A nuclear signal from Tokyo

Another glimmer of hope for long-suffering uranium bulls: Pro-nuclear candidate Yoichi Masuzoe won the race to be Tokyo’s governor on the weekend. Masuzoe is an ally of Japanese prime minister Shinzo Abe, and both men believe nuclear power will be key to feeding Japan’s substantial energy needs. Here’s the BBC article.

Japan’s inevitable reactivation of its nuclear power plants should help support the uranium price and by extension, Canadian uranium plays. Many of those are producing or exploring in the uranium-rich Athabasca Basin, home to the world’s highest uranium grades by a country mile.

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

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Probe drills more high-grade

New World of Mining position Probe Mines released more drill intercepts from its Borden project in Ontario today, and the press release contained the impressive words “high-grade gold mineralization.” The infill drilling results were quite good too.

The best of the bunch was hole BL14-573, which returned 39 metres averaging 16.3 g/t gold, including 19 metres grading 31.6 g/t gold, 8.4 metres grading 66.3 and 2 metres grading 238 g/t gold. Other holes included 44.9 metres at 2.5 g/t and 18.5 metres at 2.8 g/t.

Probe also announced that it has moved four drill rigs onto the ice of Borden Lake as it seeks to identify how far the high-grade zone extends to the southeast. With more than $30 million in the bank and drills turning, there should be no shortage of catalysts for the share price during the first half of 2014. That’s the kind of gold play I like, particularly if the Au price keeps moving up.

Related reading | Out with the old, and a new position, World of Mining

Update: Share price up 33 cents, or 13%, to $2.90 at time of writing, a 52-week high. 75 million shares outstanding.

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Out with the old, and a new position

I recently pulled the plug on two stocks because the stories didn’t unfold how I’d anticipated and because I saw better opportunities elsewhere. The first, WesternOne (WEQ), is a high-yielding “pickaxe company” with exposure to the construction, oil and gas, and film industries, and a fairly recent buy. The other, Newstrike Capital, was a longer-term hold that I first wrote up back on Sept. 20, 2012 under the heading “A golden takeover target?”

WesternOne (WEQ)
WesternOne runs Britco, a temporary/modular home builder, and WesternOne Rentals and Sales, an equipment rental company. I first wrote it up here back in August when it was trading at about the same price it is now.

The Vancouver-based company is profitable, well-run and expanding – a year ago it bought 80% of a leading Australian modular homebuilding company. It yields a sustainable 7.8%, with a payout ratio under 50%. I like management and the space it’s operating in. And if B.C. manages to build up its LNG industry in the northwest, there’s a good chance WesternOne would benefit (the company figured in the B.C. Liberal re-election campaign and Stockwell Day sits on the board).

The stock, however, can’t seem to get any traction and there seems to be a lot of selling pressure at the moment. Management has stated on conference calls that a dividend hike is not anticipated in the near term while the company is in growth mode. This one is a good RRSP pick and stays on my watch list.

Newstrike Capital (NES)
I had high hopes for Newstrike, one of the first stocks I wrote up here at World of Mining.

The company has a nice gold deposit at Ana Paula, cash in the bank, and prudent management, not to mention a major shareholder named Lukas Lundin. But the stock has been pummelled in the past year, even more than the junior market – which is saying something. Shares are down 63% in the past year alone. More alarmingly, Newstrike stock hasn’t bounced off the bottom in the past couple of months the way other quality gold juniors have. Shares of World of Mining holding Pilot Gold (PLG), for example, are up more than 60% from their 52-week low. Newstrike stock has rebounded a relatively meagre 37%.

Newstrike also isn’t the only gold junior in its Guerrero Gold Belt neighbourhood, and the market says its neighbours have better prospects. Shares of Guerrero-focused Cayden Resources (CYD), for example, are down only about 26% in the past year. Torex Gold (TXG) is advancing its Morelos project on both the development and financing fronts, having just announced a $125-million bought deal financing.

The landscape has also shifted. Goldcorp has been seen as a natural suitor for Newstrike’s Ana Paula, particularly due to the proximity of its Los Filos open-pit gold mine, which produced 340,400 ounces in 2012. But if and when Goldcorp completes its takeover of Osisko, the gold giant will inherit about a million hectares of Osisko exploration territory (staked since late 2011, but kept under wraps). That might make the world’s No. 1 gold miner by market cap less inclined to buy an earlier-stage deposit such as Ana Paula, despite Los Filos synergies – especially if the gold price stays stalled under $1,300.

I decided to buy a gold junior with some momentum: Ontario-focused Probe Mines (PRB). The company was on my radar ahead of the Cambridge House show on the weekend, so it was a pleasant surprise to see they had a booth. I spoke to Patrick Langlois, VP of corporate development, at some length to find out about the company’s projects, and later, John Kaiser had good things to say about it.

Probe has a chromite project in northern Ontario that used to be its flagship, but I bought in because of its high-grade Borden gold deposit in an underexplored area southwest of Timmins. A year ago Probe put out an NI 43-101 resource of 4.3 million ounces – most of it in the indicated category – at an average grade of just over 1 g/t, using a .5 g/t cut-off.

But then it began hitting high-grade on the eastern part of the deposit, and some of the intercepts have been outstanding, including 51 metres of 10.3 g/t gold and 26 metres of 8.5 g/t. Drills are turning and the mining funk of late has even worked in Probe’s favour, reducing costs for drilling and assays. The company has a compelling story and a catalyst in the form of the drill bit.

Probe has a tight share structure, with just 75 million shares out, and healthy levels of insider ownership. It’s cashed up, with $33 million in the coffers as of Oct. 31, and Agnico Eagle owns 10% of outstanding shares.

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A Random Walk Down Howe Street

Cambridge, England is a university town that hosts a house of higher learning.

Cambridge House is a Howe Street abode, a dwelling where hope, fear and greed each have rooms on the same floor (and share a bathroom).

When it comes to the search for a bull market, don’t believe all the signs. (Photo: Resource Investing News)

And floors and bottoms, of the TSX Venture variety, were something of a theme at this year’s Vancouver Resource Investment Conference, run by Cambridge House International.

I attended briefly on Monday afternoon, wandered the aisles, kicked a few tires and met a few friends. Even entered a new position partly as a result of research I did at the event.

Some random thoughts:

- More optimism than the last show I attended, where despair was the prevalent theme. A better turnout as well, albeit with a heavy industry presence. Notwithstanding the Venture’s 10% rise since the beginning of December, 2014 could be another choppy year for the juniors, making this walk down Howe Street a kind of two-steps-forward, one-step back shuffle, with potholes along the way. That makes a company’s cash position – something I touched on in this Vancouver Sun article written after the January 2012 show – critical.

- I often wonder why more CEOs don’t attend to stand behind their company (tables), particularly those whose companies are based in Vancouver. One of the exceptions Monday was Pretium CEO Bob Quartermain, who was pressing the flesh and speaking to shareholders at Pretium’s booth. The stock has shown signs of life, more than doubling since November, but the controversy over the amount of high-grade gold in Pretium’s Valley of the Kings zone in northwestern B.C. continues to weigh on shares. With a very large short position, PVG is a stock to watch.

- Spotted a dressed-down John Greenslade, former CEO of Baja Mining, one of the more striking examples of shareholder destruction in junior mining in recent years. Baja used to be a regular at the show, and before it ran out of money and was pummelled in a proxy fight, I remember a Baja “workshop” where the well-paid Greenslade waxed eloquent on the blue sky potential of the company’s Boleo copper project in Mexico. The stock, facing delisting from the TSX (that’s right, Canada’s main board), is at 2.5 cents, down from 10 cents a year ago and much greater heights in 2006, 2007, 2008, 2009, 2010, 2011 and 2012. A cautionary tale for any junior mining speculator.

- Peregrine Diamonds didn’t have a booth, but I spotted president Brooke Clements on the floor, chatting with whomever was manning the Diamcor booth. Didn’t get a chance to speak to Brooke, but I did chat with Peregrine fan John Kaiser after his seminar. Takeaways: he doesn’t rule out De Beers taking another run at Chidliak and also mentioned Dominion Diamond as a possible suitor down the road. Also, he said he doesn’t particularly like coloured diamonds and he downplayed the coloured gems recovered from CH-6, which he described as a “spectacular kimberlite.” Peregrine is awaiting a diamond valuation on its 1,124-carat parcel of CH-6 gems.

Kaiser covered alot of ground during his talk, including (but not limited to):
- how the major banks are trying to drive the junior retail investor out of the market;
- his belief that the juniors are bottoming and we’re at the beginning of a “selective bull market”;
- his searchable database of junior mining stocks and how he could use it to “terrorize” any exhibitor because he knows more about their project than they do;
- his favourite junior mining stocks – he went through alot of picks, machine-gun style, and I didn’t write them down – and area plays (including the Athabasca Basin).

As for the new position, I’ll write about that in a subsequent blog post.

Disclosure: I own shares of Peregrine Diamonds. Please read my disclaimer.

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Latest Peregrine Diamonds batch confirms it: CH-6 is a gem

A selection of gems from “Batch C” of Peregrine’s CH-6 bulk sample, including the nearly 9-carat diamond (corporate website)

Diamond explorer Peregrine Diamonds (PGD) released the second and final batch of results from its bulk sample of the CH-6 kimberlite pipe at its 100% owned Chidliak project on Baffin Island, and they were good. Very good.

Here’s the news release.

Batch C returned a grade of 2.87 carats per tonne, including an 8.87-carat white/colourless octahedron, 42 diamonds one carat or larger and 133 diamonds more than .5 carats. The company also used the “y word” for the first time (as far as I know), with 11% of the diamonds in the parcel described by the Saskatchewan Research Council as yellow. Coloured diamonds are rarer and typically worth more than white/colourless diamonds. Another 17% are described as grey and brown, although the smallest diamond in the photo looks quite pink to me.

The grade for the entire 1,124-carat diamond parcel comes in at 2.78 carats per tonne, making CH-6 one of the highest-grade kimberlite pipes in the world, according to the company. (Kennady Diamonds (KDI) has returned higher grades at its Kennady North project in the Northwest Territories, but on much smaller samples.)

The Peregrine diamonds are en route to Antwerp for an independent diamond evaluation by the same company that values diamonds mined at Canada’s four producing operations. Results are expected this quarter.

The stock didn’t move much on the news, closing up 3 cents at 57 cents on the TSX, on volume of about 750,000. However, the stellar grades at CH-6 further de-risk the project, giving Team Friedland more ammunition in its quest to deliver shareholder value. Peregrine CEO Eric Friedland and brother Robert Friedland each own more than 14% of outstanding shares.

Peregrine is shaping up to be an interesting story in a world of few diamond mines and a dearth of high-calibre diamond exploration projects.

Disclosure: I own shares of Peregrine Diamonds. Do your own due diligence.

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Happy New Year!

May the best of 2013 be the worst of 2014!

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Sandstorm and Colossus: A poisoned stream

Colossus Minerals said today they’re basically out of money and Sandstorm Gold/Metals & Energy announced concurrently they’re looking at writing off their $75-million investment in the “troubled” company – NR here. The poisoned Colossus stream was one of the primary reasons I dumped my shares in the Sandstorms back in August 2013 when they were trading above $6/share, which I wrote about here. Sandstorm Gold shares are trading at $4.23 on the TSE, down 7% on the day.

Colossus was attempting to build a gold/platinum/palladium mine in Brazil, and Sandstorm Gold and Metals & Energy had fronted them financing to secure gold and palladium streams, respectively. Sandstorm Gold acquired the stream for $60 million in September 2012 and Metals & Energy acquired the palladium stream for $15 million.

I wrote up Sandstorm Gold in my inaugural World of Mining post. Still like the business model, but the risk/reward profile has become skewed with some of the problematic streams for both companies. Sandstorm Gold shares move with the price of gold, and with precious metals prices under more-or-less relentless pressure, I don’t see upside anytime soon.

I ran into Sandstorm IR man Denver Harris, a stand-up guy, downtown yesterday afternoon. He obviously didn’t mention Colossus, and noted that news of the next streaming deal will be important for the companies. I agree, but don’t think it will move the needle given the “Colossal” overhang. I remain out.

Related reading from prior World of Mining posts:

Rebalancing, Part 1

Rebalancing, Part 2

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Chidliak grade gives Peregrine Diamonds an “A”

Eric Friedland’s Peregrine Diamonds released news this morning that moved the stock 52%, to 64 cents, by the time markets closed.

Peregrine diamonds from CH-6

A 222-dry-tonne bulk sample from the company’s CH-6 kimberlite returned an impressive grade of 2.7 carats per tonne and 48 diamonds larger than 1 carat, including a 3.54-carat stone. CH-6 is the flagship kimberlite at Peregrine’s 100%-owned Chidliak project on Baffin Island. CH-6 is one of at least 7 kimberlite pipes at Chidliak that the company bills as potentially economic.

Here’s a photo gallery of the gems.

The sample is described by Peregrine’s qualified person Howard Coopersmith as a “very white and clean diamond population with excellent shapes,” which bodes well for the valuation expected to be complete in the first quarter of 2014. That valuation will include diamonds from the entire 404-dry-tonne CH-6 bulk sample. Results from the rest of the sample are expected in January.

Peregrine chairman and CEO Eric Friedland

It’s not the highest-grade recent diamond discovery – on Nov. 18, Kennady Diamonds announced a sample grade of 5.37 carats per tonne from a 1,500-kg sample at its Kennady North project near Mountain Province Diamonds’ Gahcho Kue joint venture with De Beers. Shares of Kennady Diamonds, spun off from Mountain Province last year, have risen 400% in the past year.

But Peregrine’s CH-6 sample size is equivalent to more than 200,000 kg – many multiples of Kennady’s early-stage sample – making the results more significant. That allows the company – with a rhetorical flourish worthy of a Friedland – to bill the grade as “higher than that of any of the kimberlite pipes currently under advanced exploration or development in Canada.” The grade is surpassed only by five pipes at the Ekati and Diavik diamond mines in the Northwest Territories.

By comparison, 2.7 carats per tonne is more than double the grade of the best kimberlite pipes being developed by Stornoway Diamonds at the company’s advanced-stage Renard mine project in Quebec.

Peregrine’s grade claim includes, of course, Gahcho Kue, which is described on Mountain Province’s website as “the world’s largest and richest new diamond mine.” Gahcho Kue, which today cleared another hurdle with the Mackenzie Valley Land and Water Board, is a joint venture with 60% owner De Beers, which walked away from Chidliak earlier this year, sending the stock skidding lower.

The De Beers farewell followed the exit of Peregrine’s former joint venture partner BHP Billiton. Significantly, both mining giants expended capital and expertise furthering Chidliak before their respective exits. In the case of BHP, part of the divorce included ceding to Peregrine the company’s entire northern Canadian diamond exploration database, compiled over a 10-year period.

Upcoming catalysts for Peregrine include results from the remainder of the bulk sample and diamond valuation of the gems recovered on Baffin Island. Eric owns 14% of outstanding shares and his older brother Robert Friedland is Peregrine’s largest individual shareholder, with a 15% stake that he last added to in June by participating in a private placement at 35 cents a share.

The elder Friedland, the mining tycoon and conference showman, has an interview with Rick Rule tomorrow at the Mines and Money London conference. I wonder if he’ll mention his brother’s Canadian diamond project, which was considerably de-risked by today’s news.

Disclosure: I own Peregrine Diamonds shares, which can be volatile. Please read my disclaimer.

Related Reading

Diamond partners Peregrine, De Beers no longer dancing | World of Mining

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Canadian diamond pioneer Gren Thomas makes new discovery

D. Grenville “Gren” Thomas’s Venture-listed North Arrow Minerals rose 54% Tuesday, closing at 60 cents, after announcing a diamond discovery at its Pikoo project in Saskatchewan. You read that correctly: Saskatchewan, the land of potash, uranium, oil and gas, wheat, etc. (is there anything the province can’t produce?)

D. Grenville Thomas (Canadian Mining Hall of Fame photo)

A 210-kg. sample of drill core from Pikoo’s PK150 kimberlite – the first one discovered at the project – contained a total of 745 diamonds, including 23 larger than the .85 mm sieve size. Most of the diamonds were white octahedrons. Further drilling, geophysical surveys and exploration of the kimberlite chemistry is planned.

North Arrow is also advancing the Qilalugaq project in Nunavut and the Lac de Gras project – a joint venture with Dominion Diamonds (formerly Aber Resources) – near the Diavik mine.

Thomas, North Arrow chairman, is a Canadian diamond pioneer who is intimately familiar with the latter area. He founded Aber in 1980 and in the early 1990s staked what became the Diavik diamond mine at Lac de Gras. Diavik became Canada’s second diamond mine when it opened 10 years ago in the Northwest Territories (the nearby Ekati mine, discovered by Chuck Fipke’s Dia Met Minerals, was the first). More on Thomas here.

Thomas’s daughter is Stornoway Diamonds founder and mining executive Eira Thomas, who is Kaminak Gold CEO and sits on the board of Lucara Diamond, a Lundin play. Thomas played a key role in how North Arrow Minerals obtained the Pikoo project that lit a fire under North Arrow shares Tuesday. North Arrow obtained the option to acquire 80% of the project and two others from a private company controlled by Eira Thomas, which in turn obtained the option from Stornoway. Stornoway is constructing the Renard diamond mine in Quebec and can build its stake in Pikoo back up to 40% by paying North Arrow three times the costs incurred for the work program.

North Arrow just closed a $5.45 million private placement (priced at 40 cents) and has about 42 million shares outstanding, giving it a market capitalization of about $25 million after Tuesday’s action. According to our friends at INK Research, Gren Thomas owns about 19% of outstanding shares and Lundin family trust Zebra Holdings and Investments owns about 27% of the company.

For more details, check out the links below.

Related reading:

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

Part 2: Chasing the carat – The Friedlands go diamond-hunting | World of Mining

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Diamond partners Peregrine, DeBeers no longer dancing

Peregrine Diamonds stock was introduced to a cliff earlier today when the company disclosed that DeBeers has elected not to exercise its option for 50.1% of Peregrine’s Chidliak diamond project on Baffin Island. Shares dropped from yesterday’s close of 65 cents down to the low-30s, before bouncing to 41.5 cents at the time of writing.

I don’t believe it was a dead cat bounce; I also resisted the temptation to add to my stake as I monitor developments over the coming months.

Very briefly, a few observations:

- under the terms of the option agreement, DeBeers was obligated to spend $58.5 million on Chidliak, no small amount even for the company that still sits astride (a rapidly shifting) global diamond market. And obviously the people now running DeBeers – owner Anglo-American – felt the price was too high.

- The option deal was for half the project and half the diamond marketing rights. Peregrine now must come up with funding (or find another partner) but gets 100% of the project and marketing rights. So key to any investment decision is whether you think Peregrine’s major shareholders – Eric and Robert Friedland, as well as Ned Goodman’s Dundee (which has been shedding a few shares even before today’s drop) are capable of going it alone. I think they are.

- Another key, obviously, is the results of the bulk sample, which may be released sooner now that DeBeers is out of the picture. Earlier, smaller samples from Chidliak’s CH-6 kimberlite contained rich, world-class grades. I suspect part of DeBeers’ dissatisfaction with Peregrine was being backed into a corner whereby the bulk sample wouldn’t be processed without a commitment by DeBeers one way or another.

With BHP’s earlier exit from its alliance with Peregrine, today’s news makes DeBeers the second major to walk away from Peregrine and its flagship project. DeBeers, however, isn’t the only game in town anymore when it comes to the market they created and dominated for most of the 20th century. Interesting times.

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

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