STARFIELD RESOURCES INC. (SRU.CDNX) (SRFDF:OTCBB)
October review
Since our last review in July and August, (see our archives on
www.LKZ.com ), the company announced continued success with their 10'000
meter drilling program by adding significantly to the resource base, from 19
Million to over 24 Million tons, while maintaining "rock value" in the US$
100 to $120 per ton range. As a matter of fact investors can only be
encouraged by the size of massive sulphide intersections encountered. At the
same time the play is still open on strike and depth. According to UTEM
readings only 14% of the potential resource has been drilled to date! For
detailed exploration information please visit www.starfieldres.com by
clicking on their logo on our web site.
During this period of continued success in the field, the share price slid
from a closing high of $ 1.40, reached on July 25th 2000, to the October
13th 2000 close of 58 cents. The value of the company on a fully diluted
basis (approx. 24 Million) went from $33 Million to $14 Million in less than
3 months. At the same time the company showed a drilled up and verified
resource base in the ground of 27 Million tons valued at over $ 100 per ton.
Operations cost for such a mining operation are around $50 leaving a value
of $ 1.3 Billion in the company. (Starfield Resources Inc owns 100% of the
property!)
So where is the trouble?
1. Investors don't believe that the mineral base is either large enough or
has high enough grades to warrant the establishment of a mine in such
northerly and harsh conditions:
- After our review of independent geological and geophysical reports we
believe that the property could eventually rate as one of the largest
PGE-Ni-Cu-Co mineral finds in the world;
- Assay results are well above the economic cut off grades for Ni-Cu. The
significant PGE and Co showing bring the rock value into an extremely
valuable range of over $ 100/ton;
- The property lends itself to year round and low cost open pit mining. Both
Manitoba and the Nunavut Government have expressed great support for mining
ventures on its territory opening a possibility of a road being built from
Baker Lake to Rankin Inlet.
2. Investors don't believe in the management and its ability to finance the
ongoing drill program;
- We continue to be impressed by the Starfield executive's non-promotional
management style while, at the same time, aggressively moving the company
forward with mining exploration at Ferguson Lake. They are focused and
dedicated to make this a success;
- Management has demonstrated without a doubt its ability to raise
investor's funds in the face of very difficult market conditions for
Canadian junior exploration companies. Since April 99 the company raised
Can$ 4Million through equity placements and warrant / option exercises. To
be exact Investors subscribed to ten Private Placements adding $2.9 Million
to the treasury, and exercised just under one Million Dollars in Warrants
and Options.
- We have great confidence that management will continue to attract the
necessary Investor funds to maintain an aggressive exploration program
through this winter.
So what then is happening with the share price? Here our thoughts:
1. Overall market conditions for this sector remain weak. There is no
institutional interest in the mining/exploration sector and retail interest
is spotty at best;
2. Interest in Starfield shares is mainly generated through retail channels:
Clients from interested brokers, speculative investor interest in the sector
and a dedicated Starfield investor base reaching back to 1998. In other
words the buying volume is still limited;
3. Since late March 2000 the market had to absorb a significant amount of
stock originating from the following sources:
- 1.3 Million shares, granted to purchase the property, were coming out of
Escrow in late March;
- 1.25 Million shares, purchased by investors in April 99 at 50 cents were
coming to be free trading in May 2000.
- 1.5 Million shares, purchased by investors in May 99 at 50 cents were
coming to be free trading in June 2000;
- 334'000 shares, purchased by investors in Aug. 99 at 90 cents were coming
to be free trading in September 2000.
- In total the market had to potentially absorb 4.3 Million shares.
We cannot tell if all of these shares were sold but think that a good
portion of it hit the market in the May through late September period.
Whereby the positive developments in the field were able to generate enough
buying in the May to July period, eventually the sellers overwhelmed the
buyers driving the price down more to now 58 cents.
3. The good news is that most of the selling has now taken place. Volume
analysis shows a steady decline of the above 5-day average trading volume
since the end of September even though share prices continued to drop on
lighter volumes. Between April and October 13 2000, over 18 Million shares
traded representing 67.6 % of the full years trading volume. On average SRU
traded 108'881 shares a day in the last 12 months;
4. The schedule of Private Placement shares coming to market is light. In
2000 investors only face 274'500 coming free in December and then nothing
until January 2001 with some more escrow shares (750'000) and in April 2001
250'000 shares from a Private Placement.
Where do we go from here?
1. We are very confident of management's ability to continue finding
investor funds allowing a continuation of the aggressive exploration
program;
2. We believe that the exploration program will continue to prove up both
the exceptional resource base while maintaining or improving the resource
quality;
3. Market conditions for junior mining exploration companies will improve
significantly as larger markets decline and/or consolidate. Investors must
remember that such a sector rotation will be rapid and explosive as there
are very few solid mining exploration companies left. There are even fewer
with the scope and potential Starfield Resources Inc. already has.
4. With exploration success will come interest from major mining companies
allowing for an attractive buy out or farm in agreement in due time.
5. Major selling pressure is abating, allowing the share price to stabilize
and increase, as further exploration results become known in the weeks and
months ahead.
Our recommendation
We continue to be very bullish on Starfield Resources Inc. and maintain a
strong buy recommendation. Given weight to our review above we believe that
share prices will lift from present levels to $1.35 by yearend.
With kind regards
Klaus D. Zahnd
LK&Z Advisory International Inc.
2836 - 42nd Street S.W.
Calgary, Alberta, Canada T3E 3M1
Tel # 403 249-9501
Fax # 403 249-9503
Web site: www.lkz.com
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DISCLAIMER: K.D. Zahnd of LK&Z has prepared this Update solely for
information purpose. Information contained herein is drawn from sources
believed reliable, however, this cannot be guaranteed. Any and all
information is intended for the sole use of the person whose name appears on
the header. This communication does not in any way constitute an offer to
buy / sell investments in any jurisdiction. The writer may have received a
compensation, own shares or be a member of the board of directors of the
subject company.
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