The BarkerLetter

Newsflash: Rochester intersects 4.28 grams gold and 1,405 grams silver at Santa Fe.

January 31, 2008

DATELINE - Santa Maria del Oro, Nayarit, Mexico

Rochester’s Minas Real gold project is a two-hour drive through the dusty hills behind the popular tourist destination of Puerto Vallarta, and near the inland town of Santa Maria del Oro. 

It comprises a mill, some historic workings, and up to 26 epithermal vein systems ranging to 40 meters in width along four kilometers of strike.

You could write the backstory to this project on the back of a napkin! Two years ago Alfredo Parra, a former general manager for Mexican mineral giant Industrias Penoles,  decided to look for gold in a largely unstaked region of the Sierra Madre mountains, a few hours from Guadalahara. He focused his search in areas where the place names suggested historic mining had occured, eventually bushwhacking his way over the empty hills with his son to find a partially-hidden mining adit.

The adit yielded samples of up to 14.55 grams of gold and 760 grams silver!

Staking and the construction of a 200 tpd mill followed soon after, along with the construction of a road which - fortuitously - cut into a trio of undiscovered but gold-silver rich vein systems in the vicinity of the workings.  Ah, serendipity … I love it!

Today, the principals of Rochester Resources Ltd. believe they are looking at a potential +40 million ounce gold equivalent resource on two properties there, the Mina Real and Santa Fe. That’s not bad for a project that started scant years ago with a leisurely stroll in the mountains. 

The physical characteristics of Rochester’s project lands are depicted more or less in the photo above. Probably all of those mountains host some extent of gold and silver mineralization. Yet this area of Mexico has not enjoyed the kind of mineral exploration that has unfolded over the past 15 years in northern Mexico.

At least not yet!

The staking rush to the north stemmed from a government decision in the ’80s to shift people from overpopulated Mexico City to less crowded areas of the country. It’s why regional towns like Hermosillo in Sonora have become cities in their own right in recent years.

Of course all those people needed jobs. So the government updated its mining code and let the foreigners in.  The massive growth in exploration expenditures followed in states like Sonora, Chihuahua, and Durango.

I think we’ll see the same thing occur in the coming years in the southern reaches of the mineral rich Sierra Madres, precisely in those areas where Rochester’s project lands are located.

But you wouldn’t think it to look at Santa Maria del Oro, the dusty town which is Rochester’s neighbour. It’s little more than a collection of abode buildings surrounding what looks to me like an unexcavated pyramid. However, if you drive a little further you’ll find a brand new $4 million hotel which looks like it sprang right from the pages of Architectural Digest.

This intrigues me because I know that hotels like this do not just appear at random in Mexico. Cancun was not built by accident, nor was Acapulco or Huatulco. They exist thanks to the political will to build them, and the fact (no doubt!) that certain people in Mexico City owned the surrounding concessions and land titles and infrastructure. Nor were they built overnight. They were planned years ahead.

Tune in tomorrow for more details  ….

(Cont.)

January 28, 2008.

Greetings investors.

Friends of this column know I’m determined to get ahead of the world’s next big gold discovery.

The search has led me of late to Mexico’s southern Sierra Madre mountains, and a very aggressive junior there called Rochester Resources Ltd., trading under the symbol RCT  on Canada’s TSX venture exchange (RCT.TSX-V).

Before I launch into a description of RCT and its Santa Fe project in Mexico’s Nayarit State, I want to make a couple of points about how to make the really big money as a mining investor. Basically you need to buy a stock that has a world-class, company-making project while it’s still trading for pennies or at least under $5 per share. There are literally hundreds of these so the question becomes, which one really has what it takes - in the ground - to become a major gold story?

That`s the only question worth asking in the current market. If you answer it correctly you will never need to ask another.

The conventional wisdom is to buy a basket of juniors and hope one of them will take you over the top. I don’t follow this investing strategy.  My approach is to research them all but buy only three - the right three - and ride them all the way!

I don’t want to double or even triple my money. That was last year. The drills have been turning all over the world for several years now and we are absolutely due for one or maybe even two major discoveries. By major I mean + 20 million ounces of recoverable gold which is mineable at a cost of $250 /$350 per ounce.  In 2008 I want cumulative profits in the percentile of thousands, not hundreds. I want quadruple or preferably quintuple digit gains!

Finding these projects takes patience, yes, but mostly it just requires a lot of faith. I’m tired of buying the Dia Mets and the Diamond Fields and the Aurelians and selling a few months later for a mere 100% profit, only to watch the stock go on doubling and tripling for the next 18 months without me!

I repeat -  I am not playing the odds this year. I’m not offering dozens of stock tips to my readers in the hopes of averaging  out ahead at the end of the year. I only want to buy three gold stocks - the right three - and I want to ride them right to the end and retire a rich man!

So, how do we find them …

It’s been my observation that truly world-class projects are discovered in one of two ways: Either the early going is really, really tough and tests the resources, patience, and faith of the company to the max (like Hemlo for example), or it’s an absolute cake walk like Voisey’s Bay. Surface showings, maybe a bit of trenching and an aeromag flyby, a handful of drill holes, and presto … huge discovery! Bingo, bango, bongo! 

In either case there is usually an element of extraordinary luck, either good or bad, and lots of serendipity.

Tune in tomorrow for more about that …

(Cont …)

January 21, 2008

Greetings investors.

I have reservations about the theory of global decoupling. I doubt foreign markets or certain commodities (such as gold) will remain immune to a major selloff (and possible recession) in the U.S.

Each and every foreign market began falling in November along with the U.S. market. However, according to my sources they haven’t fallen as far.  Still in the black for the year to date are Hong Kong (+26%), Germany (+12%), and Australia (+2%). The biggest yearly losers are France (-7%), Britain (-5%), and Canada (-2%). By comparison, the S&P 500 lost -6.5%.

I suggest that if and when we register two consecutive quarters of negative growth and confirm a recession, it will be rather too late for investors to do anything about it.  In fact, that would be the time to be buying.

In meantime you may want to consider selling. 

In analysing the Dow Industrials charts today, it appears that the bull market in the broader sense is indeed over.  The Dow has broken below its major bull market trendline extending from the 1982 bear market lows through the 2002 bear market lows.

Suggestion: There are doubtless several rallies to come, but I believe they will be smaller and smaller. Sell in the rallies, and sell hard. Everyone else will be.  In fact it’s wise counsel to sell those mutual funds and ETFs that are in the money and buying them back incrementally over the next two years.

I’m still a buyer of sensibly priced junior exploration deals with good projects and/or low operating costs.

Careful out there.

Kb

January 18, 2008

Greetings investors.

There’s a wall of worry building south of the 49th parallel.

Nor is it without foundation. There really are tangible signs that the U.S. is running out of fingers to stick into the dyke.  Bush’s tax relief package could be the last pinky left.

Here’s the good news: I think that metals, energy and resource shares can and will weather a bear market in the U.S. due to brisk demand overseas.  In fact, just last week while I was lamenting the lack of rosy 2008 market forecasts by the major mining companies (like we had late in ‘06), I saw a report by Rio Tinto stating that metals demand will keep percolating along right through ‘08.

Credit Suisse quickly jumped on the bandwagon, citing its own numbers to prove the year will end with a severe shortfall of iron ore. (Note:  Have a look at near term iron ore producer Northland Resources trading as NAU.TSX-V).  So that bodes well for steel. 

Though I’m obviously not a doomsdayist, I don’t think we’ll see runaway stock prices for miners this year except - and this point cannot be understated - those that are currently undervalued and have really good projects in their portfolios.

By really good, I mean really high reserves or near reserves and really low projected operating costs!  

That means research is the key word going into ‘08. Be stingier with your investment dollars, more selective, more discerning, more patient, and more willing to do research.  (Subliminal message: continue to read this daily message and subscribe to The BarkerLetter).

In the meantime, hang onto your energy and precious metals shares.

Kb

January 1, 2008
Greetings investors.

Some time ago I advised mining investors to take a hedge against weakening commodity prices by hedging the Canadian dollar.

That is starting to look like a winning strategy going forward into 2008.

Says one of my favourite commentators, “The loonie is retreating from parity with the U.S. dollar, as the Bank of Canada eyes further rate cuts in response to the expectation of weakening inflation, and as Canada’s trade and government budget surpluses appear headed for the red - thanks to the strong dollar’s drag on exports, slow U.S. growth and weaker commodity prices.  Shorting the loonie and/or buying the USD/CAD pair on the forex seem like pretty safe bets to me.”

Me too.

Careful out there.

Kb

January 16, 2008

Greetings investors.

Friends of this column know I’m partial to Canadian mineral exploration. 

While it’s true that Canada has a history of large mineral discoveries and a mining friendly government, there are other places in the world with extractable mineral value.

One that I think is overlooked is the Republic of Panama, the locale for the world famous canal. Three years ago I was pushing a $0.60 mineral junior there with a prospective copper/gold discovery, and was gratified to see it go to over $3 per share.

A more recent player in Panama is Bellhaven Copper and Gold Inc. (Trading symbol BHV on Canada’s TSX junior venture exchange), which has already signed up more than twice its market cap value in joint ventures. Its Cerro Chorcha copper-gold porphyry deposit hosts a resource of 1.4 billion pounds copper and 255,000 ounces of gold (Worth noting:  Bellhaven has obtained NI 43-101 certification for Cerro Chorcha, a precursor to the commission of a feasibility study).

I suspect the company will want to beef up its gold resource with more drilling before proceeding to feasibility, so we definitely have the results of that to look forward to in coming weeks. It also has US$15 million in the till from a financing last summer, which seems to suggest they’ll be making more acquisitions in 2008. 

The stock price is now about 20% below the financing price of US$1.10, so it looks to me as though things haven’t even gotten started yet. They have very good local representation on their board as well.

Another stock worth watching there is Cabo Drilling (CBE.TSX-V), trading at CAD$0.65 per share. Cabo is a former mineral exploration deal turned driller, with subsidiaries across Canada and Latin America and even Europe. It also has an office in Panama where it is reportedly drilling for Bellhaven. More intriguing than that however is the proposed US$5 billion expansion of the Panama Canal, which could benefit Cabo hugely if the right contracts come its way.

I’m told that some of the financial backers of Bellhaven, which has very good local representation (ding, ding) on its board. are also involved in Cabo.

If you buy one, buy the other too.  They’re cheap enough!

Careful out there.

Kb

January 15, 2008

Greetings investors!

I’m planning a new series on active mining projects in the weeks to come, so watch for that.

One project site I plan to visit before the month is out is the Florida Mine (Rochester Resources Ltd.) located near the city of Tepic, not far as the crow flies from Puerto Vallarta, Mexico.

I’m interested in this project because I haven’t come across any probable or proven reserve data, or projected rate of production (silver, gold) for 2008. Infomine records suggest it produced 82,607 grams in the three months ending last August.

Meanwhile, an interesting report has come across my desk.  ‘Financing Global Mining: The Complete Picture’, is a 271-page report providing full details on every mining deal since the year 2000, plus league tables of the leading banks and countries raising debt and expert analyses of important global issues from 30+ senior executives.  It’s published by Thomson.

 For more information, or to order, surf to http://www.pfimarketintelligence.com/

Careful out there.

K.b.

January 8, 2008

Greetings investors

I want to provide some kind of look ahead for 2008 based on some fundamental and technical events of late.

The technical indicators for the broader US market are showing a ‘topping’ effect which we haven’t seen since before the last bear market. This is not cause for optimism looking forward.

It’s worth noting first and foremost that the 50-day moving average of the DJIA has moved below the 200-day MA for the first time since November 2005. It’s known as a “dead cross”, and it’s bearish.

Also worth noting is the lack of response to the recent interest rate cut by the fed, the fourth to occur since August.  The first two rate cuts fueled the rally from mid August to mid October. However the last two rate cuts resulted in subsequent sharp sell offs after fueling a pair of brief  - but diminishing - highs on Nov. 2 and Dec. 11.

As my favourite technical analysts at stockcharts.com says, ‘…the negative reaction to the last two rate cuts indicates that something is rotten in the kingdom of stocks.”

Last week’s lacklustre employment report took the Dow below 13000 and finished the week below the 17-Aug close. The Dow is now down after four rate cuts.

What does this mean? Probably that something more than rate cuts is needed to keep the bull market burbling along. Or it could mean the real reaction to the Fed’s medicine hasn’t trickled through the markets yet. That’s kind of doubtful, since the markets are the first to react to that sort of news.

The short term forecast: I think we’ll see even greater strength in gold as the US$ withers in the face of a continued, aggressive rating cutting policy by the fed. That will also drive capital out of bonds and into equities, as investors seek higher returns.

Conclusion: Continue to hold gold!

So much for the big picture. My prognosis for gold notwithstanding, I don’t think mineral stocks will be immune to a sell off if bearish sentiment takes hold over the longer term. They’ll get caught in the downdraft like everything else. However, some stocks will rebound, so it’s worth speculating on what those may be.  As I’ve already stated, gold is still your best hedge against uncertain times. Moreover, undervalued companies with ridiculously low operating costs will enhance your gains considerably, even if we encounter diminishing commodity prices. These stocks always become the market darlings in this scenario.

I’ll have a few suggestions for those in the days to come.

Be careful out there!

Kb