₪ David Pescod's Late Edition March 9, 2007
BLUE NOTE MINING (V-BN) $0.47 n/c
One stock that has surprised us in that it hasn’t done any better than it has recently is Blue Note Mining. Unlike the thousands of other junior mines out there that are still looking for something or the few that may have something that will be a producer three or five years down the road, Blue Note will be a producing zinc/lead mine in New Brunswick within 3-4 months. And the cash flow could be huge.
A little history on this project and their Caribou and Restigouche zinc/lead mine, is that this is a former producer back in 1997 and 1998 when Breakwater owned them. In an irony of the times, it was closed because of low zinc prices. Unless you’ve spent the last 10 years in some sort of Tibetan monastery, you know that suddenly, one of the stories of the day is commodity prices and/or the shortage of commodities to feed the hungry beasts of India and China.
While zinc prices are currently in a bit of a conspiracy debate about what Chinese zinc smelters, big users of the metal, are trying to accomplish, the one thing that is apparent is the shortage of zinc in inventory, particularly in London. Zinc prices look like they are set for some time and there are certainly not a lot of zinc mines coming on stream over the next few years.
The Caribou and Restigouche project currently has about 5 million tons grading 6.6% zinc and 3.4% lead, but also has some small copper and silver credits. When production starts in June/July, their target for this year is 68 million pounds of zinc and 35 million pounds of lead, plus smaller credits of other minerals. Next year, their full year of production, the hope is for 100 million pounds of zinc and 57 million pounds of lead. This will be a significant money spinner given current prices.
The company has made their calculations for cash flow and profit numbers down the road based on zinc at $1.44 and lead at $0.52.
While zinc has been bouncing between $1.45 and $1.55 lately (meaning their number is relatively aggressive) for lead, currently trading at $0.82, there is obviously a significant safety margin there.
One thing that could be significant for the company is the $800,000 they are going to be spending over the next while on a drilling program as they hope to increase their reserves from a five year mine life to nine years and that will be significant.
There are very few analysts following this story, so to get good information is relatively hard, but we have to take our hat off to Hendrik Visagie the Octagon mining analyst who has written up a good report (19 pages) for your reading enjoyment that takes a good look at this project and comes up with some pretty intriguing cash flow numbers.
He gives the stock a target of $1.00 and once again, this will be a producer within 3-4 months.
One thing to be aware of is this stock price, despite the $0.47 you might see is not as cheap as it looks. The company has about 312 million shares outstanding fully diluted and there are some convertible debentures that Breakwater the former owner has outstanding (Breakwater has a few of its own problems these days, hence why they probably decided not to go ahead with these projects themselves) so the market cap is a little bigger than you might have thought at first, but still even at $1.00 a share (which to our way of thinking is a very realistic target) that’s still not that big a market cap.
For background on the company, contact Blue Note at www.bluenotemining.ca for some articles and the Octagon report.
GOLD: (April Contract) $649.50 -6.00
I’m sure the thoughtful speculator/investor from time to time might worry about all these hundreds or thousands of junior resource companies announcing a discovery of ten metres of whatever gold, or this significant intersect, but maybe there are so many companies out there the world is going to be flooded with gold. Not the case, folks.
There are very few properties out of a thousand that will ever become a mine and it’s not because of not finding a commercial ore body. Maybe they found it in the wrong country, such as Crystallex (KRY) in Venezuela, or maybe they found it underneath a town and the town doesn’t want to be moved.
When you do think of gold though, the one area of the world that’s a big producer that you instinctively think of is South Africa. Like many areas of the world, much of today’s gold still comes from mines that were discovered decades ago, that have been producing for ages, their ore bodies are getting deeper, more expensive to mine and in many cases the grades are less and less.
For those worried about the world being flooded with gold, Credit Suisse has a report out showing that South Africa’s 2006 gold output slid 7% to an 84-year low. More interesting though, is that their fourth quarter results for 2006 suggested that production fell by as much as 9.3%. No, there’s no flood of gold in the foreseeable future.
PETROLIFERA PETROLEUM (T-PDP) $16.86 +0.07
Connacher Oil & Gas (CLL) is one of our favorite stories for the next six to eight months as they get ever closer to production for their Great Divide project. But another story a person has to watch is Petrolifera Petroleum because Connacher is a significant shareholder and any success Petrolifera has, Connacher shares it.
We touch base with Dick Gusella, who is busy these days running both companies and he brings us up-to-date. Petrolifera he tells us “is drilling ahead at its 1016 location on the Puesto Morales/Rinconada block in Argentina.” He tells us that “this is the first of what could be a 50-well program in Argentina during 2007 using as many as three rigs by midyear.”
He suggests that they will also be “focused on completing the company’s facilities and on securing new acreage. It is hoped new land awards and concessions will be acquired in the next 30 days or so.”
“The company reported its year end reserves last week per a GLJ study and will be proceeding with a pressure maintenance scheme using waterflood at Puesto Morales over the next several months and this should provide continued pressure support for its current production growth of both oil and gas to come from current drilling, should it be successful.”
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