A general view of the construction site of a mine of Hellas Gold, a subsidiary of Canadian mining company Eldorado Gold Corp, in Skouries, in the Halkidiki region, northern Greece.Alexandros Avramidis/Reuters
Brent Cook, geologist, is the editor of Exploration Insights. Joe Mazumdar, economic geologist is the co-editor of Exploration Insights. Their focus is on junior mining and exploration stocks & commodities.
Brent's Top Picks:
Mirasol Resources (MRZ.V)
Mirasol is a long-term holding that follows the "Prospect Generator" exploration model, whereby it generates conceptual targets and brings in a better-funded company to spend the high-risk dollars to test the thesis. It has two strong joint ventures, one with Yamana in Chile, the other with AngloGold in Argentina, and $23-million in its treasury. These are very high-quality projects that are meaningful to Mirasol's partners.
Kaminak Gold (KAM.V)
The company has technically solid and honest management and a homegrown discovery in the Yukon that actually works. A recent feasibility study shows the Coffee gold deposit to be very robust, with an after tax NPV of 5 per cent of $455-million and IRR of 37 per cent, at a gold price of $1,150 (U.S.) and Canadian exchange rate of C$1.00 to US$0.78. Initial and sustaining capex comes to $317-million (CAD), and estimated cash production costs are $482/oz (U.S.), with all-in sustaining costs of $550/oz. At $1,250 gold, the NPV 5 per cent increases to $562-million (CAD) and IRR to 55 per cent. The value of the Coffee gold deposits lies in heap leach recovery characteristics and high grade.
We view KAM as a likely acquisition candidate once as it nears completion of its permitting process over the next year or two. However, there is no urgency to acquire the stock now, and we would wait for the inevitable pullbacks as the gold market swings over the coming year.
Joe's Top Pick:
Ivanhoe Resources (IVN.TO)
Ivanhoe has a market capitalization of $650-million, and although it is currently trading up 30 per cent year to date, IVN is still trading about 70-per-cent below its 52-week high. IVN is blessed with some of the highest-grade copper and zinc assets in the world with the Kamoa and Kipushi projects in the Democratic Republic of Congo and platinum group metals (PGMs) in South Africa with Platreef.
IVN released positive results from a pre-feasibility study (PFS) for the first phase of development at the Kamoa copper project joint venture with Zijin Mining , a Chinese state-owned company, the Democratic Republic of Congo , and a private company . In my opinion, the PFS confirms Kamoa as a high-quality copper project that comes at an upfront cost that is below the average of a peer group of copper development projects with respect to capital intensity, as measured by the amount of upfront capital required for the forecast average annual copper production rate. The project should fall in the lower part of the cost profile, allowing the project to live through the typical cyclical nature of the copper market.
Importantly, the concentrate grades are high at just below 40 per cent, with only 0.02-per-cent arsenopyrite, which is far below the limit imposed by Chinese smelters. The grade and quality of the potential concentrate product would support demand for it as a blending material. This may generate a favourable treatment and smelter charge (TC/RC) for the Kamoa product.
The Kipushi zinc deposit in the DRC is probably the richest zinc deposit in the world, hosting an indicated 7.8 billion lbs of zinc grading at 34.89%. The company is rehabilitating the underground workings.
In summary, IVN has a portfolio of high grade assets that should fall in the lower cost quartile with joint ventures that will help advance the projects.
Past Picks: March 4, 2015
Mariana Resources (MARL LN)
Then: £1.75 Now: £1.98 +12.86% Total return: +12.86%
Dalradian Resources (DNA.TO)
Then: $1.10 Now: $0.96 -12.73% Total return: -12.73%
Mirasol Resources (MRZ.V)
Then: $0.99 Now: $1.19 +20.20% Total return: +20.20%
Total Return Average: +6.78%
Market outlook:
The volatility in the markets generated by the uncertainty of central bank policies has generated a bid for the yellow metal, which is outperforming most asset classes and currencies in 2016. We are positive on precious metals over the next few years at least. On a fundamental basis, the current global production profile is flattening and the future supply is at risk with the lack of exploration and development. The gold mining industry is producing about 90 million ounces a year, yet only finding about 45 million. An even more pressing issue for miners is that the overwhelming majority of these new ounces are not high-quality/high-margin ounces and are years away from going into production. This imbalance between production and discovery is setting speculators in the higher-risk exploration stage up for some significant gains if they own the right company. Fortunately, the preceding four-year bear market has winnowed the junior exploration sector down to a manageable list of technically and financially competent groups that are capable of partially filling the void in discoveries. That is where one should focus their speculative dollars.