The BarkerLetter

Greetings investors!

One of the world’s largest mining companies, Rio Tinto plc, has just agreed to fork over A$43 billion to acquire Canadian aluminium producer Alcan Inc.

It wasn’t long ago that you couldn’t give Alcan away. Back in the days of low metals prices (i.e. the 1990s), aluminum prices were so low that producers had to have ridiculously huge economies of scale just to keep their heads above water.

What a difference a decade makes!

Why would Rio Tinto wait till now to pay an unprecedented price for an aluminim producer? Well, probably they’re as surprised as anybody with the current regime of high materials prices. In addition to big, they also need to be as diversified as possible. When we get to the opposite end of the business cycle (high inventories, low demand, decimated pricing), only the biggest of the big will survive intact.

Something is up with steel too. I’ve read that the three largest iron ore producers - Rio Tinto, BHP Billiton Ltd, and Swiss giant CVRD - will start annual iron ore price negotiations with steel mills next month.

I’m not sure how that’s going to play out. But for the investor, I think it make sense to find a deveoping iron play that hasn’t been acquired yet by any of the big three.

That’s why I like Northland Resources Ltd (NAU. TSX-V. Recent cls: $4.10 Cdn per share), with an impressive iron and base metals porfolio in Scandanavia.

Check them out here on Infomine

Kb

Greetings investors!

I’ve been analyzing the one year chart for Canada’s TSX Venture Exchange. The CDNX index is mineral weighted, comprised of all the junior penny stocks which trade on the Toronto Stock Exchange. So it’s a good barometer of where stock prices are headed in the short and medium term.

What I don’t like about the chart is the  slow stochastic indicator which is currently overbullish, having pushed well past the 80 point mark. In fact it seems to have peaked and tipped downward in recent sessions. Also, we’ve had positive divergence of the MACD for at least three weeks now, and that looks like it will head south shortly.

On the plus side, the RSI, or relative strength index indicator, is well short of 70 and still climbing, so we could see the index travel further. I think over the short term we could see a minor correction but the uptrend is well established so any dip is destined to be short and sharp. The medium term outlook is quite rosy.

Will the CDNX reach its historic highs of +3300? I think it will over the longer term. Despite galloping commodities prices over the past 60 days, particularly in gold and zinc and lead, we haven’t seen a commensurate rise in the share prices of exploration juniors. I believe that is still to come. I think there are a couple of reasons for it, or maybe just one: The market has yet to see any results from all the drilling to get excited over. Agreed, there are lots of great projects and smaller mines coming on stream, but we haven’t seen anything in the order of a Voisey’s Bay (nickel, copper, cobalt), or an Ekati (diamonds).

Moreover, I’ve noticed one important difference from past mineral bull markets: We haven’t seen the characteristic eye-popping share valuations for juniors with big discoveries, where the stock price travels from mere pennies to $50 or $75 or $125 per share. I think one reason for that is merely the different way entrepreneurs are organizing their share structures. Rather than let their prices travel endlessly upward, companies that have added substantial value to their portfolios in recent times are creating more paper. This results in a larger market capitalization without creating high stock prices.

I think that’s a good thing, since it discourages selling. Also, I’ve noticed a lot of share giveaways, splits whereby newly created stock given away as a dividend to the shareholder base. This is often done when a company spins off its non core assets into another vehicle and ‘gives away’ the shares to its existing investors. Again, a good thing, since it keeps shareholders in the deal and even gives them another equity to invest in.

Without a big discovery and/or upwardly mobile share prices, we’re not likely to see the sort of investor hysteria of past bull markets. This is probably a good thing, since it ensures a more orderly market without those traumatizing and gut wrenching ups and downs of portfolio values.

The message to investors in this market is very clear: Go the distance, and don’t be in a hurry to sell.

Makes sense to me!

Kb

Greetings investors.

I’m tempted to buy Glencairn Gold (GGG.TSX-V), now trading at under $0.20 per share.

The stock price took a steep dive last summer after the company encountered difficulties with its BellaVista heap leach mine in Costa Rica. Apparently flooding in the Pacific coastal region of that country’s southern zone has upped the risk of a rupture in the heap leach pad, and a potential cyanide leak.

Glencairn has said Bella Vista will produce 120,000 ounces of gold by 2009 or 2010 at a cash cost of $350 per ounce. However, the mine is currently closed and there has been some speculation that it will reopen as a conventional gold mine.

I’ve followed the Bella Vista story for some years now. I was particularly interested to observe the government blow hot and cold on the project back when Wheaton River Minerals had it. Getting the permitting was a slow, painful (and expensive!) process for Wheaton, who finally threw in the towel altogether when the country passed a moratorium on open pit mining a few years ago. I was rather curious to see how Glencairn would make out with it.

It seems to me that climate and geography are outweighing the political risks in Latin America these days. I think floods and earthquakes and tsunamis have become real threats to coastal mineral projects around the world.

In the meantime, management has said it will sell its non core assets and work towards commencing operations at two other gold projects in neighbouring Nicaragua. Those are the El Limon (approx. 200,000 oz Au as a probable reserve), and La Libertad (another 400,000 oz, also in the reserve category). To that end Goldcairn proposes moving its recently purchased mill at the Getchell Mine in Nevada south to Nicaragua.

As penny stocks go, Glencairn seems to have a lot going for it. The stock closed down at $0.155 per share today, though the price hit $0.73 earlier this year, and probably will again when they get themselves sorted out.

Looking good!

Kb

Greetings investors!

I haven’t posted since April, when I decided to take a time out pending the inevitable correction in world markets. Not that we’re in the process of that, I’ve renewed my interest in the mineral stocks. I think we’re in for a sustained period of growth.

I’m particularly excited about diamonds. The forecast to 2015 of a 3% annual rise in diamond demand has not changed, and as no important new discoveries have been announced, a substantial supply shortfall is predicted within five or six years.

Friends of this newsletter know I’ve been following Canada’s expanding diamond play since its inception in the early 90s. I’m still optimistic that a number of new mines will be found and exploited in the Northwest Territories over the coming years.

One of my favorite projects is the former Tli Kwi Cho pipe, the DO-27, which has been subjected to on-again, off-again exploration for some 15 years.

I like projects that have an exploration history because as exploration technologies evolve, they stand a greater chance of being rendered profitable. Moreover, having a warehouse of historical drilling data is very comforting for the investor. The DO-27 is a also located within hailing distance of BHP Billiton’s multi billion dollar Ekati pipe cluster, which is another good thing.

In fact we had some news from DO-27 project recently when Peregrine Diamonds (PGD.TSX-V) finally released the grades from last summer’s bulk sampling program.

The results were mixed in my view, but largely positive.

The company hoped for a total yield of + 3,000 carats but actually got 1,724.57 carats; that doesn’t qualify as ‘barnburning’ results, though it’s not bad either. The good news is they confirmed the grade there at 0.89 carats per tonne, and snagged a handful of fancy yellow gems as well.

The average weight per stone was rather small at 0.094 carats. However, some are of exceptional value, including a 4.35 carat fancy yellow gem, the first to be recovered there. The twenty largest diamonds in the package range from +2 to +9 carats each, and 12 of those are gem quality.

Grade can be deceiving in terms of the economics of a diamond project. It is quite possible for a mine to be profitable not from the average value of its stones, but the extremely high quality of a mere handful of them. However, finding those is more luck than science, which doesn’t make much of a case for the stock.

In any case we’re still a long way from an economic appraisal of the DO-27 project, although the signs are encouraging. Previous bulk sample estimates there have ranged from 0.90 carats per tonne in 2005 to 0.88 carats per tonne in 2006. That continuity of grade there is grounds for going the distance. Moreover, there was a follow up surprise some days after the initial press release when PGD confirmed that newly discovered kimberlites located below the main diamond bearing unit of the northeast lobe are diamondiferous.

That is good news indeed, since it suggests the potential money pit has the potential for an extension. The area below 204 meters was thought to be mostly granite.

With it’s stock price still under $2 per share, Peregrine is one of the most exciting exploration plays for the money in my view. Diamonds are a great story: they are always in demand, and their pricing doesn’t follow the gut wrenching ups and downs of other commodities such as gold. It’s true that the story tends to fade from view during times of high mineral prices, but the discovery of an economic diamond mine is big news in any kind of market.

Moreover, I think somebody, (hopefully Peregrine!), is going to discover something big, and soon. You can’t have the drills turning as long as they have without bumping into something exciting. The rising tide will lift all boats.

An even better value than Peregrine is Dentonia Resources (DTA.TSX-V), which has a percentage of the DO-27 but still trades under a dime. We didn’t see a significant rise in the share prices of either company, which means the story is still bubbling beneath the surface. I’m looking for a gradual rise over the coming months as the results of additional work are released.

Dentonia qualifies as a buy under my top down investment system: the right commodity, the right place (Canada’s NWT has arguably the best gems in the world, plus the DO-27 is spitting distance from a world class producer, the Ekati), and mostly, the right price.

- Kevin Barker