Hello,
I spoke with cvr on Friday of this past week about the Durango gold mine production situation, the Kennicot partnership, and the Carboneau property in Newfoundland.
The Durango Gold Mine
As you all know, this mine was targetted to be producing in October of last year. cvr has not said this, but I suspect that a guy named Eckhardt Coppen played a large part in delaying the startup until cvr and he came to turns on ownership of this property as well as several other properties in the Durango region.
You may recall that last fall cvr owned only 18% or so (can't remember exactly) which was not a controlling interest even when you throw Guardian's share in (gud). cvr said at that time that they wanted to increase their share to 28% and eventually 41%. It did not happen until a few months ago when cvr and gud eventually ended up with just over 50% in not only this mine property but all the properties that Coppen had in the Durango region of Mexico.
Coppen started this mine back in the 30's or 40's and made several million dollars on it until it closed. Since that time, he has continued to live the good life in Mexico and explore the whole Durango region.
Over the years, he has spent most of his money staking claims and purchasing what he considers valuable property in the Durango region.
But, back to the mine production - how does one motivate your partner, Mr Coppen, who owns controlling interest, to get on the stick and turn the mine on? Buy him out. How does Coppen get the best deal for himself in a buyout? Sell cvr not only the mine property but all 17 or so properties he has in the Durango region, get a seat on the board, and insist on some stock and options.
By the way, cvr didn't say this, I'm speculating. But, cvr did buy all those properties, Coppen is now on the board, and now cvr can rightfully and forcefully insist as the majority owner with gud to turn it on.
Now that the deal is done, cvr has told Coppen to get this thing producing. cvr and gud have controlling interest now. However, cvr has been patient with Coppen due to the things going on on another property in the Durango region that Kennicot is horsing around on - more on that later.
Now, when the mine does start up production at a rate that was suggested as of last fall, this is what likely will occur:
12,000 tons of ore were stockpiled as of last fall.
More ore has been stockpiled since then.
Average yield is said to be 1 oz per ton
Cost of production $105 per oz
Price of Gold $375 per oz
Net $260 per oz
Estimated income at 25% ownership $2,496,000 per year
Estimated outstanding shares 3,200,000 shares
EPS $0.78 per share
P/E at $1.11 US price per share $1.42
Typical producing mines trade at 10 to 20 times their P/E which would equate to about a $14 to $28 share price (by the way, I don't know if this is actually true, anybody know?). Wouldn't that be nice?
Kennicot
One of Coppen's other properties in the area has Kennicot exploring it. When cvr and gud took control of the property, Kennicot was already there with a budget said to be in the millions to explore the property.
Word is that findings to date have been significant and that the top 3 officials of Kennicot were flown in from Europe and Australia to view what is said to be a significant copper porphory deposit.
In fact, Coppen left the Durango gold mine and spent 6 weeks assisting Kennicot on this property. This was good in one way, but it has contributed to the delay in turning production on at the gold mine.
cvr does not know what is going on directly on the property due to some contractual constraints on information flow, but a report is expected by cvr from Kennicot within a few weeks. However, my own bet is that Coppen knew before being bought out by cvr and so probably cvr knows something informally that they can't say without getting into all kinds of trouble with the VSE.
Kennicot has an option on the property and if they have something significant, they will probably exercise it. Exercising the option gives cvr and gud a total of $5,000,000 at the end of this year and another $24,000,000 at the end of next year. This has the following effect.
cvr net income $2,500,000 in 1997
eps contribution $0.78
P/E contribution 1.42
It is purely coincidence that these numbers are the same as that from the mine.
In addition, if Kennicot exercises their option, cvr has an option to exercise purchasing 25% of the property so that future revenue can be maintained over the long term.
If Kennicot does not exercise their option, the property will revert back to cvr and gud.
Carboneau Property in Newfoundland
Last week, cvr began using the funds they had acquired through a previously announced financing deal. Ten holes, 300 to 400 feet deep will be drilled to determine whether the property holds a significant deposit of sed-ex layered zinc, silver, and lead. In addition, they will determine whether the deposit formation is created by glacial movement or not. If it is a a glacial type - not good. That means the minerals were dragged in from somewhere else by glaciers. By this time, I would assume they are already drilling their second hole since each takes about 3 to 4 days to drill.
What is interesting here is that cvr actually financed the drilling themselves which indicates they have a high degree of confidence in the property. Richard Garnett, the person who discovered the Diamond Fields property, was instrumental in the acquisition and financing of this deal. Garnett is a officer with cvr.
The property was claimed by Kamiko in the early 1990's and was to be explored by them. Their geologist is quoted as saying that it was a priority property for exploration for them. However, Kamiko got caught in a cash flow squeeze due to a failed plant somewhere else and was eventually forced to relinquish their claim back to the Newfoundland government. At that point, Garnett, familiar with the property, urged cvr to acquire it and raise the funds necessary to explore it. This has all occurred in the last few months.
If a successful drilling program does occur here and significant deposits are discovered and are confirmed by independant assay, who knows what will happen to the stock price. Diamond Fields stock went well over $100 when the deposit was discovered and today the property is still not developed nor producing.
Conclusion
cvr is a highly speculative and risktaking land and mining company that buys or options property on educated opinion, explores and hopefully discovers valuable deposits, and then sells or partners these properties to other major mining companies. If they hit, everyone does very well. If they don't,...........
Don
PS:
I'd feel a lot better if somebody kind of worked through and confirmed some of my numbers.
The Washington State property is still awaiting someone who is interested in the scandium and nickel present there. As Zeev Hed said back around posting 94 or so, the price of scandium, if this were to come into the market, would probably significantly drop and make this less attractive in its potential return. In addition, he indicated, as did cvr, that a scandium aluminum alloy is still very new and applications are still in infancy as of yet.
The Morningstar property - I'm not sure they even own it anymore. Anybody know?
The Voisey Bay property - No exploration has occurred. I think they are awaiting a serious offer from Falconridge or Inco for joint exploration. Since the Diamond Fields discovery isn't too far away, they probably think that they can get a deal without spending money on exploration. They have had offers like this already but turned them down. |
