 $37 Moly,
Moose-Poop & a 2-line phone
Bob Moriarty
Archives
January 5, 2005
If molybdenum
has been the worst possible investment of the last 28 years,
it's sure looking as if it may be the best investment of the
next 28 years.
I've heard it said that even a blind squirrel finds an acorn
now and again. In a
piece
we posted last August, I made this
comment about moly, "Some metals literally are on the verge
of running out such as copper and for all purposes, moly has
run out and the price could double or triple from here easily."
Moly was about
$14 then and $37 now. Due to the nature of mining and bureaucratic
delay, there are actually fewer sources of moly today than there
were back then and demand continues to explode. Moly is up 150%
and isn't even close to a peak in price. It will take a collapse
in Chinese demand to start to dent the price. Yet I don't see
anyone else writing about the few investment opportunities around.
In mid-December I braved the elements and visited another prospect.
The MAX property
now owned entirely by Roca Mines Inc (ROK-V, $.35 Canadian
28.8 million shares outstanding market cap $10.8 million Canadian;
website) was initially developed
in a joint venture between Esso Canada and Newmont between 1975
and 1982. The pair spent about $15 million on what they called
the Trout Lake Project before shutting it down due to low moly
prices in 1982. I'd guess it would cost twice that to do the
same work today so that should give you some idea of what Esso-Newmont
thought of the project. Eventually the property was reclaimed
and finally the claims dropped entirely. It's located about 60
km southeast of Revelstoke in southern British Columbia.
Some local
prospectors in the area picked the property up and optioned it
to Roca Mines who have an option to earn 100%. Roca President
and CEO Scott Broughton bought the drill data and reports from
Newmont for about $100,000. Since the company's key property
is the Foremore VMS project in northern BC, the moly project
was just an after thought until moly prices began to shoot up.
In September Roca brought the Newmont data up to 43-101 standards
which show a 43 million tonne resource of .20 moly sulfide or
about 160 million pounds of moly sulfide.
But within
that resource is a high grade core of 706,000 tonnes averaging
1.07% or 15 million pounds of moly sulfide which equates to about
10 million pounds of moly. Now here's the key to the whole Roca
story: they could go into small scale production of 200 tons
a day for a cost of about $8-10 million dollars and be producing
about $100,000 per day in cash flow in as little as six months,
but you can search their website high and low and never get a
clue.
Of all the
companies we work with, sometimes those run by the brightest
guys are the most difficult to deal with. Engineers and other
scientific types are almost always bright and always left brain
dominated. In short, they are so bright they don't trust anyone
else to know their job. When I was in the computer business,
the term we used was NIH. If something is Not Invented Here,
it doesn't count.
When Scott
briefed me on what he had in mind for Roca, I went to their website
to make sure I had my numbers right. And there wasn't
a conclusion to be found on the entire site. It was filled with
facts of all colors and sizes and shapes but not a conclusion
anywhere. In short, I didn't know any more after I read their
website than before I went.
I suggested
he needed to start using the site to communicate rather than
to simply list facts. He nodded his head sagely and promptly
ignored me. I've been telling him for three weeks to communicate
his business model and he won't. So if anyone wonders why a company
capable of $100,000 a day in cash flow is selling for $10 million
Canadian, there's your answer. They have a great game plan, they
just don't tell anyone what it is.
Scott plans
on releasing a press release in mid-January announcing Roca filing
for a small scale mining permit. It's a fast track process of
getting permission to mine up to two years and I think 75,000
tonnes per year. That's big news and worth telling. But I don't
know a person in the world who actually cares which day of the
week they file it. Roca has the cart before the horse. No one
cares when it is filed, only that Roca intends to go into production
and if all goes well, can be in production for, say $10 million,
in as little as six months.
There will
be a scoping study released in February and again, Roca believes
the fact of a scoping study is important without explaining that
all the scoping study will do is verify figures they can work
out on a napkin.
At the very
least, a company's website should let a reader know what their
business model is. It should allow the reader to know what they
intend to do. It should be capable of selling the company to
a prospective investor. Roca's site does none of the above and
since they are so bright, they don't need to listen to anyone
who understands the web a lot more than they do.
I won't even
go into their Foremore project which is brilliant, it's another
Eagle Plains junior. In fact, since exploration is so different
from production, it makes all the sense in the world for Roca
to spin off the MAX project into another company. The two are
as different as chalk and cheese.
While I was
in Cranbrook, we also flew over the Sullivan Deeps drill rig
where Roca's sister company, Stikine Gold Corporation
(SKY -V $.35 Canadian 23.2 million shares $8.2 million Canadian
market cap; website) is preparing to drill
an offset wedge hole into the Sullivan Deeps project. It's another
magnificent story left unsaid. If you know the story, you can
worm your way around the website long enough to verify your facts,
if you don't already know the story, sorry about that, you aren't
about to learn.
The Sullivan
mine with its 100 years of production of silver, lead and zinc
was the biggest and most valuable mine in BC history. The Sullivan
shut down in 2001. The owner, Teck Cominco, cut a deal with Stikine
where Stikine could earn a 50% interest in the prospective property
by spending $4 million before August of 2007.
Originally,
Teck Cominco believed there was a northern extension of the ore
body at the Sullivan mine which had been cut off by a lateral
fault shift. Now the thinking seems to be after a lot of study
that the target zone for Stikine which appears to be a massive
3 by 3 km geophysical conductor, is yet another "black smoker"
vent system similar to the Stemwinder Mine 8 Km south of the
Sullivan and the North Star Mine 4 km south of the Sullivan and
of course the Sullivan. Except Stikine appears to have found
the edge of yet another, and even bigger, super conductor only
4 km NW of the Sullivan. Four in a row, all nicely lined up.
The northern target appears to have shifted 15 km to the west
and 13 back to the east but if Stikine's theory is correct, it
will be the big momma system.
The Sullivan
and all "black smoker" deposits form when an underwater
fault opens and allows a vent from deep in the crust to spew
a zinc rich, silver and lead loaded fluid to blast out of the
sea bed. When the hot fluid hits the colder sea water, the minerals
precipitate out into a solid form. They still exist and are forming
massive ore bodies today. In the case of the Sullivan structure,
eventually many layers of sedimentary material built up over
the main body. The mines to the south of the Sullivan had mostly
eroded away and all that was left was the feeder vent. But with
the Sullivan and hopefully, the Sullivan Deeps project, the main
ore body existed well around the vent area.
Scott announced drill results from the $1 million dollar+++ hole
on the 1st of October and the stock took a nose dive. It was
the classic, buy on the rumor and sell on the news. I suspect
that if shareholders understood what Scott and crew had in mind,
the stock wouldn't have gotten cut in half. The stock was a gimmie
at $.69 and at $.35 it's simply absurd. They have found exactly
what they were looking for and the company is selling at about
the price of a company with an option on 400 pounds of moose
poop and a 2-line phone.
The offset
wedge hole will be drilled shortly and plans are in the works
for bringing in a second drill rig to drill another million dollar
deep hole. If either of them shows a continuation of the mineralization
already found, Stikine may well have a major mine on their hands.
There is an
old adage in the computer business that if something isn't worth
promoting, it isn't worth owning. Mining company managers could
well learn from their computer brethren. In the case of both
Roca Mines and Stikine, management has made a decision to tell
not a word more than 43-101 demands. But 43-101 was never designed
as a set of handcuffs to prevent communication. It was designed
to stop over promotion, not to stop promotion.
Promotion is
part and parcel of running a company. Any company, not just a
computer company or a mining company. The single biggest issue
in the mining industry isn't finding good projects, good projects
are a dime a dozen. The single biggest issue in the mining industry
is finding capital at a reasonable cost. There are a zillion
projects which could be put into production if capital was available.
So promoting your stock by communicating your business plan to
your potential investors isn't some sort of crime prohibited
by 43-101, it's part of management and if you fail to communicate
your very real plans and goals, you stiff your existing shareholders
and doom your future. At some cost of capital, all projects become
uneconomic. If a company fails to communicate in an effective
way, they shortchange existing shareholders since all financing
will be done at prices
under what the market would gladly pay if communication was taking
place.
At 321gold,
we are proud of the job we have done promoting the industry in
general and some red hot mining companies in particular. We understand
both the limits on promotion and the problems caused by over
promotion. And there is a lot of over promotion. Goldcorp and
Silverado are only two examples of companies promoted far beyond
management's capabilities.
But failure
to promote via communication is just as foolish and just as costly.
We like both Roca Mines and Stikine. I actually own shares in
both companies. When I heard the business plan for both companies,
I was excited. When I realized it was their corporate culture
to not communicate, I was disappointed. With projects of this
quality, shareholders deserve far more than they are getting.
Both projects will need additional financing and they can either
sell shares at a reasonable price or give them away for pennies
on the dollar. Me? I'd learn to communicate.
Neither company
is an advertiser. We own shares in both companies.
Roca Mines: website
Stikine: website
January 4, 2005
Bob Moriarty
President: 321gold Inc
Archives
321gold Inc
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