McEwen Gives Lexam a Boost, Eyes Colorado Gas
By Ben Abelson
13 Jul 2006 at 11:01 PM
NEW YORK (ResourceInvestor.com) -- When it comes to mine finance and operations, there are few names better known than Rob McEwen. As the former head of Goldcorp, McEwen helped turn a third-rate Canadian miner into one of the largest and best-run gold miners in North America. As the current head of U.S. Gold [OTCBB:USGL], McEwen's hell bent on consolidating a deserted corner of Nevada that he believes may hold the next world-class gold deposit.
But what about Rob McEwen the oilman? With his planned funding of Lexam Explorations [TSXv:LEX], McEwen's made a solid push into the world of oil and gas exploration.
Energy investors would do well to sit up and take notice.
So what would McEwen want with an operationally defunct oil and gas explorer whose sole asset is 100,000 acres of land in southern Colorado? Investors need only look as far as U.S. Gold for a suitable parallel. In fact, it was just a year ago that that company was a hapless mineral explorer with a sub-$10 million market cap and minimal prospects for success.
Is it possible that Rob McEwen can get investors as excited about Colorado gas as they now are about Nevada gold?
A Long History With Lexam
Rob McEwen isn't new to Lexam Explorations. As the head of Goldcorp, he actually helped engineer that company's purchase of a sizable minority stake in Lexam in the mid-1990s. In fact, since that time McEwen's served as chairman and CEO of the company. Throughout the past decade, however, Lexam floundered from one project to another (in both the mining and energy sectors), as McEwen's and Goldcorp's attention were turned toward developing Red Lake.
Lexam hit bottom in early 2005, when it was delisted from Canada's TSX-Venture Exchange. The company was transferred to the NEX, a separate Canadian board for shell companies attempting to undergo reorganizations.
It was just under a year ago, in August 2005, when Rob McEwen came knocking. McEwen was in the process of buying out Goldcorp's minority stakes in various resource companies, and Lexam was no exception. McEwen purchased Goldcorp's 49.8% share in Lexam for a mere C$400,000 - or about C$0.02 per share.
Today, that same stake is worth nearly C$12 million.
Lexam to Use Funds to Explore Baca
On July 10, Lexam announced it was in the process of raising up to C$3 million via a non-brokered private placement. Of that total, McEwen plans to provide C$2 million - bringing his stake in the company to 53%, up from his current share of about 50%. The offering will also be completed in conjunction with Lexam's application to move back onto the TSX-Venture exchange.
In short, McEwen plans to provide Lexam with the money necessary to restart its operations and revitalize its business, while keeping himself firmly in the driver's seat.
As would be expected, the following day Lexam's shares shot up 16.67%, or C$0.09, to C$0.63.
The offering's proceeds will be used to explore the company's 100,000 acre Baca Grant project in Colorado, which is 75% owned by Lexam and 25% owned by Conoco Phillips [NYSE:COP]. (It seems possible, however, that Lexam will try to acquire the remaining 25% of the project). Lexam plans to initiate the first phase of its exploration program, spending US$1.4 million to conduct a 3D seismic survey. If those results are favourable, the company will likely need to raise additional money to implement the second phase of its programme - drilling the first of two natural gas wells to depths of 14,000 feet at a cost of US$8.5 million.
Prospects for Development at Baca
Lexam began exploring Baca for gold in 1992, but instead discovered oil in 28 shallow drill holes. Since then, the company's held onto the property through thick and thin, drilling two shallow wells on the property in the mid-1990s, collecting miles of 2D seismic data, and working with a rotating stable of joint venture partners.
Like U.S. Gold's Tonkin Springs property, however, Baca's never been fully explored at depth. Just as he did at Red Lake (and as he hopes to at Tonkin Springs), McEwen is looking to prove the naysayers wrong and find riches at Baca deep underground.
Unlike traditional energy fields, where gas and oil are found in pools, it is believed that Baca's gas in trapped in deep Cretaceous era rocks. While a lot of work has been done on Baca in the past, McEwen is hoping that the company can now find success - with the help of favourable commodity pricing and the generous use of modern drilling and extraction technology.
Conclusion
The bottom line is that Baca - and Lexam - is a drill play, pure and simple. While Lexam's prospects look more promising than most, and the great name at its helm will be an operational and financial boon, the company will ultimately live and die by what it finds in the ground.
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