SRU.V - THE MARKET CATCHES UP!
Starfield Resources (SRU- CDNX) hits it 52 week high on active volume!
We identified this significantly undervalued investment opportunity for investors late last year with an update just prior to the commencement of drilling earlier this year. The precious and base metal prices have remained near their new highs and the investment market has started to recognize the potential of this situation propelling the stock price to its high for the last 52 weeks. The urgency to continue to be involved has been intensified by the results of the recent exploration program and with the re-commencement of drilling this month!
STARFIELD RESOURCES (SRU - CDNX)
Recap
Starfield Resources acquired the Ferguson Lake Nickel-Copper Prospect in Nunavut Territory, Canada in 1999, after it had been held by INCO (N - TSE) since they discovered it in the early 1950's. INCO had completed extensive exploration and development work before the discovery of the Thompson Mine in the mid 1950's diverted their focus to northern Manitoba. Last year's drilling and exploration work had an impressive success ratio of discovery of economic drill intercepts and grades of mineralization, as well as delineating the main part of the zone by geophysics and geological mapping. Late in the year the company acquired the "non-public" INCO data which augmented their knowledge base and resulted in revising the resource estimate to 11 million tonnes in the March 2000 INVESTMENT COMMENT - UPDATE with a gross value of $1.8 billion (Cdn.) or a net value per share of $25. The resource was divided between three zones (West Zone and two East Zones) along 9 kilometres of strike of the host unit.
The Ferguson Lake Nickel-Copper Prospect is hosted in a metamorphosed mafic to ultramafic amphibolite (hornblendite) sill (or volcanic) unit that has characteristics of an ultramafic layered intrusive. The hornblendite unit has been traced by surface sampling, drilling and geophysics for at least 18 kilometres and is between 50 and 200 metres thick. Mineralization occurs as massive sulphides in lenses within the hornblendite unit and as stringers and veinlets in the brecciated part of that unit. The main sulphide mineral is pyrrhotite while the economic minerals are chalcopyrite (copper), pentlandite (nickel), moncheite (platinum and palladium) and gersdorffite (cobalt).
CURRENT RESULTS
Starfield completed its initial Year 2000 exploration program which took advantage of the frozen lake to test areas that otherwise would be inaccessible and followed up on the analysis of the prior year's work and the INCO data. Funding for this program by "Flow through Shares" was sufficient to enable the company to complete 3600 metres of core drilling and detailed "Electromagnetic Surveying" (UTEM).
The exploration drilling was focused on delineating the west end of the East Zone under the lake (seven holes), testing the area beneath the lake between the Main Resource outlined zones (two holes only one completed), filling in the central portion of the West (Main) Zone (three holes) and testing the high grade platinum palladium zone south of the West Zone (West Zone South- three holes).
The geophysics (UTEM) surveying was undertaken to delineate the western extension of the West Zone, the central area between the two main zones, and the eastern extension of the East Zone. This type of surveying was also carried out on the West Zone South and two other known zones (South Discovery and Anomaly 51).
SIGNIFICANCE OF RESULTS
The drilling on the two main zones was tremendously successful and confirmed additional resource classified tonnage that increases the current estimate to 19 million tonnes with a gross value of over $2.6 billion (Table I) for the copper nickel cobalt palladium and platinum resource. This gross value again excludes any contribution from the 1-2 pounds of cobalt per tonne reported in the assays (Cobalt LME July 2000 US $12 per pound). Some higher grade areas of concentration within this resource (4.5 million tonnes) have a value of over Cdn$ 176 per tonne (without cobalt) form a discernible core to the West Zone's resource estimate.
The most striking discovery of this initial exploration program was the strength, length and character of the geophysical anomaly that was traced from the West zone another 2.2 kilometres (and still open) to the west. This anomaly ties in directly with the delineated resource in the West Zone and the response is certain to be sulphides. Certain because there is no other source identified in the area that could give this calibre of response and certain because of it's physical tie-in to the sulphides of the West Zone!
Both these results are cause for substantial optimism that the Ferguson Lake Zone will become a world class deposit. With the renewed exploration on the property barely a year old, Starfield has taken the published resource figure of 7 million tonnes to almost triple of that estimated resource. The company has identified a system that has produced a "world class" deposit of sulphides from the geophysical data and with the new drilling program slated to commence in the next few days, it should be able to reach the tonnages outlined in Table I with the potential impact on stock price accordingly.
Table I
Shares Outstanding Financing
Current Cdn$ Mining Cost Current Financing Production
Value /tonne per tonne Next phase $300,000,000 COMMENTS
$150.22 $75.00 21,000,000 24,671,429 30,839,286 Estimated O/S at
Deposit Size Gross Value Net value Gross value per share Net Value/sh end of production financing
19,000,000 $2,853,696,000 $1,428,648,000 $67.71 $57.91 $36.60
25,000,000 $3,755,363,178 $1,880,363,178 $89.12 $76.22 $51.25 Initial Thompson Reserves
50,000,000 $6,132,726,356 $2,382,726,356 $178.24 $152.23 $112.22 Total Mined at Thompson
100,000,000 $12,265,452,712 $4,765,452,712 $356.47 $304.87 $234.17 Voisey Bay Reserves
Investment Strategy
For the last year, Starfield Resources Ltd. has been struggling to get the market to recognize that it is "locked on" to a significant discovery of nickel, copper and platinum group minerals. It has attracted significant interest from major mining companies in the last six months and with these recent exploration results has moved to the threshold of turning the Ferguson Lake Prospect into a "World Class" Resource.
The recent movement in the stock price is indicative that the market is finally awakening to the size potential of this deposit. With the price trading in the $1.40 Cdn (under US $1 range) there is a lot of up side potential for the company (See Table I). In previous INVESTMENT COMMENT's, we have not focussed on the net value per share but at this time it is warranted because the exploration work completed in 2000 has increased the knowledge of the "resource" beyond the threshold of a pure exploration project.
In that regard the continuity and consistency of the grade of the "Resource" discovered to date, and the consistent geophysical correlation with sulphide mineralization enhances the prospect's ability to be developed into an economic mineral deposit. The current price represents a 96% discount to the net value of the fully diluted (estimated) share structure outstanding if the current resources and grade were developed into a mine (See Table I for the parameters of this net value per share calculation).
Of note is that the higher grade "core section" of the West Zone would be of sufficient value to develop a $300 million processing complex at a profit! Tonnage increases to the "World Class Deposit" parameters outlined in Table I, which given the geophysical results to date are attainable, suggests that the current discount is more than indicated above.
For investors, Starfield Resources (SRU -CDNX) represents a highly "positively" leveraged low risk investment opportunity. GeoFin Inc. is quite confident that there remains tremendous upside value especially now that speculative interest has been tweaked by the recent results and accompanying price rise. At any price under Cdn $2, Starfield's current results remain in the 95% discount range. As the company continues its Year 2000 exploration and development program on the Ferguson Lake Copper Nickel PGE prospect, the $2- $4 level should be "tested even if the poor sentiment on the Junior Resource sector remains.
In overall assessment, investment in Starfield Resources is highly recommended for investors who want exposure to the base and precious (PGE) metal markets and the rewards of a "new discovery." |
