Jan 12 The Gold Report little more reading
TW: I use the watch list as a way to start to look at new companies or companies that come onto my radar screen and follow them for a while. They may be ones that I'm planning to visit before I decide to add them to the index and the model. For example, I added Oro Gold Resources Ltd. (TSX-V:OGR) and Rochester Resources Ltd. (TSX-V:RCT) to the watch list somewhere around October. Once I saw what they were doing, met with management and checked out the deposit, I upgraded them from the watch list to the model and the index.
Meanwhile, if I don't like the way something is going at a company-maybe some problem with the deposit itself or the development of the project-I may drop it from the model to the watch list, which means I'm still covering it and watching progress, but it won't be included in the index.
In the same way, I also keep an eye on the mid-tier Mexican producers such as Minefinders Corporation (TSX:MFL, NYSE.A:MFN) and Alamos Gold Inc. (TSX.AGI) and others. I don't really follow them per se, because they're already widely covered and for the most part, they don't fall into my exploration model. I do use them in some other comparisons on valuations with the other smaller producers that are actually in the model.
TGR: Do you always add new companies at the Early Explorer level?
TW: No, I will add companies at any level as a new addition or an upgrade from the watch list. But it is the Early Explorers that add the real leverage to the overall MSG Index. Since January 2007, the Advanced and Producing Explorers are up 166% and 103% respectively. The Early Explorer category is up 770%.
TGR: Wow, that is impressive. To what do you attribute those returns for Early Explorers?
TW: Without question I attribute it to Due Diligence Tours and a lot of boot leather on the ground in Mexico.
C.F. (Trey) Wasser III spent 20 years as a bond salesman and trader with Merrill Lynch, Kidder Peabody and Paine Webber, specializing in corporate cash management for many Fortune 100 companies and institutional money managers. He counts some of those same institutional money managers among his clients today, in his capacity as President and Director of Research for Pilot Point Partners LLC and President of Due Diligence Tours. It is via DD Tours that Trey takes analysts and fund managers on periodic site visits to junior miners' properties in Mexico. An entrepreneur who is also active in the Dallas real estate development market, Trey formed III-D Capital LLC in 1993 to assist early-stage technology companies develop business plans and secure venture capital financing. That work evolved into a range of consulting assignments and finance activities for mining companies. He also serves as a pro-bono consultant for a number of regulatory agencies, including the Financial Industry Regulatory Authority (FINRA), which is the largest independent regulator for all securities firms doing business in the United States.
More Mexican silver and gold miners/explorers to follow
Trey Wasser's follow-up to his recent overview of Mexican precious metals explorers and miners looks at more specific companies which he favors. Interview with The Gold Report.
Author: The Gold Report
Posted: Tuesday , 12 Jan 2010
VANCOUVER, BC -
mineweb.com
As we learned in the recent article on Trey Wasser's views on Mexican precious metals explorers (see Mexican gold and silver explorers - opportunities and insights), his Mexican Gold & Silver Explorers Model (MSG) tracks junior explorers and producers as they define and develop precious metal assets and bring them into profitable production. He now shares his insights on some more of his favorites.
TGR: Why don't we start Part II with some of your current top picks in from the MSG Model?
TW: Absolutely. Two of my standout companies are Capital Gold Corp. (TSX:CGC;OTCBB:CGLD; Frankfurt:CGU) and Fortuna Silver Mines Inc. (TSX.V:FVI), due to their impressive profitability. Capital Gold produced about 50,000 ounces in their year ending July 31 and reported over $10 million in fully taxed net profits. John Brownlie, who has been with the company since 2006, was just made President and COO in September. He is arguably one of the best operators amongst the juniors. He built the El Chanate mine in Sonora on time and on budget. It is now one of the lowest cost mines in the industry with a cash cost of just $330. Its reserves have grown from about 400,000 proven and probable (2P) ounces when the mine was built to more than 1.5 million 2P ounces today. They have just installed a new crusher module and built a second leach pad. They should produce about 70,000 ounces in calendar 2010. The residual leaching from the old pad could add another 20,000 ounces. They are unhedged and at current gold prices will generate cash flow of about $40 million. The stock is selling at less than five times calendar 2010 cash flow and less than eight times earnings.
Fortuna is another well-managed company. Their production and profitability profile is based on their Caylloma Mine in Peru, but they have a very exciting project-San Jose-in Oaxaca State. They have built an impressive resource and begun mine construction. San Jose will be mostly financed from their treasury and from cash flow from Caylloma. We were set to visit the property last June, but had to cancel due to the H1N1 flu outbreak. I am looking forward to seeing this project this spring.
TGR: In Part I, you mentioned adding Oro Gold Resources Ltd. (TSX-V:OGR) and Rochester Resources Ltd. (TSX-V:RCT) to the model. What stage are these companies in? Early Explorers, Advanced Explorers or Producing Explorers?
TW: I added Oro Gold to the Early Explorers category, and have Rochester in the Advanced Explorers category. If you look at the model itself, there are stated criteria that can move a company from one category to another. To some degree, though, a bit of it is subjective. For instance, I don't move an Early Explorer up just based on the resource and having a 43-101 resource. Those are among the criteria, but if I see some stumbling blocks in the development or feel they aren't making enough progress moving a project toward economic feasibility I won't move them up. For example, if they still have a lot to do in the way of metallurgical testing, dealing with access and surface rights issues and water issues and other potential permitting problems, I may keep them in the Early category even if they have a bigger resource than some Advanced Explorers.
TGR: You say Rochester is an Advanced Explorer? Aren't they producing?
TW: Rochester does have some production, but it's very small so far. They have had issues with feeding their mill from narrow underground veins. They have just raised some capital and have a new mine plan and exploration program. I look for the company to move up to the Producing Explorers category as their story unfolds this year when they really ramp up production and start showing earnings or at least cash flow. So this was a bit of a selective placement on my part, but it allows me to move them up and alert my clients that they are executing. One of the exciting things at Rochester is that Eduardo Luna is now President and CEO. He was Goldcorp's president of Mexican operations (Luismin) and is one of the most respected mining names in Mexico. He could have picked from many companies in Mexico to run. He chose Rochester and put his own money in the deal. I always like management with "skin in the game." Eduardo's goal is to grow production and resources at Mina Real, which is in Nayarit State, in the same way he built mines for Luismin.
TGR: Have you added anything else to the model lately?
TW: In addition to Oro Gold and Rochester Resources, I've recently added Silvermex Resources Ltd. (TSX-V: SMR) to the Advanced Explorers. Silvermex is a new management story. CEO Duane Nelson has just brought on Mike Callahan and Art Brown to help him manage the company. These are retired Hecla executives who could make this a very exciting story in 2010. Duane also added two new board members, Joe Ovsenek and Ken McNaughton. They both work for Silver Standard (TSX: SSO; Nasdaq: SSRI) and have been involved many significant discoveries and mine developments. This quality of people doesn't get involved in a junior company unless they really see something they like.
Silvermex has an option on the San Marcial property, a near-surface deposit of over 20 million ounces of high- grade silver in Sinaloa State. They also just bought the old Rosario Mine from Aurcana Corporation. This is a mine that was operated by Grupo Mexico in the 1990s and was shut down due to labor issues and low metal prices. The infrastructure at Rosario will allow Silvermex to fast-track San Marcial into production. There is also a couple of years' worth of production left behind by Grupo at Rosario that is very economical. There is significant exploration potential at the old mine, at San Marcial and within the district. Either of these projects on their own may not have been developable without a lot more exploration, but together they make a very powerful story and a near-term silver producer.
TGR: What's the Oro Gold story?
TW: Oro Gold is managed by a group who worked for Placer Dome. They are very smart and have a project outside of Mazatlan called Trinidad. This is an old Eldorado Mine that is very difficult rock to drill, but I think the Oro Gold people are figuring out the deposit and it is going to be pretty big. The grades and widths are very impressive. |
