First and Last Word on Metals and Mining

Overview


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Ethos Gold Peerless

Corporate Account, Diversified Metal Miners, Gold & Silver Metal Miners

ECC.V | Gold | Yukon, Canada | Explorer

September 20, 2012 by Take Profit | Medium Position | $0.40

Note: We have marked this as “Take Profits” for lack of better terminology. We’ll plan to add a new designation along the lines of “Reduce Exposure” in the near future for positions where we aren’t actually realizing any profit on a sale.

Ethos has completed its 2012 exploration program and although there are some interesting results to follow-up on next year, there’s nothing in the latest batch to provide much excitement. The share price could very well recover along with the market … after all, Ethos is fully funded with about $0.20 per share in cash. But there seems to be a lack of near-term price drivers and we’re looking for more than something that will just rise and fall with the tide. Therefore we will be lightening our position. It should be noted that we’ve only briefly analyzed the latest news and haven’t yet had a chance to speak with management. It’s possible further investigation will cause us to revise our outlook, but for now it’s all about reducing exposure ideally at $0.40 or better.

Corporate Account, Diversified Metal Miners, Gold & Silver Metal Miners

OGR.V | Gold | Sinaloa, Mexico | Developer

September 19, 2012 by Hold | Small Position | $$0.165

I spoke with John Brownlie yesterday to get some color on the new board. Not surprisingly the old crew was politely asked to leave as Wexford asserts itself as the majority holder just under 53 percent. That means they can’t be buying in the open market, but it doesn’t mean they can’t make plenty of noise and it given the market action from $0.08 pre-announcement to a $0.165 close today that seems to be exactly what they’re doing perhaps along with the new directors with impressive resumes on the block. Turns out it wasn’t such a crazy idea to be accumulating below Wexford’s $0.11 offer as suggested in the last Remark!

According to John, Wexford would like to get more directly involved in the gold mining space and Oro Mining is their (first) vehicle. They own share positions in many other companies, but their newly acquired majority stake in Oro Mining is a different animal. Wexford is a machine capable of securing financing to do deals and John would very much like to use that machine to move more aggressively to build up the company’s resource base beyond just Taunus without significant dilution. Wexford was a large shareholder of Capital Gold which was run by John and eventually sold to Gammon Gold for an impressive $420 million. Wexford seems to be putting their trust in Brownlie to do it all over again and the new heavy hitters on the board couldn’t hurt.

If we had a larger position at this point we’d take some money off the table on that trade. However, given the market, the momentum, the Wexford connection and the (hopefully) near-term driver of final permit being issued for Taunus we’ll continue to mark our small but growing position as a hold saving the difficult decisions for later.

Corporate Account, Diversified Metal Miners, Gold & Silver Metal Miners

MAW.TO | Gold | Finland | Explorer

September 19, 2012 by Take Profit | Medium Position | $1.49

We went into more detail about why we were considering profit taking in our last remark, and now it’s official. We will still maintain exposure while Mawson awaits approval to begin drilling on its more attractive targets, just not as much. Permission to drill could offer a boost, but arguably the market is already assuming eventual access. Furthermore there are likely to be some new additions to our portfolio in the not-too-distant-future such that the cash raised here will prove useful.

Note: After considering the value of the Darwin Resources and European Uranium Resources spinoff shares our average cost is closer to $1 than what is shown on the Holdings page.

Corporate Account, Diversified Metal Miners, Gold & Silver Metal Miners

DPM.TO | Gold | Bulgaria | Producer

September 19, 2012 by Take Profit | Medium Position | $9.45

This one has moved up nicely along with most of the gold producer space and is near the top of its 2 year range. Therefore we plan to do some profit taking and lighten our exposure. We may look to buy again on a pullback but to a large extent that will depend on what we discover while researching the gold producers in an effort to separate the best (“Peerless”) from the rest.

Corporate Account, Diversified Metal Miners, Gold & Silver Metal Miners

CGA.TO | Gold | Philippines | Producer

September 19, 2012 by Exit | Medium Position | $2.84

A merger with B2Gold along with a recent rise in the share price provides an opportunity to book some profits, as relatively meager as they might be on this one. We do like B2Gold as a gold producer and have thought about keeping the CGA Mining position as a way to leg into B2Gold, but given our impending look at the gold producers including our initial designation of the “Peerless” standouts within that group, we are certain to be making some portfolio moves shortly anyway. So our thinking is to take this easy opportunity here with CGA. As such we are exiting our position on this merger news.

Diversified Metal Miners, Gold & Silver Metal Miners

GBG | Gold | South Africa | Producer

September 13, 2012 by Exit | Small Position | $0.09

This company is an utter failure and every opportunity it got to turn things around (there were at least a dozen of them along the way) was squandered including the latest attempt to sell/monetize/rationalize one or the other of its projects. If there is a turnaround here, we’re certainly not interesting in going along for the ride any more and will be exiting what fortunately was a relatively small position in our portfolios. The proceeds at the current share price of 8 cents are almost inconsequential and we shall use this episode as a lesson that when it comes to gold stocks it is important to get going when the going is good. At one point we were up nearly 100% on the position and did take some profits along the way but that’s a small consolation when you’re down over 90% from the entry price. In retrospect this was a silly company to hold for the longer term and we gladly bid adieu, late as it might be.

Corporate Account

September 13, 2012 by Accumulate | Medium Position | $1.46

We are adding Huldra to the portfolios as an imminent silver producer after doing preliminary analysis here. The company expects to be in production in the 4th quarter and has been actively extracting ore and stockpiling for the mill and flotation plant for several months, which together with an early bulk sample and other previously mined material, gives Huldra a very substantial pre-production raw ore stockpile to draw down in the months ahead. The keys in the near term will be announcements of the mill start up and production/sale of concentrates and then by early next year a revised resource estimate that would ideally expand the reasonable mine life to 4 or more years at the Small Mine Permit rate of 60,000 tonnes per year. Even though this is a low production rate, the silver grades are quite high and should generate at least 1 million ounce annual production with an upside toward 2 million while the lead and zinc by-product credits should reduce the silver production cost toward zero. The net result, if management’s plans go right, is a profitable new silver producer operating in geopolitically-safe British Columbia (in fact a few hours drive from Vancouver).

Corporate Account

SMD.V | Gold | Yukon, Canada | Prospect Generator

September 13, 2012 by Accumulate | Medium Position | $0.76

Trading out of ATAC Resources and into Strategic Metals as discussed more thoroughly here. Strategic is not only exposed to the upside of success on ATAC’s projects through its ownership interest and large adjacent land package, it is also trading below the value of its cash + investments.

ATAC Resources Peerless

Corporate Account, Diversified Metal Miners, Gold & Silver Metal Miners

ATC.V | Gold | Yukon, Canada | Explorer

September 13, 2012 by Exit | Medium Position | $2.46

Trading out of ATAC Resources and into Strategic Metals as discussed more thoroughly here. Strategic is not only exposed to the upside of success on ATAC’s projects through its ownership interest and large adjacent land package, it is also trading below the value of its cash + investments.

Fortuna Silver Peerless

Diversified Metal Miners, Gold & Silver Metal Miners

FSM | Silver | Mexico | Producer

September 11, 2012 by Exit | Medium Position | $5.29

Fortuna has come quite a ways back from its drop earlier in the year when cost pressures at Caylloma reduced the level of historic profitability (this now seems to be the norm in mining … lower profits despite elevated metal prices due to rising costs) while the newly-commissioned San Jose operation didn’t live up to all the hype despite starting out strong. The company is still one of the best in the silver mining space and we will continue to look at holding and trading it, but given the comeback run the shares have had combined with our original plans to trade in and out of our position to take advantage of market swings, we are currently looking to exit out of the position to redeploy the funds opportunistically. I’m sure we’ll be looking at Fortuna again in the near future and will be keeping it on our portfolio radar.

Corporate Account, Diversified Metal Miners, Gold & Silver Metal Miners

SSP.V | Gold | Guyana | Developer

September 7, 2012 by Hold | Small Position | $0.65

In their latest press release announcing a new President/COO Sandspring talks about the exact type of project optimization that initially had us excited (and later a bit depressed when the company couldn’t see it) in terms of going after the higher grades first to get early cash flow and thereby reducing capital cost. As recently as PDAC 2012, however, their people seemed oblivious and just kept offering up the bloated economics of a very large super low grade operation despite clear evidence that the market did not like it. But now it seems more and more likely the company is actually becoming serious about looking at a core operation focused on profitability first. This is precisely the right approach in our thinking especially since the Toroparu deposit looks like one that should allow the pit walls to be pushed back from internal cash flow with higher gold prices. Not to mention with Guyana Goldfields back above $3.00 the valuation differential is once again approaching 4x vs. Sandspring’s lowly market cap. Not quite ready to make this an “Accumulate” just yet (we were after all seriously considering an exit earlier in the year) but things are definitely moving in the right direction at this point.

Golden Predator Peerless

Corporate Account, Diversified Metal Miners, Gold & Silver Metal Miners

GPD.TO | Gold | Yukon, Canada | Explorer

September 7, 2012 by Accumulate | Medium Position | $0.32

Bill Sheriff just gave a presentation in Colorado on Golden Predator, Brewery Creek and the royalty portfolio. The presentation (see here) contained a lot of the same information that he told us back in May. He is still saying the loans for developing Brewery Creek are almost done (within a month hopefully or something like that) but also added the twist that once the royalties are no longer collateral for these Brewery Creek loans (which importantly would not include forward selling) then they plan to spin them off to shareholders in a new company. At that point (in 3-4 years although my guess is Bill would say 2-3) the royalties might just be starting to produce so their valuation could be much better than monetizing them now. It all sounded very good as did his talk with us in May and he certainly provides gist for buying the shares on a mid to longer term basis especially given the stock is currently sitting on its 52 week low. Then again for more immediate consideration, if something like Comstock Mining (AMEX: LODE) can have a $300 million market cap, why not GPD? GPD actually has more going for it in my opinion and if it could only get back into the good graces of the PM community then on a comparable basis to LODE it should be a $2 stock.

Corporate Account, Diversified Metal Miners, Gold & Silver Metal Miners

LYD.TO | Gold | Armenia | Developer

September 6, 2012 by Hold | Medium Position | $2.45

You don’t need to plug yesterday’s feasibility study results into a model to know that Lydian’s Amulsar project is robust even if its capital costs are relatively high for this size heap leach operation … but we did it anyways and found that using the current gold price of $1700 Amulsar sports an after-tax net present value of roughly $700 million when using an 8% discount rate. After making some project financing assumptions our base case valuation comes in around $5 per share, which means a realistic buyout target of perhaps $4 all else equal. So why change our stance from Accumulate to Hold? First of all we’re talking about a $300 million company where plenty could still go wrong. Furthermore, Lydian’s share price has basically tread water for the last 2 years while countless peers have been beaten down to bargain levels thereby making those other companies a relatively better value.

Corporate Account, Diversified Metal Miners

MIN.V | Copper | Arizona, USA | Developer

August 26, 2012 by Hold | Small Position | $0.32

A major reason for originally buying into Excelsior Mining back in February 2011 was the stark 6:1 valuation gap between it and closely comparable but more advanced Curis Resources (TSX: CUV).  We expected that gap to close and indeed it has. Unfortunately it has closed in the wrong way with Curis falling almost 90 percent due primarily to strong local opposition at its Florence project. So extreme was its plunge that these two in-situ developers now sport nearly identical valuations of about $20 million each. Suffice it to say Excelsior is no longer the obvious relative value it used to be.

Because of its location Excelsior won’t have to deal with the same problems as Curis, but it still needs to raise $20-$25 million just to complete the feasibility study on Gunnison. Most of the funds are needed for extensive hydrological drilling, results of which are the big remaining question mark. Meanwhile we understand that phase one production for Curis is expected to consist of only a few million pounds over 12-18 months. That’s probably more exciting than hydrological drilling results, but arguably not by much. It certainly doesn’t seem like something that’s going to create much excitement, let alone so much that it spills over into Excelsior.

The net present value as laid out in Excelsior’s PEA remains compelling, and there may even be potential to fast-track production with significant capital savings. It’s also the only real copper exposure in all our portfolios and remains a hold for now, but in the exercise of determining Peerless copper companies we may decide there are other more compelling opportunities on offer.

Corporate Account, Diversified Metal Miners, Diversified Rare Earths Basket

FREFF | Rare Earths | South Africa | Developer

August 20, 2012 by Hold | Medium Position | $0.77

Frontier Rare Earths has, like most others in the REE sector, lost just about all its luster and is trading for a pittance … actually around if not less than cash on hand plus the 10% buy-in that its Korean partner KORES is supposed to be paying any day now. We would expect a bump in the share price when that payment has finally been made (or in anticipation thereof), perhaps getting the shares back over the $1.00 level. On the other hand, if KORES has trouble lining up consortium members for its Zandkopsdrift operating partnership, say because the recent troubles in South Africa (e.g., mining union riots and deaths at Lonmin platinum mine) give the Koreans too much pause, the deal could potentially unravel and leave Frontier back closer to square one than the finish line. Even if the KORES deal does go forward as planned, the fact that a significant portion of the Zandkopsdrift development schedule would be out of Frontier’s hands (design of separation plant, financing, etc.) will probably make it less likely that the aggressive timeline is adhered to. So it’s sort of a damned if you do and doomed if you don’t situation. Our own enthusiasm for Frontier has been tempered by the required capital to build the mine and REO separation facilities — approaching $1 billion according to the PEA and certain to be higher — as well as the general deterioration of geopolitical and business conditions in South Africa. That is why if the Frontier share price approaches, much less surpasses, the $1 level it would beckon us to press the sell button and exit the position. Let’s see if the almost 20% price pop today is the start of something positive.

Corporate Account, Diversified Metal Miners, Diversified Rare Earths Basket

DSM.V | Rare Earths | N/A | N/A

August 20, 2012 by Exit | Medium Position | $0.52

We have been looking for a reason to exit our positions in Dacha Strategic Metals considering the decline in the inventory value of the company’s high-purity rare earth oxides and metal. The shares frankly have held up pretty well despite the significant drop in REE metal prices but then again it was the expectation of price declines that created the huge discount to net asset value (NAV) that made the share price such a good deal in the first place. Now the NAV discount is no longer as big while the proposed merger with Aberdeen International means a reduced direct exposure to rare earths. Given the relative value elsewhere in the rare earths space, Dacha no longer cuts it and therefore we are cutting it loose from our portfolios with a target exit price above 50 cents. That represents a small loss from our purchase level but given the drubbing the REE sector has taken during the past year we’ll gladly take it.

Verde Potash Peerless

Corporate Account, Diversified Metal Miners

NPK.TO | Potash | Brazil | Developer

August 20, 2012 by Hold | Medium Position | $3.58

Verde Potash is now fully engaged in the early development stage featuring somewhat mundane steps like progress on permitting, preliminary plant design and the feasibility study (by mid-2013). Without exciting new developments, the share price has largely followed the resource sector lower over the past few months. Going forward, the company may not outperform the sector initially but as development plans are firmed up (along with potash prices, which have stalled in 2012) we should see the valuation improve back toward last year’s high and eventually beyond. This is one of those stories that, if it works, will work in a big way … the economics of the potash market in Brazil demand it (Brazil being a major potash importer and having substantial undeveloped arable land) along with the immense size of Verde Potash’s verdete slate resource. One question that still needs to be answered is the financing; ideally Verde Potash partners with an established company and opts for debt instead of share dilution. Another question is the potential impact on project economics as a result of price inflation and/or currency fluctuations in Brazil. Once there is more certainty in these areas as the project gets closer to reality, we would expect the market cap to approach a reasonable proportion of the project NPV, which is high enough that some patience now could be very nicely rewarded in the not-too-distant future.

Corporate Account, Diversified Metal Miners

YEL.V | Uranium | Peru | Explorer

August 20, 2012 by Hold | Small Position | $0.13

Macusani Yellowcake post-merger with Southern Andes has a dominant land position on the Macusani plateau in Peru and about $10 million in cash that should see the company continuing its exploration and early stage development plans well into 2013. The company is no longer primarily a drill play on the high(er) grade Kihitian property and that means it is not very likely to see substantial share price appreciation resulting from drill campaigns. The main prospects in the short to medium term for the company instead reside in the strategic value and growing leachable uranium resource base (targeted to be over 50 million pounds U3O8 across all properties and resource categories by the end of 2012) in an area of the world where U production is potentially cost competitive. The possibilities are substantial from a longer term holding standpoint but we are currently looking at some other uranium companies with payoff odds that may be both closer and higher. Our operating thesis is still predicated on the uranium market picking up in 2012-2013 as a result of, among other factors, large deals for long-term supply that power plants will be making. Therefore we think having some exposure in the uranium sector is desirable … it’s just that perhaps Macusani Yellowcake may not be the best choice at this moment in time. For now we continue to hold a small position pending the completion of our sector analysis.

Corporate Account, Diversified Metal Miners, Diversified Rare Earths Basket

GMA.V | Rare Earths | Quebec, Canada | Explorer

April 7, 2012 by Accumulate | Large Position | $0.56

With shares trading below C$1.50 C$1.00 C$0.60 we’ve been constantly adding to an already very overweight position, expecting significant share price drivers in the weeks and months ahead. The recent financing hurts, but assuming no trouble closing it this will at least gives Geomega some firepower to continue moving aggressively on Montviel. Refer to our original and latest analysis for more information. Also be sure to check out Geomega’s Company Index page.

Diversified Metal Miners, Gold & Silver Metal Miners

EAS.V | Gold | Indonesia | Explorer

April 7, 2012 by Hold | Small Position | $0.33

An initial success turned into a true disaster stock that has just about everything wrong going for it other than the geology of the gold deposit itself. May sit out Spring rally but leveraged to something going right for once (such as progress in the many steps required for permitting). We are ambivalent about the prospects in the near term and there are certainly much better opportunities elsewhere. Recent coverage HERE and HERE.

Corporate Account, Diversified Metal Miners, Gold & Silver Metal Miners

CPN.TO | Gold | Romania | Developer

April 7, 2012 by Hold | Small Position | $0.385

A solid gold developer which has attracted interested from king of the hill Barrick Gold (NYSE: ABX). Review of permit for RDM project in Brazil complete and project back on track, but we’re much more interested in the potential of Rovina in Romania. Received rude reception at PDAC, and that’s turned us off a bit. Not sure timing is right and may consider exiting our position.

Diversified Metal Miners, Gold & Silver Metal Miners

SVM | Silver | China | Producer

April 7, 2012 by Hold | Medium Position | $6.33

In most of our portfolios we primarily accumulated various bullish call/put vertical option spreads, but despite the shorts being proven dead wrong weakness in the broader silver market has left us high and dry with most of these strategies. We also own the shares outright in a couple portfolios after taking some profits off the table nearer $10. Main coverage HEREHERE, and HERE.

Corporate Account, Diversified Metal Miners, Gold & Silver Metal Miners

WRP.V | Gold | Idaho, USA | Explorer

April 7, 2012 by Hold | Medium Position | $0.255

Cheap with prospective and target-rich projects. Main coverage HERE and HERE. Detailed coverage of our property visit is forthcoming.

Corporate Account, Diversified Metal Miners, Gold & Silver Metal Miners

BCM.V | Silver | Peru | Developer

April 7, 2012 by Hold | Medium Position | $3.18

The Bear has been beaten down pretty badly and is now probably the cheapest silver developer with a world-class project. However, the Corani feasibility study released in December 2011 showed higher costs and lower production — after accounting for what’s actually payable — than what was modeled previously. There is also clearly a lot of work be done, just take a look at the “recommendations” section. Having updated our model we calculate the of Corani alone at $7-$8 per share at current metal prices. This is still a trading position, but whereas we were originally planning to exit in the $6-$8 range we are now looking for $5+.

Corporate Account, Diversified Metal Miners, Gold & Silver Metal Miners

ER.TO | Gold | Quebec, Canada | Explorer

April 7, 2012 by Hold | Medium Position | $1.16

The updated resource at the Clearwater Project shows the potential value of the high grade, open-pittable gold resource but the market seems clueless. As the resource grows maybe they catch on…or perhaps more likely end up lamenting about 20/20 vision after the project gets gobbled up by a mid-tier miner. Original coverage HERE.

Corporate Account, Diversified Metal Miners, Gold & Silver Metal Miners

NGM.V | Gold | Ontario, Canada | Explorer

April 7, 2012 by Accumulate | Small Position | $0.235

More work on our part needs to be done to understand the deposit from a mining perspective and the resource from an expansion standpoint, but fortunately a highly profitable production scenario has already been laid out in a PEA released in 2011 and recent drilling provides encouragement that a consistent style of gold mineralization continues on strike and below the conceptual open pit. There’s reason to expect significant economic enhancement through resource growth and the potential for separating ore into a heap leach and milling component. Beyond excellent infrastructure and gold that comes to surface, it’s also helpful to have the backing of a wealthy private investor who reportedly continues to accumluate in the open market. Original coverage HERE.

Diversified Metal Miners, Gold & Silver Metal Miners

CXO.V | Gold | Yukon, Canada | Explorer

April 7, 2012 by Accumulate | Small Position | $0.34

Some smart guys got together 3 years ago and decided to explore some obvious but overlooked prospects in the Yukon and northern British Columbia just as the frenzy was getting started. They picked out at least a couple of beauts if judging by outcrop and soil geochemistry. Cheap with plenty of cash to fund drill programs in 2012. Original coverage HERE.

Prodigy Gold Peerless

Corporate Account, Diversified Metal Miners, Gold & Silver Metal Miners

PDG.V | Gold | Ontario, Canada | Developer

April 7, 2012 by Accumulate | Medium Position | $0.67

Hard to imagine there aren’t plenty of mid-tier gold producers looking at Prodigy as an M&A target after further progress on permitting. Plenty of potential upside at the current price level. Original coverage HERE.

NioGold Mining Peerless

Corporate Account, Diversified Metal Miners, Gold & Silver Metal Miners

NOX.V | Gold | Quebec, Canada | Explorer

April 7, 2012 by Accumulate | Medium Position | $0.39

A “simple math” play, see HERE. Recent drill results encouraging.

Corporate Account, Diversified Metal Miners, Gold & Silver Metal Miners

PSPGF | Gold | Nunavut, Canada | Explorer

April 7, 2012 by Accumulate | Medium Position | $0.35 [Smash]

Smash is being amalgamated with Prosperity Goldfields with its more advanced and much more interesting Kiyuk project in Nunavut. Our meeting with Adrian Fleming at PDAC went very well and has us back on the bid accumulating shares opportunistically. A financing is probably need for the 2012 program, but the drill plan is aggressive with first results expected late April and pretty much every month thereafter through December. Main coverage HERE.

Corporate Account, Diversified Metal Miners, Gold & Silver Metal Miners

RVS.V | Gold | Burkina Faso | Explorer

April 7, 2012 by Accumulate | Medium Position | $0.52

Healthy treasury and good exposure to market darling Roxgold (TSX-V: ROG) which bought its hot Yaramoko project from you guessed it, Riverstone…for $17 million cash and 16 million shares. Here’s the best part, Riverstone sold Yaramoko to Roxgold only because it likes its Karma project even better. Karma is already 2 million ounces of open-pitable gold with PEA coming later this year. Original coverage HERE.

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