And in the Category of Most Overlooked Gold Junior…
By Doug Hadfield, resourceINTELLIGENCE TV
Rising gold and silver prices have had the excellent effect of increasing the market capitalization of many related companies. Companies that we have had at our studios here at resourceINTELLIGENCE.net have performed exceptionally well in terms of share price. The gold/silver juniors we featured on our latest episode of resourceINTELLIGENCE TV reaped an average share price gain of 40% following the broadcast. Compare that with the TSX and Venture Composite Indexes for the same period, which gained 8.7% and 14% respectively.
We do not, of course, maintain the exclusive ownership to bragging rights here. The companies we cover are managed by professionals with a track record and a hell bent desire to succeed. Their projects make smart investments, as do gold and silver on the macro level.
Some gold companies have not benefited from the rush to gold (and away from the greenback). Many of these are readily explicable: Some have poor management, are oversold or are simply too prospective.
Conversely, there are still some outstanding bargains out there. Companies that have all the required merit, but have remained steadfastly below-the-radar.
Cream Minerals (TSX.V: CMA) has turned heads recently due to a project it is involved in with Roca Mines. Cream still owns 100% of its Nuevo Milenio project in northern Mexico, but recently optioned up to 70% to Roca. The deal is an excellent one for Cream. It will see Roca spending $12 million on exploration alone over the next four years.
Readers will be familiar with Roca Mines’ Max Molybdenum Mine, which on April 12 last year became BC’s first new metal mine in a decade and the newest primary molybdenum mine in Canada. Roca this month announced that it had achieved revenues of $17.2 million for the nine months ended May 31, 2009.
The move was smart for Roca on several accounts, including relatively near-term revenue growth opportunities and diversifying its exposure to commodities.
In the long run, however, it may be Cream who enjoys the sweetest returns from the deal.
“It’s a ballistic amount of money,” President and CEO Michael E. O’Connor told me of the $12 million, four-year program Roca will undertake. “An option agreement like this can see the whole 2,560 hectare property systematically explored, well beyond the 600 ha Cream’s NI 43-101 Inferred Mineral Resource is based on.”
Cream is now carried up to the Bankable Feasibility Study stage of the project for 50%. To earn another 20%, Roca Mines will have to complete the BFS.
But even with just 30% of the project in its portfolio, Cream shareholders will clearly benefit.
The project in question, Nuevo Milenio, is located in northern Mexico, and depending on the cut-off grades you use, has anywhere from 5 to 17 million tonnes of ore, with 1.66 g/t gold and over 250 g/t silver at the former tonnage. The updated December 2008 resource estimate gave an Inferred Mineral Resource of 54.6 million ounces silver equivalent.
O’Connor says the company he has run the the numbers out on different size mills, starting with 500 tonnes per day (TPD) at a capital cost of approximately $70 million. At 500 TPD and $40 per ton operating costs, O’Connor acknowledges Cream’s 30% could net the company up to $US8 million annually. O’Connor cautions, however, that the resource is still an inferred resource and cannot be considered economical.
When I run those numbers out at shareKNOW.net, the project looks promising with clear potential to add upside to the company’s share price. Using the Operating Calculator I used O’Connor’s median $40 per ton ($44.10 per metric tonne) operating cost, with a capital cost of $70 million, and achieve a project value of $414 million. (I added in recovery rates of 90% for gold and silver as these are not yet available. Obviously they could vary from this quite dramatically.)
On a per share basis, using these early stage numbers, Cream’s 30% of Nuevo Milenio can be valued at $1.93 per share, before tax and without accounting for risk and other factors (the company has 64.5 million shares outstanding). Presently the market is valuing the company at $0.08 per share.
These numbers are preliminary and not compliant with 43-101 regulations governing the dissemination of information on mining projects. Nevertheless, for investors looking to dig a little deeper, what we have are the available numbers.
Now that Roca has taken over as the operator on this project, I expect to see exploration activity pick up. According to O’Connor, Cream had initially planned a 2-year underground exploration plan, that would have upgraded the existing inferred resource to measured and indicated (a more certain category that can be used to create a Bankable Feasibility Study), with an additional 50 million ounce silver target. The plan included a goal of production within five years.
“The Roca option agreement extends over seven years with the requirement that Roca complete a Bankable Feasibility Study by the end of seven years and three months,” O’Connor said. “Roca can pursue early production opportunities if they chose to, and if they skip the BFS and follow a reasonable variation of our development program or design one o ftheor own, given that they are acknowledged to be excellent mine developers and operators then the time line to early production would probably be roughly the same — about five years.”
So now it’s up to Roca to take this project to the next level. To shore up resources, add ounces and, eventually, a Bankable Feasibility Study.
In the meantime, Cream has several other projects on the go, including gold exploration on its historic Goldsmith property in southeastern British Columbia, which carries with it one of those gold rush tales that’s just begging for a cult following (read the 2005 article here).
There has been little news outside of the Nuevo Milenio project in 2009; I’ve no doubt that has everything to do with the economic turmoil better known as the Great Recession. Now that the great uncertainty is almost certainly behind, O’Connor has been planning the company’s next move.
“We are looking at five projects right now. One is a gold-copper project. Another attractive project that we will attempt to bring into Cream is a silver-gold property. Each of the properties we are reviewing appear to have significant exploration upside potential. I believe we’ll have finalized the decision by the end of the month,” he said.
Doug Hadfield is Managing Editor of resourceINTELLIGENCE.net, a provider of information and data that can be used to separate the wheat from the chaff, make investment decisions and evaluate projects of any development stage. Enter your email address at the top of this page to get free, no-spam resource investment news, daily.
Disclosure: No positions