Select juniors offer upside potential

As tax-loss selling draws to a close, so does the opportunity to take advantage of a seasonal weakness in the junior mineral resource market before liquidation dries up by year-end. With this in mind, analyst Brent Cook of Global Resource Investments has highlighted several companies he believes offer a “solid base value, with substantial exploration upside.”

At $1.90, Manhattan Minerals (MAN-T) is considered a bargain. The company has raised US$65 million from sophisticated investors at an average price of $4 per share since early 1997, when it announced it was purchasing the balance of BRGM’s rights to the Tambo Grande concessions in northern Peru (BRGM, or Bureau de recherches gologiques et minires, is owned and operated by the French government). The stock traded as high as $12.20 at the time.

A subsequent placement of 4.5 million shares at $9 raised the US$23 million required to complete the transaction. During the long wait for government approval, the stock bottomed at $2.35, before rallying to $4.30 in May 1999 on the signing of the final supreme decree, which granted Manhattan the right to earn a 75% interest in the project.

Manhattan has since raised US$1.9 million at $2.95, US$7.6 million at $3.75, US$18.6 million at $5 and, just this past June, US$10 million at $3.25.

Since June 1999, when it began an aggressive campaign of exploration and delineation drilling, Manhattan has discovered two new massive sulphide deposits, TG-3 and TG-5, and defined a 1-million-oz., near-surface gold resource overlying the TG-1 base metal sulphide deposit.

To date, the company has drill-tested nine gravity targets and discovered three massive sulphide deposits. Of the other six targets tested, Manhattan has eliminated only one. Nineteen additional gravity anomalies require follow-up geophysical work in preparation for drilling.

Despite its exploration success, Manhattan has seen its share price erode to a 52-week low of $1.55 in recent weeks. Cook notes that there are concerns about metallurgy, the depth of the new deposits and the relocation of the town of Tambogrande, which partially overlies the TG-1 deposit.

“They’ll tweak the metallurgy and punch a few holes into some of the other geophysical targets,” he says. “By June 2001, Manhattan should have a positive feasibility, a US$3-million cash reserve, and maybe another VMS [volcanogenic massive sulphide] discovery in the district.”

Manhattan envisions mining the TG-1 gold deposit first, at the daily rate of 7,500 tonnes. The operation is projected to produce 276,000 oz. gold and 3.7 million oz. silver per year over a mine life of 3.5 years. The underlying TG-1 sulphide deposit will be developed concurrently with the depletion of the gold cap. The deposit is expected to produce in the range of 60,000-70,000 tonnes copper and 35,000-40,000 tonnes zinc annually over a life of 10 years, based on a daily mining rate of 15,000 tonnes.

Recent improvements in metallurgical testing have lowered cash operating cost projections by 12%, to US44 per lb. copper from US50 per lb., net of zinc and precious metal credits.

Cook views Gabriel Resources (GBU-T) as a prime takeover candidate at $2.65. “I think it has got to be next year’s big acquisition. There is nothing else out there that big.” Gabriel holds an 80% interest in the Rosia Montana gold project in Romania, where a measured and indicated resource stands at 171.4 million tonnes grading 1.5 grams gold and 9 grams silver, for a contained 8.2 million oz. gold and 48.2 million oz. silver. The total resource is estimated at 254 million tonnes grading 1.3 grams gold and 8 grams silver, or 11 million oz. gold and 62 million oz. silver, based on a cutoff of 0.6 gram gold.

The resource estimate was prepared by Resource Service Group of Perth, Australia, based on 213 drill holes and 57,600 metres of underground channel-sampling. The final phase of the 2000 exploration program was due to be completed mid-month and includes 24,500 metres of drilling and channel-sampling. An updated resource estimate is scheduled to be completed in February 2001 and will form the basis of the open-pit mine reserve calculation for inclusion in the final feasibility study. The study is being prepared by Minproc and should be completed by June of next year.

Cook expects capital costs to be around US$230 million and total cash costs, about US$120 per oz. Gabriel has 74 million shares outstanding, or 84 million fully diluted, and US$8 million in cash, with no debt. It has a 52-week trading range of $3.50-2.35.

Cook likes Francisco Gold at $4.25. The junior recently resumed drilling on its Marlin project in Guatemala. A first pass of drilling on the Main zone encountered significant gold-silver mineralization in 13 of 15 holes. The initial program tested beneath an area of high-grade mineralization that had been outlined by previous trenching, as well as its eastern extension, under post-mineral volcanic ash cover.

Cook says the first round of drilling outlined “a relatively high-grade deposit in the range of 400,000 oz., grading 4 grams per tonne, which lies at the surface on a ridge top. . . . Infrastructure shouldn’t be too bad and this could easily be a very profitable operation.”

Francisco is stepping out to the west in the second round of drilling, which should throw some light on the project’s potential upside. The Marlin property is part of a package of more than 6,000 sq. km of mineral concessions that were staked along a major structural trend in western Guatemala. About 20 km northwest of Marlin, Francisco geologists have discovered a 1.5-km-long zone of high-sulphidation vuggy silica assaying up to 2 grams gold. Three additional targets remain to be tested in this belt.

States Cook: “As Francisco currently stands, you get $34 million in cash [$2 per share], roughly 2 million oz. gold at the El Sauzal gold deposit in Mexico, the Guatemalan exploration property, including Marlin, and a very aggressive and successful exploration team.”

The junior holds a 100% interest in the El Sauzal deposit, in Mexico’s Chihuahua state. A 1998 Behre Dolbear scoping study indicated a net present value of US$118 million at a 5% discount, based on an estimated minable resource of 23 million tonnes grading 2.98 grams gold, or 2.2 million contained ounces, assuming US$275 gold.

Francisco has 16 million shares outstanding, or 17 million fully diluted, and has traded in a 52-week range of $7.50-4.

Cook views Atna Resources (atn-t) as a buy at its current level of 47-42. The junior, which is led by David Watkins, former vice-president of exploration for Cyprus-Amax, recently announced a couple of minor acquisitions, including the prospective Monterde gold project, in northwestern Mexico, and the Lone Pine VMS property, south of Prescott, Ariz.

Monterde, an open-pit, heap-leach prospect, has the potential to produce 90,000 oz. per year at a cash cost of less than US$150 per oz. and a capital cost of US$24 million.

A 12-to-15-hole drilling program to confirm past results is under way. The vendor has estimated a potential 700,000-oz. resource of 10.5 million tonnes grading 2.1 grams gold and 66.7 grams silver.

Atna has $11.1 million in cash, 21.1 million shares outstanding (24.6 million fully diluted) and trades in a 52-week range of 85-37.5.

Cook believes Southwestern Gold (SWG-T), at $3, deserves consideration. He describes the junior as “the best prospect-generator in the business, as evidenced by 13 joint ventures, mostly with majors, who will be spending $8 million on Southwestern’s behalf over the year.”

Southwestern is targeting precious and base metals in Peru, Chile and China. Its 52.5%-owned subsidiary, Canabrava Diamond (cnb-v), explores for diamonds in Canada and Brazil. The Vancouver-based junior also holds a 25.5% stake in Aurora Platinum (ARP-V).

The company is well-financed with $11 million in cash; it has about 15.3 million shares outstanding, or 17 million fully diluted, and trades in a 1-year range of $6.40-2.56.

For a silver play, Cook recommends Corner Bay Minerals (BAY-T), which recently completed a brokered 3.7-million-unit private placement with Canaccord Capital priced at $1.50, generating $5.5 million in proceeds. Each unit consists of one share and half a warrant. One whole warrant entitles the holder to buy an additional share at $2.25.

Proceeds will be used to complete a final feasibility study of the Alamo Dorado open-pit, heap-leach silver project in Mexico’s Sonora state. A prefeasibility report, prepared by Mintec, estimates a minable heap-leach resource of 52.5 million tonnes grading 63 grams silver and 0.23 gram gold at a stripping ratio of 1.82-to-1, based on a silver price of US$5.28 per oz. This is equivalent to 106.5 million contained ounces silver and 394,200 contained ounces gold.

The total resource stands at 79.6 million tonnes grading 45.9 grams silver and 0.18 gram gold, equal to 117.5 million oz. silver and 447,700 oz. gold.

The mine model is based on a 15,000-tonne-per-day (or 5.5 million-tonne-per-year) operation with a mine life of 10 years. Based on updated overall recovery rates of 67% for silver and 77% for gold, Alamo Dorado would produce an average of 7.1 million oz. silver and 30,300 oz. gold per year. Cash costs per silver-equivalent ounce average US$2.96 over the life of the mine. Capital costs are estimated at US$45 million, with a payback period of just 18 months.

With 16.1 million shares outstanding, Corner Bay is trading at the bottom end of a 52-week range of $3.25-1.40.

At 43, Cook says Eldorado Gold (ELD-T) is awfully cheap, especially if the Turkish government gives the green light to Normandy Mining‘s (NDY-T) Ovacik gold project. Eldorado recently completed a $10-million brokered private placement of 18.2 million special warrants priced at 55 each. At least half the proceeds will be used to advance its gold projects in Turkey. The junior has a 52-week trading range of $1.18-40.

Minefinders (MFL-T), at $1, offers good leverage to gold, says Cook. The company recently updated its open-pit model for the Dolores gold-silver project in northern Mexico. At gold and silver prices of US$300 and US$5 per oz., respectively, the open-pit portion of the Dolores Main zone contains an estimated 67.2 million tonnes grading 0.96 gram gold and 53.6 grams silver at a stripping ratio of 4.2-to-1. This is equivalent to 2.1 million contained ounces gold and 115.8 million ounces silver.

A mine life of 13 years would result in annual production of 138,359 oz. gold and 6.3 million oz. silver, or about 242,900 oz. gold-equivalent, at a cash cost of US$149 per oz. and a total cost of US$184 per oz. Minefinders is trading in a 1-year range of $2.23-55.

Finally, Cook has selected Aurora Platinum as next year’s most likely home run. It hit a high of $8.10 on the release of encouraging results from the first five holes of an initial 16-hole drill program on its Midrim property, 20 km northeast of Ville-Marie, Que.

Values ran as high as 4.74% copper, 4.94% nickel and 0.11% cobalt, plus 1.24 grams platinum, 4.71 grams palladium and 0.17 gram gold per tonne, over 6 metres within a 38-metre interval averaging 2.07% copper, 1.98% nickel, 0.07% cobalt, 0.48 gram platinum, 2.08 grams palladium and 0.13 gram gold.

The Midrim property, though drilled in the 1960s, was never systematically explored for platinum and palladium. The Main zone extends for a strike length of 230 metres, and the average of seven previous drill intercepts is 1.67% copper and 1.21% nickel over 13.6 metres.