First and Last Word on Metals and Mining

We’ll be updating this and all subsequent Mining News Review posts on a more-or-less daily basis. We will add to this review chronologically with the most recent updates appearing at the bottom. If there appears to be a significant news release that we have not discussed, please feel free to bring it to our attention in the comments section (subscribers only please) and we’ll make an effort to add it to the discussion if warranted.

This week in our Mining News Review we’ve chosen to spotlight Silver Standard Resources (NASDAQ: SSRI; TSX: SSO).

Two Fridays ago, Silver Standard announced that it plans to spin-off its Snowfield and Brucejack projects to a new company called Pretium Resources for total consideration of $450 million in cash and shares. Not much more than a month ago we wrote the following:

When it was an ounces-in-the-ground accumulator, Silver Standard was arguably valued more highly by the market than the sum of its parts, so perhaps it shouldn’t come as a surprise that having graduated to the coveted silver miner/developer status means the company is now seemingly valued at less than the sum of its parts. Silver Standard’s management is acutely aware of this problematic situation and we expect them to monetize Snowfield and Brucejack in the near future…[emphasis added]

Pretium’s IPO is planned for later this year, raising a minimum of $265 million and leaving Silver Standard with a significant equity interest in the new company which is to be run by Robert Quartermain. Mr. Quartermain served as the President and CEO of Silver Standard from 1985 through January 2010, and he is well known and well regarded within the industry. He remains a large shareholder of Silver Standard and it is great to see him getting involved once again. Considering that Seabridge Gold (AMEX: SA; TSX: SEA) is trading at a market capitalization of over $1 billion with its similarly-sized and located KSM project, Pretium is likely to be a hit especially as long as gold and silver stay hot. This of course means that the $450 million deal could soon be worth significantly more, and this is why the arguably-low price of $450 million doesn’t much concern us. Meanwhile the cash portion of the deal will give Silver Standard plenty of freedom to quickly advance its enviable portfolio of silver exploration and development projects.

Most important at this stage is for Silver Standard to demonstrate profitability at its only operating mine, Pirquitas in Argentina. The project entered into commercial production in late 2009, and although growing pains were to be expected, production has not stabilized and cash costs remain quite high. Silver recoveries are improving but have a ways to go and the mine needs to demonstrate that it can eventually produce significant amounts of by-product zinc and more importantly, tin, as contemplated in the original feasibility study. If Silver Standard cannot demonstrate profitability at Pirquitas in 2011 at silver prices north of $20 per ounce then that will spell serious trouble for a company that opted to change its business model from ounces-in-the-ground-accumulator to producer. But if costs at Pirquitas fall in line with expectations over the next 6-18 months, and the company can figure out how to improve recoveries of the problematic fine-grained tin resource, then we believe Silver Standard’s fair value lies somewhere between $30 and $35 per share at current metal prices. This means that presently Silver Standard offers one of the more compelling valuations compared with its peer group of mid-tier silver producers:


Note: International Minerals (TSX: IMZ) looks solid on the surface, but the majority of its valuation relies on 4 development projects, two of which are located in Ecuador and are likely 3-5 years away from production. On the other hand we have First Majestic (TSX: FR), which doesn’t look so hot in the above chart but is arguably trading at a similar valuation as Pan American, Hecla, Coeur, and Fortuna given that First Majestic’s significant Del Toro development project is not in our model due to the preliminary nature of production data. Rough numbers for Del Toro do suggest a significant boost to target valuation that tends to support the current share price. First Majestic is also likely benefiting from its cachet as the “purest” silver producer and anticipation of a U.S. listing in early 2011. Note that First Majestic is an institutional client of Metal Augmentor.

In conclusion, despite having moved about 50% higher since August, Silver Standard still offers good value. However, the remaining upside comes with a fair amount of execution risk, especially given what has so far been lackluster performance at Pirquitas. This can be overcome, but it will take time, and without any major near term price drivers besides possibly the IPO of Pretium, we are going to stick to our guns with the “take profits” call in in our most recent Avoiding a Hangover post. That way we get the best of both worlds, locking in some gains while continuing to hold some shares for further upside.

Equinox Minerals (TSX/ASX: EQN; Pink Sheets: EQXMF)
Citadel Resource Group (ASX: CGG)
Equinox announces recommended takeover of Citadel & Takeover of Equinox by Citadel – October 25, 2010

As any fool can see using Google Maps, the volcanic shield of western Saudi Arabia (and Eastern Egypt) is highly prospective for mineral deposits. Given its vast oil fields, one would think Saudi Arabia would be more advanced in mineral exploration but it turns out that Citadel is one of the first companies to obtain a mining license in that country. Citadel’s Jabal Sayid volcanogenic massive sulfide (VMS) copper deposit looks like a winner but Equinox is not paying AU$1.2 billion for only that project — much of the value lies in the discovery potential of this severely underexplored region of the world. We keep hearing this or that area is the last unexplored frontier in the world but it should be clear by now that the mineral resources of the Earth are virtually untapped in many places. This is good news for future explorers although probably not very good news for “peak ____” (fill in the blank) proponents. We certainly don’t believe in “peak copper” although that doesn’t mean we won’t see supply constraints from time to time in the future. In any case, we do believe that Citadel/Equinox could do for Saudi Arabian mineral exploration what Centamin (LSE: CEY; TSX: CEE; Pink Sheets: CELTF) has done for Egypt. [Silverax]

Mantra Resources (ASX: MRU; TSX: MRL; Pink Sheets: MNRZF)
Mantra Commences PFS On Heap Leaching for Phase 2 Growth – October 25, 2010

Here’s proof that not all uranium explorers/developers are severely undervalued in this market. Mantra is in pre-feasibility stage on an inferred + indicated 80 million pound U3O8 deposit in Tanzania and has a healthy US$700+ million market cap equating to about $9 per pound U3O8. The deposit is a low grade sandstone hosted deal but preliminary economics point to moderate capital and operating costs. The updated pre-feasiblity will help bring the value proposition into better focus but Mantra should make it clear that it isn’t uranium per se that is boring to investors these days but rather the lengthy development and permitting timeframes that are often involved. Thus, other than a major new discovery, an obvious price driver for uranium explorers/developers in the current market environment is meaningful progress toward production. Another obvious one is consolidation (senior producers buying juniors with prospective development projects). We’ll be looking closely for companies with these qualities given that they are likely to be the first and perhaps biggest movers as the uranium sector experiences a resurgence in the years ahead. [Silverax]

JPMorgan Chase & Co. (NYSE: JPM)

J.P. Morgan to Launch Physical Copper ETF
– October 26, 2010

This should prove to be a great way to directly short copper, i.e. buying put options on the Copper ETF rather than having to identify less pure, company-specific option strategies. No start date or ticker has yet to be mentioned. [Zurbo]

Geodex Minerals (TSX-V: GXM; Pink Sheets: GXMLF)
Northcliff Exploration
(a private company controlled by Hunter Dickinson Inc.)
Hunter Dickinson’s Northcliff Finalizes Sisson Brook Tungsten-Molybdenum Project JV for $17 Million in Expenditures
– October 25, 2010

By spending $17 million Northcliff will be able to acquire a 70% interest in the Sisson Brook project, which implies a value of $7.3 million for the remaining 30% interest. Considering that Sisson is Geodex’s flagship property and Geodex has a market capitalization of over $18 million we’re not terribly impressed with the value on offer, especially in comparison to a certain zinc and lead developer that is trading at about 50% of its implied value. Since Hunter Dickinson is a quality partner, we might have come to a different conclusion if this were a gold or silver development project, but molybdenum and tungsten are metals with difficult supply/demand dynamics such that projects dominated by these metals are typically going to have to look very compelling economically using conservative price assumptions before we seriously consider them as a speculative investment. [Zurbo]

Oroco Resource Corp. (TSX-V: OCO)
Oroco Receives Cerro Prieto CAPEX Figures & Oroco Retracts Capital Cost and Operating Cost Estimates – October 26, 2010

Oroco is an interesting little company with a market capitalization of around $12 million. With the capital and operating cost figures released today, we have enough information to determine that Cerro Prieto will produce around 20,000 ounces gold per year for probably at least 5 years at a cash cost of about $280/oz and capital cost of about $25 million. The retraction is inconsequential, and we’re assured that the preliminary economic assessment (PEA) is imminent (est. within a week) and will contain essentially the same figures. The company is simply waiting on the engineers to run the net present value numbers. Having plugged what information we can into our valuation model (making conservative assumptions for the rest), we arrive at a base case valuation in the range of C$0.50-C$0.60 per share. That’s not incredible for a development stage company with such a small production profile, but we’re told financing options are already lined up to the extent that we can expect progress on this front within several weeks of the PEA being published.

Nearby Silvercrest (TSX-V: SVL; Pink Sheets: STVZF) is working towards declaring commercial production at its similar, albeit larger, Santa Elena gold-silver project. Its share prices jumped 20-30% in late 2009 when it announced project funding through a debt/hedge facility and a gold stream. One might expect a similar reaction out of Oroco, but before that happens the PEA may actually lead to a bit of a selloff if the market is anticipating a larger operation. We’ll be monitoring this one closely to take advantage of any trading opportunities, and our subscribers will be the first to know if we do decide to enter a position. [Zurbo]

Callinan Mines (TSX-V: CAA; Pink Sheets: CCNMF)
Callinan Proposes to Become a Royalty Company and Create a New Exploration Company
– October 25, 2010

Callinan is an institutional client of ours, and we’re happy to see it is finally spinning out its royalty assets into a new company. A little over a month ago we wrote an abbreviated report on royalty companies and singled out Callinan as the top pick with significant base case upside. Since publishing that report Callinan has risen an impressive 72%, even despite releasing some negative news that we commented on in last week’s mining news review. It will be interesting to watch for what types of royalties the new company will focus on acquiring in an attempt to expand its portfolio beyond a 6.67% net profits interest on Hudbay’s (NYSE/TSX: HBM) 777 mine. [Zurbo]

Phoscan Chemical Corp. (TSX: FOS; Pink Sheets: PCCLF)
Phoscan to Conduct Tests for the Recovery of Niobium and Rare Earths at the Martison Property
– October 26, 2010

At first glance this news seemed strange to us since we were under the impression that IAMGOLD had already investigated the potential for niobium recovery at the Martison project, and that this work had been deferred – see the June 8, 2010 press release – more or less implying that the potential was not great. But now we are told that this “deferral” was not the result of niobium proving difficult to recover, but more or less the result of IAMGOLD’s intentions on what to do with a niobium concentrate not being in the best interest of Phoscan shareholders. The following quote from Stephen Case, President and CEO, sums things up nicely:

“The ability to economically recover niobium from the phosphate tailings could be a game changer for the Martison Project…This could yield a sufficiently large enough by-product credit to possibly revisit the Martison project as a standalone phosphate concentrate producer, thus substantially reducing the project’s overall capital and operating costs. The recovery of rare earths from the lateritic oxide cap, where the metal value per tonne has risen dramatically over the past year, could also substantially enhance the project economics.” [emphasis ours]

To the best of our understanding, a niobium-rich concentrate would be desirable enough to entice someone else to deal with processing. The implication being that Phoscan could avoid building a phosphoric acid plant (est. cost of $130-$142 million*) and granulation plant (est. cost of $156-$200 million*). This would reduce capital costs by about 30-35 percent, and significantly improve the likelihood of being able to obtain project financing.

*According to the 2008 Preliminary Feasibility Study on the Martison Project

Stephen Case admits that the rare earths potential is more of a wild card bet at the moment, though we suspect that may be what made the market jump these past few days. [Zurbo]

There are actually three things going on here. One, the rare earth potential of the laterite cap is not fully understood and may still require more drill testing or sampling. Of course it is not unusual to have niobium and phophate associated with rare earths considering carbonatites are a source of all three minerals, often in combination. At Martison, however, the phosphate, niobium and rare earths aren’t necessarily spread out evenly throughout the resource area, and that will obviously impact the sequencing of the process flow.

Two, assuming rare earths are present in economic quantities, the ability to recover them in a concentrate needs to be investigated next. Here we’ll note that the Olympic Dam IOCG deposit in Australia contains about 0.50% rare earths and economic recovery has proved elusive so far (though at the current rate of rising prices that might not be the case for long). In the case of Martison, there is nothing to be lost by evaluating rare earth content and recovery especially if a modification of the strategic plan is being considered from a complex vertically-integrated fertilizer producer to a simpler mining operation selling concentrates to upstream industrial producers. By-product revenue becomes critical in the latter approach compared to the former.

Three, a viable niobium concentration process needs to be designed and tested. There have been numerous studies in the past that have looked into phosphate and niobium recoveries in concentrate but none seem to have provided definitive data demonstrating viability of the niobium stream to the end product stage. For example, the niobium pentoxide concentrate at IAMGOLD’s (NYSE: IAG: TSX: IMG) Niobec facility is around 60% (compared to under 40% in historic studies at Martison), which is processed into ferroniobium using a thermite reaction.

In sum total, Phoscan appears to be going back to the previous plan of producing phosphate and niobium concentrates and leaving behind for now the ambitious goal of becoming a vertically-integrated fertilizer and chemical producer. While this probably reduces the eventual upside, it does create a possible path forward where otherwise there wasn’t much of one and that might account for why the shares are finally trading above their cash value. [Silverax]

Advanced Explorations (TSX-V: AXI; Pink Sheets: ADEXF)
Advanced Explorations Moves to Close Strategic Partnership
– October 27, 2010

Not surprisingly XinXing Pipes Group fully subscribed to a placement at C$0.25 when the share price is currently trading for over C$0.80. It appears someone was listening when we said “[Advanced Explorations] is still relatively cheap given the potential of Roche Bay not to mention a host of other opportunities that are now likely to be considered with XinXing as a strategic investor”, considering Advanced Explorations promptly shot up over 100 percent. Now AXI is trading for about 3x the implied deal value with XinXing. Meanwhile our favorite iron ore play continues to trade below the value of its cash and investments. A real steal, but no one seems to be listening. Not yet at least. [Zurbo]

VMS Ventures (TSX-V: VMS; Pink Sheets: VMSTF)
VMS Reports 6.69% Copper Over 71.69 Metres and 3.74% Copper Over 21.77 Metres from In-Fill Diamond Drillholes Three and Four at the Reed Lake JV Property – October 28, 2010

Needless to say these are very good results, confirming our initial estimate of the in-fill target of 1+ million tonnes with good continuity and possible upside within the known deposit envelope. Pitch and swell of the ore body combined with oblique drill angles makes it difficult to evaluate the true width intersected in these holes and ultimately expansion potential will be what drives Hudbay toward a development decision in the near term. The share price has at this point (more than) priced in a best-case scenario from the in-fill program but exploration potential does present some upside, such as at the Salis Lake project where exploration has recently commenced. [Silverax]

Golden Predator (TSX: GPD)
Golden Predator Intercepts 1.72 g/t Gold Over 146.3 m From Carlos Zone, Grew Creek Property, Yukon – October 25, 2010

The discovery of multiple vein trends and optimal drilling orientation are consequential for demonstrating grade continuity and increasing overall grade of the mineralized envelope but it remains of limited size and must be supplemented by additional discoveries on strike or nearby before the Grew Creek property rises to the status of highly prospective Yukon play. That said, the $15 million financing does indicate Golden Predator is a serious Yukon player and must be on the watch list. It would be a decent idea to buy the stock should it approach 50 cents because at that price the company’s royalty portfolio starts to provide some downside protection. We hope to complete the update to our royalty model next week to include at least 5 more royalty companies, making it the most comprehensive royalty model out there to our knowledge. [Silverax]

Queenston Mining (TSX: QMI; Pink Sheets: QNMNF)
Queenston Announces Strategic Investment by Agnico-Eagle Mines Limited – October 28, 2010

Queenston now must be considered a top take-out candidate with Kirkland Lake Gold (TSX: KGI; Pink Sheets: KGILF) chumping on one end and Agnico-Eagle (NYSE/TSX: AEM) on the other. There is still work to be done for the company to meet its goal of defining 2 million ounces of economic gold in the Kirkland Lake area but this entry by Agnico-Eagle is a strategic challenge to Kirkland Lake Gold and ups the stakes for control of the district. If I’m right about this, Queenston shares are headed over C$6.50 in a hurry and thus it might not be too late to get on board here. [Silverax]

Amazon Mining (TSX-V: AMZ; Pink Sheets: AMHPF)
Preliminary Economic Assessment for Cerrado Verde Provides Encouraging Results – October 28, 2010

With its market capitalization of about $100 million, a net present value of over $450 million in the more conservative production scenario is very impressive. We didn’t have a chance to listen in, but we’re told the conference call held on November 3rd was well attended by a number of analysts that may soon initiate coverage of the company, and that a transcript of the call will be posted to the company’s website shortly. For now the main takeaways seem to be that (1) the company is in discussions with the government to help finance the project and potentially allow for certain tax exemptions, (2) the newly elected (this week) president of Brazil was formerly the governor of Minas state (where Amazon’s Cerrado Verde project is located) and is apparently well aware and supportive of the project, and (3) there is the potential to significantly reduce input costs by using limestone contained in the project rather than sourcing it on the open market. With production targeted for 2013 the future certainly looks bright for Amazon. But before we get too excited and assume it’s going straight up to $10 tomorrow, let’s not forget about the wild gyrations this stock is prone to on both the upside and downside:


Orvana Minerals (TSX: ORV; Pink Sheets: ORVMF)
Bolivian Government Agency to Audit Orvana’s Bolivian Subsidiary
– October 29, 2010

It is hard to say how much, if any, of a headache (or worse) this audit is likely to cause, but at least we can all be happy about the roughly US$7 million being granted to Orvana by the Spanish government because of the jobs the El Valle project will create. [Zurbo]

Peregrine Diamonds (TSX: PGD; Pink Sheets: PGDIF)
1.15 Carat Diamond Recovered from 840 Kilogram Microdiamond Sample Collected from Five Hectare CH-31 Kimberlite
– October 29, 2010

The day that this news was announced, John Kaiser put out a comment saying:

…The market has not reacted [to the news] because it does not understand that recovering a 1.15 carat gem quality stone from an 840 kg sample along with several other big ones, while not indicating an overall high grade, has Victor style implications for CH31…the odds of critical mass for a large scale Ekati style diamond mining camp at Chidliak have improved substantially…If you have been waiting, don’t wait any longer. Initial mini bulk sample results for CH7 are expected during the second half of November. BHP must decide by November 30 [regarding earning additional 7% interest by funding project through bankable feasibility].

We agree with Kaiser’s assessment, especially considering that the beautiful 1.15 carat diamond was found in drill core. The scale of CH31 taken by itself could be reason enough for BHP to fund the project through feasibility, especially now that their bid for Potash Corp (NYSE/TSE: POT) has been rebuffed and they may have a bit of extra money to play with.

Nevsun Resources (AMEX/TSX: NSU)
Nevsun Begins Plant Commissioning
– October 25, 2010

Careful now, this is primarily a copper operation. Don’t bit too hard on that juicy sounding 450,000 ounces per year gold production since it is only expected to last 2 years at that elevated level. In our valuation model Nevusun appears fairly valued at about $6.50. Since copper is the largest contributor to the company’s valuation we can’t get too excited. [Zurbo]

Creso Exploration (TSX-V: CXT; Pink Sheets: CRXEF)
Creso Exploration Reports 280 m of 1.15 g/t Gold from Preliminary Minto Hole 3 Drill Results in the Shining Tree Area, NE Ontario
– October 29, 2010

Basically Creso has a small high grade pipe near surface that they have been drilling with oblique-angled holes, which accounts for the bonanza grade over significant intercepts. This is a 100,000 ounce range resource that could potentially support a small mining operation but does not deserve serious attention otherwise. In an attempt to see if the system descends at depth, however, the company drilled some deeper holes and came back with good intercepts but not at grades or thicknesses that would support an economic operation at those depths unless lateral dimensions are extensive.

They did add some “hope” to the release by suggesting they are proximal to an alkalic gold system, which are sometimes known to have significant tonnages of high grade (required at these depths), although typically with complicated structural controls that can account for hit-and-miss exploration (expensive at these depths). Evidence for the “big alkalic gold system” is Na depletion and presence of tellurium (note that other geological factors think alkalic porphyry can account for this as well), but until they actually identify the actual porphyry stock, assuming there is even one, this is all only speculation.

Even if it turns out to be an alkalic gold system, that doesn’t guarantee much — Evolving Gold has a confirmed example of one and has a market cap a bit over $100 million (about 1.5x Creso). Recently in Ontario as well, Gold Canyon (TSX-V: GCU; Pink Sheets: GDCRF) has been making big noise about its Springpole gold project but this also looks to be of limited size despite the best efforts of that management to portray it as a massive gold deposit — after its massive move higher, Gold Canyon now has a similar market cap to Evolving. Speaking more on alkalic gold systems, only the ones with very extensive veining became major gold districts, and owing to the ability of these systems to form disseminated deposits, that is what made Cripple Creek and Lihir so valuable. These disseminations should not be very difficult to find, and I would argue that if you don’t find them in large volumes than that may speak strongly about the extent of mineralization in the veins as well. Circular logic, I know, but it generally works in this case.

Generally what these examples are proving is that not all alkalic gold deposits are the size of Cripple Creek or Lihir. Of course in the current market frenzy it is altogether possible for Creso to still zoom skyward, but I am unable to find strong fundamental reasons to be on board here. [Silverax]

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.

About silverax

Tom has been told he is arrogant. Unfortunately only very strong medication will apparently chill him out, but he doesn't like to put things in his body that might dull his sharp mind. Which is like an ax. And no, he is not a Scientologist. He can, however, turn lead into silver by concentrating very hard. See picture for proof.
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34 Responses to Mining News Review: Week of October 25thComment RSS Feed

  1. Just a heads up that we’ve been adding to previous “Mining News Review” posts as we catch up with the last few news-heavy weeks. I know Tom (silverax) still has some more to add. He’ll probably add a comment once he’s updated a substantial amount.

    Take a look:

    Week of October 11th:
    Week of October 18th:

    We’re still trying to think of how to better integrate the Mining News Review so that updates to each post are more obvious. I found a WordPress plugin that creates a sidebar box with a list of recently updated posts/pages. I’ll talk with Tom about potentially integrating this.

  2. Dave

    OK, I’ve taken a quick look but I have no idea what’s new, any clus please?

  3. Dave

    re OCO and “we’re told financing options are already lined up”, Pinetree announced that it bought in (again) on 25th, 1m shares and 500k warrants, thus has 10% fd.

  4. kjm

    GBN.v should be worth a look as they make the transition from developer to producer this qtr.
    A little bloated on the share count but they’re looking to hit 100k ozs.

  5. @Dave
    All new material will always be added to the end of each post, so just scroll towards the end of each update and you’ll see new companies that you wouldn’t have seen before. They aren’t specially marked but hopefully you have some idea of what you’ve already read.

    I don’t know when you last looked at each update to tell specifically what’s new for you, but here are some companies we’ve added within the last few days:

    Week of October 11th: Orosur Mining, U.S. Silver, Silvercrest Mines
    Week of October 18th: Virginia Energy, Minera Andes, Antares Minerals, Jaguar Mining

  6. Eventually all of these mining news review updates will end up in our company database as well (, which will be available on an unlimited basis to subscribers. We expect the company database will be a valuable tool for conducting due diligence. In the meantime, to find if a particular company has been mentioned in the Mining News Review or elsewhere, you can put the symbol in the search box at the top of the screen.

  7. kjm :

    GBN.v should be worth a look as they make the transition from developer to producer this qtr.
    A little bloated on the share count but they’re looking to hit 100k ozs.

    This is a very tough business producing from small mines but the hope would be that they are able to continue exploration funded out of production cash flow leading to a larger discovery. GORO is based on this model as is Barkerville Gold (and Metanor too) and while it certainly could work out for some of them, it probably isn’t going to be a cakewalk. For Golden Band one main question in the short to medium term is getting qualified mining staff to SK, especially as companies like Sangold are already pulling good people from ON and QC out to MB. Open pit is one thing, but underground mining requires some talent and rarer experience.

  8. Dave

    re AXI above, if “Now AXI is trading for about 3x the implied deal value with XinXing” (at .82) that means x1 = .27

    But the initial Mining News Coverage (Sep 27) was “It appears the company now has about 175 million shares fully diluted, which is still relatively cheap given the potential of Roche Bay not to mention a host of other opportunities that are now likely to be considered with XinXing as a strategic investor in the company.” when it was either .25 or .35 (depending on whether you posted at the open or close of that day).

    So if it was relatively cheap at that .25 to .35 price then, how come the x3 value / 3 = same? Surely can’t have been that much dilution? What am I missing please?

  9. @Dave
    Don’t know exactly what the question is but the stock has tripled since Sept. 27. It was cheap then, now having gone up by 200% it is trading at 3x the deal value and doesn’t look so cheap.

  10. Dave

    You are now saying that it is trading at 3x the implied deal value, I infer that the implied deal value is fair value, maybe that is wrong. But earlier you said it was cheap at the same price (implied deal value). Perhaps it would help if you showed how you valued AXI in the deal, as I read the fair value was higher.

  11. rob
    that’s a bit startling and the sale price looks a bit low to me. Also looks like a sweetheart deal for the ex Pres. Bob Quartermain and no mention of competing bids or strategies to maximize shareholder value.

  12. @Dave
    $50 million for 50% earn-in so the other 50% is implied to be “worth” $50 million by reference to the deal. Obviously the market has since adjusted that implied valuation by driving the share price higher, which is neither surprising nor unusual, but begs the question (partial answer: iron ore plays are hot) why other Chinese joint-ventured projects haven’t seen such share price reaction.

    If you think it is a sweetheart deal, buy shares in the IPO — that will increase the stock price of the new company and make Silver Standard’s share worth that much more. In other words, this is more like a spinoff than a sale, with the benefit to Silver Standard that they get some cash to put toward developing their next major silver mine. Quartermain being in charge is obviously a huge plus. We’ll put these parameters in the model but my guess is Silver Standard will still look cheap.

  13. rob

    that’s exactly what I was thinking -get in on the IPO. It would be nice if they had a provision for existing sharelholders to get priority on that. Hot IPOs usually go the the best connected big clients n’est-ce pas?

  14. @rob
    Yeah but it’s a minimum $265 million IPO, perhaps there is a bit of room in there for the little guy? My guess is it would be best to already be a client of one of the sponsoring brokers.

  15. rob

    A copy of Pretium’s preliminary prospectus will be available under Pretium’s SEDAR profile at

    The securities offered have not been, and will not be, registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”) or any U.S. state securities laws, and may not be offered or sold in the United States or to United States persons absent registration or any applicable exemption from the registration requirement of the U.S. Securities Act and applicable U.S. state securities laws. This release shall not constitute an offer to sell, or the solicitation of an offer to buy securities in the United States, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.

    well so much for that?

  16. Giuseppe

    rob :@silverax It would be nice if they had a provision for existing sharelholders to get priority on that.

    SSRI is my second largest portfolio holding and I agree they could have been more shareholder friendly if they gave us some kind of options or warrants on Pretium. I now have to wait for the open market to allow me to enter after all the sponsoring brokers and their clients have had the priority! The terms of the transaction do not appear so cheap for Pretium, and I will probably feel confortable just holding an indirect stake in Pretium through my SSRI shares, but I also see that Seabridge is currently being valued by the market at over 1 billion $ market cap, while Silver Standard is only receiving a total consideration of $450 million (comparatively less than half vs Seabridge)!

    This is one of the reason why I very like the shareholder friendly companies like Amarillo Gold and a very few others.

  17. Giuseppe

    silverax : There is still work to be done for the company to meet its goal of defining 2 million ounces of economic gold in the Kirkland Lake area but this entry by Agnico-Eagle is a strategic challenge to Kirkland Lake Gold and ups the stakes for control of the district. If I’m right about this, Queenston shares are headed over C$6.50 in a hurry and thus it might not be too late to get on board here.

    Wait a moment, if QMI could even be a good bet at current price, what about KDX that is worth one fifth of QMI and already has defined a 2 M oz of high grade gold (10 g/t gold) in Nevada? It is also supposed to earn some cash flow in 2011 from some test production of 120k t of ore at 1 oz/t Au. (OK, I know, it’s underground ore… but…)

  18. Peter

    Guiseppe, thanks for mentioning KDX. Just looked at their presentation and it is a pretty compelling story. Just wondering about a couple of things, like when can we expect results from the drilling program started up in June 2010? And do they need this underground in-fill program & bulk sampling to upgrade the indicated and inferred resources? And what about a scoping study / pre-feas? And what was the outcome of the lawsuit with Paramount? Thanks for sharing, Peter

  19. rob

    I just spoke with Paul Lafontaine head of IR at SSRI; he was nice enough to respond to my emaiul and call me back. Regarding the IPO he said it would be available to accredited investors in the U.S. via private placements at participating brokers. I told him I had IB, Schwab and Fid. FWIW he thought fid might be involved or that any of them might be able to get a piece for a customer.
    He said he’d keep me posted if he had more info about the offering. If others here are interested let me know and I’ll be sure to post any info I get.
    He also said there wasn’t enough time to put together warrants or other consideration for existing shareholders and get this done in the time they had.
    Personally I think when this comes to market it will be compared to seabridge and therefore has good potential for a qucik 50%+ pop from the IPO price. Snowfield/BJ is still open and being as RQ is heading Pretium and this was probably his find to begin with I think that is very encouraging for expansion of the resource. I also think that the (only)longterm strategy for both SSRI and Seabridge will be to join the 2 projects and find a major to develop it. Possibly in return for some small cash and either royalties or part ownership of the new entity. Otherwise the up front costs are just too prohibitive to all but a very few select if any majors. By combining them and with both companies taking participation in the development it becomes financially feasible to more suitors(I think).

  20. Giuseppe

    some news I found these days, I report in case you missed them (without reviewing them, just expressing 2 small comments).

    Nov. 2, 2010 (Market News Publishing) — Salazar Resources Intersects 5.3 M At 32 G/t Gold, 321 G/t Silver, 1.0% Copper, – 5.0% Lead And 10.0% Zinc, “…the latest assay results from two diamond drill holes at El Domo in the Las Naves Central area of its Curipamba Volcanic Hosted Massive Sulphide Project in Ecuador have expanded the southern mineralization boundary of the deposit by approximately 100 m.”

    Nov. 2, 2010 (Market News Publishing) — New Discovery Of Orito Zone Significantly Expands Near Surface Gold-silver Mineralization Through Recent Drilling, Golden Goliath has intercepted 44.25M of 72 g/t AG & 0.75 g/t Au (1.95 g/t Au Eq) … Yawn …

    Nov. 1, 2010 (Canada NewsWire Group) — Monument’s Selinsing Gold Mine Opening Ceremony in Malaysia: …”the official Selinsing gold mine opening ceremony was held on Thursday 28th October, 2010 and officiated by the Chief Minister of Pahang State Dato’ Sri Di Raja Yang Amat Berhormat Dato’ Sri Haji Adnan Bin Haji Jaakob. The Company has received congratulations and warm support from the Pahang State Government for its investment and development in Malaysian gold resources.” and this has caused this Goro light grow some 18% in a day!

    Nov. 1, 2010 (Marketwire) — Cream Minerals Limited Mails Supplementary Directors’ Circular and Makes No Recommendation to Shareholders as to Whether to Accept or Reject the Endeavour Offer
    (it seems the only other offer is from Minco “for a transaction that would involve the sale by Cream to Minco of an initial 50% interest in Nuevo Milenio for $5 million in cash, and the grant to Minco of an option to acquire an additional 20% interest by incurring work expenditures of a further $5 million”.
    My comment: The Minco proposal is such compelling for shareholders that the price has fallen even under the Endeavour offer!!! (yes, someone was selling at 0.115 instead of receiving 0.12 from Endeavour, but this could be because Endeavour offer is actually uncertain)

    Nov. 1, 2010 (Marketwire) — Rusoro Receives Final Permits to Commence Offshore Gold Sales and Begin Mining Activities at the 100% Owned Increible 6 Project. Rusoro “is pleased to report that the permit to initiate the offshore portion of gold sales from the Company’s operations has been received and will be effective November 1, 2010. The permit was issued through the Central Bank of Venezuela (CBV) and has authorized the sale of approximately 50% of the gold produced from the Choco 10 and Isidora mines from August 11, 2010 through September 30, 2010″

    Nov. 1, 2010 (PR Newswire) — Northgate Minerals Discovers High Grade Mineralization in a Previously Untested Area at its Stawell Gold Mine. “Hole SD649A Intersects 13.7 Grams per Tonne over 5.45 Metres and 15.4 Grams per Tonne over 2.5 Metres”

    Nov. 1, 2010 (Marketwire) — AIDEA Initates Due Diligence on Zazu’s Lik Deposit
    My comment: at current zinc price and Preliminary Assessment Studies, it is quite clear that Lik deposit is not going to became a mine, so this explain why Zazu MC is only worth 6 M cad. But if it is true that “several areas where the project could be significantly improved” than those who are bullish on zinc – lead prices in the future could be willing to estabilish an initial position in this zinc leverage kingdom of Zazu, right now there is probably no hurry to jump aboard, and I prefer other zinc-lead plays with more silver attached or less early stage like the ones Metal Augmentor has profiled whose names I’m not going to say of course.

    Oct. 27, 2010 (Marketwire) — Largo Enters Into Letter of Intent for Brazilian Joint Venture With Vinci Partners. “Under the terms of the LOI, Vinci Partners and its co investors will provide US$120 million into a newly formed Brazilian Company for the purposes of (i) acquiring the 20% minority interest in the Maracas Vanadium project that Largo does not currently own, (ii) developing the Maracas mine and (iii) progress other projects in Brazil, including the Currais Novo and Campo Alegre projects currently held by Largo. Under the terms of the LOI, Largo shall contribute its Maracas, Currais Novos, and Campo Alegre projects and its operating team to the newly formed Brazilian Company in consideration for a minimum economic interest of 40% of the newly formed Brazilian Company with additional performance warrants that would enable Largo to increase its stake therein.”
    My comment: the best and highest grade primary vanadium project in the world has attracted the interest of a serious player who put 120 M $ cash on the table just to get 6% of maracas and 60% of early stage projects. Positive development for Largo in my opinion.

  21. Dave

    “But before we get too excited and assume it’s going straight up to $10 tomorrow, let’s not forget about the wild gyrations this stock is prone to on both the upside and downside:”, do you have a valuation model for it?

  22. Today Silverax added a rather extensive comment on Creso Exploration to our “Mining News Review: Week of October 25th”, see:

  23. @Dave
    It’s too early stage at this point to worry about creating a valuation model. The PEA gives us some idea, but the long term potential ought to be much greater than a $450M NPV. If all goes well this could easily be a 10 bagger.

  24. camzio

    PEA for Oroco Resources just filed on Sedar

  25. GL


    In your comment: But before we get too excited and assume it’s going straight up to $10 tomorrow.

    Which (it’s?) company are you referring to please?

    This is why it would be great for us to use re: (regarding) so we subscribers can know which company is being referred to. Including the company name (symbol too?) would be helpful.

    Thanks Dave! All best, GL

  26. Dave

    Yer, sorry, annoys me when not clear what is being referred to too, see news above re AMZ; although my most recent post about this was And this is one where I think EPS, and growth, is better as sum(DCF) is just too big!

  27. Drew

    OCO – I always figure mgnt can’t wait to release good news, but sits on the bad news as long as possible. So, I am scratching my head with OCO. They talked about the PEA forever and it finally, finally got released and then they waited the full 45 days to post it on SEDAR, and the initial press release only provided scratchy details (a waste of time in my view). So, I am wondering if there is a hole in this story . . .

    I have only perused the PEA and I see the econ model is pretax and I don’t see sustaining cap or reclamation expense. Also, the cap numbers in the PEA are different from the cap ex numbers in the Oct press release that the TSX asked them to retract.

    Another thing that raised an eyebrow was they did a small financing back in Oct immediately prior to supposed release of the PEA. If I were a shareholder, I would prefer they raise financing after the good news so as to minimize dilution? Pinetree participated in the $.20 financing and sold at $.30 . . .

  28. @Giuseppe
    Klondex, different story, but one that looks to be interesting in 2011. More later.

    We can’t control it if someone comments without mentioning the company name or symbol!

    We’re looking at Oroco but for now it is pretty small production profile and those tend not to get much market enthusiasm and also a small production problem can be magnified. Also they are yet to announce full details of financing and the terms might not be “shareholder friendly” if you know what I mean. For example I became much less enthusiastic about Aurcana after reviewing their recent mega-financing.

    Good points all, probably worth asking management about them. Still I say this is a small production story deserving at most a small slice of a portfolio although the shares are quite cheap so there should be some upside along the way.

  29. Bart

    well well well… looks like someone is interested in Creso

    Creso Options Up to Approximately 70% Interest in Part of the Shining Tree Property to Hunter Dickinson in a $43 Million Deal

  30. Bart

    If you guys are willing to play Lebed pump and dumps, I’d say creso is a good candidate for some short term gains here around .41 / .42 IMHO.

  31. @Bart
    No doubt the Hunter Dickinson deal is significant for this roughly $30 million company (a little over $40M on fully diluted basis). I still prefer Niogold, but if this one falls much further it starts to get tempting.

  32. @Bart
    “$43 Million Deal” sounds impressive but HD earns in with an exploration spend — there is little being paid to Creso directly, and my guess with a deal like this is there is a good possibility of walking away early on if exploration fails to prove up a big resource (and keep in mind, failure to prove up anything compelling is why Creso is doing the deal in the first place). With my uncertainty about the tonnage here, I think we’ll stay away but on the other hand that is a huge exploration budget so we should keep an eye on future progress.

  33. Bart

    Interesting volume for creso today.

  34. Giuseppe

    Giuseppe : the best and highest grade primary vanadium project in the world has attracted the interest of a serious player who put 120 M $ cash on the table just to get 6% of maracas and 60% of early stage projects. Positive development for Largo in my opinion.

    I completely forgot about Largo until recently Dave told me about a vanadium company in our vanadium-bugs emails and then I went back to see the company presentation,

    What can I say? I report here what I wrote to Dave in case others have an interest in LGO. Despite I’m not a vanadium fan (Largo says it should go in oversupply!) I see the company is probably one of those specialty metals company that stand head and shoulders above peers with their flagship asset, the ones which only deserve attention if their exotic commodity is not sexy or trendy at the time. So we may want to watch more closely, and watching closely what I find is that LGO looks very cheap!

    LGO is worth 120 M c$ (without adding 10% dilution from wts and options, I have to watch if they are in the money or not) and it is already producing 12 M $ yearly cash flow at a small tungsten operation in Brazil. But what is interesting to me is their 90% owned vanadium (+ pgm) high grade project Maracas which is supposed to make them earn about 100 M $ cash flow per year once in production from march 2013. This means that if they really have already equity funded the capex as they state they did and received binding commitments from a consortium of commercial banks for guarantees of a Brazilian Development Bank (“BNDES”) loan facility in the principal amount of up to US$150 million for the development of Maracas, then they are trading at just 1 time future cash flow! (This is not entirely clear to me, since the capex is 212 M $, the banks give them no more than 150 M $ and they have a net debt of 4 M $, not 62 M $ cash as they may need: does it mean they already spent 65 – 70 M $ of the capex? Why they say that the project equity financing was completed in april 2011 and they now do not have the cash on hand??? Here is where more DD is needed).

    It is not such a terrific thing in a moment when you can find PM producers trading at forward PE of just 2, ok, but then they think they will increase 50% production capacity at Maracas and 100% at Currais Novos from year 4, and a shareholder also gets PGM blue sky potential they claim at Maracas and the mammoth project of Northern Dancer (8%NAV is 0.9 B $ in the PEA assuming 17.5 $/lb moly and 275 $/mtu tungsten) they also own, for which they should finish a prefeasibility study in the first half of 2012 (and then, I hope, stop spending money on it, since it will probably never get developed, given the mammoth pre-production capex of 650 M $!). Northern Dancer is the very opposite of Maracas, in that it is a ugly very ugly asset (about quite ugly commodities too) but maybe after the PFS confirms an high (hipothetical) NPV the market could value it some 5% of such a NPV and it could add 50 M $ more to the market cap of LGO in a less cold market? I don’t know…

    Disclosure: bought a very small position at 0.28 c$

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