Kaiser on: Pioneer near Birch Mountain in the Athabasca and Buffalo Diamonds near Ashton and New Blue Ribbon:
Kaiser Bottom-Fishing Digest -Oct second below.
canspecresearch.com
early Sept Issue also:
Monday, September 20, 1999
BOTTOM-FISH ACTION FOR WEEK OF SEPT 13-17, 1999
Bottom-Fish Action
Copyright 1999 John Kaiser
September 20, 1999
Week of September 13 - 17, 1999
General Review:
Senior markets
canspecresearch.com
Pioneer Metals Corp (PSM-T: $0.17) blipped up after the junior reported that a summer surface exploration program at the Riou Lake project in Saskatchewan's Athabasca Basin had located the bedrock source of a radioactive boulder field on the PM claims optioned 60% to Cameco, as well as radioactive springs on a relatively unexplored part of the 100% owned ground. The uranium bearing phosphate mineralization on the PM claims likely represents remobilized uranium or leakage from a deeper source at the unconformity, which drilling last winter intersected at depths of 500-700 metres. This discovery is within the right geological setting for an unconformity associated uranium deposit similar to the high grade, world class Cigar lake and MacArthur River deposits on the eastern rim of the Athabasca Basin. A winter drill program will go after a number of potential uranium targets. Less is known about the area of the radioactive springs, though based on past work on a neighbouring property the setting is right. Chloride ion levels in the water suggest that the springs have a deep source, increasing the chances that the radioactivity is being picked up from unconformity mineralization rather than shallower fissure mineralization. If freezeup is early enough Pioneer will attempt to conduct geophysical surveys before Christmas for an early startup of followup drilling in the new year. Management expects to put out one more news release before year end outlining exploration plans, and then the information flow will dry up as exploration gets underway. Pioneer's market, however, could get some help from the buzz created by a rumoured new uranium discovery in the Athabasca Basin. In an area about 50 km north of Cigar Lake Cameco apparently pulled high grade uranium last winter, and again this summer. Cameco is tight-lipped about the discovery, but after a decade of fruitless exploration in the basin it is hard to keep a lid on the story. The buzz started about two weeks ago, and has not yet affected any of the juniors. Most of the ground in the apparent discovery area is controlled by Cogema and Cameco, though Dale Hoffman's JNR Resources Inc (JNN-V: $0.12) does have nearby ground. Unfortunately, JNR's ground appears to be underlain by a granitic intrusive. Pacific Amber Resources Ltd (PCR-V: $0.18), which has an option to acquire 50% of Athabasca Basin land owned by Don Ruttledge's Uranium Power Corp, has not stirred. The significance of this rumoured discovery is that it appears to be within the Mudjatik Domain rather than the Wollaston Domain that hosts all the major uranium deposits and is thought by many to be essential to the formation of these deposits. It might thus spark market interest in exploration plays like Pioneer's Riou Lake which are focused on other parts of the basin's perimeter. This development plus the narrowing of Pioneer's focus at Riou Lake may be sufficient to launch Pioneer into a speculation cycle early next year. Bottom-fishers who own Pioneer should remain patient, while those who don't should consider adding the stock to their portfolios at prices below $0.20.
Valerie Gold Resources Ltd (VLG-V: $0.91) came alive this week for no apparent reason other than receiving VSE approval for its Santa Barbara copper-gold porphyry play in Ecuador. Since my $50,000 Bottom-Fish Portfolio could use some help, I'm not going to complain. Because the current price is still below cash breakup value, it is too early to think about selling. When a dog like Valerie does this in a bear market, taking the money and running is not wise.
Triex Resources Ltd (TIE-V: $0.19) reported assays for the 10 hole 1,558 metre drill program on the Minnitaki project in northwestern Ontario. Of the three areas drilled only the Tak Patents target yielded a noteworthy intersection of 31.83 metres of 2.062 g/t gold. Included is an interval of 2.88 metres grading 11.778 g/t gold. Hole #10 was one of three holes designed to test a 1,400 m by 500 m porphyry over a 320 m width. The other two yielded mediocre intervals. Management sees these results as indicating potential for broad, open pit mineable, multiple zones. Triex has not yet decided the next course of action.
Tip of the Week: Keep an eye on Dale Hoffman's United Carina Resources Corp (UCA-V: $0.59), which is exploring the high grade gold Linear Group play in Newfoundland. A couple of influential button-pushers, Hugh Mogensen and Harry Steele, have become involved.
Sunday, October 03, 1999
SPEECH GIVEN AT CALGARY 1999 INVESTMENT CONFERENCE
Calgary 1999 Investment Conference Speech
Presented October 3, 1999
Let me start off very bluntly. Last week was the turning point for the Canadian resource and energy juniors. Bottom-fishers are about to make an awful lot of money. Those of you who have hung onto quality juniors, or bottom-fished for them during the past year, are in excellent shape. For the rest of you, it is not too late. The general public will not understand that a major commodity bull cycle is underway until some time next year. The smart money is back in the market. During the final quarter of 1999 you will have to pay a bit more, but that will be a modest premium light of the realization that the market has turned the corner.
The dumb money has all kinds of reasons for avoiding the Canadian juniors. The spectacular gold price rally last week was just a temporary blip. The central banks are liars trying to drum up bids for the gold they want to unload. The gold producers will continue to pound out gold through forward sales. Yes, commodity prices have turned up, but that won't last. The odds are better for a global economic slowdown than an economic expansion. The boom in the American stock market and economy has run out of steam. Yes, we want to believe the new paradigm of a Goldilocks economy that avoids the traditional business cycle. But we fear the boom is just an extended cycle that eventually has to run into trouble. Don't you understand the biblical feast or famine model? The road ahead leads to economic hardship. Canadian juniors don't stand a chance. Besides, commodity production is dominated by large scale producers who can crush higher prices by ramping up production. The odds of a world class discovery are so poor everybody has learned to avoid mystery and buy only on history. Mineral plays don't have a speculation cycle anymore. Call us when you have hot new discovery. But first prove that it is real and not another fraud.
Well, here is what I think. I think the central banks have moved to kill the gold carry trade. Lease rates have shot to levels where it no longer makes sense to borrow gold, dump it into the market, and buy higher yielding t-bills with the proceeds. Gold jumped $70 in one week because people were scrambling to cover their gold short positions. Gold may sag back once the short squeeze has eased, but I would be surprised to see it drop below $280 again. If there is a short position even a fraction of the 14,000 tonne figure that has been bandied about, there will be an extended period of artificial buying. If the central banks stick to their word, this gold will have to be bought from the private sector. The supply will dry up pretty quickly once it becomes obvious that the downtrend in gold had been created by the artificial supply of the gold carry trade. At some point the general public is going to start liking gold. The general circumstances certainly favour a rediscovery of gold. The US stock market has peaked for now, and is in danger of a sharp pullback. Foreign investors seeing their own economies recover will move to repatriate their capital. The capital flight will cause both the stock market and US dollar to tank. We are about to enter a period where the supremacy of the US dollar will come into question. But what is the alternative? Not the yen, whose rise at this time endangers the recovery of its domestic economies and undermines its export economy. How about the Euro? Germany is staggering. Europe has structural problems it must still deal with. Gold is the only alternative because its supply is fixed. There are only 5 billion ounces in existence worth about $1.5 trillion. That is less than the market cap of the top ten American technology companies. It is a drop in the bucket. A fifth is tied up in the central banks. At least half is tied up in jewelry that cost more than the value of its gold content. The actual float in gold is small on a global scale. The unwinding of the gold carry trade, stock market turbulence, and Y2K anxiety will paint an uptrend for gold. In the next six months this uptrend will catch the attention of the mainstream. Gold is the only commodity in the world whose uptrend can become a sustainable demand factor. Over the next six months gold will grind higher until it hits a flashpoint that causes it to skyrocket as it did in 1980. The American bull market has created a record number of investing households. The logic by which most investors made money during this market cycle was momentum. When the momentum of stocks turns negative, it will unleash a massive quest for positive momentum. Gold has universal appeal. It has a tangibility that Internet stocks lack. We will see a huge momentum play develop in gold that could cause the price to spike to $1,000. It won't stay there in the long run because of all the new production supply that would come on stream. But when has this inevitability ever stopped a speculative price run? Gold is going to climb the same wall of worry that the Dow climbed on its way past 10,000. For the Canadian juniors the setup is fantastic. All that matters is the uptrend in commodities, not their final destination. Now is the time to do some serious bottom-fishing before everybody else catches on to how the structure of the market changed last week.
The severity of the recent commodity bear market has set the stage for a major supply and demand imbalance down the road that favours a sharp escalation of commodity prices. Production cutbacks and an emphasis on large scale operations have sidelined small to mid-sized production potential. The current takeover battle in the copper sector whereby Phelps Dodge is trying to create the world's biggest copper producer by acquiring Cyprus Amax and Asarco has negative implications for marginal and less than world class scale mines. For the moment there is a perception of excess capacity and abundance in commodity production. The mainstream view is that the "big is beautiful" producers have substantial untapped production capacity that will be further enhanced by the march of technology. While metal prices have rebounded since the financial crisis of last year, the consensus is that the uptrend will soon enough peter out. The mainstream view is that the ability of major producers to step up production quickly will keep prices below the threshold needed to spur new exploration and a scramble to put smaller deposits into production.
The concentration of mine production in a few world class operations represents a supply shock risk. But with operations scattered around the world the risk of supply disruptions due to local political problems is diminished. The underlying assumption is that the current global economic free-for-all is here to stay. In this scenario supply shocks will always be below the critical mass needed to send the affected commodity soaring. A mine shutdown in one part of the world by civil strife or labour strikes will result in stepped up production elsewhere. The only way supply shocks can end up affecting commodity prices in a big way would be if the world divided itself into hostile political alliances such as the we saw in World War II and the Cold War.
Although virtually all commodities have bounced off a bottom, optimism about a commodity price boom has not really rippled down into the junior markets. The energy juniors have shown renewed strength, but the resource sector remains weak. Speculative interest in the mineral play remains muted unless a mineral play generates results indicative of world class potential. There is an attitude that commodity price uptrends are a temporary phenomenon that will reverse long before the small to mid-sized projects favoured by juniors can be turned into positive cash flow. Ironically, it is this attitude which is laying the foundation for a metals market boom. The big producers are restricting exploration to the search for monster discoveries that by nature are infrequent. What people forget is that world class deposits can take a long time to get into production. Production capacity increases to bring on stream new minesite reserves may be quicker, but the limited number of world class operations restricts the ability of this avenue to satisfy demand shocks.
I am about to make a controversial statement. I believe that the next boom for resource juniors will be driven not by elephant hints for world class deposits, but for small to medium sized deposits. The neglect of small to mid-sized resources is contributing to a future supply shortage that at some point will unleash an industry rush to make up the shortfall by bringing smaller deposits on stream. The driving force will be spot metal prices that soar beyond the most optimistic limits. Surprises happen when they are least expected. After watching Japan's economic troubles over the past decade, the collapse of the Asian tigers during the past couple years, and the endless muddling of the European economy, North Americans have saddled themselves with a superiority complex that prevents them from imagining economic booms elsewhere in the world. Over the next three years we will watch with dumbfounded amazement as commodity prices blast through old cyclical highs. And this time around the reason will not be market manipulation schemes such as the Japanese copper debacle. It will be pure demand growth.
Regardless of the reality that commodity price spikes inevitably generate their own reversal, a speculative window will open where speculators clamour for resource juniors that are coming up with small to mid-sized production opportunities. Unlike the last junior resource cycle that was driven by elephant hunts in third world frontiers, the next junior resource bull cycle will be driven by the quest for metal supply. The market's valuation model will be based not on the sheer size potential of a discovery, but on the profit potential of a deposit. High grade deposits, marginalized during the past 20 years by the trend towards giant economy of scale bulk mining operations, are due for a new round of respectability. This applies especially to gold, which has sunk so low that it will be a long time before anybody dares to mine low grade bulk tonnage deposits.
Small to mid-sized deposits do not have a high net present value, so juniors will quickly run up against valuation limits. However, those limits are well above the current market values of the juniors still in the exploration game. The key to greater valuations will be the aggregation of production units through mergers and acquisitions. The market will value the combined parts more highly than the isolated parts. The driving force will be liquid online markets that draw a global audience. Forget about the Pierina and Voisey's Bay model where a small junior makes a world class discovery that one of the majors buys out. The legacy of the last market cycle is the market's memory of the rarity of such outcomes. The delusion of the next market cycle will be the one of an unending upward price spiral that characterized the junior bull market at the end of the seventies. That boom was fueled by inflation and killed by a tight money policy. This time the boom will be driven by commodity price inflation arising from demand shocks. The American economy has shifted from a raw materials dependent economy to a service economy. Higher metal prices arising from overseas economic recoveries are not going to make a huge difference to inflation numbers. Soaring commodity prices need not be a signal for Alan Greenspan to pull the plug on the American economy. In the last cycle the intermediates grew through direct acquisition of deposits. In the next cycle the growth will come through the merger of bottom-fish survivors. The Golden Star bid for Birim was a premature version of what will come.
The bottom-fish I offer typically have liquidity problems at bottom-fish prices. Here is a bottom-fish that has no liquidity problems and which I believe would benefit tremendously from a commodity bull market. The company is Dynatec (DY-T: $0.43). Dynatec is a service company that specializes in exploration services and mine development. It is also a contract miner. The big is beautiful mantra is not good for Dynatec because it discourages small to medium scale production plays. If I am right about the trend back to smaller deposits, demand for Dynatec's services will soar. But service companies are boring, aren't they? So what if Dynatec makes $5 million cash flow on $120 million revenue? Dynatec is becoming something more than a service company. Dynatec has adopted a strategy of acquiring net profit royalties in the mines it develops on behalf of other companies. Dynatec could evolve into a mutual fund of interests in small to medium sized mines. The institutions would love the story. Dynatec brings something else to the table. It has a large division of metallurgical research and patents inherited from Sheritt. The cutting edge of mine economics is driven by new process technologies. Dynatec is a sleeper in this capacity. Its recent acquisition of a 35% stake in Highwood is a sign of its strategy. Dynatec will take over the permitting process for Thor Lake, whose beryllium deposit contains over a billion dollars worth of $2,000 rock.
How about some cheap gold bottom-fish? I would suggest Birim Goldfields (BG-T: $0.29). Birim has just done a deal with Ashanti that will cash up the company with $5-10 million over the next six months and still leave the junior with excellent gold prospects in Ghana. Another cheapie I like is Aquest Minerals (AQU-V: $0.23), which has a Carlin style gold play in Guatemala that contains nearly 1 million ounces of medium grade gold. Two weeks ago with gold looking very sorry Aquest was virtually dead in the water. With gold now in an uptrend Aquest is going to get the funding it needs to explore Anabella's multi-million ounce gold potential. Do you want a bottom-fish with a strategic land position in Alaska and the Yukon? One in which Kinross has a sizable stake? One with good property next door to Pogo, a similar prospect in the Yukon currently being drilled? Check out Copper Ridge Exploration (KRX-V: $0.29). This bottom-fish has all the right pieces in place and only needs the new market cycle to accelerate to get a solid uptrend into place. They have a booth here.
How about some platinum group bottom-fish? Palladium have been climbing steadily for several years and is almost even with platinum. Outside South Africa the palladium to platinum ratio of PGM deposits tends to be 2-3P:1, with the platinum grade several times lower than the South African average. That is why there are virtually no PGM mines outside South Africa. Most non-South African PGM production is a by-product of nickel mines. The new palladium price, however, forces a rethinking of all those low grade platinum systems. The best platinum group bottom-fish is Ross Beaty's Altoro Gold, which has three projects, one in Minnesota, one in Brazil and one in Bolivia. By the way, is there anybody here who has not heard that Microsoft's Bill Gates invested $15 million for a small equity stake in Ross Beaty's Pan American Silver. How long do you think before big money checks out what Beaty is doing in the platinum sector with Altoro. Altoro has a booth here.
What about silver bottom-fish? The best one has already moved up sharply. Corner Bay Minerals (BAY-T: $1.50) is awaiting a new reserve calculation for its Alamos Dorado silver deposit in Mexico. At last count it had a resource of about 50 million ounces silver in $12 rock. This summer's infill drill program will increase both tonnage and grade. The big question is metallurgy. Initial work suggests heap leaching will work for this open pittable deposit. Results of the metallurgy study will be known next March. Silver has more upside than downside potential. If you own Corner Bay, sit back and relax. The target is $3-5 by next summer, higher if gold takes off.
One of my top picks is Peruvian Gold (PVO-V: $0.62). This cash rich junior is trading at cash breakup. It has just completed a small drill program on the Silvertip silver-lead-zinc deposit it has optioned 40% from Imperial Metals. This deposit already contains $500 million worth of $180 rock. Its remote location makes this resource worthless. But if you triple this high grade resource into the 7-10 million tonne range, you have the critical mass needed to turn Peruvian into a $10-15 stock. Peruvian thinks it may have found a chimney structure in this manto deposit. A $1 million program is planned to follow up a recent hole that confirmed the geophysical anomaly. The market doesn't believe the chimney interpretation. The downside risk is minimal, the upside potential phenomenal.
How about uranium? Uranium is slated for a new round of bad press following the nuclear meltdown at a power plant in Japan. But the rest of the world's nuclear plants will keep using uranium, and new updated plants will continue to be built. Pioneer Metals (PSM-T: $0.20) is getting very close to making a major discovery in the Athabasca Basin. It also has a sleeper gold deposit at Puffy Lake in Manitoba. Again, minimal downside and lots of upside for this bottom-fish.
..//..
The San Joaquin play is a collective promotion. Robert Friedland's Ivanhoe Energy, also run by former Occidental people, has acquired a land position in the San Joaquin basin. Friedland loves big picture stories, and has apparently compared the San Joaquin deep play to the deep gold play in the Carlin trend, except many times bigger. Dave Patterson's group has assembled a cluster of Canadian juniors through the Ekho syndicate. One of my 1999 bottom-fish, Lucre Ventures (LVD-V: $0.85), has a 12% stake in the 167,000 acre Ekho package. This group plans to spud an 18,000 ft well in November. They have a booth here, and I strongly recommend that you visit it to pick up information. At the very least the Ekho play will be a strong stock promotion.
The third strategy involves international oil plays for which there is not much appetite, at least not yet. The last foray by the Canadian juniors into international oil plays ended up with some pretty big disasters. Low oil prices and political risk do not mix well. $25 oil is good enough to justify offshore oil plays, but there remains concern that the oil rally will soon fizzle. Interest in offshore plays is thus still muted. But by early next year we should see a surge of interest. The global economic recovery is gradually restoring overseas oil demand, whose growth should offset supply growth. We may also see a spike above $30 that triggers a rush to finance international plays. A favorite on my 1999 bottom-fish list is Sterling Resources Ltd (SLG-C: $0.55). It is run by Bob Welty, former head of Bow Valley and Asamera Oil. He has assembled plays in the UK, France and Romania. The first two have no political risk, and Romania has less political risk than Chaostan and sub-Sahara Africa. Sterling has financial backing from heavy hitters in the oil patch. Sterling is below their radar screen for now, but when the timing is right for international oil plays, Sterling will gap up.
All information contained within is copywritten. To the best of our knowledge, the newsletter writers featured here have not received or accepted directly or indirectly any form of compensation from the companies mentioned herein for services of a public relations nature. Excerpts from material within this web site may be used upon written permission from the respective publisher. Copyright 1997, 1998, 1999 Canspec Research Station. canspecresearch.com
E-mail: webmaster
ChuckareaplayAGAIN |
