Richmont Mines Hangs In For Long Haul

I am impressed with Richmont Mines (US ticker RIC). Their longevity and profitability in 2015 were rare in a junior resource producer. The main challenge ahead is to replace mined reserves, either with new discoveries or with better engineering to make discovered resources viable.

The management team must be doing something correctly. Their mining engineer CEO has been around other producing companies. It's nice for once to see actual mine operators running a mining company instead handing the place over to former consultants or investment bankers. Their other key people have been around the block in the mining sector for a while.

The company has two active mines in Canada, plus other properties in various stages of exploration and development. The PEA for the Island Gold mine and the latest 43-101 for the Beaufor mine are on Richmont's website. My problem is that the PEA is abbreviated and the 43-101 is in French. Someone in charge over there needs to show me the long forms in my own language. I prefer to examine complete primary source documents in English. I am going to take the company's word that independent parties have verified its 2P reserves and ore grades.

Results in recent years aren't stellar compared to the larger world economy, but are probably better than countless mining companies facing bottomless financial holes during a bear market for metals. Profit margin at 4.72% (from Yahoo Finance today) isn't great, but plenty of resource sector investors would like to see that kind of money after holding other beaten-down mining stocks. Check out Richmont's numbers at Reuters. Its five-year EPS growth rate of -18.39% shows that even solid operations can't hold back a bear market in metal prices. Its five-year ROE and ROA are both below one percent, which are also below their industry averages.

Richmont Mines is somehow surviving when its larger competitors are struggling and the sector's juniors are cratering. Someone has to occupy the middle of the market.

Full disclosure: No position in Richmont Mines at this time.

The Haiku of Finance for 01/22/16

Resource downgrade watch
Hit energy and mining
Clobber the ratings

Inca One Gold Turns Its Wheels

Inca One Gold Corp. (US ticker INCAF) is yet another one of those tiny stocks milling around in precious metals mining. It trades under other tickers but the US listed one is the only one I need to see. There isn't much to see here anyway.

The CEO's bio describes precisely zero experience in mineral processing. Some of these people appear to have mining backgrounds, so maybe they found their way down a hole once in a while. A couple of the people listed here also have zero experience in metallurgy and their bios don't even describe their jobs at Inca One Gold. That just about takes the cake. Investors have cast their lot with people who don't tell the public what they do all day.

Inca One Gold's unaudited quarterly financial statements dated July 31, 2015 show CAD$236K cash on hand and a net loss of -$581K. They burn through the equivalent of their cash reserves in less than a month at that rate. The company does have revenue but COGS eats up a high percentage, and corporate expenses are almost three times their gross margin. This is one very poorly run turkey. Read their own choice of words "material uncertainty" in Note 1 about their going concern prospects in case you don't believe it's a turkey. The shareholders' equity deficit of $15.5M means it has always been a turkey.

The stock's EPS is a negative, losing -US$0.06/share LTM. The closing share price for INCAF on January 18, 2016 was $0.06/share at zero traded volume. That means the company loses the equivalent of its entire public value for an investor who buys now and expects to hold for a year. Some sucker who owns it now and can't sell would love to find someone even dumber. Any trading volume higher than zero means another sucker is born.

Full disclosure: No position in INCAF at this time.

The Haiku of Finance for 01/06/16

Endless exploring
Excuse to throw cash away
Mine that never pays

Nevada Copper Corporation Languishes Under One Dollar

I first noticed Nevada Copper Corporation (Canadian ticker NCU.TO, US ticker NEVDF) back in mid-2014 when its stock was headed up to over two bucks a share. It looked for a while like there was something here besides a typical penny stock run-up. Let's take another look to see if there's anything still in this story.

Just look at these management biographies. Here we've got an accountant as CEO, forcing me to wonder what operational role the dude ever had in pulling ore out of the ground. Other folks on the team have been geologists and engineers, doing stuff that equates somehow to mining. The least I can say is that their headshots look nice. Maybe that's the most I can say without directly asking them whether they have personally run a profitable mine.

The one project they have is Pumpkin Hollow in Nevada. Admitting the preexisting surveys by other mining companies begs the question as to why those earlier explorers elected not to develop the property themselves. Sometimes that happens when larger, more successful mining companies realize they found a property that won't meet their investment criteria when they have more viable properties in hand. These Nevada Copper people have NI 43-101 reports on their website going back to 2006 and they are still drilling exploratory holes. Whenever I see a junior resource company taking that long to gather evidence, I have to wonder if there will ever be a final decision on production.

I had to suppress laughter when I saw that Nevada Copper's feasibility study kept the price assumptions for gold at $1200/oz and silver at $18/oz while they adjusted the copper price from their base case. I didn't even need to read their NI 43-101 report dated July 9, 2015 because they put those numbers right on the project's "feasibility studies" Web page. I realize the gold and silver are expected to be byproducts of this project's copper lode, but the least they could have done was run separate economic scenarios for each metal type. If I had turned in a sensitivity analysis like that as academic work, my MBA professors would have given me poor marks for sloppiness.

I looked through their unaudited quarterly financial statements for the period ending September 30, 2015. They had US$6.3M in cash on hand and showed a net loss of -$2M. The company must continue to raise capital so they can pay off more than $20M in short-term liabilities. Reading Note 5 on the details of their bridge loan facility is crucial. Nothing focuses the mind quite like a deadline. Compare the numbers in that note to the Current Liabilities numbers in the balance sheet. Just do it.

I never get tired of examining the entrails of such "opportunities" as Nevada Copper. I used to see plenty of junior resource companies at San Francisco investment conferences. They always had great stories about undeveloped properties that major companies had abandoned. Management was always raising capital to fund endless exploration, and they always paid themselves well. Investors in these types of companies must ask themselves why they keep paying up. The story never ends.

Full disclosure: No position in Nevada Copper Corporation at this time.

Caledonia Mining Corporation Goes Full Bore Into Zimbabwe

Caledonia Mining Corporation (Canadian ticker CAL.TO, US ticker CALVF) is optimistic about its prospects in Zimbabwe. That country ranks 156th out of 174 on Transparency International's Corruption Perceptions Index and 175th out of 178 on the Heritage Foundation's Index of Economic Freedom. It's a bad country for any kind of business. Caledonia Mining had recent success in spite of such geopolitical risk.

The current CEO is an accountant, not a geologist. It's surprising to see such a background in a profitable mining company. It's also surprising to see a geology PhD whose biography leans more on financial analytical work than on successful project discovery. I have more respect for applied competence than I do for luck. A mining company can rely on production from a good ore body for a long time while management teams come and go.

The Blanket mine's ownership structure is unique to the Zimbabwean government's requirements for indigenous participation in foreign direct investment. Caledonia still owns a stake in Blanket after accounting for a partial sale supporting a local participation requirement. The complex governance and financing of this agreement is typical of countries with high geopolitical risk. Suffice it to say that success with such a corporate structure requires investors to heavily discount any new discoveries or operational improvements in such a jurisdiction.

I looked through Blanket's latest NI 43-101 technical report dated July 9, 2015. The total P2 reserves of 2.9M oz Au at 3.67 g/t grade look really good. Those are some of the best numbers I've seen in a junior mining company's project in recent memory. The mine finances its own infrastructure maintenance. It's too bad the report used a gold price estimate of US$1250/oz in its DCF valuation; the world gold price is now under $1100/oz. Consider how further declines in the gold price will reduce the project's estimated valuation. A more appropriate forecast would use gold's long-term historic average price of about $640/oz since 1968. Caledonia's cash cost of production is $513/oz, but its AISC is certainly higher.

Caledonia's gold recovery rate at Blanket is 93%, which is remarkably high. The company is doing the best it can given the political requirements of its local hosts. Good grades and plentiful reserves can make any management team look brilliant even after surrendering ownership of half the project. The company's 43-101 report predicts mine production will start to decline after 2019. Caledonia must then replace production with new discoveries or additional engineering to maintain the company's valuation. The stock currently trades under a dollar because the market recognizes the difficulty of operating a good project in a bad country. It's tough to live in a good house in a bad neighborhood.

Full disclosure: No position in Caledonia Mining Corporation at this time.

Kaizen Discovery And Japan

Kaizen Discovery (Canadian ticker KZD.V, US ticker CCNCF) is another junior resource development company. It touts its connection to major Japanese trading house ITOCHU Corporation as validation for its project generator model. Strategic support for a raw material supply chain is nice to have but it cannot be a dominant factor in a company's valuation. Corporate customers can only buy what a resource company can produce. Only economically attractive properties go into production or get acquired because industry will never overpay for any globally available commodity.

The current CEO trained as a lawyer, not a geologist. Folks, a mining company must have a geologist at the helm if it wants my respect. Geologists are people who find valuable ore in rocks. Lawyers argue about what the word "rock" means in a lawsuit. It's nice that their exploration EVP has a doctorate in geology. I hope lawyers don't overrule his exploration plans. Hope is not a method but it's all some junior resource companies own sometimes.

This company has over half a dozen projects currently under exploration in different parts of the world. I can't call any of them successful until they demonstrate discovered ore grades an acquirer would find attractive. That is the whole point of a project generator business model. The grades discovered on those projects so far, even with NI 43-101 reports, aren't getting me all excited about future mine viability.

I checked out their most recent unaudited quarterly financial statements dated September 30, 2015. They had CAD$2.5M in cash on hand and a net loss of -$3M, so they need to keep raising new capital pretty much every quarter with such a burn rate. That's probably why they have an accumulated capital deficit of almost -$23M. American accountants would call that the equivalent of negative retained earnings. Maybe ITOCHU could pony up the cash to keep this thing afloat. Yeah, sure, whatever.

Project generator models are always neat ideas. I have yet to find one that fits my own preference for solid earnings from a history of successful acquisitions and spinoffs. Markets currently price Kaizen's shares in the pennies; they traded over a buck in early 2013 and have since fallen into the pink sheet basement. Kaizen expects its minerals to feed Japan's industrial appetite. Japan's economy has enough problems getting away from two decades of stagnation. I look for better strategies, and I don't need to look at Kaizen again.

Full disclosure: No position in Kaizen Discovery at this time.

The Haiku of Finance for 09/03/15

Offtake agreement
Promise to buy production
Signal to lenders

True Gold Mining Has True Problems

True Gold Mining is losing money. I just thought I'd say that right off the bat so we don't waste any time beating around the African bush. The company has been around in some form since 1987 according to Yahoo Finance. That's plenty of time to get out of the market's basement and generate some wealth.

Their current CEO is a former investment banker, and his bio on the company website says nothing about academic qualification as a geologist or specific operational success. I see this over and over again in junior mining companies. The company's Yahoo Finance profile says their chairperson is making an obscene amount of money for a company with no revenue in several years. Guess what, when you put a bunch of investment bankers in charge of a mining company, don't expect to see a bunch of metal coming out of the ground.

The Karma Project in Burkina Faso is their big show. Burkina Faso is ranked 85 out of 175 on Transparency International's Corruption Perceptions Index and 102 out of 178 on the Heritage Foundation's Index of Economic Freedom. Its absolute scores in those rankings are abysmal. Demonstrations forced True Gold to halt its Karma Project in January 2015. Unrest has a funny way of messing up business in a poor, corrupt country.

I read the Karma Project's NI 43-101 preliminary economic estimate dated August 10, 2014. The indicated and inferred resources are decent grades and sizes, but I believe their assumed gold price of $1557/oz is too high given present gold market conditions. The probable reserve grades average to 0.85 Au g/t; that's still decent but not inclusive of proven reserves. I also wonder why they chose a gold price assumption of $1250/oz for their economic analysis that differs from the $1557/oz assumption for the resource estimate. Adding their estimated cash operating cost of $630/oz and capital cost of $207/oz gives us a total cost of $837/oz, unless I'm missing something. That is below gold's current spot price but above its long-term average historical price, so the project is very vulnerable to a prolonged bear market in gold.

The Liguidi Project in Burkina Faso is their side show. The project's fact sheet includes some sample drill results but I don't see anything that resembles a 43-101 report. The final Liguidi results will have to wait for daylight if Karma ever gets going. All of the international ranking data on corruption and freedom apply to both projects with equal validity.

The former investment bankers running True Gold need to raise US$132M to bring Karma into full production. I reviewed their consolidated financial statements dated June 30, 2015. The company's burn rate of $1.4M/month and cash on hand of $23M means they can survive for about 16 months before needing another capital raise. Shareholders will experience dilution if True Gold raises a big chunk of that $132M at some point. The accumulated negative retained earnings of -$81.3M shows how little progress the management made towards productively employing capital they raised in the past.

I will not invest in True Gold. The main project looks decent enough but it's in a bad neighborhood called Burkina Faso. Investment bankers should learn about geopolitical risk before they agree to run mine exploration companies.

Full disclosure: No position in True Gold Mining (tickers TGM.V and RVREF) at this time.

Seabridge Gold Has A Bridge To Two Projects

Seabridge Gold leaves me puzzled. It has been around for many years, long enough to have discovered and developed significant mines by now. The stock's profile page on Yahoo Finance shows the top executives making serious six figures. Executive pay is not a marker of enterprise success. It is nice to see that the CEO is a trained mining engineer and that the rest of the team has been around the block with other mining companies.

They have two serious projects now. The Kerr-Sulphurets-Mitchell (KSM) project in Canada has several iterations of NI 43-101 reports. I read the preliminary feasibility study (PFS) for 2012, and the reserves are not much to crow about without the deposit's size. Consider how low the 2P reserves grade of 0.55 Au g/t would be without the 38.2M oz of metal to make it interesting. It is notable that the 2P reserves grade is about the same as the measured and indicated resource grade, a positive sign given the tendency of reserve grades to be lower after more engineering work. The project's estimated IRR is only 11.5%, less than half what Sprott's Rick Rule uses as a rule of thumb for viability. It's good that their assumed total operating cost of $597.60/oz is so low, even lower than gold's long-term average historic price. They must still raise the $5.3B initial capital cost.

The Courageous Lake project also has a PFS from 2012. This project looks a lot more desirable than KSM due to its 2P reserves grade of 2.2 Au g/t, but it only has 6.5M oz of metal. They only have to raise $1.52B in capital to make it work, but the estimated 7.3% IRR is even lower than the KSM project. The total operating cost of $1123/oz is also higher than KSM, and higher than gold's long-term price.  Priority funding for Courageous Lake would make more sense in healthier economic times. The hard times in mining worldwide now make KSM the more attractive candidate for initial development.

Check out Seabridge's Q2 10-Q report dated June 30, 2015. They had cash and short-term deposits of almost $CAD14.7M. That should be enough to operate for over one year given their present burn rate, once they have paid their current liabilities. Their fundraising success in April 2015 of $16.3M is very noteworthy. It is also noteworthy that the financing was executed at a share price of $10.17. Shares of Seabridge closed today at $6.22. General market conditions are dragging down many companies but Seabridge's private investors continue to have sufficient faith that their investment is worth the premium they pay.

Seabridge is viable if a major partner wants to contribute billions of dollars to starting its two major projects. The market is bidding up this company's share price based on its ore body estimates rather than its operating history. These kinds of lower-grade projects make sense now that high-grade ores are running out worldwide. The mining sector will have to adjust to a new era of permanently lower IRRs with companies like Seabridge Gold.

Full disclosure: No position in Seabridge Gold (ticker SA) at this time.

The Haiku of Finance for 08/28/15

Disappointing mine
Uneconomic hole grades
Ore stays in the ground

Vista Gold Is A Disappointment

Vista Gold (ticker VGZ) has a management team with obvious experience in mining operations.  It's always good to see geologists and engineers running a junior mining company.  I would have more confidence in this company's potential if their operational results matched the C-suite's pedigree.  A producing mine would justify their high salaries.  Check their pay yourself on the ticker's Yahoo Finance listing.

One Mt. Todd, Australia gold project is their primary live option at this time, with other projects that may pay royalties if other partners have their acts together.  The Mt. Todd site's most recent NI 43-101 report is dated July 7, 2014.  Its key findings are disappointing.  The 2P reserve estimate is 0.84 Au g/ton for the Batman deposit and 0.54 g/ton for the heap leach pad.  Those are very low ore grades compared to profitable mines worldwide.  The MII resource estimates for Mt. Todd aren't any better.  The initial capex estimate of almost US$1.05B means they need a large mining company as a serious partner.  Their base case assumption of $1450/oz as the gold price is too optimistic because gold closed at $1133/oz today.  I looked at their base case scenario of operating costs at $756.11/oz and capex (presumably spread over the mine's life) at $292.33.  Adding those up to $1048.44/oz gives us the minimum gold price that makes this mine economically viable.  Gold's long-term average price is far below that level, and a lot can happen over this mine's projected 13-year life.

Financial statements matter.  I reviewed Vista's latest 10-Q dated July 31, 2015.  They had US$3.8M in cash on hand at the end of June, plus $11.1M in short-term investments.  That would ordinarily be a mother lode of cash for a junior mining company.  I have to wonder why they are representing positive net income with zero operating revenue.  Their research and development grants from the Australian government (mentioned in note 10 of the 10-Q) are no substitute for a live mine, so it's more appropriate to doubt these grants' usefulness as recurring revenue.  Consider Vista's negative retained earnings of -$410M to know how much investor capital has disappeared down dry holes.

This stock has traded below one dollar since the summer of 2013.  Since it now trades around $0.29, anyone who bought it in the past decade is severely underwater.  I see these kinds of companies all the time on the investor relations circuit, clamoring for attention and waving term sheets at private investors.  Whatever potential that may have appeared in Mt. Todd's earliest 43-101 reports has never materialized.  That is why Vista Gold does not belong in my portfolio.

Full disclosure:  No position in VGZ at this time.

Uranium Energy Corp. May As Well Be Radioactive

Uranium Energy Corp. (UEC) used to be named something related to gold. Another company now has their old name, so that's just water under the bridge. The global nuclear power is healthy enough to support strong demand for uranium production. It's too bad UEC isn't successfully meeting that demand.

UEC has 23 projects in motion as of this writing, with all but two in the US. Their problem is that almost all of these projects are still under exploration. They have one operational plant, one producing mine (sort of, depending on permits), and one project at the development stage. That's all they have after a decade.

Consider the numbers for those projects that have NI 43-101 reports. Anderson will require almost $44M initial capex, with a recovered production cost of $33.65/lb.  It is sobering to see the base case NPV estimate (at a 10% discount rate, $65/lb market price) of $142.2M, when the total capex commitment is estimated at $139.2M in the 43-101.  That's barely worth doing at all.  Infomine reports the uranium price for Aug. 26, 2015 as $36.75/lb.  If the Anderson project is barely worthwhile at $65/lb, it cannot be viable at current market prices.

I grabbed UEC's Q3 2015 10-Q dated June 9, 2015.  The company had $1.4M in cash on hand as of April 30 and inventory of $2.2M.  Their monthly burn rate is about -$1.8M, so they're pretty much surviving one quarter at a time.  Note the negative retained earnings of nearly -$187M, because that's about how much investor capital the company has thrown down a bunch of holes in its lifetime.  Further capital raises will be needed to fund the capex for projects like Anderson, so shareholders can expect further dilution.

I will hazard a guess about why this company is losing money.  If they had focused on a handful of decent projects with grades of at least 0.10%, they could have succeeded by now.  The World Nuclear Association notes that the largest uranium mines in the world produce most of the world's uranium with average grades over 0.10%.  UEC has spent a lot of time and money exploring many projects whose MII grades do not cross that 0/10% threshold, meaning their ultimate 2P grades will likely be lower in a 43-101 PEA.

Uranium mining and processing can be a radioactive business. Companies that try to do it for a decade without financial success may as well be radioactive themselves. I will not have money-losing companies like UEC in my own portfolio. Financial losses are radioactive to my ROI.

Full disclosure:  No position in Uranium Energy Corp. (ticker UEC) at this time.

The Limerick of Finance for 08/23/15

Keep digging those holes to nowhere
With no cash on hand left to spare
Absent mining report
Drill program comes up short
Deserves to trade pennies per share

Galaxy Resources Is More Like A Black Hole

Galaxy Resources recently changed its name from Galaxy Lithium.  I never let a name change distract me from changes in operations.  The company's current management team has a background more in finance than mining.  I can totally understand if the company feels more confident about improving its financial situation than it does about improving its operations.

The company has three active projects at present.  A couple of them appear to be only semi-active; the Mt. Cattlin (Australia) mine has been shut since July 2012 and the James Bay (Canada) project is still under exploration.  The Sal de Vida (Argentina) lithium project is the only one left on which the market can hang some valuation.  Galaxy's corporate website displays a summary of some NI 43-101 data for Sal De Vida's claimed 2P reserves.  I cannot find the full 43-101 report for that project anywhere on Galaxy's website or in a SEDAR search of the company's filed reports.  If a company has to make it this difficult to verify its claims, I cannot waste my time evaluating its operational potential.

I did download the company's annual report for the year ended December 31, 2014 straight from its investor relations page.  Galaxy had a total net loss of over -AUD$56M in 2014, which wasn't nearly as bad as 2013's restated loss of over -AUD$104M.  A reduced loss is still a loss.  Their total current liabilities have exceeded total current assets in both 2013 and 2014, and with only AUD$13M in cash on hand they will absolutely have to raise a lot more money just to keep the lights turned on.  It is impossible to determine whether their fundraising serves an operational purpose without access to a 43-101 report describing how the company should further develop its most viable project.

The stock trades in the pennies, typically under US$0.04 throughout the summer of 2015.  One look at the EPS of -US$0.05 tells me this company is losing more than what the market thinks it is worth.  There is no way that such a company will ever belong in my own portfolio.  A company with aspirations to be galaxy-sized needs to have more than a big black hole of important information.

Full disclosure:  No position in Galaxy Resources (GXY.AX) at this time.

Resource Sector Companies Should Use FEL And PDRI For Innovative Planning

One of my pet peeves about tracking investment in the natural resource sector is the often amateurish approach some executives take when developing projects.  Junior companies often mistakenly assume that completing a preliminary economic analysis (PEA) is a milestone in itself, without realizing the importance of planning their fundraising to fulfill the PEA's requirements.  Fortunately, help is available for junior mining companies.  Front-end loading (FEL) and the Project Definition Rating Index (PDRI) will make all the difference.

Process-oriented sectors use FEL stages to segment a project into deliverable milestones, with the hardest thinking up front.  This is a key approach for successful project managers who complete projects on time, under budget, and with little degradation in net present value (NPV).  Independent Project Analysis (IPA) has tracked project efficiency for decades, and their publicly available literature reveals how FEL adds value.  The mineral sector is one of the least successful in delivering project value, according to IPA's research.  I can totally see why after thinking about all of the junior mining company presentations I have attended.

Project planners using FEL should acquaint themselves with PDRI.  The Construction Industry Institute has a very robust approach to scoring a PDRI.  They are not alone.  The US DOE has modified the PDRI to incorporate environmental management.  Professional bodies have studied PDRI's value.  The Project Management Institute notes how PDRI augments their body of knowledge.  Managers building a project team should involve their auditors early in the FEL-1 gate and equip them with PDRI checklists.

Mining startups may lack the human capital to incorporate PDRI scoring into their first FEL stage.  Experienced project geologists who become junior mining company CEOs are more likely to keep up on industry developments that exemplify FEL planning.  I cannot recall ever hearing a mining company CEO with a background in banking or consulting who ever described their active projects in FEL or PDRI terms.  All the hints they need are in their initial NI 43-101 reports.  Properly sequencing those discoveries into development milestones is within a modern geologist's professional competence.  Former investment bank analysts who take over as mining CEOs probably won't take the hints.

Large, well-capitalized companies in the resource sector have an easier time building a strong project team early in a mine's life cycle.  Junior mining companies should do similar quality work at a smaller scale if they want their projects to show robust economics.  Waiting until a bankable feasibility study is complete after several years of exploration is too late.  Delays in determining project completion requirements adds risk and makes junior miners less desirable as acquisition targets.  Small-cap mining companies that take FEL and PDRI seriously will demonstrate better long-term project economics and increase their chance of achieving an attractive valuation.  Widespread adoption of FEL and PDRI concepts among junior resource sector companies would be a welcome innovation.

Financial Sarcasm Roundup for 06/22/15

The markets are on edge about Greece's fate, and my sarcasm is far edgier.  Investors can pull all the money they like from bond funds, because my sarcasm will always be there to fill the hole.

Greece throws some new proposals at Europe.  Only the dumbest journalists and analysts believe anything Athens says these days.  The Greek leadership goes through the motions and Europe's leaders act like they've earned another few billion euros.  Neither party believes in the process but they're both too terrified of what may happen in the markets if they don't keep up pretenses.  Anything Greece does to fulfill its austerity commitment will force a snap election that brings real radicals into power, and then the world watches an instant default.

Caterpillar plans another round of layoffs.  I'm glad I don't own that stock.  Bad times in the mining sector will hurt more than heavy equipment.  A whole bunch of truck stops and flophouses in Idaho, Montana, and Nevada will go under at some point.  Guess how much more the heavy equipment sector will hurt once the next housing market downturn comes along.

Amazon has incentives for vanity press authors.  Wow, now there's a reason to accelerate my pipe dream of self-publishing my financial tomes through Amazon's Kindle.  Content marketers are increasingly measuring user engagement in smaller increments.  Every instance counts.  It pays to change the metric from broad downloads to something like a la carte pricing.

I have to blast out a sarcastic missive at one loser who claims to operate in the tech sector.  I won't embarrass him by name.  This dude wouldn't listen to me a few years ago when I told him what he needed to do to make a minimum viable product (MVP).  He also demanded that I pretty much write his business plan for him and do a whole bunch of things he was too lazy to do himself.  I recently noticed that this guy is back in startup mode, running through the same accelerator program he's done before.  He has never succeeded in commercializing any of his claimed inventions.  Dude, sometimes you just need to know when to quit, so quit already.  I'm so glad he's not cramping my style anymore.

The Limerick of Finance for 05/17/15

Mining spinoff fell short of some hope
Analysts now have reason to mope
Mature mines in the fold
Production getting old
Markets always find some way to cope

NioCorp Developments Bleeds Cash for Niobium

NioCorp Developments used to be called Quantum Rare Earth Development.  The name change from March 2013 has not changed the nature of the company.  They still plan to extract niobium in Nebraska.  Rare earth elements are crucial to the defense and high-tech sectors.  It is crucial that competent miners extract these elements for processing.

Their current CEO is the former CEO of Molycorp, the largest rare earths producer in the US.  It is usually good for a junior resource company to have experienced mining executives, but they need to have the right kind of experience.  Mineweb's reporting on this CEO's tenure at Molycorp mentions losses and legal problems.  Bloomberg's reporting on that period at Molycorp highlights operational problems.  Junior mining companies need a management team that won't bring drama.  Capital markets dislike drama and reward competence.

NioCorp's minor projects in Saskatchewan and Australia are too immature to deserve an economic estimate.  The main NioCorp project at Elk Creek has a 43-101 estimate of MII resources from April 2012.  The grades aren't exactly stellar but the size of the deposit matters.  The 43-101 report acknowledges the logistics trifecta that a mining project needs: roads, power, and water.  I could not locate any photos of this property on NioCorp's website but the 43-101 report indicates the land is mostly flat with some rolling hills.  Flat relief areas are good for the eventual construction of tailing areas.  The report's bottom line recommends an exploration budget of CAD$4.89M to further refine an estimate of the niobium deposit.

I checked SEDAR for their latest financial report dated March 31, 2014.  They had CAD$3.9M in cash on hand but lost about CAD$378K for the quarter.  That gives them quite a few months from that date before they will have to close another capital raise.  The problem I noted from that financial statement is that much of the expenses generating those losses are for administrative matters like management fees.  NioCorp needs to spend towards exploration plan as recommended in the 43-101 report.

I remember first noticing this company back in 2011 when junior rare earth companies were riding the media's fascination with the Molycorp story.  The share price of Quantum/NioCorp has always been in the pennies but crashed during September 2011 and did not really recover until April 2014.  It is still a high-risk prospect.  NioCorp must obviously raise more capital and dilute shareholders further just to prove its Elk Creek project is viable.  Creating a functional mine is a consideration far in the future.

Full disclosure:  No position in NioCorp at this time; no position in its predecessor tickers at any time in the past.

Editorial note:  I made a minor correction on 09/15/14 to the number of months their cash reserve will last based on their burn rate; the cash will last longer than I had first anticipated.  It does not materially change my assessment of this company's prospects.

Erdene Resource Development in Mongolia

This is the first time I have mentioned Erdene Resource Development (ERDCF / ERD.TO) on my blog.  It may also be the last time, unless they do something really impressive with their projects in Mongolia.  That country has a nasty habit of punishing foreign investors when it goes through fits of resource nationalism.

Mongolia ranks 83rd out of 175 on Transparency International's corruption index and 97th out of 178 on the Heritage Foundation's Index of Economic Freedom.  Those are really poor conditions in which to operate a foreign-owned business.  I remember the last time some mining executive (at another company) tried to tell me they knew the inner workings of Mongolia so well that their project could navigate any political pressures.  They were blindsided when Mongolia rolled up their project "for the good of the people," as kleptocrats always describe such actions.

The management bios show a geologist CEO who also holds leadership roles in other TSX-listed resource companies.  I am usually very skeptical of top executives who take a "lottery ticket" approach to stakes in other producers rather than focus exclusively on making one project succeed.  Other folks on the management team also have geology degrees, which is nice.

Erdene has several projects in Mongolia.  They have located deposits of gold, silver, molybdenum, and copper in various places.  They're also looking for coal.  The 43-101 compliant information they posted is of limited use if it only discusses MII resources at low ore grades.  I am not ready to invest in any resource company that cannot demonstrate comprehensive 2P reserves at economically viable grades.

Check out the financial reports on their website.  Their quarterly statement for June 30, 2014 shows a net loss more than 3x their cash on hand.  Erdene must continue to raise capital just to stay in business, putting their shareholders at risk of further dilution.

The stock trades in the pennies for pretty good reasons.  All of the geology expertise on the planet means little in an inhospitable political climate.  The best thing to come out of Mongolia so far has been the Mongolian BBQ cooking style.

Full disclosure:  No position in this company, ever.