Tembo Gold Corp. (TBGPF / TEM.V) is digging up Africa, specifically Tanzania. That country is ranked 102 out of 174 on Transparency International's Corruption Perceptions Index for 2012, with an absolute score of 35 out of 100. Tanzania also ranks 110 out of 179 on the Heritage Foundation Index of Economic Freedom for 2012, with an absolute score of 57. This translates into a huge political risk that investors must bear in mind.
The CEO is a geologist with a long history of operating in Tanzania. Good news. He'll need that local knowledge given the high level of corruption and low level of freedom there. I'll give the rest of the team good marks for knowing stuff about mining.
Their Tembo property may have promise. I think they did something brilliant by overlaying plotted artisanal mine activity onto their aerial magnetic survey results. Tembo's 43-101 report from July 2012 does not reveal any MII resources but does recommend a $12M follow-up exploration program. I wonder how they're going to fund this next phase.
Tembo Gold's financial statements for June 30, 2012 show C$426k in cash on hand, plus C$4.6M in short-term investments. The notes to their financial statements do not reveal any encumbrances tied to those investments, so I will consider that as part of a total cash reserve of C$5M. Their burn rate is about C$520k/month (averaging their three-month and six-month net losses), and they closed a financing round for C$4M in November. This gives them enough cash to survive until the end of December 2013. It is difficult to determine how much of this raised cash will be devoted to their follow-up exploration.
Some of Tembo's drill samples show some incredibly high grades but that's not enough to entice me to invest. Let's see some 2P reserves first. Oh, BTW, Tembo should hope the Tanzanian economy becomes more transparent.
Full disclosure: No position in Tembo Gold Corp. at this time.
Tuesday, December 25, 2012
Financial Sarcasm Roundup for 12/25/12
The capital markets are closed for Christmas but Alfidi Capital never sleeps. The holidays are a perfect time to get sarcastic.
The stealth nationalization of health care payments will really get going in 2013 with new tax increases. I fully expect employer-sponsored health insurance plans to be taxed as the equivalent of income. I admit the principle of taxing a benefit makes sense; after all, if cash compensation from employment were higher then workers could pay for health insurance out of pocket. Employees really don't know the difference because this tax break encourages companies to enroll their workers in plans. The health insurance sector will love this tax but most small businesses will hate it. I also expect small businesses to accelerate the transformation of full-time positions into part-time jobs to avoid providing health care and paying this tax. The insurance sector has begun its sea change toward a system with the federal government as single payer. You will be forced to pay a premium for routine access to an overstressed system because the government isn't the least bit interested in controlling costs.
Unionized labor is about to deliver a very unwelcome post-holiday gift to the economy. Stupid ILA dockworkers are about to launch a Maine-to-Texas strike that will curtail or shut down shipping at every East Coast and Gulf port for weeks. Even dumber, the ILWU is threatening to strike at Northwest grain ports. Midwestern farmers ought to be up in arms about the prospect of their grain being shut out of Asian markets. The National Retail Federation isn't taking the ILA threat lying down; they urge the Administration to force workers to stay on the job under Taft-Hartley. Fat chance. This Administration is a big friend of organized labor and is not at all inclined to use the law as it was intended. I expect a strike, and a big hit to the stock prices of carriers transporting containerized cargo.
It's hard to ignore the scary headlines about no fiscal deal forthcoming in Washington. Hitting the fiscal cliff would be good for America so we can all get the shock of living within our means and living with reduced benefits from our government. Politicians don't want that to happen but don't want to explain anything to folks back home. The real deal will still get done in a couple of days, just like the last debt-ceiling emergency, and everything will be fine until the bond market boycotts a U.S. Treasury auction.
I hope you're all enjoying this year's winter solstice. That's what Christmas used to be before Emperor Constantine foisted monotheism upon the Roman Empire and politically appointed clergy began appropriating pagan holidays. I celebrate today with the original intent in mind, devoid of late-Roman innovations.
The stealth nationalization of health care payments will really get going in 2013 with new tax increases. I fully expect employer-sponsored health insurance plans to be taxed as the equivalent of income. I admit the principle of taxing a benefit makes sense; after all, if cash compensation from employment were higher then workers could pay for health insurance out of pocket. Employees really don't know the difference because this tax break encourages companies to enroll their workers in plans. The health insurance sector will love this tax but most small businesses will hate it. I also expect small businesses to accelerate the transformation of full-time positions into part-time jobs to avoid providing health care and paying this tax. The insurance sector has begun its sea change toward a system with the federal government as single payer. You will be forced to pay a premium for routine access to an overstressed system because the government isn't the least bit interested in controlling costs.
Unionized labor is about to deliver a very unwelcome post-holiday gift to the economy. Stupid ILA dockworkers are about to launch a Maine-to-Texas strike that will curtail or shut down shipping at every East Coast and Gulf port for weeks. Even dumber, the ILWU is threatening to strike at Northwest grain ports. Midwestern farmers ought to be up in arms about the prospect of their grain being shut out of Asian markets. The National Retail Federation isn't taking the ILA threat lying down; they urge the Administration to force workers to stay on the job under Taft-Hartley. Fat chance. This Administration is a big friend of organized labor and is not at all inclined to use the law as it was intended. I expect a strike, and a big hit to the stock prices of carriers transporting containerized cargo.
It's hard to ignore the scary headlines about no fiscal deal forthcoming in Washington. Hitting the fiscal cliff would be good for America so we can all get the shock of living within our means and living with reduced benefits from our government. Politicians don't want that to happen but don't want to explain anything to folks back home. The real deal will still get done in a couple of days, just like the last debt-ceiling emergency, and everything will be fine until the bond market boycotts a U.S. Treasury auction.
I hope you're all enjoying this year's winter solstice. That's what Christmas used to be before Emperor Constantine foisted monotheism upon the Roman Empire and politically appointed clergy began appropriating pagan holidays. I celebrate today with the original intent in mind, devoid of late-Roman innovations.
Detour Gold (DRGDF) Gets Ready To Shine
Detour Gold (DRGDF / DGC.TO) deserves applause for moving toward production. The management team is mature. The CEO is a geologist and the rest of the team has experience in project development and mineral processing. I don't think I could ask for more from the leadership of a growing mining company.
The company owns its Detour Lake project outright and their 43-101 report data is available. This site has almost half a billion tons of 2P reserves at an average grade of 1.05g/ton. That's not bad given declining grades worldwide, so full production is justified. They estimate the total cash cost of production at C$749/oz, which is about $100 higher than gold's long-term average price. This mine is clearly viable so long as the world market has elevated expectations for the price of gold. Any bullion price crash would hurt Detour Gold's valuation. BTW, their projected IRR of 12.4% after tax is far below the 25% threshold favored by major institutional investors in the resource sector.
Shareholders should be concerned about the possibility of dilution. Detour Gold has issued 117M shares but this can be diluted to 139M with options and convertible notes. The most significant short-term concern is the set of options expiring in less than one year with a weighted average strike price of C$10.25. Those option holders will probably get very lucky if the share price is still over C$23 one year from now.
The company is viable for now but it isn't enough of a home run for my money. I would need to see a higher IRR and lower cash cost of production in a mining stock.
Full disclosure: No position in Detour Gold at this time.
The company owns its Detour Lake project outright and their 43-101 report data is available. This site has almost half a billion tons of 2P reserves at an average grade of 1.05g/ton. That's not bad given declining grades worldwide, so full production is justified. They estimate the total cash cost of production at C$749/oz, which is about $100 higher than gold's long-term average price. This mine is clearly viable so long as the world market has elevated expectations for the price of gold. Any bullion price crash would hurt Detour Gold's valuation. BTW, their projected IRR of 12.4% after tax is far below the 25% threshold favored by major institutional investors in the resource sector.
Shareholders should be concerned about the possibility of dilution. Detour Gold has issued 117M shares but this can be diluted to 139M with options and convertible notes. The most significant short-term concern is the set of options expiring in less than one year with a weighted average strike price of C$10.25. Those option holders will probably get very lucky if the share price is still over C$23 one year from now.
The company is viable for now but it isn't enough of a home run for my money. I would need to see a higher IRR and lower cash cost of production in a mining stock.
Full disclosure: No position in Detour Gold at this time.
Monday, December 24, 2012
Lake Shore Gold (LSG) Produces And Explores
Lake Shore Gold (LSG / LSG.TO) is a junior mining company that is actually producing gold. The CEO is a mining engineer. That's good. The rest of the team has an interesting mix of mining-related experience.
Since they're in production at their Timmins West project, the important factor now is the cash cost of production at $970/oz. The good news is that Timmins West's extraordinarily high grade of 5.21g/ton makes production very much worthwhile. The bad news is that this cost is far above gold's historical average price. Inflationary central bank policies that keep the gold bull market roaring will drive this company's valuation until they can reduce those costs to a sustainable level.
The stock is still low-priced because the production at Timmins West can potentially subsidize their other exploration properties. That's fine as long as Lake Shore Gold delivers positive earnings overall. They have not done so yet. Their Q3 financial statements for 2012 show net losses of about C$2.6M per month (a rough average of their three-month and nine-month loss rates). It's good that they have C$83.5M in cash in hand, enough for more than two years. Investors shouldn't have to wait that long for the company to either find decent grades at its other exploration properties or drop them and focus on Timmins West. I await the outcome of that decision.
Full disclosure: No position in Lake Shore Gold at this time.
Since they're in production at their Timmins West project, the important factor now is the cash cost of production at $970/oz. The good news is that Timmins West's extraordinarily high grade of 5.21g/ton makes production very much worthwhile. The bad news is that this cost is far above gold's historical average price. Inflationary central bank policies that keep the gold bull market roaring will drive this company's valuation until they can reduce those costs to a sustainable level.
The stock is still low-priced because the production at Timmins West can potentially subsidize their other exploration properties. That's fine as long as Lake Shore Gold delivers positive earnings overall. They have not done so yet. Their Q3 financial statements for 2012 show net losses of about C$2.6M per month (a rough average of their three-month and nine-month loss rates). It's good that they have C$83.5M in cash in hand, enough for more than two years. Investors shouldn't have to wait that long for the company to either find decent grades at its other exploration properties or drop them and focus on Timmins West. I await the outcome of that decision.
Full disclosure: No position in Lake Shore Gold at this time.
Prophecy Platinum (PNIKF) Digging In For Long Haul
Prophecy Platinum (PNIKF / NKL.V) was spun off as a stock dividend to holders of Prophecy Coal, the subject of my most recent blog article. Let's see what these folks are doing.
The CEO is a geologist, and he has run projects in the development stage and during full production. Wow. That's pretty much what I want to see at a junior miner. The rest of the team has decent bench strength in the mining sector.
They have a convenient summary of their projects' 43-101 reports. It's really nice to see a complete set of initial reports for an entire company's project portfolio, and I don't think I've seen that for any multi-project junior I've analyzed this year. The Shakespeare project is the only one with probable reserves. Given the low grades of gold and base metals at Shakespeare, I think it's safe to say the market prices of the platinum group metals (PGMs) will drive this company for the foreseeable future. Platinum is over $1550/oz and palladium is around $680/oz, different from the prices used in the Shakespeare feasibility studies. Those metal prices have been on a tear for several years.
Their Q2 for fiscal year 2013 ended on September 30. Prophecy Platinum's current burn rate is about C$700k/month and they ended September with C$4.3M in cash on hand. They can survive until the end of March 2013 but they will need to raise more capital.
Prophecy Platinum is still drilling and surveying its projects. Their updated feasibility study for the Shakespeare project was published in 2008, and four years later they still haven't commenced production. The study predicted that production would have begun by now and didn't anticipate delays of special equipment deliveries longer than three years. These delays won't be resolved until they have 2P reserve data for their Wellgreen project (which already has some road infrastructure) and/or sufficient capital to build out the Shakespeare project. I don't invest in companies that suffer interminably long delays.
Full disclosure: No position in Prophecy Platinum at this time.
The CEO is a geologist, and he has run projects in the development stage and during full production. Wow. That's pretty much what I want to see at a junior miner. The rest of the team has decent bench strength in the mining sector.
They have a convenient summary of their projects' 43-101 reports. It's really nice to see a complete set of initial reports for an entire company's project portfolio, and I don't think I've seen that for any multi-project junior I've analyzed this year. The Shakespeare project is the only one with probable reserves. Given the low grades of gold and base metals at Shakespeare, I think it's safe to say the market prices of the platinum group metals (PGMs) will drive this company for the foreseeable future. Platinum is over $1550/oz and palladium is around $680/oz, different from the prices used in the Shakespeare feasibility studies. Those metal prices have been on a tear for several years.
Their Q2 for fiscal year 2013 ended on September 30. Prophecy Platinum's current burn rate is about C$700k/month and they ended September with C$4.3M in cash on hand. They can survive until the end of March 2013 but they will need to raise more capital.
Prophecy Platinum is still drilling and surveying its projects. Their updated feasibility study for the Shakespeare project was published in 2008, and four years later they still haven't commenced production. The study predicted that production would have begun by now and didn't anticipate delays of special equipment deliveries longer than three years. These delays won't be resolved until they have 2P reserve data for their Wellgreen project (which already has some road infrastructure) and/or sufficient capital to build out the Shakespeare project. I don't invest in companies that suffer interminably long delays.
Full disclosure: No position in Prophecy Platinum at this time.
Prophecy Coal (PRPCF) Bets On Mongolia
Prophecy Coal (PRPCF / PCY.TO) is trying to make a go of the resource sector in Mongolia. It's too bad Genghis Khan isn't around today or he'd whip that whole country into shape. In the meantime, folks have to do business the modern way.
The management team has experience in everything but coal mining. It's nice to have local connections in Mongolia, but at some point after your local contacts have accelerated your permit applications you'll have to demonstrate the ability to pull coal out of the ground.
Their main project is coal from Ulaan Ovoo. Their 43-101 report from 2009 reveals MII resources but no 2P reserves yet. The single most important number at this stage is their estimated cash cost of production at $56/ton. That is an extremely high figure, far above the preferred threshold of the lowest quartile on the world's cash cost of production curve. Mongolian utilities would be better off importing coal from Indonesia, where the average cash cost is about $35/ton.
Their proposed power plant at Chandanga has been permitted but they have not begun construction. The coal project at Chandanga that is supposed to fire this plant has a 43-101 report, estimating the cash costs of production here at under $38/ton and declining in future years (according to their latest update dated November 2012). That is a far more price-competitive project than Ulaan Ovoo.
Prophecy Coal does have other projects but the key takeaway is that they all have 43-101 summaries of MII resources. None of the properties they're exploring or developing have 2P reserves, so more exploration needs to de-risk this enterprise.
The company's most recent financial statements for Q3 in 2012 show C$4.5M in cash on hand as of September 30. Note that this does not include the C$10M in restricted cash the company has pledged to obtain exploration licenses from Tethys Mining LLC; that cannot be used to cover operations. Prophecy Coal's burn rate is about C$1M/month, so they will have to raise more capital before their cash runs dry in mid-March 2013.
Their plan seems to be to initially sell coal directly to Mongolian power plants, but Mongolia is a small energy market. I've never heard of a penny stock building a 600MW power plant; that's something a large utility would normally do. They will have to raise a tremendous amount of money to build that power plant and extract coal. That's a bit too risky for me.
Full disclosure: No position in Prophecy Coal at this time.
The management team has experience in everything but coal mining. It's nice to have local connections in Mongolia, but at some point after your local contacts have accelerated your permit applications you'll have to demonstrate the ability to pull coal out of the ground.
Their main project is coal from Ulaan Ovoo. Their 43-101 report from 2009 reveals MII resources but no 2P reserves yet. The single most important number at this stage is their estimated cash cost of production at $56/ton. That is an extremely high figure, far above the preferred threshold of the lowest quartile on the world's cash cost of production curve. Mongolian utilities would be better off importing coal from Indonesia, where the average cash cost is about $35/ton.
Their proposed power plant at Chandanga has been permitted but they have not begun construction. The coal project at Chandanga that is supposed to fire this plant has a 43-101 report, estimating the cash costs of production here at under $38/ton and declining in future years (according to their latest update dated November 2012). That is a far more price-competitive project than Ulaan Ovoo.
Prophecy Coal does have other projects but the key takeaway is that they all have 43-101 summaries of MII resources. None of the properties they're exploring or developing have 2P reserves, so more exploration needs to de-risk this enterprise.
The company's most recent financial statements for Q3 in 2012 show C$4.5M in cash on hand as of September 30. Note that this does not include the C$10M in restricted cash the company has pledged to obtain exploration licenses from Tethys Mining LLC; that cannot be used to cover operations. Prophecy Coal's burn rate is about C$1M/month, so they will have to raise more capital before their cash runs dry in mid-March 2013.
Their plan seems to be to initially sell coal directly to Mongolian power plants, but Mongolia is a small energy market. I've never heard of a penny stock building a 600MW power plant; that's something a large utility would normally do. They will have to raise a tremendous amount of money to build that power plant and extract coal. That's a bit too risky for me.
Full disclosure: No position in Prophecy Coal at this time.
Sunday, December 23, 2012
Pan Global Resources Goes For Lithium
Pan Global Resources (PGZ.V) wants to mine lithium in Serbia. There's a global supply glut for lithium right now, with the world's top three producers more than able to meet the world's needs from their existing reserves for the forseeable future. This company's valuation will be driven by its borates, not its lithium.
The CEO's background is hard to understand. A degree in science does not necessarily include a focus on geology. Directing business development and regional exploration are the kinds of things an MBA guy like me could do. Directing a mine from exploration to production is something else. The directors have diverse mining backgrounds but they're not the ones doing the work or making daily operational decisions.
Two of their projects have NI 43-101 reports. Further development of Jadar West and Valjevo will require US$585k each, or $1.17M if you can't add. Neither report contains verification of any MII resources so there's nothing to justify a higher valuation yet.
Check out their most recent financial statements, specifically Q2 for 2012. Pan Global had $1.6M in cash on hand at the end of July and their burn rate is about $250k/month. Their exploration program is progressing but at that burn rate they would have run out of cash in January 2013 were it not for their successful non-brokered financing on December 11. That $1M will keep them alive until the end of May 2013.
I do not know whether they will complete their drill program next spring with sufficient data for a 43-101 report on MII resources. That uncertainty, plus the world market's oversupply for lithium, makes me shy away from this company. Maybe their borates will prove to be worth something.
Full disclosure: No position in Pan Global Resources at this time.
The CEO's background is hard to understand. A degree in science does not necessarily include a focus on geology. Directing business development and regional exploration are the kinds of things an MBA guy like me could do. Directing a mine from exploration to production is something else. The directors have diverse mining backgrounds but they're not the ones doing the work or making daily operational decisions.
Two of their projects have NI 43-101 reports. Further development of Jadar West and Valjevo will require US$585k each, or $1.17M if you can't add. Neither report contains verification of any MII resources so there's nothing to justify a higher valuation yet.
Check out their most recent financial statements, specifically Q2 for 2012. Pan Global had $1.6M in cash on hand at the end of July and their burn rate is about $250k/month. Their exploration program is progressing but at that burn rate they would have run out of cash in January 2013 were it not for their successful non-brokered financing on December 11. That $1M will keep them alive until the end of May 2013.
I do not know whether they will complete their drill program next spring with sufficient data for a 43-101 report on MII resources. That uncertainty, plus the world market's oversupply for lithium, makes me shy away from this company. Maybe their borates will prove to be worth something.
Full disclosure: No position in Pan Global Resources at this time.
VLOV Inc. (VLOV) Chinese Clothing Pumped By "Fitzroy McLean"
Some weeks or months ago I got a mailed teaser from someone calling himself Fitzroy McLean from an outfit named Without Borders. This dude claims to be a former U.S. Army Ranger and CIA operative, which of course makes me wonder what any of those things have to do with stock picking. The guy's LinkedIn profile makes me wonder when he would have had time to serve in the CIA's Clandestine Service as he claims in his mailer. If he graduated from West Point in 1988, his five-year active duty service obligation would have expired in 1993, which means he would have had less than a year with the CIA before becoming an investment banker in 1994. "Fitzroy McLean" is welcome to contact me any time he likes to discuss his bona fides. I'm hazarding a guess that he's a fake, taking his name from the real Sir Fitzroy MacLean, a real-life covert operative.
Anyway, this article isn't about him or his assumed identity. It's about the stock he's pumping, specifically VLOV Inc. (VLOV), a Chinese clothier. I am not an expert on the Chinese clothing market. Big deal. China's headed into a recession just like the rest of the developed world and your average Chinese upper middle class consumer will be hard-pressed to buy upscale clothing.
This stock did a reverse split last September to maintain its exchange listing in the U.S. Reverse splits are generally a bad sign. BTW, this is the second reverse split the company has done in a year. I would ordinarily consider a company with an EPS higher than its market price to be an unbelievable bargain, but I emphasize the "unbelievable" here. The share price has absolutely cratered in the past few months despite the extremely healthy earnings VLOV has reported. I cannot understand that action.
I swore off investing in China months ago. I don't need to revisit that decision, and I certainly won't do so at the behest of a penny stock mailer. I wonder if Dr. Fu Manchu wears VLOV stuff.
Full disclosure: No position in VLOV at this time.
Anyway, this article isn't about him or his assumed identity. It's about the stock he's pumping, specifically VLOV Inc. (VLOV), a Chinese clothier. I am not an expert on the Chinese clothing market. Big deal. China's headed into a recession just like the rest of the developed world and your average Chinese upper middle class consumer will be hard-pressed to buy upscale clothing.
This stock did a reverse split last September to maintain its exchange listing in the U.S. Reverse splits are generally a bad sign. BTW, this is the second reverse split the company has done in a year. I would ordinarily consider a company with an EPS higher than its market price to be an unbelievable bargain, but I emphasize the "unbelievable" here. The share price has absolutely cratered in the past few months despite the extremely healthy earnings VLOV has reported. I cannot understand that action.
I swore off investing in China months ago. I don't need to revisit that decision, and I certainly won't do so at the behest of a penny stock mailer. I wonder if Dr. Fu Manchu wears VLOV stuff.
Full disclosure: No position in VLOV at this time.
‘Twas The Night Before Christmas At Alfidi Capital
‘Twas the night before Christmas, and all through my head
Not a stock pick was stirring, ‘cuz the market was dead
The blog posts were published on the Web with no care
In hopes that some readers would soon be aware
My female admirers were home in their beds
While visions of Yours Truly danced in their heads
When on CNBC.com there arose such a clatter
I clicked on live streaming to see what was the matter
I zoomed to full screen view and turned up the sound
In case some “money honey” was hanging around
When what to my wondering eyes did appear
Why, it’s ol’ Ben Bernanke, smirking from ear to ear
More rapid than QE, his big banks all came
He read off the ticker and called them by name
“Goldman Sachs!
Morgan Stanley! JPMorgan and more!
Wells Fargo, Bank of America, more bailouts in store!
To the top of the market!
To the top of the charts!
I’ll bail you all out with fancy monetary arts!”
So out of my laptop the big bankers flew
With a sleigh full of cash, and Helicopter Ben too
He was dressed in Brooks Brothers, a well-tailored suit
No doubt it was paid for with middle-class loot
He demanded I hand him my brokerage account
I told him “No way!
I’ll give you no such amount!”
He pleaded on behalf of some fat banker elf
He was shocked when I told him, “Go eff-yourself.”
Ben remained indignant, he wanted to know
Why I wouldn’t relent, so I told him so
“I work hard for my money, and I save and invest
I pay some in taxes and keep all the rest
I’m tired of bailing out bankers and fools
You don’t know what you’re doing, even with all your
tools.”
I gave him the finger, right in front of his nose
He turned on his heel once he knew he was hosed
He slumped in his sleigh, to his team gave a whistle
They flew back to the Fed, like a heat-seeking missile
But I heard Ben exclaim, ‘ere he drove out of sight
“Christmas won’t be so merry once there’s capital flight!”
Saturday, December 22, 2012
The Haiku of Finance for 12/22/12
Notre Dame football
Covers up players' actions
Corrupt like Wall Street
Covers up players' actions
Corrupt like Wall Street
Mkango Resources (MKA.V) And Rare Earths
Mkango Resources (MKA.V) is chasing one of my favorite things - rare earth elements. Their CEO has an analyst and transactional background in the mining sector but is not a geologist or miner himself. Uh-oh, that's not good for a junior explorer. The non-executive director with the professional background at Randgold was there long enough to take it from exploration into full production. That is invaluable experience but the team needs more people like that.
Their Songwe project in Malawi has a 43-101 report. Good for them but I would like to see a final report with 2P reserves. Photos of the site show a scratched-out dirt road but it's unclear whether it connects to the nation's larger transportation network. They need C$1.6M to complete the next phase of drilling, modeling, and economic estimation.
It's hard to tell whether they have the financial strength to move forward with that plan. The most recent financial statement they show on their website was for a company previously named "Alloy Capital." Searching SEDAR reveals interim financial statements for Mkango dated September 30, 2012. These statements reveal C$645k in cash on hand at the end of September, and with a burn rate of over C$100k/month they'll run out of cash by March 2013 unless they raise capital. Shareholders can thus expect serious dilution unless Mkango is willing to option out part of the 100% ownership of its Songwe property.
Management deserves kudos for keeping expectations realistic, and I'm not about to compare them to Mountain Pass until they have a firmer understanding of their ores. Since they only have one key leader who has gone all the way to production, they don't have the bench strength to go it alone in this corner of the world. The driver of Mkango's future valuation will be the quality of whichever strategic partner they bring in prior to a production decision. That uncertainty, plus the lack of clarity for their financial health, makes them too risky for me.
Full disclosure: No position in MKA.V at this time.
Their Songwe project in Malawi has a 43-101 report. Good for them but I would like to see a final report with 2P reserves. Photos of the site show a scratched-out dirt road but it's unclear whether it connects to the nation's larger transportation network. They need C$1.6M to complete the next phase of drilling, modeling, and economic estimation.
It's hard to tell whether they have the financial strength to move forward with that plan. The most recent financial statement they show on their website was for a company previously named "Alloy Capital." Searching SEDAR reveals interim financial statements for Mkango dated September 30, 2012. These statements reveal C$645k in cash on hand at the end of September, and with a burn rate of over C$100k/month they'll run out of cash by March 2013 unless they raise capital. Shareholders can thus expect serious dilution unless Mkango is willing to option out part of the 100% ownership of its Songwe property.
Management deserves kudos for keeping expectations realistic, and I'm not about to compare them to Mountain Pass until they have a firmer understanding of their ores. Since they only have one key leader who has gone all the way to production, they don't have the bench strength to go it alone in this corner of the world. The driver of Mkango's future valuation will be the quality of whichever strategic partner they bring in prior to a production decision. That uncertainty, plus the lack of clarity for their financial health, makes them too risky for me.
Full disclosure: No position in MKA.V at this time.
Friday, December 21, 2012
NovaGold (NG) Going For Gold
NovaGold (NG) is all about one thing - gold. Specifically, they want to make their Donlin Gold project viable and have stated their intent to divest their interest in their Galore Creek project to stay focused on gold. The Galore Creek property's grades of gold, silver, and copper don't look very promising anyway, so that's a good strategic move.
I like the fact that the CEO has a background in mining. You've heard me state before that a prefer a geologist at the helm of a young company, but with a company that's ready to make a production decision it's better to have a mine operator.
NovaGold has a 43-101 statement for its Donlin Gold project. The proven and probable resources have a grade of Au 2.09 g/t, which is pretty dog-gone attractive considering the declining grades miners are finding worldwide. I am very intrigued by that report's estimates of the projects cash costs of production, which are significantly less than gold's historic average price of $615/oz.
Their Q3 financial statement for 2012 shows C$267M cash on hand at the end of August. Their net losses amount to a little over $6M/month, so this burn rate gives them a life span of over 44 months. They can survive more than twice that long if they sell the Galore Creek property at its $381M book valuation (yeah, I know, these kinds of things can get written down but they'll get something for it).
The most attractive aspect of this company for me right now is its beaten-down share price. It's trading over four bucks a share right now, pretty far from its 52-week highs. The fact that Barrick Gold retains a 50% interest in the Donlin Gold project indicates its attractiveness. I haven't made a decision yet to go long because the company still needs a mature infrastructure at the site. I am nonetheless interested in watching this one.
Full disclosure: No position in NG at this time, although that may change in the near future.
I like the fact that the CEO has a background in mining. You've heard me state before that a prefer a geologist at the helm of a young company, but with a company that's ready to make a production decision it's better to have a mine operator.
NovaGold has a 43-101 statement for its Donlin Gold project. The proven and probable resources have a grade of Au 2.09 g/t, which is pretty dog-gone attractive considering the declining grades miners are finding worldwide. I am very intrigued by that report's estimates of the projects cash costs of production, which are significantly less than gold's historic average price of $615/oz.
Their Q3 financial statement for 2012 shows C$267M cash on hand at the end of August. Their net losses amount to a little over $6M/month, so this burn rate gives them a life span of over 44 months. They can survive more than twice that long if they sell the Galore Creek property at its $381M book valuation (yeah, I know, these kinds of things can get written down but they'll get something for it).
The most attractive aspect of this company for me right now is its beaten-down share price. It's trading over four bucks a share right now, pretty far from its 52-week highs. The fact that Barrick Gold retains a 50% interest in the Donlin Gold project indicates its attractiveness. I haven't made a decision yet to go long because the company still needs a mature infrastructure at the site. I am nonetheless interested in watching this one.
Full disclosure: No position in NG at this time, although that may change in the near future.
Curis Resources (PCCRF) and Copper
Curis Resources (PCCRF / CUV.TO) is part of the Hunter Dickinson family of companies. Curis wants to mine copper in Arizona. Let's see what they're doing about that.
They're pursuing a novel approach to copper recovery from their Florence Copper project in Arizona. They plan to use in-situ water injection into wells that will force copper-laden solutions to the surface for processing. Photos of the site show sufficient infrastructure in place (water, power, roads). This may very well be the most environmentally benign mining operation I've seen in several years of examining junior mining companies.
The headache I often have with these types of companies is with the way they structure their project. They bury the project information so deep in the Florence Copper website that it's difficult to identify the management team or ascertain whether there's a 43-101 report with proven and probable resources. That means I can't pass judgment on whether this copper project can live up to whatever potential it may have until I find those items. I also can't find any SEC filings for Curis Resources, which is odd for a publicly traded company. Let's see some verifiable facts besides the typical brochure stuff.
Full disclosure: No position in Curis Resources at this time.
They're pursuing a novel approach to copper recovery from their Florence Copper project in Arizona. They plan to use in-situ water injection into wells that will force copper-laden solutions to the surface for processing. Photos of the site show sufficient infrastructure in place (water, power, roads). This may very well be the most environmentally benign mining operation I've seen in several years of examining junior mining companies.
The headache I often have with these types of companies is with the way they structure their project. They bury the project information so deep in the Florence Copper website that it's difficult to identify the management team or ascertain whether there's a 43-101 report with proven and probable resources. That means I can't pass judgment on whether this copper project can live up to whatever potential it may have until I find those items. I also can't find any SEC filings for Curis Resources, which is odd for a publicly traded company. Let's see some verifiable facts besides the typical brochure stuff.
Full disclosure: No position in Curis Resources at this time.
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