Platinum lining for smallest miners
Canada sitting on top of the world, sort of
By Thom Calandra, CBS.MarketWatch.com
Last Update: 7:03 PM ET Sept. 1, 2003
Canada's gold, copper, platinum and silver miners are surging, along with a steady rise in the price of bullion this summer. The Toronto Stock Exchange's Capped Gold Index rose 15 percent in August vs. a 2 percent or so gain for America's S&P 500 Index.
The large Canada-based miners out-gained the more widely followed XAU index, which includes Canadian, American and South African companies, by 2 percentage points in August. See the chart. The same held true for Canada's crop of gold miners against the FT Gold Mines Index. See the chart.
Nowhere were the gains greater than in Canada's smallest exploration companies - those gnarly outfits hunched desperately on the backs of salty, underpaid geologists, harboring dreams of world-class metal strikes and untold riches. The so-called juniors, and the junior-juniors, were doubling, tripling and quadrupling their market values in August as small investors, and large, envisioned possible acquisitions by larger miners in search of new metal deposits.
In turn, scores of small miners raised hundreds of millions of dollars in private placements this summer. Demand for the warrants and slightly discounted shares offered by exploration companies is so great, Toronto-based investment houses are agreeing to underwrite entire company offerings, in essence creating done-deals and assuming the risk of reselling the equity units to new investors.
"The cycle is turning," says Wayne Murdy, chairman and president of the world's largest gold miner, Newmont Mining (NEM: news, chart, profile) of Denver. "For years, we saw investment in new mines and exploration efforts fall. Now, output is down, and most companies can't keep up their replacement ratios." See:Newmont chief relies on drill bit.
The hope that a Newmont Mining, or another of the world's 10 or so largest gold miners, will bid for an exploration company's shares has propelled Toronto's Venture Exchange, the home to most of Canada's smallest explorers, some 20 percent since July 1.
The rapid gains for the world's tiniest miners have gone largely unnoticed by the financial press outside of Canada. So has the rush of small-miner financings in the stock market, some as small as $1 million Canadian. Even companies with clouds of political uncertainty hovering above their coffers are raising money, as evidenced by the $10 million secured by Venezuela explorer Crystallex International (KRY: news, chart, profile) at the close of last week.
The in-crowd of geologists, mining analysts and financiers are charting the situation day by day, keeping an eye on metal prices. Nearly all of the precious metals companies, both small and large, are gearing up for what is traditionally their strongest season: autumn. That's when jewelry buyers do most of their buying.
Autumn is also when investors place their biggest bets on the direction of commodity prices, which have creeped higher all summer. The precious metals executives, from silk-suited CEOs to grizzled geologists, will be attending several events in coming weeks, among them the New York Precious Metals show Sept. 8-9 and the New Orleans Investment Conference Oct. 29-Nov. 2.
At the forefront of all this is gold, which at $376 an ounce is nearing its $389 high point for 2003 and said to be benefiting, fundamentally, from declining supply and, fiscally, from rising debt levels among the world's largest governments.
Gold miners have much to cheer about. The ones with the brightest prospects, Canadian companies such as Eritrea-digger Nevsun Resources (CA:NSU: news, chart, profile) and northern Canada-miner Wolfden Resources (CA:WLF: news, chart, profile), are logging heady stock-market gains, and they are raising the cash they need to continue sinking drill holes in their potentially lucrative fields of gold.
Even microscopic companies with accelerating prospects, such as Mongolia gold and copper explorer QGX Ltd. (CA:QGX: news, chart, profile), have seen their shares catapult; in the case of QGX, the gain in share price comes to an even hundred percent in the past 2 1/2 weeks. "We have two mineralized zones and every reason to be hopeful," says QGX chief operating officer Paul Zweng. The company, after spending $10 million in Mongolia and with a market worth of less than $50 million Canadian, also has joint ventures with much larger Ivanhoe Mines, the brainchild of exploration billionaire Robert Friedland.
Friedland, the best-known operator of precious-metals exploration companies, recently told subscription service The Calandra Report that his highest hopes are for platinum resources, which are found in far less proportion than gold deposits. Fuel-cell developers use platinum as a catalyst, and the metal is becoming the jewelry of choice among Asians.
Platinum's price is now $707 an ounce, its highest in 23 years.
"There are probably 60 ounces of gold in the Earth's crust for every ounce of platinum," Friedland tells me. Not that gold, and copper, have deprived Friedland of summer success. His Mongolia gold-copper miner Ivanhoe Mines (CA:IVN: news, chart, profile) has seen its Toronto (and Australia) stock-market value double this summer to a cool $1.5 billion Canadian. That's in part because Friedland has done an outstanding job of explaining the Mongolia mine's China connections to Boston, London, Singapore and New York fund managers in search of Far East growth.
Yet just as Friedland shocked the world more than six years ago when his frisky little diamond miner discovered the world's largest nickel deposit in Voisey's Bay, Canada, so too might the mining tycoon land his largest profit in another area, platinum. Friedland's African Minerals this summer raised $7 million at $6 U.S. a share, an extraordinary level for a private company. The company is active in and around South Africa's North Limb of the Bushveld platinum complex.
"On the supply side platinum has a very limited geological occurrence in the world," says R. Michael Jones, who heads tiny company Platinum Group Metals (CA:PTM: news, chart, profile) in Vancouver, Canada. "All of the hard rock mines in the world that mine platinum as their primary product are in South Africa from one geological complex, the Bushveld Complex."
Jones points out that three companies, including South Africa's Anglogold Platinum, control most of the complex. Platinum Group Minerals hopes to strike it rich on the limb, along with Friedland's much larger African Minerals. (Friedland has another exploration company, in the energy arena - a story that is being told on my subscription service The Calandra Report.)
At any rate, the next four days, weeks and months will indicate whether Canada's soaring exploration companies are worth their weight in (pick one) gold, silver, copper or platinum.
The world's risk-prone investors, those licking their wounds from falling bond prices and what is shaping up as a sickly American currency, are just now becoming aware of the precious metals story.
"Since the first of June, the HUI (unhedged gold producers index) is up 38 percent, and the share performance of many companies farther down the market's food chain greatly exceed that figure," says Robert Bishop of Gold Mining Stock Report. "Nevsun, during its rainy season quiet period in Africa, is up 54 percent in the same time frame. And that performance looks like chump change compared to some of the other gains that have been available in the 2003 summer market."
As summer becomes fall, I fully expect gains in metals' prices across the board, and further sharp gains in the shares of risk-worthy small exploration companies. ( See:The Calandra Report's back-issues from April, May and June - for paying subscribers.)
Bishop, one of the mining industry's most prescient analysts, expects further gains for precious metals, exploration companies and commodities in general. He warns, however, that successful investors will need to manage their gains in what almost surely will be roller-coaster swings through the bullion fields this autumn and winter.
See:Metals companies at the trough.
How real is the metals rally?
Very real, say those who follow the cash
By Thom Calandra, CBS.MarketWatch.com
Last Update: 12:11 PM ET Aug. 20, 2003
SAN FRANCISCO (CBS.MW) -- The steady rise of the world's gold-mining shares to new highs is bringing more and more miners to the cash trough.
In some cases, as with Bema Gold's $60 million Canadian "bought deal" this week, the raising of additional capital on the back of rising shares is fortunate and deserved. Bema is laying the early groundwork for what could become one of the world's lowest-cost, productive gold and silver mines, in eastern Russia. See: Russia site impresses hard-rock crowd.
"The fact this was a bought deal, and there have been more than a few this month, shows that the banks are willing to take the risk, that there's big demand out there," Robert Bishop of Gold Mining Stock Report told me. Bought deals are ones in which a bank, investment firm or group of underwriters agrees to take all of the proposed new shares from a company seeking to raise money, then turns around and sells the shares to investors at a slight mark-up.
In other cases, such as with small mining companies worth $50 million or less that trade in Canada, Sydney or London's alternative investment market, the ability to raise much-needed cash fits the old saying on Wall Street: You raise money not when you need it, but when you can.
Right now, miners -- and not just of gold, but silver, copper, platinum and palladium, even diamonds -- are finding an increased appetite for risk among professional investors. See: Miners rush to finance ventures.
We examined this increased appetite, and how it can benefit individuals, in subscription service The Calandra Report in early June.
By some estimates, Canadian corporations, which comprise the bulk of the riskiest bullion-exploration companies, have raised just more than 1 billion Canadian dollars this year, and much of the capital has flowed into their coffers this summer. Companies such as Kinross Gold (KGC: news, chart, profile) and Eldorado Gold (CA:ELD: news, chart, profile) are issuing new shares at the risk of angering existing shareholders, who face dilution.
Yet thus far, few if any miners -- those that actually produce metals and those just exploring for new deposits -- have been shut out of the financing window. Fueling the cash spigot through the issuance of new shares is the slow but steady rise of commodity prices, as witnessed by the Commodity Research Bureau's 2 percent gain since late July. See the CRB chart.
Platinum, silver, copper and other metals, precious and base, are holding recent gains, some incremental as is the case with copper and gold, and others significant, as is the case with platinum, which crossed $700 an ounce Wednesday.
Investment firms, and asset managers, are excited about exploration prospects. In the case of gold, which is among the riskiest propositions for investors looking to back a winning miner, the world's stock-market investors increasingly are placing their hopeful bets.
Shares of the gold miners in many stock markets are at or near their highest points in six years. See: FTSE Gold Mines Index chart. Also, base-metal producers are the third-best gainer this summer in the U.S. stock market.
Even more telling is the monstrous rises in shares of exploration companies that are off the radar screens of most individual investors, and even many professional investors who, if they are forced to buy a gold-mining stock, will choose the biggies, like Newmont Mining (NEM: news, chart, profile).
Indeed, Newmont is one of the few miners this summer not to have taken advantage of the financing window to raise cash through the sale of shares. Newmont, world's largest gold miner and based in Toronto and Denver, has an approximate $1 billion shelf registration on file with stock-market regulators.
Nevsun Resources (CA:NSU: news, chart, profile), a Canadian company with a vast bullion project in Eritrea, could prove to be 90 percent owner of the world's most spectacular gold discovery in the modern age, and the company's shares are starting to reflect that promise by hitting all-time highs this week.
Yet even with the 40 percent gain in the past 10 weeks on the Toronto Stock Exchange, Nevsun's $C260 million market worth reflects but a fraction of the promise of the Eritrea discovery, and of another one in Mali, also in Africa.
"I don't imagine there are many gold and natural-resource funds that want to go into the African mining season (which begins around now) without owning Nevsun," says Bishop, who was the first bullion analyst to recommend Nevsun shares several years ago, when the company's geological work on the Bisha discovery in Eritrea was just getting under way.
Even further off the radar screen are shares of microscopic companies with little track record but enough of a "story" that they have enticed investors, and even longtime mining analysts such as Bishop, who has been following such companies for more than 20 years.
One of them, Sunridge Gold (CA:SGC: news, chart, profile), has seen its shares rise threefold in a few short weeks, with no news to account for the gain except for the generally favorable climate for mining stocks. Sunridge is effectively a "shell company," the term for a company that took over another company's name and corporate assets with the purpose of either raising money or trading publicly. The company has a Canadian market worth of $10 million, even with its astounding gains of late, and is exploring for gold in the lush Red Lake mining district of Ontario.
Bishop says he considers tiny Sunridge "son of Nevsun" because of the company's executive pedigree. Sunridge's CEO, Craig Angus, is also the chairman of Nevsun Resources. Sunridge's head of corporate development, Don Halliday, is also an executive at Nevsun and worked for six years at Bema Gold (BGO: news, chart, profile).
"I think you have to expect something reasonably important from a company with executives who are behind what could prove to be one of the world's biggest gold deposits," says Bishop, who owns the shares. |
