Mining Minerals & Metals Share Discussion Threads

[stenick] 01/7/2009 21:16

Thanks SerpicoUK....What can I say, all sounds good to me.

[serpicouk] 01/7/2009 20:40

May be our views (or mine at least) have been warped by the last bull market in commodities (and credit) which perpetuated the seemingly ubiquitous trend of juniors rushing their small deposits into small scale operations backed by debt and placements.

This is an article from Jan 2006 on valuing an exploration company:


[...]
We need to look for companies whose managements have the ability to generate new exploration projects and the business acumen to joint venture those projects to major mining companies. A joint venture partnership allows the junior exploration company to use its intellectual capital to generate exploration ideas but the mining company's financial capital to test them. It is absurd to think that the average exploration company has but the remotest chance of making a discovery given how much money and time it takes. The only rational way to approach exploration is to marry the innovative skills of quirky, and often unsocial, exploration geologists with the balance sheets of mining companies in a win-win partnership.

In a typical deal the exploration company will generate an exploration idea, acquire the ground and perhaps spend a little bit of money to confirm that the geologic model it is proposing has merit by looking at soil geochemistry, geophysics and good old-fashioned geological mapping. Thereafter it will attempt to get a mining company to commit exploration funds to test its ideas in return for earning a percentage interest in the project. Typically the mining company can earn up to 70% to 80% by completing a bankable feasibility study or even financing the project to production.

This means that if our company is successful, we will end up owning 20% to 30% of a mine, whereas if it is unsuccessful it would have lost some time and a little bit of money because the mining company footed the heavy bills. This way an exploration company can use its limited cash resources to generate numerous projects, all funded by joint venture partners. It increases the life expectancy of the exploration company and by enabling it to generate and test more projects it also increases the probability that it will eventually be successful. I would much rather own 30% of a successful project than 100% of a dud.

There is something else that happens here. With this model the exploration company has to convince the geologists working for the mining company that its projects have merit. Not only do they need to have merit, they need to have sufficient merit to compete with the exploration projects generated internally by the mining company and all the other exploration projects being presented to the major by other juniors. This is a lot more difficult for a junior to do than to convince doctors, lawyers, dentists and taxi drivers that its projects are one drill hole away from changing the world (with all due respect to doctors, lawyers, dentists and taxi drivers).

I therefore avoid exploration companies that tell me they are going to spend millions of dollars drilling on their wholly owned projects, unless there are very, very, very compelling reasons.

We also have to look at what kind of projects the exploration company is looking for. You will be surprised how many times I have sat through presentations only to learn at the end that the geological target is unlikely to ever be economic or, if it might be, that it is likely to be so small that no major mining company will have any interest in it. The only thing we are interested in is making world-class discoveries.

This brings us to the next part: you should have access to a critical and well-seasoned exploration geologist. I am not a geologist yet I have to sift through geological evidence every day and decide whether to accept or reject the risk of exploration. I work very closely with a consulting geologist, and without access to a consultant I can trust it would be almost impossible to succeed in this business.

If an exploration company consistently comes up with new projects and continues to get exploration funding from major mining companies then this is a business I am interested in owning. I view stocks as fractional ownership in a company, not as trading cards. So if I find a business I would like to own I often watch it for several years, waiting for an opportune time to buy.

Paul van Eeden

[haydock] 01/7/2009 19:41

The loss of the 70% is set against the cost of more drilling & the possible capex
CEY have just bought & set up a mill & have a thousand men on site.

I think that the management would be far better suited to the development of a royalty company of the model I outlined earlier, but at least exploring & j/v's

[serpicouk] 01/7/2009 19:10

Correct Stenick

[stenick] 01/7/2009 18:24

Serpico correct me if I am wrong but GF get 70% because they are financing the capital expenditure on the mine or am I dreaming???

[serpicouk] 01/7/2009 17:38

BB - excellent AGM reports as always.

I would like to make a couple of comments:

"Reference was made to SRK's resource measurement at 1gram cut off = 1.25million at 1.69gm average."

Obviously these figures are for the 0.5g cut off - the 1g cut off is 1.01million at 2.2g/t. Which is probably more attractive!

It sounds like they haven't stopped for the rainy season yet.

I believe the positive prospect of Solano and Gonka were tempered by mentioning that the initial first pass drill results from Farasaba didn't look very prospective with the possible exception of the Kabaya South target.

With regard to Komana East and West - definitely feel that the resource at depth is a BIG unknown. Just a question of when Hugh wants to take a look. Suspect low hanging fruit first but I would like to see a few holes sunk to gauge below 150m.

"GF seeking to establish 2.5million ounces."

Sounds very positive - an alternative view is that GF won't progress Komana if it doesn't get to 2.5M oz.

"Currently heading to feasibility study by end 2010 and end 2011 commencement of production."

Believe the time scale was more like end 2010 for the feasibility study and a further 18 months for mine completion. So mid 2012?

Probably also worth mentioning that GF will be delineating Bokoro/Samioumale/fingouana after the rains - so assuming all goes well we should have more ounces to add to komana.

[serpicouk] 01/7/2009 16:04

I don't hold much faith in what the investment banks or 'the market' thinks. They consistently show they're behind the curve at every opportunity. I wonder what proportion of their revenue are accounted for by buying undervalued juniors and holding until fruition? I don't know but suspect a tiny fraction compared to their other (poorly risk assessed) operations.

Regarding GEX - whilst true that for a junior we have a relatively benign risk from dilution this is obviously at the expense of 70% of all future revenue from our main assets. Suspect this simple fact is what most people who don't like the GF deal are discontent with! In their eyes the bar has dropped from ~200,000oz/pa gold production to say ~50,000oz/pa. i.e the prospects have gone from mid teir to small fry. In addition, a fair amount of the remaining 30% will be taken directly by GF to pay back our pro-rata capex (sorry - no divi in 2012 BB).

Whether GEX find more deposits is a complete unknown - the persistent mineralisation along the shear zone does suggest this area is prospective enough, and a few targets (e.g Gonka) my come up trumps but will require another year of drilling before any speculation can even be made as to whether GEX can get an entirely owned deposit...something I feel the company desperately now needs asap.

Currently I'm not considering Ghana or Uganda - I feel if they were promising they would be pushed faster from both sides. *

May be GEX is a 'safe' bet in a risky environment - but many invest in this environment to take on risk for larger rewards. As SS alluded to; after 27 years of growth we have a company valued at less that $27m!

SS - hope you stick around after reducing. Contrarian views are always welcome here.

* EDIT - been out of the office for a few weeks so missed the news re: Ghana. Looks like an interesting development.

[share_shark] 01/7/2009 12:31

BB- what did they give you at that AGM ? Speed ?. Or was it the sweet talk of POQ ?;-)

I cant be a Yes girl all the time you know. If I have doubts I air them.

Did dums,I knew more about Mali than you,did I not ?. ;-). That will teach you !.
Seriously, Glencar looks good but long term only. I am sure you will make that £1m.no probs.

[bongo bwana] 01/7/2009 12:28

SS - why do you remind me of The Lone Ranger when, at the very end of the movie he uttered that immortal command "Hi ho Silver - away" ???

Whats the weather like over there?

Be careful that you dont get dehydrated or anything.

[share_shark] 01/7/2009 12:21

ouch BB you have even relagated me to "0" no SS this time.Now I know I had better go and look at the horses on the Downs after all.

No need for the big stick on God, you know. He may be watching you ;-).

Anyhow all the views much appreciated again folks.

Wish you all the very best of luck and you too BB in Nigeria and Spain.

[bongo bwana] 01/7/2009 12:12

All views welcome and I only have a 4.5% interest in this BB.

You confessed to me earlier that you had a silent partnership with ADVFN who allocated you a 29.8% holding of thios paticular BB.


Ur close to absolute power so I suspect you have a great big grin

[bongo bwana] 01/7/2009 11:57

Thats more like it Hay.

Thanks.

[haydock] 01/7/2009 11:52

Now if the management want another template for the type of company they could develop:
June 29, 2009

Altius Minerals Widens The Reach Of Its Royalty Portfolio, And Steps Out Beyond Eastern Canada


By Chris Cann



At the beginning of the year, frightened investors were piling into risk-averse Altius Minerals in some numbers. Many had lost a small fortune on classically risky, early stage exploration plays. Many had been taken to the cleaners despite a promising discovery, because of waning cash reserves. Some lost money on companies with producing assets that either became marginal or because the companies themselves had been caught at the wrong time in the refinancing cycle. For these investors, Altius, with its simple royalty business, no debt, and US$160 million in cash and liquid assets, offered an oasis of calm in the storm. And by mid-April this year the company had restored more than 80 per cent of the value it had lost since mid-2008, and was sporting a handsome-enough share price of C$7.56. But now the landscape has changed again, and investors want to know how Altius will use its strong cash position to create further value for them.
That's fine by Altius. According to corporate development vice president Chad Wells, the current market environment represents the ideal opportunity for the directors to build on the company's asset base. "We're long-term", he said. "I'm not worried about the share price performance next week or next month, I'm worried about building up a stable of assets in a downturn in the industry. This is a fantastic opportunity for a cash-rich company business to build up its basket of goodies so that when the market truly cares again – in two, three, five years time – we'll see the fruits of our efforts." Chad Wells said Altius had assessed "hundreds" of opportunities over the past few months in the search for opportunities that fit within its low-risk royalty business structure.

Altius is a simple company but it is not a typical resources company by any stretch. By way of an explanation, Wells describes the company as a "royalty creation business". The business model is straight forward enough: the exploration team identifies opportunities within far-eastern Canada for discovering potential base metal or gold deposits and through various stages of negotiations it then passes the risk, capital obligations and most of the upside on to joint venture partners in exchange for equity and royalties. It's not always done this way but that is the basic model that the company's 14 joint ventures are operating on at the moment. The principle is that if you have enough rods in the water then you increase your chances of catching that truly big fish, one which will deliver royalties for decades. The only royalty purchased by the company so far is its prized Voisey's Bay nickel royalty. And that delivered almost C$700,000 into the Altius coffers last quarter, even with the struggling nickel price.

Wells said the company was divided into two distinct businesses today: the existing business with established joint ventures and Voisey's Bay royalty, which needs only C$2 million each year to maintain; and the growth arm. The growth arm plans to take the company's successful business model beyond its current jurisdiction within Newfoundland and Labrador into other world class mineral addresses in search of new opportunities. Wells said the amount of cash at the company's disposal and the depleted value of many companies and projects in the market place meant it was able to target more advanced projects and royalty opportunities as opposed to the usual grassroots exploration plays.

Altius' first foray outside of its familiar surrounds was a strategic alliance with fellow Toronto-listed company, Millrock Resources, earlier this month. Under the agreement, Altius will invest just under C$1 million in Millrock for an 11 per cent stake in the company, with the funds earmarked to help advance five gold-prospective tenements in Alaska to the point where they can be joint ventured to a third party. Altius of course maintains a royalty option, in keeping with the business model. Wells said this deal was typical of the company's growth strategy, in that Alaska is a well-established and well endowed mineral address, gold is a mainstream commodity capable of attracting a variety of suitors, and the exploration team within Millrock looks more than capable of delivering on the investment. Altius is hard at work looking for more deals such as this throughout North America and beyond – as well as any later stage opportunities, such as its successful Voisey's Bay acquisition from 2003 – which could offer a more near-term return for investors.

[bongo bwana] 01/7/2009 11:28

Is THAT the company U keep SS?

I much prefer drug smuggling war lords myself,LOL.

[stenick] 01/7/2009 10:14

Thank you all for your valued posts.I do have time to wait and I like the Glencar story although I know nothing is written in stone.Strangely enough my best performing share delisted from aim and stayed on the ASX,where it proceeded to rise,so I am alittle annoyed with Aim too. Anyway good luck to you S_S in you future dealings..

[share_shark] 01/7/2009 10:02

Still it could be worse in Glencar.

In one of my other stocks, one of the directors has been made to resign, because Interpol are on the look out for him.

Never mind eh ?.

[1waving] 01/7/2009 09:58

Thanks - just pointing out that there is a lot to be researched to get a grasp of the potential overall.

[share_shark] 01/7/2009 09:56

IWaving. I did not make myself clear. I (not anyone else) was hearing Chinese Whispers,from others, regarding how good things were or might be regarding the Mali Licenses. Hope that clarifies the post I made.

[1waving] 01/7/2009 09:49

There are no Chinese whispers on the Mali licenses that I have heard.

Just a lot of exploration and drilling results that need to be researched thoroughly to enable a reasoned conclusion to be made.