The BarkerLetter

A few weeks ago I suggested the biggest gains will accrue not to the strong, but to the weak who get strong to avoid perishing. Surprises can and will happen in this market, both to the upside and downside. I expect we’ll see spectacular failures and successes.

For one thing, everyone is going to work harder, and anyone who has held off drilling their best holes will bring them out of the closet as fast as they can. I wouldn’t be surprised to see a major discovery occur as the industry pulls out all the stops to right itself, and that would definitely help everyone. There is still speculative capital out there, floating around, looking for a place to land.
For another, companies are going to become more creative, especially when it comes to financing. Most will fail, but those who succeed will be here to stay.

I don’t think even those in a position to take advantage of the new pricing regime for mineral juniors are all that gleeful. Nobody in the mining business likes to see a good project clank because of some small technicality like money. Unfortunately that’s a very important technicality at the current time. As much as we’d all like to help, it’s every man for himself. We’re all struggling.

Tirex Resources Ltd. (TXX.TSX-V)

TXX is still pulling killer grades from drilling at Mirdita, its polymetallic project in Albania. Oddly enough, I like the fact that the project is in Albania, even though it’s the last undeveloped country in Eastern Europe. Why? Because it qualifies them for EU money. The European Union wants to industrialize the Albanians as quickly as possible and get them into the fold.

To that end, Tirex has just received the first tranche of C$9 million in funding from the European Bank for Reconstruction and Development (EBRD) - woo hoo! They need to match the amount for tranche two and three from the commercial sector, thereby bringing the combined financing to a total of C$15 million. That’s far from a slam dunk but they’ve certainly got a good start. Meanwhile, TXX is reporting 7.10 metres of 5.9% copper, 3.4g/t gold and 37.5g/t silver from the second set of drill assays at the Gurthi South No.2 Zone on the Mirdita Project. Like I said, surprises will happen in this market! The stock trades in the $0.40 range.

Western GeoPower Corp. (WGP.TSX-V)

This Vancouver renewable energy company has just received a US$11 million secured loan, plus the first tranche of a C$25 million placement announced last summer, so they’re sitting pretty for now. To date the company has secured 50% of the steam required for a planned 35 MW plant at The Geysers Geothermal Field in California, and and they’re still drilling! The three wells to date have established a power capacity of 19.7 MW (gross) or 17.8 MW (net).

WGP tore up a previous power purchase agreement with utility giant PG/E and recently signed a new one with Northern California Power Agency valued at some $26 million per annum over 20 years. That totals about half a billion dollars in revenues over the life of the contract. The stock trades at C$0.16.
Kb

Greetings Investors!

I was browsing through a daily newspaper today looking for mining stories. There was nothing. Actually that’s not true. There was something on page 28 of the H section, written almost completely in jargon by some guy who looked like a kumquat.

People, we have to start doing better than this!

Not many will admit they’re interested in mining. I´m guilty of that. When I do tell people I write about mining their eyes glaze over and they wander away, except for a handful who try to convince me I’m doing something wrong. In my case the shame is even greater because I come from a mining family: My grandfather and uncle - John and Henry Rochfort - were prospectors who made an economic copper discovery in British Columbia in the 1950s and founded Bethlehem Copper, which traded on the old Vancouver Stock Exchange until the mid 1990s.

(During my infrequent visits with my uncle he would always try and get me to go up north. “Helluva lot of fun,” he said in that rapid speak that promoters use. “Helluva bunch of fellas too, great fellas, all of ‘em.” I liked the idea but was never keen on northern Canada, so I went south instead but that’s another story.)

When you think about it, there are lots of fascinating angles to mining. Exploration geology, travel, geopolitics, risk and reward, etc. I happen to think a fully mineralized hanging wall is very sexy, all that glittering metal winking at you. But how do you get the non initiated to go down the rabbit hole? As I boarded a plane recently I wondered if the people in first class would be interested in reading about a hole in the ground with a billion dollar’s worth of minerals at the end. Most of the decision makers in the world fly, and they all read the inflight magazines. That airline in particular has a publication with annual distribution of one million. I did a little more research and came across about 127 daily and weekly newspapers in the U.K. and North America and Australia with combined circulation of 50 million.

Hmmmmm…

Here’s the thing: Nobody in the industry ever reaches out to the general public. The industry almost always speaks to itself. So you’ve got everybody trying to sell to the same bunch of tired, beaten up investors. Is this a good IR strategy during the current era of buyer exhaustion? Well sure, but I think we should also be reaching out to new investors, even people who don’t invest, and especially those who hate us.

I’m very interested in non investors because I know they can be turned. I get letters of interest from them whenever oil or gold or base metals prices peak. I always return their letters.

Modern marketing holds that you need the internet to find exactly the people you want to reach. The inverse of that is finding people you don’t want to reach and turning them into believers. This kind of reverse marketing is not my own idea, nor is it new. I got it from the banks, who reasoned (correctly as it turned out), that if they presented the right offer they could sell mortages to all the huddled masses of working poor who don’t qualify.

Ok, maybe the banks didn’t quite think that one through. But here’s a better example. Hal Prince, the famous Broadway producer, calculated that the majority of people don’t go to the theater. However, almost all of those would attend one show a year if you brought it them and packaged it correctly. It’s why these touring broadway productions like Cats and Evita do so well out in the sticks.

Couldn’t we do the same thing with mining? Aren´t non investors at least capable of buying one mineral stock per year?

Some of you know I’m using non traditional channels to build my readership. Of course the reason for that is self serving but I have another, more altruistic reason: I want to clean up the industry’s image and present it to the general public in a bright, readable format, especially for the benefit of those who call us dirty. I’ve never understood why we stand idly by and let a few misguided people with green hair and an internet connection whip the tar out of us. So we’re supposed to dismantle the mining industry? Fine. But isn’t that a bit like telling kids they should abstain from sex to prevent unwanted pregnancies and the spread of STDs? Kids won’t stop having sex and people won’t stop mining. If you ban it they’ll just go back to using archaic recovery techniques like mercury (Mmmm mercury … tasty!). Nobody ever challenges their logic.

Actually I have to take some of that back. Industry groups like the B.C. & Yukon Chamber of Mines have been proactive in the past, and I’ve seen some crisp copy from a handful of IR firms. I also enjoy Jack Caldwell’s blog here on Infomine. But my point is they don’t go far enough. They’re still preaching to the already converted.

So this is day one of my one man outreach campaign, designed to bring sexy back to mining. Anyone who wants to lend a hand is welcome to drop me a line.

Careful out there.

Greetings investors!

I’ve revised my top down investment strategy recently, in view of changing market conditions.

Over the last few years while the metals were travelling individually to their unprecedented highs - silver, gold, copper, nickel and lead and zinc – I put commodity at the top of the list. Now that metals appear to be moving together as a pack, and given the relative instability in the far flung regions of the world where mining occurs, I’ve put safety in the top rung. It´s broken down into four sub categories: Right locale, right environment, right exchange, and right share structure.

From the locale perspective, Chile is my hands down favourite, and in fact the only safe location for mineral exploration and development in Latin America. You can make excuses for other countries with arguably better precious metals geology (such as Peru!) but it’s hard to sell me mining - as opposed to exploration - projects in them because I simply do not trust their governments or the large populations of artesanial miners who seem to be wandering the land with torches and pitchforks looking for multinationals to kick out.

For all its picaresque seaside villages, Chile was founded as a mining nation and remains one to this day, exporting 48% of the world’s supply of copper. The industry has almost single-handedly sustained the nation’s breakaway economic growth over the past 10 years.

Given all that, one may think the country has been pretty well picked over by the majors in recent years but that’s not the case at all. In fact one of my favourite firms is an aggressive $0.50 junior called Apoquindo Minerals Inc. with a very good project there. It trades as AQM on the Venture board of the Toronto Stock Exchange (TSX-V). In a nutshell, they’re a Chilean managed deal with an impressive set of copper reserves located within a highly prospective but largely untested mineral district in Northern Chile. They have a tight share structure (i.e. no institutional investors ), and the stock is thinly traded, which is a good thing in this day and age.

Apoquindo is a bit of a rarity in that they have an almost exclusively Chilean board, which includes Juan Villarzu, the former President and CEO of the $15 billion state-owned Codelco. Moreover, they’ve optioned and drilled a going concern located near the port city of Antofagasta, which is definitely on my list of top 10 projects worldwide from a safety perspective. Here’s why: First, the project lands comprise two known copper deposits in the middle of the Atacama Desert, so there are no local townspeople with a misguided sense of entitlement to the mine, though a ready workforce is available from nearby Antofagasta; there is no overburden or local flora or fauna, and hence no environmental concerns or long term, expensive site reclamation responsibilities; there is ample power and infrastrucure, including a railway and road network; and finally, the project lands are shoehorned into a largely undeveloped copper producing district called Sierra Valenzuela, with neighboring projects owned by the likes of Rayrock, Codelco, Anglo American, BHP, and Antofagasta Minerals.

The thing to bear in mind with this deal is that they’ve already found the minerals within a working project area, which to me represents the very thing everyone should be seeking in this market: Namely R.B.I., or ‘return before investment’. Yes, they have yet to encounter the feasibility stage and those resources are not reserves, at least not yet. But I believe they will be in short order.

I had a chance to visit the so-called Apoquindo Copper Project (comprising the Elenita and Madrugador deposits 18 kilometers apart) in late September, and was impressed mostly with the efficacy and speed of the drilling which has occured under the direction of Exploration Manager Alfredo Garcia. Many penny stock investors are happy just to know their companies are drilling, but there is definitely a right and a wrong way to it. To date the company has drilled 41 thousand meters over 259 holes, almost half of that completed in the 2nd Quarter of ‘08 alone. Granted, reverse circulation drilling is much easier in the desert than the jungle or the Canadian Arctic but there is still a lot that can go wrong and didn´t. Moreover, they got better than expected results, increasing the resource from the original non standard calculation by 32 percent (It is NI-43-101 compliant now). The deposit remains open in several directions and at depth.

In fact the company has had an incredibly busy year, drilling wise. In addition to proving up the Apoquindo Project - which included the discovery of two new zones - they picked up a prospective gold, silver, lead, zinc property in neighbouring Peru (Huarman) where they cut 110 meters of 0.77 grams per tonne gold with a limited drilling program, plus 52 meters of 1 gram per tonne.  They also lassoed an option for a wholly-owned interest in a leachable copper property called Pachagon and drilled into 68 meters of 3.93% copper there.

I was very impressed with the workings at Elenita, which are at surface, and look like a giant sinkhole in the ground. In fact they’re a labyrinth of caves originally dug by artesanial miners and expanded over generations. The minerals below appear as glittering black and grey traces within a nexus of veins in the rock, the copper oxides are a bright jade: It’s the colour of money, and Elenita has a lot of it, in grades ranging to 6% Cu per tonne.

Apoquindo has delineated total resources of 25 million tonnes of 0.8% Cu measured and indicated, and 3.6 million tonnes of 0.7% inferred both at Elenita and the sister Madrugador deposit a stone´s throw away. The company says it has the right data set now for a scoping study, so we have that to look forward to. Also, drilling is ongoing.

I’m curious to find out just have they have below the 300 meter depth where they stopped drilling in mineralization. I’m always very keen on potential company making projects, and given the relatively unexplored status of the Sierra Valenzuela District (there was only limited copper mining during the 20th century, with no historical production reported) that potential is definitely there. I’m less keen on deals with near-term mine start ups from the investing point of view because they´re messy and fraught with bugs and often missed early stage production targets. Apoquindo wants to have a mining plan in place by next year, and has already accomplished a lot of the ground work on the back end by acquiring an option to acquire a local heap leach solution facility (they don’t plan to produce copper cathode but merely sell the solution to the local SXEW plants). Frankly, I think that may get pushed up a little given the current prices of leaching acid, but it could happen on schedule if the economics line up well.

In any case, I´m at least as interested in what they´ve got cooking in neighbouring Peru. Certainly, the company wants to start getting cash flow from operations as soon as possible. That´s only natural. But I´m always more excited about pure exploration projects because, well - because they´re exciting. I´m a prospector at heart.

Indeed, it´s a challenging environment right now for any junior firm at their stage of development. Whether you park your nickels here or not depends on if you believe the company can go the distance. I think they can, given the advanced stage of their projects in the Atacama and the brain trust running the show. In that respect, it is worth mentioning Tom Hendricksen, the company´s consulting geolgist, who is extremely well connnected in that part of the world. He´s been very busy in Peru on behalf of Apoquindo of late and if there´s anyone with a shot at finding an Arequipa Minerals type project there, it’s him (Arequipa, a Vancouver junior, sold to Barrick Gold for $30 per share in 1996 valued chiefly on a copper gold porphyry discovery called Pierina).

As mentioned earlier, the company has a couple of less advanced, but no less interesting, gold and copper projects underway there, plus one they plan to JV with a major but won´t discuss publicly. It´s all rather exciting, actually.

These are challenging times for investors too. But the returns are definitely there, and big ones, for those who pick companies with the wherewithal not only to survive, but prosper. There´s not much middle ground in the game we´re in now! These companies will have the right stuff, or find it pretty quickly, or they´ll vanish. So it means picking management with good projects and lots of character and hanging in there for as long as it takes.

Be careful out there.

Kb

Greetings Investors.

I’m answering some reader mail today…

First, my apologies for not posting for months. I haven´t been very interested in buying of late, owing to the ‘pending recession’ and lack of liquidity on the junior exchanges.  In fact, I´ve been telling subscribers to sell - and sell hard - on the rallies since last spring. However, prices have come down somewhat and I’m getting interested again.

Hayden writes: ‘What the heck is up with Rochester Resources lately?´ The short answer is, I don´t really know. I was told some weeks ago that they encountered issues trying to get their production up but that the mill is back on track and silver recoveries are improving.

Company share prices often have volatility during a start up phase, owing to the inevitable bugs that have to be worked out, immediate targets not being met, etc.  Plus general market conditions have been poor. I’m hanging in there but not accumulating at the current price.

Bill Schooler asks: I am interested in more information on the Ameridollar and its effect on our dollar. What plans are afoot? Well, I suggest that any plans for an Ameridollar involving Canada and Mexico - if there were any - have been shelved.  Some time ago I speculated that North America might go to a single currency, but I have never believed it will happen over the short term. Canadian manufacturers enjoy too many benefits from the spread between the Loonie and the greenback. I believe the Canadian banks surreptitiously control the rate of exchange to their own advantage, Mexico too, though they will tell you there is no central bank intervention in the currency exchange markets and hasn´t been for decades.  I find it very hard to believe, especially in view of recent events, that central bankers leave the pricing of their currencies up to fate, kismet, or the free market. They just don´t.

Janice Kimball writes: My husband is a Mexican National. He has title to a new mine in Jalisco and as we are both retired we would like to sell it or find a partner who speaks English as I do not speak Spanish but have a half interest.  We had laboratory tests done by ALS Chemex on 2 samples. It is very rich in many metals including gold and silver.  We live in a rural area and I need to talk with someone that speaks English .  Sure Janice  … send me a private message.  I´m very interested in helping you, and by the way anyone who knows anything about a mineral project at any stage of development anywhere in the world is welcome to contact me.  I may even finance it.

Frank Macius muses: I have shares of GOLDSPRING (GSPG). This shares will have a value of 20 dollars each one.  Is this the best company at this moment.  Hmmm, well GSPG is an OTC gold company and those have had a lot of trouble getting investment capital of late.  The stock plummeted in mid September on some aggressive short term selling.  It looks to me like someone wanted to take an early payday. Tsk, not nice. Can´t speculate on their prospects since I haven´t analysed them. I`ll try to get around to that in the near future.  The stock has a seven cent per share high though, which is encouraging - that`s a 300 percent premium to the current market.

Taxi driver opines: I agree that everyone should read up on their history before expounding on the merits (or lack thereof) of the Gold Standard. I also agree that everyone should stop ragging on Nixon for abolishing it. The reason for both of my positions is simple: Nixon DID NOT abolish the Gold Standard, F D Roosevelt did in 1933 by outlawing the private ownership of gold. Thereafter, the US government kept the ostensibly gold backing “reserve” in Fort Knox, but only a fraction of the amount that would be required to redeem the entire dollar money supply.

The notion of a gold standard when private ownership of gold itself is criminalized is a joke at best and a fraudulent charade at worst. Nixon merely ended the pretense of a de facto non-gold standard, in an economy where it was becoming increasingly a sword of Damoclese over the government’s head, as the actual gold reserves as a fraction of the money supply continued to spiral in the downward direction.

So, the US only had a “real” gold standard for 33 years, from 1900 (with the adoption of the gold standard act), to 1933, with Roosevelt’s outlawing of gold ownership. Coincidentally, those were pretty lean years for the US economy. I say coincidentally because I do not wish anyone to infer that I mean causally. Thanks for putting it in a nutshell for us, Taxi Driver. Thanks for sharing and stay in touch….

Kb

November 27, 2007

Greetings investors!

Uh uh …

First there was this proposed BHP Billiton/Rio Tinto Ltd. merger to create the world’s largest integrated mining company. Now the world’s second largest zinc producer is warning of lower earnings.

Am I the only one who thinks we’ve been too long at the trough?

Zinifex Ltd. of Australia has warned investors that rising costs, the strong Australian dollar and lower zinc prices could hold back earnings this year.  Net profit is still ontrack to exceed last year’s record result, but I think this is a harbinger of leaner times ahead.

I don’t like to be the skeleton at the feast, but higher costs and inflated currency values have created an artificially expensive operating climate for mineral explorers and producers.  A downtick or (heaven forbid) prolonged dip in metals prices could be disasterous.

Look, it’s the reverse scenario of a few years ago. After a prolonged bear market for copper, nickel, and precious metals (closer to a nuclear winter in fact), producers had wrenched down operatings costs so far that any upward moving in pricing sent profits and share valuations sky high.

In this reverse scenario, we’ll see it all go the other way.

Personally, I think BHP and Rio are both looking to their future survival, rather than a way to expand profits over the short term. They’re already planning into the next bear market. 

The only way to stay in business when aluminum and steel return to ’90s prices is to be the world’s largest volume producer with the thinnest margin.

But it’s always profitable to buy the right penny explorers, if you can get them cheap. Nobody ever went broke finding minerals, merely from producing metals at costs that were too high to sustain profitability in a dwindling commodities market.

Be real careful out there.

Kb

November 13. 2007

Greetings investors!

I think it’s time to buy West Timmins Mining (WTM.TSX).

I got involved in this gold explorer when it opened a year ago on Canada’s Toronto Stock Exchange at $0.30 Cdn per share. The stock got to $1.30 last July before pulling back during the sell-off in August. It trades at just under a buck Canadian now.

The company has been active in northern Mexico where it has very roughly outlined the perimeters of a 3 kilometer wide gold, copper, zinc discovery called La Dura, within a larger mineral district known as Montana de Oro. 

It’s early days on that one yet but they’ve pulled some very impressive grade to date and recently inked some jv’s to net a controlling interest in the neighbouring properties.

I think the simple word ‘mining’ in WTM’s corporate name more or less sums up their raison d’etre. The company wants to be a mining company, not a find ‘em, drill ‘em, sell ‘em off junior that fades back into the woodwork when the bull market ends.

To that end, I’ve seen them aggressively acquiring advanced exploration stage gold properties throughout Mexico over the past six months. Yes, there’s some dilution as a result of that but that’s not unreasonable given the company’s long-term goals. It currently has a market capitalization of some $100 million Cdn.

For that reason and others I think West Timmins is a solid buy currently at under a dollar, no matter what your investing objectives are.

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

Last week I wrote about a proposed merger involving Canadian base metals explorer Wolfden Resources Inc. (WLF.T). The stock had dropped to $3.50 Cdn per share while Australian zinc miner Zinifex Ltd. ( ZFX.AU) pondered its final offer.

Continue Reading »