Mining Insights #5
Trip to Rare Element Resources’
& where we are in the Mining Stock Investment Cycle
I won’t waste time regurgitating the genesis of the previous, three, historic weeks. I’ve been on record since at least November 2006, yelling for people to “wake up and smell the coffee” and get real about the real estate crisis.
Suffice it to say, that the resolution of all these engendered economic disasters, will be longer, the nadir deeper and the recovery more uncertain then any downturn except, hopefully, the Great Depression.
“We are all communists, now,” said one wag with whom I correspond.
Would, it were otherwise.
I don’t like it when investment pros wear their politics (or religion) on their sleeve. However, I don’t think you’ll find it so political if I may say, “A plague on both their houses”. Also, while my lawyer friends (yes, I have some) tell me that no crimes were committed (by that large number of folks who ran these huge companies), having been an investment bank CEO, myself, I believe what the heads of these huge financial entities allowed was criminal. “There ought to be a law” and they should “not pass go; go directly to jail.”
Before turning to the Rare Element trip, I know most of you are anxious to hear my current “take” on Animas Resources.
On Animas Resources (ANI: ANIMF)
We are waiting on “pins & needles” for the first release of drill-holes from the Animas’ 20,000 meter 2008-early 2009 program. We expect to see 2 to 4 result releases between now and year-end. The first seems to have been delayed past our expected mid-August date by the assay lab taking 9 weeks instead of the 3 weeks that we had expected in June.
However, there is more.
While I have no proof to offer, I believe a further delaying element is the announced (July 21) acquisition of the Lixivian property that lies within Animas’s claims. If you wanted to buy (at the seemingly “high” price of $650K) a property within your claims, you would certainly not want the seller to have positive data points. (Furthermore, nor might you want to even know them yourself, to avoid any indication of impropriety – in fact, a good attorney might counsel you to not intentionally discover ANY significant, new information until an agreement was signed).
We hope that the deal will be finalized within days.
The market participants in Animas shares (ANI – ANIMF) are keeping fingers crossed for the great drill news that we believe is imminent. In the current market ($1.18), US $ purchases between $1.05 and $1.35 should be a great trade for 3-6 weeks and unbelievable investment, long-term.
Rare Element Trip
Earlier in September, the Rare Element team invited me and some noted mining folks to visit their extraordinary Bear Lodge Property in
We could make this very complicated, but I believe folks pay me to keep it simple. I learned several VERY important new things by going on the tour. I will lay them out in a simple, short outline below.
One thing you definitely don’t need from me is an explanation of the geology or the fine details of the potential metallurgy. This is a big (really HUGE) “back of the envelope” story, and there’s no need to make it any more difficult.
So, let me start this way:
If you have not previously read or want to re-review my complete, pre-trip write-up & recommendation, you should immediately visit HERE: http://www.nanotechnology.com/blogs/blognano/2008/04/mining-with-nanotechnology-twist.html
If you want to read Rare Element’s new and enlightening Corporate Profile, visit HERE: http://www.rareelementresources.com/s/Presentations.asp
Exceptional and quite useful and informational, additional resources on the company website are available HERE: http://www.rareelementresources.com/s/QwikReport.asp
Pretty hospitable, right? (except when 60 degrees below zero in January!)
Here’s a view of a reclaimed meadow, that, believe it or not, was once full of unsightly trenches. (Those tiny black dots in the sunny distance are grazing cattle!) We’re ALL environmentalists. . . . You may show this to your friends who believe that mining HAS to ruin the land forever. “It just ain’t so.”
Yours truly, at a steeply inclined hole under the Bull Hill feature - an attempt to intersect highly mineralized, ore-grade rare earths.
That crumbly charcoal-colored stuff appears to be “the goods” and it started at around 10 ft.
LESSON #1 from the trip
The U.S. Geological Survey’s gross, geological, potential resource, ESTIMATE (my description of what the number indicates - think of all the caveats that are in that description – wow, a lot) of rare earths in Bull Hill are around 80 million tons at more than 4% rare earth minerals.
My “back of the envelope” is that 60% of that is there, and only 60% of that will end up in a kind of mineable reserve. Then, due to “difficult” metallurgy (ALL rare earth deposits have “difficult” metallurgy), only 70% of that will be recovered on an economically equivalent basis as a typical gold deposit (so, we’ll say 55% will drop to the gross line). Using a low average value per ton of $25/lb of rare earth, that’s 28.8 million tons carrying, get this - 2.3 Billion pounds of rare earths (with assumed poor recoveries) ! Worth . . . hmmm . . . .at least 3.15 million ozs of gold!
Reminder: Newmont earns into a large percentage of the gold at Bear Lodge . . . . . . none of the rare earths.
Lesson #2 from the trip
Really this is a reminder, not a lesson: when major mining companies develop a junior’s property they have NO incentive to: A. release the big news as fast as they can, nor B. to promote the property or its development (fear of competitive bidders), nor C. to develop the property even one ounce beyond the point at which they want to negotiate the junior “out” of the property.
Count on Newmont to disappoint, and you won’t be disappointed.
How will Rare Element “fight”? Count on Ranta, Clark and McKelvey, all steeped in the ways of the Majors, to know all the tricks and to make sure that as many majors as possible are paying attention.
Lesson #3 from the trip
Know the negatives in advance.
Receipt of the disturbance permit is now not expected until around November.
Due to the harsh winter weather (and the muddy spring), the delayed disturbance permit will ensure that Newmont’s development gold drilling will not start until May or June 2009. I would not expect to see any gold results until July or August 2009.
On rare earth’s: Drill is turning right now, and we would expect to see some very good results and further definition and outlining of the main resource this year, but this not a significant or expensive program.
Bottom line: Buy Rare Element (RES – RRLMF) NOW between US$ 0.50 and $0.80 and over the next few months while things are practically dead. RES is truly “a second half of 2009 story”, but sophisticated investors will be accumulating while the typical, retail traders are looking elsewhere – like now.
Lesson #4 from the trip
The 200-acre disturbance permit is a HUGE DEAL.
This allows, for example, seven drills to be turning on seven different 28-acre sites! Then, every single acre that is “reclaimed” from disturbance goes back to the 200-acre total. In other words, this permit assures the potential for the very most aggressive drilling and development program imaginable.
Lesson #5 from the trip
This is a Cripple Creek-style deposit/property. It is significantly larger and significantly more gold-anomalous, over a much larger area at surface than
Yes, it is.
Of course, it is unlikely that Rare Element itself will ever actually mine a single ounce of gold or pound or rare earth minerals, but, to the sharp investor, that is of no consequence. In my opinion, minimally, there will be proven to be ore with 3 million gold-equivalent ounces of rare earth’s and 2 million gold ounces to Rare Element’s credit (all exclusive of Newmont’s share). Again, in my opinion, we’ll have a high degree of confidence that this is so before the end of 2010.
That’s a really long way from today’s valuation of only about $17 million. That “distance” is what will protect us, whether the “real” number two years from now is 1 million, 3 million or 7 million ounces!
Back in
Where we are in the Mining Stock Investment Cycle?
In the intermediate-term: Our proprietary system indicates that a strong 5-week to 5-month rally began last week. Use this rally to exit from all junior mining shares that do not have the potential for at least 5 million gold-equivalent ounces and good financing capabilities (NB: these are extremely rare; we’re going to trim down to only 4 - 7 stocks – of course, Animas and Rare Element being two of those).
Tax loss selling will absolutely pressure junior mining shares this year between mid-October and the end of December. Hopefully, this will be a rally of the 5-month variety and not the 5-week type. We’d rather be sellers of these “weak sister” stocks in February 2009 strength rather than in October 2008.
In the long-term: We have changed our long-term opinion of the precious metals markets. Our technical indicators now show possible long-term tops in gold and silver were put in-place March 2008. Highs that are achieved in gold and silver over the next 2 years may well be identified as “bear market rally” highs.
Prior to this, we were confident that new, all-time highs would be made in gold and silver and that mining shares would not top until January 2010 to April 2012.
We are no longer confident about the metals (unless they break above the old highs by the time you get this . . . ha ha .. . gold is at $909 as I write!), but our opinions are unchanged on the mining shares most likely topping timeframe.
With the benefit of hindsight, of course, it would have been so much better to limit all our buying of mining shares to the last week or so.
Unlike many other newsletter writers, I’ll “tell it like it is.” Unfortunately, many of the purchases have proved to be atrocious so far (but we still see all of the companies dramatically higher over the next two years, yielding great profits). We are glad that these shares represent only a small 3-7% portion of our readers’ assets.
That said, we still believe that the average of the late-April 2008 prices and the mid-August 2008 prices (where we entered the market) will look FANTASTIC when compared to the highs that we expect to be reached between October 2008 and October 2010 (even more so, whenever the all-time high is eventually hit, between January 2010 and April 2012).
Any new high intraday trades in gold or silver (less likely, but should they occur) will trigger nearly immediate 7% + additional rallies beyond the “old” highs.
What would make us “wrong”?
The TSX Venture Index should not have two consecutive closes below 1446.90 . . . but any single trade in the XAU Index (representative of big-cap mining shares) below the recent, multi-month, intra-day low at 110.70 (VERY unlikely) would scare the heck out of us and turn us very bearish on mining shares.
Reminders: Most folks should have no more than 3-7% of their assets in precious metals mining shares, and, depending on net worth, you may use the $237K model portfolio to identify the “pro-rata” position right for you.
Here is how we expect our $237,515 model portfolio appears for those who followed our inputs (US$):
Reminder: To receive these Mining Insights along with our subscribers send a note to darrell@resourcedevelopment.com - FREE, for the time being
26,000 Animas Resources @ $1.40 - $36,400
23,000 Rare Element Resources @ $0.78 - $17,940
2,760 Freegold Ventures @ $1.45 - $4,005
3,000 Pediment Exploration @ $1.80 - $5,400
2,225 Entrée Gold @ $1.80 - $4,005
3,000 Canplats Resources @ $3.10 - $9,300
7,500 Silvermex Resources @ $0.95 - $7,125
2,500 Silvercorp Metals @ $5.75 - $14,375
4,500
500 Silver Standard @ $28.90 - $14,450
1,500 Hecla Mining @ $9.60 - $14,400
1,000 Silver
1,500 Apex Silver @ $7.45 - $11,175
2,400 New Gold @ $5.60 - $13,440
7,500 Midway Gold @ $1.80 - $13,500
12,000 Orko Silver @ $1.35 - $16,200
15,000
]
10,000 Intl. Tower Hill @ $1.40 - $14,000
Disclosures and Disclaimers
GENERAL TERMS*
No investment opinion or other advice is being rendered on any stock or company. All of the trading stocks we recommend should be considered highly speculative; you can lose some or all of your money. It should be assumed that the Author and editor and their associates may hold or dispose of or trade in positions in any securities mentioned at any time. No fee in cash, shares or options was paid for this report. Please be responsible for understanding the terms and vocabulary of stock market investing. Here is an unaffiliated glossary site that may be useful:
http://www.traders.com/Documentation/RESource_docs/Glossary/glossary.html
Disclaimer
The Nanotech Company, LLC, Darrell Brookstein and/or Resource Development are not registered investment advisors nor broker/dealers. Readers are advised that the material contained herein should be used solely for informational purposes. The
Author does not purport to tell, or suggest to, readers which investment securities they should buy or sell for themselves. Readers should always conduct their own research and due diligence and obtain professional advice before making any investment decision. The Author will not be liable for any loss or damage caused by a reader's reliance on information obtained in any of our newsletters, special reports or on our web site or sent by email or mail. Our readers are solely responsible for their own investment decisions. The information contained herein does not constitute a representation by the publisher or a solicitation for the purchase or sale of securities. Our opinions and analyses are based on sources believed to be reliable and are written in good faith, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. All information contained in our newsletters or on our web site should be independently verified with the companies mentioned. The editor and publisher are not responsible for typographical or other errors or omissions. There is no guarantee of investment results herein whatsoever, either explicit or implied. Past results are no guarantee of future results or even profitability. Investors are cautioned that they may lose all or a portion of their investment if they make a purchase or short sale in these speculative stocks.
<< Home