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 |   Wed Jun 16, 2004
Express 2004-02: Cortez Trend catches Fire
Publisher: Kaiser Bottom-Fishing Report
Author: Copyright 2004 John A Kaiser
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| | Express 2004-2
June 16, 2004
Cortez Trend Catches Fire
In my Vancouver Cambridge speech I talked about the 4 Walls into which our nascent junior resource exploration bull market smacked in April: the wall of worry interest rates, Iraq, US presidential election, China implosion etc), a wall too steep (parabolic metal price increases since July 2003 that proved unsustainable), a wall of paper ($3.6 billion raised by TSXV juniors alone since July 2003 that has turned into a huge overhang), and the wall of doubt (that the juniors will ever again make a world class discovery). I made a case why these walls will cease to be an issue by 2005, clearing the way for the next leg of the mother of all resource sector bull markets. I'll save the details for a separate Express. The point of this email is to alert you to what I see as the first crack in the wall of doubt.
On June 16, 2004 White Knight Resources Ltd (WKR-V: $1.00) jumped $0.41 on 2,002,900 shares before being halted. Victoria Resource Corp (VIT-V: $1.45) jumped $0.46 to $1.45 on 1,389,300 shares. A third company, Miranda Gold Corp (MAD-V: $0.57) gained $0.07 to $0.57. What do these companies have in common?
 They are all significant landholders in Nevada's Cortez Trend. What is the Cortez Trend? It is part of the Battle Mountain-Eureka Trend that runs parallel to the Carlin Trend to the southwest. What is the Carlin Trend? It is a 200 million ounce goldfield whose deposits built Barrick and sustained Newmont. The Cortez Trend so far hosts only about 35 million ounces, of which the Pipeline deposit was found during the nineties by Placer Dome under deep pediment cover, and more recently, the Cortez Hill deposit quite close to surface. For some background check out the following pdf version of the slide show Placer Dome presented at the Cordilleran Roundup in Vancouver during January 2004:
Placer Dome Roundup Presentation on Cortez Trend (PDF)
Last week Placer Dome apparently reported to a geological symposium in Nevada that a hole at Cortez Hills had pulled 1.5 opt gold over 490 ft. Rumours are circulating that an even better hole has been pulled. Placer Dome, as is normal for a major mining company, has not formally published drill results, so the accuracy of these figures is questionable.
Victoria came alive because it already has a discovery on its 49% owned Mill Canyon deposit (Newmont can back in for 51%) located about 1.6 km from the Cortez Hills property. So far the intersections have been narrow and high grade, but the target has not been fully explored. White Knight has a number of deposits within the Cortez Trend that the Leask brothers have assembled during the past couple years. One of these is Slaven Canyon, which their structural analysis indicates covers a horst that has brought the prospective Lower Plate rocks reasonably close to the surface. A drill program will begin shortly that is designed to establish the depth of the Lower Plate boundary. (Carlin-style mineralization forms at the top of the Lower Plate, which is generally too deep to be accessible, but in places comes within reach as uplifted windows.) Miranda Gold is also a significant landholder which under the guidance of Joe Hebert and Ken Cunningham has been acquiring land on the basis of structural considerations.
Open market buying by Goldcorp draws Kinross into the fray
None of these companies yet have anything that might qualify as a world class discovery. What they do have is a strategic land position within a structural corridor that is rapidly gaining recognition as a world class goldfield. In the case of White Knight the junior has more than $8 million working capital, much of it raised in January in the form of a private placement of 7.8 million units at $0.85. One of the placees was Goldcorp, which has since been active in the open market and last reported in mid May that it owned 3.3 million shares and 1.7 million warrants. Apparently Goldcorp's management believes that White Knight has the most prospective 100% owned land position outside that owned by Newmont and Placer Dome. Talk that the Cortez Trend may turn out to rival the Carlin Trend has been simmering for at least a half year now, and is one reason why White Knight has been a favorite stock pick of mine at conferences (it is an older top priority bottom-fish buy recommendation in the $0.20-$0.29 range that has been a Spec Cycle 100% Hold for the past six months).
On Wednesday the market reached a flashpoint that triggered a breakout. Victoria's volume surged first, which may have stampeded buyers into White Knight. By the end of the day White Knight had been contacted by Kinross Gold, and a private placement has been announced giving Kinross 2,222,222 units at $0.90 (half warrant at $1.25). The reason for the quick deal is a growing anxiety that Goldcorp may become more aggressive, and giving another intermediate producer a foot in the door is one way to assure that White Knight will be around to properly explore its Cortez Trend landholdings.
Play momentum has roots outside the juniors
One might wonder whether or not this market action is just a flash in the pan that will die down soon enough, but there are factors at play that suggest this is more than a pump and dump attempt by investors and brokers trying to get rid of paper that recently came free trading. The story, which is driven by Placer Dome, has considerable growth potential. The proximity to the Carlin Trend and the market memory of the Carlin Trend's evolution during the eighties make for easy comparison. The presence of intermediate players such as Kinross and Goldcorp as equity investors in White Knight gives credibility to the region's potential for world class dream targets. And the rumoured intersections have the dazzling scale needed to coax investors from the sidelines. The Cortez Trend play is developing powerful momentum that will push the participating juniors considerably higher before the market starts insisting on discovery holes. Over the next couple years the Cortez Trend gold resource is going to grow and grow, and the market will give the juniors the benefit of doubt for at least the next 12 months.
Be prepared for "irrational" Cortez Trend valuations
Miranda, White Knight, and Victoria do not qualify as bottom-fish buy recommendations, but they are obvious contenders for higher prices as the Cortez Trend story attracts a broader audience. The Slaven Canyon play of White Knight which is at the target drilling stage has an implied project value of $62 million, which is just on the poor side of the fair value channel for a $2 billion dream target. The Mill Canyon play of Victoria which is at the discovery delineation stage has an implied project value of $128 million, which is also slightly on the poor side of the fair value channel. Miranda's 100% owned Red Canyon, which is one of several grassroots projects, has an implied project value of only $18 million, which represents fair value for a $2 billion dream target in the context of my rational speculation model. I should point out that the rational speculation model is just a theoretical framework which describes how the market is pricing plays; when a feeding frenzy kicks in valuations typically shoot well above what would be defined as fair value by the model. I believe we are entering such a phase.
*Of the above mentioned securities JK owns shares of Miranda Gold. |
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