₪ David Pescod's Late Edition May 17, 2006
YUKON ZINC (V-YZC) $0.24 -.255
PACIFICA RESOURCES (V-PAX) $0.85 -0.25
Many, many years ago before grey hair, kids and other things,
we were lucky enough to have lived in the Yukon Territory and in
those days the North Country was a great place for having more
than a little fun. It also has such a history of the mining industry
that it’s almost impossible to escape it. But if you have ever lived
in the Yukon, you are aware of one very important fact of life…it’s
a very expensive place to live.
When we see a lot of these potential mining projects being
talked about in the North Country, be it the Northwest Territories
and all its potential for gold and diamonds, or the Yukon with its
history of gold and copper, we wonder if people are aware of just
how expensive it can be up there. You are so far away from the
central services and everything has to be trucked to those locations
involved. It’s a big expense. Now with the global warming
and concern about these roads even being open to the Northwest
Territories, it just adds more expense.
We’ve always suggested that anyone who wanted to invest in a
project way up there, should find out what it costs to fill up a pick
up truck with gas, or what a head of lettuce costs or, what it costs
to catch a flight from Whitehorse to anyplace else.
We never wrote up Yukon Zinc that we can recollect, because
we always thought their project was simply too small in an area of
the world where costs are so high. Canaccord’s Wendell Zerb
echoed that thought today telling us that throughout its history,
he said, “there is one thing that has always come across and that
was how small the project was”. Yukon Zinc came out with their
feasibility study on their Wolverine Property in the Yukon a few
days ago and the results weren’t good. Then the stock was halted
to announce that as bad as those results might have been to
some, that actually, they were worse.
They suggested they made an error in their computation and
because of this error, the real numbers suggested increase in
mining costs from $24.93 to $35.18 per tonne and overall operating
costs per tonne moved from $90.26 to $100.51 per tonne. All
in all it means a cumulative life-of-mine operating costs just got
bounced by $54 million. Ouch!
But that doesn’t mean we escape this whole debacle because
some of the same people involved with Yukon Zinc are involved
with a zinc play we did have some hope for and are speculators in
and that’s Pacifica Resources. The difference between Yukon Zinc
and Pacifica is that Pacifica’s resource is very big—potentially,
eight to 20 times bigger! It’s in a more remote location, but up
there, big counts! Because of the association with some of the
same people, the stock gets hammered as well.
SOUTHWESTERN RES. (T-SWG) $10.50 -0.58
While we have suggested that we are in a correction
and there’s not too many resource stocks or gold stocks
going up these days, there is still one story we have
talked about from time to time that frankly, its chart looks
like a dog! Or worse!
So we go to two of the analysts that have been following
Southwestern Resources and frankly, you’d think that
they would both be a little disappointed. Apparently not.
Wendell Zerb, the Canaccord mining analyst has a $19.40
target and still thinks they are going to get to that level.
Eric Zaunscherb, the mining analyst with Raymond
James on the other hand, has Southwestern as one of his
favorite stories and has a very aggressive $32.00 target.
When we ask Zaunscherb, “Okay, why does the market
care so little?”, he says, “There’s four different factors”.
“Clearly the problems with the Peruvian election
has put a damper on Southwestern”, despite the fact by
his calculations, only 11% of their net asset value is in
Peru.
A second point is the departure of Dan Innes, the well
thought of vice president exploration. Leaving the company
was not a good sign to many people despite the fact
he remains as a consultant to the company.
A third point was their delay in their Liam results in
Peru and concern that Newmont was going to walk away
from the joint venture. Zaunscherb did admit the results
however, were far from barn-burners, but it’s a good sign
that there is 8000 meters of additional drilling now
planned for the Liam project.
As a forth point, but one echoed by many is the company’s
need to improve its investor relations in getting
the story out.
Zerb on the other hand, suggests that while big armwaving
done on the Boka Project in China sometime ago
had people hoping for 10 to 20 million ounces, his suggestion
is that it’s probably not going to happen. They
have a great chance, he suggests of a mine delivering
down the road 200,000 to 300,000 ounces per year for 10
years, but not some of the big numbers some people
were expecting.
He also echoes the problem of the company not being
great at getting news out, despite the fact “they are a
great technical group”. He also echoes the concern of
the political issues in Peru, but also mentions that some
of the results just issued from Peru, were mediocre at
best.
In the meantime, the stock is coming down with the
rest of the market.
But it’s the size of the project where the two analysts
differ as Zaunscherb still has huge hopes for the Boka
project suggesting that their first 67 holes probably
proved up five million ounces and with four drilling rigs
currently working on Boka 7, he would not be surprised at
all if the project did eventually get to 15 million ounces
between Boka 1 and Boka 7.
Same project, different analysts, different viewpoints
and we hope one of them is right. If either one is right,
that would mean a higher stock price for this story down
the road.
But okay guys, what about this market we are in right
now...And once again, they disagree. Zerb wouldn’t be
surprised to see gold drift as low as $610 to $630 and suggests
there is a couple of weeks of correction and then
stabilization to be done. Zaunscherb suggests that after
this hard hit, the correction is “frankly, pretty well done”.
Okay guys, if you could only be looking at one story
here in the next day or two, which one would your eyes be
on? Zaunscherb suggests Stornoway Diamonds, which has
had a decent run of late, because they are working on
seven different projects and news and results should be in
on several of them.
Zerb is looking forward to drilling results out on International
Barytex Resources, run by mining legend Dr. Roman
Shklanka and results from the Democratic Republic of the
Congo, which has had a handful of surprisingly good mining
stocks over the last year, wondering if they also can
have some good numbers.
Disclosure: Southwestern Resources and Stornoway Diamond Corp. Canaccord Capital covers these stocks and has a Speculative Buy rating
on them. (Speculative buy: Stocks bear significantly higher risk that typically cannot be valued by normal fundamental criteria. Investments in
the stock may result in material loss.)
Canaccord has recently participated in a financing for Pacifica Resources and Stornoway Diamond Corp.
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