Analysis


We’ve Only Just Begun: China’s Influence on African Mining Development

August 5, 2011 by · Leave a Comment 

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ANALYSISProspectingJournal.com – Chinese firm Sichuan Hanlong recently made a big statement with its $1.5 billion takeover bid for Australia’s Sundance Resources [SDL – AX]. However, this statement wasn’t directed towards mining in Australia, as the target was Sundance’s Mbalam project located in the new iron ore frontier of West Africa.

With potential for $4.6 billion in iron ore at Mbalam, Hanlong’s move puts healthy pressure onto the residing governments of Congo and Cameroon to approve conventions through which the project’s future hinges. Given the economic benefit to the region, both governments are expected to approve the project, but the market is focused on the timing for that approval. In the meantime, Hanlong’s vote of confidence in the project boosted the market’s confidence as a whole, causing African Iron Ore prices to take a 7 percent leap.

Iron ore's steady climb - Credit: Agoracom.com

Foreign interest in West Africa is growing, from companies large and small including Brazil’s Vale, Australia’s BHP and Rio Tinto and UK-based Anglo American to juniors like Canadian-based Afferro Mining [AFF – TSX.V] and West African Iron Ore [WAI – TSX.V]. Each of these projects span over the entire African continent, with Ghana, Namibia, Guinea, Uganda, Mozambique, Gabon and Tanzania all in the hunt to lure investment dollars. With this rapid rate of development, each of these nations must grapple with the delicate balance of increasing their tax revenues while getting fair value for their resources.

But for investors on this side of the world, getting involved in an early stage African exploration company can reap significant rewards. Despite the headline grabbing actions of the mining industry’s biggest players and a sociopolitical behemoth in China, there are still entry-points for investors through the juniors like West African Iron Ore (WAI).

West African Iron Ore's subsidiary Sky Alliance Resources Guinée SA.

Through its fully-owned subsidiary Sky Alliance Resources Guinée SA (“SARG”), West African Iron Ore is poised to benefit from China’s interest. The Company has already engaged early stage discussions with the Guinean Government to source a Chinese partner for the pre-feasibility study, feasibility study and construction of a 135 MW hydro power plant within the Forécariah region. As well, the routing of the first 74km of the railway from the proposed port of Matakan to Moussaya has already been agreed in principle with the Government.

As a bonus to WAI, this first leg of the rail line just happens to run directly through the Company’s Forécariah license. This line should link the miners in the region to an important export point which can open their supplies up to the world. This need looks to have been answered by proposal by the Chinese International Fund, which selected the Matakang Deep Sea Port only 40km from WAI’s two main projects as its launch point for iron ore exports, and the full infrastructure picture is starting to fall into place.

While the infrastructure gets sorted, WAI continues to move on developing the properties it holds by recently applying for an extension on their licenses prior to renewal due in October 2011 and conducting a high-resolution aeromagnetic survey of Kérouané in July. A NI43-101 should be arriving on the property within the next 60 days, according to their latest press release. Early interpretation shows a cumulative strike of iron formations to be approximately 15km in length and ranging from 200m to 1km in width.

WAI's Forécariah Property Map.

Drilling on WAI’s Forécariah project continues, having completed 2200m of diamond and 1590m of reverse circulation drilling to date. Analyses and metallurgical testing is still ongoing, with the bulk of the results yet to return so far, but early indications confirm the Forécariah tenement magnetite iron mineralization can be turned into a high Fe concentrate of >63% Fe.

Through installing a new Country Manager in the form of Simon Riekert, who brings experience in early stage iron ore exploration projects in West Africa, the Company is showing how serious it is about developing these licenses. Riekert will be the eyes and ears on the ground, and will be based in Forécariah to oversee the management and operation of the Company’s exploration program.

At this stage, West African Iron Ore fits the bill as one of the junior mining entities that will benefit from the express development of African mining interests. With Chinese and other larger investment interests picking up the tab on the infrastructure development, there is ample room for junior interests to grow.

This current situation stands in contrast to Australia, which has a more established reputation for harvesting iron ore. While Africa is becoming a more welcome environment for junior miners, Australian seems to be chopping them off at the knees. Already criticized by former CEO and current chairman of Fortescue Metals, Andrew Forrest, the Australian government is pushing junior mining investment out with its new Mineral Resources Rent Tax.

With the threat of iron ore export infrastructure dollars moving out, and China injecting into African infrastructure, the West African region may not be far behind on its development arc. Healthy competition, high-grade resources and reasonable taxation will drive this region further, and along with it the companies who were wise enough to take the initial risk.

G Joel Chury
ProspectingJournal.com

Disclaimer: The author does not currently hold any shares of any of the companies mentioned in the article. However, some members of Cordova Media Inc. which owns the ProspectingJournal.com may or may not have interests in one or more of the companies mentioned at the time of publication. Staff members from the Prospecting Journal reserve the right to acquire interests in any of the companies mentioned after 36 hours have elapsed upon initial publication of this article. West African Iron Ore is a sponsor of ProspectingJournal.com.

Silver Valley’s Grande Re-Opening: Sunshine Silver Mines Goes Public

July 13, 2011 by · 2 Comments 

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ANALYSISProspectingJournal.com—These days, it doesn’t take much effort to convince the average investor to at least think about silver. The precious metal’s expanding use as a paste in solar cells has pushed its importance into the sustainable energy spotlight. Being one of the most conductive metals, its use in electronics is ever-growing. Silver nanoparticles are an effective safeguard against odor and bacteria in clothing. And as the much-anticipated hyperinflationary judgment day appears to be around the corner for the world’s fiat currencies, silver (along with gold) is gaining followers as a historically proven safeguard of wealth. If a gold coin, as the saying goes, could buy a house during an economic collapse, then perhaps silver could furnish it.

Thus, it’s nothing short of enormous news that, last Thursday, Sunshine Silver Mines Corp. announced plans to sell up to an estimated $250 million of common stock in an initial public offering, which will raise funds to revive the legendary Sunshine Mine in Idaho’s renowned Silver Valley and to explore new prospects in Mexico. The announcement has stirred interest in the region which, since 2008, has gained steady momentum as junior and major exploration companies vie for its wealth.

The Silver Valley

Idaho’s Coeur d’Alene mining district, known as the “Silver Valley,” lies in the Coeur d’Alene Mountains in the picturesque north. Measuring about 64 km in length, the district has produced more than 1.2 billion ounces of silver, 8.4 million tons of lead and 3.3 million tons of zinc since the late 1800’s. The Valley contains several of the most prolific silver mines in US history—including Sunshine and Bunker Hill—and claims to be the richest primary silver mining region on earth, surpassing Mexico’s top regions and even Bolivia’s Potosi.

Within this mining hotbed, a handful of North American companies are now preparing for the upcoming silver renaissance . . .

Sunshine Silver Mines

Formed in 2009, Denver-based Sunshine Silver Mines plans to apply for a NYSE listing under the symbol AGS with the goal of becoming “a premier silver producer.” Backed by an underwriting syndicate that includes UBS Investment Bank, Morgan Stanley, and RBC Capital Markets, Sunshine currently owns and controls approximately 447,437 hectares across 19 exploration properties. Of these properties are Sunshine’s two primary projects, included in the IPO: the Los Gatos Project in Mexico, of which Sunshine owns an 81,607 hectare position, and the Sunshine Mine in Idaho.

While the Los Gatos project is certainly notable, with Sunshine owning two identified silver discoveries and 14 other priority targets over 100 km of outcropping quartz and calcite veins, it’s the Sunshine Mine that’s making the news. With a past silver production record of an estimated 365 million ounces from 1904 to 2008, the Sunshine Mine comes intact with significant infrastructure, including a primary and secondary shaft. The mine’s consolidated land position is approximately 2,247 hectares, connected to the electricity grid, accessible by paved roads and close to an abundant water supply. Proceeds from the $250 million IPO will mainly go to refurbishing the mine’s existing infrastructure; all the hard exploration work has already been done.

United Silver Corp

United Silver Corp. (TSX: USC), formerly United Mining Group, is currently earning an 80 per cent interest in the Crescent Silver Mine project in Idaho’s Silver Belt, which lies between the Sunshine and Bunker Hill mines. This earn-in, joint-venture agreement with Crescent owner Gold Finder Exploration (TSXV: GFN) will position USC to form a considerable stake in the mine. Crescent produced approximately 25 million ounces of silver in the six decades after 1917, with grades above 27 opt—said to be the highest in the District.

In 2011, USC is undertaking $15 million in pre-production mine development and exploration programs, which will go towards bringing the Crescent mine back into production. The mine will open in the first quarters of 2012.

Hecla Mining Company

Hecla Mining Company (NYSE: HL) has been working in the Silver Valley District since 1891 and is the oldest US-based precious metals mining company, as well as the lowest-cost primary silver producer. Hecla currently produces silver from the Greens Creek and Lucky Friday mines in Alaska and Idaho, respectively. The Lucky Friday mine is the deepest operating mine in the US and has produced 144.5 million ounces of silver in the last 67 years. A common stock traded on the NYSE, no debt and an excellent cash position make Hecla a company that is well-positioned to take advantage of the silver boom.

Going Forward

With silver gurus around the world insisting that the demand for the shiny metal is about to far outstrip supply, we expect to hear a lot more hype surrounding the Silver Valley—and in particular the Sunshine Mine—in the coming months. Silver’s performance, though very volatile due to supply and (likely) a manipulated market, has outpaced gold and is expected to soar if current trends continue. As the US, despite its many shortcomings, is still a safe country to operate a mine in, it’s no wonder that companies are now scrambling to open mines in Idaho. Eric Sprott, of Sprott Asset Management, called silver “the investment of the decade”—Silver Valley has proven this for over a century.

Other companies to look at:
US Silver Corp. (TSXV: USA)

Chris Devauld
Senior Writer

Disclaimer: ProspectingJournal is for information and educational purposes only, and should not be considered a solicitation or offer to purchase or sell securities. Responses to feedback and inquiries are based on the opinions and viewpoints of the author and do not take into account reader’s suitability, objectives or risk tolerances. Always consult a qualified financial advisor before making investment decisions.

No fee has been paid for the distribution of this article. The author does not currently hold shares in any of the mentioned companies in this article. Some members of Cordova Media Inc. may or may not hold shares in companies mentioned in the article. The Prospecting Journal will not be held liable to anyone for financial losses pertaining to companies profiled or information provided within this article

Mining for Food: A Canadian Entry Into Brazil’s Exploding Agro Scene

July 12, 2011 by · Leave a Comment 

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ANALYSISProspectingJournal – Sensing an impending crisis back in 2008 when higher internationally imported fertilizer prices hit the scene, the Brazilian government sprung into action to aid its burgeoning agriculture industry. Along with the pledged investment of US$5 billion from 2011 through 2014 on Brazil’s fertilizer segment, the government enlisted the help of the country’s two largest resource flagships, mining-based Vale [VALE – NYSE] and petroleum-based Petrobras [PBR – NYSE]. As potent as a combination of these three entities poses, the mission to achieve Brazilian fertilizer independence will be a monumental challenge, and may require some help from other sources along the way.

Brazilian soy plantation farming.

The sheer tonnage of fertilizers required for Brazil’s agro-economy has grown tremendously over just the last two decades. Representing 1/3 of the emerging BRIC country’s economy, agriculture in Brazil is big business; and it’s getting bigger. In 2010, Brazil was supplementing its thirst for fertilizer materials to the tune of importing nearly 53% of its potassium and 92% of its phosphates. The percentage of raw materials requiring imports for Brazilian fertilizer production rose from 36% in 1990 to 80% in 2010. These imports don’t come cheap, and ultimately effect the bottom line, as fertilizer costs in Brazil currently represent between 10-30% of total production expenses. Like the available land space in Brazil, the agriculture industry still has plenty of room to grow, but a lack of suitable fertilizer materials poses a major hurdle.

On a typical bag of fertilizer, one can find three numbers representing the “analysis” of its contents. These numbers stand for the percentage of nitrogen, phosphate and potassium in the bag, minus the filler quotient. But not all ingredients are created equal. Nitrogen requires large amounts of natural gas and ammonia for processing, which Petrobras hopes to address through developing natural gas sub-salt projects. Potassium (potash) requires less input materials, but isn’t as readily available in Brazil, with only one mine to speak of in the state of Sergipe, owned by Petrobras and run by Vale. Phosphorous or phosphates, however, can come in multiple forms, from non-granular forms found in liquid fertilizers and granulated which can be either added to other fertilizers or even crushed and applied directly to the ground.

Studies have shown the effectiveness of applying granulated phosphate rocks (PR) directly to the soil. With Brazil’s estimated reserves of 376 million tonnes of phosphorous-bearing ore, the country appears to have a large supply of phosphates. But before they can start spreading PRs on the ground, there are criteria these rocks must meet. Discouragingly, much of Brazil’s current supplies of PRs are mainly igneous in nature, as opposed to the more favourable sedimentary supply. Igneous rocks possess low solubility, requiring high temperature treatment or the outright import of additional water-soluble fertilizers or reactive PRs. Next, proximity to the intended fertile soil is key. Besides the added costs of transporting granulated rocks across large distances, soils tend to react optimally with PRs that have been harvested within a 200km radius.

While Vale, Petrobras and the Brazilian government are scheduled to spend billions to address the fertilizer issue, one Canadian junior exploration company seems to have found a loophole. Eagle Star Minerals [EGE – TSX.V] has held interests in Brazil for a few years now, including iron ore and petroleum projects, but recently its President and CEO, Eran Friedlander, announced that the company was entering the world of phosphates, and projects the prospect of production in the near term.

Eagle Star's claims marked in red, soy plantation in green (covering more than 69,000 square km)

Located in the Northeastern Brazilian state of Piaui, Eagle Star’s new prize possession is the 100%-owned Ruth Phosphate Project. Comprised of 41 mineral claims and consisting of nearly 200,000 acres, the Ruth Project lies in a favourable geological environment believed to host a very large phosphate deposit comparable to the Wonarah phosphate mine in Northern Australia, which hosts 485 million tonnes of ore grading 18% in phosphates. Early sampling done on the Ruth Project has shown multiple phosphate grades in percentages up to the high teens, and one sample showing 21.078%. But unlike most of Brazil’s previously discovered igneous phosphate reserves, Eagle Star’s rocks appear to be more optimal sedimentary, making them prime for low-cost crushing and direct application.

“While our geology appears to be quite favourable, the geography poses an even larger benefit for us, “says Eran Friedlander. “Not that long ago, Piaui was drastically undeveloped with little infrastructure to show for, but today, the area hosts several thriving agribusinesses and is gearing up for the completion by 2013 of the Transnordestina railway that will run right through our Ruth property.”

Soy bean plantation in Brazil - Image Credit: Tiego Fioreze

Friedlander’s team consists of some of Brazil’s top minds in geology, as well as the former Finance Minister of Brazil, who all understood the importance of phosphate development. Strategic planning landed the company with a project that lies within 150km of a massive soy plantation that reports annual production of 2.3 million tonnes. If a buyer-seller relationship can be made, the plantation sits within the previously mentioned 200km soil optimization radius.

“Brazil is a beautiful country that has plenty of sunshine, land and water, but still needs stimulation to grow its food,” says Friedlander. “At this time, we are quite enthusiastic about the prospect of adding near-term shareholder value and enhancing the opportunity for the North American market to take part in the further growth of Brazil’s agro-industry.”

 

G. Joel Chury
Editor in Chief
ProspectingJournal.com

Disclaimer: The author does not currently hold any shares of any of the companies mentioned in the article. However, some members of Cordova Media Inc. which owns the ProspectingJournal.com may or may not have interests in one or more of the companies mentioned at the time of publication. Staff members from the Prospecting Journal reserve the right to acquire interests in any of the companies mentioned after 36 hours have elapsed upon initial publication of this article. Eagle Star Minerals is a sponsor of ProspectingJournal.com.

Dispelling the Myth of Over-Diversification: Canadian Miners Branch Out

June 27, 2011 by · Leave a Comment 

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ANALYSISProspectingJournal.com—It can seem that only in the Canadian exploration sector can you have a company that carries a vast portfolio of projects that cover potash and gold, oil and copper, silver and ore, and so on. This project diversity, once thought of as a warning sign for potential investors, is emerging as a successful (and enviable) business strategy in the increasingly competitive mining industry.

They’re called exploration companies for a reason, after all, and their ability to do away with the negative “over-diversification” label has been a topic of great interest to the team at the Prospecting Journal. Our research has uncovered several of these trend-setting, diversified companies, whose project flexibility has given them a strong reach, a flexible business strategy, and a solid presence.

Marifil Mines Ltd.

“Our business model is to farm everything out,” says John Hite, President & Director of Marifil Mines Ltd. [MFM – TSX.V]. A Canadian-based exploration company, Marifil focuses on high-potential joint-venture opportunities. With 20 properties in Argentina, Marifil has developed a diverse portfolio, including several projects that focus on bonanza grade gold, silver, copper and indium.

“There are four points to know about Marifil’s business model,” says Hite. “One, we are becoming a hybrid company; two, we are very active this year, with five separate programs on five different properties; three, because of our diversification we are now cash flow positive in excess of $1 million; and four—we are diversified into precious metals, base metals, industrial metals and oil and gas.”

With such a large amount of projects, a company like Marifil needs to take the same approach as your average stock-trader: detachment from the losers and aggressive support for the winners. Hite says, “This business model absolutely requires that we have a pipeline of projects. Each year we bring five or six new projects, look at them and either put them in the pipeline or get rid of them.”

The Company’s highlight project, the San Roque in the Rio Negro province, is a large, bulk mineable, lead-zinc-silver-gold-indium mineral deposit. It comprises eleven claims, three of which are owned by MIM Exploraciones SA (“MIM”). The property contains a large sulphide system, highlighted in the first diamond drill hole (DDH) program. Results show the interception of high-grade Indium, Zinc, Silver, and Gold; intercepts include 5.1 meters of 2.61 g/t Au and 24 g/t Ag and, in DDH 11, 0.75 meters of 2.05 g/t Au, 0.22% Pb, 0.32% Zn and 448 g/t In.

The results have, as anticipated, caught the eyes of big players. NovaGold Resources Inc. [TNG—TSX] has entered an option agreement with Merifil to earn an interest in the San Roque project. Combined with MIM, who is in the process of purchasing three of San Roque’s claims, it’s easy to see that not only Marifil believes the mineralization is analogous to the giant Penasquito deposit in Mexico (now mined by Goldcorp). As Hite says “we focus like a laser on our number one project. Then we find a partner and let them handle the rest of it and it goes on auto pilot.”

Eagle Star Minerals Corp.

Eagle Star Minerals Corp. [EGE – TSX.V, E6R – FSE, ELGSF – OTC PNK], a natural resource company headquartered in Vancouver, has also made the jump to diversification, from its early days with natural gas in Canada to its present strategy backed by iron ore and a newly acquired phosphate property in Brazil.

The Company’s Angico Iron project, near San Raimundo Nonato in Brazil, comprises 27 claims in 5 concession blocks that span 120,000 acres. Recent cutting, mapping, surveys and sampling have found BIF outcrops and trends on all main concession blocks, significant mineralization at depth and along strike, and average iron grades between 26%, 33% and 52% Fe203. These strong results greatly align with Brazil’s emerging BRIC status as a steel-maker. When considering the costs of ore transportation, the promise of domestic exploration becomes very attractive.

Moreover, Eagle Star has recently announced its acquisition of 41 mineral claims covering an area of 80,000 hectares in the Piaui state in northeast Brazil. Three samplings among the claims, covering 180 km², 340 km² and 240 km² returned values of 2-22% P2O5, 3-10% P2O5 and 2-5% P2O5, respectively. As one of the world’s major agricultural producers, Brazil has become the world’s 4th major importer of fertilizers and 2nd major importer of phosphate.

“This is a significant milestone for us,” states Eran Friedlander, President and CEO of Eagle Star. “The Company’s Brazilian team has been directly involved in the selection and claiming process, and as a result we are very confident about developing this project to production. With phosphate demand being strong in Brazil we believe that this new asset will add significant value to our portfolio.”

Indeed, with the promise of vast iron ore and phosphate discoveries in a country demanding more of both, Eagle Star should be set to attract major players as its projects unfold.

Millrock Resources

Millrock Resources Inc. [MRO – TSX.V] is a Canadian and Alaskan-based company focused on generating projects for joint-venture exploration. Now in the early stages of development, Millrock utilizes what it calls a “Project Generator” model, where it takes a similar approach as Marifil and Eagle Star: focusing on early-stage exploration of copper and gold porphyries and pluton-related gold deposits, with the intent to sell these ore discoveries to major miners. The Company is focusing its attention on Alaska and Arizona, two states that offer a large swath of underdeveloped and underexplored mineral deposits.

Millrock is currently operating 11 exploration projects, which it points out minimizes risk by not tying success to a single source. The Company recently announced the expansion of the Estelle gold property in Alaska, which is under option to Teck American Incorporated. The expansion covers ground that has produced strong historical drill results, including a drill intersection at 3.0 g/t over 29.6 metres and chip sample grading of 18.0 g/t gold over 9.9 metres.

No Reward Without Risk?

The nature of these exploration companies (and many others) is volatile, as they do what many see as the dirty work of searching, funding and marketing. They are, of course, subject to the skillsets of their management and geology teams and have to choose projects carefully. But the rewards for investing in the right exploration company can be great, as majors, investors and whole industries rely on their daring business models and adventurous approach to fuel the ever-growing demand for resources.

Chris Devauld
Senior Writer

Disclaimer: ProspectingJournal is for information and educational purposes only, and should not be considered a solicitation or offer to purchase or sell securities. Responses to feedback and inquiries are based on the opinions and viewpoints of the author and do not take into account reader’s suitability, objectives or risk tolerances. Always consult a qualified financial advisor before making investment decisions.

No fee has been paid for the distribution of this article. The author currently holds shares in Eagle Star Minerals Corp. but not in any of the other companies mentioned in this article. Some members of Cordova Media Inc. may or may not hold shares in companies mentioned in the article. The Prospecting Journal will not be held liable to anyone for financial losses pertaining to companies profiled or information provided within this article

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