SUBJECT: Bob Bishop write up Posted By: Goldbug317
Post Time: 1/18/2007 19:43
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January 16, 2007
Trust Your Instincts
The gist of a story, the source of the information, and an instinctive
response from me is often all that I need to know before I buy a stock.
Personally, I often invest on the basis of very little due diligence, but
that approach does not translate well to a newsletter subscriber base. One
must delve into the story, and understand it well enough to write an
accurate synopsis of the company-and then relate exactly why it is deserving
of other people's money.
A good example of what I'm talking about came along late last week.
Strategic Nevada Resources was trading at $0.86 and a $0.75 financing was in
progress, and the person who brought it to my attention is someone whose
judgment I have come to trust. The stock was already oversubscribed and I
said I'd be happy to buy whatever amount might be available. All of this
took less than five minutes and was not what you'd call a wrenching
decision-making process. Untold silver story (a rare beast), cheap, a strong
financial and technical team, the high probability of exploration
success.I'm there.
For purposes of subscribers, however, the process is a bit more
cumbersome. Talking to management is a prerequisite, as is gaining a much
better understanding of the story that instinct, rather than analysis,
suggests is worth telling. Having since done quite a bit more homework on
Strategic Nevada Resources, and despite its recent advance, I think that
it's a company I would regret not bringing to your attention.
As the accompanying chart suggests, SNS is on a bit of a run, and
while consolidation will set in at some point, I don't expect to see it
until the stock sees higher prices. I don't make a habit of doing private
placements and then immediately recommending the company in question-more
often than not, it means you'll never hear about it from me-but the flip
side of my dilemma is that buyers at today's price are likely to double or
triple their money before I have any opportunity to sell the stock I've just
agreed to buy. And mine probably won't be for sale then anyway. The last I
looked, quick doubles and triples of investment dollars are a good thing.
______________________________________
Strategic Nevada Resources (SNS.TSXV/$1.18)
Shares Outstanding: 15 million shares
Fully Diluted: 33 million shares
52-Week High/Low: $0.21/$1.27
As its name implies, Strategic Nevada Resources was focused on
exploration projects in that state, that is, until an acquisition was
announced on January 3 of this year. Little noticed at the time, on that day
the company announced that it had acquired a 100% interest in the Crescent
silver mine, a former producer in Idaho's famed Coeur d' Alene mining
district. Put up for sale by Shoshone County in a small newspaper space ad
on November 18, Strategic Nevada managed to purchase the Crescent project a
month later for just $650,000. Most didn't know it was for sale, and of
those few who did, they assumed it would be purchased by another party-and
thus didn't bid. In concert with the acquisition, SNS has assembled a
technical team that seems particularly well suited to explore this
underexplored former producer.
In real estate it's location, location, location. The mining world's
variation on this theme is that the best place to find a mine is next door
to a mine, or where there used to be one. The Crescent silver mine qualifies
on both counts. The Crescent has produced over 28 million ounces of silver,
and perhaps more important, is a largely unexplored property that lies
between two world-class silver producers: the Sunshine mine, with historical
production in excess of 328 million ounces, and the base metals-rich Bunker
Hill mine, which produced approximately 161 million ounces of silver and 3.1
tons of lead and 1.1 tons of zinc. I'm no geologist, but it seems to me that
the ground lying between almost 500 million ounces of production would be a
good place to look for a silver deposit.
As elsewhere in the Silver Valley, the history of the Crescent is
one of finding mineralization and following it, usually on near-vertical
veins that go to great depths in the district. This discovery method
represented the early years of the mine (then known as the Anderson or Big
Creek mine), and in the early 1920s, the predecessor to the Bunker Hill Co.
purchased the property at a county auction. From 1927 on, the mine was known
as the Crescent, and early historical production (1917-1942) totalled an
estimated 300,000 tons of ore from surface to the 1,200 foot level. This was
20 oz./ton mineralization, or six million ounces of silver, 1,375 tons of
copper, and 2,192 tons of lead.
The mine was closed in 1943, reopened in 1951, and over the next
three years the shaft had been sunk to the 3,100 level, with another 3.5
million ounces recovered between the 3,000 and 2,500 level. All of the
exploration and production was guided by the Bunker Hill Company, which was
predominantly a lead-zinc mine with associated silver values. The veins at
Bunker Hill were best developed in a quartzite rock unit that, in the Coeur
d' Alene District, tends to lie beneath a siltite-dominant rock type that is
silver-rich, and is the better host for the silver-rich tetrahedrite veins
that represent most of the district's historic production.
That Bunker Hill guided exploration with an approach suited to its
property, and worked successfully at depth on the adjoining Crescent mine,
is precisely the reason the Crescent can be said to be so prospective today:
other than some narrow, high-grade silver veins mined in an argillite rock
unit overlying the silver-bearing siltite unit (the Revett formation, almost
wholly unexplored), most of the previous exploration focus at Crescent was
on lead-zinc-silver mineralization hosted in the deeper quartzites. It was a
base metals approach that overlooked the high-grade silver that was present
in the same rock units at the Sunshine mine, the Crescent's neighbor to the
east.
The Crescent and Bunker Hill mines were closed in December of 1981
and the Bunker Limited Partnership purchased these assets. Later, the
Crescent and Bunker Hill projects regained production, but low metals prices
helped put the Partnership into bankruptcy in the early 1990s. Prior to the
shutdown at Crescent, proven, probable and projected ore was 396,500 tons
averaging 23.7 oz./ton silver, or 9,395,000 ounces. The Bunker Hill mine
became a Superfund sight, under the control of the Environmental Protection
Agency, and ownership of the Crescent mine was transferred to Shoshone
County. That's where it sat until its sale last month to Sierra Nevada
Resources, a company with a name change almost certainly in its future.
Enter Expertise
Neil Linder of Vancouver, president of Strategic Nevada, has had a
career focused on venture capital investments, initially through Dimension
House, a boutique investment banker, and later with his own company,
Strategic Equity Corp. Most of these were non-mining deals, and several of
them were the subject of later takeovers. Linder's focus on the Crescent
mine is extremely recent, and it was just last month (Dec. 12) that the
company was awarded the rights to purchase the mine. Almost concurrent with
this bottom-feeding purchase, Dr. Brian White, a geologist with over 30
years of experience in the Coeur d' Alene District, agreed to join the
company as staff geologist. White is highly regarded for his expertise in
the region, and his experience at the Crescent goes back to 1977. (Your
editor's, such as it is, goes back to 1982, when "Mr. Silver," Hecla's Phil
Lindstrom, gave me my first underground tour at the Lucky Friday mine.)
Additional board members are Michael Kuta, general counsel and
corporate secretary for Amerigo Resources and also Spur Ventures; Thomas
Fudge, a mining engineer with 12 years of experience with Hecla, as mine
manager, vice-president of operations, and president of Hecla's Venezuelan
subsidiaries (and also three years of experience at the adjoining Sunshine
mine); and finally, Dr. Ishuing Wu, an expert in the formation of high-grade
silver occurrences and a former U.S. exploration manager for Chevron
Resources, among other companies. This group would appear to have the
ability, and the specific experience, to do justice to exploration of the
Crescent mine.
Where To From Here?
Just as this project and team have come together quickly, the recent
market action has been gathering momentum in recent days. The stock was
$0.86 when I first heard the story late last week and much of the frenzy is
owing to the financing in progress. Reportedly oversubscribed many times
over, the financing has grown to $8.25 million at $0.75 per share. I also
would not be at all surprised to see a strategic investor in the mix when
the financing closes. Let me rephrase that: I will be surprised if we do not
see a strategic investor in the placement. While I don't like to recommend
stocks that are running as SNS has been in recent days, the low 15 million
shares outstanding and the market's recent appetite for SNS suggests that we
won't be the only ones "chasing" the stock. This story is made to order for
the often price-insensitive silver stock buyer, and I'd much rather swallow
hard and recommend Strategic now, in advance of some of the sector's more
natural buyers.
With the financing closed next month, in March, rehabilitation of
the 4000 foot Hooper tunnel, the hoist room, and the top 600 feet of the
main shaft will get underway, followed by drilling when this work has been
completed. Despite the advance of recent days, my expectation is that
substantial revaluation will occur, well in advance of receiving exploration
results, most likely late in 2007. Buy now in expectation of that
revaluation, which is not a great leap for a project located between two
world-class mines that between them have produced almost 500 million ounces
of silver. My bet, a safe one I believe, is that the ground in the middle
contains far more than the nine million ounces that are already in hand.
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