Peter Munk’s buying Barrick, but …

Posted on May 14, 2013 by Editor

by James Kwantes

Barrick Gold’s operations – and troubles – span the globe and shareholders have also been experiencing a world of pain, especially in the past few months. Shares are down 40% year-to-date, taking the company’s market capitalization below Goldcorp’s despite much higher gold production. (The plunging stock price has driven Barrick’s yield up to nearly 4%.)

Peter Munk: exiting at the bottom?

Barrick’s problems include a falling gold price, skyrocketing costs and environmental issues at its giant Pascua-Lama deposit on the Chile-Argentina border, and lucrative pay packages for executives including founder and chairman Peter Munk and former prime minister Brian Mulroney.

The Financial Post’s Peter Koven gives the lay of the land in this recent article. An $11.9-million signing bonus to the outgoing Munk’s hand-picked successor John Thornton was the tipping point that drove several of Canada’s largest pension funds to join the fight against exorbitant executive compensation.

With this backdrop, the outgoing Munk just purchased $2.1 million worth of shares in his gold company in a transaction filed Monday, as outlined by Canadian Insider. On May 9, he bought 100,000 shares at $21.05, three bucks above the 52-week low.

Large shareholder purchases in the public market by executives are usually a good omen. However, insider purchases by executives with large targets on their backs are a different matter. Even with the buy, Munk owns just 2,088,500 shares – about .2% of the outstanding total, according to subscriber service INK Research. It ain’t much for a guy who’s been synonymous with the company for decades. I suspect it won’t make shareholders feel better, either.

As Rick Rule put it in a recent BNN appearance, “his percentage ownership in the business has decreased while his say in the affairs of the business has not decreased proportionally.”

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Diamond riches fuel Chuck Fipke’s Derby dreams

Posted on May 7, 2013 by Editor

Kentucky Derby winner Orb dominated the headlines and basked in the accolades following a muddy win at Churchill Downs on Saturday.

The second-place finisher wasn’t a bad story either. Golden Soul overcame pre-race odds of 34-1 to take second in the prestigious race, netting owner Chuck Fipke a $400,000 payday. Fipke discovered the kimberlites that became Ekati, Canada’s first diamond mine, in the Northwest Territories in the early 1990s, setting off a staking rush and giving birth to a Canadian industry. Ekati now produces about 4% of the world’s diamond supply; Fipke’s horse Tale of Ekati came fourth in the 2007 Kentucky Derby.

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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Chasing the carat: The Friedlands go diamond-hunting

Posted on April 29, 2013 by Editor

A World of Mining special – Part 2 of 2

Part 1: Chasing the carat: Canada’s Queen of Diamonds comes full-circle | World of Mining

by James Kwantes

Stornoway Diamonds’ hostile takeover of Ashton Mining and Quebec’s Renard diamond project in January 2007 was followed by an exodus of Ashton executives and managers. Several departed for Peregrine Diamonds, which is advancing its flagship Chidliak project on Baffin Island.

Robert Boyd, Ashton’s president and CEO who had characterized the Stornoway offer as “stingy,” is now lead director at Peregrine. Brooke Clements, Ashton’s vice-president of exploration who led the team that discovered Renard, is now president of Peregrine. Other key employees also departed for Peregrine (some after staying on with Stornoway for a period of time).

THE FRIEDLAND CONNECTION

For those who moved from Ashton/Stornoway to Peregrine, the new boss was Eric Friedland, younger brother to legendary mining financier Robert Friedland.

Eric Friedland

Eric has a decidedly lower profile than his famous bro: Google “Eric Friedland” and you’re as likely to get swimming as mining hits. But his track record of value creation for shareholders is impressive.

Most recently, in 2011, Friedland sold Peregrine Metals – a spinout from Peregrine Diamonds – to Stillwater Mining for $487 million in cash and stock. The deal turned heads because Stillwater paid a staggering 280% premium (at the time of the deal) for Peregrine Metals and its main asset: the Altar copper-gold deposit in San Juan, Argentina.

The younger Friedland caught the mining bug from his brother Robert, who is 13 years older. An Oregon property where the brothers spent time as teenagers had an abandoned gold mine on it, and the brothers used to crawl around underground. One day, they found a quartz vein with visible gold. Eric was hooked.

Robert Friedland

The brothers teamed up on Fairbanks Gold, of which Eric was president, and sold its Fort Knox – how’s that for marketing? – deposit in Alaska to Amax Gold for $152 million in 1992 (Kinross merged with Amax in 1998).

With Robert’s participation in an October 2012 $10-million financing that gave him a 13% stake in Peregrine Diamonds, the brothers are back in business together.

Fun Friedland fact: During his hippie days, Robert set up a commune on the Oregon property called the All One Commune. The commune also had an apple farm – the same farm that inspired a young Steve Jobs, then a friend of Robert’s, to name his company Apple, according to the Jobs biography by Walter Isaacson. The charismatic Friedland was a strong influence on a young Jobs, with one early Apple employee saying Friedland inspired the Apple co-founder’s legendary “reality distortion field.”

DANCING WITH DE BEERS

Robert Friedland has scored big with nickel (Voisey’s Bay) and gold-copper (Oyu Tolgoi) but diamonds have proven to be a more illusive target. When Friedland’s Diamond Fields Resources hit paydirt, it contained nickel, not diamonds – and was sold to Inco for $4.3 billion (now owned by Vale). The older Friedland made his Peregrine investment just after listing Africa-focused precious/base metals explorer Ivanplats on the TSX.

It’s true that Robert’s Peregrine investment represents pocket change for the billionaire mining tycoon. Yet I suspect his diamond-hunting days are not yet done – and I don’t believe that his mention of ethical diamonds during a PDAC speech in early March was an accident. It’s buried near the end of this Reuters story.

The full quote, according to a CEO.ca accountof the speech, is this: “… you already have the concept of ethical diamonds; there is no young lady that wants a symbol of love in her engagement ring that comes from someone who was shot in the head after mining it.”

Marilyn Monroe shows some sparkle

It was a laugh line at the annual mining convention. But the Friedlands will get the last laugh if the bulk sample that Peregrine just collected from its CH-6 kimberlite yields the kind of treasures that a smaller mini-bulk sample did. That 14-tonne sample returned 2.84 carats per tonne, a grade that if confirmed by further testing would make CH-6 “one of the highest grade kimberlite pipes in the world,” according to the company’s website.

De Beers has until the end of 2013 to enter into an earn-in joint venture that would give it 51% of the Chidliak diamond project. But Peregrine is playing hard to get – Eric Friedland’s company is not processing the bulk sample until De Beers either commits or their right to earn-in expires.

Peregrine signed the deal with De Beers last fall after buying out previous partner BHP Billiton, which bailed on Chidliak in December 2011 and has since taken further steps to exit the diamond business altogether, including selling its 80% stake in the Ekati diamond mine.

Peregrine paid BHP $9 million for 51% of Chidliak and picked up an information gem in the process: BHP’s Canadian diamond exploration database. The exhaustive database was assembled over a 10-year period, contains data from 38,000 kimberlite indicator mineral samples covering 3 million square kilometres, and was acquired for a song. It’s a nice call option on future mineral discoveries, diamond or otherwise.

ERIC FRIEDLAND IS BUYING

Peregrine has been a horror show for long-term shareholders who have watched the stock ride from above $3 in late 2010 to 30-cent territory in recent weeks. But the man running the company continues to up his stake by purchasing shares in the public market.

Most recently, on April 17, Eric Friedland bought 38,500 shares at 32 cents. The day before, he bought 50,000 shares at 37 cents, according to Canadian Insider.

Insider trading records show that Eric has spent $450,000 in the past year on Peregrine stock and more than $2.2 million in the past two years. Virtually all of those purchases have been at higher prices than the current share price.

While the stock has been in the doldrums along with the entire junior mining sector, it’s starting to get some attention. Ray Gouldie, senior mining analyst at Salman Partners, included Peregrine among his top three picks in this BNN segment with Mark Bunting.

And John Kaiser of bottom-fishing fame also likes the story, as outlined in reports here and here. In the latter report, Kaiser describes PGD as a “good relative spec value buy” at 52 cents – almost 30% above the current price.

As of Feb. 12, Peregrine had $9.7 million in cash, according to the latest MD&A. Budgeted expenditures for 2013 are $7 million. The grim stock chart notwithstanding, I don’t believe PGD will join the ranks of juniors that run out of cash during this bear market, and the upside looks appealing.

Disclosure: I have recently taken a speculative position in Peregrine Diamonds. A look at PGD’s 5-year chart reveals that such an investment is not for the faint of heart. This is not advice; please read my disclaimer.

Related links:

The Global Diamond Industry: Portrait of Growth | Bain and Company

Robert Friedland and Steve Jobs: How one billionaire influenced another | World of Mining

Thanks bro: One Friedland helps another | World of Mining

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Rick’s Rules

Posted on April 24, 2013 by Editor

Rick Rule illustration: Graeme Berglund for CEO.CA

“Rick Rule rules the junior mining world with his checkbook,” is how Tommy Humphreys starts a recent post at CEO.ca. “And he’s not afraid to remind you of it,” I would add.

The resourceful speculator founded California-based Global Resource Investments, which he sold to Sprott in 2010, and now serves as chairman of Sprott U.S.A. The CEO.ca interview is one that all junior mining speculators will enjoy – particularly those with dry powder to take advantage of some of the deals currently on offer on the TSX Venture.

As Rule puts it, “The money that can be made when goods are on sale in volatile markets is extraordinary if one doesn’t buy the sector, but buys individual issues which are irrationally priced down.”

In January 2012, I joined a few other investors crowding around Rule as he held forth at an empty table at the Cambridge show, taking questions about junior resource stocks from all comers. I asked him if he liked Lumina Copper.

“I wrote the first cheque for the original Lumina,” he replied, before adding that he didn’t like it so much at current levels – the stock was then trading at about $14. Rule then segued into his distaste for the current government of Argentina, whose anti-business actions were a burden that Lumina and its shareholders had to bear. Had I lightened up on Lumina – which was defying the pending Venture death rattle – at the time, I’d be richer for it.

By the time Rule did a segment with BNN’s Mark Bunting early last month, Lumina shares had dropped to $8 and Rule had good things to say – “spectacular deposit in Taca Taca” – but with the customary caveat about Argentina.

I wonder what Rule thinks of Lumina now, with a stock value of $8 and a preliminary economic assessment in hand showing an NPV of $2.3 billion (at conservative long-term metal prices). Lumina’s Taca Taca copper-gold porphyry in Salta province, Argentina hosts 28 billion pounds of copper and 7 million ounces of gold in all categories, making it one of the world’s largest undeveloped copper assets. I expected Taca Taca to get taken over last year; I’m fairly confident it will be sold to the highest bidder later this year.

Disclosure: I own Lumina shares. All investors should do their own due diligence and read my disclaimer.

Lumina Copper’s PEA shows NPV of $2.1 billion | World of Mining

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

Sprott USA Chairman Rick Rule: This is turning into a long rant, but you asked for it | CEO.ca

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

Posted on April 12, 2013 by Editor

A World of Mining Special – Part 1 of 2

This is a story about Eira Thomas, dubbed the “Queen of Diamonds” for her role leading the geologists who discovered the kimberlite pipes that became the Diavik diamond mine. Diavik, Canada’s second diamond mine, produced 1.9 million carats of the sparkling stones in the fourth quarter of 2012, up 19% from a year earlier.

Eira Thomas

Eira Thomas

Eira, the daughter of Welsh immigrant and Aber Resources founder David Grenville “Gren” Thomas, followed in her father’s footsteps both figuratively and literally. A geologist before she became an executive, Eira cut quite a figure in a mining industry dominated by men. The mud on her boots came before the earrings adorned with diamonds mined from the deposit she discovered.

Later came the falling-out at Aber Resources, the cofounding of her own diamond exploration company, an audacious takeover of a Quebec diamond project – where our paths crossed – and a return to the diamond exploration game.

But first, a bit of background.

Continue reading →

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Barkerville Gold: No volume as shareholders fume

Posted on April 11, 2013 by Editor

Seven months after the B.C. Securities Commission slapped a cease-trade order on shares of Barkerville Gold Mines (BGM), the stock remains halted. The regulatory slapdown came after Barkerville, helmed by Frank Callaghan, proclaimed an NI 43-101 resource estimate of 10.6 million gold ounces, indicated, for its Cow Mountain project and the “geological potential” for 65 to 90 million ounces.

In August, I blogged about Barkerville as a case study for the importance of due diligence, particularly in the junior mining sector.

But there’s unrest among shareholders – imagine! – particularly one Rex Harbour, who owns 7% of outstanding shares and has gone to B.C. Supreme Court in a bid to force Barkerville to allow one of his director nominees to be a candidate at the upcoming AGM, according to this Stockwatch article. The AGM will be held on April 16 at the Rosewood Hotel Georgia in Vancouver.

On the bright side, the company has finally fixed the misspelling of Premier Christy Clark’s first name on its homepage (For months, the featured video advertised “Christie Clark at Vancouver Round-Up.”)

Come to think of it, the cease-trade order has helped Barkerville avoid a particularly nasty spell in the junior mining space, particularly among the golds. If gold finally goes on a run and the juniors follow just as the cease-trade order is lifted, Callaghan may yet get the last laugh.

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Lumina Copper’s PEA shows NPV of $2.1 billion

Posted on April 9, 2013 by Editor

Lumina Copper on Tuesday announced a preliminary economic assessment that gives the Taca Taca project in Salta, Argentina a net present value of $2.1 billion, assuming a discount rate of 8% and $2.75/lb copper, and after-tax internal rate of return of 17.2%.

The assessment includes substantial gold and molybdenum at assumed prices of $1,200/oz Au and $12/lb moly. Here’s the full news release; here are a few bullet points:

- initial capex of $3 billion, life-of-mine capex of $1.8 billion. Payback on initial capital of 3.8 years.

- 28-year mine life with average annual production of 244,000 tonnes of copper, 110,000 ounces of gold and 4,100 tonnes moly.

- life-of-mine cash costs of $1.11/lb of copper.

I listened to the conference call with a chipper David Strang, Lumina Copper CEO, and Marshall Koval, vice-president, corporate development, and was struck, again, at the gaping divide between fundamental value and share price performance in this market . A few quick takeaways and observations:

- Strang said the Taca Taca deposit compares “favourably” to Inmet/First Quantum’s Cobre Panama – he cited Taca Taca’s higher annual gold production – as well as other major undeveloped global copper deposits.

- Strang was asked by an analyst when the last site visits have been and his response was “Friday.” More site visits are expected this quarter, with the only hiccup Strang mentioned the difficulty obtaining visas. Strang said there was plenty of interest in China during his recent visit there.

- Lumina has about $6 million in working capital left. There are no drills turning, which should help contain the burn rate (as well as stifle news flow).

- The governor of Salta province and key cabinet ministers have been on-site recently and are very supportive. Strang referred to Salta as one of the most mining-friendly jurisdictions in the world, which seemed like a real stretch (he did qualify the remark by referencing the broader Argentina context).

- Strang ended the call with a statement that he hopes to give shareholders more updates “later this year.”

The stock shrugged on the news, closing out the day at $7.70 (up 1%) on 51,000 shares, barely above average daily volume. This junior mining bear market takes no prisoners.

Look, you either believe in the ability of Team Beaty to deliver a good deal for shareholders – yes, even in a terrible junior mining climate and with a business-unfriendly Argentinian government – or you don’t. Ross Beaty owns or controls 24% of Lumina shares and Strang owns about 1% of outstanding shares.

Skeptics should remember that this management team has come up with innovative ways to create shareholder value in the past, including not that long ago. In June 2011, Team Beaty spun out Lumina Royalty from Lumina Copper. Lumina Royalty was a private company made up of royalties on four of the old Lumina Copper’s projects in Chile and Argentina, including Relincho (Teck), Taca Taca (1% NSR royalty), San Jorge and Vizcachitas.

In September 2011, Lumina Royalty was sold to Franco-Nevada in a share-and-warrant deal worth $66 million.

But waiting for a deal on Lumina Copper will require patience, and with no foreseeable catalysts on the immediate horizon, gravity will continue to weigh on LCC shares. It might be dead money for now, but deploying capital elsewhere with the intention of returning to LCC pre-deal is a risk each LCC long will have to measure for themselves.

Disclosure: I own shares of Lumina Copper. Please read my disclaimer.

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Newstrike releases Ana Paula resource estimate: 2.2M ounces

Posted on March 27, 2013 by Editor

After the market close today, Lundin-backed Newstrike Capital (NES) released its maiden NI 43-101 resource estimate for its Ana Paula gold deposit in Guerrero, Mexico.

Ana Paula contains 43 million tonnes grading 1.59 g/t gold and 7 g/t silver, for a measured and indicated resource of 2.2 million ounces of gold and 9.7 million ounces of silver (at a .45 g/t gold equivalent cutoff).

I expected a number closer to 3 million ounces, as outlined here, but Newstrike’s piggy bank is full, the drills are still turning and I expect this resource estimate to grow. I also hope the company delivers some news flow in the coming weeks about both Ana Paula and other discoveries in its vast land package in the Guerrero Gold Belt. We’ll see how the market reacts tomorrow.

2012 was a year that demanded patience and it looks like 2013 is shaping up that way as well. The good news is that the 43-101 proves Ana Paula is a high-grade, near-surface deposit whose economics should appeal to a major gold producer – particularly in these times of a razor-sharp focus on the bottom line.

That’s a good place to be for any junior mining company.

Disclosure: I own Newstrike Capital shares. This is not financial advice, please do your own due diligence.

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Mining some family history

Posted on March 8, 2013 by Editor

by James Kwantes

I have a story to tell that isn’t about mining.

It was late 1943, Nazi-occupied Holland, and a little girl named Flora joined my mother’s family at their home in Kootstertille, a small town in the northern Dutch province of Friesland. She was introduced as “Truus deJong,” a cousin taking refuge in the country from the deprivations of wartime Amsterdam. In fact, Flora Heinrich was from Frankfurt, a German Jewish girl fleeing from more ominous forces.

Flo and Sol Lirtzman

In November 1938, the day after what came to be known as Kristallnacht, Flo’s mother Emily had placed her and two brothers on a train to Amsterdam. Nazi thugs had destroyed a nearby synagogue and ransacked local Jewish businesses and Flo’s mother feared the worst (Emily later perished in the gas chambers).

Jacob Hamstra, my grandfather – “Pake” in Frisian – was a baker whose hobby was the Dutch underground. He hid the hunted and fought the occupiers using whatever means were available – when he wasn’t baking bread and delivering baked goods on his bicycle.

Flo had more freedom than Anne Frank – she explored the town, roamed the dikes and undoubtedly babysat my mother, who was 2 when Flo joined the family.

But those were dangerous times, doubly so because of the presence of Nazi sympathizers among the villagers. During impromptu house-to-house searches by the Germans, Flo would hide in the attic with my great-uncle, who was at a prime age to be recruited as forced labour for the German war effort. One day, after hearing that authorities were doing a sweep through town, my grandmother – “Beppe” – slapped a “Diphtheria” sign on the front door, correctly surmising that the Germans would bypass the house out of fear of the highly infectious disease.

In 1945, as Canadian soldiers advanced and the Germans retreated, a few German soldiers ordered Pake to hand over some of the baked bounty in the basket affixed to the front of his bike. He refused and sat on top of the basket – one final act of defiance. (Frisians have a reputation in the Netherlands for their stubbornness, so it can’t have been too much fun occupying the province!)

Frisian flag

In 1997, Pake and Beppe were honoured as “Righteous Among the Nations” by Yad Vashem, the Holocaust memorial society.

Flo survived the war, moved to North America and made her home in New York. When my mother’s family immigrated from the Netherlands to Canada in 1950, Flo picked up Beppe and five young children after their ship pulled into New York harbour after a 10-day journey across the Atlantic.

I first met Flo when she visited the West Coast in the late 1990s, then stayed with her and husband Sol Lirtzman at their house in Lake Peekskill, New York, in early 1999. I enjoyed some fierce Scrabble games and good conversation with Flo, who also showed me some of the Big Apple’s sights, including the Statue of Liberty and the Holocaust memorial museum.

Flo was generous with some memories of the war years, including one encounter with a uniformed German soldier while she was in transit in the Netherlands. She was getting onto a train to a Dutch destination, and the soldier reached down and helped her up. “I remember thinking at the time, if only you knew you were helping,” she told me.

Flo died this week, aged 83, days after her longtime husband Sol passed away. She is survived by two sons, one daughter and six grandchildren, as well as several stepchildren and stepgrandchildren.

One of the guest book comments on Flo’s online obituary described her as a “warm, kind soul.” That is also how I remember her.

RIP, Flora Vogel Lirtzman

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Miners in a dangerous time

Posted on February 14, 2013 by Editor

These are dog days for most juniors, whose prospects for a takeover are dwindling with their cash piles. Financings have dried up and streaming deals – pioneered by the likes of Silver Wheaton and Sandstorm Gold – are the hot new trend for those financing mines, as Venture share prices tread water or sink.

They’re the type of conditions that could turn the inside of a Howe Street office into a pressure-cooker, with cash vapors providing the steam. A recent B.C. Supreme Court decision in a wrongful dismissal case provided a glimpse of some of the unpleasant realities that can lurk behind the facade of slick corporate presentations and polished promoters.

The events took place in 2004-2005 inside the offices of Norsemont, which was advancing a copper project in Peru (and was subsequently purchased in 2011 by Hudbay for $520 million). Here’s the Stockwatch story.

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