There are a number of plays which I have been looking at entering but I have been waiting for the bottom in this junior down cycle. I was very sure that we were months away from the bottom, and I was gearing up to pull the trigger. The recent fall (attacks) in the price of (paper) gold has sent me crawling back to my perch, far away, as I observe the happenings for a bit longer.
Its in these bottoms, whenever I can best perceive them, that I will go into a play on the fundamentals, going long over a greater period of time than normally characterizes my trading style.
Anyways, one of the companies I have been looking at for a while is Victoria gold and their Eagle Gold project. Victoria Gold, trading on the V under the symbol VIT has been trading in the 17-20 cent range lately with 340 million shares out and a market cap of about 60 million.
The Good
Their Eagle Gold project contains quite an amount of gold which includes a reserve of 2.3 million (all falling under the probable category) oz Au at 0.78g/t, 4.8 million indicated at 0.68 g/t, and 1.5 million inferred at 0.60 g/t.
In regards to the reserve, the CAPEX will be roughly $400 mill with life of mine sustaining costs at $133 mill. According to the reports, it would be an open pit mine which would move 29,500 tpd ore and produce roughly 200,000 oz Au per year at $542/oz, with the highest grades/yields coming from the first 3 years of the mine. The mine is proposed to open in 2014/15 with a life of 9 years. Processing costs are projected at around $12/t ore.
All in all not bad. Although the company has some money, somewhere around 40 million last I checked, they will need to raise much more cash to get it rolling. That being said, they are quite far along in their permitting processing with a feasibility study, first nations agreement, and an environmental assessment that has been approved by the Yukon government. They currently need to finish up with their construction permits and then construction of the mine. As well, they are still needing their quartz mining permit.
At .17 cents it has seemed like a undervaluation to me, and apparently to Kinross as well as they own 16% of Victorias shares. Sure the project is a bit low in the grade department, but majors like these kind of plays as take over candidates, where all the dirty work is done. I will be waiting to see if they can turn some of that 6 million inferred ounces into the indicated category as well.
Aside from the general market conditions, Yukon plays seem to receive further devaluation. The area fell out of favor a couple years ago and has never regained its form. That being said, the Yukon is my favored territory in Canada for miners. The first nations groups are more sophisticated in a bussiness sense then say those in Nunavut, as they have been through it before, and there are not the land claim battles going on the same extent as they are in the NWT.
The Concerning
Well...They need to raise a lot of money. It this sector and market condition that large number seems even larger. As well, I would imagine that large dilution will come of this, very high dilution. I recall reading that they were planning on selling gold forward. Not sure if it was just a presentation suggestion/food for thought but it seems that the general market sentiment is fairly bearish on the POG. At this point in time, gold is trading at 1470/oz and their 43-101 report was done based on a 1325/oz price.
Generally, that is fine when gold was trading at 1650/oz, but at nearly $200/oz less on a low grade project a $145 buffer zone just does not give the same comfort as, say, a $325 buffer zone. I actually felt they should have used a lower POG for their technical report. Some of the other projects I have been looking at were using $1250. We all saw how gold can fall in the course of a day.
So...as per full disclosure....What am I going to do? I plan on picking up some shares in the 17-20 cent range, but not a large position. Will add if I see something I like in regards to the POG and VITs ability to finance their project.
VANCOUVER, BRITISH COLUMBIA--(Marketwire - Aug. 7, 2012) - Comstock Metals Ltd. (TSX VENTURE:CSL) ("Comstock" or the "Company") is pleased to announce that it has entered into a letter of intent (the "LOI") with Seafield Explorations Ltd. ("Seafield") to acquire Seafield's 75% interest in a joint venture with Volcanic Minerals Ltd. for the exploration and development of the Walhalla Property located in the White Gold district in Yukon (described in further detail below).
Walhalla Property Highlights
- Ridge-and-Spur and grid soil sampling has returned gold assay from below detection limit to 6.26 g/t gold (Au), 3.41 g/t Au, and 2.16 g/t Au.
- Copper values in soil ranges from below detection limit to 266 ppm Cu
- Silver values in soil range from detection limit to 7.9 g/t Silver
- A large breccia system in subcropping bedrock extending approximately 2 km long and 200m wide is in close (?) proximity to soil anomalies
- The breccia and associated silicification is thought to be related to the Teslin fault structures
The Walhalla Property, (the "property") consists of 1,988 quartz claims covering approximately 41,800 hectares located 120 km southeast of Dawson City in the Yukon. The property is located in the White Gold District immediately east of and contiguous with Pacific Ridge's Mariposa Project. Previous work on the property identified strong anomalous gold zones in soils as well as anomalous pathfinder elements such as arsenic and barium. About 1014 ridge-and-spur samples were taken in the western, north-eastern, and south-eastern parts of the property, and significant gold-in-soil anomalies were identified in all areas. Of particular interest was a 3.41 g/t gold-in-soil anomaly in the ridge-and-spur sampling, which was followed up by 366 grid soil samples that returned a value of 6.26 g/t Au - one of the top ten historically in the entire White Gold District. Copper-in-soils and silver-in-soils are also of interest based on the results received to date. Please refer to the figures posted on the Company's website under (http://comstock-metals.com/projects/walhalla/).
Prospecting identified area of float that appears to outline a large breccia system extending approximately 2 km long and 200 m wide. Some of the high gold-in-soils and coincident copper and silver anomalies are found near the breccia. This area of the property is located along the Teslin Fault, a major regional fault system which splays out on the property and is mid Cretaceous in age, which is the age of most Yukon gold mineralization. Other parts of this large property package are underlain by intrusive and metamorphic rocks similar to those found in the White Gold district to the west, and also those which host the Minto copper-gold mine to the south. A helicopter-borne high-resolution aeromagnetic survey was also flown over the property last year, and data from this survey will be used in conjunction with assay results to identify targets for follow-up work such as grid soil-sampling, trenching, and drilling.
The Walhalla project is considered prospective for discovery of several types of mineralisation, with gold the primary commodity of interest. The White Gold and similar deposits (Kaminak's Coffee gold deposit), as well as Comstock's own discovery at the QV Property are located to the southwest and northwest respectively and is the primary target. The property may be prospective for Minto style IOCG type copper-gold mineralisation (located to the southeast), as are VMS type deposits like Touleary, and Comstock intends to evaluate these possibilities also.
Comstock is planning to continue with ridge-and-spur, grid soil sampling and mechanical trenching programs to identify drill targets.
For detailed maps of the property and the locations, please visit the website at: www.comstock-metals.com.
The technical information in this Release has been reviewed by Gordon Davidson, P. Geol., a Qualified Person as defined by National Instrument 43-101.
Terms of the LOI:
Under the terms of the LOI, the purchase consideration payable by the Company for the Walhalla Property will be (i) $300,000 cash costs incurred by vendor(s) to acquire the claims, (ii) issue 500,000 common shares of the Company, and (iii) issue an additional 500,000 common shares of the Company upon the determination of an NI 43-101-compliant 500,000 ounce gold resource on the Walhalla Property. Closing is subject to certain conditions, including the execution of a definitive agreement, the execution of a joint venture agreement with Volcanic Minerals Ltd. on terms satisfactory to Comstock, the receipt of all regulatory approvals and approval of the TSX Venture Exchange, and other customary conditions.
The acquisition is considered a related party transaction under TSX-V Policy 5.9 because Mr. Rasool Mohammad, an officer and director of the Company, is also the director of Seafield Explorations Ltd. The Company is relying on the exemption from the requirement to obtain a formal valuation and minority shareholder approval on the basis that the fair market value of the acquisition does not exceed 25% of Comstock's market capitalization. Following closing of the acquisition, Seafield and Mr. Mohammad [and their associates] will collectively hold approximately 8% of the outstanding common shares of Comstock (assuming the additional 500,000 contingent common shares are issued), or approximately 8.1% on a partially diluted basis."
I guess CSL feels pretty good about their QV (3.74 g/t Au over 75 meters) property and decided to pick up the property right next door with high grade soil sampling...a top 10 historically in the white gold district. We'll see if the LOI is approved by the exchange, I suspect it will be. The terms of the acquisition are a little strange with Seafields Exploration having the same CEO as Comstock, allowing them to go through with it without obtaining minority shareholder approval. From the press release.
"The acquisition is considered a related party transaction under TSX-V Policy 5.9 because Mr. Rasool Mohammad, an officer and director of the Company, is also the director of Seafield Explorations Ltd. The Company is relying on the exemption from the requirement to obtain a formal valuation and minority shareholder approval on the basis that the fair market value of the acquisition does not exceed 25% of Comstock's market capitalization."
The relationship between the three companies as it relates to the acquisition, interest, and ownership of the Walhalla property is a bit confusing if you haven't followed VOL. From a 2011 press release.
"Volcanic to acquire remaining 75% of Walhalla property 2011-10-18 18:22 ET News Release
VOLCANIC OPTIONS WALHALLA PROPERTY IN WHITE GOLD DISTRICT
Volcanic Metals Corp. has entered into an option agreement with Seafield Explorations Ltd. to acquire the remaining 75-per-cent interest (for a total 100-percent interest) in the Walhalla property,located in the emerging White Gold district
of the Yukon."
"In order to earn the 75-per-cent interest in the property, Volcanic
must:
Pay $150,000 on confirmation of title;
Issue 500,000 shares on exchange approval;
Pay $150,000 on the earlier of six months after exchange approval and the completion of a non-flow-through financing of not less than $500,000;
Pay $50,000 and issue 500,000 shares on each of the first through third anniversaries of exchange approval;
Pay $100,000 and issue one million shares on the fourth anniversary of exchange approval;
Incur $1.5-million in exploration expenditures on or before the fifth anniversary of exchange approval"
As a shareholder in VOL I am curious to see how this plays out. It will depend upon the priority that CSL gives the exploring the Walhalla property, as far as VOL shareholders are concerned. After a failed rollback and a large drop in sp, it was doubtful that VOL would have been able to raise funding anytime soon to carry out a drill program. CSL has the means but one can bet most of their exploration work in the white gold district will be focused on their QV property. That being said, all VOL needs in the heating up Yukon is a few decent holes. I'm sure a future press release will specify the terms of the agreement further once the acquisition is approved.
"The company is aggressively trenching, mapping and sampling on the discovery zone to get ready for a diamond drill program"
"The acquisition is considered a related party transaction under TSX-V Policy 5.9 because Mr. Rasool Mohammad, an officer and director of the Company, is also the director of Seafield Explorations Ltd. The Company is relying on the exemption from the requirement to obtain a formal valuation and minority shareholder approval on the basis that the fair market value of the acquisition does not exceed 25% of Comstock's market capitalization."
The relationship between the three companies as it relates to the acquisition, interest, and ownership of the Walhalla property is a bit confusing if you haven't followed VOL. From a 2011 press release.
"Volcanic to acquire remaining 75% of Walhalla property 2011-10-18 18:22 ET News Release
VOLCANIC OPTIONS WALHALLA PROPERTY IN WHITE GOLD DISTRICT
Volcanic Metals Corp. has entered into an option agreement with Seafield Explorations Ltd. to acquire the remaining 75-per-cent interest (for a total 100-percent interest) in the Walhalla property,located in the emerging White Gold district
of the Yukon."
"In order to earn the 75-per-cent interest in the property, Volcanic
must:
Pay $150,000 on confirmation of title;
Issue 500,000 shares on exchange approval;
Pay $150,000 on the earlier of six months after exchange approval and the completion of a non-flow-through financing of not less than $500,000;
Pay $50,000 and issue 500,000 shares on each of the first through third anniversaries of exchange approval;
Pay $100,000 and issue one million shares on the fourth anniversary of exchange approval;
Incur $1.5-million in exploration expenditures on or before the fifth anniversary of exchange approval"
As a shareholder in VOL I am curious to see how this plays out. It will depend upon the priority that CSL gives the exploring the Walhalla property, as far as VOL shareholders are concerned. After a failed rollback and a large drop in sp, it was doubtful that VOL would have been able to raise funding anytime soon to carry out a drill program. CSL has the means but one can bet most of their exploration work in the white gold district will be focused on their QV property. That being said, all VOL needs in the heating up Yukon is a few decent holes. I'm sure a future press release will specify the terms of the agreement further once the acquisition is approved.
"The company is aggressively trenching, mapping and sampling on the discovery zone to get ready for a diamond drill program"
PS: some minor exploration work has been conducted by VOL in the past. Encouraging results. http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3AVOL-1894931&symbol=VOL®ion=C