VMS Ventures TSX.V-VMS and Reed Lake Copper Mine partner Hudbay Minerals have reached what Hudbay defines as commercial production – 60 percent of planned production over a 90 day time period. Shouldn’t be but a quarter or two before analyst coverage starts for VMS.
There are, so far, four zones to be mined, the shallowest will be mined first, it’s also the lowest grade, the zones or lenses get richer the deeper you go. Underground drilling, to try and fine more ore – the deposits in this region have a habit of getting larger and life of mine (LOM) increasing – should start in roughly 18 months.
Currently the ramp is at the 160 meter level and too tight to the deposit for drilling down plunge. As the ramp gets closer to the 350-400 meter level the first drill stations for pure exploration might be constructed - the 350-400 meter level will provide a good angle to test the down plunge continuation. Current diamond drilling is focusing on definition drilling for stope design and grade estimation.
Hudbay (HB) is currently compiling a very large data base of geophysical and geochemical data compiled by VMS, them and others and are working on a number of interesting concepts for further exploration on the property. The preferable drill season where Reed is located is typically when the ground is frozen so they have access to every target to be tested whether on high ground or low (wet) ground. Once HB is finished its current work with the data there will be a meeting to discuss how best to test new target areas on the property.
Hudbay budgeted $72m to bring the high grade Reed Lake copper mine into production. They did it under budget (at $66m) and under the days allotted with no lost time accidents – unheard of in this industry and especially so these days when it seems engineering screw ups and cost/time over runs are so common place.
So the big question for investors is when is HB paid back for carrying VMS to production and VMS’s 30 percent of cash flow from production goes directly into VMS’s coffers? VMS can’t, won’t estimate – that would be a forward looking statement they likely wouldn’t be willing to make.
But
We, as investors can make a very educated guess – after all we know HUD spent $66m and have a $4m operating budget, all monies from VMS’s share of production is slated to go directly to Hudbay to pay off their low - as in no - interest loan.
So
All we need is a couple quarters of production. And every one of us will be posting and talking guesstimates as to when. And one would have to expect a sharp upwards revision of VMS’s share price when we all can see that massive cash flow closer on the horizon.
The one thing that investors have been fixated on is the Dunlop case currently in front of the courts. The company, VMS, will not comment. Period. The following is what I have deduced from research and talks with friends highly knowledgeable on the situation.
First of all, and let’s make this abundantly clear, this is NOT about taking the deposit, VMS is in no danger of losing their 30 percent, that’s final, end of story. Do you honestly think HUD would have gone into production without knowing who their partner is going to be? They would never have turned a drill bit if it wasn’t clear to them. So what is this all about?
In my opinion it’s all about a net smelter royalty, yeah an NSR…that over the current LOM is worth about $4m to Dunlop.
So go to court, take a couple of years to settle (taking a chance the settlement is in your favor), if you do win you get appealed. Meanwhile VMS keeps mining. When they get their share of production cash VMS can bank Dunlop’s NSR. If he wins he gets it, if he loses VMS keeps it.
This information is all in the public domain, all you have to do is put it together. Imo this is settled out of court.
Conclusion
VMS is about the coming Reed Lake Copper Mine cash flow of course but it’s also so much more. There’s the potential for upcoming underground drilling to expand the LOM, there’s discovery possibilities elsewhere on VMS’s properties. There’s the possibility of an acquisition. VMS is actively seeking a close to production or production story in a safe stable jurisdiction, and then last but certainly not least there’s VMS’s rather large ownership piece of North American Nickel TSX.V-NAN and what might turn out to be one of world’s major nickel sulphide camps. You can access my latest update on North American Nickel here. Maybe, just maybe someone takes a run at us for our share of North American Nickel and Reed Lake cash flow?
All in all there are at least four major tickets for investors to ride the VMS train. VMS Ventures has got to be on your radar screen, it’s on mine. Is VMS on yours?
If not, maybe it should be.
Richard lives with his family on a 160 acre ranch in northern British Columbia. He invests in the resource and biotechnology/pharmaceutical sectors and is the owner of Aheadoftheherd.com. His articles have been published on over 400 websites, including:
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