For the Mr. Coxe's weekly Institutional and Client Call Click Here
To download Mr. Don Coxe's December 2007 Edition of Basic Points click here (Courtesy Victor Adair)
Friday, December 21, 2007
Don Coxe Basic Points December 2007
December 2007 - Basic Points - Double, Double, Greed and Trouble, CDO's and Housing Bubble
For the Mr. Coxe's weekly Institutional and Client Call Click Here
To download Mr. Don Coxe's December 2007 Edition of Basic Points click here (Courtesy Victor Adair)
For the Mr. Coxe's weekly Institutional and Client Call Click Here
To download Mr. Don Coxe's December 2007 Edition of Basic Points click here (Courtesy Victor Adair)
Thursday, December 20, 2007
Buy, Sell or Hold Inter-Citic Minerals (ICI-TSX)
Wellington West analyst Catherine Gignac comments on Inter-Citic’s release of assays from 2/3rd of its drilling program.
Company Profile
Inter-Citic Minerals is a junior exploration Company with their own drill rigs, exploring and advancing the key Dachang property in NW China through strategic domestic relationships. The relationships provide access to an extensive technical database for possible new acquisitions as well as a depth of in-country experience and knowledge. N.I. 43-101 inferred resource of 2.0 million oz gold in two zones.
Event
Inter-Citic reported assay results from 135 holes (nearly 20,000 m of drilling).
Takeaways From The Event
With 66% of Inter-Citic’s drill campaign for 2007 complete, results from assays “support consistent gold grades and width, to shallow depths, over a total strike length of 3.4 km.” Most recent results include: 7.0 metres of continuous mineralization averaging 8.48 grams per tonne contained gold, 6.5 metres of continuous mineralization averaging 8.12 grams per tonne contained gold, 21.0 metres of continuous mineralization averaging 4.98 grams per tonne contained gold and 15.0 metres of continuous mineralization averaging 4.55 grams per tonne contained gold. Gignac writes “the average of selected principal intersections from thirty-five of the holes reported averaged 6.62 metres grading 2.85 g/t gold.”
The company currently has 2 active drill rigs on its main zone, 2 rigs testing new areas and “drilling has averaged 200 m/day with core recovery of over 90% and a near-perfect “hit rate” of drilling mineralization below trenched areas.”
Inter-Citic’s most recent (March 2007) inferred resource estimate for the Dachang Main Zone only, “totaled 1.8 million ounces averaging 3.71g/t gold. An additional 239,000 ounces grading an average of 5.81 g/t gold has also been outlined in a northern zone.” An updated resource estimate is expected in Q1/08. Furthermore, metallurgical studies and preliminary economic work are ongoing.
The following is from Inter-Citic’s December 17 press release: “Inter-Citic’s 279 km2 Dachang Gold Project consists of five exploration license areas. Two of the five areas were renewed on a normal course basis in November, 2006. The three remaining areas were renewed effective December 1, 2007 for an additional two years, the maximum period allowed by Chinese law. All of the Company’s exploration licenses are eligible for and subject to further renewal on their applicable renewal dates.
Target Price and Valuation
Gignac has a BUY rating and a $2.25 twelve month target on the stock which is based on “near term potential for a resource of 3M-5M oz @ US$25-US$50/oz.” Gignac also noted that “$7.4 million of in-the-money warrants expire in March 2008.
Company Profile
Inter-Citic Minerals is a junior exploration Company with their own drill rigs, exploring and advancing the key Dachang property in NW China through strategic domestic relationships. The relationships provide access to an extensive technical database for possible new acquisitions as well as a depth of in-country experience and knowledge. N.I. 43-101 inferred resource of 2.0 million oz gold in two zones.
Event
Inter-Citic reported assay results from 135 holes (nearly 20,000 m of drilling).
Takeaways From The Event
With 66% of Inter-Citic’s drill campaign for 2007 complete, results from assays “support consistent gold grades and width, to shallow depths, over a total strike length of 3.4 km.” Most recent results include: 7.0 metres of continuous mineralization averaging 8.48 grams per tonne contained gold, 6.5 metres of continuous mineralization averaging 8.12 grams per tonne contained gold, 21.0 metres of continuous mineralization averaging 4.98 grams per tonne contained gold and 15.0 metres of continuous mineralization averaging 4.55 grams per tonne contained gold. Gignac writes “the average of selected principal intersections from thirty-five of the holes reported averaged 6.62 metres grading 2.85 g/t gold.”
The company currently has 2 active drill rigs on its main zone, 2 rigs testing new areas and “drilling has averaged 200 m/day with core recovery of over 90% and a near-perfect “hit rate” of drilling mineralization below trenched areas.”
Inter-Citic’s most recent (March 2007) inferred resource estimate for the Dachang Main Zone only, “totaled 1.8 million ounces averaging 3.71g/t gold. An additional 239,000 ounces grading an average of 5.81 g/t gold has also been outlined in a northern zone.” An updated resource estimate is expected in Q1/08. Furthermore, metallurgical studies and preliminary economic work are ongoing.
The following is from Inter-Citic’s December 17 press release: “Inter-Citic’s 279 km2 Dachang Gold Project consists of five exploration license areas. Two of the five areas were renewed on a normal course basis in November, 2006. The three remaining areas were renewed effective December 1, 2007 for an additional two years, the maximum period allowed by Chinese law. All of the Company’s exploration licenses are eligible for and subject to further renewal on their applicable renewal dates.
Target Price and Valuation
Gignac has a BUY rating and a $2.25 twelve month target on the stock which is based on “near term potential for a resource of 3M-5M oz @ US$25-US$50/oz.” Gignac also noted that “$7.4 million of in-the-money warrants expire in March 2008.
Monday, December 17, 2007
Buy, Sell or Hold Centenario Copper (CCT:TSX)
On December 17th/07 Canaccord Adams added Centenario Copper to their Best Ideas Weekly list.
Company Profile
Centenario Copper Corporation was founded in 2004 with the goal of becoming a mid-tier copper producer. Centenario is a well funded advanced stage development company with a 100% interest in the Franke and adjacent Pelusa cluster copper deposits in Chile, with Franke being advanced for planned start-up by year-end 2008. The company also has an option to acquire the prospective Pan De Azucar copper-gold-molybdenum property in Chile.
Centenario began trading on the TSX under the symbol CCT on October 18, 2007, and currently has a market capitalization of C$247.7 million. The company reports its financial statements in US dollars with a fiscal year-end in December.
During the third quarter of 2007, Centenario undertook a funding program that included net equity proceeds of approximately US$83.9 million and the arrangement of an underwritten US$110 million project debt credit facility.
Event
On December 17th/07 Centenario Copper, which is covered by analyst Orest Wowkodaw, was added to Canaccord’s Best Ideas Weekly list.
Takeaways From The Event
Franke Project
Wowkodaw estimates that "Franke and various clusters at Pelusa are likely to support an approximate 8- to 10-year project mine life at the Franke plant." The project will be an open pit mine, "with a relatively low expected stripping ratio of 1.1 tonne of waste to 1.0 tonne of ore." Centenario plans to "outsource the mining of the open pit to external contractors to minimize capital costs and will award the contract in January 2008. A revised Franke mine plan, based on a $1.30/lb copper design price, is also expected to be completed by early 2008."
The project rceived its EIA approval in June 2007 but still requires "several additional non-critical path environmental and nonenvironmental permits related to (1) the changes to the project design that were made subsequent to the initial submission of the EIA, such as the elimination of secondary leaching with subsequent spent ore disposal on the waste dump, modification of the water pipeline routing to shorten the distance, and construction of a high-voltage power line; (2) 11 other environmental permits that should be granted under normal course, with specific attention given to the water pipeline construction permit for ravine crossings due to the stringent engineering requirements of the General Water Department; and (3) 46 non-environmental permits, of which 11 are classified as “simple or slightly complex processing” and 35 are classified “medium complexity processing”. While the company can not provide timelines on the permitting process, Centenario does not expect delays in receiving approvals that would negatively impact on its construction start-up schedule."
The company anticipates life-of-mine average cash operating costs of $0.75/lb based on $1.30/lb copper, which in Wowkodaw's view, "is more or less in line with other SX-EW producers in the region, as relatively high acid consumption is projected to be largely offset by the higher grade and recovery benefit of the ore."
With Centenario’s Franke project being prepped for planned start-up by year end 2008, Wowkodaw lists 4 reasons to purchase shares of the company.
1. Copper leverage – Centenario offers significant leverage to the copper price, which, in Wowkodaw’s words, “remains our preferred near- to medium-term investment vehicle in the base metals complex.”
2. Lower-risk project – the project is slated to use “SX-EW heap leach processing, which is a well-proven low-risk technology. The company has also fully funded its Franke project and "sourced the required water and power and a significant portion of the acid." Approximately 80% of the capital costs are fixed on a price/unit basis "which should provide a significant level of cost certainty for the project."
3. Near term production with growth – With the Franke project scheduled for start-up in late 2008, “production has the potential to expand 50% at minimal capex in 2010 with the development of Pelusa." Wowkodaw forecasts "copper cathode production of 25,189 tonnes in 2009, 39,380 tonnes in 2010 and 45,383 tonnes in 2011."
4. Exploration upside - Early drill results from the Pan de Azucar property indicate the potential "to develop into another significant future growth vehicle." Further exploration on the "prospective Pelusa Copper and Gold districts is also planned for 2008."
Valuation and Price Target
Wowkodaw has a 12 month target of C$12.50/share which is based on 6.0x multiple of his 2009 cash flow per share (CFPS) estimate of $2.06/share.
His valuation and target is based on a number of factors such as: "development and start-up of Franke is completed as scheduled in late 2008 at a capital cost of $162.4 million, with no additional required funding, a 50% expansion at the Franke plant is approved and completed by early 2010 at a capital cost of $40.0 million funded from internal cash flow, assumed weighted average cash operating costs at the Franke plant of $0.91 per pound over the life of the operation, not assigned any value to the company’s other potential targets at Pelusa and Pan de Azucar, an average mining rate of 3.8 million tonnes of ore per year at Franke and a nine-year mine life, supporting 30,000 tpy of cathode production and average LME copper prices of $2.95/lb in fiscal 2009, $2.60/lb in fiscal 2010, $2.25/lb in fiscal 2011, $2.00/lb in fiscal 2012, and $1.50/lb long term."
Wowkodaw notes that "Centenario is currently trading at a 31.1% discount to his 10% NPV valuation of $8.81 per share." Additionally, "a $0.25/lb change in our long-term copper price assumption of $1.50/lb impacts our 10% NPV by $1.34 per share on average, or approximately +/–14.3% from current levels."
Risks
Investment risks include project development risk, short reserve life, while the company has already secured a large portion of its acid requirements, it still requires an additional supply of acid (for its SX-EW heap leaching) to satisfy its production requirements, geopolitical risk in Chile and lastly, fluctuations in commodity and currency values.
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Company Profile
Centenario Copper Corporation was founded in 2004 with the goal of becoming a mid-tier copper producer. Centenario is a well funded advanced stage development company with a 100% interest in the Franke and adjacent Pelusa cluster copper deposits in Chile, with Franke being advanced for planned start-up by year-end 2008. The company also has an option to acquire the prospective Pan De Azucar copper-gold-molybdenum property in Chile.
Centenario began trading on the TSX under the symbol CCT on October 18, 2007, and currently has a market capitalization of C$247.7 million. The company reports its financial statements in US dollars with a fiscal year-end in December.
During the third quarter of 2007, Centenario undertook a funding program that included net equity proceeds of approximately US$83.9 million and the arrangement of an underwritten US$110 million project debt credit facility.
Event
On December 17th/07 Centenario Copper, which is covered by analyst Orest Wowkodaw, was added to Canaccord’s Best Ideas Weekly list.
Takeaways From The Event
Franke Project
Wowkodaw estimates that "Franke and various clusters at Pelusa are likely to support an approximate 8- to 10-year project mine life at the Franke plant." The project will be an open pit mine, "with a relatively low expected stripping ratio of 1.1 tonne of waste to 1.0 tonne of ore." Centenario plans to "outsource the mining of the open pit to external contractors to minimize capital costs and will award the contract in January 2008. A revised Franke mine plan, based on a $1.30/lb copper design price, is also expected to be completed by early 2008."
The project rceived its EIA approval in June 2007 but still requires "several additional non-critical path environmental and nonenvironmental permits related to (1) the changes to the project design that were made subsequent to the initial submission of the EIA, such as the elimination of secondary leaching with subsequent spent ore disposal on the waste dump, modification of the water pipeline routing to shorten the distance, and construction of a high-voltage power line; (2) 11 other environmental permits that should be granted under normal course, with specific attention given to the water pipeline construction permit for ravine crossings due to the stringent engineering requirements of the General Water Department; and (3) 46 non-environmental permits, of which 11 are classified as “simple or slightly complex processing” and 35 are classified “medium complexity processing”. While the company can not provide timelines on the permitting process, Centenario does not expect delays in receiving approvals that would negatively impact on its construction start-up schedule."
The company anticipates life-of-mine average cash operating costs of $0.75/lb based on $1.30/lb copper, which in Wowkodaw's view, "is more or less in line with other SX-EW producers in the region, as relatively high acid consumption is projected to be largely offset by the higher grade and recovery benefit of the ore."
With Centenario’s Franke project being prepped for planned start-up by year end 2008, Wowkodaw lists 4 reasons to purchase shares of the company.
1. Copper leverage – Centenario offers significant leverage to the copper price, which, in Wowkodaw’s words, “remains our preferred near- to medium-term investment vehicle in the base metals complex.”
2. Lower-risk project – the project is slated to use “SX-EW heap leach processing, which is a well-proven low-risk technology. The company has also fully funded its Franke project and "sourced the required water and power and a significant portion of the acid." Approximately 80% of the capital costs are fixed on a price/unit basis "which should provide a significant level of cost certainty for the project."
3. Near term production with growth – With the Franke project scheduled for start-up in late 2008, “production has the potential to expand 50% at minimal capex in 2010 with the development of Pelusa." Wowkodaw forecasts "copper cathode production of 25,189 tonnes in 2009, 39,380 tonnes in 2010 and 45,383 tonnes in 2011."
4. Exploration upside - Early drill results from the Pan de Azucar property indicate the potential "to develop into another significant future growth vehicle." Further exploration on the "prospective Pelusa Copper and Gold districts is also planned for 2008."
Valuation and Price Target
Wowkodaw has a 12 month target of C$12.50/share which is based on 6.0x multiple of his 2009 cash flow per share (CFPS) estimate of $2.06/share.
His valuation and target is based on a number of factors such as: "development and start-up of Franke is completed as scheduled in late 2008 at a capital cost of $162.4 million, with no additional required funding, a 50% expansion at the Franke plant is approved and completed by early 2010 at a capital cost of $40.0 million funded from internal cash flow, assumed weighted average cash operating costs at the Franke plant of $0.91 per pound over the life of the operation, not assigned any value to the company’s other potential targets at Pelusa and Pan de Azucar, an average mining rate of 3.8 million tonnes of ore per year at Franke and a nine-year mine life, supporting 30,000 tpy of cathode production and average LME copper prices of $2.95/lb in fiscal 2009, $2.60/lb in fiscal 2010, $2.25/lb in fiscal 2011, $2.00/lb in fiscal 2012, and $1.50/lb long term."
Wowkodaw notes that "Centenario is currently trading at a 31.1% discount to his 10% NPV valuation of $8.81 per share." Additionally, "a $0.25/lb change in our long-term copper price assumption of $1.50/lb impacts our 10% NPV by $1.34 per share on average, or approximately +/–14.3% from current levels."
Risks
Investment risks include project development risk, short reserve life, while the company has already secured a large portion of its acid requirements, it still requires an additional supply of acid (for its SX-EW heap leaching) to satisfy its production requirements, geopolitical risk in Chile and lastly, fluctuations in commodity and currency values.
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Sunday, December 16, 2007
Commodity Prospects – Silver Outlook
Highlights from RBC’s 3rd Annual mini-conference on Silver Equities, in New York and Toronto held this week (December 10 to 14, 2007)
Conference Themes
Silver Equities Still Deserve Premium Multiples – Because they offer better leverage to rising silver prices than either bullion or exchange traded funds (ETF’s). Additionally, RBC Dominion Securities analyst’s Michael Curran reiterated his positive outlook for silver in the short to medium term (2-3 years) based on a weaker outlook for the U.S. Dollar, which he believes will result in stronger prices for precious metals like gold and silver. Curran went on to say that “demand increases for industrial and investment segments [are] forecast[ed] to more than offset continuing decline in photographic demand.” Lastly, his analysis has led him to believe that concerns over increasing silver mine supply remains a few years out and so does his “expectations for increased by product silver supply resulting from high price levels seen in gold, copper, lead and zinc.”
Cost Pressure Not As Weighty As Gold Peers – A number of companies that presented at the conference outlined how they were able to up until this point (and will continue to do so in the future), achieve lower cash costs of production “mostly [as] a result of increased commodity prices for by-product credits of gold, zinc and lead."
Production Growth Still The Main Focus - Since the majority of silver equities "have yet to achieve significant output levels" as a result of low silver prices (range of $4-$5/oz) during the 1990's and the larger better known silver equities only producing “5-13 million ounces of silver per annum”, the larger equities “have embarked on growth plans to increase production levels to the 20-30MMoz/yr level.”
Bigger Could Be Better, In The Silver Space – Seeing as even a large silver producer with 15 million ounces of annual production would only have revenues of just over $200 million at current silver prices, Curran would like to see “further consolidation in the sector, with the eventual creation of silver producers with 50-60 million ounces of annual output (equivalent to 1 million ounces of gold or a Tier I gold producer).”
Common Challenges For Mining – A number of presenters talked about shortages in human resources (in terms of expertise to complete the economic analysis and mine/engineering design for new mines, as well as the skilled labor to operate mines once they are built).” Additionally, geopolitical risk remains a common thread as many of the “best geological regions of the world for silver deposits are located in areas of dynamic political change, such as Bolivia, Peru, Russia, and Mexico.”
Presenting Company Highlights
Apex Silver Mines (SIL-AMEX, $15.95 - Not Rated) – New York only
- Full production levels expected at new San Cristobal zinc-silver mine (Bolivia) in Q1/08. Targeted daily throughput levels have been achieved sporadically during Q4/07. Management believes market concerns with Bolivia are easing with recent announcement of tax changes (tax rate increased from 25% to 37.5%, silver royalties from none to 3-6%). New rates have been passed by government, just waiting for final sign off by President.
- Still tweaking recovery circuits, with silver content in both lead and zinc concentrates running higher than expected (ideally want to minimize silver reporting to zinc concentrate, and maximize silver reporting to lead concentrate, due to differentials
in payable silver between the two from third-party smelters).
- With the mine ramping up, company plans to bolster exploration efforts, sees good potential to expand reserve/resources at San Cristobal, and is reminding investors of the company’s other exploration projects for silver in Argentina, Peru and Mexico.
Aquiline Resources (AQI-TSX, C$9.27 - Not Rated)
- Title issues surrounding Navidad property in Argentina could soon be resolved with notice from Supreme Court that appeal will not be heard. This would be positive news for AQI that they have an unencumbered 100% interest in the +600 million ounces silver resource, but would force AQI to relinquish a large land position (200K ha) in southern Argentina.
- Exploration over the past year has shown impressive results, with finding costs of $0.06 per resource ounce of silver. Management is bullish that the silver resource at Navidad could grow further (1 billion ounces possible?).
- The main issues regarding project advancement surround the metallurgy of the deposit and the provincial position on mining. With regards to the former, management believes the majority of the deposits should have little difficulty showing economic extraction via conventional processing methods, and that only the lead-rich Galena Hill mineralized zone is likely to require most capital and operating cost extractive methods. Regarding the latter issue, management is optimistic that now that the political cycle is completed (new President sworn in on Monday and completed provincial elections), refinements to the current ban on open pit mining and cyanide use will be amended to allow mining to occur in portions of Chubut province (including Navidad).
Coeur d’Alene Mines (CDE-NYSE, $4.45 - Sector Perform, Above Average Risk)
- Palmarejo/Bolnisi transactions are expected to maintain CDE as one of the world’s leading silver producers. Management is excited about exploration upside on recently acquired Palmarejo silver-gold property in Mexico.
- Management believes market concerns with Bolivia are easing with recent announcement of tax changes (tax rate increased from 25% to 37.5%, royalties payable for metals produced) roughly in line with management’s expectations. New rates passed by government, are just waiting for final sign off by President. CDE’s San Bartolome silver mine is on track for Feb 2008 start-up.
- Management is optimistic that a solution for the tailings disposal/storage is achievable through dialogue with NGOs in
Alaska. With success, Kensington mine could be back on track for a 2009 start up.
Endeavour Silver (EDR-TSX, C$3.85 - Not Rated)
- Main operating asset, Guanacevi mine in Mexico, is ramping up to 1,200tpd, guidance maintained for 2MMoz of silver in 2007.
- Adding second operation at Bolitanos (Mexico) would see total company production capacity increase to 5MMoz/yr. Most of the exploration is focused to the west and below previous underground mining activity.
- New silver-zinc-lead discovery at Parral (Mexico) could be advanced quickly to production, as there is a government-owned processing plant in the area with excess capacity.
MAG Silver (MAG-TSX, C$15.00 - Not Rated)
- Important drill results are expected in the next few months from the JV with Penoles on the high grade silver Valdecanas vein in Mexico (MAG-44%), as infill holes on sections O, Q, and S provide information on the vein structure and grades covering some 600 metres of strike between sections M and U.
- Earlier-staged exploration results at Cinco de Mayo and Batopilas have potential to add value as new discoveries on 100%-owned MAG properties.
- Recent $46.5 million equity financing provides funds to maintain interest in JV, especially if partner Penoles is looking to advance to phase of underground access (shaft/ramp) to further delineate resources at Valdecanas.
Pan American Silver (PAA-TSX, PAAS-NASDAQ, $34.41 - Outperform, Average Risk)
- Despite record results in Q3/07, management guided for Q4/07 to beat Q3/07 results.
- Management expertise as a quasi-EPC contractor (ability to internally design and execute Engineering, Procurement, and Construction of new mines) was highlighted as a differentiator among its precious metals peer group.
- Exploration success seen in 2006 is expected to be repeated in 2007, with guidance that year-end reserves should more than replace depletion from mining activities in 2007.
Silver Standard Resources (SSO-TSX, SSRI-AMEX, $37.30 - Not Rated)
- Halo of zinc mineralization (100-200m grading 1-2% zinc) could improve economics for Pirquitas silver-tin project (Argentina). Adding zinc recovery to mineplan could lower strip ratio significantly. Drilling of zinc mineralization on edges of planned open pit underway, with new reserve update expected in H1/08.
- High grade gold-silver mineralization at San Luis (Peru) has potential to be advanced more aggressively to bring a small, underground mine into production. Cash flow from San Luis and Pirquitas could fund development of Pitarrilla silver-zinc, lead project in Mexico.
- Cash and marketable securities in hand to fund both Pirquitas and San Luis development projects.
Silver Wheaton Corporation (SLW-TSX,NYSE, $16.08 - Sector Perform, Average Risk)
- Management reviewed the positive impact of Goldcorp’s recent announcement to increase throughput rate of Penasquito gold-silver-zinc-lead mine under construction in Mexico by 30%. Silver Wheaton controls 25% of the mine’s silver production, with no cash call on future exploration and/or capital increases to build/expand the mine. Start-up is expected late in 2008, with ramp up 2009-11, before mine reaches full production averaging 31MMoz/yr (7.8MMoz/yr to SLW) in 2012.
- At current silver prices, $500 million of corporate debt used to purchase Penasquito interest could be repaid from operating cash flow by end of 2009, well before Penasquito mine reaches full production.
- Management believes it can be a significantly dividend payer once the current debt is retired and Penasquito is at full production. Strategic equity interests in several other silver explorer/developers could lead to significant additional growth beyond current guidance to 25-30MMoz/yr from existing contracts/silver production stream purchases.
US Silver Corporation (USA-TSXv, C$0.74 - Not Rated)
- Controls several fully permitted copper-silver and lead-silver processing plants/mines/shafts in the Coeur Silver Valley of Idaho. Company is ramping up production rates at the Galena mine, with positive operating cash flow expected early in 2008.
- Existing tailings facilities could handle decades of operation from all of the installed production capacity (4 shafts on 3 past producing properties). Major challenge in region is attracting skilled labor for underground mining.
- Recently cashed up (+$30 million) to complete mine/plant refurbishment, fund exploration activities, and consider additional M&A opportunities.
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Conference Themes
Silver Equities Still Deserve Premium Multiples – Because they offer better leverage to rising silver prices than either bullion or exchange traded funds (ETF’s). Additionally, RBC Dominion Securities analyst’s Michael Curran reiterated his positive outlook for silver in the short to medium term (2-3 years) based on a weaker outlook for the U.S. Dollar, which he believes will result in stronger prices for precious metals like gold and silver. Curran went on to say that “demand increases for industrial and investment segments [are] forecast[ed] to more than offset continuing decline in photographic demand.” Lastly, his analysis has led him to believe that concerns over increasing silver mine supply remains a few years out and so does his “expectations for increased by product silver supply resulting from high price levels seen in gold, copper, lead and zinc.”
Cost Pressure Not As Weighty As Gold Peers – A number of companies that presented at the conference outlined how they were able to up until this point (and will continue to do so in the future), achieve lower cash costs of production “mostly [as] a result of increased commodity prices for by-product credits of gold, zinc and lead."
Production Growth Still The Main Focus - Since the majority of silver equities "have yet to achieve significant output levels" as a result of low silver prices (range of $4-$5/oz) during the 1990's and the larger better known silver equities only producing “5-13 million ounces of silver per annum”, the larger equities “have embarked on growth plans to increase production levels to the 20-30MMoz/yr level.”
Bigger Could Be Better, In The Silver Space – Seeing as even a large silver producer with 15 million ounces of annual production would only have revenues of just over $200 million at current silver prices, Curran would like to see “further consolidation in the sector, with the eventual creation of silver producers with 50-60 million ounces of annual output (equivalent to 1 million ounces of gold or a Tier I gold producer).”
Common Challenges For Mining – A number of presenters talked about shortages in human resources (in terms of expertise to complete the economic analysis and mine/engineering design for new mines, as well as the skilled labor to operate mines once they are built).” Additionally, geopolitical risk remains a common thread as many of the “best geological regions of the world for silver deposits are located in areas of dynamic political change, such as Bolivia, Peru, Russia, and Mexico.”
Presenting Company Highlights
Apex Silver Mines (SIL-AMEX, $15.95 - Not Rated) – New York only
- Full production levels expected at new San Cristobal zinc-silver mine (Bolivia) in Q1/08. Targeted daily throughput levels have been achieved sporadically during Q4/07. Management believes market concerns with Bolivia are easing with recent announcement of tax changes (tax rate increased from 25% to 37.5%, silver royalties from none to 3-6%). New rates have been passed by government, just waiting for final sign off by President.
- Still tweaking recovery circuits, with silver content in both lead and zinc concentrates running higher than expected (ideally want to minimize silver reporting to zinc concentrate, and maximize silver reporting to lead concentrate, due to differentials
in payable silver between the two from third-party smelters).
- With the mine ramping up, company plans to bolster exploration efforts, sees good potential to expand reserve/resources at San Cristobal, and is reminding investors of the company’s other exploration projects for silver in Argentina, Peru and Mexico.
Aquiline Resources (AQI-TSX, C$9.27 - Not Rated)
- Title issues surrounding Navidad property in Argentina could soon be resolved with notice from Supreme Court that appeal will not be heard. This would be positive news for AQI that they have an unencumbered 100% interest in the +600 million ounces silver resource, but would force AQI to relinquish a large land position (200K ha) in southern Argentina.
- Exploration over the past year has shown impressive results, with finding costs of $0.06 per resource ounce of silver. Management is bullish that the silver resource at Navidad could grow further (1 billion ounces possible?).
- The main issues regarding project advancement surround the metallurgy of the deposit and the provincial position on mining. With regards to the former, management believes the majority of the deposits should have little difficulty showing economic extraction via conventional processing methods, and that only the lead-rich Galena Hill mineralized zone is likely to require most capital and operating cost extractive methods. Regarding the latter issue, management is optimistic that now that the political cycle is completed (new President sworn in on Monday and completed provincial elections), refinements to the current ban on open pit mining and cyanide use will be amended to allow mining to occur in portions of Chubut province (including Navidad).
Coeur d’Alene Mines (CDE-NYSE, $4.45 - Sector Perform, Above Average Risk)
- Palmarejo/Bolnisi transactions are expected to maintain CDE as one of the world’s leading silver producers. Management is excited about exploration upside on recently acquired Palmarejo silver-gold property in Mexico.
- Management believes market concerns with Bolivia are easing with recent announcement of tax changes (tax rate increased from 25% to 37.5%, royalties payable for metals produced) roughly in line with management’s expectations. New rates passed by government, are just waiting for final sign off by President. CDE’s San Bartolome silver mine is on track for Feb 2008 start-up.
- Management is optimistic that a solution for the tailings disposal/storage is achievable through dialogue with NGOs in
Alaska. With success, Kensington mine could be back on track for a 2009 start up.
Endeavour Silver (EDR-TSX, C$3.85 - Not Rated)
- Main operating asset, Guanacevi mine in Mexico, is ramping up to 1,200tpd, guidance maintained for 2MMoz of silver in 2007.
- Adding second operation at Bolitanos (Mexico) would see total company production capacity increase to 5MMoz/yr. Most of the exploration is focused to the west and below previous underground mining activity.
- New silver-zinc-lead discovery at Parral (Mexico) could be advanced quickly to production, as there is a government-owned processing plant in the area with excess capacity.
MAG Silver (MAG-TSX, C$15.00 - Not Rated)
- Important drill results are expected in the next few months from the JV with Penoles on the high grade silver Valdecanas vein in Mexico (MAG-44%), as infill holes on sections O, Q, and S provide information on the vein structure and grades covering some 600 metres of strike between sections M and U.
- Earlier-staged exploration results at Cinco de Mayo and Batopilas have potential to add value as new discoveries on 100%-owned MAG properties.
- Recent $46.5 million equity financing provides funds to maintain interest in JV, especially if partner Penoles is looking to advance to phase of underground access (shaft/ramp) to further delineate resources at Valdecanas.
Pan American Silver (PAA-TSX, PAAS-NASDAQ, $34.41 - Outperform, Average Risk)
- Despite record results in Q3/07, management guided for Q4/07 to beat Q3/07 results.
- Management expertise as a quasi-EPC contractor (ability to internally design and execute Engineering, Procurement, and Construction of new mines) was highlighted as a differentiator among its precious metals peer group.
- Exploration success seen in 2006 is expected to be repeated in 2007, with guidance that year-end reserves should more than replace depletion from mining activities in 2007.
Silver Standard Resources (SSO-TSX, SSRI-AMEX, $37.30 - Not Rated)
- Halo of zinc mineralization (100-200m grading 1-2% zinc) could improve economics for Pirquitas silver-tin project (Argentina). Adding zinc recovery to mineplan could lower strip ratio significantly. Drilling of zinc mineralization on edges of planned open pit underway, with new reserve update expected in H1/08.
- High grade gold-silver mineralization at San Luis (Peru) has potential to be advanced more aggressively to bring a small, underground mine into production. Cash flow from San Luis and Pirquitas could fund development of Pitarrilla silver-zinc, lead project in Mexico.
- Cash and marketable securities in hand to fund both Pirquitas and San Luis development projects.
Silver Wheaton Corporation (SLW-TSX,NYSE, $16.08 - Sector Perform, Average Risk)
- Management reviewed the positive impact of Goldcorp’s recent announcement to increase throughput rate of Penasquito gold-silver-zinc-lead mine under construction in Mexico by 30%. Silver Wheaton controls 25% of the mine’s silver production, with no cash call on future exploration and/or capital increases to build/expand the mine. Start-up is expected late in 2008, with ramp up 2009-11, before mine reaches full production averaging 31MMoz/yr (7.8MMoz/yr to SLW) in 2012.
- At current silver prices, $500 million of corporate debt used to purchase Penasquito interest could be repaid from operating cash flow by end of 2009, well before Penasquito mine reaches full production.
- Management believes it can be a significantly dividend payer once the current debt is retired and Penasquito is at full production. Strategic equity interests in several other silver explorer/developers could lead to significant additional growth beyond current guidance to 25-30MMoz/yr from existing contracts/silver production stream purchases.
US Silver Corporation (USA-TSXv, C$0.74 - Not Rated)
- Controls several fully permitted copper-silver and lead-silver processing plants/mines/shafts in the Coeur Silver Valley of Idaho. Company is ramping up production rates at the Galena mine, with positive operating cash flow expected early in 2008.
- Existing tailings facilities could handle decades of operation from all of the installed production capacity (4 shafts on 3 past producing properties). Major challenge in region is attracting skilled labor for underground mining.
- Recently cashed up (+$30 million) to complete mine/plant refurbishment, fund exploration activities, and consider additional M&A opportunities.
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Friday, December 14, 2007
Buy, Sell or Hold Thompson Creek Metals (TCM:TSX)
On December 14th/07 Versant Partners analyst Ian Parkinson provided a flash update on Thompson Creek's announcement regarding downward revisions on its 2007 production targets.
Company Profile
Thompson Creek Metals Company Inc. (formerly Blue Pearl Mining Ltd.) is one of the largest publicly traded, pure molybdenum producers in the world. The Company owns the Thompson Creek open-pit molybdenum mine and mill in Idaho, a 75% share of the Endako open-pit mine, mill and roasting facility in northern British Columbia, and a metallurgical roasting facility in Langeloth, Pennsylvania. Thompson Creek is also developing the Davidson high-grade underground molybdenum project near Smithers, B.C. Its head office is in Toronto, Ontario.
Event
On December 12th/07 Thompson Creek Metals announced revisions to its molybdenum production estimates for 2007. Production estimates for 2008 and 2009 remain unchanged.Total production of molybdenum at the Thompson Creek Mine and the Company's 75% share of molybdenum production at the Endako Mine is currently estimated at approximately 3.0 million pounds in the fourth quarter of 2007. The Company previously estimated fourth-quarter production at between 4.5 and 5 million pounds. For 2007, the Company expects molybdenum production of 15.9 million pounds versus a previous estimate of between 17.5 and 18 million pounds.
At the Endako Mine, the Company's 75% share of molybdenum production is now estimated at 1.2 million pounds in the fourth quarter of 2007, compared with a previous estimate of between 1.9 and 2.1 million pounds. Production for 2007 is estimated at 6.8 million pounds versus a previous estimate of between 7.5 and 7.7 million pounds. Molybdenum production at the Endako Mine has been negatively affected in the fourth quarter by a rock slide on November 12 that interrupted production of ore from the Endako Pit. As a result of the slide, the Company is currently reviewing the Endako Mine plan for 2008 but does not see any reason at this time to change its prior forecast of between 7.5 and 8.5 million pounds for its 75% share of molybdenum production from the mine.
Production of molybdenum from the Thompson Creek Mine is now expected to be 1.8 million pounds in the fourth quarter of 2007 versus a previous estimate of between 2.6 and 2.9 million pounds. Production has been less than expected because, since mining of the stockpile ceased and mining of Phase 6 ore began in October, it is taking longer than expected to access the higher-grade areas of the ore body. In addition, the ore has been harder than average and this is resulting in a lower-than-expected amount of ore processed by the mill. Molybdenum production at the mine is now estimated to be 9.1 million pounds in 2007 versus a previous estimate of between 10.0 and 10.3 million pounds.
The company also continues to expect its molybdenum production in 2009 will be in excess of 34 million pounds as the Thompson Creek Mine accesses the highest-grade areas of its ore body. Production at the Thompson Creek Mine in 2009 is expected to be approximately 26 million pounds, while the Company's 75% share of production at the Endako mine is estimated at approximately 8 million pounds.
Takeaways From The Event
Parkinson isn’t too surprised at the production delays and the rock slide at the Endako mine as this type of news can be "heard across the metals sector on any given day." However, he is concerned regarding "how much caution is built into the (Thompson Creek's production) forecast - and on that note would prefer to see a more conservative ramp-up for production, with discounts for items beyond the control of experienced operators."
With regards to how Thompson Creek's production delays might affect worldwide molybdenum prices, Parkinson writes "these downgrades are not expected to impact molybdenum prices through supply shortages in the near future. Annual production is slated at approximately 30 million pounds of molybdenum as of 2010 but this would follow open pit mining and the construction of a new milling facility. The next two years are likely to see some delay for such a large project, pushing supply in the market out further. A combination of similar delays from near-term producers would impact supply in the market, as we also await the true impact of China’s identification of molybdenum as a strategic metal and the associated export quotas in 2008. The net effect is a likelihood of delays and a shortage of globally available molybdenum, which would then push up prices. The most likely time period for the price-effect to become apparent would be the latter half of 2008 as the quotas take their toll, and later in the year as near-term producers start to revise targets and guidelines."
Valuation and Price Target
Parkinson maintains his Buy rating but reduces his 12 month target to $24.25 in order to be conservative in his estimates. As a result of this, his target "exclude(s) upside from Davidson coming online and the Endako mill expansion as well as further potential at Thompson Creek Mine." Additionally, Parkinson factors in average operating costs of US$7.76/lb, molybdenum prices ranging between US$29.50/lb - US $8.50/lb, payments to previous owners of US$125M completed by 2010, with US$100M expected to be paid out in January 2008 and lastly, his cash flow valuations assume that 90% of production is sold and 10% is inventoried.
Check out this video of President & CEO, Kevin Loughrey on BNN talking about the listing of Thompson Creek Metals on the NYSE on November 29th/07 and updating investors about the company's developments..
Buy, Sell or Hold Revett Minerals (RVM:TSX)
On December 14th/07 Dutton Associates analyst Mike Niehuser provided a flash update on Revett’s announcement regarding it's Rock Creek project in Northwestern Montana.
Company Profile
Revett Minerals Inc. (RVM:TSX), through its subsidiaries, owns and operates the Troy Mine, and the development stage Rock Creek Project, both of which are located in northwestern Montana, USA. These projects host significant copper and silver mineral reserves and resources and will form the basis of our plan to become a solid mid-tier base and precious metals producer in the future. The company plans on expanding its production through exploration in and around its current properties, as well as through targeted business combinations of advanced staged projects.
Since acquisition in 1999, Revett had maintained the past producing (1981-1993) Troy Mine on a care and maintenance basis. In late-2003 the company began reviewing the feasibility of reopening Troy and in April 2004 decided to put the mine back into production. At full capacity, the Troy Mine is expected to average 2 million ounces of silver and 17 million pounds of copper production per year.
Presuming a positive feasibility study, and the successful financing of the capital costs, Revett intends to develop Rock Creek as an approximate 10,000 ton per day, underground mine / conventional mineral flotation processing operation, with estimated annual production of 6 million ounces of silver, and 52 million pounds of copper over the life of the mine.
Event
Revett Minerals reported that on Monday December 10, 2007 it received a favorable determination (an 18.1 determination) from the United States Forest Service regarding its Rock Creek project in northwestern Montana. This determination by the USFS notified Revett that they may commence work at Rock Creek as contemplated under the Original Record of Decision. The Record of Decision is the main permitting approval document and it was issued jointly by the USFS and the Montana Department of Environmental Quality in June 2003. This letter and the accompanying review concluded there are no new issues that may affect the 2003 Record of Decision and therefore no supplemental EIS or revision of the Record of Decision is required. With this letter of confirmation, the Company is allowed to commence ground disturbance activities at Rock Creek within 60 days, weather permitting.
Takeaways From The Event
Niehuser writes that the favourable determination from the United States Forest Service regarding Revett's Rock Creek project “should allow the Company to commence ground disturbance in 60 days and commencing driving the audit by mid-2008.” He reckons that the Rock Creek project is among “the top 20 silver deposits in the world anticipated to produce 6 million ounces of silver and 52 million pounds of copper annually over a 20 year mine life.
Niehuser draws a comparison between Rock Creek and Revett's Troy mine and notes that since the "Troy mine has nearly identical geological characteristics" to the Rock Creek project, the company is currently "gaining valuable experience in producing silver/copper at Troy" as it continues to operate it with "good success."
He also sees a number of catalysts that might help propel Revett's share price in 2008 such as, record copper and silver prices, record cash flows from its Troy mine and continued development of its world class Rock Creek project.
Valuation and Price Target
Niehuser maintains his $2.75 target (over 12 months) but ups his rating to Strong Speculative Buy rating from Speculative Buy.
As per his previous research note, Niehuser estimates earnings for 2007 to come in at $0.12/share and future taxes amounting to 20%.
Troy Deposit Resource and Valuation
The estimated resource at the Troy Mine as of the end of 2006 consists of a proven and probable reserve of 13.2 million tons grading 1.14 ounce per ton silver and 0.54% copper, using a cut-off net smelter return of $16 per ton. This reserve equates to about 143 million pounds of copper and 15.1 million ounces of silver. Management believes that the mine is on schedule to attain planned production of 4,455 tons per day; this could produce 16 million pounds of copper and 2 million ounces of silver on an annual basis. Based on this resource alone, the Company reports a remaining mine life of approximately six and one half years, but Niehuser believes that there is very good potential for further expansion which could extend the mine life to 9 years. "At about $4 million per month, discounting at 12%, this would support an asset value of about $87 million. Adjusting for the ownership percentage and outstanding shares, the asset in production should at 1.4x NAV, equate to about $1.12 per share."
The Rock Creek project could double the throughput of the Troy Mine for a period of up to 20 years and "completing similar adjustment with similar assumptions the Rock Creek deposit could be valued at $3.00 per share. Assigning a discounted value of $1.50 per share to Rock Creek and $1.25 per share to the Troy Mine, we maintain our price target of $2.75 per share."
Company Profile
Revett Minerals Inc. (RVM:TSX), through its subsidiaries, owns and operates the Troy Mine, and the development stage Rock Creek Project, both of which are located in northwestern Montana, USA. These projects host significant copper and silver mineral reserves and resources and will form the basis of our plan to become a solid mid-tier base and precious metals producer in the future. The company plans on expanding its production through exploration in and around its current properties, as well as through targeted business combinations of advanced staged projects.
Since acquisition in 1999, Revett had maintained the past producing (1981-1993) Troy Mine on a care and maintenance basis. In late-2003 the company began reviewing the feasibility of reopening Troy and in April 2004 decided to put the mine back into production. At full capacity, the Troy Mine is expected to average 2 million ounces of silver and 17 million pounds of copper production per year.
Presuming a positive feasibility study, and the successful financing of the capital costs, Revett intends to develop Rock Creek as an approximate 10,000 ton per day, underground mine / conventional mineral flotation processing operation, with estimated annual production of 6 million ounces of silver, and 52 million pounds of copper over the life of the mine.
Event
Revett Minerals reported that on Monday December 10, 2007 it received a favorable determination (an 18.1 determination) from the United States Forest Service regarding its Rock Creek project in northwestern Montana. This determination by the USFS notified Revett that they may commence work at Rock Creek as contemplated under the Original Record of Decision. The Record of Decision is the main permitting approval document and it was issued jointly by the USFS and the Montana Department of Environmental Quality in June 2003. This letter and the accompanying review concluded there are no new issues that may affect the 2003 Record of Decision and therefore no supplemental EIS or revision of the Record of Decision is required. With this letter of confirmation, the Company is allowed to commence ground disturbance activities at Rock Creek within 60 days, weather permitting.
Takeaways From The Event
Niehuser writes that the favourable determination from the United States Forest Service regarding Revett's Rock Creek project “should allow the Company to commence ground disturbance in 60 days and commencing driving the audit by mid-2008.” He reckons that the Rock Creek project is among “the top 20 silver deposits in the world anticipated to produce 6 million ounces of silver and 52 million pounds of copper annually over a 20 year mine life.
Niehuser draws a comparison between Rock Creek and Revett's Troy mine and notes that since the "Troy mine has nearly identical geological characteristics" to the Rock Creek project, the company is currently "gaining valuable experience in producing silver/copper at Troy" as it continues to operate it with "good success."
He also sees a number of catalysts that might help propel Revett's share price in 2008 such as, record copper and silver prices, record cash flows from its Troy mine and continued development of its world class Rock Creek project.
Valuation and Price Target
Niehuser maintains his $2.75 target (over 12 months) but ups his rating to Strong Speculative Buy rating from Speculative Buy.
As per his previous research note, Niehuser estimates earnings for 2007 to come in at $0.12/share and future taxes amounting to 20%.
Troy Deposit Resource and Valuation
The estimated resource at the Troy Mine as of the end of 2006 consists of a proven and probable reserve of 13.2 million tons grading 1.14 ounce per ton silver and 0.54% copper, using a cut-off net smelter return of $16 per ton. This reserve equates to about 143 million pounds of copper and 15.1 million ounces of silver. Management believes that the mine is on schedule to attain planned production of 4,455 tons per day; this could produce 16 million pounds of copper and 2 million ounces of silver on an annual basis. Based on this resource alone, the Company reports a remaining mine life of approximately six and one half years, but Niehuser believes that there is very good potential for further expansion which could extend the mine life to 9 years. "At about $4 million per month, discounting at 12%, this would support an asset value of about $87 million. Adjusting for the ownership percentage and outstanding shares, the asset in production should at 1.4x NAV, equate to about $1.12 per share."
The Rock Creek project could double the throughput of the Troy Mine for a period of up to 20 years and "completing similar adjustment with similar assumptions the Rock Creek deposit could be valued at $3.00 per share. Assigning a discounted value of $1.50 per share to Rock Creek and $1.25 per share to the Troy Mine, we maintain our price target of $2.75 per share."
Thursday, December 13, 2007
Buy, Sell or Hold ECU Silver Mining (ECU:TSX)
On December 13th/07 TD Newcrest analyst Daniel Earle wrote an Action Note on ECU Silver’s NI 43-101 resource evaluation of the San Diego Project with joint venture partner Golden Tag Resources.
Company Profile
ECU is a Quebec-based junior mining company with a decade-long history of activity in the Mexican mining industry. The company offers investors leverage to the silver price and the expansion in scope of its 100%-owned flagship Velardena mining project located in the Mexican silver belt. The area includes five historical mines - Santa Juana, Terneras, San Mateo, San Juanes, and the San Diego mine. ECU is defining the "Mineralized Corridor" at Santa Juana and also further defining several higher grade narrow veins within the area. ECU's mission is to become a pre-eminent silver producer through the development of existing, and additional potential resources at Velardena.
Event
Joint venture partners Golden Tag Resources (TSX-V:GOG) and ECU Silver Mining reported the results of an independent NI 43-101 compliant resource evaluation on the San Diego Project (which is part of the larger Velardena project), in Durango State, Mexico.
Takeaways From The Event
The resource evaluation included an indicated resource of 370,852 tonnes grading 245g/t silver, 0.34g/t gold, 1.80% lead and 1.33 % zinc and an inferred resource of 4,976,461 tonnes grading 167g/t silver, 0.16g/t gold, 1.25% lead and 1.26% zinc.
After looking at the results Earle writes “When we back out the base metals credits included in that number, we arrive at just over 31 million ounces with 16 million equity ounces being attributable to ECU. This compares to our forecast of 18 million ounces included in our initiating report of November 26.”
Looking into the future, Earle reiterates his expectation of the total resources at Velardeña being “210 million ounces silver-equivqalent (exclusive of base metals).” Moreover, he continues to believe that the “ultimate potential of the property is to deliver 500 million ounces silver-equivalent.”
In writing about the future prospects of ECU Silver, Earle points to the company’s leverage to a world class sliver play in a geopolitically safe mining jurisdiction. Given that he also expects a favourable silver price environment for the next 12 months he believes ECU shares will outperform its peers due to its “strong growth profile.”
Earle expects a Preliminary Economic Assessment in Q1/08.
Valuation and Price Target
Earle maintains his C$3.00 target and Speculative Buy rating.
The bulk of his target is gathered from applying a “resource multiple of $3.00 per ounce silver-equivalent, which represents a $0.50 per ounce discount to the company’s emerging silver producer peer group average, to our estimate of the company’s resource base.” To that he adds, “a resource potential value, which is derived from the product of the incremental 290 million ounces we forecast and $0.35 per ounce, and make standard corporate adjustments to generate our corporate valuation of $781 million." Lastly, he divides $781 million by his modelled capitalization of 269 million shares (which includes the exercise of all securities and an assumed 6.7 million share issuance next year) to arrive at his target price of $3.00.
Risks
Potential risk to Earle’s target price include: commodity price risk, forecast risk relating to the size of the forthcoming resource estimate and incremental resource potential with compounding exploration risk attendant to the latter; financing and dilution risk related to the possible expansion of operations and attendant operating and capital cost risks; political risk; key management retention risk; and exchange and interest rate risks.
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Company Profile
ECU is a Quebec-based junior mining company with a decade-long history of activity in the Mexican mining industry. The company offers investors leverage to the silver price and the expansion in scope of its 100%-owned flagship Velardena mining project located in the Mexican silver belt. The area includes five historical mines - Santa Juana, Terneras, San Mateo, San Juanes, and the San Diego mine. ECU is defining the "Mineralized Corridor" at Santa Juana and also further defining several higher grade narrow veins within the area. ECU's mission is to become a pre-eminent silver producer through the development of existing, and additional potential resources at Velardena.
Event
Joint venture partners Golden Tag Resources (TSX-V:GOG) and ECU Silver Mining reported the results of an independent NI 43-101 compliant resource evaluation on the San Diego Project (which is part of the larger Velardena project), in Durango State, Mexico.
Takeaways From The Event
The resource evaluation included an indicated resource of 370,852 tonnes grading 245g/t silver, 0.34g/t gold, 1.80% lead and 1.33 % zinc and an inferred resource of 4,976,461 tonnes grading 167g/t silver, 0.16g/t gold, 1.25% lead and 1.26% zinc.
After looking at the results Earle writes “When we back out the base metals credits included in that number, we arrive at just over 31 million ounces with 16 million equity ounces being attributable to ECU. This compares to our forecast of 18 million ounces included in our initiating report of November 26.”
Looking into the future, Earle reiterates his expectation of the total resources at Velardeña being “210 million ounces silver-equivqalent (exclusive of base metals).” Moreover, he continues to believe that the “ultimate potential of the property is to deliver 500 million ounces silver-equivalent.”
In writing about the future prospects of ECU Silver, Earle points to the company’s leverage to a world class sliver play in a geopolitically safe mining jurisdiction. Given that he also expects a favourable silver price environment for the next 12 months he believes ECU shares will outperform its peers due to its “strong growth profile.”
Earle expects a Preliminary Economic Assessment in Q1/08.
Valuation and Price Target
Earle maintains his C$3.00 target and Speculative Buy rating.
The bulk of his target is gathered from applying a “resource multiple of $3.00 per ounce silver-equivalent, which represents a $0.50 per ounce discount to the company’s emerging silver producer peer group average, to our estimate of the company’s resource base.” To that he adds, “a resource potential value, which is derived from the product of the incremental 290 million ounces we forecast and $0.35 per ounce, and make standard corporate adjustments to generate our corporate valuation of $781 million." Lastly, he divides $781 million by his modelled capitalization of 269 million shares (which includes the exercise of all securities and an assumed 6.7 million share issuance next year) to arrive at his target price of $3.00.
Risks
Potential risk to Earle’s target price include: commodity price risk, forecast risk relating to the size of the forthcoming resource estimate and incremental resource potential with compounding exploration risk attendant to the latter; financing and dilution risk related to the possible expansion of operations and attendant operating and capital cost risks; political risk; key management retention risk; and exchange and interest rate risks.
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Wednesday, December 12, 2007
Buy, Sell or Hold Quadra Mining (QUA:TSX)
On December 10th/07 Raymond James released their Canadian Equity Analysts’ Best Picks for 2008
Company Profile
Quadra Mining Ltd. (QUA.TSX) is a multi-asset copper and base metal producing company based in Canada. Quadra owns and operates the Robinson Mine near Ely, Nevada, where it produces copper and gold and is in the process of constructing the Carlota copper project located in Arizona. Quadra’s attributable share of copper production totalled 55,000 tonnes of copper in 2006 at a cash cost of US$1.53 per pound. By 2009, the company is expected to produce 76,600 tonnes at average cash costs of US$1.13 per pound. Quadra is also advancing the Sierra Gorda copper project in northern Chile and the Malmbjerg molybdenum project in Greenland.
Investment Perspective
According to analyst Tom Meyer, Quadra offers “exceptional leverage (due to above average cash costs at the Robinson mine) to rising copper prices, depreciating U.S. dollar, future strength in molybdenum pricing and significant copper exploration potential in Chile." He believes that Quadra has many tickets in its drum for share price appreciation and a few of those include: unhedged production, operations running reasonably well at its Robinson mine, the addition of the Malmbjerg high-grade molybdenum project, the Carlota copper project entering construction phase and the company’s under appreciated Sierra Gorda Copper - Gold exploration project in Chile.
Meyer thinks the addition of the Malmbjerg projects exposes Quadra to a “560 million pound resource” of molybdenum with “potential for 20 million pounds of production beginning in 2011.” Also, since a 100% of Quadra operating costs are in US dollars, depreciation in the US dollar is highly beneficial to the company.
Valuation and Price Target
Meyer estimates the value of Quadra’s Sierra Gorda project to be “US$125 million based on US$0.025/lb of resource in the ground.” With Quadra spending US$ 11 million this year on the Copper-Gold porphyry project, further exploration success could materially impact the stock.
Meyer also likes the fundamentals for copper moving forward as a result of “falling inventory levels and continued industry constraints” in the face of robust demand. Hence, he writes “that the probability of US$4.00/lb Cu is higher than US$3.00/lb. Assuming US$3.88/lb in 2008, Quadra generates US$4.09 in EPS implying a P/E of 4.1 times.”
All in all, he writes that Quadra’s shares trade at a P/NAV of 0.58 times versus the peer
group at 0.91 times. Our target price of C$27.00 is based on a 0.90 times P/NAV multiple (which he thinks is warranted due to the reasons listed above) applied to our NAV estimate of C$29.09 per share.
Meyer has a 6-12 month target price of C$27.00
Company Profile
Quadra Mining Ltd. (QUA.TSX) is a multi-asset copper and base metal producing company based in Canada. Quadra owns and operates the Robinson Mine near Ely, Nevada, where it produces copper and gold and is in the process of constructing the Carlota copper project located in Arizona. Quadra’s attributable share of copper production totalled 55,000 tonnes of copper in 2006 at a cash cost of US$1.53 per pound. By 2009, the company is expected to produce 76,600 tonnes at average cash costs of US$1.13 per pound. Quadra is also advancing the Sierra Gorda copper project in northern Chile and the Malmbjerg molybdenum project in Greenland.
Investment Perspective
According to analyst Tom Meyer, Quadra offers “exceptional leverage (due to above average cash costs at the Robinson mine) to rising copper prices, depreciating U.S. dollar, future strength in molybdenum pricing and significant copper exploration potential in Chile." He believes that Quadra has many tickets in its drum for share price appreciation and a few of those include: unhedged production, operations running reasonably well at its Robinson mine, the addition of the Malmbjerg high-grade molybdenum project, the Carlota copper project entering construction phase and the company’s under appreciated Sierra Gorda Copper - Gold exploration project in Chile.
Meyer thinks the addition of the Malmbjerg projects exposes Quadra to a “560 million pound resource” of molybdenum with “potential for 20 million pounds of production beginning in 2011.” Also, since a 100% of Quadra operating costs are in US dollars, depreciation in the US dollar is highly beneficial to the company.
Valuation and Price Target
Meyer estimates the value of Quadra’s Sierra Gorda project to be “US$125 million based on US$0.025/lb of resource in the ground.” With Quadra spending US$ 11 million this year on the Copper-Gold porphyry project, further exploration success could materially impact the stock.
Meyer also likes the fundamentals for copper moving forward as a result of “falling inventory levels and continued industry constraints” in the face of robust demand. Hence, he writes “that the probability of US$4.00/lb Cu is higher than US$3.00/lb. Assuming US$3.88/lb in 2008, Quadra generates US$4.09 in EPS implying a P/E of 4.1 times.”
All in all, he writes that Quadra’s shares trade at a P/NAV of 0.58 times versus the peer
group at 0.91 times. Our target price of C$27.00 is based on a 0.90 times P/NAV multiple (which he thinks is warranted due to the reasons listed above) applied to our NAV estimate of C$29.09 per share.
Meyer has a 6-12 month target price of C$27.00
Tuesday, December 11, 2007
Commodity Prospects – Molybdenum Outlook
On December 5th/07 RBC Capital Markets came out with the molybdenum market outlook for the first quarter of 2008.
On the demand side, the report forecasts global consumption growth of 6.3% in 2007, 6.1% in 2008 and 6.3% in 2009. The reason for this growth can be attributed to “molybdenum's unique properties, a lack of suitable substitutes and new emerging applications, which should ensure sustainable growth in demand in the foreseeable future.”
On the supply side, the report calls for strained supply growth due to a “shortage
of concentrate.” Growth is forecasted to be “5.3% in 2007, 3.7% in 2008 and
6.3% in 2009, followed by 13.3% growth in 2010 and 5.4% in 2011.
With regards to the overall market balance for molybdenum, the analysts at RBC Capital Markets expect that in 2007 through 2009 “supply will struggle to keep up with demand as stainless steel and alloy steel production remains robust.” Additionally, “inventories at major producers are reportedly at minimal frictional levels” and expect to remain that way till 2010. However, in 2010, they expect that new mine supply and roasting capacity could potentially narrow the gap between supply and demand and even push the market to a surplus.
Price Forecast
The report calls for historically high molybdenum oxide prices through 2009 but as new supply from the Climax Mine, the Mt. Hope Project and Spinifex come online in combination with additional roasting capacity, prices should come down to more sustainable long term levels.
$30/lb in 2007
$35/lb in 2008
$25/lb in 2009
$15/lb in 2010
$12/lb in 2011
Risks To Forecast
Decline in economic growth/activity around the world could effect stainless and alloy steel demand which in turn could affect molybdenum demand.
Recent molybdenum prices have prompted an “increased focus on financing new molybdenum projects and the relative abundance of molybdenum resources in the Western World could lead to a number of large projects being financed in the next few years,” thereby increasing supply .
With quotas having being imposed to limit molybdenum exports in China, a loosening of these quotas could increase supply.
On the demand side, the report forecasts global consumption growth of 6.3% in 2007, 6.1% in 2008 and 6.3% in 2009. The reason for this growth can be attributed to “molybdenum's unique properties, a lack of suitable substitutes and new emerging applications, which should ensure sustainable growth in demand in the foreseeable future.”
On the supply side, the report calls for strained supply growth due to a “shortage
of concentrate.” Growth is forecasted to be “5.3% in 2007, 3.7% in 2008 and
6.3% in 2009, followed by 13.3% growth in 2010 and 5.4% in 2011.
With regards to the overall market balance for molybdenum, the analysts at RBC Capital Markets expect that in 2007 through 2009 “supply will struggle to keep up with demand as stainless steel and alloy steel production remains robust.” Additionally, “inventories at major producers are reportedly at minimal frictional levels” and expect to remain that way till 2010. However, in 2010, they expect that new mine supply and roasting capacity could potentially narrow the gap between supply and demand and even push the market to a surplus.
Price Forecast
The report calls for historically high molybdenum oxide prices through 2009 but as new supply from the Climax Mine, the Mt. Hope Project and Spinifex come online in combination with additional roasting capacity, prices should come down to more sustainable long term levels.
$30/lb in 2007
$35/lb in 2008
$25/lb in 2009
$15/lb in 2010
$12/lb in 2011
Risks To Forecast
Decline in economic growth/activity around the world could effect stainless and alloy steel demand which in turn could affect molybdenum demand.
Recent molybdenum prices have prompted an “increased focus on financing new molybdenum projects and the relative abundance of molybdenum resources in the Western World could lead to a number of large projects being financed in the next few years,” thereby increasing supply .
With quotas having being imposed to limit molybdenum exports in China, a loosening of these quotas could increase supply.
Thursday, December 06, 2007
Buy, Sell or Hold Gold and Gold Equities?
With Chinese demand for gold jewellery poised to increase by 20% this year and the U.S. dollar crippling under economic pressure from falling home prices and rising mortgage debts, gold is becoming a more popular ‘safe haven’ for great number of investors. Furthermore, news regarding the pervasiveness of sub prime debt/derivatives and write downs associated with it, showing up on the balance sheets of major banks and financial institutions everyday isn’t helping to bolster the markets confidence either. So what is one to do to in order to insulate their portfolio in this market? “Buy Gold” says portfolio manager John Embry of Sprott Asset Management and even trader/newsletter writer Dennis Gartman (Video Interview from Dec. 6/07 on BNN).
On a technical basis, spot gold appears to be leaning towards drifting lower, towards its 50 day moving average of $781 and maybe slightly lower, depending on the voracity of the bounce in the oversold U.S. dollar but that would just give investors a chance to establish or increase their positions in gold and gold stocks.
If you’re on the lookout for micro and small cap gold equities (for example: Geologix Exploration, Anatolia Minerals, Australian Solomons Gold, Osisko Exploration and many more, fell free to peruse this blog for a few ideas but if large caps are you’re forte, give this RBC Capital Markets research report on Goldcorp (GG:NYSE, G:TSX) a once over (Courtesy BeEarly).
Excerpt:
“Combining the effects of increased capital and operating cost forecasts for Penasquito with our revised commodity price forecasts, our 12-month price target for Goldcorp remains unchanged at $39/sh. We continue to rate the shares Outperform, Average Risk, and one of our preferred Tier I gold stocks.”
On a technical basis, spot gold appears to be leaning towards drifting lower, towards its 50 day moving average of $781 and maybe slightly lower, depending on the voracity of the bounce in the oversold U.S. dollar but that would just give investors a chance to establish or increase their positions in gold and gold stocks.
If you’re on the lookout for micro and small cap gold equities (for example: Geologix Exploration, Anatolia Minerals, Australian Solomons Gold, Osisko Exploration and many more, fell free to peruse this blog for a few ideas but if large caps are you’re forte, give this RBC Capital Markets research report on Goldcorp (GG:NYSE, G:TSX) a once over (Courtesy BeEarly).
Excerpt:
“Combining the effects of increased capital and operating cost forecasts for Penasquito with our revised commodity price forecasts, our 12-month price target for Goldcorp remains unchanged at $39/sh. We continue to rate the shares Outperform, Average Risk, and one of our preferred Tier I gold stocks.”
Tuesday, December 04, 2007
Buy, Sell or Hold Geologix Exploration (GIX:TSXV)
Comment From Versant Partners Analyst, Ian Parkinson Regarding Geologix Exploration’s Most Recent (December 3/07) Drill Results
Company Profile
Geologix Explorations Inc. is a mineral exploration company focused on acquiring, exploring and developing gold properties in North and South America.
Event
On December 3rd/07, Geologix announced drill results from holes SA-128 and SA-129.
Takeways From The Event
Excerpt from the news release:
“Dunham Craig, President and CEO stated: "Drilling on the north end of the Zone 2 Area has produced some of the most spectacular results on the property to date. Gold, silver and zinc grades appear to be increasing at depth as both holes ended in significant mineralization. The last 5 metres in drill hole SA-128 assayed 0.47 g/t Au, 28.20 g/t Ag, 0.31% Pb and 2.61% Zn. The last 5.8 metres in drill hole SA-129 assayed .27 g/t Au, 12.30 g/t Ag, 0.10%Pb and 0.75% Zn. These 150 metre long holes indicate the northern edge of Zone 2 extends beyond previous drill indications and is still open both in width and to depth. The holes will be re-entered and extended at an available time.”
In response to the news release Parkinson writes “The grades appear to be improving at depth. Drilling is continuing to outline the full extent of this system. The potential for
delineating a large multi-commodity economic resource improves with almost
each drill hole.” He goes on to say that holes SA-128 and SA-129 were drilled to a predetermined depth (regardless of the mineralization) in accordance with a drill program and have the potential to be deepened at a later date. With 2 drills currently on site and a third (larger) drill expected on site in late December 2007, drilling will continue well into 2008 “leading to an eventual resource calculation in mid 2008.” Parkinson adds that with every drill result “The Penasquito look-a-like analogy is coming true.”
Geologix’s Augustin project is “A mineralized trend measuring +2,200m by +300m that remains open to the Northwest, Northeast and at depth.”
Target Price and Valuation
Parkinson maintains his one-year price target of $4.25 and bases his valuation “on a discounted in-situ valuation of 10 million gold equivalent ounces.
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Company Profile
Geologix Explorations Inc. is a mineral exploration company focused on acquiring, exploring and developing gold properties in North and South America.
Event
On December 3rd/07, Geologix announced drill results from holes SA-128 and SA-129.
Takeways From The Event
Excerpt from the news release:
“Dunham Craig, President and CEO stated: "Drilling on the north end of the Zone 2 Area has produced some of the most spectacular results on the property to date. Gold, silver and zinc grades appear to be increasing at depth as both holes ended in significant mineralization. The last 5 metres in drill hole SA-128 assayed 0.47 g/t Au, 28.20 g/t Ag, 0.31% Pb and 2.61% Zn. The last 5.8 metres in drill hole SA-129 assayed .27 g/t Au, 12.30 g/t Ag, 0.10%Pb and 0.75% Zn. These 150 metre long holes indicate the northern edge of Zone 2 extends beyond previous drill indications and is still open both in width and to depth. The holes will be re-entered and extended at an available time.”
In response to the news release Parkinson writes “The grades appear to be improving at depth. Drilling is continuing to outline the full extent of this system. The potential for
delineating a large multi-commodity economic resource improves with almost
each drill hole.” He goes on to say that holes SA-128 and SA-129 were drilled to a predetermined depth (regardless of the mineralization) in accordance with a drill program and have the potential to be deepened at a later date. With 2 drills currently on site and a third (larger) drill expected on site in late December 2007, drilling will continue well into 2008 “leading to an eventual resource calculation in mid 2008.” Parkinson adds that with every drill result “The Penasquito look-a-like analogy is coming true.”
Geologix’s Augustin project is “A mineralized trend measuring +2,200m by +300m that remains open to the Northwest, Northeast and at depth.”
Target Price and Valuation
Parkinson maintains his one-year price target of $4.25 and bases his valuation “on a discounted in-situ valuation of 10 million gold equivalent ounces.
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Monday, December 03, 2007
Buy, Sell or Hold Anatolia Minerals (ANO:TSX)
CIBC World Markets initiated coverage on Anatolia Minerals with a Sector Outperform Speculative rating and a 12-to 18-month price target of C$7.10
Company Profile
Anatolia Minerals holds a commanding exploration presence in Turkey – a mineral-rich region of untapped mining potential. Active since 1996, Anatolia builds its success around a strong in-country team that attracts interest throughout the global mining community. They hold 100% interest in the Çöpler Gold Project, have a comprehensive long-term joint venture with Rio Tinto Mining & Exploration on multiple properties in Turkey and maintain a strong portfolio of additional exploration properties.
Their Çöpler Gold Project is in line to be the next major gold mine development in Turkey. They have outlined 6.3 million gold ounces at Çöpler (2.8 million ozs proven and probable and a 3.5 million oz resource). On March 2, 2007 a new mine plan was completed on 2.8 million proven and probable gold ozs (1.8 million proven ozs and 1.0 million probable ozs). The feasibility study indicates initial capital of $125.7 million for oxide mill and heap leach facilities. Excellent grades in the near-surface oxides should allow early production to average 176,000 ounces per year with cash operating costs averaging $208/oz (net silver credit). Total estimated production costs are $298/oz gold, yielding an unoptimized after-tax rate of return of 34.3% at a gold price of $475 per ounce (based on average gold price of the past 2 years). Payback occurs 1.9 years after initial production. Çöpler is expected to produce 1.8 million ounces of gold over a 10-year life. A preliminary assessment on sulfide expansion is also now underway. Resource expansion potential remains open throughout the Çöpler Region.
Event
On November 27th/07 CIBC World Markets analysts Brad Humphrey and Forbes Gemmell initiated coverage on Anatolia Minerals Development Ltd. with a Sector Outperform Speculative rating and a 12-to 18-month price target of C$7.10.
Takeaways From The Event
Anatolia trades on the Toronto Stock Exchange under the symbol ANO. However, it is based in Lakewood, Colorado. It has 98.9 million shares outstanding fully diluted and 50% of that is held by institutions while 9% is held by insiders. Anatolia has been exploring in Turkey since 1996 and its crown jewel is the Çöpler Gold Project located in eastern Turkey, which is currently moving through the permitting process. Anatolia is also involved in nearly 20 other project areas throughout Turkey, including nine joint ventures, four of which are with Rio Tinto (RIO-L).
“Çöpler has a total gold resource of 6.3 million oz., however only 2.8 million oz. are targeted in the mine plan (the near-surface oxide material).” Humphrey and Gemmell see additional potential lying in “upgrading additional oxide resources, the sulfide resource and the overall Çöpler region.” They view completed drill results as “encouraging” with the “discovery of new zones outside the current resource base but in close proximity to the known deposits.” Furthermore, they believe that “infill drilling is pointing towards a slightly higher average grade.”
Potential share price catalysts include the approval of the environmental assessment (for Çöpler) in Q1/08, a reserve/resource and mine plan update in late Q1/08 or early Q2/08 and the preliminary economic study for sulfide material before year-end or early 2008. Furthermore, since Anatolia has completed its drilling campaign for 2007, results are expected as soon they are available.
Risks
The Environmental impact assessment (EIA) has taken longer than expected, Humphrey and Gemmell expect to see increases in operating and capital costs with the next update and lastly developmental delays and other unexpected setbacks should be taken into account as the company progresses from an exploration to developmental phase. Other risks include geopolitical risk, metals price exposure, non governmental organization (NGO) activity, currency risk etc.
Price Targets and Valuation
Using their in-house operating and metals price (they assume a long term gold price of $600/ounce) assumptions, Humphrey and Gemmell assign a $468 million or $4.73/share (fully diluted) value to the Çöpler project. However, they have incorporated the sulphide expansion into their valuation but if they removed the value assigned to the sulphide expansion, they only come up with a value of $411 million or $4.16/share. They then apply a 1.5x (historically, precious metals companies have traded at between 1x and 3x cash adjusted NAV) multiple to their NAV ($468 million or $4.73/share), to arrive at their C$7.10 target price.
If you like this post, please take a moment to suscribe to my feed or Stumble/Digg it using the appropriate links at the bottom of this post! You can also post a link to it on relevant forums/bullboards.
Company Profile
Anatolia Minerals holds a commanding exploration presence in Turkey – a mineral-rich region of untapped mining potential. Active since 1996, Anatolia builds its success around a strong in-country team that attracts interest throughout the global mining community. They hold 100% interest in the Çöpler Gold Project, have a comprehensive long-term joint venture with Rio Tinto Mining & Exploration on multiple properties in Turkey and maintain a strong portfolio of additional exploration properties.
Their Çöpler Gold Project is in line to be the next major gold mine development in Turkey. They have outlined 6.3 million gold ounces at Çöpler (2.8 million ozs proven and probable and a 3.5 million oz resource). On March 2, 2007 a new mine plan was completed on 2.8 million proven and probable gold ozs (1.8 million proven ozs and 1.0 million probable ozs). The feasibility study indicates initial capital of $125.7 million for oxide mill and heap leach facilities. Excellent grades in the near-surface oxides should allow early production to average 176,000 ounces per year with cash operating costs averaging $208/oz (net silver credit). Total estimated production costs are $298/oz gold, yielding an unoptimized after-tax rate of return of 34.3% at a gold price of $475 per ounce (based on average gold price of the past 2 years). Payback occurs 1.9 years after initial production. Çöpler is expected to produce 1.8 million ounces of gold over a 10-year life. A preliminary assessment on sulfide expansion is also now underway. Resource expansion potential remains open throughout the Çöpler Region.
Event
On November 27th/07 CIBC World Markets analysts Brad Humphrey and Forbes Gemmell initiated coverage on Anatolia Minerals Development Ltd. with a Sector Outperform Speculative rating and a 12-to 18-month price target of C$7.10.
Takeaways From The Event
Anatolia trades on the Toronto Stock Exchange under the symbol ANO. However, it is based in Lakewood, Colorado. It has 98.9 million shares outstanding fully diluted and 50% of that is held by institutions while 9% is held by insiders. Anatolia has been exploring in Turkey since 1996 and its crown jewel is the Çöpler Gold Project located in eastern Turkey, which is currently moving through the permitting process. Anatolia is also involved in nearly 20 other project areas throughout Turkey, including nine joint ventures, four of which are with Rio Tinto (RIO-L).
“Çöpler has a total gold resource of 6.3 million oz., however only 2.8 million oz. are targeted in the mine plan (the near-surface oxide material).” Humphrey and Gemmell see additional potential lying in “upgrading additional oxide resources, the sulfide resource and the overall Çöpler region.” They view completed drill results as “encouraging” with the “discovery of new zones outside the current resource base but in close proximity to the known deposits.” Furthermore, they believe that “infill drilling is pointing towards a slightly higher average grade.”
Potential share price catalysts include the approval of the environmental assessment (for Çöpler) in Q1/08, a reserve/resource and mine plan update in late Q1/08 or early Q2/08 and the preliminary economic study for sulfide material before year-end or early 2008. Furthermore, since Anatolia has completed its drilling campaign for 2007, results are expected as soon they are available.
Risks
The Environmental impact assessment (EIA) has taken longer than expected, Humphrey and Gemmell expect to see increases in operating and capital costs with the next update and lastly developmental delays and other unexpected setbacks should be taken into account as the company progresses from an exploration to developmental phase. Other risks include geopolitical risk, metals price exposure, non governmental organization (NGO) activity, currency risk etc.
Price Targets and Valuation
Using their in-house operating and metals price (they assume a long term gold price of $600/ounce) assumptions, Humphrey and Gemmell assign a $468 million or $4.73/share (fully diluted) value to the Çöpler project. However, they have incorporated the sulphide expansion into their valuation but if they removed the value assigned to the sulphide expansion, they only come up with a value of $411 million or $4.16/share. They then apply a 1.5x (historically, precious metals companies have traded at between 1x and 3x cash adjusted NAV) multiple to their NAV ($468 million or $4.73/share), to arrive at their C$7.10 target price.
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Sunday, December 02, 2007
Buy, Sell or Hold GlobeStar Mining Corp. (GMI:TSX)
Canaccord Adams mining analyst, Wendell Zerb comments on Globestar’s release of an initial NI 43-101 mineral resource estimate for the Cumpie Sector of its Cumpie Hill nickel laterite project in the Dominican Republic.
Company Profile
GlobeStar is a well-funded minerals exploration company, developing the permitted Cerro de Maimón copper/gold project in the Dominican Republic. Production from the 6 million tonne, high-grade open pit mine is currently expected in the summer of 2008. GlobeStar is exploring an extensive base and precious metals exploration portfolio in the Dominican Republic with over C$4.0 million committed to exploration during 2007 and early 2008.
Event
Canaccord Adams mining analyst, Wendell Zerb discusses GlobeStar’s November 29th/07 news release regarding an initial NI 43-101 Mineral Resource estimate for its Cumpie Hill nickel project in the Dominican Republic, while maintaining his Speculative BUY rating and increasing his price target to C$2.70 (from C$2.65).
Takeaways From The Event
The gist of the NI 43-101 include: “An Indicated Resource of 3.0 million tonnes grading 1.5 % nickel (“Ni”) and an Inferred Resource of 2.5 million tonnes grading 1.5 % nickel were estimated at a cut-off grade of 1 % nickel by Snowden Mining Industry Consultants Inc.” The resource estimate was based on “the results of 75 NTW and HQ3 core drill holes (2015 m), nominally spaced on 71 m centres, completed between May 2006 and July 2007 on the Cumpie Sector of the Cumpie Hill Project.” Zerb considers these results “above average feed for the Xstrata Falcondo mine 8 km to the north." Zerb also writes that “preliminary tests indicate saprolitic mineralization could be amenable to leaching (up to 90% recoveries in bottle rolls)" and considers this a positive for GlobeStar because "it could give it an option over processing mineralization at Xstrata’s neighbouring pyrometallurgical facility."
Commenting on the construction at Cerro de Maimón, Zerb writes that things are "progressing on time and budget." He expects the company to complete wet commissioning by mid-2008.
Additionally, Zerb writes that drilling on the Falcondo Nickel belt is progressing with an emphasis on resource delineation at the north end of the trend. An initial resource estimate on Loma Mala is scheduled for February 2008.
Target Price and Valuation
Zerb maintains his Speculative Buy rating and increases his price target to C$2.70 (was C$2.65) based on a 0.80x multiple on his discounted (8%) NPV for Cerro de Maimón. His NPV value is based on an "in situ value of 75 cents Canadian per pound for established and estimated nickel resources within 12 kilometres of the Falcondo smelter and 27 cents Canadian per pound for resources greater than 12 kilometres away." His valuation has "allocated 132 million lbs of nickel at 75 cents Canadian per pound for Cumpie Hill and he expects a further two million tonnes of 1.50% nickel (66million lbs Ni) to be defined within the next year at Loma Mala and Corozal. "
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Company Profile
GlobeStar is a well-funded minerals exploration company, developing the permitted Cerro de Maimón copper/gold project in the Dominican Republic. Production from the 6 million tonne, high-grade open pit mine is currently expected in the summer of 2008. GlobeStar is exploring an extensive base and precious metals exploration portfolio in the Dominican Republic with over C$4.0 million committed to exploration during 2007 and early 2008.
Event
Canaccord Adams mining analyst, Wendell Zerb discusses GlobeStar’s November 29th/07 news release regarding an initial NI 43-101 Mineral Resource estimate for its Cumpie Hill nickel project in the Dominican Republic, while maintaining his Speculative BUY rating and increasing his price target to C$2.70 (from C$2.65).
Takeaways From The Event
The gist of the NI 43-101 include: “An Indicated Resource of 3.0 million tonnes grading 1.5 % nickel (“Ni”) and an Inferred Resource of 2.5 million tonnes grading 1.5 % nickel were estimated at a cut-off grade of 1 % nickel by Snowden Mining Industry Consultants Inc.” The resource estimate was based on “the results of 75 NTW and HQ3 core drill holes (2015 m), nominally spaced on 71 m centres, completed between May 2006 and July 2007 on the Cumpie Sector of the Cumpie Hill Project.” Zerb considers these results “above average feed for the Xstrata Falcondo mine 8 km to the north." Zerb also writes that “preliminary tests indicate saprolitic mineralization could be amenable to leaching (up to 90% recoveries in bottle rolls)" and considers this a positive for GlobeStar because "it could give it an option over processing mineralization at Xstrata’s neighbouring pyrometallurgical facility."
Commenting on the construction at Cerro de Maimón, Zerb writes that things are "progressing on time and budget." He expects the company to complete wet commissioning by mid-2008.
Additionally, Zerb writes that drilling on the Falcondo Nickel belt is progressing with an emphasis on resource delineation at the north end of the trend. An initial resource estimate on Loma Mala is scheduled for February 2008.
Target Price and Valuation
Zerb maintains his Speculative Buy rating and increases his price target to C$2.70 (was C$2.65) based on a 0.80x multiple on his discounted (8%) NPV for Cerro de Maimón. His NPV value is based on an "in situ value of 75 cents Canadian per pound for established and estimated nickel resources within 12 kilometres of the Falcondo smelter and 27 cents Canadian per pound for resources greater than 12 kilometres away." His valuation has "allocated 132 million lbs of nickel at 75 cents Canadian per pound for Cumpie Hill and he expects a further two million tonnes of 1.50% nickel (66million lbs Ni) to be defined within the next year at Loma Mala and Corozal. "
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