₪ David Pescod's Late Edition June 14, 2007
AN UPDATE WITH ALFRED STEWART
OF CANACCORD CAPITAL CORP.
(As of June 4, 2007)
We are here with Alfred Stewart, who does some of the
stock picking for “The Cordilleran Fund” and we don’t
know whether he’s lucky or not, but the last several Cordilleran
flow through funds have returned 200% or so on an
after-tax return. Which isn’t bad, Alf!
Dave: One wonders is it because it’s such a small fund in a
bull market, or the fact that you pick so few stocks (five or
six at most) or just lucky. What’s the answer?
Alfred: It’s a combination of those three that you’ve just
mentioned. We focus on the micro-cap area of small exploration
companies in mining in British Columbia and because
it’s micro-cap stocks, we don’t have a lot of competition
for the financings that we do. We are in an extremely
strong resource market – things such as molybdenum and
copper have had extremely good runs and companies that
were exploring for those commodities a few years ago
weren’t worth very much, but the market has re-rated them.
Dave: I guess we might as well get to your two favorite
stories of the day. One of which is Selkirk Metals. Can we
have your take on this, because this has been your favorite
for a little while now?
Alfred: That’s right and it’s because I was an exploration
geologist with Esso Minerals in the late 1970’s and early
80’s and we looked at this property (the Ruddock Creek)
that Selkirk had in 1980. I spent a weekend walking on the
property and basically we recommended it to Esso, but
Esso did not get the deal. It was picked up by Cominco
and it was explored by Cominco up until 1996. In 1996, the
NPD were elected for the second time in the famous
“Fudget Budget” election and Cominco dropped a lot of
their mining properties across the Province and this was
one of them. At the time zinc was $0.35 a pound. Zinc is
now somewhere between $1.50 and $2.00 a pound, so people
again, are focusing on large zinc properties in British
Columbia and this is certainly one of the best.
Dave: So you are assuming that the zinc and other base
metals stay high for another decade?
Alfred: I think we are in a new super-cycle. Between
1980 and 2002 it was a bear market for metals and now
Asian demand for metals is putting us into a new supercycle.
Dave: What is it about the property you are so intrigued
with?
Alfred: What I am intrigued with is the combination of
grade and size of the property. The grades of this company
have been encountering in its drilling are up to 20%
combined lead/zinc. Which when you put pencil to paper,
you realize that this rock runs between $800 and
$1000 per ton. That is an extremely attractive grade. The
second thing I like about it is, this property is 25 miles
north of the TransCanada Highway between Kamloops
and Revelstoke, which is basically extremely good for
logistics. In terms of size, the thing I like about the property
is that all the exploration done to date has been on
one end of the property and the lead/zinc zone plunges
into the mountain and apparently comes out the other
side, five kilometers away. When you look at the size of
the property it looks like one kilometer of strike length
has been explored and there are four kilometers of strike
length that haven’t been explored. Those four kilometers
are basically through the middle of the mountain. In order
to get this thing developed, what needs to happen is
the company needs to go underground and develop
through underground exploration and that is what Selkirk
is doing this summer.
Dave: Where do they stand on that exploration program
now? Have they just started?
Alfred: They just kicked off the exploration program a
couple of weeks ago so we are expecting not a lot of
news for the next couple of months, but we are expecting
the fall to be a very exciting time for Selkirk.
Dave: When you talk about logistics, it’s also not that far
away from the Cominco smelter, which apparently needs
feed.
Alfred: Yes. Whenever I mention that factor to the company,
they always say that we are not far from the
smelter, but we are also not far from rail head and the
TransCanada Highway and they have no particular need
to sell it to Trail. It can go anywhere with the kind of
grades that they are encountering.
Dave: Now there has been talk that it’s an obvious takeover
candidate by possibly Cominco down the road because
it is so close by. Is that in the realm of possibility,
or is that just people dreaming?
Alfred: From my perspective, the most important thing is
that they need to develop and delineate the resource and
as long as their exploration program adds tons and
grade to the asset, then I think they should continue to
explore. I think it is premature if they’ve only explored
15% or 20% of the deposit to talk about take-overs. Most
mining companies are extremely conservative and they
would probably like to do a take-over after a feasibility
has been done (witness Nova Gold deal with Teck Corporation)
that only happened after a feasibility was delivered
and certainly Selkirk is still in the early exploration
phase, so I don’t think a take-out is in the cards anytime
soon.
Dave: As far as tonnage and grade, what do you think
they have now and what would be your target for down
the road?
Alfred: I think they have something in the ballpark of 10
million tons and down the road is anybody’s guess.
When you look at a system that’s five kilometers long,
then the deposit could probably be a multiple of that size.
This was originally a Sedex deposit like the Sullivan
Mine, but it was metamorphosed to the point where the
rocks almost melted. They behaved like plastic and the
lead/zinc zones got squeezed into lenses and they are
somewhat irregular, so it requires a fair amount of exploration
to exploit.
Dave: How about a time-line you see for the next two
years?
Alfred: I think they’ll just continue to explore and with
the underground adit being put in, then I think they will
be able to mount a much longer season of exploration
and the drilling from underground will be able to add to
the resources more quickly than in the past where they
had to drill 2000-foot holes from surface.
Dave: Now you have already even worked out some targets
for later this year and for next year?
Alfred: Basically, I believe that the stock could easily
double to triple from here depending on the exploration
success from this underground exploration program.
Dave: I guess the obvious question is what can go
wrong?
Alfred: First of all, the overall market could correct and
if the overall market corrects, then Selkirk could come
down along with the rest of the stocks. A second risk is
simply drilling risk because these sulphide lenses are
irregular and pinched into lobes, there is some uncertainty
as to exactly where the best lead/zinc zones are.
So basically drilling risk and market risk.
Dave: As far as your targets, you were suggesting $2.50
later this year and $5.00 sometime next year?
Alfred: Yes.
Dave: Now onto another junior that you are suddenly
starting to compare to one of the success stories of the
last decade and that’s Goldcorp.
Alfred: That’s right. SanGold Resources operates the Bissett
Mine in Bissett, Manitoba and it’s a mine with a 70
year history of production. It’s a deep underground
mine and it has been operated by various parties including
Harmony Gold and Rea Gold. Rea Gold went bankrupt
in the mid to late 1990’s in part based on costs associated
with this mine. But as you know, gold prices
have gone from $300 an ounce (at the time this mine
was last in production) to north of $600 an ounce today.
This has given this mine an entirely new shot in the arm.
Dave: You gave an interesting comparison to Goldcorp.
Most people don’t remember the 1990’s, but your history
lesson?
Alfred: Back in the early 1990’s, Goldcorp was a struggling
gold producer with a deep high cost mine in Red
Lake, Ontario with labor problems. They mounted an
underground exploration program, they discovered a
new high grade zone deep within the mine and over a
period of four or five years, it revolutionized Goldcorp
into the lowest cost gold producer in Canada and one of
the most successful gold exploration stories in recent
memory. Now the similarities between that and SanGold
are many. First of all, Goldcorp sits on a fault structure
which extends to the west and if you follow that fault
structure into Manitoba, about 100 kilometers to the
west, that is the location of the Bissett Mine. Secondly,
SanGold is also a deep underground mine and they have
recently encountered extreme high grade in a series of
new veins below the 5000-foot depth. And that’s where
they are going to be getting production over the next
couple of years.
On top of that, SanGold has developed two other mines in the area which will also feed the mill and what I would encourage
investors to do is visit the company’s website, have a look at the pictures of this 98-vein and listen to the interview
with the President of SanGold.
Dave: Going forward, what would be your favorite commodities?
Alfred: Right now, my favorite commodities are gold and diamonds because we’ve had a very strong base metals
market, but gold has actually languished over the last 12 months and the diamond exploration sector is in a deep funk
and I believe those sectors will probably do better than base metals going forward.
Dave: Thank you so much for your time, Alfred! |
