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Lesser resource companies have been slowly starving to death since the
capital faucet was turned off in 2008. What's left? Some exciting,
early-stage companies with management teams industrious enough to make it
through with promising projects on the horizon. In this exclusive interview
with The Gold Report, Tom MacNeill, CEO of 49 North Resources Inc., a
Saskatchewan-focused resource investment company, discusses some names his
firm is excited about, including some primed to debut on the public markets
soon.
The Gold Report: What
sort of year are you expecting for gold?
Tom MacNeill: The recent pullback is
perfectly healthy. The entire world is trying to competitively devalue
currencies because it's the only way to get out from under the debt burden
created by liquidity added to the capital markets over the last three years.
We don't expect that the gold price is going to come down anytime soon.
Either the international community has to keep adding liquidity, which is
good for the price of gold, or it achieves economic development, which will
create severe inflation, also good for the price of gold.
The game isn't done yet. It will still take a few more years to see where
macroeconomic policy takes us. I believe that we will have an upward-slanting
chart through 2012 with some hiccups. When it gets ahead of itself, like all
parabolic charts do every now and then, it will be painful for some in the
short term.
From a gold developer's perspective, what more could you ask for than
$1,700/ounce (oz) gold and the ability to contain
cash costs because there is economic pressure downward in the cycle? It's
good news for gold developers.
TGR: So it's the best of both worlds?
TMN: Yes, at least for the next couple of years until the world sorts
itself out macroeconomically. There's going to be a
point in the future to exit most gold positions, but not likely in the coming
year.
TGR: What other metals do you believe are poised to perform in 2012?
TMN: Historically, there have been times where gold leads the base
metals. If consumption demand picks up, the price of gold will fall off.
However, as an industrial metal, copper's price likely won't fall off because
it will be in even higher demand. China already consumes half the world's
copper. We are still in the early days of the copper cycle.
When most investors were running away from base metals a couple of years ago
is when we were getting our feet wet developing cheap projects. Our No. 1 and
No. 3 projects right now are gold and copper projects.
TGR: Have you noticed increasing competition for early-stage dollars?
TMN: We're contrarians. We get involved in projects when commodity
prices drop, investors are running away and companies can't raise capital. By
the time most players want to throw capital at copper companies, we've likely
already made our seed investments and are moving assets forward at that
stage. We don't find competition because we run counter to the herd. There
should be a lot of activity in early-stage copper exploration over the next
12 months, but we won't have much interest in competing for those investments
because we are already developing assets that we acquired one to three years
ago.
TGR: What are some names that are off to a good start this year?
TMN: We're most excited about DNI Metals Inc. (DNI:TSX.V; DG7:FSE). It was up 45% in January
alone and was just added to the TSX Venture 500. We have very high
expectations. We own about 15% of the company and will continue to fund it as
it moves forward.
Tembo
Gold Corp. (TEM:TSX.V) is about to be listed on
the Toronto Venture Exchange within a couple of weeks. The company has three
drill rigs ready to explore its property in Tanzania.
Westcore
Energy Ltd.'s (WTR:TSX.V) stock hasn't performed
yet, but it has $3 million (M) in the till and it is just starting a thermal
coal drill program near the Saskatchewan-Manitoba border for heavy crude
conversion.
Batero
Gold Corp. (BAT:TSX.V)—love that one. It's right on the verge of developing its first NI
43-101 resource calculation of a Colombian multiple porphyry project that
we're very excited about. We're passive investors in Batero
but we've loved it since day one. It's a very interesting story.
TGR: DNI just released a resource study on its Buckton
mineralized zone in Alberta, a black shale play that has rare earths and
other metals.
TMN: The project keeps getting bigger and better. DNI recently
released an Inferred resource of 250 million tons (Mt) with a suite of metals
including nickel, molybdenum, lead, zinc, vanadium and uranium. It's a
large-scale, low-grade base metals deposit. The in situ value of this suite of
metals appears to be between $20 and $25/ton (t). That gets my attention
immediately. It also appears that the value of rare earth elements is about
$50/t of rock combined. The real value in the collective recovery of all
these metals together is enormous.
We expect DNI has in excess of 2 billion tons of material—there are 250
Mt with just the preliminary resource estimate based on a very small
component of the zone. That's potentially a $150 billion (B) in situ
resource.
Buckton is an analog to the Talvivaara
mine in Finland, which went into production in 2010. It's a low-grade nickel
deposit with a suite of other minerals that add up to a rock value of between
$60 and $80/t with about 1.5 Bt of resource worth
about $116B. Similar to the Finnish project, DNI's bioleaching uses organisms
within the shales for recovery, which means it's a
very "green" project.
TGR: Have there been any metallurgical tests done on Buckton?
TMN: There have been a series of them done in Canadian and French
laboratories for confirmation with recoveries that run from 50–100% in
the suite of minerals and REEs. The next phase is to develop a small pilot
plant to prove minerals can be economically liberated out of the shales and overburdens. Given similar projects in the oil
sands for metals recovery from tailings, we expect it will cost somewhere
between $20M and $40M to prove economic viability.
TGR: What's the timeline for a preliminary economic assessment (PEA)?
TMN: The PEA could be completed by the end of this year. However, the
company is going to need to build the small pilot facility, which likely
could be completed sometime in 2013.
TGR: One of your top 10 holdings is Batero,
which should be releasing a resource estimate on the Quinchía
project in Colombia soon. What are you expecting from that?
TMN: Very good things. We're passive investors, but we will likely be
adding to our position based on the results of the NI 43-101. Quinchía is potentially a world-class project.
It's in the same structural trend of other 10+ million ounce (Moz) gold deposits.
Batero is drilling three related projects, with
most of its activity on the La Cumbre porphyry.
They consistently hit near surface mineralization that so far extends over
intersections as long as 750 meters. It is open in all directions. It's a
perfect world for a very good deposit: consistent, low grades running between
0.5 and 1 gram per ton (g/t), which is imminently mineable in this current
pricing environment; huge size; an oxide zone at the top of the La Cumbre, which could potentially be higher grade; and an
area that shows a hydrothermal system that could be very high grade.
All of that is on only half of the property. The other half of the property
hasn't even had a lot of basic geophysical and geochemical work done for
exploration.
My expectation is Batero should come close to or
exceed 5 Moz of gold with a grade somewhere between
0.50 and 0.75 g/t in the current NI 43-101.
One of the most successful mines in the world is the Marigold mine operated
by Goldcorp
Inc. (G:TSX; GG:NYSE) and Barrick Gold Corp. (ABX:TSX; ABX:NYSE) in Nevada. It has 1.5 Moz with a 0.61 g/t grade. The project made $30M in net
profit in 2010 on about $100M in gold sales. And that's a fifth of the size
of the potential initial resource calculation on Batero's
project in Colombia.
On the back of Batero's resource calculation, I
suspect that it will become a target of senior miners that are having a tough
time replacing depleted ounces on the books.
TGR: Tembo Gold has a project in the Lake
Victoria Greenstone Belt in Tanzania not far from where African Barrick's Bulyanhulu mine
exists. There have been some issues in Tanzania with artisanal miners. Do you
expect that to be a problem for Tembo as it has
been for African Barrick Gold Plc
(ABG:LSE)?
TMN: I don't think so. It's really only been a problem for African Barrick at certain projects and not to my knowledge at Bulyanhulu. I don't think the artisanal miners will be a
problem. The country has a very stable mining law, a modern mining act and
licensing system. I expect the government will help deal with artisanal
miners in a non-confrontational way because, like all governments, it wants
royalty revenue from commercial operators.
We made our first investment in 2007 into Lakota Resources, which is the
predecessor of Tembo, because we just love the
project. It's one of the best early-stage gold exploration projects in Africa
right now. The predecessor company suffered from a number of headwinds and
management hiccups. We took the company in-house to deal with the management
and capital structure issues and put it back together again. Now the training
wheels are off.
There are about 2,000 artisanal miners mining gold on the Tembo
property right now. They've got hundreds of pits and shafts dug out with
chisels, picks and shovels that are producing grades as high as 0.8 oz/t. There's clearly already a gold mine there. Tembo is mobilizing three drill rigs on the property and
is going to spend between $15–25M in the next 12–18 months to
prove the existence of a modern, commercial gold mining enterprise as opposed
to rudimentary mining activity.
We will be adding to our position once it is publicly traded.
TGR: The company could be a takeover target of Barrick.
Is Barrick already an owner?
TMN: Possibly. Barrick never has to buy
anybody in its neighborhood, but it's pretty obvious that it could be a
candidate if Tembo defined a significant resource.
TGR: Your top holding is a private company, Newsk
Emerging Resources Ltd.
TMN: Newsk is a holding company with an
investment in CVG Mining, a private gold exploration company in British
Columbia. We've been supporting it through equity and debt financings as it
develops.
It's an exciting, but technically challenging project because it's 165 feet
beneath a river in an underground alluvial deposit. CVG has rehabilitated old
ramp workings and run a full scale freeze plant. It drilled 15 freeze holes
across the river channel, froze the ground and is currently starting a
bulk-sample excavation project to determine the actual grade.
The viability of the project could be established in this quarter. We have
high expectations because over 100 drill holes put into the project over the
last 50 years indicate that there is high-grade coarse gold trapped in the
alluvial gravel at the bottom of that channel. The Cariboo
mining district in British Columbia is historically the richest alluvial gold
bearing area, per mile, in the world.
TGR: If its project is viable, is the company likely to go public?
TMN: Probably, because it will need to raise development capital.
There are groups waiting in the background for the results of the feasibility
work. CVG's Wingdam project should be robustly
economic at any grade over 0.25 oz/t even with the
technical challenge of mining wet unconsolidated material underground.
TGR: What public company that you cover could be the top performer this
year?
TMN: Either DNI Metals or Batero Gold. It is
a bit of a horse race! Given that Batero is on the
verge of its first and likely significant resource calculation, it should do
very well shortly. DNI, given the potentially very large scale, should also
perform well this year.
Batero is going to be eyeballed by every resource
producer in South America and beyond if the resource calculation comes in the
way I expect. In that case, I anticipate a large investment by a senior
mining group and the stock price could triple or quadruple in 2012.
TGR: This space got off to a good start in 2011, but couldn't have
finished much worse. What are your thoughts on the junior commodity sector
going forward?
TMN: There was a lot of money raised in 2008 for companies that
shouldn't have gotten it in the first place. Those companies have been able
to limp along and they're finally dying. After a resource
down-cycle—and 2008 was such a violent one—a bunch of companies
die. They're delisted. They go away and people forget about them. That didn't
happen this go-around. There were hundreds of
companies with enough in the till to pay the executives and limp along hoping
for something good. That confused retail investors, who just saw a company
with a couple million dollars in the till and assumed it had some potential.
However, most of them didn't. They got that money just because there was a
lot of loose capital in 2008 that caused this cycle to drag on longer.
It's normal for the industry to rationalize and for companies to dissolve.
Investors need to look at who is left standing and realize it is always the
good management groups. They're well capitalized. They've got good projects.
There has been too much noise for the last couple of years that confused
investors even further.
Investors are more objective this year. They're a little bit smarter after
losing money. There's an old adage on Wall Street that nobody ever went broke
taking a profit. Investors are more tempted to take profits because they
don't like the feeling of having a stock that they bought at $0.50/share go
to $5/share then fall to $0.30/share. This new comfort with selling resource
equities is a healthy thing because it gives investors capital to reinvest in
new projects and smoothes the cycle by tempering
speculation.
That's exactly what we do at 49 North. We are not afraid to liquidate
positions so that we can move it back to the beginning of the food chain.
That creates a healthy capital environment for junior resource explorers.
We're moving into that phase now.
Macroeconomically, things are not going to be hard
for resource investors. To be sure, they will be volatile. But it will be
very lucrative for patient investors who are objective.
TGR: Thanks for sharing your thoughts, Tom.
Tom MacNeill established
49 North Resources Inc., an incubator fund to raise capital for early-stage
projects to develop resources throughout Saskatchewan in 2006; he serves as
president, CEO and director of the company. His 25+-year career includes
positions as an investment advisor with a major Canadian brokerage firm,
management accountant within the mining industry, CFO of a Canadian trust
corporation and extensive resource portfolio management.
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DISCLOSURE:
1) Brian Sylvester of The Gold Report conducted this interview. He
personally and/or his family own shares of the following companies mentioned
in this interview: None.
2) The following companies mentioned in the interview are sponsors of The
Gold Report: DNI Metals Inc., Tembo Gold Corp.,
Goldcorp Inc., 49 North Resources Inc. Streetwise Reports does not accept
stock in exchange for services.
3) Tom MacNeill: I personally and/or my family own
shares of the following companies mentioned in this interview: Westcore Energy Ltd., Tembo
Gold Corp., DNI Metals Inc., 49 North Resources Inc. I personally and/or my
family am paid by the following companies mentioned
in this interview: 49 North Resources Inc. I was not paid by Streetwise for
participating in this story.
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