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Mining News Review: Week of November 15th

|Includes: DNN, International Minerals Corp. (IMZLF), IPMLF, NEM, NGD, SSRI, SXRZF, TLTHF, UXG, VENGF, WWR
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International Minerals Corp. (OTC:IMZLF)
International Minerals Signs Agreements with Chinese Company for Financing and Construction of Rio Blanco and Gaby Gold Projects in Ecuador
– November 15, 2010

We wrote briefly about International Minerals a few weeks ago in our Mining News Review. Although fundamentally undervalued, its growth profile relies on higher risk development projects, primarily located in Ecuador. No doubt this financing agreement is a step in the right direction, but by no means does it guarantee the smooth and successful development of the Rio Blanco and Gaby projects. If you want to speculate on gold producers in Ecuador, we believe that for the time being there is a better opportunity and its name will be familiar to subscribers. [Zurbo]

Imperial Metals (OTCPK:IPMLF)
Imperial Report Results of the Red Chris Feasibility Study Update
– November 16, 2010

This feasibility update demonstrates that mines aren’t born in a day given that it represents only a minor change to operating parameters originally envisioned in 2005. Moreover, the mind-boggling deeper drilling results apparently are having no impact on the mine plan at this point despite such results being among the best gold-copper grades ever drilled anywhere. Then there is the question of the Northwest Transmission Line and when it will be built — mine development is dependent on it, which explains in part the apparent lack of hurry by Imperial. Based on the feasibility study, the company does not appear to be particularly undervalued although if the deeper mineralization is incorporated in a future mine plan, the shares would likely deserve a re-rating. Those interested in a position now should find out how the deeper mineralization fits into the puzzle because that is where most of the upside resides. [Silverax]

Fronteer Gold (FRG)
Fronteer Intersects 12.30 g/t Gold Over 50.4 Metres at Long Canyon Gold Project, Nevada – November 15, 2010

Although located in a corner of the currently-defined deposit, these holes should make it clear to all doubters that Long Canyon will be a gold mine. Now that Fronteer has consolidated 100% ownership by acquiring the joint venture interest of partner Au-Ex Ventures, it will be full steam ahead toward development. We wouldn’t be too surprised if this turns into a bigger fish (Barrick?) eating a big fish (Fronteer) eating a little fish (Au-Ex). We are thinking about finally taking a position on a significant pullback. [Silverax]

Collegiate Appeals Court Rules in Favour of New Gold in Relation to Cerro San Pedro Environmental Impact Statement – November 15, 2010

This is not the final say but things are again going in New Gold’s favor on the legal front at Cerro San Pedro. Our suspicion remains that future legal developments could have a negative, if temporary, impact on the share price and our preference would be for the company to simply sell the mine. On the other hand, ongoing development at New Afton and potential progress at the El Morro joint venture with Goldcorp are more than enough to offset future problems at Cerro San Pedro. All in all, New Gold remains one of the more solid mid-tier gold producers that trades at a decent valuation. And they have long-dated warrants to boot. [Silverax]

Medusa Mining (ASX/LSE: MML; TSX: MLL)
Medusa Mining Limited: New Co-O Plant to Increase Production Capacity – November 16, 2010

The share price has done very well since we featured the company about a month ago in a comparative analysis in which we assumed a 25 year mine life but no expansion in production. With this latest news that Medusa plans to double production, the company’s valuation will obviously look even better. Indeed, using the same scenario “B” assumptions as in that analysis and factoring in for the doubling of production, Medusa’s target valuation rises to about $9 per share, which represents decent relative value in this market. [Silverax]

Uranium One (OTC:SXRZF)
Uranium One Announces Record Sales of 1.7 Million Pounds and Lower Cash Costs – November 15, 2010

Buried in the earnings release is a note that may not seem very material to Uranium One but is of relevance to a number of small uranium developers with ISR (in situ recovery) uranium recovery projects in the U.S. Namely, Uranium One announced that its Moore Ranch ISR project in Wyoming has been approved by the U.S. Nuclear Regulatory Commission. This is the first such approval in about 13 years and brings hope to a number of uranium developers in states such as Wyoming, Utah, New Mexico and Texas that projects meeting environmental and regulatory guidelines can in fact be successfully navigated through the opaque red tape. Uranium One itself appears to be an interesting uranium producer that is potentially undervalued but exposure to Kazakhstan and a complex ongoing transaction require some careful analysis before jumping on board. The pro forma capitalization of the company after the transaction will be about 1 billion shares and net debt of approx. $150 million. At the moment the company is struggling to make a profit even with its low cost of operations, but a rising uranium price combined with increasing production (10.5 million lbs in 2010, growing to 15-20 million lbs over the next 5-10 years) are expected to greatly improve the bottom line. [Silverax]

Talison Lithium (OTC:TLTHF)
Talison Lithium Reports Financial Results for the 2011 First Quarter Ended September 30, 2010 – November 15, 2010

This past quarter the company produced roughly 12,000 tonnes of lithium carbonate equivalent (LCE), and aims to eventually grow production to a quarterly rate of about 15,500 tonnes LCE. Currently Talison is generating about $5M EBITDA per quarter, or about $3M per quarter in net earnings. With over 100 million shares fully diluted (all stock options are in-the-money), that works out to P/E of about 45. Considering the modest growth profile, at first pass we don’t see how this valuation is justified without attributing significant value to the company’s other early-stage projects. [Zurbo]

Robex Resources (CDNX: RBX; Pink Sheets: RSRBF)
Nampala, Awarding of Contract for Feasibility Study – November 15, 2010

Robex has quite a few projects in Mali including the Nampalo gold project that bears some similarities to Orezone’s (TSX: ORE; AMEX: OZN) Bombore project in nearby Burkina Faso. Both deposits have significant gold contained in soft saprolite rocks starting at surface as well as depth and lateral extension potential. Of course Bombore is much larger than Nampalo but the latter still has the possibility of becoming a significant deposit in its own right (perhaps ~1 million ounces) and its attractiveness is aided by the likelihood of low capital development and low cost operation. Both Bombore and Nampalo bear watching and although Robex is very cheap, it still has some way to go and we prefer to watch developments for now before considering a position in the stock. [Silverax]

Southern Andes Energy (TSX-V: SUR; Pink Sheets: SHRNF)
Southern Andes Energy Inc.’s New Uranium Discovery at Accocucho Sur, Peru – November 15, 2010

Along with Macusani Yellowcake (TSX-V: YEL; Pink Sheets: MCYWF) and Vena Resources (TSX-V: VEM; Pink Sheets: VNARF), Southern Andes controls the Macusani Plateau of Peru where several moderate-sized uranium deposits have been defined, surely to be followed by at least several more. The trench results at Accocucho indicate the presence of significant exploration upside on Southern Andes’ concessions and these targets appear to be drill-worthy on initial examination. Southern Andes also has interesting silver-lead-zinc deposits in southern Peru that the company intends to spin off soon. But it is the Macusani Plateau that has us most interested as potentially an important emerging uranium district in the world. BHP (NYSE/ASX: BHP; LSE: BLT) is already partnered with Vena in the Macusani so we know that the majors have an interest. Interestingly, the combined market cap of Southern Andes, Macusani and Vena is under $100 million, which seems like a decent deal to us. [Silverax]

Uranium Resources (URRE)
Uranium Resources’ NRC License Upheld as United States Supreme Court Denies Petition – November 15, 2010

Here we have another in-situ recovery (NYSEMKT:ISR) uranium mining license being granted in the United States — Uranium One (TSX: UUU; Pink Sheets: SXRZF) recently announced that its Moore Ranch ISR project in Wyoming has been approved. While the overall trend is exciting for uranium developers in the US, we can’t get too excited about the timeline involved for Uranium Resources (feasibility studies not expected to be completed until the end of 2011). Given that it has the potential to eventually produce 3 million pounds per year this is one to watch longer term, but having run up above $2.00 from $0.50 this August, it is probably fair to say this one has gotten a bit ahead of itself. [Zurbo]

Ventana Gold (OTC:VENGF)
Ventana Acknowledges Unsolicited Bid
– November 17, 2010

It’s no surprise that Eike Batista’s EBX fund has made a bid for Ventana, but the $1.5 billion price on offer is quite amazing. After all, the recently reported pre-tax net present value (NYSE:NPV) of Ventana’s La Bodega project is “only” $804 million at $1,000/oz gold and a 5% discount rate. That compares with a nearly $2.3 billion pre-tax NPV for Greystar’s adjacent Angostura project (using the same gold price and discount rate assumptions). Amazingly, Greystar is trading at a market capitalization of about $530 million, well below where we sold it in late 2009! Considering that the development of La Bodega is likely to involve Angostura, the valuation disconnect is stark. That isn’t to say Greystar isn’t without its share of hurdles. For example, a public hearing on the Angostura project is scheduled to be held on November 21, 2010, the outcome of which will go a long way in determining the fate of the project. If all goes well, this one has plenty of room to run. If not, the share price will probably take a beating, but we can’t imagine Ventana would be left unaffected unless EBX’s bid has already been accepted. [Zurbo]

U.S. Gold Corp (NYSE:UXG)
El Gallo District Resource Estimate Update
– November 18, 2010

We’re talking about a $700 million company that has now defined an 88 million silver-equivalent ounce resource on its flagship project. We think that’s a bit rich whether or not you have the charismatic McEwen as your Chairman and CEO. [Zurbo]

Denison Mines (NYSEMKT:DNN)
Denison Mines Announces C$65,450,000 Private Placement
– November 18, 2010

Good timing on the placement. Denison’s market capitalization is now approaching the $1 billion mark, perhaps large enough to entertain a buyout of someone like Hathor Exploration (TSX-V: HAT). We’re only half serious, and the timing is probably a bit off, but a deal of this sort down the road a bit wouldn’t surprise us. [Zurbo]

Esperanza Resources (OTC:ESPZF)
Silver Standard Resources
Esperanza Rejects Silver Standard Proposal on San Luis Property
– November 18, 2010

Our valuation model shows that San Luis is worth about $250 million at current metal prices, which at a minimum would make Esperanza’s 20% carried to production interest worth $50 million. From this perspective Silver Standard’s $20 million + 1.5% NSR offer grossly undervalues Esperanza’s interest. However, at 30% lower metal prices (i.e. $950/oz gold and $19/oz silver) the project is worth about $135 million, or just $27 million for Esperanza’s share. Therefore we think this was more or less a fair offer using the more typical long term metal price assumptions, but at the same time we’re not at all surprised it was rejected especially considering Esperanza is carried to production. [Zurbo]

Metalex Ventures (TSX-V: MTX)
More Than 800 Commercial-Sized Diamonds Recovered from a 15m Drill Intercept from the T1 Kimerlite
– November 19, 2010

This news caused Metalex to roughly double on strong volume, but we are left unimpressed,  if only for lack of disclosure. For example, the news does not give us any information on the number of carats recovered and no description about the size of the pipe. Based on the number of holes drilled it seems like we could be looking at something large enough to be of interest, but we can’t find any information and the company’s website was of no help at all.

Given the stocks spiky trading action, there might be a trade worth considering if it sells off back to around C$0.50, but until the company does a better job at disclosing information this simply isn’t something that we’ll be able to approach from a fundamental angle. [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.