- The Quiet Summer of 2011, and Honest Work
- Respectable Showing For the Diamond Sector at PDAC 2011
- PDAC 2011 – this March
- Promising Diamond Find by Metalex in Northern Ontario, Plus Grades from Chidliak and Movement at Renard
- Peregrine Finds 1.15 Carat Diamond at Chidliak
- Stornoway Diamond Corp. Works to Expand Resources at Renard Project
- 2010 Toronto Resource Investment Conference
- Newsworthy Week For Canadian Diamond Companies
- Different Types of Diamonds at Fort à la Corne
- Kimberlites and Diamonds of Western Canada
5034 AAD Aappaluttoq Aber Diamonds ABX ACS AEM Ag Agnico-Eagle Mines Agrium Alberta Alto Ventures Amarillo Amaruk AMEC Amerigo Archangel Diamond Archon Minerals Ltd. Arctic Arctic Star Diamond ARG Argentina Argyle Ashton Mining Canada Attawapiskat ATV ATW ATW Venture Corp. Au Australia AUY Avalon Rare Metals Avanti Mining Corp. Aviat AVL Baffin Island Barrick Bathurst Beluga BHP BHP Billiton Birch Mountains Bling Blue Note Mining Blue Pearl Cluster BN BRIC Buenaventura Buffalo Head Hills Bunder Burnstone Ventures Inc. BVE BVN Canada Candente Candle Lake Canterra carbonatite Caribou Castillian CCE Chariot Resources CHD Chidliak Chile Chris Jennings Chuck Fipke Churchill Churchill craton CL CLF Cliffs Co Codelco Coloured Gemstones Commerce Resources Contact Diamond Corporation copper CTM Cu Cullinan DDN DeBeers Diamond Diamondex Diamonds Diamonds North Dianor Diavik Diopside dividend DNT DO-27 DOR DSP Eastmain Resources Ekati El Teniente emerald EnCana Corp. ER EuroZinc Exotic Metals FALC FGE FGT First Nickel Inc. Fiskenaesset FNI FNV Forest Gate Fort a la Corne Foxtrot Franco-Nevada G Gahcho Gahcho Kue Gem Diamonds geologic terms glossary gold Goldcorp GPR Great Panther Resources Great Panther Silver Greenland Grib Grizzly Discoveries Inc. Gualcamayo Guanajuato Guaniamo GZD Harry Winston Hawthorne Gold Hearne HGC Hibou HUD Hudson Resources Hunter Exploration HW HWD IME In Indicator Minerals indium interview iron Jericho Jericho Diamond Mine Jigsaw K K-2 Kahuna Kennady Lake Killiq kimberlite Kinross KWG Kyle Lake Lac De Gras Las Aguilas lead Leadbetter Lesotho Letseng Li limestone lithium Lockerby LUC Lucara Lukoil LUN Lundin Mining Lynas Lynx Mapimi Marifil Mines Ltd. market hype MAT Matamec Exploration Inc. Metalex Ventures Mexico Mexivada MFM Mina El Carmen Mo molybdenum Monument Diamond Project Motapa Mothae Mountain Province Diamonds MPV MTC MTP MTX Muskox Kimberlite natural gas Nb NEM Neuqen Basin New Gold Newmont New Nadina Diamonds Ltd. NGD Ni NI 43-101 nickel niobium NMC NNA Noront NOT Notch Nunaminerals Nunavut oil Orion Otish Pascua Llama Pb PC Gold Pd PDAC Pedernal Peregrine Peregrine Diamonds Petra Diamonds PGD PGE PGM PKL placer platinum Pogo Mine potash Potash Corp. pre-feasibility PST003 Pt Punta Colorado Qavvik Qilaq QUA Quadra Mining QUC Quebec Quebect Quest Rare Metals Quest Uranium rare earth elements Rare Element Resources Raytech Metals Corp. Re REE Renard RES Restigouche rhenium Rio Colorado Rio Narcea Rio Tinto RSC RTP ruby San Antonio San Juan San Roque sapphire Saskatchewan SGF Shear Diamonds Shear Minerals Shore Gold silver SL Snap Lake Sola Resource Corp Soltoro SOQUEM Inc. SRM Star Stewart Blusson stockhouse.com Stornoway Stornoway Diamonds Strange Lake Strateco Resources SWY Ta TAH Tahera tantalum TCK.A TCK.B TCM Teck Cominco Terrane Metals Tesla TGX Thompson Creek Metals Thor Lake TIF Tiffany & Co. Topia Topia Mine Toronto Resource Investment Conference Triex True North Gems TRX Tsa Da Glisza Tuktu Tuktu-1 Tunerq tungsten Tuzo Type IIa U uranium VAA Vaaldiam Mining Inc. VALE-INCO Veladero Venezuela Victor WDO Wesdome Western Troy Capital Resources WRY WWW International Diamond Consultants Ltd. Yamana Gold Inc. YRI zinc Zn
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Posted by David
Sorry, for the lack of recent posts, it’s paper-writing season again.
Mining and exploration investors may be interested in attending this year’s Toronto Resource Investment Conference at the Metro Toronto Convention Centre this weekend (Sept. 25-26). Register now with Cambridge House International Inc., the organizers, to get in for free and avoid paying about $20 at the door.
Publicly-traded mining and exploration companies will have booths on the floor. Commodities present at the show are varied and range from silver (e.g. Great Panther, Soltoro), to diamonds (e.g. Stornoway, Shear), to REEs (Avalon, Quest). There are also fairly well-known speakers in the sector that are giving talks: Kevin O’Leary, John Kaiser, the Coffins, Mickey Fulp, etc.
While not as grand as the PDAC and with less plentiful freebies, the Toronto Resource Investment Conference is a nice way to spend the weekend for the individual investor.
Posted by David
The 2010 annual PDAC convention this week was resoundingly more vibrant and bustling than last year’s. The nice thing about commodity downturns is that they are often self-correcting given time. The excess of supply that leads to commodity price drops and mine closures also ceases mine development. With no new resources coming onto the pipeline, supply drops as existing deposits are tapped out. This drop in supply leads to an increase in the commodity price, beginning the cycle all over again.
This current resurgence is much to early to be mainly due to this process, lack of exploration typically takes years to manifest into resource shortages. Whatever the cause, the mood of exhibitors, investors, and geologists was significantly improved over 2009′s show. Though there are still many companies out there just hanging on, both those with quality and questionable properties.
Gold was still king of the commodities this year, unsurprising considering it has remained at ~$1100 for some time in spite of the predictions of certain pundits. Though keep in mind that price is in American dollars. Well-run gold producers such as Barrick, Goldcorp, and Wesdome, have been reporting steady and strong profits. The Wesdome booth at PDAC had some impressive display samples of quartz-vein ore containing visible gold mineralization from their Kiena mine. Although some producers are still struggling, e.g. Yamana.
The buzz about exotic metals such as yttrium, niobium, and the rare earth elements has died down a little since the excitement of last fall. Leading juniors in that field, such as Avalon and Matamec, were still well represented at the show. In terms of fundamentals, however, nothing has changed, our increased dependence on technologies is leading to a demand that will continue to ramp up with each passing year and the Chinese control virtually all production. Not a pretty picture from either an economic, strategic, or political view (for everyone but the Chinese that is).
Copper, nickel, and other base and ferrous metal prices have all climbed back up significantly. The earthquake in Chile barely caused a blip in copper prices (Chile produces about one third of the world’s copper), and metal producers like Amerigo and Lundin are starting to see their first real profits in over a year. Speaking with Amerigo reps at the PDAC, they predict a return of their one-vaunted dividend should copper prices hold close to their current levels.
The investment talks for the junior diamond sector saw increased attendance this year. The best was saved for the last for talks by Peregrine, Shear Minerals, Shore Gold, and Stornoway, discussing the most promising Canadian diamond projects and their various stages of development. Peregrine’s Chidliak project on Baffin Island continues to steal the spotlight with preliminary results from CH-6 that indicate the potential for the highest grade diamond find since A-154 South at Diavik in the 1990′s.
Chidliak is still many years from and possible mine. The Renard and Fort a la Corne deposits of Stornoway and Shore Gold, respectively, are each within five years of a potential mine. Last fall’s announcement by Stornoway regarding the expanded resource at Renard-2 is putting the company at odds with Shore Gold for the title of owner of Canada’s (and for that matter, the world) largest undeveloped diamond deposit (video interview with SWY founder Eira Thomas HERE). Shear Minerals, though somewhat stagnated by lack of funds, had returned a promising grade of 0.862 c/t from the Notch kimberlite in the Churchill property.
The repeated message from all diamond companies is that world diamond prices have recovered, and possibly then some. Unlike metals, getting firm numbers on world diamond demand and pricing is difficult, but some estimates put current diamond prices as high as 25% over those of pre-crash 2008. With the recovery as of yet incomplete, this could spell a significant jump in share prices for quality diamond stocks over the next 12 months.
Disclaimer: The author holds shares of SWY, YRI, SRM, ARG, and LUN. This article is based on the personal opinions and experience of the author. Please conduct due diligence when investing. ©KIM Report 2010 www.kimreport.com
Posted by David
It would seem that there is some good news out there for shareholders of precious gem exploration company True North Gems with the company announcing changes in its management Feb. 3rd, 2010.
Nicholas Houghton, a director of the company, and an insider to the jewellery industry, has been promoted to company president, replacing Andrew Lee Smith, who will continue on the board of directors. Jeff Giesbrecht, lawyer and geophysical engineer has be appointed VP corporate development.
While these new executives have no significant track record with TGX, the bar for performance has not been set very high by Andrew Lee Smith who has been dithering with a company that possesses rich and unique gem deposits. The past five years of TGX have been characterized by its management being distracted with their positions in other companies and projects, letting properties like the Beluga sapphire (Baffin Is.) and Fiskenaesset ruby (Greenland) wither on the vine.
Though the board of directors contains many others who have alternate obligations with to outside companies (e.g. First Nickel, Dianor, etc.) hopefully a few more dedicated people in management will actually move the company closer to selling rubies and the like.
Disclaimer: The author holds 1000 shares of TGX and 500 shares of FNI. This article is in based on the opinions and experience of the author. Please do your own due diligence when investing. ©KIM Report 2010 www.kimreport.com
Posted by David
Some investors seem to have had a bit of premonition as Great Panther Silver Limited (formerly Great Panther Resources: TSX-GPR) finally closed above the $1 mark this week on another record 4th quarter report that was 6% higher than the targeted amount and a 22% increase over Q4 2008 in terms of silver equivalent ounces produced (2.203 Moz.). Both mines at Topia and Guanajuato reported excellent recoveries and increases in production of Ag, Au, Pb, and Zn.
GPR is not the only small-cap precious metals producer on a strong rise, Wesdome Gold Mines Ltd (TSX-WDO) has been a steady gainer moving from $1.00/share in March to well above $2.50. As the new CEO, Donovan Pollitt told me at the last PDAC (also in March 2009, when he was VP corporate development): “We manage to get more money out of the ground than we put in. It’s a rare thing.” Indeed, back in March that was an exceptional achievement amongst is peers (and even larger companies) and WDO is continuing to build upon their now 20+ year history of turning good properties into mines. A big factor with WDO’s apparent business model is the old adage “The best place to look for a new mine is within sight of a headframe.” In WDO’s case one of their new Au discoveries: Dubuisson, is right next door to Agnico Eagle’s Goldex mine.
The high price of gold has also re-invigorated juniors exploring in Canada’s traditional gold-producing regions: Ontario-Quebec, and British Columbia. Both new properties and old mines/projects are being looked at closely now with Au appearing to have some permanence at above US $1000/oz. Companies such as Hawthorne Gold Corp. (TSX.V-HGC), PC Gold Inc. (TSX-PKL), and Alto Ventures Ltd (TSX.V-ATV) have reported promising gold-related finds in the Cassiar Gold Belt, Pickle Lake, and Abitibi Greenstone Belt regions, respectively.
Regardless of the size of the company, these regions (and others), so historically tied to the country, will continue to produce viable Au prospects for many years to come. The scope of the geologic processes that create such deposits is typically so large that it takes more that a just few mines to fully exploit them. Furthermore, previously uneconomic deposits became attractive again as new technologies develop. This was the case when the heap-leaching method of gold extraction came to mainstream use.
This history of the exploration, development, and production cycle with gold (and other types of deposits) plays a major part in the economic well-being of Canada. Also its continued existence is a far greater certainty than some other supposed “backbones” of the Canadian economy. While it is easy to move an automobile plant to a country where workers are paid less than $20/hr for semi-skilled labour, it is quite impossible to move a mineral deposit.
Disclaimer: The author owns shares of HGC, ATV, and GPR. This article is based on the personal opinions and experience of the author. Please conduct due diligence when investing. ©KIM Report 2010 www.kimreport.com
Posted by David
A Possibly Bumpy Road Ahead
The past month or so has seen a huge rise in the TSX and Venture indexes as all sectors slowly pull themselves out of the economic hole that was 2008. What may give investors some pause is the question as to whether this is a true recovery, or is this just the seasonal rise most commodities see each spring? What about the doldrums of the summer holidays and the lows of tax loss selling in December?
The TSX Composite Index has risen from a low of ~7500 at the start of 2009 to over 10000 this week. Is it possible that the seasonal spring rise in commodities has been the catalyst for this long-awaited and hoped-for recovery? Or will these gains evaporate with the spring rains as more inevitable bad news comes out of the (primarily U.S.) financial sector this summer?
Being an Eternal Optimist
I would like to think otherwise, and that some of these recent gains may be long-term. As someone heavily invested (relatively speaking) in the resources sector, I have no real choice other than to be optimistic as psychiatrists are expensive. This was the first month in about half a year that I started looking at my portfolio and searching for opportunities to start mitigating some of my losses. Some I managed to catch, others I wish I did.
I have had a little luck with two small companies that readers will know are favourites of mine. The first is Great Panther Resources which has managed to keep their metal production (primarily silver) costs well below market, allowing them to be profitable. They have very recently announced that this last quarter was the first in which a positive cash flow ($0.7 million) was attained and that earnings are up by 75%. The discovery of gold rich zones at their Topia mine does not hurt either. Stornoway Diamond Corp. has also seen a climb in share price from recent lows at nine cents a share to what is now strong support above sixteen cents a share. This is accompanied by fairly recent news of flow-through share investment and government support for a road to their Renard mine in Quebec. The latter discussed in an earlier article.
An opportunity I did miss was with Teck (formerly Teck Cominco) when I could have picked up shares for less than $5. They now stand at ~$15. Teck is currently in the process of selling of some of its assets (e.g. its share in the Pogo gold mine in Alaska) and issuing more paper in order to pay off debt incurred when if bought out Fording Coal Trust near the peak of the commodity market about a year ago. Hopefully this will teach management to buy low and sell high and not the other way around as they have been doing. Yamana has also started to rise up and even led the pack for a little while, helped by high gold prices and the increase in copper prices. However it has stagnated around $10-11/share lately.
As mentioned at the top of this post, the individual investor must consider that we have negligible impact on the share price behaviour of publicly traded companies. Institutional investors going out or moving in will cause the share price to drop or climb respectively, regardless of the fundamentals. The funny thing is that sometimes, for all their trained staff, these big guys are often the first to disregard fundamentals and give in to psychology, following a pack mentality. With a little due diligence, patience, and discipline, the average guy can come out ahead.
Disclaimer: The author holds 4000 shares of SWY, 200 shares of YRI, 100 Shares of TCK, and 1000 shares of GPR. This article is based on the personal opinions and experience of the author. Please conduct due diligence when investing. ©KIM Report 2009 www.kimreport.com
Posted by David
Chile is probably the world’s #1 supplier of copper (~35%) through the state-owned entity Codelco and various foreign producers. The geology of the Andes lends itself to large-scale porphyry deposits rich in copper as well as gold, molybdenum, silver, rhenium and other metals. Such a huge drop in the prices of these commodities (with the possible exception of gold) has done serious damage to the Chilean economy. With copper exports representing such a huge portion of its GDP (US$37.6 billion, or 56% of total exports in 2007), Chile’s trade surplus for 2008 will appear puny indeed.
Gold vs. Copper
As with most base metals the price of copper has experienced a huge drop from about US$4.00/lb. in July to $1.29/lb. this Monday. This drop has caused any company that has copper as a significant component of its production to suffer serious revenue decreases. Good examples of these are VALE-INCO (NYSE-RIO) (although nickel and iron are to blame here as well) and Yamana Gold Inc. (TSX-YRI, NYSE-AUY, LSE-YAU). Yamana itself is an interesting case as although it is touted as a gold producer, a significant source of its revenue is from copper (e.g. Chapada, Brazil). This has caused Yamana to see a slower rise in share price than other more gold-oriented companies, such as Kinross (TSX-K).
Challenges for a Small-Cap Company
However, large companies have the obvious ability to weather these low metal prices and Yamana stock has still seen a rise from ~CA$5/share to just below $10/share in the past month, mainly due to interest in gold. It is the small-cap companies that have the most to worry about in the short term when metal prices slide. One such company in Chile that is feeling the pressure is Cu-Mo tailings processor Amerigo Resources. Things have changed for Amerigo since the last KIM Report article in April 2008, copper and molybdenum prices have tanked and most producers are happy if they are currently breaking even. At the time of that article, Amerigo was struggling with high energy costs due to a very dry season at the time as most electricity in Chile is hydroelectric in nature combined with high fuel costs. Now fuel costs are down, Chilean electricity is cheaper due to more precipitation, and electric generators running on cheap bunker oil have been installed at their facility near the Codelco-run El Teniente mine (from which they obtain the tailings for processing). Unfortunately, the timing of these energy-savings coincides with the drop in metal prices. Amerigo recently released news that it had incurred negative price settlements for sales of copper and molybdenum to smelter companies Enami and Molymet, respectively.
The good news is that Amerigo believes it can reduce its production costs before royalties (which are tied to copper price) to $1.20-1.25/lb. The company has recently managed to partially defer energy, royalty (paid to Codelco), and negative copper price settlements. It is in the process of negotiating deferral for the negative molybdenum payments as well. Enami, a state owned entity, has an established mandate to support small to medium copper producers through price protection. How this will affect Amerigo has not been determined. Amerigo has also extended its banking line to US$5.6 million and has opened a new line with a second bank for $5 million. Negotiations are also occurring to open new long-term credit facilities of $10-20 million. On the shareholder end, management has enacted a shareholder rights plan – in essence a poison pill to dissuade any opportunistic takeovers.
The real issue here is if Amerigo will maintain its CA$0.065 semi-annual dividend due this spring. Many shareholders considered a ~6% return to be excellent last spring when the price was around CA$2.25/share. Now with the share price at ~$0.35/share, this ~20% dividend is either an amazing opportunity, or indicative of extreme risk. Given the unclear forecast for metal prices, it appears to be anybody’s game. Amerigo’s future good financial health depends on its continuing good relations with its creditors and smelters.
Disclaimer: The author holds 500 shares of ARG and 200 shares of YRI. This article is based on the experience and opinions of the author. Please do your own due diligence when investing.
Posted by David
During this seemingly never-ending drop in equity prices, many analysts are recommending that now is the time to buy stocks as so many solid companies are trading at deep discounts. But what companies does one invest in currently? In terms of resource stocks, most are trading at 70-90% below their stock price last winter. Metal prices have yet to properly recover and most producers have either gone to great lengths in cutting production costs or have shut down their operations. Explorers have also strongly cut back on projects for 2009 or have gone into “hibernation mode” in an effort to preserve their remaining cash until this crisis abates and future private placements can be made.
There are some case examples for optimism however: Harry Winston recently reported net earnings of $1.17/share for Q3 compared to loss of $0.13/share in the previous year’s quarter. Retail jewellery sales offset decreased earnings from sales of rough diamonds due to decreased production resulting from grade variation in the main kimberlite pipe at the Diavik mine: A-154 South. Another case is the small-cap silver producer Great Panther Resources, mentioned in an earlier case study article, that has managed to reduce their operating costs from about $11/oz. to $7.40/oz. in the face of <$10/oz. silver (although we have seen a bit of recovery in the metals over the course of the week). However, news of this was later added to by the announcement of dilution in the form of a $2.7 million private placement. On the exploration end, Shear Minerals continues to discover more kimberlites with high diamond counts on its Churchill property. But, as with Great Panther, this was also followed by the announcement by Shear of a $1.18 million private placement and thus shareholders would see further dilution. In the meantime, Shear’s JV partner at Churchill, Stornoway Diamond Corp. has decided to focus the bulk of its resources into developing its Renard property into a mine. Although its Aviat project on the Melville Peninsula is a definite target for further exploration in 2009. True North Gems is preparing its Aappaluttoq ruby project in Greenland for mine permitting. This will allow them to sell the large stockpile of gems they have acquired from sampling over the past few years. Diamonds North, buoyed by high diamond counts from some of their kimberlites this year, is planning for a modest exploration program in 2009 and is currently working on finishing this year’s mini-bulk sampling program. There are many other companies like those aforementioned that are meeting or exceeding their stated goals. Positive news releases (e.g. this one), however, are promptly ignored by the market -or at least the retail investors.
An unavoidable fact is that the manufacturing and housing sectors are in a tight retraction worldwide. Commodities used in these fields: base metals, iron, aluminum, petroleum, and even some precious metals (silver, PGEs) will continue to see lessened demand as consumers disappear. Many analysts suggest that the US dollar is due for a significant collapse due to the variety of debts piled on America by the Bush government. Traditionally, this would cause investors to flock to precious metals (primarily gold) and other forms of solid investments (diamonds, other rare gemstones, etc.) in order to preserve their capital until the malaise has passed. This bodes well for companies mining and exploring for these commodities. Another silver lining to this recession is that low oil prices have given miners and explorers a break in operating costs via cheaper fuel.
The real challenge is in determining which of these companies will survive the downturn until they can start to benefit from increased demand. Factors to look for are a strong treasury, a demonstrated history of cutting costs, a willingness to open new revenue streams, and management ownership. Management must make serious decisions on whether to conserve cash and limit exploration activities or to spend to continue adding value to their properties. Often the latter involves offering new shares at the currently extremely low market prices in order to raise that cash as banks loans are not forthcoming.
Currently, there are excellent opportunities for investment in mining and exploration stocks. In particular, there is potential in the diamonds sector as it was already undervalued prior to the current crisis and diamond prices are more firm than that of other commodities. A final factor to consider is that tax-loss selling at the end of this year will result in further devaluation of many companies, adding to the allure for bargain hunters. For those who actually have cash left to invest at this point, a long term (3-5 yrs) outlook is mandatory. Those who do their homework and invest in a non-reactionary fashion will definitely benefit when this bear turns into a bull.
Disclaimer: The author holds 20 shares of HW, 4000 of SWY, 500 of SRM, 500 of GPR, and 1000 of TGX., most of which were bought at much higher prices than current. This article is based on the opinion and experience of the author. Please do your own due diligence when investing.
Posted by David
The current lack of credit in today’s world markets has left companies scrambling for cash. Mineral mining and exploration companies in particular are finding it hard to keep liquid and to have enough cash on hand to continue operations. As these companies have no income they were previously reliant on raising funds through private placements. This is no longer practical as the vast majority of juniors have extremely depressed share prices and severe dilution becomes a concern. Financing through credit institutions is also a no-go as many of these have become insolvent themselves and those that remain in business have become rather tight-fisted.
Juniors have had to resort to less common methods to raise cash. These include selling shares in assets that they have developed. Bringing in another junior or even senior partner to carry some or all of the costs of exploration for a project is a common tactic. Marifil Mines Ltd. is one such junior with these cash woes.
Marifil’s current cash position is just less than C$100,000, although a rapid reduction in expenses has reduced the burn rate to below $50,000/month. Management has voluntarily reduced salaries by 50%, staff involved with secondary projects have been cut, and the Argentina office is moving to a cheaper location. John Hite, president of the company, has commented that more than $200,000 is due within the next few months in property payments from other projects such as the spin-off of the K-2 potash property to Oxbow Holdings Corp. A $500,000 private placement is also in progress. What is of primary interest is the announcement of a letter of intent (LOI) between Marifil and Yamana Gold Inc (TSX-YRI, NYSE-AUY) that states Yamana’s intention to acquire 51% of Marifil’s Pedernal gold property in San Juan province, Argentina. This is on the condition that Yamana invest at least $2,490,000 into exploration on the property over five years and pay Marifil $510,000. The agreement would also allow Yamana to increase its share to 70% if a pre-feasibility study were provided within thirty months after the five-year period. Yamana now has less than ninety days to complete its due diligence with regards to the property and the agreement.
Pedernal is a “sediment-hosted Carlin-type gold deposit” and shares geological similarities with Yamana’s Gualcamayo property, 250 km to the north in the same rock group. There is a strong silica and barite association with the gold. San Juan is one of the more mining-friendly provinces in Argentina (think of it as Argentina’s Quebec in this regard) and is host to the 13 million oz. Veladero and 18 million oz. Pascua Llama deposits (Barrick). Marifil’s Amarillo is the other project located in San Juan, and was a joint venture with ATW Venture Corp. until this year when ATW decided to forfeit their share in order to focus on their Australian property.
Marifil’s business model of selling or joint venturing all their properties is similar to that of Franco-Nevada. They have numerous precious metals, base metals, exotic metals, limestone, petroleum, and potash projects, and they would rather allow diversity to be their strength, rather than focussing on a single project. The LOI is reflective of this strategy. However, lack of funds has meant that the company has had to restrict its operations to its most promising properties: K-2 (potash) and San Roque (Au-Ag-Pb-Zn-In).
Cost-cutting and actively seeking partners will allow Marifil to continue to operate for the next few quarters, and longer if this LOI goes through. Hopefully by then markets will be giving juniors a break.
Disclaimer: The author holds 1000 shares of MFM and 200 shares of YRI. This article is based on the opinions and experience of the author. Please do your own due diligence when investing.
Posted by David
As the American market for consumer goods contracts and the greenback devalues, the level of imports to the U.S. greatly reduces. Countries that have economies strongly dependent on manufactured goods to the U.S. (and other troubled countries such as Britain) are affected by this loss of consumer base and start to experience recessions of their own. As the U.S. imports less melamine-enhanced milk and children’s toys with Pb-bearing paint, the world’s most vibrant manufacturer – China, loses jobs. The next dominoes to fall in this depressing little game are the countries with resource-based economies: Canada, Australia, Brazil, South Africa, Chile, etc. With reduced manufacturing, there is less need for raw materials used therein. Also, as the manufacturing countries lose jobs, their own consumer base contracts. Construction in countries like China is reduced as there may not be a demand for homes or office space due to closed wallets.
The first sign of dire economic consequences experienced here in Canada is how producing juniors are affected by lower commodity prices. These juniors often have much smaller profit margins than do the seniors and feel the pinch much harder. The most common route of action for these companies when the price for their commodity (metal, potash, oil, gas, etc.) unexpectedly drops is to cease production and put the mine(s) into caretaking mode.
This occurred with Blue Note Mining (TSX-BN) when they recently announced they were temporarily halting production at their Pb-Zn-Ag Caribou and Restigouche mines at Bathurst, New Brunswick. This is a far cry from when initial commercial production was achieved last January and its grand opening in June. BN has had excellent technical success in streamlining production at their mines. An example of this was when Caribou exceeded the specifications for maximum tonnage per day milled by 0.2% for August. The have also vastly improved recovery since the start up. The company has also had success in expanding the deposit and thus mine life by further drilling on site.
A second example, First Nickel Inc. (TSX-FNI), a Sudbury Ni producer, has also put their Lockerby Ni mine into mothballs as of this week. Acquired from Falconbridge in 2005, this is FNI’s only producing mine. Although they do possess numerous exploration properties in the Sudbury and Timmins areas.
So why, in the face of this success, have BN and FNI put their mines on “temporary care and maintenance”? Although it leaves the company in life-support mode and hoping they can remain solvent until metal prices recover, it was the most logical course. Zn has fallen from highs in 2006 at $4000/t back to levels from 2004 at $1100/t. Pb has fallen in a similar fashion from ~$3500/t last autumn to $1300/t levels. Ag is also down from $19/oz to about $10.50/oz in mere months. Ni prices have been reduced from about $8.00/kg to $4.50/kg in just over a month. Price drops of such magnitude will quickly transform a rich deposit into one that is entirely uneconomic. This happened to the deposits at Bathurst and Sudbury and will continue to occur with numerous junior/small-cap producers until people are willing to pay reasonable prices for metals.
A company with the potential to go the direction that BN and FNI have gone is Great Panther Resources (TSX-GPR), a silver producer in Mexico. This company has two mines: Topia (Ag-Pb-Zn) and Guanajuato (Ag-Au), and two exploration projects: Mapimi (Ag-Pb-Zn-Au) and San Antonio (Au-Cu). The company has found numerous rich ore zones across their properties and has had success in fine tuning their mining operations to achieve high recoveries. However, GPR has had to cut back on exploration expenditures and had to focus on efforts to reduce cost per ton to process their ore. Their current cost to produce Ag is between $10/oz and $12/oz. As Ag prices flirt with $10/oz, these mines may no longer be profitable to operate in the short term.
The individual junior can do nothing to affect world commodity prices. Some may have been lucky or wise enough to hedge a portion of their production at prices from six months ago. However, even those contracts will run out. There may be a slight recovery in metal prices in the short term, but it will take a number of months to years to return to prices seen a short while ago. When metal prices are such that it is economic to return these mines to production, metals like Pb can once again flow from Canada to China and be used in manufactured goods such as children’s toys to be sent back to Canada. Until then, these companies and their investors will have to sit tight and hope that unlike the canary, they can withstand the toxic fumes emanating from the credit market that started this whole mess.
Disclaimer: The author holds 1000 shares of BN, 500 shares of FNI, and 500 shares of GPR. This article is in based on the opinion and experience of the author. Please do your own due diligence when investing. To the author’s knowledge, BN ships all of its metal concentrate to Europe.
Posted by David
A rather vocal minority of Diamonds North (DDN) shareholders responded quite negatively to earlier criticisms of the company in regards to discussion on whether or not it was reading too much into rather high diamond counts from its Amaruk property.
Having attended the CEO’s (Mark Kolebaba) presentation to a sparse crowd at the 2008 Toronto Resource Investment Conference (Wake?) October 4th, it appears that DDN is not resting on its laurels and is attempting to make something of the encouraging results seen thus far from its arctic properties. Mr. Kolebaba gave a strong presentation outlining the importance of further diamond exploration in a market were the last significant deposit to start producing was Diavik in 2001 (no, Jericho does not count).
DDN’s main property, Amaruk, consists of ~2 million acres in Nunavut containing 29 kimberlite bodies. Many more geophysical targets remain to be drilled for kimberlite. Garnets from till samples in the region show strong G10 and G9 geochemical signatures (strong indicator minerals for peridotitic diamonds), with a minor eclogitic garnet component in terms of chromium and calcium contents.
One major criticism of the news release last March regarding the ~7 diamonds/kg result was that only 81.75 kg of rock from the Tuktu-1 kimberlite was sampled. Such a small sample is easily skewed to economic or uneconomic numbers by the addition or subtraction of a few carats, respectively. Mr. Kolebaba’s company is working to firm up the numbers for Amaruk by taking mini-bulk samples of 20 t from Tuktu-1, -2, and -3, and 15 t from the Qavvik body.
Larger sample sizes lower uncertainty and are especially important to diamond mining as even economic pipes have low absolute concentrations of diamond (well below 1% by weight). These samples have a higher chance of capturing economically viable macrodiamonds, rather than just the microdiamonds found do far. The mini-bulk sample is an important step as the Amaruk property moves from the reconnaissance stage towards the evaluation stage.
Interestingly, DDN’s share price has not been pounded down as badly as some other diamond juniors. It closed Friday at $0.40 down only 50% from its traditional support level at $0.80. Part of this may be due to loyal investor support, and the other part is that it has stumbled upon a potential base metals deposit also on the Amaruk property known as the Tunerq prospect. Rather than put it aside or option it out, DDN has decided to run with the prospect. Grades of up to 2.49 % Ni, 0.56% Cu, and 0.05% Co have been encountered in sulfides during drilling. An opportunistic and adaptable attitude by management should help keep the company’s head above water in a market that currently does not favour any sector, let alone diamonds.
Disclaimer: The author owns no shares of DDN. This article is based on the personal opinions and experience of the author. Please do your own due diligence when investing.