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Mining News Review: Week of December 6th

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Supatcha Resources (OTCBB: SAEI)
Supatcha Analyzing Recent Market Activity – December 6, 2010

Wow, on volume of over 35 million shares Supatcha went from $0.20 to $0.69 back to as low as $0.14 in just 5 trading days!

No doubt it would have been nice to ride this roller coaster to the top, but let’s not forget that there are just as many currently puking their guts out on this trade. Remember, pigs get slaughtered. [Zurbo]

Crowflight Minerals (TSX: CML)
Crowflight Closes Private Placement, Completes Board Re-Structuring and Announces Management Changes – December 6, 2010

It is looking increasingly likely that Crowflight will declare bankruptcy.

Three years ago Crowflight was projecting $50-$75 million in annual operating cash flow from its Bucko Nickel Mine at $10/lb Nickel. Now the company trades at a market capitalization of under $50 million and mining operations have been suspended. A sober reminder that mining is a tough business and that the economics of a project almost always look better on paper. [Zurbo]

Goldgroup Mining (TSX: GGA; Pink Sheets: GGAZF)
Goldgroup Hits 332.86 g/t Au over 5.5 m Including 2,424.89 g/t Au over 0.75 m in New Drilling at San José de Gracia – December 7, 2010

No doubt these are head-turning results but the question is the spottiness of the high grade gold in the breccia vein structures — have they perhaps located an ore shoot with continuous bonanza grades amounting to significant tonnage? Even with this question unanswered, the share price did not react as strongly as I would have thought. My guess is there is uncertainty about the ability to follow through with more of the same type of results. Of course it probably also doesn’t help that a slew of newsletter writers didn’t immediately pump the news to their flocks as they sometimes tend to do. In any case, the big price driver for Goldgroup in my opinion would be to advance one or more of the projects to the brink of development as a potential 100,000/oz. per year mine. They do appear to have several good chances of doing that even if much work still remains. Furthermore, since the shares haven’t leveraged the recent rise in gold as much as some other companies (they were trading near this level in May), there could be some price follow through in the near term even if not due to more bonanza drill results like this one. [Silverax]

Victoria Gold (TSX: VIT; Pink Sheets: VITFF)
Victoria Gold Provides Update on Cove Upper Zone Resource Estimate
– December 9, 2010

An extremely disappointing update from Victoria. In late November we updated subscribers on the situation as follows:

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 were confused at why Victoria couldn’t just plug the correct data into the resource model since they have the correct historical data (remember, it was just a transcribing error), 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 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, see: http://www.metalaugmentor.com/eforum/?p=5155). No hard time lines were given, but expected to take less than months to resolve this issue.

It is unfortunate that Victoria has taken such a beating, but these things happen. In fact, we recently uncovered an arguably more substantial error in a technical report released by a company in the mining sector. The consulting company that prepared their technical report acknowledged the error and sent a revised report to the company. We’re not experts and we occasionally spot errors like this. You have to give credit to Victoria for being as open as possible about the mistake. But on the other hand we’d like to see Victoria be more open about sharing historical drill data. Perhaps if they would have been more open about this in the first place something like this wouldn’t have happened, or at least the general public would have had the potential to question the resource figures. Instead the error ends up being spotted by a 3rd party conducting due diligence on Victoria’s assets.

It’s currently unclear what effect if any this will have on Newmont’s back-in right for 51% of the project.

Needless to say we’re happy with our call to take full profits in early November 2010 around the C$1.40 level.

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.