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Three weeks ago,
I posted a Mercenary Musing detailing the risks and rewards of exploration in
emerging environments. I explained the qualifying criteria a company must use
to make sound investment decisions in emerging market countries, and the
advantages of exploring in frontier geological settings.
This is the
second of a series of musings on select companies operating in emerging
countries. The first was posted three months ago on Lydian International Ltd
(LYD.T) and discussed its exploration success in Armenia and how quickly that
success occurred (Mercenary Musing, February 23, 2009). Not all companies
will get that lucky that fast, but you know the old saying about making your
own luck. Lydian positioned itself as the first mover in a previously
unexplored geological environment and was rewarded.
A favorite old
saying of mine is the early bird gets the worm. Once again that has
proven true, and I now give you another junior explorer who was “first
in”. They have the best available ground in one of the world’s
most recent emerging markets.
The company is
Eurasian Minerals Inc. (EMX.V) and it is led by my friend and colleague Dave
Cole. Dave is a geologist who worked briefly with me as a young pup some 21
years ago. I was consulting to Newmont Exploration out of Elko, Nevada and
Dave was a Newmont junior geologist fresh out of college with a degree in
geology and a minor in skiing. It didn’t take me very long to realize
that he was smart, energetic, and enthusiastic and someday would make his
mark in the exploration and mining business.
It was simply a
matter of when and where.
After a recent
field visit, I’m convinced that the “where” is Haiti. Only
time will tell about the “when” part of this emerging environment
equation.
Eurasian Minerals
has been on my watch list for over a year and a half after I saw some gaudy
copper-silver samples at its trade show booth. Since then, Dave Cole and I
have reviewed the company’s progress every few months. This spring EMX
developed their Haiti prospects to the point where they were ready for an
initial analyst tour.
We
scheduled a field trip in early May, and I flew out of Albuquerque for a long
Sunday of travel thru Dallas and Miami with a final destination of
Providenciales, Turks and Caicos. I was to meet the EMX crew and a couple of
other analysts there on Sunday night.
Unfortunately, my
plane was an hour late out of DFW and the connection to T and C was scheduled
40 minutes after an on-time arrival. My best option was then a mid-morning
Monday flight from Miami to Port-au-Prince. I booked that flight with
American Airlines, got a whopping $15 voucher for dinner and breakfast,
and waited nearly an hour for the hotel pickup. Jeez the hotel couldn’t
even give me a tube of toothpaste until the next morning, and then sent the
airport shuttle off five minutes early without me. Despite this, I made my
flight on time and things were looking better.
But the EMX crew
was now in Cap Haitien. Arrangements had been made for someone to meet me
upon arrival in the Haitian capital. But there were problems at the airport:
I was delayed at customs because no one told me where we were staying in Cap
Haitien. Worse yet, I was there but my bags weren’t. By the time I made
it thru customs, baggage carousel, lost baggage service, and immigration, the
guy waiting to meet me was long gone.
I also was
informed before leaving Miami that morning there would be a helicopter to
meet me at the domestic airport and fly me to Cap Haitien. So I hired a taxi
driver with rudimentary English and we went on a lark from the international
airport to the domestic airport to the UN military base and back to the domestic
airport with no sign of a helicopter anywhere and no report of anyone seeing
one. Finally the driver grew tired of this wild goose chase, and dumped me
off with only briefcase in hand.
Another snafu: My
cell phone didn’t work in Haiti. And I could tell by whimsical looks
from the locals when I picked up a couple of pay phones that they never
worked either so me, myself, and I had a serious debate amongst ourselves as
to what to do next.
Since I knew the
crew was basing out of Cap Haitien, I bought a one-way ticket in a small
plane to that town on the north-central coast. While doing this, I spied a
friendly-looking fellow with a British passport, a Chicago accent, and an
ability to speak French doing the same thing so I struck up a conversation.
Pretty soon Dan Phillips and I were pals and he graciously lent me his
Haitian-based cell phone to call the travel agent in Denver. I was hoping she
knew where the crew was staying in Cap Haitien. But she didn’t have a
clue either.
The next step in
my journey was the flight to Cap Haitien, a check in my new found
friend’s Lonely Planet Guidebook, and a compromise with Dan to stay in
the second best hotel in town. We not-so-easily negotiated a taxi and the
driver got lost twice, but we eventually found the place. By this time, I was
on my third call to the aforementioned travel agent and I finally convinced
her to call Russell, Dave Cole’s extremely efficient assistant in
EMX’s Littleton office. I was confident that Russell would solve my
dilemma. After 30 hours of travel, I checked in and immediately jumped into a
meager shower that was interrupted by a welcome phone call. It was from Dave
Cole, he had spoken to Russell, the group was back early from the heli tour
because of high winds, and I was found.
Within an hour,
Dave was there to pick me up and take me to the Mont Joli, the best hotel in
town, complete with cold beers at the swimming pool and a gorgeous view of
the sea. All that was lost was half of the project tour, my bags, and a few
hundred dollars in expenses for an unscheduled plane flight, a couple of
taxis, three meals, and an extra hotel room for that night.
Even at the time,
it seemed a small price for the self-satisfaction of once again proving that
I can find my way to where I’m supposed to be despite the curves that
are thrown in the third world.
I’m
glad you’ve indulged my storytelling. But you aren’t reading this
to learn about travel logistics and difficulties. To this end, let’s
briefly review the history, geographical, and environmental settings of the
country of Haiti:
Columbus landed
on the island of Hispaniola in present day Haiti in 1492. The Spanish
exploited the country for gold and the native population was decimated by
rebellion, slavery, and disease by the early 1500s. They began importing
African slaves and French pirates settled the western part of the island in
the 16th century. In the 1660’s, Spain conquered the French. However,
French farmers continued to settle in the west and established tobacco,
sugar, and indigo plantations. After years of conflict, the Spanish and
French finally divided the island in 1697.
A series of slave
rebellions beginning in 1791 and sporadic attempts by France to re-conquer
the island eventually led to independence in 1804 making Haiti the only
country in the world born of a slave rebellion. During the 19th century, the
country was plagued by a series of coups as the military, the elite French
class, and commercial interests fought for control of the island and its
people.
The United States
occupied the island from 1915-1934 to protect its economic investments. From
1957-1986, the country was under control of the brutal dictatorship of the
Duvalier family leading to emigration and large Haitian communities in the
U.S. eastern seaboard and Quebec. The period of 1990-2004 was marked by free
but disputed elections, turmoil and chaos, corruption, and coups supported by
France, Canada, and the United States. A 26 nation United Nations
peace-keeping force was established in 2004 and the current president was
elected in 2006.
Haiti occupies
the western one-third of Hispaniola and is a mountainous country about the
size of Maryland. In the north there is a narrow coastal plain and the
west-northwest-trending Massif du Nord which marks a plate tectonic boundary.
The majority of prospective mineral deposits are located in this belt. The
central region consists of two mountain ranges and two plains areas. In the
south is the nation’s highest mountain range forming a long
west-trending peninsula and there is an arid plain with salt lakes in the
southeast.
Haiti
on the Western Side of the Island of Hispaniola
Haiti is the
poorest country in the Americas with average GDP of less than $800. Eighty
per cent of the 9.0 million people live in poverty and 54% in abject poverty,
with two-thirds subsisting as farmers. The population is 95% black and 80%
Catholic with an estimated 50% practicing voodoo. It is burdened by rapid
population growth of over 2%. The official language is French, Haitian Creole
is the generally spoken language, many in the eastern border region speak
Spanish, and English often is spoken by those with business interests. The
literacy rate is 53% with essentially no public school system.
Haiti suffers
from high inflation, limited infrastructure, a lack of private investment
because of security issues, and a severe trade deficit. There is a large
Haitian diaspora: 25% of GDP is from foreign remittances and these are double
the total exports. There is little industrial development other than a small
but growing textile manufacturing industry supported by the United States
that comprises 50% of total export value. Agricultural exports consisting of
mangoes, coffee, and cocoa comprise the rest. Foreign aid contributes 30-40 %
to the government budget.
Massive
deforestation plagued Haiti in the 20th century with only 2% of virgin forest
remaining due to the burning of wood and charcoal for fuel. Deforestation has
led to desertification and subsequent severe erosion as the island is subject
to periodic hurricanes and massive flooding most recently in late summer of
2008. Since it is on a plate tectonic boundary, it is in a tectonically
active area.
In a recent
editorial in the Globe and Mail, Canada’s equivalent of US Today, Paul
Collier, Professor at Oxford University and author of “The Bottom
Billion: Why the Poorest Countries are Failing and What Can Be Done About
It” makes a compelling case for increased foreign aid to Haiti. He
notes that Haiti has stabilized and is occupied by a UN peacekeeping force
including 9000 Brazilians, the USA has provided Haitian exporters with
privileged market access, and Canada is the second largest aid donor to the
country. According to Collier, lack of infrastructure is inhibiting economic
growth and he makes the
case
that should be addressed with foreign aid. Once infrastructure is funded and
built by foreign governments and world financial institutions, risk is
mitigated by their guarantees and private capital investment will follow.
This government and private funding combination is the model that is
presently being implemented in Haiti.
From this review,
it is obvious there is substantial geopolitical risk in Haiti. But the
geology is just so damn good. I’ll have more on that later but
first let’s take a closer look at Eurasian Minerals Inc:
Eurasian Minerals
was founded in November 2003 with the reverse takeover of a former Alberta
Stock Exchange shell. It is a prospect generator that follows the joint
venture model by turning its early reconnaissance exploration successes to
partner companies at the initial or early drill stage. EMX originally was focused
on properties in Serbia and Turkey, soon added Kyrgyzstan to the list, and
later became involved in Haiti.
Since founding
Eurasian has successfully monetized properties in Serbia and Turkey that no
longer remain core assets in the exploration portfolio:
In late 2006 EMX
sold its Serbian interests to a start-up junior for a combination of cash,
shares, work commitment, and NSR. In Turkey, it had a JV deal with Barrick
Gold in the past and currently has a property ventured to Chesser Resources,
a royalty agreement with a small Turkish miner on two base metal properties,
and a joint venture on three properties with Centerra Gold, a mid-tier gold
producer.
In Kyrgyzstan EMX
has drilled 11 core holes on its Orgatash project with encouraging results
including 42 m of 1.48 g/t Au and 45 m of 1.18 g/t Au. It currently is
assessing strategies for continuing exploration. The company recently
acquired a past producing gold mine in the historic, giant Golden
Quadrilateral district of Romania with an estimated 50 million ounces of
production since Roman times.
EMX’s foray
into Haiti is led by Keith Laskowski, geologist and country manager. For
years, I’ve heard many good things about him. In fact, I worked with
his younger brother Randy at Newmont 21 years ago when I met Dave Cole. But
Keith and I had never crossed paths until a month ago.
Keith Laskowski
headed Newmont’s effort in the region as Caribbean Exploration Manager
in the mid-1990’s. When Haiti once again went to hell-in-a-hand-basket,
Newmont pulled the plug. But like all good geologists, Keith recognized the
geological potential and knew all the best prospects. After years of
political turmoil, a multi-nation UN peace-keeping force was embedded in
Haiti in mid-2004, a free election was held in 2006, and foreign investment
has started making its way back into the country.
Keith contacted
Dave about making a run at Haiti in early 2006. Dave in his usual
enthusiastic manner said, “Go for it!” They made the
necessary political and business connections, acquired the best ground in
stages from 2006 to 2009, and entered into a strategic alliance Newmont last
year.
Eurasian Minerals
has made a major exploration play in Haiti controlling mineral rights on 30
concessions, roughly 282,000 ha: That’s over 10% of the country’s
land mass. They presently have three flagship properties in the country: La
Miel, Treuil, and Grand Bois.
The Newmont
strategic alliance required that they buy 1.7 million EMX units for $3.5
million, and they initially contribute $750,000 and EMX $250,000 for regional
exploration. Once Eurasian Minerals spends $200,000 exploring a concession,
it can be offered to Newmont as a designated project. NEM has 120 days to
accept or decline. If they decline, Eurasian owns the property 100% and can
advance or deal it with no further interest on Newmont’s part. If they
accept, NEM must spend $10 million over the next six
years
to earn a 70% interest. Once earned, EMX has three options: Fund their 30%
interest; be carried to production with a 25% interest; or withdraw with a
retained 3.5% NSR. Prior to this strategic alliance, La Miel and La Mine
projects were joint ventured to Newmont with the same basic agreements and
options but on 65-35% bases with $30 million and $20 million work commitments
respectively and feasibility study requirements.
In addition to
its projects, Eurasian’s share structure grabs my attention. For a six
year old company, it has a low number of outstanding shares at 28.5 million
and fully diluted at 34.7 million. Included are 2.1 million warrants
currently out of the money at $2.00 expiring in October of this year, 1.3
million warrants at $2.50 expiring in April 2010, and 2.8 million options at
$1.00-1.81 with expiries from August 2009 to May 2014. Insider and tightly
held shares comprise 54% with the four largest shareholders the Rule Family
Trust, Newmont Mining, the Lundin Family, and Dave Cole. Institutional funds
hold about 14%. Public stock float is estimated to be nine million shares or
about 32% of total outstanding.
The two year
chart shows the company has traded in a range from about $2.25-$2.50 cents
during the peak of the market in mid-2007 and in February and March of 2008
to a low of 51c during tax loss selling and the bottom of the junior resource
market in mid- November to mid-December 2008. Starting in January, it has
rallied along with most other juniors focused on advanced gold projects and
has built a very strong chart in the past six months. In the past 30 days the
stock has run from a low of $1.09 to as high as $1.74 which matches the 52
week high. Current trading is in the $1.35 - $1.50 range. The company has a
market capitalization of about $40 million, current working capital of $8
million, and $1.5 million in marketable securities.
Two Year Chart
for Eurasian Minerals (EMX.V)
The people at
Eurasian Minerals are top-notch. I mentioned CEO Dave Cole, and Haiti Country
Manager Keith Laskowski. The Board of Directors includes Michael Winn, a
geologist and analyst with a track record of success in the junior resource
sector, Brian Bayley, the CEO of Quest Capital, and recent
addition
Steve Enders, an experienced geologist who was President of Phelps Dodge
Exploration and VP-Worldwide Exploration for Newmont Mining. Other names of
note are major investors Rick Rule and Lukas Lundin.
The technical
teams must be given all credit for EMX’ success with respected regional
exploration managers in Haiti, Kyrgyzstan, Turkey, and Eastern Europe
supervising native geologists, geotechnicians, and local labor. I have seen
first-hand that they have a crack field team in Haiti led by Keith and Dr.
Dominique Boisson.
Now let’s
delve into the geological setting of Haiti and what makes it a favorable
location for major ore deposits:
Northern Haiti is
located on the boundary between the Caribbean and North American tectonic
plates. In the neighboring country of the Dominican Republic, that same
tectonic boundary hosts the Pueblo Viejo deposit with over 20 million ounces
of gold reserves and significant copper and silver. The Massif du Nord of
Haiti is highly prospective for copper-gold porphyry-skarn, volcanogenic
massive sulfide, epithermal gold, and metamorphic copper-silver-gold veins.
The country hosts past-producing bauxite, copper and limestone deposits but
currently has no mining industry.
Eurasian Minerals
Landholdings in the Massif du Nord Metallogenic Belt
From 1972 to
1985, the United Nations Development Program conducted regional geological
studies and exploration programs in order to assist Haiti’s economy.
The UN discovered and documented many gold
and
copper occurrences, including gold mineralization at EMX's La Mine, Gran
Savanne, and Gran Bois properties, and copper-silver mineralization at
Treuil.
I missed the
first day of the tour to one of the flagship projects, La Miel, because of
the aforementioned travel (mis-)adventures. However, I got a project review
from Keith Laskowski and an assessment from fellow geo-analyst Brent Cook.
La Miel is
located on the border with the D.R. and with similar geology and alteration
to Pueblo Viejo. It is a high sulfidation epitermal system covering 325 sq km
with silicified, brecciated felsic tuffs and shallow intrusives and
gold-copper-silver-barite mineralization.
There are four
main target areas: Savanne La Place, Grand Savanne, La Croix, and Morne
Bazile. Seven trenches at the Savane La Place main zone all ran ore-grade
gold over impressive widths with the best at 243 m of 1.71 g/t gold. Newmont
has established a field camp there and will start drilling soon.
EMX’
Discovery Team: Savane La Place, La Miel Designated Project Keith Laskowski
and Dr. Dominique Boisson: Standing, First and Third from Left
I joined the team
for the second day of helicopter touring. We flew to the Treuil project west
of Cap Haitien for an office session with EMX geologists Peter Mitchell and
Freddy Marino. They are working on target scale mapping and sampling out of a
remote, mobile tent camp with local support. Although the terrain is
difficult, logistics are not particularly so with road access within ten
kilometers.
EMX controls 88
sq km of highly prospective copper-bornite-silver mineralization. Host rocks
are strongly deformed andesite phyllites with low metamorphic grade
albite-chlorite-epidote alteration. Mineralization occurs in relatively
narrow veins within a six by three kilometer zone and the geology closely
resembles the famous Kennicott district of Alaska. For those unfamiliar, this
is the mining camp where mighty Kennecott Mining, now part of mining giant
Rio Tinto, got its start.
Unfortunately we
were unable to land on the prospects themselves because of pilot
inexperience. At present, three main zones have been discovered with the most
advanced being the Champagne prospect. Sampling and trench results are shown below:
Treuil Project:
Champagne Prospect Trench Results
To the north of
Treuil is the La Mine project which has gold-copper-silver prospects, Colombo
with known gold occurrences, and La Porte, a porphyry copper-gold target. EMX
recently has offered La Mine, Treuil, and Colombo to Newmont as designated
projects.
After a detour
back to the Cap Haitien airport to re-fuel, we flew to the third of
EMX’ current Haiti flagships, Grand Bois. It covers an area of 50 sq km
and is located 28 kilometers southwest of the port adjacent to National
Highway #1 that connects Cap Haitien and the capital city of Port-au-Prince.
Grand Bois is the
most advanced of Eurasian’s projects with 88 historic drill holes by
Kennecott, Penarroya, the United Nations, and KWG Resources from 1975-1997.
The United Nations defined a historic resource of 4.3 million tonnes
averaging 2.24 g/t Au and 14.92 g/t Ag at a 0.5 g/t Au cut-off. The
deposit
is a tabular body mineralized, oxidized volcanic rock and is roughly circular
in outline with current dimensions of 300 m x 350 m x 20 m.
It is a high sulfidation
epithermal deposit that occupies a prominent ridgeline so a potential open
pit would have low strip ratio. Preliminary metallurgical tests indicate high
recoveries can be expected in a typical heap leach process. There is ample
room for expansion of gold ounces by using a lower cut-off grade, a higher
rock density due to the barite content of the deposit, and with successful
exploration outside the current resource. Joint venture partner Newmont is
currently laying out delineation and exploration drill holes.
Grand Boix
Designated Project: Drilling and Historic Resource
I’ve
briefly covered Eurasian’s three flagship properties but suffice to
say, other reconnaissance exploration successes are likely to follow with 27
other projects and the best of the best in country. Recently they acquired
another potential flagship project, the past producing La Meme copper-gold
mine in NW Haiti with production of two million tonnes grading 2.0% Cu and a
UN historic resource of 1.5 million tonnes grading 2.0% copper and 2.0 g/t
Au. That, my friends, is high-grade and every good geologist knows that grade
is king.
Eurasian Minerals
Inc is a high risk speculative stock play. The share structure, people, and
projects all meet my Mercenary criteria for investment. There is ample cash
in the bank and the company follows the prospect generator-joint venture
model so burn rate is relatively low. The wild card in this deck is the
country of Haiti with a traumatic and unstable past for centuries and
continuing into the past few years. Now there is a concerted effort by the
international community on the military, social, and economic fronts to
stabilize and develop a modern economy in the country.
But as
I said earlier: The geology is just so damn good. Eurasian Minerals and
Newmont have assessed the risks and the rewards and made the decision to
invest in Haiti. I did the same, became a shareholder of the company, and am
biased. You must do your own due diligence and make your own investment
decisions.
After a long day
in the helicopter, we made the usual third world congested and tortuous drive
from the airport thru “downtown” Cap Haitien, over hill and dale,
and down to our resort hotel on a gorgeous beach west of the city. Fresh
lobster was eaten that evening, the 15 year old Barbancourt Reserve served
over ice and lime flowed for hours, and the midnight swim included a brief
torrential rainstorm. Dave doesn’t remember much of the evening, but I
will attest a good time was had by all.
Too early the
next morning, we backtracked to the airport, and caught a brief flight north
to the resort capital of Providenciales in Turks and Caicos. My bags, now
missing for three days, awaited me at the ticket counter, and with clean
socks and underwear, it was all good. A relaxing day on the beach and at the
bar allowed me to collect my thoughts, review the projects with Dave Cole and
Scott Close, EMX’ IR director, and organize this report.
The next morning
we were off on a successful charter fishing boat for small (well that’s
what we caught) yellowfin tuna:
Gwen Preston of
the Northern Miner and Yours Truly Display: “What’s for
Dinner”.
And on the very
next, I flew to New York, exchanged field gear and beach attire for a
business suit, and prepared for two days examining prospective companies at
the New York Hard Assets Investment Conference.
Such
is a life of travel for The Mercenary Geologist. Hey, sometimes I must remind
myself that I actually get paid to go on adventures and work in the outback
parts of the world. All in all, it’s pretty hard to beat.
At the show in
NYC, I found an exciting company which you will hear about in the coming
weeks. Does this theme sound familiar: Advanced exploration of a high
sulfidation gold deposit in an emerging environment?
Stay tuned.
Ciao for now
Mickey Fulp
The Mercenary Geologist
Miningcompanyreport.com
Also by Mickey Fulp
The Mercenary
Geologist Michael S. “Mickey” Fulp is a Certified Professional
Geologist with a B.Sc. Earth Sciences with honor from the University of
Tulsa, and M.Sc. Geology from the University of New Mexico. Mickey has 30
years experience as an exploration geologist searching for economic deposits
of base and precious metals, industrial minerals, coal, uranium, and water in
North and South America and China.
Mickey has worked for junior explorers, major mining companies, private
companies, and investors as a consulting economic geologist for the past 22
years, specializing in geological mapping and property evaluation. In
addition to Mickey’s professional credentials and experience, he is
high-altitude proficient and is bilingual in English and Spanish. From 2003
to 2006, Mickey made four outcrop ore discoveries in Peru, Nevada, Chile, and
British Columbia.
Mickey is well known throughout the mining and exploration community for his
ongoing work as an analyst for public and private companies, investment funds,
newsletter and website writers, private investors, and brokers.
Information
contained herein is obtained from sources believed to be reliable, but its
accuracy cannot be guaranteed. It is not intended to constitute individual
investment advice and is not designed to meet your personal financial
situation. The opinions expressed herein are those of the author and are
subject to change without notice. The information herein may become outdated
and there is no obligation to update any such information. The author,
24hGold, entities in which they have an interest, family and associates may
from time to time have positions in the securities or commodities discussed.
No part of this publication can be reproduced without the written consent of
the author.
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