Columbia Metals
Profiled in The Market Traders' Commodity Supercycle Report
TSX Venture Exchange
- Symbol: COL - Shares Outstanding: 94,970,527
www.themarkettraders.com
Malcolm Bucholtz B.Sc, MBA
Analyst
Trading Note
May19, 2008
Columbia
Metals (TSXv:COL) A Hidden Gem�.
Lluvia de Oro -Lives Again
Let's face it. The landscape of the current junior resource market is
scattered with lower grade Copper-Gold deposits. Many of these stories have
been looked at, mulled over, kicked about and unceremoniously cast aside. Among the hubris is a company called Columbia
Metals. I recently ran into Columbia's CEO Chris Berlet at the Hard Assets
Show in New York. As Chris started to tell me his story, my mind shifted into
"metallurgy mode" and I quickly realized that Columbia Metals was
an under-appreciated, mis-understood story that has not been marketed very
well at all. In fact, Columbia Metals is a gem and those investors acquiring
it right now at 15 cents a share are setting themselves up for some very good
times ahead.
A quick visit to the Columbia Metals website will probably leave you
wondering just what that guy at the Market Traders is talking about. How can
a 15 cent stock get him so excited when the website does not adequately tell
the story? Well, let's take a closer look and I will attempt to show you just
why I am so excited about this story.
Columbia's flagship project - the Lluvia-Jojoba project-is located near Santa
Ana, Mexico in Sonora State, just south of the US border with Arizona. The
nearest border crossing is at Nogales, Arizona. This flagship property
consists of the Lluvia de Oro gold mine and deposit plus a refurbished mill
plus the La Jojoba deposit plus 5074 hectares of surrounding land. The 43-101
compliant resource right now on this project consists of 148,951 ozs gold in
the measured category, 150,516 ozs gold in the indicated category (for a
total of 299,467ozs) plus a further 215,100 ozs gold in the inferred
category. The property also hosts copper mineralization and right now the
contained Copper is pegged at 12,129,830 lbs at a 0.3g/t cutoff.
Here is the
Defining Difference
At this point, any similarities to other lower grade Copper-Gold deposits
stops. You see, normally with a copper-gold type deposit, a mining company
would use cyanide leaching. Because of the copper content in the gold bearing
ore, high cyanide consumption, poor gold recovery and poor copper recovery
would be the story of the day and the project would run into trouble. But,
Chris Berlet and his team have taken steps to effectively re-write the
textbook on how these lower grade deposits can be processed. Enter BioteQ
Environmental (TSX:BQE). BioteQ is a Canadian based company that I first met
back in 2004 in Bisbee, Arizona where it was busy working at the old waste
rock pile associated with the Lavender Pit Copper Mine. BioteQ has now
perfected the science of using sulfide generated from bacteria to remove
copper mineralization from effluent and is now enjoying huge success with
various joint venture projects around the world. Based on what I have seen
from BioteQ, I say Columbia's joint venture with BioteQ is a stroke of
genius.
SART Process
The process that will be used to recover mineralization at the Columbia
Metals project is known as the SART process. SART is an acronym for
Sulphidization, Acidification, Recycling, Thickening (SART) and was developed
through joint collaboration between Teck Corporation and SGS Lakefield
Research in Canada back in the late 1990's, although variations of this
process have been in use since the 1930's.
Without going into a chemistry lecture, what happens is:
Crushed and ground ore is exposed to a sodium cyanide solution which leaches
out gold and if copper is present, leaches out copper as a copper cyanide
complex. The resulting leached solution is passed through a CIL (Carbon in
Leach) process to recover the gold. But, the creation of this copper cyanide
complex results in an undue consumption of cyanide and a steep rise in
processing costs which for a lower grade type deposit would hinder the
project economics. Hence, if this copper cyanide complex can be dealt with to
recover the copper and the cyanide, project economics will dramatically
improve. This is where BioteQ comes in.
The resulting copper cyanide complex is exposed to sulfide ions (which are
generated by the bacterial solution in the BioteQ process) in an acidic (pH
<7) environment. Normally, the use of sulfide ions would come from
sulfuric acid which is expensive, but the BioteQ process takes care of that.
The resulting products are copper sulfate and hydrogen cyanide. The copper
sulfate is sold to a nearby copper smelter for cash revenue and the cyanide
is recycled back to the leaching part of the process to effectively save on
operating costs.
Production is
Imminent
Right now, the finishing touches are being put on the SART plant and leaching
of the ore pile is underway. In the next few weeks, expect to see a press
release announcing that production has officially started. Once things get
rolling, BioteQ will be taking 1/3 of gross cash flows until their capital
expenditures have been paid back. Once BioteQ has recovered its capex, all
gold production cash flow will belong to Columbia Metals. BioteQ will then
simply receive on ongoing percentage of copper sales revenue. The exact
formula shows that BioteQ will take 90% of the 1st million pounds of Copper,
80% of the 2nd million pounds, 70% of the 3million pounds and after 4 million
pounds of Copper has been produced BioteQ and Columbia will share ongoing
future Copper revenues on a 50/50 basis.
Columbia - Do the
Math
Columbia currently has 93 million basic shares outstanding. There are
warrants and a convertible debenture with higher strike prices in play and if
these ever do get exercised, the share structure will grow to something in
the neighborhood of 122 million. With the shares trading in the $0.15 range,
this gives Columbia a current market capitalization of about $14 million. I
will be talking to Chris Berlet in the next short while to get some more
detailed figures, but for now if we just focus on the 514,577 ounces of gold
resource, we see that Columbia is valued at about $27 of market cap per ounce
of gold resource in the ground. Relative to a peer group, Columbia is
seriously undervalued. Now, add in the notion of a future share of copper
revenues once BioteQ has been paid back on its capex and factor in the idea
that the 5074 hectares of property that comprise the Lluvia-Jojoba project
have multiple targets but have not been thoroughly explored in 10 years and
it is fair to say that Columbia really is undervalued.
Accumulate
Columbia (TSXv: COL)
The SART process combined with the BioteQ expertise is going to re-write the
mineral processing textbooks for lower grade Copper-Gold mineralization
deposits in places like Mexico, South America and the south-eastern part of
the USA which all host numerous examples of such deposits. Once Lluvia de Oro
is up and running, I dare say we are going to see Columbia Metals move
quickly to add to its project portfolio so as to ensure a brilliant future.
At the Market Traders, we will be watching the Columbia story with great
interest. We are initiating coverage of Columbia Metals with an
"accumulate" rating on the stock. Use any market volatility and
short term market weakness to start building your position in Columbia. Once
cash flow starts to accrue, we feel you will be more than pleased that you
started to build a position in Columbia Metals at the under-appreciated price
of 15 cents a share. For further information, be sure to visit the Columbia
website at www.columbiametals.ca.
The Commodity Supercycle Report (a
publication of Brookhaven Advisors LLC) is protected by copyright law.
Corporations, websites, newsletters or individuals seeking to copy,
distribute or otherwise disseminate the contents of this report or any of our
other writings in part or in whole are welcome to do so upon obtaining our
prior written permission and paying a reproduction fee of US$500. Anyone
seeking to avoid doing so is 'itchin for a nasty fight. The information
contained herein does not necessarily constitute a solicitation to buy or
sell. Consult with your financial advisor to ensure any securities mentioned
herein meet with your investment objectives. Principals of Brookhaven
Advisors may or may not hold any securities mentioned herein.
For further information
please contact Columbia Metals Corporation Limited at (416)
364-6799.
|