Delgratia Mining Corporation
Traded: NASDAQ (DELGF)
Shares Outstanding (Fully diluted):
15,585,000
Hotline "Buy" 2/17/97: $12.88)
Last Traded 3/20/97: $16.00
Fully Diluted Cash Position: $37,000,000
Quality Rating:"C"
Over the past several years, Delgratia was a company that was simply
too promotional for my tastes. But times have changed. Now, CEO,
Dr. Charles Ager, is about as low key and professional as they come.
Not only is Dr. Ager a man of science who is first and foremost
interested in unlocking the mysteries of Mother Earth. He is also an
independently wealthy man who has no reason to "hype" the shares
of Delgratia. So it is ironic that no sooner had Dr. Ager taken the
reins of the company than Delgratia's shares exploded from around $6
to a high of $34.75. The recent short selling (and very possible
criminal manipulation of the markets by the short selling institutions)
led to the precipitous fall pictured above on March 20, 1997.
In a few short hours before being halted from trading on March 21st,
investors lost enormous amounts of wealth as happens when a few
short selling institutions sell short together and protect their bets by
sewing misinformation to the media. The media becomes either a
knowledgeable or unsuspecting participant in the crime, but the end
result is the same, namely an unwarranted complete loss of market
confidence. Despite this unfortunate turn of events, it is my view
that the "Ivan Boeskey's" of the short selling world may have done
our subscribers, who missed out on our initial recommendation price, a
big favor because if you care to look into this story, there is a great
deal of evidence that the Josh as well as several exploration projects
in Nicaragua hold the potential to catapult Delgratia into a household
name on Wall Street. As with all companies listed in this letter,
Delgratia represents a high level of risk. But as we have
demonstrated over the years purchase of a portfolio of these high
risk/high return exploration companies provides very attractive returns
and sometimes enormous gains for individual stocks. In my view,
Delgratia appears to have what it takes to become a storybook
mining stock.
The Josh Gold Property
Clark County, Nevada
The Josh Gold property is located near Searchlight Nevada in Clark
County approximately 40 miles south of Las Vegas. Delgratia gained
a 50% interest in this property by paying $5 million in cash and issuing
stock worth approximately $11 million to Philgold, a company that is
40% owned by the Ager family trust. The potential of a conflict of
interest to exist here has been raised by the press (and used by the
short sellers) in recent days. It is your editor's belief that in due course
what appears to some people to have been an outrageously high
price to pay for this property will, in fact, appear to be an absolute
bargain two to three years from now. Delgratia is in the process of
exploring and developing the Josh now, so that after spending $5
million toward that end, it will have gained a 50% interest. Management has already made the decision to up its interest to 70%
by committing still another $10 million to fund exploration and issue
another 2 million shares to Philgold.
On my recent trip to visit International Precious Metals, I first learned about Delgratia from C. Richard Childress, a CPA and
investment banker. I have a high regard for Richard who has worked
for some of America's best known financiers. Richard has known about this property even before Delgratia acquired it and he is highly
confident of its potential. The media (and short sellers) may wish to
misguide investors by suggesting that Dr. Ager has cheated them to
enrich his own family. But these allegations are made out of
considerable ignorance because these nayesayers have not
attempted (until now at least) to understand anything about the merits
of the property and how evidence points toward the possibility of a
world class gold deposit. Prior to acquiring the Josh Gold Property for
Delgratia, Dr. Ager carried out extensive geo-chemical and
geo-physical work over a 4-year period of time. What he found was
a mineralized zone that stretches 18,000 ft. in length and varying in
width from 1,600 ft. to 6,000 ft. At that time, the depth of this
mineralization over the entire surface dimensions of this property
remains unknown, but Dr. Ager has believed (indeed recent drill holes
support) that gold mineralization could extend to bedrock which
is in excess of 1,000 ft. Mineralization occurs in an alluvial or placer
type deposit of fine gold in a sandy like material. Some of the gold
mineralization is believed to have originated from higher altitude
bedrock which surrounds the Josh property but there are also
indications that some of it may have come from hydrothermal activity
from below. As recently reported by a competitor of this newsletter,
the whole area appears on surface to grade between 0.032 oz.
gold/ton or higher. The actual area of current focus measures
10,000 ft. by 5,000 ft. and it appears as though the property could be
mineralized to a depth of 800 ft. which is sort of the average of the
first four drill holes. While we do not wish to imply any reserves exist
on this property (because not sufficient work has yet been carried out
to do so), if the property contained a grade similar to the average of
the first four holes (i.e., 0.06 oz. gold/ton) the dimensions calculate
out to over 3 billion tons containing 184 million ounces of gold. If this
is true, who needs the Busang?
Phenomenal Drill Results
Given the extensive surface area of gold mineralization, it is not totally
surprising that the company came up with some very high readings on
the first 4 drill holes. On March 19, 1997 the company announced
the following results from 4 holes that were drilled vertically and in a
fence line cross- cutting the southern section of the property: 1) Hole
#1 scored 0.084 oz. gold/ton from surface to a depth of 440 ft. 2)
Hole #2 graded 0.033 oz. gold/ton from surface to 600 ft., 3) Hole
#3 assayed 0.071 oz. gold/ton from surface to 880 ft., and 4) Hole #4
scored 0.063 oz. gold/ton from a depth of 10 ft. to 1,040 ft. These
are the kind of numbers that can quickly add up to a monster deposit. No wonder the market price of this stock shot up to $34 in a few
days. Based on information now available, it is your editor's opinion
that those who are able to grasp the significance of what is
developing on this southern Nevada property may well have the last laugh.
In fact, let me suggest that ultimately, the value of the Josh could be
many times the company's March 21st market cap when the stock
sold at $34.
Short Selling Hanky-Pankie
With the price of Delgratia exploding during late February and early
March, it is not surprising that short sellers became desperate. It is my
hunch (though I do not have proof at this time) that some of the major
short selling firms (which are known to the company), began to plant
stories in the market in order to save their financial rear ends. If so,
this is market manipulation which should result in jail terms for the
offenders. The first seeds of doubt about this company were planted
in a story reported by Bloomberg on March 20th, when a state of
Nevada mining official questioned the validity of a remark supposedly
made by one of the company's spokesmen that the property contains
a 5 million ounce "reserve". If the company said that, it was never
published or heard by this writer. It is a fair question because as Dr.
Ager said publicly, there is not sufficient information at this juncture to
conclude any reserves exist on the Josh property. But, if in fact,
assays akin to those already announced continue to be the norm, and if an economic recovery process can be developed to extract
gold profitably on the Josh property, this project could very well
exceed the 5 million ounce level by a very large margin. The second
seeds of doubt about this company were also sewn by Bloomberg on
that same day when the news service reported and thereby implied
that the property was a scam in which the Ager family ripped off
shareholders as it transferred $16 million (in cash and stock) from
Delgratia to Philgold, a company that is partly owned by the Ager
family trust. In fact, the agreement between Delgratia and Philgold was established before Dr. Ager was hired to head Delgratia.
Moreover, Dr. Ager abstained from voting on subsequent issues
involving the two companies. While Bloomberg raised some legitimate
questions, one can't help but think there must be some manipulation
here by the shorts because within 20 minutes of this announcement,
one small New York firm reportedly sold over 1 million shares short!
The timing and magnitude of this short position is the kind of
red flag that should prompt the NASD and/or the SEC to investigate possible links between the professional shorts and Bloomberg.
As a result of the violent rumor plagued market action for Delgratia on
March 20, average investors lost substantial value in a few hours. Did
Bloomberg understand anything about the mining prospects of this company before it published this one sided attack on the company?
Of course not, because like David Baines of the Vancouver Sun, the
Bloomberg reporters spent absolutely no time in attempting to learn
the company' s side of the story. This is reminiscent of David Baines'
report of Naxos Resources except that unlike Baines, the reporter at Bloomberg has at least now spent time visiting the company's Josh
property. I do not believe the reporter at Bloomberg knowingly spread
misinformation, but the effects were the same and one wonders who
tipped them off and what, if any connections they had with the short
sellers.
The Coco Mina Project
Northeastern Nicaragua
Delgratia has a large land position in Nicaragua including the 100%
owned Coco Mina Project which is located approximately 275 km by
air northeast of Managua near the Honduras-Nicaragua border. The
project lies in forested terrain and is situated within a small caldera-like
structure in the shape of a cone-shaped mountain approximately 3 km
in diameter, which interrupts a folded belt of Mesozoic sediments.
The Coco Mina contains a semi-massive sulphide deposit situated
within the central part of an extinct volcano. Past exploration and
metallurgical work carried out during the 1970's through a series of 30
diamond drill holes, followed by bulk sampling from numerous
underground adits, outlined a resource of 1.7 million ounces of gold
equivalent (gold and zinc) amenable to good recoveries using
conventional floatation methods. This resource is calculated from 13
million tons grading 0.05 oz./ton gold, 0.77 oz./ton silver and 3.4%
zinc. The current known extent of this deposit occupies but 1/25 of
the known sulphide mineralization zone outlined by previous induced
polarization, geochemical and other sampling work, so the potential
for meeting the corporate target achieving a deposit of at least 5
million ounces of gold reserves here appears good.
The gold on this property has been traced over an area some 3,500 ft. east-west by 2,500 ft. north-south and to depths greater than 400
ft. It is within this pyrite envelope and others yet to be discovered that
more reserves and feeder zones to the current resource are expected
to be found. To this end, additional induced polarization work is
underway to explore the entire volcano in search of other pyritic
zones which may be auriferous. Concurrently, a diamond drill program
using triple tube methods for maximum core recovery will be
undertaken to search for more reserves to depths of 2,500 ft.
On March 4th, the company announced that field crews are on the
property to begin the geophysical work with a 25,000 ft. drilling
program expected to commence in May 1997. The aim of this
program is to more than triple the current reserves to greater than 5
million ounces, which is the target rate for all exploration projects
entered into by management. Assuming an in-situ value of $25/oz.,
the current value of the Coca Mina would be $42.5 million or $2.75
per share. If the company can prove up 5 million ounces, a $25/oz.
valuation would result in a resource value of $125 million or $8.02.
Add another $2 in balance sheet cash and you derive a corporate
value of approximately $10 per share before any value is assigned to the Nevada property and numerous other properties in Nicaragua and
Mexico.
Other Nicaraguan Properties
In addition to the Coco Mina, Delgratia holds a large scale interest in
properties covering 10.5 million acres of prospective mineral ground in
Nicaragua covering a total of thirty one properties or nearly 1/3 of the
entire country. In 1995, Delgratia entered into a joint-venture
agreement with Western Mining, a major Australian company. Under
the agreement, Western can earn a 70% interest in the first and fourth
mines and all other subsequent mines that may be developed on
Delgratia's claims by paying 100% of all exploration and mine development costs. At the feasibility stage of development, Delgratia
holds a one time right to earn an additional 19% on these projects
(giving it a 49% interest) by opting to pay 19% of capital
costs. The second and third mines, should they be developed and opened, are to be joint ventured on a standard 51/49 basis, with
Western holding 51%. Western will be the operator on all the deposits
that amount to less than 1 million ounces of gold.
Some of the more noteworthy Nicaraguan properties in the company's
extensive land package are the following: 1) The Columbus is a
103,000 acre gold/copper target in which gold values have ranged
between 0.016 oz./ton and 0.025 oz. gold/ton. Surface sampling has
been completed and drilling is now set to commence; 2) The Murra
property is the site of two previous old and active small mining sites.
Over 50 known veins on the property averaging between 0.2 oz. and
2.0 oz. gold/per ton have been identified. One vein alone, namely the
El Rossario is said to host 85,000 tons of 0.6 oz. gold/ton; 3) The La
Reina Property, is a former underground mine located on a 158,000
acres. At present 630,000 tons grading 0.17 oz. gold/ton has been
outlined. A dewatering program is planned so that additional exploration and outlining of reserves can be undertaken; 4) The La
Batea and Siquia encompass a 1,000,000 acre claim area which
adjoins Greenstone Resources' La Libertad Mine. Four gold zones
have been outlined from half of the concession with assays up to
0.52 oz. gold/ton and 0.3% copper. This property appears to hold
major potential as one of the mineralized zones extends along strike
for 3 miles and is 1/2 mile wide.
Mexican Properties
Delgratia holds a 100% interest in twelve concessions located in Baja
California, Mexico. These properties are at the grassroots stage of
exploration and development, but at this early stage, appear to hold great promise.
Management
The key man in this company at this juncture is Charles Ager, Ph.D., P.Eng. Dr. Ager who has served as President & CEO of the company
since November of 1996, is a veteran geophysicist and mining
engineer. His undergraduate degree was in math and physics. He
holds a M.S. and Ph.D. in geophysics and is a Professional Engineer.
Dr. Ager was involved with the development of the Jamestown Mine
in California during the early 1980's. He was a partner in the ABM
Mining Group Inc., a Vancouver company that managed a group of
juniors active in California gold exploration in the mid 1980's. Beyond
Dr. Ager, the management team is shorter on professional mining
personnel than I generally like to see. One of the risks faced by investors of small companies is that dominant personalities some times
exercise such extensive control that a healthy level of diverse opinion
and skills are absent. I do not believe this will be a problem for
Delgratia as I expect Dr. Ager will add depth to the company's
management team and seek the aid of outside consultants as the
need arises. Other officers and directors include: Eric X. Lavarack,
Vice President, CFO holds an M.B.A. and has had experience
working in financial roles for various mining companies in the past and
he has been a project finance lender in the past. Mr. Lavarack's first
encounter in the mining business was as an under ground driller for INCO; Peter Bojtos, Director , a well known and successful
businessman; Geoff Courtnall, Director plays hockey for the St. Louis
Blues in the NHL but he is also a very accomplished Vancouver
business man; Patrick J. Furlong, Director, who has had extensive
experience in mining law, is the company's in-house lawyer, and
Anne C. Eilers serves the company as its Secretary. Recently, the
company hired as consultants Brian Mountford, a mining engineer and
Morris Beattie a metallurgist to helping Dr. Ager move the Josh
project forward. Working as the company's chief geologist is Andrew
Dall, P.Eng.
|
