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Judging by the price action on Tuesday afternoon the market doesn’t seem too concerned about this notification from the Federal Mine Safety and Health Administration. Meanwhile an interesting article was just published that slams Great Basin and a host of other companies operating in South Africa for a worrisome habit of over-promising and under-delivering. In our opinion Great Basin is the least of offenders considering the teething problems that were to be expected at Burnstone, but if significant downward revisions to production continue into 2011 then we’ll have a problem (or perhaps an opportunity?). [Zurbo]
Victoria Gold (TSX-V: VIT; Pink Sheets: VITFF)
Victoria Gold Notifies of Apparent Error in the Calculation of Cove Upper Zone Resource – November 23, 2010
Basically there was a transcribing error related to the grade of 4 of the 15 historical holes used to calculate the upper zone resource at Cove. Some analysts at the conference call were confused as to why Victoria couldn’t just plug the correct data into the resource model (remember, it was just a transcribing error so the correct data is readily available), but we can understand that this might not be so simple if after adjusting for the errors it turns out that grades are much less consistent throughout the upper zone and due to limited drill data such things as the cut-off grade would have to be revisited. Remember, this is a very recent development (less than 2 days old), so if nothing else Victoria’s fast response with a press release and CC is impressive if not a bit premature (they were unable to answer several questions to our satisfaction).
Okay, so back to the potential impact. Let’s assume the transcribing error involved moving a decimal place in those 4 of 15 holes. That might reduce the inferred resource by 30%, or about 100,000 ounces. Worst case scenario Victoria is unable to report the resource at all, but even then we think the 30 cent drop is way overdone. After all we’re talking about an inferred resource that would have to be more closely drilled in the long run anyways if it were to be incorporated into a mine plan. That doesn’t mean we’re on the verge of buying, but we’re much more interested here than we were at $1.50 (in fact, we were selling out our remaining position at that level a few weeks ago, see: http://www.metalaugmentor.com/eforum/?p=5155). No hard time lines were given, but it’s expected to take less than a few months to resolve this issue.
These things happen. In fact, we recently uncovered an arguably more substantial error in a technical report released by another company in the mining sector. We give credit to Victoria for being as open as possible about the mistake. Along those lines we’d like to see Victoria be more open about sharing historical drill data going forward so we have a chance at spotting something like this ourselves.
It’s currently unclear what effect if any this will have on Newmont’s back-in right for 51% of the Cove project. [Zurbo]
More of the same from U.S. Silver. Head grades continue to be problematic, leading to lower production and a higher overall production cost per ounce. This ends up resulting in minimal net income at record silver prices. Those investing in U.S. Silver need to be aware that the company is highly vulnerable to a drop in silver prices, especially given its current market capitalization of about C$200 million. If production can be brought in line with expectations, the share price sits near our calculated fair value, all else equal. In other words the market already seems to be pricing in improved head grades and productions costs, such that we’re left to ask ourselves what share price drivers are left beyond higher silver prices. [Zurbo]
Quoting from the article:
Mark Holland, a Liberal member of Parliament and public safety critic, told reporters Thursday that government’s efforts to brush off the possibility of a government leak were “pathetic.”
“Something stinks here and it doesn’t add up,” Holland said. “A stock doesn’t drop nearly 40 per cent in a day, with 2.7-million shares traded in 40 seconds, for no reason. It is impossible to believe that a leak didn’t occur.
Whether or not the government decides to open up an official investigation, it at least seems that Taseko would not be the one at fault here. [Zurbo]
Gold Canyon Resources (TSX: GCU; Pink Sheets: GDCRF)
Gold Canyon Intercepts 225 m at 1.48 g/t Gold at Springpole Gold Project – November 23, 2010
Despite all the great results out of Gold Canyon, they are still only marginally stepping out from the mineralized zone that has been known for many years. The deposit does remain open but as they step out they will be nearing a zone of constraint so not sure how much room they have left. That said, they have likely expanded the deposit size with the latest two or three results by as much as 15-30 million tonnes (perhaps up to 1 million ounces) so while not “monster” it is not insignificant either. [Silverax]
Rare Earths Market
China Restarts Rare Earths Shipments to Japan – November 24, 2010
Somewhat surprisingly, this news seems to have had little to no negative effect on sentiment in the rare earths market judging by the performance of a representative list of exploration and development companies:
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.