KIM Report

2010 Toronto Resource Investment Conference

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.

GeoCanada 2010

Posted by David

Hi all,

Sorry for the lack of a recent post. I’ve been at GeoCanada 2010 in Calgary, Alberta until this week. Although dominated -unsurprisingly, by the petroleum industry, the talks, posters, and courses on hard-rock geology at the conference were well-attended. The kimberlites, cratons, and diamonds session was standing room only for the entire day. Other factors of economic geology that were visbile included uranium and hydrothermal ore deposits.

Both industry and academia were well-represented. Although nowhere near the scale of the PDAC conference, GeoCanada had a more technical, and less economic bent, with individuals from universities, mining corporations, and service providers rubbing shoulders.

A new posting on diamonds relating to the conference is on its way. Being that the conference was in Alberta, the kimberlite clusters of Fort a la Corne and the Buffalo Head Hills were much discussed and will be mentioned in the upcoming post.

A REEally Interesting Commodity Market

Posted by David

As the commodity markets shyly improve, one sector (aside from gold of course) is giving a strong showing. It is not one metal, but rather a collection of metals (and metalloids) that has experienced a strong increase in investor and consumer demand. Exotic metals: lithium (Li), tantalum (Ta), beryllium (Be), gallium (Ga), germanium (Ge), niobium (Nb), indium (In), and of course the rare earth elements (REEs), are all experiencing their increased demand. Many of these exotic metals are found in relatively rare geologic occurrences such as carbonatites or pegmatites. This is particularly due to their use in electronics. As more of these devices -typically hand-held or personal, make their way into our lives, the demand for these elements increases.

In the recent commodity rebound, many exploration and mining companies focusing on these exotic metals have been riding the crest of the wave. Companies such as Avalon Rare Metals Inc. (TSX-AVL) and Rare Element Resources (TSX.V-RES) have been stand-outs in this group with a 3-5x increase in share prices since April of this year. AVL has been focused on developing the Thor Lake pegmatite deposit (NWT) and has been refining the process by which to extract the REEs from the rock to an experimental yield of 80%. RES is lot only looking to produce REEs from its Bear Lodge deposit in Wyoming, but gold and uranium as well partially with the help of Newmont Mining Corp. Marifil Mines Ltd. in Argentina is still sitting on its indium (plus gold and silver) property at San Roque, waiting for a JV partner to come through.

Other juniors with more subdued share behaviour are Hudson Resources and Commerce Resources Corp. (TSX.V-CCE). Hudson is gearing up on their Sarfartoq carbonatite REE deposit in Greenland as their other main play: diamonds at Garnet Lake, has lost market attention. Surface sample results from Sarfartoq deposit have given promising numbers in the range of ~1-9% TREO (total rare earth oxides) with a strong weighting to neodymium, one of the more valuable REEs.

Commerce Resources has been busy with their Ta-Nb-REE carbonatite project near Blue River, British Columbia. They have recently announced a $5 million private placement to fund the further evaluation of the Blue River project, particularly the Upper Fir portion. Though not a REE-focused company as most of those mentioned above, CCE is looking at tapping into the increasing demand for exotic metals though its Ta-Nb properties

The carbonatite bodies at Blue River are rather coarse-grained (see picture). This makes liberation of the ore mineral grains (such as Nb-bearing pyrochlore) more efficient and points to a high recovery for these exotic metals.

Tantalum in particular is poised for an increase in demand as personal electronics use increases. It is often a crucial component in microelectronic circuitry. Niobium’s main use is as an alloy with iron to produce high-strength steel. As demand increases, the supply side has to potential to contract significantly. A major source of Nb and Ta, African coltan ore, is being slowly cut off. This is because much of the coltan mined in Africa is done under inhumane conditions to finance local conflict, much in the same way as “blood diamonds”.

As with any commodity market, China is another factor. It is the largest producer of REEs though its vast clay or carbonatite mines, over 95% of world production. There are major worries by the rest of the developed world that China’s control of these strategic metals may have major geopolitical consequences, meaning that alternative deposits in the free world may become attractive not only to investors, but to governments as well.

Disclaimer: The author holds 1000 shares of MFM. This article is based on the opinions and experience of the author. Please conduct due diligence when investing. ©KIM Report 2009 www.kimreport.com

Whose Land is it Anyways?

Posted by David

New Government in Greenland

The Greenlandic people recently applied the results of a 2008 referendum where they voted to gain further autonomy from Denmark that has held sovereignty over the world’s largest island for about 300 years. Greenland now has an increased share of future oil revenues, decreased Danish subsidies, made Greenlandic the sole official language, and has control over areas concerning police, coastguard, and the courts.

Greenland has recently elected a new government as well. The new government is dominated by the Inuit Ataqatugiit (Community of the People) party that has a decidedly socialist and pro-independence platform. However, it has yet to show to the world how it will deal with outside companies in the exploitation of the island’s natural resources: gems, gold, base metals, and petroleum to name a few. Will it take the approach of Alberta (at least until a year ago) with low royalties and taxes to attract foreign investment? Will they go to the other extreme such as the case with Mongolia (see Ivanhoe Mines) where government protectionism and incompetence has paralysed mining in the country? Or will they seek a middle ground as given by the case of Norway, which has exacted generous royalties, but at the same time sustaining corporate interest in exploiting the offshore oil fields there.

Only ~15% of the land area is not covered by glacier, but that number is increasing due to a current global warming cycle. With the lowest population density in the world of 0.03 persons/km² (Canada is 3); the world’s largest island has to balance its need for funds to better the life of its residents with the desires of some conservative residents to limit exploitation of the land and foreign influence.

Foreign Investment

Natural Resources are the only realistic draw for investment in Greenland. Population and infrastructure levels are too low for things to be otherwise. Although mines have operated on the island in the past (including the famous cryolite mine that allowed for relative fiscal autonomy after Denmark was occupied during World War 2), no mineral production is presently occurring.

The resources Greenland has to offer the mining industry is varied and a number of companies have exploration programs in the region. Hudson Resources Inc. (TSX.V-HUD) is looking at diamonds in its Garnet Lake property and rare earth metals, uranium, tantalum, and niobium in the Sarfartoq carbonatite nearby. Quadra Mining Ltd. (TSX-QUA) hopes to produce molybdenum concentrate from the Malmbjerg project (although with the collapse of Mo prices, we will have to see how that goes). Even the Greenlandic government is looking to directly profit from mineral exploration through its 37.1% share in Nunaminerals A/S (OMX Copehagen-NUNA) a company with nickel, tungsten, platinum, copper, gold, and iron exploration projects scattered throughout the island.

The Natives are Restless

The mineral exploration project that has attracted the most media attention as of recent is True North Gems’ (TSX.V-TGX) Fiskenaesset Ruby play in southwest Greenland. The company is arranging a private placement to pay for some of the final costs in obtaining a long-awaited mining permit by spring 2010 in order to start selling the large amount of rough gem corundum (ruby and pink sapphire) they have accumulated. In terms of the economic geology, deposit is exceptional in both grade and value of the gems present, rivalling the famed Burmese deposits while existing in a country that does not have the habit of imprisoning duly elected politicians or murdering peaceful protestors. The main focus TGX has now is on whether it can get one of the final permits it needs in order to begin selling the rubies and sapphires it has mined during its evaluation of its property and hopes to mine in the future. TGX has encountered a problem familiar to many companies operating in Canada with resistance from some local aboriginals to the project. This group claims right to traditional mining rights over all of Greenland including TGX’s staked claims. A fairly recent confrontation two summers ago between TGX employees and a group of locals who were collecting gems on a TGX claim resulted in police intervention and catalyzed the formation of the group of locals who accuse the Greenland Bureau of Minerals and Petroleum (BMP) of unfairly siding with TGX and denying their right to conduct traditional activities. A number of articles supporting the local group of aboriginals, calling themselves the August 16th Union can be found HERE.

Playing Hot Potato

For TGX’s part, they appear to (wisely) want to distance themselves from any conflict with locals. They state that the August 16th Union’s complaint lies with the BMP and that the incident just happened to occur on a TGX clam. Andrew Lee Smith, CEO of TGX, when directly questioned on the matter by the KIM Report replied:

“As a foreign company investing in Greenland, we feel this is an issue for the people of Greenland and their government to deal with. We have respected the laws of Greenland in acquiring our mineral rights and conducting exploration and will continue to do so. The company would be happy to support any process that would improve the Greenland mining act if requested to do so.”

A transcript of an interview with Mr. Smith can be found HERE and gives a similar, but more detailed message.

A Great Canadian Pastime, Now a Greenlandic One

Given that one bias of opinion on this issue was given by the blog articles linked above, I will play devil’s advocate. Though I am a geologist by training and admittedly know little about Greenlandic law, I think this issue is a major concern for any company looking to do exploration in Greenland. The election of a socialist, pro-Inuit government does not bode well for companies involved in land-use disputes with aboriginal groups. However, the desire for more financial independence from Denmark and thus the need for more foreign investment may temper the government’s approach to this matter.

As a TGX shareholder, I am of course concerned by any possible interruption of development at Fiskanaesset, but as a Canadian, I am all too aware of the ability for corporations and government to push aside aboriginal groups in the name of “progress”. However, I also know that often the best way to find “traditional aboriginal lands” is to stake a development claim (e.g. Caledonia, Ontario). This unfortunate stereotype is can be encountered when utilizing land in Canada and sometimes is all too accurate in the most cynical sense.

This dispute raises a number of questions by outsiders unfamiliar with Greenlandic law and custom. It can be argued that what has to be established here is: (1) Is gem corundum collecting a traditional Inuit activity and does solid historic evidence exist for it? (2) If the former holds true, what degree of mining is considered traditional? (3) If aboriginal mining is legitimate, is there evidence for past mining in the region claimed by TGX? (4) Is it reasonable to allow traditional miners to benefit from the exploration activity conducted by TGX (ore discovery, exposure at surface, etc.)? (5) Is selling gemstones collected by aboriginal collectors to the world market also a traditional pastime? (6) If the former is all or partly true, did TGX know of this and did the government inform them when they applied for their exploration permit?

Final Cynical Thoughts

While I understand the desire first nations have to preserve their traditional, pre-colonial practices, to demand special status can in certain cases be construed as hypocrisy. Much like the Inuit hunter using rifle and snowmobile to achieve their specially-sanctioned hunting quota in the Canadian Arctic, or the Atlantic Mik’mak Indian lobster fisherman using powered boats, radio, and sonar to bring in their catch, sometimes these “traditional methods” are none too traditional. Likewise, is mining – even on a small scale, of deposits found and exposed at surface using modern technology and knowledge really “traditional”? Going further, is selling those gemstones to offshore consumers “traditional” as well?

Disclaimer: The author holds 1000 shares of TGX. This article is based on the opinions and experience of the author. Please conduct due diligence when investing. ©KIM Report 2009 www.kimreport.com

Stayin’ Alive: Canadian junior keeps Argentine operations afloat.

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.

Marifil Mines Ltd. holds diverse assets in Argentina

Posted by David

The strategy of Marifil Mines Ltd. (TSX.V-MFM) seems similar to that of Franco-Nevada (TSX-FNV): Prospect out a property with good potential, get in a larger joint venture partner to shoulder the development costs, and then collect royalties after production commences. MFM is focused solely in Argentina, where is has a variety of resources

 

In various Argentine provinces MFM is prospecting for Au, Ag, In (indium), Pb, Zn, Mo, Cu, cement-grade limestone, Ni, Co, PGM, U, and oil/natural gas. Activities are in 18 properties across 7 provinces. This company is no one-trick pony.

 

Having thrown off the Peronist junta in 1983 in place of a democratic system and surviving the economic crises of the 1990s, Argentina has been stable politically and economically since 2002. Although Argentina is on good relations with other South American nations, it does not seem to have caught the socialist nationalization trend of so many of its neighbours, such as Venezuela, Ecuador, or Bolivia, that has put a halt to mineral exploration in those countries.

 

The current share price is hovering around $0.40, but it had a recent pop to $0.89 a couple of months back due to results from one of its PGM projects that is a JV with Castillian Resources (TSX.V-CT). The project centers on the historic Las Aguilas Mine and neighbouring areas that the layered ultramafic complex extends to. Values of 0.61 g/t to 2.10 g/t Pt+Pd were found over significant widths (7 to 14.68 m) and zones up to 5.66 g/t Pt were found in smaller zones (~1 m). In terms of base metals, grab samples on the property have returned values of up to 6.71% Cu, 2.21% Ni, and 0.21% Co. Following the company strategy, CT is earning an interest in the Las Aguilas Ni-Cu-PGM project from MFM.

 

Aside from PGM, the In deposits are of particular interest as the metal is used in LCD screens. Old-fashioned CRT monitors and TVs are longer being produced and the increase in LCD screen production has resulted in a rise in In prices (see image below).

 

Current In prices average between $800/kg and $900/kg. The demand caused by the LCD market for In is supplemented by other uses in the chemical and electronics industries. In commonly occurs in sphalerite ((Zn,Fe)S) by replacing iron or zinc. In grades of up to 0.5 kg/t over 4.5 m have been found in core from the San Roque property (epithermal Au-Ag-Zn-Pb-In breccia vein deposit).

 

MFM has another JV with ATW Venture Corp. (TSX.V-ATW) on the Amarillo epithermal Au-Ag and Cu-Au porphyry deposit. Although sampling has recently started on this project, early grab samples have returned values of up to 2251 g/t Au (65.28 oz/t) from a 10 cm wide vein. This property is located in the same gold belt as Barrick’s (TSX-ABX) Veladero and Pascua Llama deposits. The geology is also similar to that of the Newmont-Buenaventura (NYSE-BVN) Yanacocha Mine in Peru. ATW can earn up to 70% interest in the property over 5 years in return for investing resources in the project. What is interesting about this deposit is that in addition to the potential for high grade Au and Ag, there is also the potential for high tonnage as well as most porphyry-type deposits are quite large in volume, being the left-over hydrothermal systems associated with volcanism at convergent oceanic-continental boundaries.

 

MFM has two non-metal projects: Mina El Carmen (oil/gas) and Punta Colorado (limestone). Although these commodities are not their specialty, the intent of the company as expressed to me by a company representative at last March’s PDAC is to sell them or enter into a JV in order to begin production and use the proceeds to fund their core metals exploration. Due to the nature of the deposit, MFM management believes that it will be much easier to exploit (particularly the limestone) or sell off one or both of these assets than any of the metal properties. They also believe that in the long run, many of the metal assets will prove to be more lucrative than the non-metal ones.

 

MFM certainly has a diverse set of properties with much potential. Their main challenge right now is to better define the deposits that have returned such promising values: Amarillo, Las Aguilas, and San Roque. To do so, this means coming up with enough cash for the drills. This may be difficult as MFM (using 2007 annual financials) has only about $1,000,000 (CAD) in cash and equivalents in the bank, and about $380,000 in debt. Their burn rate for 2007 was about $500,000, so they should probably be good until the end of the year, even if they ramp up spending on drilling a little. Using their FNV-inspired plan they should be able to mitigate these costs as JV partners take on a higher share as operators.

 

It seems that with their sound corporate strategy, diverse holdings, and liquid properties, MFM is poised to continue returning strong results from Argentina in spite of economic pressures on juniour explorers.

 

Disclaimer: The Author holds 1000 shares of Marifil Mines. This article is intended for entertainment purposes only and is based on the author’s personal opinion and experience. Investors are responsible for their own due diligence when investing.