at Las Bolas appears to us to have limited expansion potential near surface and instead the most prospective target consists of the higher grade, well-defined zone of silver concentrated along the northwest dipping fault contact. Underground mining could end up being a more appropriate approach for exploiting the higher grade zone rather than open pit. In any case, more work is needed to expand the mineralization either along the fault contact or in near-surface areas in order to make a compelling case for developing a mine at El Rayo, but a rising silver price could potentially make the project worthwhile as it stands (see above Xtierra comment about modest-sized mines), in which case the currnet share price would be pretty cheap. [Silverax]

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.