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Smooth sailing for Cream Minerals following cash infusion, Nuevo Milenio gains momentum

Mar. 22, 2011 4:00 AM ET
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Seeking Alpha Analyst Since 2009

 Non-exhibitor • creamminerals.com • 1.888.267.1400

Michael O’Connor
President & CEO

“Find something good in it,” is advice one usually gets when faced with a bad situation. It may well be what Cream Minerals (TSXV:CMA) President and CEO Michael O’Connor took to heart when the company’s joint-venture deal with Roca Mines fell through in July 2010 after Roca failed to meet its first-year exploration commitment. Following the deal’s collapse and an unsolicited take-over attempt, Cream Minerals Ltd has moved on: it attracted significant financing and has launched a drill program on its core asset, the Nuevo Milenio Silver-Gold project, in Nayarit State, Mexico. Mr O’Connor discusses with Resource Intelligence how Cream is moving forward and how the company represents an excellent opportunity for shareholders and potential investors.

Resource Intelligence: How has the termination of your deal with Roca affected the Nuevo Milenio project?

Michael O’Connor: We had high hopes for the option agreement with Roca given the strength of their management and exploration team. Initially it was a disappointment for Cream; however, the exploration work completed by Roca did provide tangible benefits to the company. These were a) an independent exploration program had confirmed our exploration results, b) additional credibility was brought to the project, and c) awareness of Nuevo Milenio and Cream was significantly increased in the investment and mining communities.

RI: Have you found a new partner?

MO: In the fall of 2010 Cream was approached by several parties interested in negotiating an option agreement for Nuevo Milenio. Those discussions were advancing quite well and we were near an agreement with a very successful silver exploration company, when in early October 2010 a silver producer announced an unsolicited take-over bid for Cream.

RI: That must have been a very difficult time for the company.

MO: It was very challenging. Fortunately a significant percentage of Cream’s shareholders did not tender their shares believing the offer significantly undervalued the company and offered nothing for the growth potential of Cream’s properties, especially Nuevo Milenio. As a result the take-over bid was withdrawn in early December 2010.

RI: What were the positives of that experience for Cream?

MO: Like the Roca option agreement the unsolicited take-over offer served to highlight Cream and the current and potential value of Nuevo Milenio. The fact that a very successful silver producer saw significant value in Cream and Nuevo Milenio broadcast to the investment and mining communities that Cream has significant potential and was worth a much closer look. What at the time seemed like a negative turned into a significant positive for Cream.

RI: What was the final outcome of all of this?

MO: The day after the unsolicited take-over bid was withdrawn, Cream was offered a $5-million bought deal with a $1-million over-allotment. The financing closed on December 21, 2010. As a result Cream went from no cash and significant debt to $5.45 million in net proceeds and no debt. It was a complete financial turnaround.

RI: The focus of all of the companies interested in Cream has been the Nuevo Milenio Silver-Gold project in Mexico. What can you tell us about that property?

MO: As you noted, Nuevo Milenio is a silver-gold property. It is 27 kms by road from Tepic, the capital of Nayarit State. Tepic is an important commercial centre with a population of just over 300,000 residents. Two highways, a railway, the Tepic airport, power lines and access to water are within 10 to 15 kms from the property. Therefore the property is close to very good infrastructure.

Nuevo Milenio is 2,560 hectares (ha’s) and contains an NI 43-101 inferred mineral resource of 54.6 million ounces silver equivalent contained within 5.09 million tonnes. The Nuevo Milenio Project is a low-sulphidation, epithermal precious-metal prospect containing gold-silver mineralization in quartz veins and in quartz stockwork zones within an area of Miocene volcanics in a collapsed caldera structure.

RI: That is quite impressive. But there must have been something special that attracted the attention of so many successful silver companies?

MO: That’s true. I think it is two things. One, the inferred mineral resource can be upgraded to indicated and measured through infill drilling, which should significantly enhance value. That alone is very compelling. Two, the property is highly prospective. The inferred mineral resource is contained within about 600 ha’s. The higher grade underground vein sets are defined over a strike length of 1,300 metres. They are open in both directions and down dip. In addition, there is one potential open-pit target and possibly two more that need to be drilled. The balance of the property, 1,950 ha’s, has numerous exploration targets that are crying out for drill testing. We have evidence of mineralization over a 5-km strike length. That alone tells you that the exploration potential is enormous. A good inferred mineral resource and lots of blue sky exploration potential makes Nuevo Milenio a very attractive property.

RI: The historical drill results have been very good. What are the grades like?

MO: The inferred mineral resource defines average grades of 251 g/t silver and 1.66 g/t gold. This is approximately 350 g/t silver equivalent. One other important point to keep in mind is that the defined vein widths range from 2.4 metres to 5.1 metres. This is an important consideration when you consider a potential underground mine.

RI: How would you summarize the project for an existing or potential investor?

MO: I would re-iterate two points. One, there is value in the NI 43-101 inferred mineral resource of 54.6 million ounces silver equivalent that can be enhanced through infill drilling, and two, the blue sky exploration potential is substantial.

RI: How far will the $5.45 million cash in the bank take you?

MO: It should cover all of the exploration program’s first phase: 10,000 metres, and the majority of the second phase which currently we anticipate would be an additional 10,000 metres. We started drilling in February and aim to complete the first phase 10,000-metre drill program by July 2011. After that we’ll analyze the results, and hopefully plan a second phase drill program of 10,000 metres.

RI: How highly invested is management in
the company?

MO: Currently management owns about 20% of the outstanding shares of the company. This aligns our interests with those of our shareholders and strongly motivates us to work as hard as we can to enhance shareholder value.

RI: The past two years have been a roller-coaster ride for Cream. Do you see stability now and how do you see the company within the next three to five years?

MO: The completion of the financing, the elimination of the debt and a significant working capital position has revitalized Cream. Now Cream is stable and has the means to conduct an aggressive drill program at Nuevo Milenio with the objectives of infill drilling and exploration drilling. Over the next three to five years Cream should be in the position where it can dedicate itself to exploring the Nuevo Milenio property, hopefully proving that it contains a significant silver-gold resource and also turning our attention to some of the other properties in the company’s portfolio.

RI: Is there anything else you think investors should know about?

MO: When considering Cream, investors should note, firstly, that Cream is undervalued relative to its peers. Secondly, Cream has no debt and has a strong cash position which is funding an initial 10,000-metre drill program at Nuevo Milenio. This means that Cream is highly leveraged to exploration results and through the inferred mineral resource to silver and gold prices. Thirdly, because the company is undervalued relative to its peers, investors are essentially getting the Canadian properties for free. Any successes with these properties could add additional value to the company.

Investor Highlights:

  • Nuevo Milenio Silver-Gold Project
  • Stage: Exploration drilling
  • Market cap: $42,369,338 as of February 16, 2011
  • Share price: 300% in 12 months ($0.285/ $0.095)
  • Share price: 211% in 24 months ($0.285/ $0.135)
  • Share price: $0.285 as of February 16, 2011
  • Commodity: Silver and Gold (Mexico and Canada)
  • Cash: $5.45 million as of February 16, 2011


  • Cream is undervalued relative to its peers based strictly on Nuevo Milenio
  • Nuevo Milenio has significant upside potential based on upgrading the NI 43-101 inferred mineral resource of 54.6 million ounces silver equivalent and exploration drilling of numerous targets elsewhere on the property
  • A 10,000-metre drill program at the Nuevo Milenio Silver-Gold Project was initiated in February 2011
Disclosure: No Positions

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