A (re-)visit with Pretium CEO Bob Quartermain

by James Kwantes, WorldofMining.com

I first interviewed Bob Quartermain for the Vancouver Sun in December 2011 when his Pretium Resources IPOed on the Toronto Stock Exchange. At $265 million, it was one of the larger IPOs that year, and allowed the geologist executive to purchase the Brucejack and Snowfield properties from Silver Standard, which he’d run for 25 years.

What drew him to the projects? Quartermain talked during the phone interview about the high-grade veins of gold that had been intersected and how he had never seen anything like it in his decades as a geologist and executive.

I revisited Quartermain recently, this time in his office, and wrote about his high-grade northwestern B.C. gold project in my first mining piece for the Vancouver Sun, where I am a story editor. My day job there will now include a part-time role writing about B.C.’s mining industry — its projects and personalities. I don’t anticipate writing much about stocks I own (because of the Sun’s B.C. focus). If I do, I’ll follow the same policy of full disclosure that I do here at WorldofMining.com.

A vast drilling campaign at Brucejack’s Valley of the Kings in the years since that 2011 IPO has turned those high-grade gold hits into a resource estimate of some 8.7 million ounces (in measured and indicated categories).

But the path to delineating that buried treasure has been a rocky one characterized by choppy junior mining markets, a volatile gold price and a resource estimate controversy that temporarily battered Pretium’s stock.

Through it all, Quartermain has his eyes focused on the prize: developing a high-grade gold mine that will employ an estimated 500 people and feed a growing demand for physical gold in China and other rising Eastern markets.


Full story here.

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Fight Club, Canadian-style (Sherritt vs. shareholders)

by James Kwantes, WorldofMining.com

Sherritt and Clarke resumed their very public boardroom battle this week with fresh accusations and countercharges.

A group of battered Sherritt shareholders whose luck is about to change? (Fight Club photo)

Sherritt chairman Hap Stephen opened fire Monday morning with a 7-page broadside attacking dissident shareholder George Armoyan. Stephen spent about 1 1/2 pages defending the existing board and management (“the good news”) and the rest of the letter attacking Armoyan (“the bad news”) – delving into his regulatory past and somewhat checkered record on the topic of corporate governance. By the close of trading Monday, Sherritt stock was more than 9% higher. It held those gains Tuesday, closing at $4.73 (up 3 cents) during a session that saw most mining issues hammered on the TSX.

Sherritt 6-month chart (Google Finance)

Armoyan, the CEO of Clarke who is leading the “Concerned Shareholders” in the proxy fight, responded on the SaveOurSherritt.com website with his own dirty dozen – 12 reasons shareholders should elect his 3 board nominees (himself, David Wood and Ashwath Mehra) to shake up Sherritt. Mehra has a wealth of international metals and commodity experience including 10 years spent running Glencore’s nickel and cobalt businesses.

Clarke stock has had a good 12-month run (up 82%) but has failed to appreciate recently on pace with Sherritt’s move (up 66% from February’s multi-year low). As of March 5 – when Sherritt stock closed at $3.29 – Clarke owned a $43.9 million stake that made up about a third of Clarke’s publicly traded debt and equity, according to a corporate presentation on Clarke’s website. That would have given Clarke about 13.34 million shares at the time, a stake worth about $63 million at current prices. The market capitalization of Clarke, which runs several other businesses in addition to the marketable securities and had $46.5 million in cash as of March 5, is about $150 million.

Clarke 6-month chart (Google Finance)

Sherritt’s 40% owned Ambatovy nickel mine in Madagascar is coming on-stream just as nickel prices are rising, and it has robust oil and gas assets as well as a nickel mine in Cuba. It’s flush with cash after selling the Canadian thermal coal business, including royalties, at the end of last year. Yet the share price as of February was barely above lows plumbed during the depth of the 2008 financial crisis. Stephen’s criticisms of the Concerned Shareholders ring false when looked at through the lens of the stock’s chronic underperformance and the rich compensation levels of existing management and directors, especially when their paltry shareholding is taken into account. The Concerned Shareholders website is SaveOurSherritt.com.

Disclosure: I own shares of Sherritt and Clarke Inc. This is not investment advice; all investors should do their own due diligence, always. Please read my disclaimer.

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

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Dissident group sends out an SOS

by James Kwantes, World of Mining

That would be “Save Our Sherritt,” the name of a new website launched by the Concerned Shareholders of Sherritt. The dissident group is led by Clarke CEO George Armoyan, who wants a seat on the Sherritt board for himself and two other nominees, David Wood and Ashwath Mehra. The latter is a mining and metals veteran with international experience, including 10 years running Glencore’s nickel and cobalt division.

A meeting requisitioned by Armoyan’s Concerned Shareholders is scheduled for May 6 in Toronto, where shareholders will vote on the three nominees as well as four resolutions addressing executive and director compensation as well as corporate governance. The Concerned Shareholders group owns about 5.5% of Sherritt’s outstanding common shares, compared to less than a quarter of one per cent combined (yes, you read that correctly) held by current executives and directors. Sherritt produces nickel at mines in Madagascar and Cuba and has extensive oil and gas operations in Cuba as well.

The Save Our Sherritt website has a host of information about the nominees, reasons for the proxy fight, and details of the considerable efforts Armoyan apparently went through with Sherritt’s management and executives before taking his fight public in December. Armoyan’s letter to shareholders is a good summary. The site also contains this chart, one that doesn’t bode well for advocates of the status quo at Sherritt.

Disclosure: I own shares in Clarke and Sherritt. This is not investment advice and all investors should do their own due diligence. Please read my disclaimer.

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

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Sherritt and Clarke: Nickel for your thoughts

by James Kwantes, World of Mining

Resources and resource allocation are at the centre of a boardroom battle between Sherritt International ($S.TO), which mines nickel in Cuba and Madagascar, and George Armoyan, a Halifax-based activist value investor who runs Clarke Inc ($CKI.TO). It’s shaping up to be an entertaining tilt that also presents some investment opportunities.

Value investor George Armoyan

Armoyan fired the opening public salvo in December, when Sherritt sold its Canadian thermal coal business – including coal and potash royalties – for $946 million. CEO David Pathe told the Globe and Mail that his company was on the hunt for acquisitions. Armoyan criticized that path, advocated a share buyback and proclaimed his intent to shake up the board as he announced a 5.2% stake in Sherritt. Armoyan and his “Concerned Shareholders” group has since launched a proxy battle.

Sherritt’s stock went on a tear last week – it rose 17% to close at $4.14 Friday – as several analysts upgraded their ratings.

The week opened with Sherritt chairman Harold “Hap” Stephen firing back at Armoyan in a shareholder letter and proxy circular. Stephen slammed Armoyan for his lack of experience in mining and international business, and said he “threatens to weaken Sherritt’s governance and disrupt its positive momentum.” The proxy circular also, however, included corporate governance enhancements suggested by Armoyan, including shareholder “say on pay” for executive compensation.

The Sherritt chairman’s outrage is also diluted by his meagre .02% shareholding in the company. And the paltry shareholdings of the current board and management – who are very well-compensated – is one of Armoyan’s central beefs. Sherritt CEO David Pathe was paid $2.77 million in 2012 and directors were paid $3.7 million, more than $400,000 per board seat. That included $1.5 million to compensate for travel restrictions to the U.S. under Helms-Burton – even though the majority of directors have not been restricted from travelling stateside, according to Clarke. (I’m sure the cash came in handy during director visits to Cuba.)

Sherritt directors and management own less than .25% of the company’s outstanding shares. Forget “skin in the game” – that’s skin cell territory. The Clarke proposals “can help transform Sherritt from a private club, apparently run for the benefit of the Board of Directors, into a properly governed public company managed for the benefit of all its shareholders,” according to Armoyan.

The Concerned Shareholders – who now own 5.5% of Sherritt’s shares, according to a March 31 news release – are seeking three seats on Sherritt’s board, and on Thursday, Armoyan announced his nominees.

One of them, Ashwath Mehra, is a 28-year metals veteran who was a senior partner at commodities giant Glencore (and its predecessor), where he ran the nickel and cobalt business for 10 years (so much for a lack of mining and international business experience!). Mehra currently runs the Astor Group, a resource advisory and investment business, and sits on the boards of Toronto- and London-listed EMED Mining as well as Venture-listed Fancamp Exploration. The other two are Armoyan and David Wood, CFO of the Municipal Group of Companies, the largest civil contracting company in Atlantic Canada.

Sherritt

Sherritt is a major player in Cuba, where it operates a nickel mine and produces oil and gas, making it subject to America’s ridiculous sanctions against the island nation. Its newest project is the Ambatovy nickel mine in Madagascar, which achieved commercial production in January after years of delays and cost overruns. Sherritt is the operator and owns 40% of the mine (Sumitomo 27.5%, Korea Resources 27.5%, SNC-Lavalin 5%).

When Ambatovy hits full production of 60,000 tonnes of nickel annually, it will be one of the world’s largest nickel mines, supplying about 4% of the world’s nickel annually. An oversupply of the metal has weighed on the nickel price, which has nevertheless moved up sharply this year partly because of Indonesia’s ban on nickel exports. Indonesia is the world’s largest nickel producer.

Sherritt’s 1-year chart

The stock, which is at about $4 after holding above $15 for much of 2007 and the first half of 2008, has been a horror show. Falling nickel prices, the Cuba factor, Ambatovy cost overruns, uncertain corporate direction – it’s all taken a toll. Even with this week’s rally, shares are only about double where they traded at the cliff’s bottom. If Armoyan wins, I expect he’ll be able to extract further value from company operations. If he doesn’t, executives and directors will surely come out of the bruising experience with a renewed focus on operations, profitability and creating shareholder value.

As of Dec. 31, Sherritt had cash and short-term investments of $651.8 million – not including $793 in cash proceeds from the sale of the coal business – and debt of $2.1 billion.

Clarke

Clarke shares present an even more interesting value proposition. The investment holding company is flush with cash – about $46.5 million – after selling off stakes in two energy companies and its freight business over the past year. As of March 5, Clarke also held $130.5 million in marketable securities, including the Sherritt stake. A March corporate presentation sheds more light on company operations and assets.

As of March 5, Clarke’s Sherritt stake was listed at $43.9 million. That day, the stock closed at $3.29, which meant Clarke owned about 13.34 million shares at the time. Those shares are now worth more than $53 million, a tidy little gain for a company with a market capitalization of $153 million. Armoyan, who owns or controls more than 43% of Clarke shares, is a sharp operator with a proven track record of extracting value, but Sherritt is his biggest prey yet. Clarke stock is up about 75% in the past year and yields 4.9% at current prices. The company is also buying back shares.

Clarke’s 1-year chart

There were rumblings of shareholder discontent last year, as well – Scott Leckie of Takota Asset Management challenged management and called for share buybacks on the heels of longtime chairman Ian Delaney’s retirement. Delaney, aka the Smiling Barracuda of Bay Street, did have “skin in the game” with a large Sherritt ownership stake. I wonder what Delaney, a contrarian himself with an appetite for castoffs, thinks of Armoyan’s Power Play for control of the company he built.

Disclosure: I own Clarke shares. This is not investment advice and all investors should do their own due diligence. Please read my disclaimer.

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PDAC 2014: Lumina Copper’s staying power

Peter Koven of the Financial Post interviewed Lumina Copper CEO David Strang at PDAC and wrote a short piece here. Strang notes in the article that he’s said at the last two AGMs that he didn’t expect the company – which has had a “For Sale” sign up for a while – to be around the following year. M&A activity is heating up, including HudBay’s hostile bid for Augusta Resource, whose Rosemont copper project has a fraction of the copper contained in Lumina’s Taca Taca deposit (albeit in the more favourable jurisdiction of Arizona vs. Argentina).

With all seemingly quiet on the Lumina Copper front, however, perhaps this is the year Taca Taca gets sold. Lumina’s largest shareholder is Vancouver mining magnate Ross Beaty, who owns 22% of the stock and has a stellar record of creating shareholder value. Management also has skin in the game (Strang owns 1.2% of outstanding shares). The company has 44 million shares out and the stock is currently at $5.25, giving it a market cap of roughly $235 million. I wrote up Lumina here at World of Mining back in September 2012 (see related links below) but pulled the plug and sold most of my shares when a takeover didn’t materialize.

Lumina’s Taca Taca deposit in Argentina’s Salta province has an NI 43-101 resource estimate of 21 billion pounds Cu and 5.5 million ounces Au in the indicated category, and 7.5 billion pounds Cu and 1.5 million ounces Au in the Inferred category. A PEA shows a net present value of $2.1 billion and initial capex of $3 billion at an 8% discount rate, using conservative metal prices ($2.75/lb Cu, $1,200/oz Au). Taca Taca is worth considerably more using the higher metal prices that many junior mining companies are using. The deposit is 120 km away from Escondida, the world’s largest copper mine, and is close to infrastructure including roads and rail, as well as available water. It’s the Argentina part that seems to be the main sticking point here.

Disclosure: I own some Lumina Copper shares in an RRSP account. Please read my disclaimer; all investors should do their own due diligence.

Related links:

Ross Beaty a big winner in HudBay/Augusta offer | World of Mining

Mining tycoon Ross Beaty is back and he’s funding gold exploration in Brazil | CEO.ca

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

Rebalancing, Part 1 | World of Mining

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Guest post: Probe Mines signals surge in market confidence

The folks over at London-based Global Mining Observer featured Probe Mines in their latest newsletter, and were kind enough to allow World of Mining to re-publish the piece. If you haven’t heard of Global Mining Observer, head on over to their website for archived articles and sign up for their free newsletter for the most up-to-date material. I’ve found the research and writing to be high-quality.

For those in Toronto, Probe Mines is at PDAC this week at Booth 2847. Do your research, stop by, ask questions. Looks like CEO David Palmer is also scheduled to present at 11:20 a.m. this morning (Monday, March 3). I own shares in the company, which I wrote about here and here. Fun fact: Probe’s head office is located at 56 Temperance Street in Toronto, where Rob Ford is mayor.

by Alexander Williams, Global Mining Observer

“We hit hole-256,” says Dr. David Palmer, president of Probe Mines, “and the deposit we’d been drilling for 2km over 2 years, always the same, all of a sudden changed.”

Since its discovery in 2010, Probe’s Borden gold property in Ontario’s lumberjack territory had been envisaged as a bulk tonnage gold mine, hosting 4.2m ounces at 1.1 grams per tonne.

“At the time, it was all about how many ounces, how thick a section you could build,” Palmer explains, “and so for 2 years we happily drilled this thing out. We were getting incredibly thick 100m-plus intersections of one-gram-type material, which was what the bulk tonnage deposits were all aiming for.”

Then in late 2012, hole-256 hit 51m at over 10 gold grams per tonne. “We realised we’d actually been drilling the alteration halo around this high grade system.” Less than 6 months later, the gold price collapsed, heightening market attention to grade and a deposit’s sensitivity to the spot price, knocking bulk tonnage out of favour. “It’s almost like it anticipated what the market was going to do,” Palmer observes. “It’s phenomenal the timing we’ve had.”

In pursuit of its highest grade zone, Probe is now extending the deposit as far as possible to the southeast, with 4 rigs currently turning on the winter ice of Borden Lake. Grades keep increasing, with results in recent weeks of 32 grams per tonne over 19m.

At the PDAC conference in Toronto this time last year, Palmer was widely quoted as saying juniors were being priced as liquidity events and nothing more. The market’s response to Probe’s latest drill results shows how that has changed, sending shares to an all-time high, up 74 per cent in 12 months.

Probe has been the standout performer of 5 companies that gold major Agnico-Eagle Mines bought shares in last year, subscribing to 9.9 per cent of the stock for proceeds of $15m. Already cashed-up from a royalty transaction with Agnico in November 2012, Probe now has cash of c.$30m, with a burn-rate of roughly $1m per month.

Drilling as other juniors battle to meet listing fees, Probe, Palmer says, has enjoyed a 20 to 30 per cent drop in its drilling and assay costs since 2011. “Everything’s available and everything is cheaper than it was,” he says. “Gold isn’t our best resource, our treasury is right now.”

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Insider buying at NexGen Energy

NexGen Energy shares soared 91% during Wednesday’s trading session, settling at 43 cents on volume of 6+ million shares, after the company issued a news release heralding uranium mineralization in its first drill hole at Rook 1, adjacent to Fission Uranium’s Patterson Lake South property in the Athabasca Basin. As I told a friend late Wednesday, my enthusiasm was tempered by the fact NXE had shot up higher previously (60 cents, August) before crashing back down, but fuelled by the fact that the prior run-up was entirely speculative.

So I was pleasantly surprised to watch NXE finish in the green again Thursday, closing up 4 cents to 47 cents, on volume of 2.1 million shares. NexGen’s discovery is very early-stage, but the market likes what it sees so far. The company has a dominant land position in the Athabasca Basin, home to the world’s richest uranium grades. Its Radio project is adjacent to the Roughrider deposit, sold by Hathor Exploration to Rio Tinto for $650 million after a bidding war with Cameco, and Rook is adjacent to Fission Uranium’s Patterson Lake South project, which has been driving the area play in recent years. The NexGen team includes former Rio Tinto/Hathor executives. I bought shares in late June when the stock was at 25 cents and wrote about my reasons here.

I was also encouraged to see some of Wednesday’s trading volume came from an insider of the company. Sheldon Inwentash’s Pinetree Capital purchased 1 million shares at 43 cents, according to Canadian Insider, the latest in a series of purchases that give Inwentash’s Pinetree and Mega Uranium about 22% of outstanding shares. In November 2012, NexGen bought most of Mega Uranium’s Canadian properties – including Rook – for 16.4 million NXE shares. The resource bear market has not been kind to Pinetree, Inwentash’s resource investing vehicle, and the company seems to be selling some of its resource stocks into strength, according to this Mineweb piece. Except, that is, for NexGen, which has two Pinetree executives on its board.

Tommy Humphreys interviewed NexGen CEO Leigh Curyer Thursday and blogged about it over at CEO.ca. Curyer said the company has two drill rigs to explore Rook’s geology and is still drilling the first hole that turned up uranium mineralization. Curyer owns 1.45% of NexGen’s outstanding shares, which number 128 million, giving the company a market capitalization of about $60 million.

Disclosure: I own shares in NexGen Energy. This is not investment advice.

Related reading:

Rebalancing, Part 2: Signs of life | World of Mining

Uranium supply disruptions spell opportunity for investors, Dundee says | Streetwise Energy Report

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Radioactive

Sometimes one hole makes all the difference.

It did today for Athabasca Basin uranium explorer NexGen Energy, which announced “a new zone of uranium mineralization” at its Rook 1 project adjacent to Fission Uranium’s Patterson Lake South deposit. The stock had been halted since yesterday morning and I suspect regulators took a keen interest in the wording of the press release, as NexGen’s project remains early-stage.

At the time of writing the stock is up about 78%, to 40 cents, after stumbling along under 30 cents since mid-December. The 52-week low is 22.5 cents, which is where it was trading when the stock was halted, and the 52-week high is 60 cents.

The hole, RK-14-21, is still being drilled as part of a 6,000-metre program. According to the press release, it contained 26 metres of “highly anomalous radioactivity” from 204 metres down-hole. NexGen has a strong land position in the Athabasca Basin, home to the world’s richest uranium grades, and its other project, Radio (which the company still describes as its “flagship” on the website), is adjacent to the Roughrider uranium deposit. Roughrider was discovered by Hathor Exploration, which was sold for $640 million to Rio Tinto in 2011 after a bidding war.

NexGen wasn’t the only Athabasca player with market-moving discovery news today: Fission released drill results that included 38.5% uranium over 10.5 metres. Fission shares are up 10% to $1.31 at the time of writing.

Update: NXE closed at 43 cents, up 91%, on volume of 6.1 million shares.

Disclosure: I own shares in NexGen Energy. Please read my disclaimer.

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An African dog and pony show

My friend Tommy Humphreys recently returned from a site visit to Robert Friedland’s Ivanhoe Mines platinum and copper projects in Africa. The “dog and pony show” was a tour de force, and so is the blog post Humphreys wrote about it. Go check it out at CEO.ca. Friedland is a fascinating character, famous for developing the monster Voisey’s Bay nickel find and Oyu Tolgoi copper-gold mine. Also, for the “reality distortion field” that one-time college friend Steve Jobs learned from him.

World of Mining has exposure to Friedland through Baffin Island-focused explorer Peregrine Diamonds, which is run by his brother Eric Friedland. Each of the brothers owns more than 14% of Peregrine’s outstanding shares. Peregrine is currently obtaining an independent valuation of a 1,124-carat parcel of Chidliak diamonds.

Related reading
Robert Friedland and Steve Jobs: How one billionaire influenced another, World of Mining
Chasing the carat: the Friedlands go diamond-hunting, World of Mining

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Ross Beaty a big winner in Hudbay/Augusta offer

There are many interesting things about Hudbay’s takeover offer for the 84% of Augusta Resource that it doesn’t already own – an offer that has breathed a bit more life into a moribund mining M&A scene that is slowly reviving. Augusta is developing the advanced-stage Rosemont copper deposit southeast of Tucson, Arizona, which is projected to be the third largest copper mine in the U.S. once it’s operating.

Probably the most interesting thing is this:

Ross Beaty is Augusta’s second-largest shareholder

Vancouver resource entrepreneur Ross Beaty is the second-largest shareholder of Augusta, with more than 9% of outstanding shares. He owns 12,200,500 shares indirectly through his Kestrel Holdings company, and 1,235,000 shares directly, according to our friends at INK Research. That’s a total of 13,435,500 shares, or 9.3% of outstanding shares, as well as 5 million convertible notes. According to SEDI records, Beaty filed opening balances for most of the shares on Oct. 25, when Augusta was trading at about $2.15. He picked up 100,000 more shares on Nov. 21 at $1.26, according to a Nov. 22 filing.

Continue reading

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