The Northern Miner asked five market watchers of the junior mining and exploration sector for their top picks and opinions for the year ahead. This week we talked with John Kaiser, publisher of the Kaiser Bottom-Fishing Report, Brent Cook of Global Resource Investments, and Art Ettlinger of Yorkton Securities. Next we speak with Robert Bishop, publisher of the Gold Mining Stock Report, and James Mustard of Haywood Securities.
– John Kaiser — The newsletter publisher believes the resource sector is showing signs of life. Diamonds are leading the charge, gold is showing some life and the 6-year bear market for base metals could be poised for a recovery in 2003.
“There is a sense that we’re at the beginning of a good cycle,” he says. “Despite the sags in the market that we’re seeing, there is a new sense of optimism out there.”
For those investors contemplating a speculative diversified portfolio, Kaiser views
The junior has also optioned ground to
Majescor was spun off from Virginia Gold Mines as a diamond exploration vehicle and taken public in February 2000. The company has been nosing around northern Quebec since 1998, zeroing in on the Wemindji area, 40 km east of James Bay, and the Otish Mountains, 275 km northeast of Chibougamau. The company is carrying out ground geophysical surveys at Wemindji in preparation for drilling of up to 15 targets.
Majescor’s CEO is Jacques Letendre, who was previously De Beers’ director of exploration for Canada from 1993 to 1994. The company is well-financed with close to $4 million in working capital and 19.7 million shares outstanding, or 25.4 million fully diluted.
Kaiser considers
De Beers tabled a desktop study of Gahcho Kue in 2000 that fell short of the critical mass to achieve a 15% rate of return, based on the defined resource. The study proposed open-pit mining for the 5034 and Hearne pipes and for a high-grade zone within the top 140 metres of the Tuzo pipe.
Last winter, De Beers targeted further bulk-sample drilling on the 5034 and Hearne pipes. The major wanted to recover a larger number of diamonds to increase the confidence level of its scoping study model. The 2001 bulk sample drilling yielded an additional 1,665 carats using a 1.5-mm bottom cutoff, bringing to 3,491 carats the total parcel recovered from the two pipes.
The newly modeled values, based on a diamond parcel nearly twice the size of the 1999 parcel, were down 5% for 5034 and down 11% for Hearne. Despite the lower values, De Beers’ decision to proceed with another bulk-sample was spurred on by the recovery of a 9.9-carat, gem-quality stone from the 5034 pipe that was valued at US$60,000, or US$6,000 per carat. De Beers believes there may be a statistically significant population of high-quality diamonds present in the 5034 and Hearne pipes.
“The $60,000 stone found in 2001 represents encouraging evidence that the Kennady Lake pipes are better than they look so far,” says Kaiser. “Mountain Province remains the best junior Canadian diamond asset play. I predict that an advanced diamond play like Mountain Province will find a much bigger and more receptive audience in 2002.”
Kaiser rates
The company suffered a loss of $384,000 (or 2 per share) on revenue of $16.5 million in 2000, versus an $820,000 profit (4 per share) on sales of $16.9 million in 1999. Highwood continued to struggle in 2001, recording a net loss of $294,000 on sales of $13.4 million for the first nine months.
Kaiser is not betting on a turnaround of the company’s industrial division, which needs to capture a bigger share of the talc market in order to turn a profit, but instead is rolling the dice on Highwood’s 100%-owned Thor Lake beryllium and tantalum deposits, 100 km southeast of Yellowknife.
Thor Lake
In April 2000, Highwood established a wholly owned subsidiary to advance the development of the Thor Lake North T beryllium deposit, which is estimated to contain a drill-indicated resource of 460,374 tonnes of 1.11% BeO. A comprehensive marketing, technical and environmental review by Dynatec Metallurgical Technologies in 2000 concluded that the project remains economically viable. Highwood is seeking a joint-venture partner which is active in this sector of the industry.
The Thor Lake project has also been positively affected by recent increases in market prices for tantalum, which is used primarily in electronic applications, special corrosion-resistant alloys and medical prostheses.
Previous work by Placer on the Lake zone in the late 1970s outlined a resource of 70 million tonnes grading 0.03% Ta2O5 (tantalum) and 0.4% Nb2O5 (niobium). Kaiser says the Lake zone tantalum deposit dropped off the radar screens because its fine-grained nature rendered it metallurgically sub-economic.
In July, the company missed a $1.5-million loan payment, which led its principal lender to demand repayment of the full $6.5 million in outstanding loans. Highwood’s parent company,
Rights offering
Highwood has undertaken a $2.2-million rights offering to make the required $1.5-million payment, which became due Jan. 15. The rights offering allows existing shareholders to receive one right for each share held, with 1.214 rights needed to purchase an additional share at 12.5. If fully subscribed, the offering will add 18 million shares to the company’s current 21.9-million-share base. Dynatec has agreed to exercise its rights and subscribe for at least $1.5 million wo
rth of shares.
“The rights offering is an opportunity to start fresh, because it allows bottom-fishers to buy at the cheapest price ever in the company’s 20-year history,” states Kaiser.
He adds that he believes the rights offering is the first step of a corporate reorganization, with Dynatec at the helm, and that this reorganization could let a new group of supporters through the door.
“I expect Highwood to churn in the 19-to-12 range until the offering expires, and emerge afterwards as a lively trader with a new audience speculating on both the beryllium and tantalum deposits at Thor Lake in the Northwest Territories.”
The next hurdle Highwood faces is finding replacement financing for the remaining $5-million bank debt due at the end of March.
At 20, Kaiser thinks
‘Wonderful window’
Upon receipt of shareholder and regulatory approval, Pioneer’s 60% interest in UEX will be distributed to its shareholders on the basis of one new share of UEX for every share of Pioneer held. “It’s like a 2-to-1 stock split, except that you get a share in two distinct companies,” says Kaiser. “I think a wonderful window has opened up for bottom-fishers who understand the new [uranium] story.”
Pioneer will retain the balance of its assets, including the Puffy Lake and Nokomis gold projects in Manitoba, plus the Bonita gold-silver project in New Mexico and some $20 million in unrestricted tax pools.
Pioneer has 47.2 million shares outstanding and trades in a 52-week range of 24-6.
Kaiser considers
The Mulatos deposit contains an estimated resource of 68.8 million tonnes grading 1.6 grams gold per tonne. The resource was defined using 551 drill holes for a total of 96,124 metres, combined with 994 samples from underground workings, at a 0.8-gram cutoff.
Placer and Kennecott sold the project to National Gold in March 2001 for $10.5 million, due over four years. In August of that year, the terms of purchase agreement were subsequently revised; as a result, all but the $250,000 already paid is deferred until 2008 and 2010 unless the gold price rises above US$300 and US$325 per oz.
Alamos has entered into an option agreement with National Gold and can earn a 50% interest in the Salamandra project by spending the next $2.4 million on exploration and development costs, metallurgical test leaching and any underlying property payments that come due over the next 12 months. Alamos and National Gold would then share equally in future development costs, and any additional outstanding payments to Placer and Kennecott. Once the property is placed into profitable production, Alamos would pay a further $2 million to National Gold over the following four years.
To make this project work at current gold prices, Millar, chairman of Alamos, is targeting a higher-grade, 1.2-million-oz. component of the Mulatos resource contained in 11.5 million tonnes grading 3.16 grams. Delineation drilling, which got under way in December 2001, is attempting to define the number of ounces in 50,000 tonnes of near-surface gold mineralization that will be mined and stacked on a test leach pad. Miller believes gold recoveries may improve as a result of using a smaller crush size than the three-quarter-inch size Placer used in its heap-leach tests. It is expected Alamos’s heap-leach test will get under way sometime in the third quarter.
‘Conservative outlook’
“On the one hand, I am betting that Chester Millar can create value on the basis of a conservative outlook for the price of gold, and on the other hand I have full exposure to the upside that would ensue if the gold bug dreams of a major gold breakout becomes reality,” says Kaiser.
Kaiser also gives the nod to
– Brent Cook — “We’ve been getting calls from people who haven’t called for a long time wanting to buy exploration and gold stocks,” says Brent Cook, research manager at Rick Rule’s Southern California-based Global Resource Investments. “I am optimistic about this year. Things are getting better, and we are going to see people making money.”
Australian-listed
‘World-class’
“Over the next few months, Minotaur will be drilling what I believe to be one of the best shots at a world-class mineral discovery in years,” he says.
In November 2001, Minotaur jumped from A18 to more than A$2 on news that it had pulled a 107-metre intercept averaging 1.94% copper and 0.65 gram gold from its first hole on Prominent Hill, an Olympic Dam-type prospect in the Mt. Woods area of South Australia. The discovery hole was collared into the northern edge of a large airborne gravity anomaly that is slightly offset from a magnetic high. Subsequent ground surveys reveal the gravity anomaly extends for a strike length of 2 km and varies from 150 to 400 metres in width.
The hole passed through 107.8 metres of younger sediments before intersecting a sequence of mineralized hematitic breccias. The upper 20.2 metres of breccia ran 3.03 grams gold, followed farther down-hole by 107 metres of 1.94% copper and 0.65 gram gold at a depth of 200-307 metres, and then another 152 metres of 1.1% copper and 0.61 gram gold from 429 to 581 metres.
“For all intents and purposes, Prominent Hill looks like a close relative of Olympic Dam, carrying the characteristic uranium, fluorine and rare earth elements, plus similar alteration and geology,” says Cook.
Minotaur is carried with a 19% interest through the first A$4 million in expenditures as part of a joint venture with
The Minotaur-BHP joint venture is preparing to resume drilling in late January and punch six initial holes on 400-metre centres to see what this thing is. Results should be available by late March, and Cook expects the stock to react dramatically, up or down. Minotaur trades at A$2.50 and has roughly 20 million shares outstanding.
Virginia Gold
Another favourite of Cook is
ne of which could produce a discovery,” explains Cook. Virginia is searching for base metals, platinum group metals (PGM) and gold; plus it has exposure to the Quebec diamond play through a 1.8-million share position in Majescor. With $10 million in cash and 28 million shares outstanding, Virginia is trading at 72.
This year’s real catalyst for Virginia could come from an agreement struck last June with
Targets will be generated using a MegaTem II airborne geophysical survey for which Noranda has exclusive rights in specific areas. Cook says the proprietary geophysics can detect conductors up to 250 metres under cover. The first of six surveys to be flown generated more than 50 targets, of which 18 are considered high priority. Virginia intends to sink one hole into every high-priority target they come up with. “I can see over the next year and a half, more than 100 targets being drilled,” says Cook. Noranda will have the right to earn a 55% interest in any potential discovery.
Cook continues to like the chances of
Footwall & Foy
Aurora can earn a 60% interest in the Footwall and Foy properties from Falco by spending $6 million on exploration. The major retains a 70% back-in right. The Footwall property boundary includes the lower portions of the Falconbridge and East mines, which were closed years ago because of poor ground conditions. Last year, Aurora drilled three deep holes south of the Falconbridge mine along a 1.2-km distance. Down-hole geophysics shows a large strong conductor beneath, and adjacent to, the mine. Cook says Aurora will further test the area with 2,000-metre deep holes. “The chances of a continuation of the down-plunge portion of the known mine are really good,” he says.
Global Resources Investments has been a big backer of
“Their business plan is to minimize equity dilution and shareholder risk while maximizing shareholder exposure to a broad portfolio of exploration projects through joint ventures and strategic alliances with major mining companies,” says Cook. The company holds 29 properties throughout Newfoundland and Labrador.
Altius recently hooked up with
At the Moosehead property in the central part of the province,
Altius also recently acquired the past-producing New Rambler mine property in the Baie Verte Peninsula. Past production from the Ming deposit amounted to 2.1 million tonnes grading 3.5% copper and 1% zinc, plus 2.4 grams gold and 20 grams silver per tonne. Mining apparently stopped not for lack of ore but for lack of ownership. The surrounding property has since been consolidated into the new property package. Altius believes several key targets exist at depth below the old Ming mine workings. The next stage of exploration will consist of deep drilling.
Altius trades at a 52-week high of $1 and has $1.4 million in cash, with 14 million shares outstanding.
At 68,
El Valle
Rio Narcea expects to produce 150,000 oz. this year at El Valle in Spain at a cash cost of US$177 per oz. Cook expects the company should be in a position to pay back its US$20-million debt by 2005 and make a profit in the order of US$30 million.
Cook believes the real upside with the company lies in its Aguablanca nickel-copper project in southwestern Spain. The deposit contains a resource of 30 million tonnes grading 0.7% nickel, 0.5% copper, 0.3 gram platinum, 0.3 gram palladium and 0.3 gram gold.
A prefeasibility study on a 17-million-tonne deposit grading 0.73% nickel, 0.51% copper and 0.6 gram PGM at a 3.5-to-1 strip shows a net present value, discounted at 10%, of US$59 million at roughly current metal prices. Capital costs are pegged at US$60 million.
“The deposit is minable by open-pit methods, lies within a few kilometres of a paved highway and is 140 kilometres from the Freeport-McMoRan smelter at Huelva.” Also, Cook says it has no obvious environmental complications and should receive development grants from local and national governments of up to 30%. A bankable feasibility study is due mid-year.
– Art Ettlinger — Ettlinger, a retail mining analyst with Yorkton Securities, has been following
“From a technical standpoint, it seems to be consolidating at this level in preparation for another run,” he says.
Since announcing new diamond-bearing kimberlite finds in the north Slave Craton of Nunavut and the Otish Mountains region of Quebec, Ashton has seen its share price steadily climb from 70 in September, reaching a new 52-week high of $4.10 at year-end before pulling back.
A news event is needed to spark the next run, says Ettlinger. “That could be either good results from the 1-tonne mini-bulk sample of Artemisia [one of two new kimberlites discovered south of Coronation Gulf in Nunavut] or somebody else discovering a kimberlite in Quebec.”
He suspects there will be other companies drilling kimberlite targets in Quebec before Ashton begins drilling again. Results from the surface sample of Artemisia should be available in the weeks ahead.
Wemindji
Majescor Resources also gets the nod from the Yorkton analyst, who especially likes the potential of the Wemindji property, which sits 400 km west of the Otish Mountains region and 40 km east of James Bay in northern Quebec. Based on results from drilling and surface sampling in the fall, Ettlinger believes the company is close to discovering a new kimberlite in this area. No kimberlites have ever been found in the Wemindji area, so a discovery would constitute a new field in Quebec.
Voisey’s Bay nickel project in Labrador by spending $23 million on exploration over five years. In preparation for drilling, to start in June, Falco has identified targets based on a fall program of geochemical sampling, mapping, geophysical surveying and the re-logging of old core.
Ettlinger believes the South Voisey’s Bay project, centred 75 km west of the Labrador coast and 90 km south of Inco’s Voisey’s Bay nickel deposit, will be the largest base metal exploration project in Canada for the next couple of years. He credits the management of Donner with, first, doing a good job of consolidating the land interests in the area, and, more importantly, reinterpreting the geochemistry.
“The geochemistry shows that there are two distinct gabbroic phases on South Voisey’s Bay and that one of them is more similar, in both age and chemistry, to the actual Voisey’s Bay troctolite,” explains Ettlinger. However, the bulk of the earlier drilling focused on the gabbro phase, which was less similar.
Donner and Falconbridge have also entered into a separate agreement to expand their search for Voisey’s Bay-type deposits in other areas of Labrador. Each party will spend at least $200,000 annually over the next two years. Any properties acquired will be part of a 50-50 joint venture.
Trading at 61,
While the Expo-Ungava deposit was previously drilled by Amax and found to contain an indicated and inferred resource of 15.5 million tonnes grading 0.6% nickel and 0.8% copper, Canadian Royalties has demonstrated, by re-assaying historic drill holes, that significant PGM mineralization in the range of 1-4 grams is scattered throughout the deposit.
“This is one of the best PGM properties to come out of the recent phase of PGM exploration in Canada over the last few years,” says Ettlinger. The company has also demonstrated that PGM mineralization is present in the known Mesamax zone, 10 km east of Expo-Ungava. In addition, Canadian Royalties discovered an occurrence, known as the TK showing, on its wholly owned Phoenix property, 7 km east of Expo-Ungava. The TK prospect has yielded significant nickel and PGM values.
“They have turned up enough new stuff to make this a really interesting PGM property,” says Ettlinger.
The Northair Group’s
Ettlinger picked Blackstone, which is trading around a quarter, mainly because of its management and its exposure to both area plays.
Ettlinger also likes Altius Minerals and its Rambler mine property. “It’s a good, energetic group of prospectors and geologists who always turn-up interesting properties,” says Ettlinger. “It is a well-structured company and it does still trade by appointment.”
“If it turns up any truly commercial-size stones, with De Beers and Kennecott there, and a lot of these rocks scattered about the area, this could spark a new area play,” Ettlinger says.
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