Size matters in base and specialty metals

By : Ken Reser

Consultant

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Obviously this commentary isn’t about fortune seekers heading for the California Gold rush or cattle driving Cowboys headed to Dodge City to kick up their heels, although it was the term used in both cases in the days of yesteryear. Nevertheless it is about “elephants,” albeit a different sort of “elephant.”

This term has also been used over time to describe elephantine or gargantuan sized mineral deposits not commonly found around the world and that is the focus of the following commentary.

A Time For Elephants?
In the world of mining, among the many other governing factors, a mineral deposit’s size has always been and always will be a huge factor in a discovery becoming an operating mine. In our current world’s financial crisis and with the limited interest and funding available to the mining industry, especially for junior exploration companies, it would seem readily apparent that now more than ever, size matters greatly. When Gold was far less expensive it used to take approximately a one million oz resource to interest the majors in JV’s, funding or a buy-out. Not so today with Gold trading at an all time high range. Now it takes much less in situ when it comes to precious metals.
 
Base metals as well as Specialty Metals always are a cat of a different color as we all know. When it comes to base metal discoveries being made today most are under the gun in terms of share price and being able to find adequate funding to advance their exploration and especially when it comes to Capex for mine construction. In times of high demand and commodity bull markets it’s a totally different scenario but that was then and this is now. Now, even if the market malaise is only temporary most of the world is paying little attention to metals and mines, but that will change and the typical contrarian investor as always, will benefit the most.

Therein lies my main point, that when an investor sees an “Elephant” sized mineral deposit in the making they should not be complacent about it, but should get informed and do the required due diligence. That’s how we all make money in the markets when it comes to picking good investments. Keep reading because I know of two such ‘Elephants’ of which I will later reveal and both are in the USA and in mine friendly states.

China’s Impact
We all have read endlessly over the last couple years about China’s onward march to dump dollars for commodity resources, buying pell-mell around the globe and all the while raising export taxes on their domestic metal reserves, some as high as 20%. I also have brought these topics up more than a few times, along with a few other mining commentators. But the fact remains! China is buying, whether to get out of US dollar dominated paper assets or just because they have a longer term view with respect to “Finite” resources than we in the west, and it will have a profound effect on who gets what and at what price when the smoke clears.

As one commentator stated the other day with regard to Rare Earth Metals “We have highlighted on many occasions the power shift to China in the resource sector and the growing need for other industrial nations to seek alternative supply sources for themselves. Once supply sources are firmly secured, China will be able to determine both material prices and their export destinations. The fact that most of these investments are by state-funded entities such as CNMC makes the situation particularly precarious. At the far end of the pessimism, it will be a situation similar to oil supplies which are controlled by a handful of countries.  The race has begun to secure supplies of rare metals.  Investors should be positioning themselves at the starting line and taking a look at companies with proven deposits.” Link: www.resourceinvestor.com/News/2009/7/Pages/Race-for-rare-metals--And-China-is-winning.aspx.

Myself and many others with years of experience in the mining industry feel the same thoughts expressed above apply to all the metals that China currently ‘does’ and ‘will’ control production of in future, if their buying spree goes unchecked and ‘If’ the western world doesn’t get busy exploiting and securing their own supplies of many high demand Base & Specialty Metals.

The greatest forward demands and price increases will be minerals of the 21st Century needs and ones NOT having widespread multi-national production. A prominent example is the fact that China produces 7/8 of the world’s Magnesium supply (800,000 tonnes per year worldwide), not to mention that the world’s production of Manganese (13 M tonnes per year worldwide) is limited primarily to S Africa, (and small amounts in other non-western countries) with a whopping 46% of the total coming from China itself and they in turn with added raw imports produce 95% of all the world’s Electrolytic Manganese. As I’ve written in past editorials the domestic production of both of these metals in Canada and the US is almost non existent and both are high demand, multi use metals in our modern world today. Should we buy our future mineral resources from China with ridiculous export taxes and handling costs and then pay for trans-oceanic shipping to continue to be productive nations or should we develop the mines in our own backyard? We had better do the latter or quite likely China will help develop and own them instead! *Note- Manganese and Magnesium are not commonly referred to as Base Metals but rather “Specialty Metals”.

The days of the western world controlling the majority of the global resources and being the only ones enjoying a lifestyle of modernization amid plenty are over. The rest of the world wants in now and they mean to modernize as rapidly as possible and raise the living standards at home as well as gain greater control of these same resources. Nothing could bode more strongly than for those investors who own minerals in the ground “AT HOME”.

The Base & Specialty Metal Elephant Factor
Have you heard of any mining “Elephants” lately? Have you been hunting for one? Are there any still out there? There have been numerous elephant sized mines found worldwide in past, although obviously not all that common in our everyday mining news. It’s not hard to understand that mega sized mineral deposits should and will get the greatest attention by the Major’s and the investment community, which means a far greater chance of success for the junior miner making the discovery. Usually a plus or minus 20 year mine life is good enough to make a mine operational if they have the grades and infrastructure, but even with that lifespan they may find it hard to find financing in today’s fiscal environment. What about a 50 or 100 year lifespan? Obviously a mine of that size and scope would command a great deal of major mining company attention, not to mention funding from the investment sector.

So who are these two junior companies I spoke of earlier? Well the latest is one with a mega sized deposit of Magnesium in Nevada called Molycor Gold Corp (MOR-V on TSX) http://www.molycor.com/ whom while drilling for Gold on their 100% owned Nevada Tami-Mosi claims just happened to run the drill bit into 100’s of feet of 10% (average) grades of Magnesium in Dolomite in each and every widely spaced drill-hole over the first 1 ½ miles of tested strike distance. Their recently released NI-43-101 Resource study shows an Inferred Resource of over 50 Billion pounds of Magnesium with the deposit stretching over 1 ½ miles. The deposit is conducive to open-pit style mining and open at depth and to the north end of strike.

Obviously with further drill work that which has been defined thus far may only contain a portion of the iceberg. I would suggest it would be very worthwhile to visit the company website and begin your research there. I would add that recent testing of the Tami-Mosi Dolomite by Teck Cominco Global Discovery Labs has shown the ore to be of a high purity form of Dolomite favorable to current Magnesium recovery processes. Also worth mentioning is that apparently there will be an upcoming Private Placement on this junior so if you have any interest after your due diligence give me a call and I will help walk you thru the procedure.

The second company with an elephant by the tail is another of the Reaugh Group (as is Molycor Gold Corp) called Rocher Deboule Minerals Corp (RD-V on TSX) http://www.rdminerals.ca/ Rd Minerals also has a NI-43-101 Resource Study recently updated which gives an indicated and inferred total of over 10 Billion pounds of Manganese. Their 100% owned Artillery Peak Arizona deposit is also apparently open to potential size increases as many other areas of the claims blocks have not yet been tested or drilled as yet, and is also shown to be near surface for open pit style mining. They have access to roads, power & water as well as being in a mine friendly state. Some of these claim blocks were actually producing Manganese for the war effort in the 1940’s. All the information you need with respect to both company’s projects is contained in recent press releases on their website.

So in conclusion with specific regard to these two aforementioned junior miners, I would be paying very close attention to their last few (and future) company news releases because with their respective NI-43-101 Resource Instruments in place, whether those be ‘Indicated or Inferred’ Resources, one simple FACT remains, both projects are now proven to be “Elephant” sized mineral deposits and as such they will sooner or later become a focus of interest for the cash rich investment community and major mining entities. The groundwork has been laid, now it’s just a case of adding to the over-all package. Two or three years past when the markets were heated I’m very confident both companies would have been trading at multiples of their current paltry share prices. Those days of market frenzy will come again and sooner rather than later if I’m correct as we are dealing with a worldwide rush for ‘Finite’ resources and the world won’t sit idly by and watch China accumulate the cream of the crop for much longer before it awakens to some new harsh realities in the world of mining. Let the past history of these two charts below be a guide to the future of Manganese and Magnesium and remember Canada and the US have ‘NO’ domestic supply of Manganese period, and only one minor domestic supplier of Magnesium in the US. I believe both of these Reaugh Group companies have tigers by the tail simultaneously, or should I say “Elephants” by the tail.

Ken Reser

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.