The Northern Miner asked several followers of the junior mining sector for their stock recommendations for 2003. In this, the last of three instalments, we asked newsletter publishers Paul van Eeden and Lawrence Roulston for their views.
Paul van Eeden
The publisher of the International Spectator is confident the industry will strengthen in the current year but believes it is futile to try to predict short-term commodity prices.
“Doing so is nearly impossible,” he says, “and that means you can’t make money at it. However it is possible to look at long-term trends.”
Van Eeden feels that the pressure on the U.S. dollar will continue as a result of the trade deficit that exists in the U.S. “The trade deficit leads to a balance-of-payment deficit, and until the balance of payment deficit reverses, the pressure on the dollar will continue. I suspect we still have maybe another fifteen to twenty per-cent down on the dollar, which roughly translates to a fifteen to twenty per-cent increase in the price of gold. That takes gold to the US$450-per-ounce range, give or take.”
Van Eeden’s philosophy for buying mining stocks is based on risk tolerance. “If you are really averse to risks, buy physical gold. However, if you are willing to take some risk and want some leverage, buy a basket of intermediate gold producers that are unhedged with strong balance sheets and competent management teams. Look for companies with good capital structure, minimum dilution, and the ability to generate projects and form joint ventures.”
He recommends
In Newfoundland and Labrador, the junior holds exploration rights to more than 40 properties covering 1,100 sq. km. These include Botwood Basin (gold), Central Newfoundland (volcanogenic massive sulphides), Deer Lake Basin (uranium), Avalon (copper-gold) and Plateau (nickel).
At Botwood Basin, Altius has developed targets for both low-sulphidation epithermal and Carlin-type sediment-hosted gold mineralization. These targets have been identified along three regional trends known as Mustang, Moosehead and Miguel.
The 100-km-long Mustang trend, in the eastern part of Botwood Basin, is prospective for sediment-hosted deposits. In December 2001, Barrick formed a joint venture with Altius to explore and develop the Mustang trend. In January of this year, the major entered the second stage of the agreement, which ensures another active year of exploration. Barrick funded reconnaissance exploration on 10 licences last year. Exploration during the first half of 2003 will focus on defining drill targets in three areas of gold mineralization.
Barrick can earn a 75% stake in the project by funding all exploration costs and by making annual cash payments until a production decision is made. Altius can then elect to have Barrick arrange its share of any required mine development financing in exchange for an additional 5% interest.
At the Moosehead trend, a low-sulphidation epithermal target, Altius is in a joint venture with Sudbury Contact Mines. Highlights from drilling include 2.8 oz. gold per ton over 5 ft. in hole 13, 5.0 oz. gold over 5 ft. in hole 23, and 0.41 oz. gold per ton over 55 ft., including 3.67 oz. gold over 6.6 ft., in hole 38.
This year, an initial 12-hole drill program will test the area downdip and along strike of hole 38. Also, geochemical and geophysical work will be expanded and reverse-circulation scout drilling will test more targets.
Sudbury Contact can earn an initial 51% in the Moosehead property by spending $800,000 on exploration and paying Altius $100,000 over three years. It can then increase its interest to 60% by spending an additional $1 million and paying $50,000 to Altius over two more years.
The Miguel trend covers ground that has the potential to host both sediment-hosted and epithermal vein mineralization. The Paradise Lake, Rolling Pond and Chiouk Brook properties are situated along this trend and are the subject to an agreement that allows
The partners recently tabled results from 11 short diamond drill holes on the Chiouk Brook property. The program targeted the source of silicified and mineralized sedimentary boulders that returned assay values has high as 20.5 grams per tonne gold. A total of seven of the 11 holes cut quartz-arsenopyrite mineralization that was similar to that found in the boulders. However, the drill intercepts were low-grade, which suggests that the source of the boulders has yet to be discovered.
The Central Newfoundland VMS project comprises three properties: Rambler, Robert’s Arm and Tally Pond.
High-grade copper and gold deposits at Rambler were mined until workings reached a neighbouring property. No agreement could be made to acquire the adjacent ground, and the mine was shut down. Altius now holds that ground and is in a position to test for the continuation of several deposits that are known to extend to the old property boundary.
Altius and partner Inmet are exploring the Robert’s Arm base metal property. Recent drilling has identified thick sections of VMS-style alteration. In one hole, massive sulphide fragments assayed more than 30% zinc and 4% copper.
Altius also controls a large land position in the Tally Pond VMS belt, where limited drilling identified copper-zinc mineralization. Several targets are at the drill-ready stage, awaiting follow-up work.
The Deer Lake Basin uranium project hosts the Rocky Brook property. Boulders bearing high grades of uranium, silver and gold were sampled, and assays from these boulders returned up to 11.5% U3O8, plus 860 oz. silver and 0.5 oz. gold per ton. Altius hopes to trace the boulders back to their source. Cameco inked a deal for an initial 55% interest in the project in return for spending $1.8 million and paying Altius $130,000 over four years. It can then earn an additional 10% by spending $1.7 million on exploration and paying $100,000 to Altius over two more years. The partners recently completed a high-resolution airborne magnetic survey, which identified shallow magnetic targets close to the boulder occurrences.
Meanwhile, Altius has been exploring the Avalon copper project, in the eastern part of Newfoundland, for “Red-Bed” copper deposits and Olympic Dam-type copper-gold deposits.
Following the discovery of high-grade nickel-copper-cobalt-PGM occurrences near Taylor Brook, in western Newfoundland, Altius acquired ground in the area, which it has dubbed the Plateau nickel project. Results from 11 grab samples from the Layden prospect averaged 5.38% nickel, 1.05% copper, 0.1% cobalt, 112 parts per billion platinum, 232 ppb palladium, and 416 ppb gold.
Another junior that has caught Van Eeden’s eye is
Virginia operates in Quebec and has joint ventures with Noranda, Soquem and several other companies. It has $10 million in its coffers, no debt, and boasts a wide range of projects in Quebec. First Associates analyst Donald Poirier also recommends Virginia Gold, and his comments on the junior’s various projects can be found in the first instalment of this series (T.N.M., Feb 3-9/03).
The third company on Van Eeden’s buy list is
Wolfden has $6 million in working capital and no debt. By the end of the first quarter, it expects to have seven drill programs under way, with funding coming from various joint-venture partners.
Wolfden is also among the choices of Haywood Securities analysts James Mustard, who, in our Feb. 10-16 issue, provided a run-down on the junior’s projects.
This year, Rimfire’s partners intend to spend more than $2 million drilling five prospective gold projects, including RDN, Thorn, Pogo, Williams Gold and Tide.
The 680-sq.-km RDN project is 40 km north of Barrick’s Eskay Creek gold mine in British Columbia. The major is earning a 75% interest in RDN by spending $1.5 million on exploration. Once this is vested, it is required to finance all exploration and engineering until a production decision is made.
Work by Newmont in 2001 focused on targets along the 1.5-km-long Wedge zone, which could represent the footwall alteration to a shallow marine VMS system. Drill results indicate that alteration increases to the south, where there is evidence of faulting and anomalous soil geochemistry. The Jungle zone is a high-priority target at the southern extent of the Wedge zone. Quartz veinlets in the area assayed up to 25.4 grams gold per tonne. Last year, owing to difficult ground conditions, four drill holes failed to reach the target horizon. This year, more ground work will follow-up on soil geochemical anomalies discovered in 2002, with drilling scheduled to follow.
The 52-sq.-km Thorn project hosts a high-sulphidation copper-gold-silver epithermal vein system in northwestern British Columbia.
Last year, a 500-metre, 7-hole drill program tested three of the 17 gold-silver prospects known to exist on the property. At the Tamdhu prospect, a 2.65-metre drill intercept cut 454 grams silver and 3.05 grams gold per tonne, plus 3.65% copper. In addition, a discovery dubbed the Oban breccia was sampled and returned surface results of up to 6,148 grams silver and 3.5 grams gold. Three drill holes identified the breccia but failed to locate the source of the high-grade mineralization.
This year, First Au must spend $380,000 on exploration. Drilling will test numerous vein targets.
In the Pogo district of Alaska, Rimfire is the underlying vendor for claims that cover 184 sq. km. AngloGold is earning up to a 70% interest in the Eagle and Er-Ogo Fire properties by spending a total of US$900,000 and paying Rimfire US$100,000 per property. Last year, AngloGold performed reconnaissance auger soil sampling and outlined a gold-arsenic-bismuth-antimony soil anomaly on the Er-Ogo-Fire property. The anomaly measures 1,500 by 300 metres. On the Eagle property, soil geochemistry added over 1 km to an existing gold-arsenic-bismuth-tungsten soil anomaly. AngloGold plans to perform further ground surveys on both properties.
At the 35.5-sq.-km William’s gold project, in northwestern British Columbia, Rimfire has targeted a large gold-bearing mesothermal vein system. Rimfire holds a half-interest in the property, with an option to earn 100%. Privately held
This year Stikine will spend $300,000 on drilling in an effort to test several induced-polarization targets, as well as geological and geochemical targets.
The 20-sq.-km Tide project, 36 km north of Stewart, B.C., represents a high-grade gold-silver-zinc-lead vein system that is associated with a 193-million-year-old porphyritic intrusion. Rimfire has optioned 51% of the property to
The Tide property hosts a north-trending gold-silver-arsenic-lead-zinc-copper geochemical anomaly that measures 2 by 4.2 km and is centred on a porphyry sill. Two styles of high-grade gold veins occur there: distal veins, which are emplaced in fracture zones within volcanic rocks near the contact of the sill; and proximal gold-silver-lead-zinc veins, which occur within the sill.
This year, Plutonic Capital will drill-test the Arrow zone, a controlling structure within the sill.
At $1.15,
The junior has a commanding land position in Guatemala that comprises more than 5,000 sq. km. The mineral concessions are on the southern side of a tectonic plate boundary between the Caribbean and North American plates.
The Simon Ridgway-led company is exploring for gold at four properties: Motagua Gold Belt; Holly; Marimba; and Banderas.
Of the seven project areas targeted for scout drilling last year, all but one returned gold values in excess of 1 gram gold per tonne.
At the wholly owned Holly prospect, in eastern Guatemala, drilling has confirmed the presence of low-sulphidation, high-grade gold and silver veins, in addition to disseminated gold mineralization. A 7-hole, 1,000-metre program targeted structurally controlled gold mineralization in volcano-sediments and lagoonal calcareous mudstones on the northern side of a rhyolite dome. Four of the holes intersected significant intervals of gold mineralization. The best hole, no. 4, cut 6 metres averaging 43.56 grams gold and 1,617 grams silver per tonne. This occurred within a broader interval that averaged 13.74 grams gold and 544 grams silver over 21 metres. The next phase of exploration program will test the downdip and strike extensions of the mineralization.
The Banderas project, also wholly owned, is being mapped, prospected and sampled. Gold mineralization is hosted by andesitic flows and tuffs within a rhyolite dome field. The best grab samples taken from float and outcrop in the Cerro Golera trend assayed up to 14.59 grams gold and 330 grams silver.
In June 2002,
Laurence Roulston
The publisher of the Resource Opportunities newsletter says the volatility and uncertainty that have characterized markets in recent years will likely continue.
“With such a cloudy economic outlook, gold looks particularly attractive,” he says. “It has always provided stability in times of turbulence, and has performed that role admirably. The technology sector and most other investments have tanked, yet the gold price is up more than 40% from its low point, and many gold equities have performed even better. In other words, it’s worth owning gold even if for no other reason than that it provides a stabilizing effect over time.”
Roulston says a host of factors point to a rising gold price, in
cluding undersupply, declining production, declining company hedge positions, a growing foreign market that can now gain access to gold through the new Shanghai Gold Exchange, nervousness about the U.S. dollar, and the looming threat of war with Iraq.
“My suggestion is to own gold companies, but own companies that make good business sense, independent of the gold price. The lowest-risk way to invest in gold equities is through the big North American gold producers. My preferred approach is to own the smaller companies. Some of the early-stage exploration companies can give enormous returns. But I encourage investors to focus on companies that have exceptional management teams and multiple projects.”
Roulston says the price of platinum, which recently hit a 20-year high, will play a part in the bull market. “Three of my recommended exploration companies will benefit from that move in platinum once investors wake up.”
Among the mid-tiers, Roulston especially likes
“This is a well-run company that I believe will be a leader in the consolidation of the mid-tier companies.”
Wheaton River currently produces 100,000 oz. gold and 6 million oz. silver per year from three Mexican mines: San Martin, San Dimas and La Guitarra. It acquired the Mexican assets last year from Minas Luismin for US$75 million and 9 million shares.
Total proven and probable reserves at the three mines total 224,000 oz. gold and 13.7 million oz. silver, or 860,000 oz. gold-equivalent, sufficient for a mine life of 4.5 years. Total resources stand at 3.8 million oz. gold-equivalent, comprising 1.5 million oz. gold and 152 million oz. silver.
In a deal that would see its production double, Wheaton River recently agreed to buy
The company will privately place US$150 million worth of shares and warrants to help cover the cost of buying the Australian assets. As a result, Wheaton’s cash costs will fall to US$124 per oz. gold-equivalent, and its proven and probable reserves will jump to roughly 3.3 million oz. gold-equivalent. Based on current metal prices, Wheaton believes it will be cash-flow-positive by 2005.
Roulston also likes Denver-based
Apollo now owns two open-pit gold mines, Montana Tunnels in Montana and Florida Canyon in Nevada, and since its public listing in July 2002, it has added two more assets to its stable: the Black Fox project and the Glimmer mine, both of which are near Timmins, Ont.
In January the company completed a private placement of 6 million units priced at $2.40 each for gross proceeds of $14.4 million.
Proven and probable reserves at Florida Canyon amount to 18.8 million tons averaging 0.0178 oz. gold per ton. (about 0.5 gram per tonne). The company expects to produce 200,000 oz. gold this year at a cash cost of US$230 per oz., plus 50,000 oz in gold equivalent, mostly via zinc credits.
At Montana Tunnels total proven and probable reserves are pegged at 19.3 million tons averaging 0.016 oz. gold and 0.18 oz. silver per tonne, plus 0.2% lead and 0.56% zinc. Last year, Apollo spent $18 million in capital expenditures at Montana Tunnels on waste-stripping, mining equipment and infrastructure. The 2003 cash cost per ounce at Montana Tunnels is projected to range between US$225 and US$250, though this is expected to fall to below US$175 in 2004.
The Black Fox project is close to the company’s Glimmer Mine property, which produced 250,000 oz. gold last year. Recently, Apollo began 25,000-30,000 metres of core drilling at Black Fox.
Roulston also recommends
Most of current production is derived from the Merensky and UG2 reefs, which are high-grade (but narrow) tabular deposits. The Platreef zone of the Bushveld complex is much thicker and lower in grade but is nonetheless amenable to low-cost, large-scale open-pit mining.
The neighbouring Sandsloot mine, held by a subsidiary of Anglo Platinum, produced 411,000 refined ounces of platinum, palladium and rhodium in 2000, plus byproduct gold, nickel and copper. In all, the Anglo property hosts eight deposits containing an estimated 68 million oz. PGMs, plus gold, in about 500 million tonnes of reserves and resources.
Anooraq drilled the Northern Block of its claims in 2000 and 2002 along a 4.5-km stretch of Platreef horizon. The company defined three mineralized zones that have good grade and continuity over a total thickness of 35 metres. The largest of these zones was traced for more than 2 km and is 10-20 metres thick. Using data from 43 holes, Anooraq has outlined a resource of 99.4 million tonnes grading 0.6 gram platinum, 0.63 gram palladium, 0.012 gram rhodium and 0.062 gram gold. Mineralization remains open to the north, as well as downdip to the west.
Anooraq holds the 1,033-sq.-km South Block project, also on the Northern Limb of the Bushveld. The five farms that make up the project are part of the
Exploration to date indicates that the South Block property is strongly anomalous in platinum group and associated metals over a 5-km strike length. The pyroxenite unit that is the main target appears to be the same unit that hosts Pan Palladium’s northern and southern deposits, which host a combined inferred resource of 59.1 million tonnes grading 1.3 grams per tonne combined PGMs and gold, plus 0.14% nickel and 0.04% copper. These deposits lie on strike to the east of Anooraq’s property.
On the Centre Block of Anooraq’s claims, another discovery is being drill-tested: African Minerals, a private affiliate of Robert Friedland’s Ivanhoe Capital, is earning a half-stake in the 29-sq.-km Rietfontein farm by spending a minimum of $1.5 million on exploration.
Rietfontein is adjacent to, and contiguous with, African Minerals’ Turfspruit farm, where up to 12 rigs have been drilling for more than a year. A PGM- and base-metal-rich pyroxenite horizon straddles the boundary of the two farms. The horizon hosts numerous intervals of disseminated, net-textured and massive sulphides that average about 1 gram combined platinum-palladium-gold per tonne. Grades of 0.26% nickel and 0.2% copper are also associated with the mineralization.
Next on Roulston’s buy list is
The junior’s flagship property is the River Valley PGM project, 50 km northeast of Sudbury, Ont. (Both Inco and Falconbrige own a smelter in Sudbury and each has extra capacity.)
River Valley is a 50-50 joint venture between PFN and Anglo American Platinum, and spans 13 km of prospective ground along the northern contact of the River Valley mafic intrusion. Amplats stands to earn a 65% interest in the property by financing it through to production.
The partners have identified 10 areas of breccia-hosted PGM mineralization: Pardo, Dana Lake, Lismer’s Ridge, Varley, MacDonald, Azen
Creek, Jackson’s Flats, Razor, Banshee and Thomson. Drilling has mostly focused on the Dana Lake and Lismer’s Ridge areas, where the partners are trying to define a resource.
Measured and indicated resources now exceed 18 million tonnes averaging 1.02 grams palladium, 0.34 gram platinum and 0.06 gram gold per tonne, plus 0.02% nickel and 0.1% copper. An additional 5.4 million tonnes grading 0.82 gram palladium, 0.29 gram platinum, 0.05 gram gold, 0.02% nickel and 0.09% copper are classified as inferred. The current resource lies within the northern half of the property and covers less than 30% of the prospective area. The remaining 70% of the intrusive contact will be drilled in 2003.
Amplats recently approved a $5.3-million exploration budget for more than 40,000 metres of diamond drilling. Two rigs are currently spinning — one at Dana North, and the other at Lismer’s Ridge South.
This year the joint venture hopes to expand the resource as well as test targets along the 6-km-long contact zone that extends southeast of Lismer’s Ridge.
To date, 47,000 metres of diamond drilling have been completed, for a total of 232 holes. Amplats has spent $6.7 million so far, and when this year’s budget is included, that amount increases to $12 million.
Pacific Northwest Capital also holds the Agnew Lake PGM project, 60 km west of Sudbury. The property covers most of the prospective contact of the Agnew Lake mafic intrusion, which is similar to the River Valley intrusion. Amplats stands to earn a 60% interest in the property by funding the project through to production.
Rounding out Roulston’s picks is
The company is exploring for precious and base metal deposits in China and holds interests in the Yunnan copper project, the 217 gold project, the JBS platinum project, and the Dandong gold project.
Ivanhoe has a similar option at Pacific Minerals’ JBS platinum-palladium-nickel project, in Yunnan province.
Ivanhoe holds a right of first refusal to acquire up to an 80% interest in any new project picked up by Pacific Minerals anywhere in China (excluding Anhui province). Ivanhoe exercised its right of first refusal on Pacific’s newly acquired Dandong gold project and three copper-silver projects in Yunnan and Guizhou provinces.
Pacific Minerals stands to earn a 90% interest in the 790-sq.-km Dandong gold project in the north-eastern province of Liaoning. Of particular interest to Pacific Minerals is the WDG prospect, which is immediately east of two producing gold mines and one silver mine. Near the property boundary, the operator of one of these mines intersected a 40.3-metre interval averaging 14.6 grams gold per tonne, which included a 27.4-metre section of 19.87 grams gold and 21.8 grams silver. About 400 metres farther east, on the WDG prospect, a shear zone returned 20.47 grams gold and 26.4 grams silver over an interval of 9.5 metres.
Pacific Minerals, Ivanhoe and a Chinese partner are also exploring two land positions that span in excess of 3,000 sq. km in Yunnan province. The partners have targeted extensive native copper and silver deposits that also host PGMs. Mineralization occurs within a continental flood basalt terrain that extends over an area that is 200 km long and 80 km wide. Disseminated native copper mineralization averaging 2-10% has been identified.
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