Hunt for value amid tax-loss selling

These mining markets have not been kind to resource investors, so I decided to purchase a couple of early Christmas presents for myself this week. The price was right and in each case, I believe there is underlying value not reflected in the current share price. One is a miner, the other a junior exploration company. In both cases, tax-loss selling has compounded the damage to shareholder value.

SHERRITT: CUBAN ROOTS RUN DEEP
Earlier this year, I wrote about the proxy fight targeting Sherritt’s well-paid board of directors and management and bought shares. It was led by Halifax value investor George Armoyan and his public investment company, Clarke Inc. Through Clarke, Armoyan accumulated a 5% stake in Sherritt – which mines nickel in Cuba and Madagascar and has Cuban oil-and-gas and power assets – and fought to install himself and two directors on the board. His beefs included excessive director and executive compensation, poor capital allocation and the almost complete lack of “skin in the game” – share ownership by insiders.

Armoyan lost the proxy fight, but won the war – Clarke exited its position in Sherritt and booked a $17.5-million gain on the foray. I got stopped out of Sherritt stock at $4.50 after booking a small profit, and the company dropped off my radar. (Search “Sherritt” to see all my blog posts)

Sherritt leaped back onto my radar in a hurry on Wednesday morning when I heard that the U.S. was normalizing relations with Cuba after decades of a ridiculous Cold-War-era embargo and standoff. I bought shares at $2.67, reasoning that the U.S. thaw could only help Sherritt both operationally and on the markets, where there are few other ways to directly invest in the island nation. Going forward, relationships will be vital for those who want to do business in Cuba, and Sherritt has a decades-old presence and deep relationships. The company has less of a presence in Cuba than it did in Ian Delaney’s heyday, but it remains a major player through its Moa nickel joint venture, oil and gas exploration and production, and power generation interests.

Sherritt, 12-month chart (Google Finance)

It’s been a good few sessions for Sherritt stock, which closed Friday at $3.23, but I believe shares have a ways to go yet. It’s traded much higher in recent years, when the company’s prospects were not as good.

SABINA GOLD AND SILVER: DISCOUNTED GOLD
On my watchlist. Have owned shares previously. The people running the company are high-calibre operators with track records of generating shareholder value by developing and selling assets. Sabina is developing high-grade gold projects in Nunavut, a remote jurisdiction where it can be hard to get things done. I also like this about Sabina:
- it’s cashed-up, with about $30 million in the treasury at year-end;
- it has a potentially valuable silver royalty on the Hackett zinc property, which it sold and is now owned by Glencore.

The stock had a volatile week on heavy volume. I bought shares at 31 cents when the market cap was below $60 million. The stock subsequently ran up to 37.5 cents on multiples of its average volume, but has dropped back to 32 cents at time of writing.

Sabina Gold and Silver, 12-month chart (Google Finance)

Disclosure: I own shares of Sherritt, Clarke and Sabina. Please do your own due diligence and read my disclaimer.

Related reading

Sherritt and Clarke: Nickel for your thoughts | World of Mining

Two investing ideas (one of them is Sabina) | World of Mining

Sherritt website
Sabina website

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Quartermain’s golden financing advances Pretium’s Brucejack

When I interviewed Pretium Resources CEO Bob Quartermain at the company’s offices for a Vancouver Sun profile early this year, he talked about the continuing allure of gold in China and other Asian countries. (Read that article here)

“What we’re seeing is the slow and systematic movement of physical gold from the West to the East,” Quartermain told me. Pretium is developing the high-grade Brucejack underground gold project in northwestern B.C. and the CEO’s first trip after Pretium’s late-2011 IPO was to Shanghai.

Pretium’s Brucejack high-grade gold project site (Pretium Resources photo)

A deal announced last week means that Pretium’s gold could eventually be part of that movement. The firm announced an $81-million financing that would see Zijin Mining Group acquire 12.8 million shares at $6.30, giving Zijin an approximate 10% stake and a seat on Pretium’s board.

Zijin is a $9-billion market cap mining giant, the country’s largest gold producer and second largest copper producer (as well as a producer of other base metals).

I had first interviewed Quartermain in December 2011 when Pretium IPOed on the TSX at a gold price of US$1,400 an ounce. Pretium purchased the Brucejack and Snowfield projects from Silver Standard, from which Quartermain had just retired as CEO.

Gold is trading below $1,200 at the time of writing in the midst of one of the worst mining bear markets in decades, particularly for junior exploration companies, so the agreement is a bright spot for the sector.

The Zijin deal also gives Pretium another deep-pocketed major shareholder as it advances Brucejack through permitting and toward construction. Subsequent to the Zijin announcement, the company announced that other large shareholders – including Liberty Metals & Mining – would also maintain their pro rata ownership of Pretium shares, putting a further $18 million into Pretium’s coffers (also at $6.30/share).

A June 2014 feasibility study done at US $1,100 gold shows 6.9 million ounces of gold (13.6 million tonnes grading 15.7 grams per tonne) and capital construction costs of about $750 million, for an 18-year mine life and average annual production of 404,000 ounces of gold. So the company has more work to do, particularly on the financing front.

But the agreement reinforces Brucejack’s status as one of the world’s premiere undeveloped gold projects. And once built, the mine will also be a shot in the arm for British Columbia’s northern economy, not to mention First Nations in the area who will be beneficiaries through impact and benefit agreements.

Pretium seems to be executing on the financing, permitting and development fronts, so the million-dollar question remains: Will the gold market cooperate?

Disclosure: No position in Pretium.

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What makes Telfer tick

Ian Telfer is a Canadian mining legend who, in little more than a dozen years, has steered Goldcorp to its current position as the world’s top gold miner by market capitalization. Integral to Goldcorp’s rapid growth has been the company’s discipline, which enabled it to bypass pitfalls that have sidelined other gold miners. Shares of Barrick Gold (the world’s top producer), Kinross and Yamana are all bleeding through 52-week lows.

Goldcorp chairman Ian Telfer in front of the business school that bears his name. (University of Ottawa Gazette photo)

I recently interviewed the Goldcorp chairman in his Park Place corner office, high atop downtown Vancouver, for a Vancouver Sun feature. The elevator on his floor has no Up button, but Telfer has seen adversity close-up and his feet appear to be firmly planted on the ground. His own academic experience – he barely got into the University of Ottawa business school, which now bears his name after a $25-million donation – has given him a healthy respect for the underdog. In fact, Telfer still considers himself one.

Gold remains mired around $1,200 US an ounce, down 37% from its 2011 highs, but Goldcorp is generating cash flow, paying a dividend (current yield 2.7%) and opening new, internally developed mines. A rare loss for Goldcorp was being outbid earlier this year on Osisko Mining’s Malartic gold mine in Quebec, which Yamana and Agnico Eagle teamed up to buy for $3.9 billion. In our interview, Telfer was philosophical about walking away from Malartic: “Osisko had a higher value to them at this point in time than it had to us.”

Time will tell how much of a win Malartic – which does have well-below-average cash costs per ounce – was for Yamana and Agnico Eagle. It was a hefty price tag for the partners, which currently have a combined market cap of roughly $11.8 billion.

I learned during the interview that boundless curiousity is part of what makes Telfer tick. He’s a voracious reader and avid traveller who attended the recent World Cup in Brazil, his home for 5 years while he worked with Eike Batista, the now-broke billionaire, at TVX Gold. Telfer could be in Iran right now — at the time of the interview, he and his wife were booked to travel to the Persian nation this month, stop No. 98 on the Ian Telfer World Tour.

Interestingly, the size of Telfer’s stakes in two upstart companies he’s involved with – Renaissance Oil and Catalyst Copper – rival the value of his ownership position in Goldcorp stock. Both companies are partnerships with Goldcorp cofounder Frank Giustra. Renaissance is assembling shale gas properties in Mexico, while Catalyst is a base metals play advancing the La Verde copper project, also in Mexico.

Here’s my Vancouver Sun feature. Enjoy!

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Ace of diamonds: Prospector Gren Thomas on his next big score

My interest in Canadian diamond exploration and search for value led me to Gren Thomas and North Arrow Minerals, the subject of this post. It’s a collaboration with my friend Tommy Humphreys, founder of CEO.ca, whose video interview with the Canadian diamond pioneer can be seen here.

North Arrow Minerals has all the attributes I look for in a junior exploration company, including high-quality projects, topnotch management with a track record, heavy insider ownership, good share structure, and cash in the bank. I’ve been building a long position in the stock in recent weeks. As it turns out, North Arrow chairman Gren Thomas has also been buying, most recently 50,000 shares at 60 cents on Sept. 26.

Enjoy!

North Arrow Minerals chairman Gren Thomas (CEO.ca photo)

As a young boy, long before the hunt for buried treasure in the frozen reaches of the Canadian North and the discovery of one of the world’s richest diamond mines, Gren Thomas’s adventures took place mostly in his imagination.

Thomas grew up in Wales, coal mining country. And he was captivated by the exploits of Biggles, a children’s book hero whose exploits included piloting mineral prospectors to remote corners of the globe.

His own adventures began in earnest after he immigrated to Canada in the early 1960s. The young mine engineer, who was working at the Giant mine near Yellowknife, accepted an invitation to join an Arctic exploration crew that was short a geologist.

“I thought, ‘Well, this is a pretty good life. I’m canoeing around the place, and there’s caribou and wolves and I’m prospecting. The weather’s beautiful and I’m getting paid for it – it’s like being on holiday! After that I got the bug and I could never settle back into mining.”

“I got the bug in the summer of ’65.”

The grin that accompanies this statement is testament: his (unfinished) story in Canadian mineral exploration is every bit as fascinating as the fictional adventures he loved as a child.

Thomas moved in quickly after Chuck Fipke announced that his Dia Met Minerals, along with joint venture partner BHP, had found diamonds at Lac de Gras in November 1991. He was familiar with the territory through previous exploration efforts.

“I made the phone calls and got the crews lined up and Chris and I were up there within 3 to 4 days,” Gren recalls. “We stayed in separate places so no one would see us together and put two and two together.

“Chris went in with a crew and we staked what amounted to about 6 or 700,000 acres immediately adjoining the BHP ground. This was in November and so daylight was fairly limited and it was very cold, probably 30 to 40 below, and dark.”

Thomas’s Aber Resources made its diamond breakthrough at Lac de Gras in the spring of 1994, when a field exploration team that included his daughter Eira Thomas and Robin Hopkins drilled a discovery hole that included a diamond in the core.

Eira Thomas and father Gren: a formidable team

“I get this phone call from the camp, from Eira, saying, ‘Don’t do that financing, I want to speak to you first,’ ” he says. “I could tell by talking to her that there was something up, but I didn’t expect to see her to show up in Vancouver with a piece of core with a diamond sticking out of it.”

The discovery helped establish Canada as a diamond powerhouse, a major factor in pushing De Beers from its perch atop the global industry.

Investors are certainly glad Thomas made the trip across the Atlantic. Aber traded for dimes before Thomas and partners began hunting for diamonds, and one of the company’s first financings after staking a huge swath of the Northwest Territories was at $1.00 a share.

But the stock surged after the legendary discovery of the Diavik kimberlite pipes, and Aber successor Harry Winston Diamonds later peaked above $50. (“Diavik” is a combination of diamonds and West Viking, one of Thomas’s prior companies.)

The Diavik mine is expected to produce 6.5 million carats this year for operator Rio Tinto (60% owner) and Aber successor Dominion Diamond (40%).

Thomas is most famous for Diavik, but that wasn’t Aber’s only big score. It says something about his career accomplishments that a $173-million asset sale – one made possible by those early staking efforts – is a rarely mentioned footnote.

Aber owned a 32% interest in Randy Turner’s Snap Lake diamond project, which was discovered by Turner’s Winspear Resources and turned into an underground mine by De Beers.

In 2000, Turner’s Winspear sold 68% of the Snap Lake project to De Beers for $305 million. A year later, Aber got $173 million for its 32% share.

Canada’s diamond mines:

1. Ekati, NWT. Canada’s first, discovered by Chuck Fipke (Dia Met Minerals) in 1991. Opened in 1998. Dominion Diamond bought majority interest after BHP’s move out of diamonds.
2. Diavik, NWT. Discovered after Aber geologists Eira Thomas and Robin Hopkins insisted on one more drill hole in the spring of 1994 as the ice was breaking up, yielding a diamond in the core. Opened in January 2003. Very high-grade resource.
3. Snap Lake, NWT. Discovered by Randy Turner’s Winspear Resources (68%) in 1997. Sold by Winspear and Aber (32% owner) to De Beers. Opened in 2008 as De Beers’ first Canadian mine. Underground.
4. Victor, Ontario. De Beers’ second Canadian mine opened in 2008. Large kimberlite field, low-grade resource with a population of valuable stones.

Advanced-stage Canadian projects:

1. Gahcho Kue, NWT. 51% De Beers, 49% Mountain Province Diamonds. Largest new mine under development globally. Commercial production scheduled for 2016.
2. Renard, Quebec. 100% owned by Stornoway Diamonds, which is one-third owned by an arm of the Quebec government. Commercial production scheduled for 2017.

NOT DONE PROSPECTING

His exploration successes landed Thomas in the Canadian Mining Hall of Fame and made him a wealthy man.

But the Welsh immigrant with the passion for prospecting is not done with diamonds – or grassroots mineral exploration – just yet.

His latest diamond play, North Arrow Minerals (NAR.v), emerged from a reorganization of Strongbow Exploration. Under the leadership of CEO Ken Armstrong, North Arrow is advancing several projects in Canada’s North, including two that Thomas is quite excited about.

Qilalugaq, a large-tonnage deposit in Nunavut, hosts a population of yellow diamonds that is now being processed ahead of valuation. Pikoo is a grassroots discovery made last year in northern Saskatchewan that had exceptional diamond counts for such an early-stage project.

Both were optioned from Stornoway Diamond, formerly run by Gren’s daughter Eira Thomas, and are 80/20% owned by North Arrow/Stornoway.

Eira, now CEO of Kaminak Gold and a special advisor to North Arrow, led the field exploration team that discovered the Diavik kimberlite pipes and is an established mining executive in her own right.

Gren Thomas considers himself a prospector first and foremost. “There is nothing now like the amount of grassroots exploration that used to go on when I first started, and most of the things I’ve been involved with, we found right from the beginning,” he says. “I don’t tend to go out and find things that have been worked on before, I tend to do grassroots.”

But the assembly of North Arrow’s projects shows that he also knows a thing or two about leveraging exploration dollars spent by others.

The companies that advanced North Arrow’s projects spent more than $40 million over the years developing them. Qilalugaq, for example, has an inferred resource that was delineated by former Ekati majority owner BHP.

It was Eira’s idea to explore the possibility of optioning Stornoway exploration projects that were languishing in the shadow of Renard, Gren explained.

“Eira suggested we should start to look at some of these diamond projects now that no one was paying a lot of attention to them,” he said. “There were a lot of orphaned diamond projects out there two years ago.”

“It’s hard to believe now, because all of a sudden there’s a diamond thing on.”

The “diamond thing” could gain steam quickly if the 1,500-tonne mini-bulk sample collected recently from Qilalugaq’s Q1-4 kimberlite proves up a population of fancy yellow diamonds.

Qilalugaq: Reasons for optimism

- Population of rare yellow diamonds in smaller sample.
- At 12.5 hectares, largest kimberlite in the eastern Canadian Arctic.
- Existing inferred resource estimate of 26.1 million carats (modelled from surface to 200 metres);
- Just 7 km from tidewater, and 9 km to Repulse Bay.

A (YELLOW) COMPANY MAKER?

You might say the Canadian diamond pioneer is seeing yellow. Or as he puts it, “(Qilalugaq) is potentially a company maker, right now.”

An earlier 64-carat parcel of Q1-4 stones contained a full colour range of yellow diamonds, from light yellow to fully saturated.

A selection of diamonds from Q1-4 (North Arrow Minerals photo)

Since Q1-4 has a diamond grade – .54 carats per tonne – below Canadian averages, the presence of valuable yellow diamonds in the 500+ carat parcel will be key to establishing the value of the stones.

How rare are yellow diamonds? Fewer than 0.1% of all diamonds are yellow. Rarer still are stones so vivid and intense they can be categorized as “fancy yellows.”

Consider this: a single mine in Australia – Kimberley Diamonds’ Ellendale mine – now produces half of the world’s yellows. And a glimpse at the impact of Ellendale’s yellows on the mine’s economics is revealing.

Yellows make up less than 15% of Ellendale’s production but account for 75% of the mine’s revenue. In dollar terms, Ellendale’s yellow diamonds fetched US$4,525/carat in Kimberley’s most recent quarter, compared to an average US$684/carat for all diamonds sold.

Put simply, if Ellendale didn’t have yellow diamonds, the mine probably wouldn’t exist.
Until recently, Kimberley had an offtake agreement with Tiffany, probably the world’s most iconic purveyor of yellow diamond jewelry. That agreement has ended and Kimberley sold its most recent batch of yellow diamonds via auction.

Bulk sample bags containing kimberlite at the company’s Qilalugaq project (North Arrow Minerals photo)

As for North Arrow, the Qilalugaq bulk sample was recently shipped by barge to Montreal for initial processing in Thunder Bay, before being trucked to Stornoway’s North Vancouver lab for final processing. The final diamond package of more than 500 carats will be valued in Antwerp. Results are expected in the first quarter of 2015. A speculative premium could build in NAR ahead of the receipt of that valuation.

Qilalugaq is subject to a one-time back-in right that allows Stornoway to increase its interest from 20% to 40% through a payment of three times North Arrow’s exploration costs.

Thomas is also excited about the Pikoo discovery, describing it as a “classic exploration success.”

“The regional work is done, the right geology, you narrow it down to a drill target, then you put the drill in the ground,” he says. “It’s a great story.”

North Arrow hit kimberlite in nine of 10 drill holes, and a 210-kg sample of drill core yielded 745 diamonds larger than the .106-mm sieve size, including 23 larger than .85 mm.

“The initial grade and the diamonds we’re seeing in those first three holes, you won’t see anything better in a discovery. They really are good.”

North Arrow has identified new drill targets that it will test in the first quarter of 2015.

Pikoo: Reasons for optimism

1. Grassroots discovery with high initial diamond counts.
2. 10 kilometres from infrastructure.
3. New drill targets to be tested in early 2015.

THE LUNDIN CONNECTION

When North Arrow receives its Qilalugaq valuation, one of the world’s most successful resource entrepreneurs will be paying close attention.

Billionaire mining tycoon Lukas Lundin owns a 20+% stake in North Arrow through Zebra Holdings and Investments, a Lundin family trust.

According to Lundin, the upside in North Arrow shares could be tremendous with a positive Qilalugaq valuation.

The Thomas family retains strong links with Lundin, a tie forged during the formation of his African diamond play Lucara Diamond. Despite a recent pullback, Lucara stock remains one of the diamond market’s rock stars, with a one-year return of 100% on the strength of large, high-value stones pulled from its Botswana mine.

Eira Thomas was instrumental in the formation of Lucara and remains a director of the company, as well as one of its largest shareholders. She told the Vancouver Sun in a recent interview she is “very bullish” on the company, describing CEO William Lamb as a “great CEO.”

“I think he’s going to build a strong foundation for the future,” she said.

Lamb, as a North Arrow director, also has a stake in the success of Qilalugaq.

Just as Thomas’s North Arrow Minerals has caught the attention of Lundin, Thomas has been watching Lucara’s successes with an appreciative eye.

“Lucara’s an outstanding diamond company,” Thomas says. “I’m hoping, of course, we can do something similar with North Arrow here.”

ALL IN THE FAMILY

If Thomas can manage to replicate Aber’s success with North Arrow Minerals, his daughter will likely again be an important part of the equation.

Eira spent a lot of time with her father prospecting and getting mud on her boots in the North, both before and after enrolling at the University of Toronto, where she switched to geology after a year of biology. Gren’s work ethic and positive attitude seems to have rubbed off.

“I’ll never forget, I was walking through Calgary airport and she was about 14 and coming to work with me up north,” he recalls. “We were talking about careers and stuff and I said, ‘Look, you can do anything you want, don’t forget that.’

“She listened,” he added with a smile.

Thomas’s son Gareth is also involved in the exploration game as a director of Westhaven Ventures (WHN.v). Gren is president and CEO of Westhaven, which is advancing early-stage nickel and gold projects in British Columbia.

In March of this year, Westhaven announced the results from its inaugural drill program on its BEN nickel property that included 70.6 metres grading 0.31% nickel and .012% cobalt.

More recently, Westhaven’s share price has bucked the market downtrend. Shares hit a 52 week high of 14 cents on September 24th on the back of assays from a recently completed 1258 metre, 11 hole diamond drill program at BEN.

Although there has only been limited drilling to date, Thomas believes the potential for large tonnage exists at the property, 50 kilometres north of Williams Lake (between Taseko’s Gibraltar copper-gold mine and Imperial Metals’ Mount Polley).

That could grab the attention of the market, especially in a nickel bull market, Thomas says. “It’s got legs, I think. I have a suspicion there could be some very large tonnage of this material.”

Drill results are pending from Westhaven’s Shovelnose gold property south of Merritt. The company drilled six holes for a total of about 662 metres. Prior drill hits included 50.4 metres of .54 g/t gold and 4.77 g/t silver.

Shovelnose has geography on its side – the project is located right beside the Coquihalla Highway, a major B.C. freeway.

NORTH ARROW, THE STOCK

To describe North Arrow Minerals as “under the radar” would be something of an understatement. The stock has a 52-week range of 34-84 cents and the insider ownership/strong hands ensures the microcap is very thinly traded. In the event of positive news, that should give North Arrow shares powerful momentum.

Some days, no stock changes hands. The stock has also seen bursts of unusually high activity.

When diamond counts from the Pikoo discovery were announced, the stock surged from 40 cents to the 80-cent level, before settling back down.

During times when the stock languishes, Gren Thomas often adds to his stake in the company. Most recently he purchased 50,000 shares at a price of about 60 cents on Sept. 26. He owns a 13.5% stake in the company, according to INK Research data.

According to the latest North Arrow corporate presentation, there are about 50 million shares outstanding and North Arrow has about $7 million in the bank, giving the company an enterprise value of just $23 million. The Qilalugaq valuation and Pikoo winter drilling program are fully funded.

Kennady Diamonds, a spinoff from Mountain Province, may be the closest comparable to North Arrow Minerals, despite their differences.

Both companies are run by experienced teams and have deep-pocketed major shareholders. Kennady’s flagship project, Kennady Lake, is earlier-stage than North Arrow’s Qilalugaq. But preliminary samples from its Faraday and Kelvin kimberlites have shown exceptional grades. According to Kennady’s latest corporate presentation, a maiden resource estimate will be released before the end of the year.

Kennady shares, however are trading near 52-week highs and have returned about 60% in the past year. The stock is trading at the $8 level with about 23 million shares outstanding and $4 million in cash, for an enterprise value of about $184 million.

North Arrow Minerals has double that amount of money in the bank and an enterprise value of just $23 million.
For that, you get:

- second-to-none board and management team that has both discovered and developed diamond mines.
- In Qilalugaq and Pikoo, advanced and grassroots projects with plenty of blue sky.
- Call options on a portfolio of several other projects besides Qilalugaq and Pikoo.
- High insider ownership levels.

The macro fundamentals of diamonds are solid. Rough prices are increasing, few new mines are coming online and demand growth is robust in both the United States – still the world’s largest diamond jewelry market – and China.

Word is getting out on the Canadian diamond explorers as well. In May, Dundee issued a bullish diamond report initiating coverage on five Canadian diamond names, including North Arrow Minerals (the others are Mountain Province, Stornoway, Kennady and Peregrine). In a recent update focusing on Pikoo, Dundee Capital Markets described North Arrow as “one of our preferred diamond explorers.”

We concur.

One way to mitigate the high risk inherent in diamond exploration investing is a basket approach. However, if we had to own only one diamond exploration stock, it would be North Arrow Minerals.

Disclosure: James and Tommy own shares in North Arrow Minerals, a high-risk exploration stock. Always do your own due diligence as you are responsible for your own trades.

Related reading:

North Arrow Minerals Oct. 1, 2014 corporate presentation

Canadian diamond pioneer Gren Thomas makes new discovery | World of Mining

Chasing the carat: Canada’s Queen of Diamonds comes full-circle | World of Mining

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Armoyan’s Clarke books $17.5-million gain on Sherritt foray

by James Kwantes

When I last wrote about Canadian value investor George Armoyan, he was licking his wounds after losing a bid to install three directors on the board of nickel miner Sherritt International (S.TO). Sherritt produces nickel as well as oil and gas in Cuba and a major focus going forward is its 40% owned Ambatovy nickel mine in Madagascar.

Armoyan had taken aim at Sherritt – long home to a curious combination of lavish pay packages and chronic underperformance – through Clarke (CKI.TO), his publicly listed investment company. Clarke accumulated 5%-plus of Sherritt’s stock, which had sunk below $4 a share after hitting 2007 highs above $17 and 2011 highs above $9.

George Armoyan gets the last laugh after failed Sherritt proxy battle. Halifax Chronicle Herald photo

Following months of failed behind-the-scenes negotiations, Armoyan publicly criticized Sherritt management and launched a determined, if improbable, proxy battle that would have seen him and two associates join Sherritt’s board of directors. The public spat, along with a surging nickel price and analyst upgrades, sent Sherritt stock up to the high $4s in the spring.

Turns out that while Armoyan lost the Sherritt proxy battle, he won the war – to generate returns for shareholders.

Clarke disclosed in its second-quarter financials, released on Aug. 7, that it had unloaded its entire stake in Sherritt (a portion during Q2 and the rest subsequently), generating a profit of more than a few nickels on the transaction – $17.5 million, to be precise.

Armoyan has since been deploying its large cash pile closer to home, boosting Clarke’s already-substantial ownership stakes in growing hotel play Holloway Lodging (HLC.TO) and oil-and-gas focused holding company TerraVest Capital (TVK.TO).

Clarke shares closed at $8.17 the day I first wrote about the Clarke-Sherritt showdown. They are now trading in the range of $10.60, a gain of about 30% (compared to about 9% for the S&P/TSX Composite). Clarke also pays a dividend and is yielding about 3.8% at current prices.

As for Sherritt shares, they have slumped back below $4 (I bought in the low $4s and got stopped out at $4.50).

On July 30, Sherritt announced a second-quarter net loss of $30.1 million, or 10 cents a share, despite increased revenues and surging nickel prices during the three-month period.

As for Armoyan, Clarke’s beefed-up Holloway investment is also working out nicely. The stock is up more than 30% in the past month after value investor Guy Gottfried talked the company up at the Value Investing Congress in New York in early September.

Disclosure: I own Clarke shares. All investors should do their own due diligence.

Related reading

Sherritt and Clarke: Nickel for your thoughts | World of Mining

A proxy loss, but Sherritt shaken | World of Mining

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NexGen Energy, next moves

NexGen Energy (NXE.V) energized the junior mining world Tuesday (after being halted all day Monday) with a drill hole described variously as “landmark” (by the company) to a “barnburner” (Dundee).

NexGen’s AR-14-30 at its Rook 1 project, part of the Arrow discovery in the Athabasca Basin, Saskatchewan, hit 186.9 metres of uranium mineralization including about 54 metres of “off-scale radioactivity.”

It was an exceptional hole, even by the standards of the Athabasca Basin, home to the world’s richest uranium grades. I took a position in NexGen last summer, in late June, at 25 cents and wrote about that here.

NexGen shares surged about 30% Tuesday on 10X average volume, closing at 54 cents. The stock held those gains on strong volume today and closed a cent higher.

NexGen Energy, year-to-date


Doubles, especially in the current Venture market – and in uranium!, don’t come around every trading session, so the stock action presented a classic investor’s dilemma. Sell the microcap stock (which has been quite volatile) and book all or part of my gains, or ride this winner?

I decided on the latter. My position is relatively small and I believe Tuesday’s drill result buttresses the case that NexGen has a high-grade uranium deposit that will prove economic. Management is top-rate, the company is cashed-up and there are a slew of catalysts that should help underpin and drive the stock going forward, including further drill results and analyst coverage.

Getting in before the crowd remains one of the keys to successful microcap investing.

Travis McPherson of CEO.ca recently went on a NexGen site visit and wrote up a good report here.

Disclosure: I own NexGen shares, but this item and this blog should not be considered investment advice. All investors should do their own due diligence. Please read my disclaimer.

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Pattison backs Canterra, Randy Turner’s diamond explorer

by James Kwantes

Billionaire Jim Pattison’s business empire in automotive, food, forestry, packaging, media and coal terminals has made him Canada’s richest or third richest person, depending on who’s doing the counting.

Turns out part of Pattison’s fortune is also derived from Canadian diamond exploration.

Randy Turner (above) is back hunting for diamonds in NWT and he’s taking along Jim Pattison, a former Winspear investor. Photo by Jason Payne/Vancouver Sun

The Vancouver business tycoon was a 10% holder of Randy Turner’s Winspear Diamonds, which discovered the Snap Lake deposit and was sold to De Beers for $305 million in 2000. (Winspear owned 68% of Snap Lake; Gren Thomas’s Aber owned the other 32% and sold that to De Beers for $173 million a year later.)

Pattison is teaming up with Turner once again by taking a large stake in the Vancouver geologist’s latest diamond exploration vehicle, Canterra Minerals (a Diamondex successor). On July 29, Canterra announced it had closed a $2-million financing, with Pattison acquiring 14 million shares, or about 18.7% of Canterra’s outstanding shares.

For more on Turner – who more recently, in 2011, sold his Silver Quest Resources and its 25% interest in a B.C. gold project to New Gold for $131 million – check out my June 10 Vancouver Sun feature.

In a followup interview this week, the Canterra CEO described Pattison as a “great supporter” and said Canterra crews are now doing till sampling and further defining future drill targets at the company’s early-stage Northwest Territories projects. Those properties are located between Snap Lake and Gahcho Kue, the joint-venture diamond mine being built by De Beers (51%) and Mountain Province Diamonds (49%).

Canterra has narrowed down its hunt for gems with the help of a large geophysical database accumulated over 15 years of exploration in the southern Slave, where Canterra’s claim and lease holdings now total about 74,000 hectares.

On Aug. 14, Turner also brought diamond veterans Tom McCandless and Bruce Kienlen into his corner. McCandless worked with diamond pioneer Chuck Fipke before Canada’s industry existed, has extensive experience in the Slave and was chief mineralogist for Ashton Mining/Stornoway Diamonds. Kienlen has worked for BHP Billiton and Diamonds North.

Disclosure: No position in Canterra Minerals currently. Please read my disclaimer.

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Kaminak Gold: What you have, who you know

After a family holiday in the Netherlands (great!) and a period of inactivity at WorldofMining.com, I’ll pick up where I left off: with Eira Thomas, CEO of Kaminak Gold and Canadian diamond pioneer.

When I interviewed Thomas in June for a Vancouver Sun feature, she had expressed some frustration at the fickle state of the Venture market.

Kaminak had just released a preliminary economic assessment on its Coffee gold-copper deposit in western Yukon with some impressive numbers.

- Life-of-mine all-in sustaining costs of $687.50/oz

- Pre-tax NPV of $522 million at a 5% discount rate and IRR of 32.8% (after-tax of $330 million and 26.2%)

- Initial capex of $305 million, with a payback of 2 years, after-tax.

The PEA was announced on June 10 and the next day, Kaminak shares surged about 29%, from 72 cents to 93 cents, before settling back to the 80-cent level in the following weeks.

Then on July 14, Kaminak released some news that seemed to move the needle in a more permanent way – a $13.5-million equity investment in the company by Vancouver mining entrepreneurs Ross Beaty and Lukas Lundin.

Beaty is flush with cash after selling his Lumina Copper to First Quantum Minerals for $470-million (he owned 26% of shares). He is also a 10% holder of Augusta Resource, which finally capitulated in its long-running battle with Hudbay after the miner sweetened its offer for the copper junior.

Lundin runs a mining empire that spans the globe, with interests in junior and producing miners in copper, gold, uranium, diamonds and more. One of his companies is African diamond producer and market darling Lucara Diamond, which has delivered shareholders a 1-year return of 188%. Thomas is a Lucara director and one of its largest individual shareholders – she owns 7.7 million shares, a 2% stake worth about $20 million. Lundin family holding companies are also the largest shareholder of Canadian diamond explorer North Arrow Minerals, which is run by Thomas’s father Gren Thomas. Eira is an advisor to North Arrow.

Beaty and Lundin will each hold 10% stakes in Kaminak following the close of the private placement, which consisted of 80-cent units (one common share and a half-warrant).

With $26 million in cash after the financing, Kaminak announced July 28 it would go straight to a feasibility study on Coffee.

It goes to show you, especially in a bear market, that sometimes it’s as much about who you know as what you have.

Kaminak shares were trading at $1 at the time of writing, up about 76% year-to-date, giving the company a market cap of $110 million. Thomas recently added to her stake in Kaminak as well, picking up 50,000 shares at $1.01 on July 17 and 18.

Disclosure: I own shares of North Arrow Minerals.

Related reading

Chasing the carat: Canada’s Queen of Diamonds comes full-circle | World of Mining

Lumina Copper: Good things come to those who wait | World of Mining

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Busy week in Canadian diamond world

by James Kwantes

Eira Thomas wearing two-carat diamond earrings from Diavik, the Northwest Territories mine she discovered. Photo by Gerry Kahrmann, Vancouver Sun

As regular World of Mining readers know, I have written about Eira Thomas and followed her career since I was an Ashton Mining shareholder. I interviewed Eira recently about her diamond pursuits and other endeavours for the Vancouver Sun and my Sun feature was published this week. Eira is now CEO of Kaminak Gold, which is developing the Coffee project in Yukon, but diamonds remain a “passionate pursuit.”

And it shaped up to be a busy week in the world of Canadian diamonds. Chuck Fipke, the Kelowna geologist who literally launched the Canadian industry with his 1991 discovery of diamonds in the Northwest Territories, sold his 10% stake in the Ekati diamond mine for $67 million. The buyer was mine operator and 80% owner Dominion Diamond (formerly Aber Resources/Harry Winston), and the purchase price included Fipke’s stakes in both the mine and in the exploratory “Buffer zone.” Ekati co-discoverer Stewart Blusson and his company, Archon Minerals, have opt-in rights on Fipke’s stakes that if exercised would moderately dilute Dominion Diamonds’ interest. Fipke’s passion for diamond and mineral exploration endures, however, as he explained to a Globe and Mail writer. “I’m an explorer, not a manager.”

Here’s the Globe and Mail on the Fipke sale.
And the Financial Post’s take on the historic transaction.

Finally, Stornoway Diamonds announced a production decision this week and broke ground on its Renard diamond project in northern Quebec. Eira Thomas is a cofounder of Stornoway, which acquired Renard through a hostile takeover of Ashton Mining, but stepped down as a director and chairwoman in August 2011. Renard will be Quebec’s first diamond mine and Stornoway took the unusual step of raising the money to build the mine – almost $1 billion – itself, through a creative financing that involves debt, dilution and even the forward sale of a diamond stream.

Renard will be a lower-grade diamond mine than Ekati, Diavik or Gahcho Kue, the diamond mine being developed by Mountain Province Diamonds (49%) and De Beers (51%) in the Northwest Territories. But it’s one of the few new diamond mines coming onstream globally, as a supply pinch builds amid growing demand for the glittery gems in the United States, China, India and the Middle East.

Also providing supply of Canadian diamonds is De Beers’ Snap Lake diamond mine, which was sold to the diamond giant by Winspear Diamonds/Aber Resources. I interviewed Winspear founder Randy Turner recently about the transaction with De Beers and his latest diamond exploration vehicle, Canterra Minerals, which is raising $2 million to return to the Northwest Territories and the diamond hunt. Here’s a link to my Sun feature on Turner.

Related reading

Chasing the carat: Canada’s Queen of Diamonds comes full-circle | World of Mining

Chasing the carat: The Friedlands go diamond-hunting | World of Mining

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Cashed-up IDM Mining takes gold hunt to Red Mountain

Rob McLeod’s IDM Mining has closed its financing, raising about $3.3 million to drill for high-grade gold at its Red Mountain project, near Stewart in northwestern B.C. The area has been home to some of Canada’s highest-grade gold mines, including Premier, and is where Bob Quartermain’s Pretium is delineating its high-grade Brucejack gold project.

I wrote about McLeod and the return to his hometown neighbourhood in this Vancouver Sun feature. IDM Mining stands for Ian and Don McLeod, Rob’s father and uncle, respectively, both of them well-known B.C. miners and mine builders.

No positions at present in IDM Mining or Pretium.

UPDATE: Tommy Humphreys at CEO.ca published a good video excerpt with Rob McLeod this week. Check it out.

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