<What is this post doing on the metals thread>
Julius, at the risk of (hopefully) sounding arrogant, do you recall the 1950's song "It's my party and I can do what I want to?"
<saying the same thing several years ago.>
GXY was struggling with manufacturing inefficiencies in the past. They now have a new state of the art plant, and new and substantial backers (that can also leverage their distribution channels). Additionally, the founder Morini, although a great visionary and leader, has turned over operations to pros. So things change, and those catalysts are going to make a big difference in terms of overcoming the doubters IMO.
Just the same, I certainly don't wish to be accused of being a slacker, non-contributor or worse a complainer, so here's is my attonement:
Manhattan Minerals (MAN.TO) is a Canadian mining exploration company that discovered three prolific volcanic mafic systems (VMS) in northern Peru in 1999-2000. The company spent $25 million drilling 416 holes over 76,000 meters. Of the 819 known VMS around the world, these rank size wise as follows : TG-1: 11th, TG-3 (500 m south of TG-1); 14th and B-5 (11 km south): 16th. The three explored VMSs and twenty VMS targets located within the 89,000 hectare concession holding are generally considered to be one of the most prospective mineral districts in the world. The TG-1 and TG-3 discovery block is called Tambo and is shared with the state mining enterprise, Minero Peru. The Papayo concession (location of B-5) is 49% shared with Buenaventura, Newmont’s partner at Yanacochia. The Lacones concession, the location of about half the remaining targets is 100% MAN controlled. Maps are available at the MAN web site. Remaining exploration potential is considered excellent. Infrastructure here is very good, terrain is flattish and there is a deep water port 100 km away.
TG-1 consists of a 3.6 g/t gold surface cap with 1,250,000 oz of gold equivalent (some silver) . Pre-feasibility studies suggest a cash cost to mine of only $40/oz (top 2% category on the world production curve), which could be open pit mined over four years at 340,000 oz/yr. The cash flow of $88 million a year would be used to payoff an estimated two stage capex of $270 million. The second stage would exploit a rich 100 million ton 1.6% Cu, 1.1% Zn, 0.6 g/t Au sulphide zone under the gold cap. Cash cost is estimated at 44 cents for the Cu after credits from the other minerals. This zone would have a ten year mine life and even with copper prices now near multi-decade lows would generate about $65 million in annual cash flow. Each 10 cent move in Cu would leverage the return by about $25 million. The nearby TG-3 sulphide deposit consists of 82 million tons with a lower Cu grade of 1.0%. However the Zn (1.4%) and Au (0.8g/t) credits are robust enough to allow for an additional 8 year mine life at solid cash flows. Exploration at the B-5 VMS is early stage but also is showing a gold cap underlain with copper sulphides. A resource has not yet been fully defined, however MAN has encountered some of it’s best intercepts in Peru here, including a high grade 4.6% copper keel zone over 53 meters.
Now as Paul Harvey would say: the rest of the story. MAN.to trades around a dollar Canadian. There is good trading liquidity for a small cap. There are 39.5 m shares out for a US market cap of $25 million. They have about US$2.5 million working cap in the treasury. Although the payoff is immense, this one of a kind, world class mining district faces three general challenges. The first is a degree of vocal opposition to what would no doubt be mining on a large scale and a new way of life in this poor district of Peru. In an incredible stroke of nature, the TG-1 VMS is located (the other VMSs are rural) on the northern edge of the town of Tambogrande (pop. 16,000). Despite the fact that these projects will result in significant benefits in terms of new facilities and much higher local wages, the hard reality is that 1600 households will need to be relocated. Indeed the feelings have run hot enough that the model demonstration homes MAN constructed were vandalized and destroyed last year. As a result MAN has been stalemated, and the stock price, once a high flyer, has collapsed. A read of the chat lines will reveal shareholders in a great deal of pain, and as the resource bear market has ground on over the last few years, the company has been choked off from reasonably priced underwritings to carry on. Exploration on the other juicy targets has been largely curtailed. The focus has been on PR, community discussions and completing the EIS. That said, an important ingredient for me in terms of my investment, has been my sense that MAN management has stayed relatively cool, and strike me as a class act.
A catalyst for changing the impasse is gradually emerging, and that is the fact that the Peruvian government as the 25% stakeholder at Tambo stands to benefit to the tune of hundreds of millions of dollars. Peru also considers this a positive economic development vehicle for this district, including the aforementioned deep water port city of Piuna (pop. 300,000). There is also a natural rivalry with nearby Ecuador, as that country is now charging ahead with resource development (Albert Energy: pipeline and oil, Corriente: copper) right across the border. The new government has made it increasingly clear that they support these projects “under the rule of law, etc ” (see 2/14/02 press release) . The new Finance Minister Kuscinsky has been particularly outspoken on this issue, and just last week Peru’s Minister of Mining Jamie Quijandria put in an appearance at Canada’s principal mining convention (PDAC) in Toronto, where he specifically called for a four year development timeline for TG-1 and 3.
Challenge number two has been the metal depression, now entering it’s fifth year. One consequence of this downturn has been a dearth of exploration. While Wall Street partied on the TNT sector, resources have been capital starved. There has been little new exploration in the last half decade or so, and it’s starting to show. Recession or no recession, world copper consumption runs at 33 billion lb/year, and the majors need to bring on two very large (and low cost, with Cu trading at 75 cents/lb) world class discoveries a year to replace reserves. Gold output has also begun to roll over and decline and there is very little new production on the way. I view MAN’s goods as a pay me now or pay me (more) later situation.
Challenge number 3 is also a catalyst . MAN is not in a position to develop these projects alone and has said as much. All the majors have been there, and no one questions the geology. It is likely that as the town issue is at least somewhat resolved, the TG-1 and TG-3 deposits will be partnered or out right sold to a major. The JV deals are usually done as 50-70% carried to production earn ins and even a 30% carry would be worth several hundred million dollars. Once that transpires MAN stock price will be rerated significantly higher and the treasury will be tapped up for an attack on the rest of the targets, where I believe more mother lodes await.. |
