Re:        Trackers - Thursday, February 07, 2008
Title:     Tracker 2008-08: Creston Moly infill drill results boost grade optimism
Publisher: Kaiser Bottom-Fish Online
Author:    Copyright 2008 John A Kaiser

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Tracker 2008-08

February 7, 2008

Creston Moly Corp (CMS-V: $0.35)

Initial Creston Moly infill drill results boost grade optimism

Synopsis: Lost in all the bad news about lower employment rolls, service industry contraction, and worsening liquidity for securitized mortgage paper have been some major developments in the raw materials sector that may represent an inflection point for a true mania in the resource sector. The formalization of a takeover bid by BHP-Billiton for Rio Tinto, in the wake of an off-market purchase by Chinalco and Alcoa of an equity stake in Rio Tinto at a premium to the market, could be the prelude for a massive takeover battle for the world's third biggest mining company. Is this a case of a bunch of boys happily playing with their dumptrucks in a sandbox while their mother is screaming to come inside before the sky caves in on them? Or do they know something about the sky that Chicken Little does not understand? If the tide is once again shifting in favor of the secular bulls, and you did not act on my earlier recommendation to buy Creston Moly Corp (CMS-V: $0.35), your chance to own this key race to production contender in the recommended bottom-fish range of $0.30-$0.49 will soon disappear.

Creston Moly Corp (CMS-V: $0.35) reported assay results on January 14, 2008 for 6 holes of 16 HQ holes (4,251 m) so far completed on its 100% owned El Creston molybdenum deposit in Mexico's Sonora state. This 10,000 m program is designed to establish the precise boundaries of the deposit and secure a reliable grade for the molybdenite mineralization whose occurrence as coarse flakes and clusters has raised concerns that drill recoveries by previous operators may have understated or overstated grade. The 43-101 resource calculation based on previous assays was 92,873,000 indicated tonnes of 0.083% Mo and 84,221,000 inferred tonnes of 0.076% Mo at a 0.035% Mo cutoff. While Creston Moly's promoters have offered hopes that the actual grade would turn out to be higher, its geologists had harbored concerns that the variability sword might cut the other way. To solve this problem Creston Moly has been assaying the entire HQ core on the recommendation and under the chain of custody supervision of Steve Ristorcelli's Reno based Mine Development Associates.

While the initial results - infill hole 7 yielded an impressive 246.29 m of 0.14% Mo, including 99.2 m of 0.23% Mo - are not enough to give a green light to Jon George's hopes for a better grade, the toiling geologists in the background have gained confidence that the new resource calculation expected in May 2008 will involve reliable numbers at least as good as the resource calculation. To put these grades into monetary perspective, at $30 per lb molybdic oxide the 43-101 grade of 0.083% Mo works out to a $55 rock value, the 0.14% Mo rock value is $79 per tonne, and at 0.23% Mo it is $152 per tonne.

The market ignored these good infill drill results, as it has recently done with a number of other advanced molybdenum projects, because they reveal nothing about the deposit that is new to anybody but a geostatistician. The issue preoccupying the market is the destiny of metal prices amid growing evidence that a US recession is already underway. The announcement by Adanac Molybdenum Corp (AUA-T: $0.72) to curtail winter development work at its Ruby Creek molybdenum project in northern British Columbia, despite Adanac's assurances that the outlook still looks great, is a sign of the "pause" market anxiety is imposing on the race to production. So far, however, there is no sign that Creston Moly is slowing down its plans. Two diamond drills are working on El Creston, and the company is getting closer to announcing several important development related milestones it has been working on since December.

Not everybody shares the pessimism of the cyclical bears. During the last quarter of 2007 two of the world's biggest steelmakers, ArcelorMittal and POSCO, invested $240 million in the Mt Hope molybdenum project of General Moly Inc (GMO-AMEX: $9.29). ArcelorMittal invested $70 million in General Moly stock at $8.50, and POSCO is contributing $170 million for a direct 20% stake in Mt Hope. A week ago Chinalco and Alcoa bought a combined 12% stake in Rio Tinto from some bearish hedge funds at a 21% premium to the market, reversing a sharp downtrend that has hammered the mining sector since December. And on February 5 BHP Billiton formalized its takeover bid for Rio Tinto with an improved offer that values Rio Tinto at $147 billion. Who should one believe: the fabricators of real things or the Wall Street fabricators of "low risk" paper?

Conclusion: I recommended Creston Moly as a top priority bottom-fish buy in the $0.30-$0.49 range on December 11, 2007 following a property visit. The El Creston project, which can be classified as being at the prefeasibility stage based on steps management is taking to fast-track its development, currently has an implied project value of $58 million. This IPV represents good speculative value for a dream target of $500 million according to my rational speculation model. Fair speculative value would imply a stock price of $0.70-$1.00. In a bullish macro scenario where one assumes that a $30/lb molybdic oxide price will persist for a long period during which few other major new molybdenum mines other than El Creston come on stream, and where Creston succeeds in fast-tracking development, a larger dream target value becomes plausible. Creston Moly thus continues to be a top priority bottom-fish buy. In fact, if you share my view that the Chinalco/BHP/Rio Tinto developments represent a major turning point in the general market outlook for the raw material sector, Creston Moly is a "must-have" for your bottom-fishing portfolio.

*JK does not own shares in the securities mentioned herein

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Message sent on Wed Feb 6, 2008 at 8:15:59 PM Pacific Time