Monday 24th October 2016

Resource Clips

December, 2010

The Prospects For Gold, Silver and Base Metals

December 30th, 2010

Part II of an Interview with Marshall Auerback

By Kevin Michael Grace

Marshall Auerback is Director of and Corporate Spokesperson for Pinetree Capital Ltd, a Toronto-headquartered diversified investment, financial advisory and merchant banking firm focused on investing in early stage micro and small-cap resource companies. Pinetree, which has a market cap of $475 million, is invested primarily in Uranium and Coal, Oil & Gas, Precious Metals, Potash, Lithium and Rare Earths and Base Metals. Mr Auerback was previously an advisor to a number of fund management organizations, such as PIMCO, the world’s largest bond fund management group, RAB Capital and David W. Tice & Associates. He has a BA from Queen’s University and a law degree from Corpus Christi College, Oxford.

Part II of an Interview with Marshall Auerback

Q: Where do you see the prices of gold and silver going?

A: I’ve been on record as saying we could easily see $3,000 or $4,000 an ounce in gold. If we have this continued credit and monetary dysfunction for several years to come, and if we then have an inflationary blow-off–which is probably how this endgame finishes–that’s when you get your final push to the $3,000, maybe $4,000 level.

Q: Silver has had an extraordinary run this year. Do you think the gold-silver price ratio has been out of whack, and we can continue to expect better gains from silver?

A: It’s up 82%, while gold is up only about 29%. If you look at the historic relationship, the ratio got down to 20 to 1, while at its peak it was as high 80 to 1. You can probably expect a lot more outperformance with silver.

Q: Junior miners actually produce wealth; they don’t just push paper back and forth like the Wall Street companies that caused the 2008 crash. To what extent do you think this will protect their stocks in the coming economic shakeout?

A: You’re right; they do produce something, and it’s a finite product, as opposed to infinite paper. So there is real value in what they do. On the other hand, when there’s total dysfunction in the credit markets that obviously hurts them because they are all very capital-intensive companies. So they are all still dependent on a properly-functioning credit market.

In 2009, when the junior mining companies got completely bombed, people said this is crazy, they’ve got huge amounts of cash on their balance sheets, and they’ve got these great deposits. And I would say, yeah, but the cash is more apparent than real. It’s something they’re going to have to run down; and if they don’t secure additional capital funding, then clearly they won’t be able to produce the assets. They’re not going to be able to monetize, which is ultimately what you want them to do. I think the distinction you make is important but subject to the overriding proviso that we have a credit system that doesn`t completely fall apart, as it did in 2008.

Part II of an Interview with Marshall Auerback

Q: The number and the dollar values of private placements and bought-deals have exploded since the summer.

A: That’s a function of the fact that the capital markets have begun to normalize. That’s why I think this commodities cycle might be perpetuated a big longer than people think, because the way that it normally works is that you get higher prices, and then people start supplying a lot of capacity in response to those higher prices, and then you get a demand shock, and then of course you get overcapacity and then prices go down, capacity is cut back. But it didn’t happen that way this time. We were just starting to ramp up capacity when we had the Lehman shock. So we didn’t have so much of a demand shock as we had a supply shock, and now what’s happening is that demand is beginning to normalize and increase again, but because of this supply shock and this capital-market shock the capacity hasn’t yet come onstream. That’s not likely to happen for another year or two.

Q: It’s been said that gold and silver are no longer traditional commodities because they have become alternate currencies. What do you think?

A: I think there’s something to be said for that, but I don’t think we’re ever going to go back to a gold standard. I’ve now been in the investment business for 28 years, and this is first time I can recall that you really can’t make a compelling case for any paper currency. Maybe the Norwegian krone or the Canadian or Australian dollar. But Japan is mired in debt and has a serious deflationary problem; the US, we all know what their problems are; with the Eurozone, for the first time in history you have a currency union where the very existence of the currency is now perceived by some to be under threat. In that sort of environment gold is viewed as an insurance policy, and that is a vote of no-confidence in the official sector. I think that the notion of the omniscient and all-powerful central banking elite has gone by the wayside.

I don’t think gold’s rise is an inflation-deflation story yet. But if this massive stimulus continues and starts to generate production bottlenecks, higher-capacity utilization, fuller employment, etc, at that point you might see gold revert to its tradition of an inflation hedge.

Gold is viewed as an insurance policy, and that is a vote of no-confidence in the official sectorMarshall Auerback

Q: Where do you see base metals going?

A: I think we’re at a stage now where you have to be a little more selective. I know some people are very bullish on copper. I personally am a little more cautious, because I think what happened is that you’ve got a cartel-like structure in place which has helped to keep prices under control. We also like uranium; we think it has the best supply-demand characteristics.

Q: How important is China’s role in base metals?

A: It’s very important, and that’s another thing we’ll have to keep monitoring. We take a very simple view—you’ve got 2.5 billion in people in Asia, and they’re getting wealthier, and they will consume more. I think that’s the case for the structural bull market, and I don’t think you see that changing for the next several years. But you will have hiccups. China is now going through a serious inflationary problem that’s starting to get out of control. The official numbers are about 5.1% inflation, but everyone knows the real numbers are closer to 10% or 15%. If that continues, the Chinese authorities will ultimately respond by tightening credit conditions, and they will probably overtighten, because when you’ve got inflation firmly embedded in the system you’ve almost got to go to the other extreme. So that could create a short-term growth shock which would create some short-term issues in commodities. I don’t know whether this will happen in 2011 or 2012, but I do see it as a real risk from a tactical, as opposed to a strategic, standpoint.

Read Part I of interview

Read Part III of interview

2010 Year In Review Part 1

December 29th, 2010

By Ted Niles and Kevin Michael Grace featured a number of companies in 2010. Here’s an update on five of them:

Golden Hope Mines Ltd GNH:CA
(click for original article)

Though the Bellechase-Timmins area of Quebec’s southeast Beauce region was, as Golden Hope President Frank Candido observes, the site of “the first Canadian gold rush,” the following 150 years saw it largely untouched. Until now. In September Golden Hope reported assays from its Bellechase Gold Project up to 7.19 g/t gold over 10 metres and 3.68 g/t over 34 metres (including 103 g/t over 1 metre). Candido commented, “We believe that what we have is not just a deposit but an entire belt. Where we’re drilling represents less than 5% of that belt—it’s probably around 1%. We have a nuggety deposit. By that, we know for a fact, that no matter what the assay results are, the average grade will forever be around 2 grams. When we did an 800-tonne bulk sample this year, we came out with an average grade of 3 grams. The grade is probably even better than that — between 3 and 4 grams.”

Golden Hope continues to drill at Bellechase to achieve its objective of proving the first gold resource estimate for southeastern Quebec. Having recently completed a private placement financing of $3.7 million, Golden Hope could be well-positioned to do so.

2010 Year In Review I

Romarco Minerals Inc R:CA
(click for original article)

Not quite 40 years before Canada was having its first gold rush in Bellechase-Timmins, South Carolina was in the throes of its own. This led to the Haile Gold Mine—just outside of Kershaw, SC—which, by 1900, was one of the largest gold producers in the eastern United States. As with so many of these historic mines, there was a strong sense that Haile’s surface was only scratched. Romarco Minerals bought the property in 2007, and since January 2008 has been, in President/CEO Diane Garrett’s words, “drilling 24 hours a day: about 800 holes over 200,000 metres.” In September Garrett told that the Haile Gold Mine is “one of the most significant discoveries in our industry in the last 10 years.”

Drill results continue to bear out Garrett’s words, with Romarco reporting most recently (October 28) assays including 4.1 g/t gold over 51.2 metres, 1.3 g/t over 68.6 metres, 4.2 g/t over 33.4 metres and 10.9 g/t over 66 metres. More important is what these near-surface, high-grade results mean: the possibilty of an open-pit scenario. As Garrett explained, “If we can do that, then we can move it up into the mine plant quicker. Which will add more to the economics and the production profile.” Romarco’s graduation in November from the TSXV to the TSX further confirms that its star is on the rise.

Queenston Mining Inc QMI:CA
(click for original article)

Ontario’s Kirkland Lake Camp presents yet another example of an historic mining area that appeared spent by the end of the twentieth century but is now revitalized. Next door to the Lake Shore Mine—once the second biggest gold producer in the world—Queenston’s Upper Canada Mine historically produced more than 3 million ounces gold. In November Queenston President/CEO Charles Page told, “This project wouldn’t make any sense at $400 an ounce gold. Typically, production costs in this area are going to be on the order of $500 an ounce. But here we are at $1,300 an ounce, and that’s a huge profit margin.” And you can add to that Upper Canada’s drill results: most recently (November 30) including 10.43 g/t gold over 17.3 metres, 2.37 g/t over 68 metres, 1.65 g/t over 60.4 metres and 1.29 g/t over 55.6 metres.

Page faces an agreeable dilemma—with the investment in October of $35-million by Agnico-Eagle Mines Ltd AEM:CA, “Queenston could become a significant producer on its own, or Agnico-Eagle could say, ‘We’re going to take you out at a premium and make all your shareholders happy.’” While Page’s ambition of building a milling facility capable of producing 250,000 ounces a year is bold, Queenston’s closing (November 23) of a $20-million private placement—in addition to the $70-million in cash it already had on hand—suggests that it might go it alone.

Moneta Porcupine Mines Inc ME:CA
(click for original article)

Moneta Porcupine President/CEO Ian Peres is in no way conflicted over the future of his company’s Golden Highway Project. “We are exploring to continue to build gold resources,” he told us in November. “And when we bring the gold resources up to critical scale … the objective is to undertake a pre-feasibility study and, ideally, to do a deal with a mid-tier or major.” Situated on the Destor Porcupine Fault Zone—one of the Abitibi region’s most prolific gold-bearing structures—the Golden Highway Project represents the largest land-holding on the Belt (10%) after neighbouring “elephants” Goldcorp, Lake Shore Gold and St Andrew Goldfields. No mean feat for a company with a $50 million market cap.

Moneta has been completely revamped under Peres’ leadership, with a new board and a thrifty, drill-focused agenda. The Golden Highway continues to yield solid grades, most recently (December 17) 2.83 g/t gold over 49.4 metres, including 3.9 g/t over 11.5 metres. According to Peres, “There is no big nugget driving the interval. This is strong continuity of mineralization.”

Alderon Resource Corp ADV:CA
(click for original article)

In a refreshingly candid moment Moneta’s Ian Peres told, “It is a risky and frankly stupid proposition to go into production.” In November, Alderon Resource Corp President and CEO Mark Morabito, equally candid, countered, “Running your company as though you’re going to be bought out is a mug’s game, a recipe for failure.” Perhaps the difference of opinion is explained by this—Alderon is looking for iron ore. And all indications are that the company has found it on the Kami Iron Property in Labrador, reporting since August grades as high as 30% over 207 metres, 28% over 691 metres, 30% over 429 metres, 31% over 468 metres and 30% over 604.5 metres.

A number of factors are working in Alderon’s favour. Demand for iron ore is rising 10% annually. The price is also likely to increase. And while iron ore can be found in relative abundance the world over, because it is a high-volume business it is highly cost-sensitive. Morabito explained, “Brazil, Africa and Canada’s subarctic are not connected to infrastructure, which means the capital expenditures required are in the billions … They will be mined, because the deposits are very good, but the timeline to raise the necessary funds and build the infrastructure will be 10 years. We can be in production in three to four.”

Anyone who might doubt Morabito’s seriousness should look at the company’s activity since we spoke with them: a $20-million bought-deal private placement closed December 16 and, on December 8, completion of a 100% interest in the Kami Ore Property.

(Part 2 of Year in Review)

(Part 3 of Year in Review)

WSJ features United Mining Group

December 29th, 2010

The Wall Street Journal reported December 26 that the surge in the price of silver—up 74% in 2010—is explained by an unexpected increase in investor demand. “This is a story almost entirely about investment,” commented senior metals strategist Stephen Briggs of BNP Paribas. Investors have turned to silver and other commodities in large part due to concern over the threat of inflation. Silver enjoys privileged standing with investors for its being both a precious metal and an industrial commodity.

United Mining Group UMG:CA—which holds an 80% interest in Idaho’s Crescent Silver Mine—has benefitted considerably from the surge. The mine was closed twelve years ago when the price of silver was in the $5 range. Now pushing $30, the Crescent is more than viable. President Greg Stewart observed, “The whole industry is like feast or famine.” The mine is expected to begin production in 2012, with an output of approximately 1 million ounces.

Pacific Iron Ore reports Ontario Gold Assays as high as 0.72 g/t over 48.2m

December 23rd, 2010

Pacific Iron Ore Corporation POC:CA announced results from its St Anthony Project in Ontario. Assays include 0.72 g/t gold over 48.2 metres (including 22.2 g/t over 1 metre), and 0.77 g/t over 39 metres (including 1.05 g/t over 22 metres and 19.9 g/t over 1 metre).

The St Anthony property includes the St Anthony Mine, historically the largest gold producer in Ontario’s Kenora-Patricia Mining Division, which produced 63,310 ounces gold and 16,341 ounces silver.

View Company Profile

Todd Montgomery

or Jeffrey Austin

by Ted Niles

Skyline reports BC Assays of 3.36 g/t Gold, 22.51 g/t Silver over 12.5m

December 23rd, 2010

Skyline Gold Corporation SK:CA announced assays from its Bronson Slope Gold Deposit in northwestern BC. Highlights include 2.34 g/t gold and 11.27 g/t silver over 10 metres (including 13.35 g/t gold and 16.7 g/t silver over 1 metre), 0.68 g/t gold and 13.95 g/t silver over 21 metres (including 4.25 g/t gold and 26.1 g/t/ silver over 1.5 metres), and 3.36 g/t gold and 22.51 g/t silver over 12.5 metres (including 27.4 g/t gold and 9.8 g/t silver over 1 metre).

The Bronson Slope Deposit has a measured and indicated mineral resource estimate of 2.6 million ounces gold and 16.1 million ounces silver, and an inferred resource of 800,000 ounces gold and 5.2 million ounces silver.

View Company Profile

David Jensen

by Ted Niles

Investing In Junior Mining Companies

December 23rd, 2010

Part I of an Interview with Marshall Auerback

By Kevin Michael Grace

Marshall Auerback is Director of and Corporate Spokesperson for Pinetree Capital Ltd, a Toronto-headquartered diversified investment, financial advisory and merchant banking firm focused on investing in early stage micro and small-cap resource companies. Pinetree, which has a market cap of $475 million, is invested primarily in Uranium and Coal, Oil & Gas, Precious Metals, Potash, Lithium and Rare Earths and Base Metals. Mr Auerback was previously an advisor to a number of fund management organizations, such as PIMCO, the world’s largest bond fund management group, RAB Capital and David W. Tice & Associates. He has a BA from Queen’s University and a law degree from Corpus Christi College, Oxford.

Part I of an Interview with Marshall Auerback

Q: What does Pinetree look for in junior mining companies?

A: The first thing we want to look at is to make sure the company has a decent asset. We want to make sure that there’s actually something there, that you’re not dealing with a totally speculative situation. Married to that, there has to be a good management team. We tend to back the jockeys that have had success in the races before. Obviously, we tend to start with companies when they’re fairly small, and we do take a proactive approach in terms of providing inputs on management development strategies. We’re not micromanaging the companies, but clearly we’ve seen what works and what doesn’t work, so we like to think that our inputs are very beneficial. And clearly, you want also to have a smart guy at the top running the thing, because even a good asset can be run into the ground.

Q: Everyone says that finding companies with good management is key to success, but isn’t that not as easy as it sounds?

A: I agree with you, but I’ve been involved in the mining business in one form or another for over 25 years, and one is always struck by how many of the same charlatans, crooks and promoters reappear in every single cycle. It’s a pretty small world. But usually if you’re well-plugged into the network, you get a good sense fairly early on who’s good and who’s not good.

Q: So you look at what the principals have done in the past?

A: Absolutely. We know that in portfolio management they say past performance is no guarantee of future performance, but it’s a helpful signpost.

Q: You interview the management?

A: Oh yeah, and we also look at the asset itself. We have very qualified technical people who will go down there and determine whether yes, this for real, or no, this is, to quote Mark Twain, a hole in the ground with a liar on top. You’ve got to be able to make the technical assessment, but the second stage obviously is to have a team in place that actually knows how to exploit the asset sensibly.

Q: What would you say best characterizes good management?

A: For the most part, mining companies tend to be run by geologists and mining engineers, so they always think of drilling holes, and when you ask them about return on capital, return on equity, these are foreign concepts to them. So we like the idea of a guy who has some idea of internal disciplines, where they actually look at hurdle rates, returns on capital, returns on equity. When they think in those terms they’re more likely to be able to exploit a resource intelligently rather than where they say, it’s great, but we need x prices to make money. We want to know they can make money when copper’s at two bucks, as well as when it’s at four bucks. You’d be amazed at how few people look at this.

Take the large gold companies, for example. Over the last several years, if you look at what the gold price has done, and you look at their profitability, for the most part they haven’t done a particularly good job of generating profits. They always have an excuse: labour costs, transportation costs, or our hedging strategy didn’t work. If you contrast a Newmont or a Goldcorp with a BHP or a Rio Tinto, I think the consolidated base metal groups have actually done a much better job of instituting internal disciplines, and they’re much better run companies as a result. This is what you try to find on a micro level.

They say past performance is no guarantee of future performance, but it’s a helpful signpostMarshall Auerback

Q: Geologists sometimes seem to take the attitude that companies come and companies go, but we’ll always be here, drilling holes.

A: That’s 100% right, and it drives me crazy. That deposit in the ground might always be there, but the company itself might not always be there. The more successful companies tend to be those run by businessmen who are not necessarily married to the mining business. To give you an example, Robert de Crespigny, who established one of Australia’s largest gold companies, was trained as a lawyer, and I think that was a plus.

I’ll give you another illustration. In the early 2000s, I was working with a company, and I said you’ve got a really good deposit, but it’s not making any kind of real money at $300 or $325 an ounce gold. Your deposit is going to have value on a long-dated call-option basis, but what do you need do to retain your essential staff and stop drilling for the next several months to safeguard it enough to keep the deposit on care and maintenance until times get better. And most of the people at that company looked at us like, “But that’s not what we do with our money. If we get money, we drill.” And I’d say, why do you want to drill it now when you’re losing money, and you’re not going to be able to exploit the reserve to its maximum potential anyway? But they never really quite got that.

Q: Wouldn’t you say that given the consolidation with the TSX and the NI 43-101 protocols, the mining business in Canada is no longer the Wild West we once associated with the Vancouver Stock Exchange?

A: I think that’s true. There’s been a serious effort to make the exchanges much more compliant with conventional regulation. We don’t think Vancouver is the cowboy market it used to be, but we think it still has an extremely valuable role in helping to develop a lot of these small caps. We think the consolidation with the TSX has helped. In the aftermath of Bre-X there was a sense you have to tighten this thing up. I can tell you from the people we deal with, there are so many more compliance forms you have to fill in and regulatory hurdles than there used to be, and that’s not a bad thing. It’s definitely changed for the better. There’s still maybe the odd fraud lurking out there—there is in any business—but it’s come miles from where it was 15, 20 or 30 years ago.

Read Part Two of this Interview

Read Part Three of this interview

Selwyn reports Yukon Assays up to 6.63% zinc, 3.81% lead over 39.2m

December 22nd, 2010

Selwyn Resources Ltd SWN:CA announced drill results from its XY Central Deposit at the Selwyn Project in Yukon. Assay highlights include 6.63% zinc and 3.81% lead over 39.2 metres (including 9.57% zinc and 6.14% lead over 20.3 metres), and 7.91% zinc and 2.84% lead over 10.79 metres (including 15.3% zinc and 3.62% lead over 2.6 metres).

The XY Project has an indicated mineral resource of 10,738,000 tonnes grading 10.38% zinc and 4.41% lead, and an inferred resource of 2,849,000 tonnes grading 10.86% zinc and 4.41% lead.

View Company Profile

Harlan Meade

or Catalin Chiloflischi
Manager, Investor Communications

by Ted Niles

SLAM reports New Brunswick assays up to 230.9 g/t silver over 9.6m

December 22nd, 2010

SLAM Exploration Ltd SXL:CA announced drill results from its Silverjack Project in New Brunswick. Assays include 107.66 g/t silver, 0.8% copper and 0.6% zinc over 4.5 metres (including 245 g/t silver, 0.59% copper and 0.7% zinc over 1 metre), 111.37 g/t silver, 1.09% copper and 3.15% zinc over 6.9 metres, and 230.9 g/t silver, 1.53% copper and 2.89% zinc over 9.6 metres (including 605 g/t silver, 2.42% copper and 3.41% zinc over 1.4 metres).

Assays are pending on an additional 10 holes along strike from the Silverjack zone. A total of 18 holes were completed prior to a temporary shutdown for the holidays. SLAM expects to complete the remainder of the program in January 2011.

View Company Profile

Mike Taylor
or 866.523.6719

by Ted Niles

Silver Quest reports BC Assays up to 48.12 g/t Silver over 16.8m

December 22nd, 2010

Silver Quest Resources Ltd SQI:CA announced assays from its Capoose Project in north central BC. Results include 48.12 g/t silver over 16.8 metres, 1 g/t gold over 6 metres, 0.67 g/t gold and 8.06 g/t silver over 89 metres (including 1.46 g/t gold and 10.93 g/t silver over 12 metres), 16.49 g/t silver over 28 metres, 31.67 g/t silver over 30 metres, 74.03 g/t silver over 3.4 metres, and 26.59 g/t silver over 21 metres.

The Capoose Project has an inferred mineral resource estimate of 699,000 ounces gold and 41.1 million ounces silver.

View Company Profile

Investor Relations

by Ted Niles

Canaco reports Tanzania Gold Assays up to 9.51 g/t over 53.2m

December 22nd, 2010

Canaco Resources Inc CAN:CA announced results from its Magambazi Gold Discovery in the Handeni region of Tanzania. Assay highlights include 9.51 g/t gold over 53.2 metres (including 15.08 g/t over 23.8 metres), 2.46 g/t over 4.5 metres, 6.1 g/t over 17.4 metres (including 14.35 g/t over 6.3 metres), and 5.81 g/t over 7 metres.

President Andrew Lee Smith commented, “It has been an incredible year of exploration and definition drilling at Magambazi. I thought that our original best intercepts drilled in 2009 of 59 metres at 4.28 g/t gold in hole 1 and 56 metres at 6.39 g/t in hole 12 were as good as it could get. The Magambazi system has outperformed my best expectations in 2010. Linking the Magambazi Main Lode with Magambazi Central and Magambazi North has also been an important development of 2010, showing continuity of mineralization over almost one kilometre of strike.”

View Company Profile

Meghan Brown
Director, Investor Relations
or 866.488.0822

by Ted Niles