Kaiser Bottom-Fish Tracker 2001-09
Copyright 2001 John Kaiser
May 8, 2001
New Blue Ribbon Resources Ltd (NBL-V: $0.39)
Tel #: (780) 417-5117
Web Site: www.newblueribbon.com
Sucker Trap or Major Metal Discovery?
New Blue Ribbon Resources Ltd (NBL-V: $0.39) has doubled in price and
traded over 10 million shares during the past three trading days. I
mentioned New Blue as a highly speculative bottom-fish buy in Kaiser
Express 2001-02 (Mar 7, 2001): Manitoba Diamond Play Heads Up for
bottom-fishers willing to bet that BHP would find a kimberlite pipe during
the winter drilling program. As far as diamond pipes in northeastern
Manitoba are concerned, you can let your heads down again because neither
Kennecott nor BHP appear to have hit kimberlite. New Blue has come alive
during the past week because BHP intersected "significant" sulphides over
meaningful lengths in two holes. Because of the time delay between
knowledge about these sulphide intersections and a strong market reaction,
interspersed by a timely $400,000 private placement, there is a good chance
that this "discovery play" is a sucker trap that will collapse violently
when assays are released in about two weeks. BHP has imposed an information
blackout that prevents reasoned analysis of the probable outcome. New Blue
management is uncharacteristically clam-lipped; this means that the new
"discovery" amounts to either absolutely nothing or something very big. BHP
has blown its chance to make meaningful disclosures. At this stage neither
New Blue management nor BHP can afford to say anything more until assays
arrive. This sets the stage for some wild speculative action over the next
couple weeks. If New Blue closes its financing it will be in a position to
keep the BHP option alive. It is possible that BHP has accidentally made a
nickel discovery that would kick off an area play north and south of
Falconbridge's Fox River Sill as the market infers an extension of the
Thompson Nickel Belt. But the rumour mill is amazingly short on details
about the nature and scale of the "discovery", and there is no confirmatory
market action in the obvious satellites that would benefit from a major
discovery in this area. A willingness to stay long to see the assays should
be hedged by confidence that New Blue will continue to fund the diamond
hunt, whose next phase may involve BHP's Falcon system. The analogy with
Voisey's Bay is so close it is hard to believe there is any substance
behind the story. In this Tracker I try to lay out the basis for my
ambivalence about this play, which on the one hand seems to be a setup to
fill New Blue's treasury, but which on the other hand could be the
beginning of something big. This is a tough one to call. If the financing
closes New Blue will have 39.8 million shares fully diluted. If there is a
big discovery worthy of development by BHP, New Blue would net 20% and be
carried through feasibility after contributing the first $3 million. At
current prices the project has an implied value of $78 million. Without any
assays, and even a decent geological description of the setting and the
intersected mineralization, that valuation is not cheap. But the stock is
liquid, and the market is starved for action. Go into this one with your
eyes wide open.
New Blue's Manitoba diamond option desperately needed a kimberlite
discovery
Talk within the New Blue network about sulphide intersections obtained by
BHP on its 240,000 hectare Moose diamond project in northeastern Manitoba
began during the week of April 23-27, but failed to generate any unusual
increase in market activity. In fact, after a small blip to $0.22 on Friday
April 25 on volume of 350,000 shares, double the typical daily trading
level, volume dropped to below average levels during the first two days of
the following week. This activity was consistent with a market attitude
that a sulphide intersection was equivalent to admission that yet another
geophysical target had failed to turn into a kimberlite pipe. BHP had been
drilling for over a month, and had apparently failed to find a kimberlitic
source for its indicator minerals. New Blue, which had used earlier private
placements to pay down accrued debts, had yet to raise a nickel for
contribution towards the Moose drill program operated by BHP. This program
was estimated to cost about $500,000, and was the first money BHP was
spending to test targets after spending over $4.5 million on regional
target generation. The option deal with New Blue, described by BHP
personnel as an exercise in risk management, allowed New Blue to earn 40%
by spending the next $3 million, at which point BHP had the option to
reduce New Blue to a 20% net interest by funding all costs needed to
complete a feasibility study. Because BHP was the operator of the Moose
project, New Blue was exposed to the risk that BHP could spend the next $3
million fine tuning its target selection strategy and effectively milking
the junior's treasury without giving any promotable satisfaction in return.
The clever BHP boys, however, mitigated this risk for New Blue by
guaranteeing payment of the 2001 winter-spring drill program. This
effectively put pressure on BHP to deliver a pipe. The positive spin
analysts such as I were able to extract from this peculiar arrangement was
the speculation that funding for the Manitoba diamond project had
evaporated, but the BHP exploration team was desperate to keep the project
alive. This spin banks on the notion that the big guys upstairs always pull
the plug on the pet projects of the toiling geologists downstairs just as
they are on the threshold of clinching a world class discovery. One school
of thought suggests that the New Blue deal was accompanied by some serious
hail marys that the proposed drill program deliver a kimberlite that makes
it easy for New Blue to fund the next exploration stage and make everybody
happy, including the brass upstairs. A less charitable school of thought
suggests that the deal was driven by a naive misconception within BHP that
the BHP name carried such extraordinary goodwill courtesy of its role in
discovering and developing Dia Met's Ekati diamond project that the public
would fall all over itself for the opportunity to buy a piece of the next
Lac de Gras through New Blue.
BHP has done nothing to help New Blue sell the Manitoba diamond play to
analysts and investors
Well, the truth is that while the public acknowledges BHP did a great job
developing Ekati, it also rightly perceives that the major's penurious
disclosure policies have harmed Dia Met shareholders. The cynicism within
the BHP organization was made blatantly clear on April 12 when less than
two weeks after announcing a locked up all cash bid of $21 per share for
Dia Met after nobody else came to the altar, BHP unveiled its strategy to
market Ekati diamonds greater than 0.3 carats as Canadian source branded
and Gemprint certified collectibles. Had this plan been revealed prior to
the lockup deal, the significance of Dia Met's right to receive its 29%
share of Ekati diamond production in kind within two years would have been
much more obvious and likely reflected in the market. Dia Met shareholders
got the shaft from two ends, first from founders Stu Blusson and Chuck
Fipke, whose goofy self-serving deals left Dia Met with a 29% stake in the
core claims and 7% in the buffer claims, leaving its financial future
vulnerable to manipulation through BHP's ability to mine future mill feed
from either the core or buffer claims, and secondly from BHP, whose
minimalist disclosure policies prevented the market from fully appreciating
the significant role the Ekati project will play in the new diamond market
being engineered by De Beers. The market has no reason to trust BHP, nor
does it have any evidence outside Fipke's Lac de Gras project that this
major has the expertise needed to find economic diamond pipes. Since
announcing the BHP-Manitoba deal on March 7 New Blue has struggled to raise
money for the project. What has BHP provided to help out? A single
composite pyrope plot, a few jpegs featuring geophysical anomalies, and a
couple blah-blah news releases about bucketfuls of indicator minerals. BHP
has provided New Blue with next to nothing in the form of detailed
geological information that builds a case that the major is on the right
track in finding diamond pipes. BHP has done nothing to dispel anxiety that
its deal with New Blue is more than a scam to suck a junior into paying for
the nails needed to pound shut the coffin for BHP's Manitoba diamond play.
It has hidden behind the shield of competitive secrecy. And now, in a very
ironic way, it is using the new Mineral Disclosure Act to help New Blue get
itself funded so that BHP does not have to foot the tab for this winter's
dud drilling program.
Was this somebody's stream of consciousness?
With spring thaw just around the corner, no kimberlite pipes, and no money
in New Blue's treasury to pay for the dud drill program, BHP had an
embarrassing problem on its hands, namely that a junior had enjoyed a free
ride on the drill program. And so it must have happened during the last
week of April while somebody pondered those dud sulphide intersections that
the Voisey's Bay legend came to mind. Wasn't Diamond Fields looking for
diamond pipes along the suture zone between an Archean craton called the
Nain Province and a Proterozoic terrane called the Churchill where past
exploration waves by mining majors had failed to find any base metal
deposits? Wasn't BHP looking for diamond pipes within the suture zone
between the Trans-Hudson Orogen (aka Churchill) and the margin of the
Superior Province? Had not the likes of Inco and Aquitaine stomped through
this region during past decades in search of a possible extension of the
Thompson nickel belt and found nothing? Weren't we next door to the Fox
River Sill whose platinum group potential Falconbridge expounded at PDAC
even as it was unloading the project to the Hunter-Dickinson group in the
name of risk management (oops, that's our line)? Gosh, could that geologic
unit which hosted the sulphides be a komatiitic flow similar to the kind
that hosts the Thompson nickel mineralization? Shh, don't say anything
specific or the Mineral Disclosure Act police will take us to task. First
of all, New Blue, why don't you demonstrate that you are sincere about the
option agreement by at least announcing a private placement. By the way,
here are some photographs of the sulphide intervals. No, we can't let you
see the core yet. It's being relogged and sent for assays. Why are we
assaying this core that appears to consist largely of pyrrhotite, a
worthless iron sulphide? Don't be silly! Are you asking us to pull a
Cartaway and eyeball the presence of pentlandite and chalcopyrite? Sorry,
no can do. Don't look so sad. Don't you know that the visible presence of
nickel sulphides would reduce the potential for a good PGM kick? Who knows
what this will kick. Look, the sulphides are massive, net textured and
disseminated, but don't you breathe a word about this to your network or
they will start to speculate that we have found the missing extension of
the Thompson nickel belt. Or worse, those geologist types will start asking
hard rock questions designed to narrow the possibilities. And then, if it
actually assays something, they'll all be out there doing deals with our
regional competitors. Get your financing in place or we won't tell you what
this assays and sue you for damages anyways.
Volume appears like magic out of nowhere
On Tuesday May 1 New Blue announced a private placement of 2,666,666 units
at $0.15 and the CDNX conveniently gave approval to a debt settlement of
661,818 shares at $0.16 for debts owned to lawyers, drill contractors and a
former promoter who will assure anybody would asks that he has "big
European connections". On Wednesday May 2 the New Blue market begins to
stir, trading 386,000 shares to close at $0.25, higher than it has been for
quite some time. On Thursday morning May 3 big buyers materialize and are
supplied by lots of sellers, who keep the trading range in $0.24-$0.30 on
3.2 million shares, a volume level not seen since early 1998 just before
the predecessor's 5:1 rollback when disgruntled institutions blew out their
holdings at a nickel. The volume trips the CDNX surveillance crew's red
flag and New Blue is pressured to explain the market action. New Blue,
which has nothing more to say than what failed to move the market a week
earlier, turns to BHP for an explanation. BHP, finding a perfect harmony
between its need for competitive secrecy and the Mineral Disclosure Act's
insistence on absolute, QP backed definitive factuality (with exception for
mining entities above a certain size threshold), puts out this artful work
of ambiguity:
"The drilling of two magnetic anomalies in two holes of the program
encountered significant amounts of sulphides in both holes. One hole
intersected 48.8 m of sulphide mineralization and the other hole hit 22.8 m
of sulphide mineralisation (yeah, spell it both ways so that neither the
Brits nor Yanks feel left out) along the same geological horizon. Cores
from these two holes have been shipped to BHP's warehouse (darn, do you
have to say it that way?) and are currently being re-logged in detail and
will be submitted for assay and results are expected within the next two to
three weeks".
Not only is this statement a violation of what one imagines to be the
purpose of the Mineral Disclosure Act, but it savages the English language
in a way that leads one to suspect the heavy hand of an Australian censor.
How do we know this statement comes from BHP and not New Blue? Because the
statement is not backstopped by a qualified professional scapegoat, which
means it must emanate from an entity with "can do no wrong" status! The
CDNX would otherwise have crucified New Blue for omitting all geological
context, failing to identify the style of sulphide mineralization, and
using a highly inflammatory adjective like "significant" without providing
either qualitative or quantitative scope for its interpretation. This is a
news release which in the absence of unusual market activity would be
ignored by most readers, as it was during the last week of April when it
was mumbled along the New Blue network, which ranges from Brian (Griz)
Testo's Alberta outback to Stephen Smart's London haunts. The market
responded to this news on Friday May 4 with another 3.7 million shares that
took the stock as high as $0.35, and on Monday New Blue rocketed out of the
chute to a high of $0.44 on the highest daily volume of 3.8 million shares
ever before settling back at close at $0.39.
Impossible to get a geological description of the "significant" sulphide
play
During the past week I have tried to obtain information from New Blue
management that would explain the market action. And I have also checked
out the various rumour mills for stories that might be driving the market
action. New Blue's Larry Kryska, who is not a geologist, has been reluctant
to say anything for the record, citing BHP's insistence that the public
speculate blindly until assays are available (my words, not his). The only
New Blue director apparently able and willing to talk geology is Roger
Morton, but I missed him Friday afternoon and he is now out of the country.
Morton, an academic who specializes in economic geology, has a knack for
explaining geological potential to lay people, which he ably demonstrated
during Frank Giustra's dog and pony shows for NDT Ventures during the
height of the Voisey's Bay play. Morton's role in New Blue was to
articulate the kimberlite story, but without a kimberlite pipe, there is
nothing for Morton to talk about. The possibility of a base metal or
platinum group metal discovery is, however, an entirely different matter.
It would have been interesting to hear what Morton has to say given BHP's
total information eclipse, but unfortunately I missed my chance.
Lack of confirmatory action in satellites suggests nobody really "knows"
The New Blue play is very unusual in that there are no juicy rumours and
yet volume suggests that somebody believes a discovery has been made. On
the other hand, the nature of this particular discovery play is that it
would have implications that reach well beyond ground controlled by BHP,
and yet there is no confirmatory market action in any of the satellites
that would be obvious beneficiaries of a major nickel or PGM discovery. I
have heard from enough sources to be fairly confident that the "discovery"
occurs on the northern block of the Moose project, in particular the
northernmost permit labeled "161". This ground is at best on the margin of
the Superior craton, and lies north of Falconbridge's Fox River Sill. The
area is a geological mess and has been poorly mapped thanks to its flat,
swampy, overburden covered terrain. In fact, geological boundaries have
been inferred mainly from geophysical data. The east-west area bounded by
the southern and northern extremities of the two BHP blocks has been
described as an area of metasediments and ultramafic rocks that has been
the focus of both subduction and rifting. One interpretation suggests that
it is part of a Superior Province boundary that runs from the Thompson
nickel belt in western Manitoba across Hudson's Bay and ends up in the
Ungava area of northern Quebe where the Raglan nickel deposits are being
mined by Falconbridge. Adjoining juniors like New Claymore Resources Inc
(NCS-V: $0.25) and Valerie Gold Resources Ltd (VLG-V: $0.35) have traded
only a few thousand shares. Others with significant regional exposure like
Iriana Resources Corp (IR-T: $0.03), which is proceeding with a 10:1
rollback and a $2.5 million debt settlement at a post rollback price of
$0.50, have also not budged. By now it is no longer a secret that the
Hunter-Dickinson group intends to assign its Fox River Sill option to Misty
Mountain Gold (MGL-V: $0.10), which, like Iriana, is undergoing a 10:1
rollback and eliminating its debt through a settlement of 15.5 million
shares at $0.10 (post rollback) to bring New Misty's capitalization to
about 20 million shares. Most of this paper will be owned by the
Hunter-Dickinson network. As a rule, when the buyers of a potential
discovery play "know" that the junior has the goods, buying invariably
leaks over into the satellites, especially if they are cheap. The lack of
market action in the obvious satellites leads me to postulate that the New
Blue market activity could be a self-generating phenomenon made possible
through the feedback loop between market technicians who couldn't care less
about the fundamentals and fundamentalists trying to extract an explanation
from BHP's ambiguous disclosures. New Blue and BHP, by not saying anything
"interpretive" or "predictive" in keeping with the spirit of the Mineral
Disclosure Act, are unwittingly, or perhaps deliberately, fueling a trading
frenzy that can last for another couple weeks until assays arrive. The
CDNX, which did not hesitate to halt trading in Frank Callaghan's Intl
Wayside about a year ago when speculation about a potential new discovery
blossomed, has a much more formidable problem in the case of New Blue.
While the CDNX could go on a witch-hunt and rake Intl Wayside over the
coals for supposedly inadequate disclosures, it would run into serious
problems if it tried to halt New Blue until BHP coughed up more meaningful
disclosure or the assays eventually arrived. Such a move could kill New
Blue's opportunity to fill its treasury with enough money to keep the
Manitoba option with BHP alive.
Textbook extracts about komatiite nickel deposits
So what is the fantasy driving the fundamentalists to speculate that the
market action in New Blue is more than a self-fulfilling trading prophecy
created by bored investors? Here are a series of excerpts from O R
Eckstrand's Chapter 27.1 on Nickel-Copper Sulphide in Geology of Canadian
Mineral Deposit Types. I lean toward the "nickel sulphide" interpretation
of the BHP "discovery" because evidence of such would be visible in the
core, whereas the presence of platinum group metals would be for the assay
lab alone to determine. "The most important komatiitic nickel deposits
associated with rifted continental margins are those in the early
Proterozoic Thompson Nickel Belt of northern Manitoba. These deposits are
associated with peridotitic lenses that typically occur in sulphidic
metaphelites (biotite schist) of a sedimentary-volcanic shelf sequence on
the northwestern margin of the Archean Superior province craton...The
komatiitic nickel deposits of the early Proterozoic Cape Smith belt in the
Ungava Peninsula of northern Quebec, like those of Thompson, are also
related to the rifted continental margin of the Superior Province
craton...Most komatiite-hosted nickel sulphide deposits occur at or near
the base of an extrusive sequence, and are typically in the lowest,
thickest and most magnesian of the flows...The ores comprise conformable
lenses of mineralization concentrated within, and near the basal contact o
the layer-like or lenticular peridotitic host unit...The mineralization
includes matrix (continuous network of sulphides enclosing olivine
crystals) and massive sulphides, and in many cases, disseminated sulphides.
The common sequence of sulphides from the base upward is massive, matrix,
and disseminated. The ores commonly occur in local depressions of one kind
or another in the base of the host unit...The main ore minerals at Kambalda
[an Australian nickel deposit] in order of decreasing abundance are
pyrrhotite, pentlandite, pyrite, magnetite, chromite...This ore assemblage
is representative for most komatiitic deposits".
Some unreliable geological tidbits that support the model
Some geological tidbits that I have picked up, and whose accuracy New
Blue's Larry Kryska will neither admit not deny, include the claims that a)
the two holes are about 800 metres apart, b) the sulphide is pyrrhotite, c)
the mineralization starts near the bedrock surface below several dozen
metres of overburden, and d) at least some of the mineralization is "net
textured". The holes were apparently drilled a couple hundred metres deep,
and the absence of any other reported sulphide intervals suggests a flat
lying volcanic flow typical of a komatiite. I was unable to glean any
information about whether or not the two magnetic targets are part of the
same anomaly. I could get nothing about the meaning of "significant"
sulphides. At this point I have to throw up my hands and declare that
bottom-fishers who own New Blue Ribbon Resources Ltd are on their own. I've
mapped out a geological context possible for the area, and which is
consistent with the geological tidbits, but apart from what BHP allowed New
Blue to state in its news release, I wouldn't bet the farm on any of the
other information. The most important idea bottom-fishers should keep in
mind is that this play has been set up (set itself up?) such that if in two
weeks we get blank assays and a rather mundane description of the
accompanying geology, those who are long the stock can blame neither New
Blue nor BHP. It is possible that pentlandite (nickel sulphide) crystals
have been observed in the core if the mineralization is coarse grained. But
as the Cartaway experience demonstrated, visible pentlandite does not
necessarily assay as ore grade nickel. Most analysts are taking a wait and
see attitude. In a dead market like this a possible "discovery play" like
New Blue could trade all over the map during the interim period. The online
forums so far have a bewildered tone. They do not yet have the shrill hype
tone of shareholders and promoters who know the company has nothing. Has
the market become so bad that nobody dares to believe and repeat a good
story?
Botom-Fish Due Diligence buzPak for New Blue Ribbon:
library.canspecresearch.com
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