| |
KBFO Focus Report for Week of October 25, 2009
Focus of the Week is a new feature which highlights companies with open bottom-fish and spec value hunter recommendations based on a theme that may vary from week to week. At Kaiser Bottom-Fish Online we take two approaches to recommendations. On the one hand we identify potentially significant stories at an early stage and recommend them as Bottom-Fish buys when there remains considerable uncertainty about the timing or nature of the story. As the story unfolds our subsequent bottom-fish recommendations are limited to holds or partial sells until we conclude the story is over, either in terms of its objectives, or further upside within a reasonable time frame. When we discover a new emerging story with staying power, or when a bottom-fish has risen on the basis of a story gaining traction, we may recommend it as a Spec Value Hunter buy based on detailed expectations with regard to story fundamentals, timing and price targets. Understandably many people disregard bottom-fish recommendations while they are still trading in their bottom-fish buy range, preferring to jump on board when it is clear that the story is turning into a best-seller. Newcomers in particular tend to ask for our current favorites, which often will be those bottom-fish which have done well, many KBFO members already own, and which we think still have plenty of running room. Focus of the Week is intended to highlight these companies, why we like them, and what we still expect of them. We do not feature a company in Focus of the Week unless it has been the subject of a recent comment. After each week the old Focus of the Week gets archived at KBFO while a new Focus gets posted into the regular slot. The featured companies will change either because the stock's timeliness has diminished, we want to highlight another company, or we have changed the thematic topic for the week. A company's disappearance from Focus of the Week should not be viewed as a negative comment unless we have published a specific negative comment about the company. Our goal at KBFO is to identify trends, explain their logic, and point out good ways to play that trend. The company comments provided for each company are supposed to be brief and supplement more detailed comments, of which links to the most recent three are provided. The focus theme this week is to offer a diversified exposure to some of the meta-narratives we think are important.
| Reviewed last 7 days |
New 2 Year High |
New 2 Year Low |
New Bottom-Fish High |
New Bottom-Fish Low |
 Open Bottom-Fish or Spec Value Hunter Recommendation - Click for Recommendation Status |
Market Activity for October 25, 2009 to October 30, 2009
| Company |
|
Volume |
Value |
High |
Low |
Close |
Chg |
| Quest Uranium Corp (QUC-V) |
|
2,606,100 |
$4,851,134 |
$2.090 |
$1.650 |
$1.770 |
($0.020) |
| Peregrine Diamonds Ltd (PGD-T) |
|
3,333,500 |
$8,109,031 |
$2.830 |
$2.120 |
$2.350 |
($0.370) |
| PC Gold Inc (PKL-T) |
|
337,900 |
$276,833 |
$0.880 |
$0.770 |
$0.770 |
($0.090) |
| Amazon Mining Holding Plc (AMZ-V) |
|
217,800 |
$224,236 |
$1.100 |
$0.980 |
$1.000 |
($0.070) |
| Nevada Exploration Inc (NGE-V) |
|
154,400 |
$28,764 |
$0.200 |
$0.180 |
$0.190 |
$0.005 |
Quest Uranium Corp (QUC-V: $1.97)
| Quest Uranium Corp was created as a spinoff from Freewest Resources Canada Inc to hold the uranium exploration assets Freewest had staked in eastern Canada, including the Strange Lake in Quebec. Freewest shareholders received 1 Quest for 25 Freewest and the opportunity to participate in a rights offering before Quest started trading on Jan 11, 2008. The Strange Lake group, which includes the Quebec portion of the 52 million tonne Strange Lake rare earth deposit discovered by IOC during the eighties, became the company focus in April 2009 when a new target yielded high grade rare earth numbers with a distribution similar to Strange Lake and the junior decided to re-assess Strange Lake and the surrounding area in light of a high distribution of heavy rare earth elements. Sampling and drilling during the summer of 2009 led to the discovery of the BZone, a large near-surface deposit on the Quebec side which appears to be similar to the Main Zone. Metallurgical studies and 43-101 resource estimates are planned before Quest resumes work in Q2 of 2010 to delineate the higher grade pegmatite layers. |
 |  |
| Date |
Price |
|
Recommendation |
Action |
Net
Cash |
Net
Stock |
Gain |
New Status |
| 5/4/2009 |
$0.06 |
 |
New BF XP Buy below $0.10 |
Buy 10,000 @ $0.10 |
$0 |
10,000 |
0% |
BF XP Buy Below $0.10 |
| 7/10/2009 |
$0.46 |
 |
New BF Spec Cycle Hold 100% |
|
$0 |
10,000 |
360% |
Spec Cycle Hold 100% |
| 9/23/2009 |
$3.14 |
 |
Good Relative Spec Value Buy |
Buy 318 @ $3.14 |
$0 |
318 |
0% |
Good Relative Spec Value Buy @ $3.14 |
| Focus Comment |
|---|
| Quest Uranium Corp is our surprise winner this year which we recommended at $0.10 on May 4, 2009 after we realized that the junior's uranium staking activities had clipped part of the Strange Lake rare earth deposit that straddles the boundary between Quebec and Labrador. We have had high hopes for the rare earth sector for several years based on our macro-projection that concern about peak oil, climate change, and security of supply issues arising from a looming globalization crisis will result in major policy decisions around the world which foster development of alternative energy and infrastructural renewal. We think this has important implications for future demand for specialty metals whose unusual properties push materials to high performance levels. The mainstream media started to catch on to the rare earth story in May 2009 which helped pull the dozen or so juniors with advanced rare earth deposits into the limelight and deliver spectacular price gains in certain cases such as Quest. Given the exponential chart pattern of the Rare Earth Index it was inevitable that this would spawn talk about a "rare earth bubble". Such talk is nonsense because it confuses a temporary market over-reaction to an awakening story that has considerable staying power with a true bubble situation where valuations have persistently exceeded rational limits to such an extent that the shorts have given up their opposition and figured out a way to make money by joining the fray and encouraging a greater fool spiral. We would be delighted to see a rare earth bubble evolve because we have been on top of this trend from day one, and would profit hugely from a bubble, but we are still early in this cycle and nowhere near bubble conditions. In the case of Quest, which we never expected to go exponential, we harvested a bit of luck because although an informal survey revealed that only a small portion of the Strange Lake Main Zone was on the Quebec side of the border, old-fashioned exploration on the Quebec side revealed that the BZone is a rare earth system potentially bigger and better than the Main Zone. In fact, we suspect exploration will eventually establish that both zones are part of a world class system hosting the full spectrum of rare earth elements and other exotic metals. When the first drill results for the BZone came out our analysis indicated that Quest was sitting on a new discovery with a 50-100 million tonne footprint that appeared to be mineralized with rare earths having a rock value in the range of US $100-$300 per tonne. That might be comparable to having a 10-30 million ounce gold system, but unfortunately recovery limitations and processing costs gobble up considerably more of rare earth ore's gross metal value than is the case with gold ore, which explains why Quest's Strange Lake project is still sporting an implied project value below $150 million rather than $1 billion as would be the case if this was a new gold discovery such as Ventana's La Bodega project in Colombia. Nevertheless, the gold analogy gives some sense of the scale of this story, and when you consider that most people do not yet understand why rare earth supply is far more important to their future welfare than yet another new gold mine adding to the 5 billion ounces in above ground stock currently occupying the equivalent of a 20 metre cube, and consider that truly large enriched rare earth systems are few and far between, then you can start to understand why Rare Earth Mania is just in its infancy. Based on our analysis of the BZone discovery and conclusion that the $160 million implied project value was a mere fraction of what Strange Lake could prove to be worth, we recommended the stock as a Good Relative Spec Value buy at $3.14 on September 23. The stock subsequently went higher, but the company's need to complete a financing despite an exponential chart pattern forced management to negotiate a $7 million financing at the deeply discounted price of $2.30 with two Toronto brokerage firms who qualify as new kids on the block. During the past week, which saw all members of the Rare Earth Index come under selling pressure after the Economist described rare earths as yet another "commodity bubble", Quest came under attack from traders working to collapse the financing. Needless to say the volatlity has raised the blood pressure of bottom-fishers terrified that their phenomenal gains will evaporate, and no doubt weakened the resolve of the financing leads, Pope and Company and MI Securities, even though JP Morgan has "guaranteed" a A $450 million "rights offering" of ASX-listed Lynas Corp whose Mt Weld deposit nearly came under the control of the Chinese before Australian regulators chased them away in September. We think Quest's efforts to secure a financing had the misfortune of coinciding with a market correction in the rare earth sector, which has created a fresh buying opportunity for Spec Value Hunters. Once this financing "milestone" has been reached there will be far too many "bottom-fishers" looking to buy the stock at lower prices for such cheaper prices to materialize. In addition, Quest still has assays pending for a number of important holes which could flesh out the tonnage footprint of the BZone in such a manner that an entirely new category of investor moves into the Quest market so that even if this financing fails, a bigger one at a higher price will become possible before exploration work resumes next April. At this point we recommend that bottom-fishers who have not ended up in an unbalanced potrfolio situation due to their Quest gains continue to hold all of their position and that spec value hunters use the current pullback as an opportunity to take a position. The Rare Earth story has barely begun and we believe it is a very big one that is in fact a prelude to a much bigger global story. |
| Recent KBFO Comments |
|---|
Tue Aug 17, 2010 : Excerpt : Quick Note: Avalon Rare Metals Inc (AVL-T) (more...)
Tue Aug 17, 2010 : Excerpt : Quick Note: Quest Rare Minerals Ltd (QRM-V) (more...)
Thu Aug 12, 2010 : Trackers : Tracker 2010-06: Quest metallurgical study indicates high recoveries for straightforward flow-sheet (more...)
|
Peregrine Diamonds Ltd (PGD-T: $2.38)
| Peregrine Diamonds Inc is a diamond exploration junior headed by Eric Friedland which spent over $54 million between 2005-2007 on the DO27 pipe in the NWT south of the Diavik and Ekati diamond mines. In 2008 AMEC calculated an indicated resource of 19.5 million tonnes at an indicated grade of 94 cpht and 8.5 million tonnes "inferred" based on 66 core holes (17,300 m) and 46 large diameter (35-61 cm) RC holes (8,800 m). This translated into a resource of 26 million carats with an in situ value of $1.3 billion at the base case modeled value of US $51 per carat based on a parcel of 2,075 carats, which a prefeasibility study concluded was sub-economic for development as standalone mine. During 2008 Peregrine shifted its focus to the Chidliak project in the southern part of Baffin Island where a geophysical survey after two years of till sampling with excellent chemistry led to the discovery of 3 outcropping kimberlites. Micro diamonds from surface samples indicated that CH-1 had macro grade potential in excess of 100 cpht, and the recovery of several large gem quality diamonds up to 2 carats in size from small samples suggest a very coarse distribution. BHP Billiton exercised its 51% back-in right in late 2008. During 2009 the JV discovered 13 additional kimberlite, of which CH-6 yielded Diavik style micro diamond results, with results for 8 pipes pending in mid October. The JV also collected a 50 tonne mini bulk sample from CH-1 for which results are expected in late 2009. |
 |  |
| Date |
Price |
|
Recommendation |
Action |
Net
Cash |
Net
Stock |
Gain |
New Status |
| 8/28/2008 |
$0.34 |
 |
Good Absolute Spec Value Buy @ $0.34 |
Buy 2,941 @ $0.34 |
$0 |
2,941 |
0% |
Good Absolute Spec Value Buy @ $0.34 |
| 9/23/2008 |
$0.42 |
 |
Confirm Good Absolute Spec Value Buy |
|
$0 |
2,941 |
24% |
Good Absolute Spec Value Buy @ $0.42 |
| 10/30/2008 |
$0.38 |
|
Confirm Good Absolute Spec Value Buy |
|
$0 |
2,941 |
12% |
Gold Absolute Spec Value Buy @ $0.38 |
| 11/18/2008 |
$0.34 |
|
Confirm Good Absolute Spec Value Buy |
|
$0 |
2,941 |
0% |
Good Absolue Spec Value Buy @ $0.34 |
| 12/24/2008 |
$0.45 |
 |
New BF TP Buy $0.30-$0.49 |
Buy 2,041 @ $0.49 |
$0 |
2,041 |
0% |
BF TP Buy $0.30-$0.49 |
| 2/12/2009 |
$0.60 |
 |
Fair Absolute Spec Value Hold @ $0.60 |
|
$0 |
2,941 |
76% |
Fair Absolute Spec Value Hold |
| 7/16/2009 |
$0.76 |
|
Fair Absolute Spec Value Hold |
|
$0 |
2,941 |
124% |
Fair Absolute Spec Value Hold |
| 9/21/2009 |
$1.85 |
|
Good Relative Spec Value Buy |
|
$0 |
2,941 |
444% |
Good Relative Spec Value Buy @ $1.85 |
| Focus Comment |
|---|
| Peregrine Diamonds Ltd, in contrast to Quest Uranium Corp, is not a big surprise winner because our bottom-fish and spec value hunter recommendations made last year in the $0.30-$0.50 range were fully based on the expectation that further exploration work would support our view that the Chidliak diamond project on south Baffin Island is a major new diamond field whose ultimate value could eclipse the Ekati field Dia Met discovered in the Northwest Territories nearly two decades ago. While not a surprise, Peregrine is nevertheless a big winner, with more to come for those bottom-fishers and spec value hunters who have the patience to hang on and the will to study the data. When the book gets written about the discovery of the Chidliak diamond field, it will not be a tale of mis-guided exploration strategies, reckless persistence, and dubious morals as written by Kevin Krajick in "Barren Lands", his chronicle of the Ekati discovery. Nor will it be rivetting like "The Big Score" in which Jacquie McNish chronicles the surprise discovery of Voisey's Bay and the successful shoe banging efforts of Robert Friedland to manipulate Inco into paying four times what the discovery was really worth at the time, though one has to concede, the "security of supply" logic behind this "over-payment" ultimately proved prophetic. The Chidliak story will in fact be a very boring textbook story about how diamond exploration is supposed to be done, and with regard to public markets, how results are supposed to be disclosed. It started with regional reconnaissance work on Baffin Island funded by Peregrine and BHP Billiton which generated diamond prospective regional indicator mineral anomalies. BHP was not keen to follow up, but Peregrine took the risk, and funded work in 2008 which involved flying geophysical surveys and ground-checking the better looking targets. This led to the surprise discovery in the summer of 2008 of three outcropping kimberlites, one of which produced excellent micro diamond results suggesting a grade of 100 cpht or higher. Given that Perergrine's stock price was very cheap after the $50 million bulk sampling program on DO 27 had demonstrated that this pipe was not rich and big enough to support a standalone mining operation, and the Crash of 2008 was underway, I jumped on these very promising results. What took the cake, however, was the result of a couple tonnes of material Peregrine scraped from CH-1 and processed by dense media separation which yielded several large diamonds including a 2 carat gem. If there had been just that 2 carat stone, it would have been no big deal, but there were several smaller commercial sized diamonds, which suggested that the mantle beneath Chidliak was very fertile with diamonds, at least when these pipes erupted. Best of all, this kimberlite was a pipe rather than a dyke such as has proved to be the case in the Churchill and Aviat projects on the mainland. These results prompted BHP to back in to earn 51% by spending the next $21 million, and go as high as 58% by funding a feasibility study. When exploration resumed during the summer of 2009 Peregrine found 13 more pipes by drilling or ground checking anomalies. One of these, CH-6, produced spectacular micro diamond results suggesting a grade of 500 cpht or better and drew comparisons to the A154-South discovery by Aber in 1994 which became the Diavik Mine that the market valued at over $4 billion when it went into production. The market reacted only modestly to this news, which had come out in the morning of September 18, and as fast as we could we published a Good Absolute Spec Value Buy with a $2 limit during market hours. As the market grasped the nature of the results it drove the stock as high as $4.65 on very heavy volume from which it has since retreated to create a trading range of $2.50-$3.00. Since then CH-7 has yielded good micro diamond results suggesting a macro grade of about 100 cpht, but more importantly demonstrating good spatial distribution of potential high grade pipes. This argues against the concern that Chidliak may prove to host only a small cluster of high grade pipes such as Jericho, Gahcho Kue and Renard proved to be, though if Peregrine ends up with a small cluster comparable to Diavik the stock could capture further gains of 500-1000% from current levels. Chidliak, however, looks more like an Ekati style field rather than an isolated cluster. Micro diamond results are still awaited for 8 pipes, including CH-10 which may be similar to CH-6, and CH-16 which is interesting because it appears to be larger than the 2 hectare or smaller size of most of the pipes so far found. What is stunning about the success rate so far is that it includes both magnetic high and low anomalies, but only the most obvious ones; Peregrine has yet to test numerous subtle magnetic targets, and has not tested any targets on the northern regional anomaly where good indicator minerals are associated with a pair of 5-6 hectare anomalies. This lake covered target will be the first to be drilled when work resumes in April 2010. Peregrine has also collected a 50 tonne mini bulk sample from the CH-1 pipe for which it expects to have results by the end of 2009. Unless the 2008 results were an astonishing fluke, we should see a a parcel of 50 carats emerge, with the question being, how big and beautiful will the best diamond be. Not enough work has been done on CH-1 for such results to have "economic" implications, but the anecdotal implications for the Chidliak field would be very big if the results are good. Beyond the micro diamond and mini bulk sample results the next important news will be the result of the 1,200 till samples Peregrine collected from Chidliak, and the 500 samples it collected from its 100% owned Qilaq property to the south of Chidliak. The Qilaq project area was covered by early reconnaissance sampling, and did not "glow" to the extent that Chidliak did, but the area is underlain by an Archaen craton, which appears to be unrelated to the the Canadian cratons and instead may be a rifted portion of the North Atlantic craton that underlies Greenland. Qilaq is interesting because Chidliak reminds one of Ekati, which Dia Met staked on the basis of regional indicator mineral sampling, stopping when Chuck Fipke figured he had "gotten it all". As it turned out, Diavik and DO27 proved to be isolated clusters well outside the prominent regional anomaly. So the wild card for Peregrine is, what if till sampling reveals diamond indicator mineral anomalies on the 100% owned Qilaq ground? At this stage we need at least two more exploration seasons to assess the potential of Chidliak, so there is not much downside in the interim from Chidliak, but if Qilaq turns out to have diamond potential, the upside potential from current levels expands to 10-20 fold. With Chidliak currently commanding an implied project value of $600-$700 million the stock needs more results to justify higher prices, but diamonds are a sector which is prone to excessive valuations based on early results, valuations which have in cases such as Aber and Dia Met been borne out by the fundamentals years later. Because this is such an unusual diamond play we are recommending that bottom-fishers and spec value hunters hold their positions, and view any seasonal weakness between now and April 2010 as a fresh buying opportunity. |
| Recent KBFO Comments |
|---|
Mon Sep 6, 2010 : Trackers : Tracker 2010-07: Report on August 24, 2010 Site Visit to Chidliak Diamond Project on Baffin Island (more...)
Thu Aug 5, 2010 : Excerpt : Spec Value Hunter Comment: Peregrine finds first kimberlites on 100% owned Qilaq property on Baffin Island (more...)
Tue Jul 20, 2010 : Excerpt : Spec Value Hunter Comment: Peregrine still batting above average at Chidliak (more...)
|
PC Gold Inc (PKL-T: $0.83)
| PC Gold Inc was formed to acquire the Pickle Crow gold project in northern Ontario from Premier Gold Mines and the Don Ross Trust. Pickle Crow is a shear-hosted quartz carbonate vein and banded iron formation gold system which produced 1.45 million high grade ounces (16.14 g/t) from 1935 until 1966 when it was shut down because of rising costs and a fixed $35 gold price. During the eighties the project was revisted by various juniors but never redeveloped into a mine. An attempt by a private party to create a small scale opn pit mine in 2000 failed. Headed by CEO Kevin Keough, PC Gold is focused on upgrading to 43-101 status previously identified gold mineralization while investigating the potential for deeper mineralization in the style of the Red Lake story. |
 |  |
| Date |
Price |
|
Recommendation |
Action |
Net
Cash |
Net
Stock |
Gain |
New Status |
| 12/24/2008 |
$0.24 |
 |
New BF MP Buy $0.20-$0.29 |
Buy 3,448 @ $0.29 |
$0 |
3,448 |
0% |
BF MP Buy $0.20-$0.29 |
| 10/6/2009 |
$0.80 |
|
New BF Spec Cycle Hold 100% |
|
$0 |
3,448 |
176% |
BF Spec Cycle Hold 100% |
| Focus Comment |
|---|
| PC Gold Inc was recommended as a bottom-fish buy in the $0.20-$0.29 range based on its dual status as a junior with about 1.3 million ounces left in the ground when the Pickle Crow mining camp in northern Ontario shut down during the sixties, which would benefit if the price of gold developed a serious uptrend, and as a junior which planned to test the down-dip extension of the old high grade vein system in the hope Pickle Crow may repeat the Red Lake story. PC Gold is in the final stages of completing a digital compilation of historical work which will form the basis of a complete-revisualization of the geology that controls the multi-million ounce Pickle Crow gold system. Shallow drilling so far this year has revealed previously unrecognized aspects of Pickle Crow which open the way for the delineation of additional shallow gold ounces readily accessible through the existing mine workings if they were to be rehabilitated. So far the deepest drilling will test just beyond the 1,200 metre level of old workings; during Q4 of 2009 PC Gold will start a new mother hole which will be the basis for wedge holes that test the Pickle Crow system below the workings to as deep as 2,500 meters. This hole will reach target depth some time during Q1 of 2010, so bottom-fishers will have to be patient. With the stock hovering just below $1 the 100% owned Pickle Crow project has an implied value of only $50 million. If the geological theories are right that the Pickle Crow veins may blossom at depth and get richer, the upside for the stock would be 10-20 fold from current levels. On the other hand they may pinch out, in which case the story would fall back to the shallow potential. Pickle Crow falls into the category of "where do you find a new gold mine except right next to or within an existing gold mine?" In the context of a rising gold price market a stock like PC Gold should attract an audience even if the Red Lake longshot fizzles because there was enough meat left on the old bones to sustain a gold mine redevelopment story. Although we recommended PC Gold at much lower prices, we think there remains plenty of upside both from the potential of proving the Red Lake story, and from gold reaching a level where a gold junior bull market explodes. |
| Recent KBFO Comments |
|---|
Wed Apr 7, 2010 : Excerpt : Bottom-Fish Comment: Gold raises $9 million in flow-thru for Pickle Crow (more...)
Tue Mar 23, 2010 : Excerpt : Bottom-Fish Comment: PC Gold has a Golden Beast by the tail (more...)
Mon Feb 22, 2010 : Excerpt : Bottom-Fish Comment: PC Gold intersects high grade gold in Vein No 1 at deepest level yet (more...)
|
Amazon Mining Holding Plc (AMZ-V: $0.90)
| Amazon Mining Holding plc is a London based junior with a grassroots Witswatersrand style conglomerate gold play in northern Brazil and a major conceptual potash play in southern Brazil where the goal is to marry the lower solubility of an energy intensive fertilizer product made from a potassium bearing silicate called the Verdete Slate with the nutrient poor, well-drained acidic soil of a the "cerrado" region which could be very productive farmland if the traditional KCl based fertilizer did not wash so rapidly out of the soil. During 2009 Amazon was focused on delineating a portion of its potash claims as a 43-101 compliant open-pittable resource, conducting a scoping study on the costs associated with processing the potash into a fertilizer product called ThermoPotash, and setting up ThermoPotash tests with agricultural interests. If the scoping study outlines a reasonable cost structure, Amazon will spend 2010 extracting a bulk sample and establishing a pilot plant to demonstrate the process technology and generate sample material for the fertilizer tests. |
 |  |
| Date |
Price |
|
Recommendation |
Action |
Net
Cash |
Net
Stock |
Gain |
New Status |
| 12/24/2008 |
$0.15 |
|
New BF MP Buy $0.10-$0.19 |
Buy 5,263 @ $0.10 |
$0 |
5,263 |
0% |
BF MP Buy $0.10-$0.19 |
| 7/31/2009 |
$0.80 |
|
New BF Spec Cycle Hold 100% |
|
$0 |
5,263 |
321% |
BF Spec Cycle Hold 100% |
| Focus Comment |
|---|
| Amazon Mining Holding Plc was initially recommended as a bottom-fish buy in the $0.10-$0.19 range based on its strong cash position and its Brazilian focus. The stock had been a casualty of the Crash of 2008 which also led to some internal management conflicts, especially with regard to a decision during the summer of 2008 to stake a large land position covering a substantial resource of silicate based potash known as the "Verdete Slate" that had been discovered during the eighties. Studies had concluded that a slow-release, multi-nutrient fertilizer called ThermoPotash could be made from the silicate based potash resource (4%-14% K2O) on Amazon's 100% owned Cerrado Verde project. This form of potash was investigated as a possible solution to Brazil's potash fertilizer import dependency, but never commercialized because of its energy intensive cracking cost. In light of surging potash prices during the past couple years Amazon had the wit to stake the majority of this outcropping silicate potash resource in mid 2008, and is now conducting a scoping study on the associated costs which it hopes to have completed by the end of the year, along with a 43-101 resource estimate that would form the basis for an initial open-pit mining operation. Although the ThermoPotash fertilizer is unlikely to offer any competitive cost advantage to imported KCl potash from places like Saskatchewan and the Ukraine, its lower solubility is expected to offer functional benefits over KCl based fertilizers which leach out of the soil quickly under the onslaught of Brazil's torrential rainfall. The implications for extending the productivity of Brazil's "cerrado" region has attracted the support of the Brazilian government which perceives the downstream benefit for the region. It has also attracted interest from unlikely plantation farmers such as steel giant ArcelorMittal which grows eucalyptus trees in Brazil which it converts into a charcoal that works as a coking coal substitute in the steel industry. Although Amazon is already a fairly substantial bottom-fisher winner, we think the stock has potential to become a very big winner with a price target in the $5-$10 range. Justifying such a target is not easy, because it requires several critical assumptions such as that the cost of ordinary potash will remain high at prices of $400 per tonne or above, the transport cost for potash imported to Brazil will remain high, local cheap electricity sources will be developed, and that the nutrient benefit of ThermoPotash will offset the likely lower cost of imported potash. But most importantly, we think "strategic logic" will trump "economic logic" when it comes to funding a ThermoPotash processing facility, because the downstream benefits for the argicultural economy in southern Brazil will be enormous. Because Amazon has only 38.2 million shares fully diluted its market cap is small even at prices above $1. An important upcoming milestone will be a scoping study Amazon is currently conducting on the cost of producing ThermoPotash. If it can be demonstrated that ThermoPotash could be produced at close to break even when compared to current potash prices, then Amazon will be able to attract a premium for its control of the raw materials. The buyers would be parties eager to remove the risk that exposure to foreign supply creates, both in the form of sharply escalating prices as happened in 2008, and in the form of outright supply disruptions as the result of a geo-political crisis. The downside risk is that the Brazilian government might expropriate the potash resource for the national interest. The upside potential lies in the possibility that global potash prices remain strong, the cost of the Thermo-Potash process proves to be within reason and likely to be stable over the long haul, and Amazon gets bought out by an industrial conglomerate with extensive downstream operations. |
| Recent KBFO Comments |
|---|
Wed Aug 11, 2010 : Excerpt : Spec Value Hunter Comment: Amazon study shows release rates comparable between KCl and ThermoPotash (more...)
Wed Apr 14, 2010 : Excerpt : Spec Value Hunter Comment: Amazon pursuing marketing study ahead of PEA completion (more...)
Fri Jan 29, 2010 : Excerpt : Spec Value Hunter Comment: Amazon's glauconite drilling outlines initial resource footprint (more...)
|
Nevada Exploration Inc (NGE-V: $0.19)
| Nevada Exploration Inc is the exploration vehicle for an innovative gold prospecting tool developed by Wade Hodges and Ken Tullar during the past decade to look for blind gold deposits buried beneath the gravels of Nevada's basins. After digitizing 7,000 wellwater measurements collected by the state and identifying areas "dirty" with trace elements such as arsenic, mercury and antimony often associated with gold mineralization, NGE developed a protocol for making repeatable measurements of gold in groundwater, and then collected 3,000 samples from promising areas and 35 samples near known gold deposits. Based on these results NGE identified 33 gold in groundwater "haystacks" within the gravels of basin "fields", and acquired title to 11 of these targets. NGE completed an RTO of a capital pool in February 2007, and raised $5 million to test 4 of these targets with drilling in an effort to demonstrate the method by discovering gold deposit "needles" within these haystacks. By the end of 2008 drilling had not delivered any significant gold intersections, but the results included evidence such as alteration and anomalous gold values which support the theory that gold mineralization is present in the bedrock beneath the gravels that have yielded gold in groundwater anomalies. NGE is developing a strategy of spreading the risk and cost of drilling by farming out its targets to other juniors. |
 |  |
| Date |
Price |
|
Recommendation |
Action |
Net
Cash |
Net
Stock |
Gain |
New Status |
| 12/24/2008 |
$0.05 |
|
New BF XP Buy below $0.10 |
Buy 10,000 @ $0.10 |
$0 |
10,000 |
0% |
BF XP Buy below $0.10 |
| 8/10/2009 |
$0.08 |
 |
Confirm BF XP Buy below $0.10 |
|
$0 |
10,000 |
-20% |
BF XP Buy below $0.10 |
| Focus Comment |
|---|
| Grassroots exploration went out of vogue in 1997 when the Busang gold discovery proved to be the biggest mining hoax in history. When the market came back to life in 2003 it was focused on existing ounces or pounds in the ground whose mine development economics might have improved with the rise in commodity prices. During the 2003-2008 commodity boom there were few major grassroots exploration discoveries. The most notable was Aurelian's 13 million ounce Fruta del Norte gold discovery in Ecuador. Aurelian was fortunate in that it had managed to raise $20 million, and was down to the last $1 million with little to show for the effort when it drilled a blind geological target and came up with the discovery hole. Nevada Exploration Inc raised considerably less than that for its grassroots exploration story, which was to find golden needles within the golden haystacks its gold-in-groundwater measurement technique had identified in the shallower parts of Nevada's gravel covered basins. After a ten year odyssey which brought NGE's management from concept to a listing on the TSXV in 2008, the stock crashed when its own drilling efforts failed to deliver the discovery hole it needs for proof of concept. NGE has collected more than 3,500 water chemistry readings in Nevada which has led it to identify 33 blind targets associated with a gold-in-groundwater anomaly. More than 100 million ounces have been discovered in Nevada, but almost all the exploration has been conducted on the bedrock exposed in the ranges or hidden by very shallow cover at the edges of the basins. If there are any major gold deposits left to be found in Nevada, they are likely hidden beneath the basin gravels. NGE has acquired title to 11 of its golden haystacks, of which the most important one at the moment is the Hot Pot prospect which has been optioned 70% to International Enexco Inc. Enexco has completed a 7 hole drill program which has intersected oxidized structure whose mineralization includes elevated values for arsenic and antimony, two elements which share high readings with gold in the ground water anomaly at Hot Pot. The hope is that the Hot Pot golden haystack is hiding a golden needle similar to the nearby depleted 5 million ounce Lone Tree deposit or the 4 million ounce Marigold system Goldcorp is developing into a super pit. If the Hot Pot assays expected in November confirm a gold discovery, Enexco's stock price will soar, and a much larger audience will want to know more about Nevada's New Map which NGE possesses. Since hitting rock bottom last year NGE has attracted additional people to its management team, adopted the prospect-generator-farmout model, and raised enough money to keep the company alive. We recommended the stock below $0.10 in late 2008 and the stock has now nearly doubled. We are treating NGE as a core bottom-fish position on the premise that if the company successfully deploys its farmout strategy, eventually somebody will make a major gold discovery, and when that happens not only would the stock of NGE and its partner appreciate dramatically, NGE will attract a substantial market premium because it will have the financial means to acquire the other 22 secret golden haystacks and conduct additional groundwater measurements that could generate more golden haystacks. The company is fortunate in that it would take a competitor at least two years to refine the methodology for collecting and evaluating groundwater samples, and for the moment there is so much skepticism, in many cases linked to outright dread that NGE might indeed have a map to the Holy Grail of Nevada, that nobody is rushing to duplicate the methodology. Although the appetite for grassroots exploration is still muted, we think it will come back as retail investors are attracted back to the junior market by record high gold prices. |
| Recent KBFO Comments |
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Mon Aug 16, 2010 : Excerpt : Bottom-Fish Comment: NGE returns to equity markets to keep gold in groundwater story alive (more...)
Wed Jan 27, 2010 : Excerpt : Bottom-Fish Comment: Hot Pot results not so hot (more...)
Wed Sep 30, 2009 : Excerpt : Bottom-Fish Comment: When Kaiser says he likes Enexco, the market yawns; when Pescod says Kaiser likes Enexco, it jumps (more...)
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