A Candidate for 'Deal of the Year' in British Columbia


Source: The Critical Investor for Streetwise Reports 01/17/2018

The Critical Investor profiles a base metal developer with a project in British Columbia that recently signed a major funding agreement with Wheaton Precious Metals.

Kutcho project

1. Introduction

Very rarely I come across a junior that simply seems to tick almost all boxes, and it looks like new sponsor Kutcho Copper Corp. (KC:TSX.V) is doing just that. From project profitability to management, from financials to geology, from location to metal prices, it comes across as a genuine display of quality and excellence. CEO Vince Sorace certainly made the most of Capstone Mining’s strategy change a few years ago not to develop relatively smaller, non-core assets, and now looking to divest assets to clean up their troubled balance sheet.

In an impressive stream/convertible debt/equity deal with Wheaton Precious Metals Corp. (WPM:TSX; WPM:NYSE) to the tune of C$120M, Sorace managed to buy the Kutcho Copper Project outright in C$28.8M all cash plus an equity interest in the new to be formed company from Capstone, when Kutcho Copper still was predecessor Desert Star Resources, with a market cap of only C$10M at the time. As a consequence, the company is also fully financed to the FS under the current mine plan. I can’t recall (I’m in this industry since 2010) ever having seen deals being done that are so much bigger than the involved junior itself, and are so well structured, with such a quality asset, so as far as I am concerned this should be a prime candidate for deal of the year for 2017.

Although Sorace would certainly deserve all the acclaim for this deal he could possibly get, the main purpose of this article is of course providing an outlook on upside potential for investors. When management would decide to just advance the project, which already boasts an excellent 2017 Pre-Feasibility Study (PFS), to Feasibility Study (FS) stage and having it fully permitted, there is already realistic potential for a double at current strong (and expected to go higher) base metal prices. But there is more. The company has several possibilities to include considerably more resources into the mine plan, which could increase the Net Present Value (NPV) of Kutcho Copper significantly. In this analysis I will discuss this potential, compare the company with peers, and indicate valuation upside.

All presented tables are my own material, unless stated otherwise.
All pictures are company material, unless stated otherwise.
All currencies are in US Dollars, unless stated otherwise.

2. Company

Kutcho Copper Corp. is a Canadian resource development company focused on expanding and developing the Kutcho high grade copper-zinc VMS project in northern British Columbia. The project is located nearby the richly mineralized Golden Triangle Zone, in hilly/moderately mountainous terrain. As can be seen below by the number of projects and mines, British Columbia is a familiar mining jurisdiction, and has a solid ranking on …read more

Never Underestimate the Replacement Power of Equities Within a (HYPER) Inflationary Spiral

Source: Michael J. Ballanger for Streetwise Reports 01/17/2018

Michael Ballanger discusses why he believes the U.S. stock market is defying gravity with a record-breaking nine years without a significant correction.

Before I launch into one of my classic, bitter, vitriolic diatribes against all forms of modern-day interventionalist-type, fraudulent excuses for what use to be “free markets,” have a gander at the chart below. Pay particular attention to the smiles on all of those beaming faces. . .

Alan Greenspan, Ben Bernanke, sidekick Hank Paulson, “Rescue Queen” Janet Yellen, and finally Donald “the Swamp Filler” Trump have all conspired and colluded to ensure that the world has perennially rising stock prices but the man that really set the table for a feast of fiat largesse was Greenspan.

His arrogance in front of the U.S. Congress will go down in history as a training manual for future Fed chairs and in fact served as a mentor to the finest actor to ever hit the Beltway stage in the form of Hank “Mr. Bailout” Paulson. It was Paulson’s plea back on September 26, 2008, who, while down on bended knee, begged Congress to approve his Emergency Stabilization Act, which saved only the banks from annihilation. The actions of the U.S. Fed to rescue the financial institutions that had collectively self-destructed under a mountain of greed-infected leverage was quickly seized upon by their European and Asian counterparts such that the largest publicly reported buyers of stocks since then have been the Bank of Japan and the Swiss National Bank.

It is instructive to know that when I first joined the securities industry back in 1977, ownership of common stocks was considered by the old, blueblood Toronto money as “gambling,” while buying corporate bonds was considered “intelligent speculation” and buying government bonds was “investing.” In fact, government bonds with less than a 10-year duration were considered “conservative investments” one notch down ladder of risk from “savings” (cash). They also considered gold ownership as “insurance” and while it was rarely a big percentage of their allocations, they viewed gold in the same manner as they viewed cash. It was a necessary evil to hold not unlike household or car insurance.

The reason I am writing this missive is that I am growing increasingly annoyed with the media coverage of this so-called “Trump Rally” or “Reflation Trade” or “Tax Deal Repricing” or whatever narrative is required to explain why “It’s different this time.” As I written every month of every year since I began writing about markets, the global economies are NOT booming due to the growth of productivity or population or profits; the global economies are simply responding to a torrent of newly recycled credit, massive liquidity excesses, and unbridled government stimuli.

I was taught by the Jesuits years ago that what creates inflation is rapidly escalating growth in money velocity, a far more potent inflation barometer than the growth of …read more

Time to own gold: Sharps Pixley

Even though it sees only minor gains for gold in 2018, with average prices rounding $1358 an ounce, bullion trader Sharps Pixley says it is important to add the yellow metal to one’s assets.

“Why so?,” the company’s CEO Ross Norman writes in a press release. “2016 and 2017 saw gold higher on strong spec buying in Q1, taking the market above the level of most physical buyers, before retracing in Q4 as the stale specs bailed out… but still ending up about 10% on the year. 2018 is starting much the same, but at a higher price level and with a larger spec position. If gold follows form then this should suggest another impasse between the paper and physical markets as prices range trade once again,” he explains.

According to Norman, even if volatility falls, it makes sense to own physical gold because risks are higher in the stocks market as the US Federal Reserve tightens. “Gold has become price elastic just as it was in the 1990s. And then there was 2000… the best is yet to come, but not just yet. Patience,” he says.

Sharps Pixley released today its precious metals forecast for 2018. When it comes to the yellow metal, the firm predicts highs of $1400 and lows of $1260 per ounce. For silver, on the other hand, it foresees an average price of $18.08 per ounce, with possible highs of $19.10 and lows of $15.60.

“Silver surprises every now and then,” the media brief states. “If we expect gold to notch up an 8% gain then silver should score 12%. That would give it an average price of $18.08 in 2018.” According to the expert, silver is his favourite performer for 2018 because, different from gold, the speculative overhang in silver is not burdensome.

For platinum, the company sees an average price of $884 per ounce. High prices could reach $1045 per ounce, while low prices could sink to $815 per ounce.

“Jewellery demand has fallen 4 years in a row and the outlook in the auto sector from diesel engines is not promising. With total demand in decline and the market set to move to a supply surplus in 2018, we see ongoing downside pressure on prices. Once the shiniest of all precious metals, platinum is struggling to find friends,” Sharps’ CEO states.

Platinum’s loss, however, has been palladium’s gain in Norman’s view. “Total demand is topping 10 mio and auto demand is growing; in fact, palladium saw good demand from most sectors except, surprisingly, from investors. The last three years have seen selling into price strength perhaps believing the rally cannot be justified. But after six years of supply deficits, stocks are thin and pipeline metal scarce. Happily for industrial users, there was also weakness in the price-sensitive jewellery sector.”

The bullion trader sees palladium averaging $1355 per ounce. It could go up to $1500 or down to $800. However, its bets are on an upward trend. “An eye on palladium lease rates will …read more

Canadian companies want to extract nickel, vanadium, cobalt from petcoke

MGX Minerals (CSE: XMG) and Highbury Energy have partnered to prepare a detailed process to extract metals such as nickel, vanadium, and cobalt from petroleum coke.

According to a press release, Highbury’s experts in thermochemical gasification are assisting MGX in designing a process to generate hydrogen gas and concentrate metals in the form of ash byproduct. Since petcoke is itself a carbon byproduct of the oil refining process, it concentrates the denser impurities found in the base material, which is bitumen. Such impurities are usually metals and sulphur compounds and those are the components the companies are aiming to extract.

Highbury has already completed a Phase I report on potential processes and markets for primary and secondary byproducts, while a Phase II study has started and it includes analyses of locations, laboratory bench top feedstock results, advanced process design and initial plant design parameters.

The project is led by Highbury co-founder Paul Watkinson. He is also a professor emeritus in the Department of Chemical and Biological Engineering at the University of British Columbia and has conducted in-depth studies around the conversion of carbonaceous solids, such as coal, shale and biomass, into gaseous and liquid fuels.

His idea is to work with some of the petcoke stockpiles that can be found around the Alberta oil sands and whose inventories, according to the provincial Energy Regulator, are estimated at 106 million tonnes.

In the media statement, MGX President and CEO Jared Lazerson said that these plans are in line with some of the projects his company took on over the last year, such as one in which they started recovering minerals from treated wastewater brine. Similarly, he said, “MGX and Highbury will look to develop a process that utilizes gasification methods to concentrate metals from petcoke. We believe entry into an untapped market of this magnitude aligns perfectly with our business strategy of creating innovative processes and technology to shape the new energy economy.”

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Eldorado Gold reports in-line 2017 gold production

Shares in Eldorado Gold (TSX:ELD)(NYSE:EGO) were slightly up on Tuesday after the company announced full-year production that came in line with production guidance, but suspended its semi-annual dividend payment “pending the results of the technical reports and potential subsequent capital requirements.”

In a press release, the Vancouver-based miner revealed that, including pre-commercial production from the Olympias project in Greece, its gold output was of 285,919 ounces in 2017, while the revised guidance range was of 280,000 to 310,000 ounces. All-in sustaining costs are expected to come in at ~$900/oz., also in-line with the revised guidance.

Source: Google Finance.

The company reported that it also produced 7,061 ounces of gold in the fourth quarter from a bulk sample at its newly acquired Lamaque project in Quebec. Pre-feasibility and construction works are already taking place at the eastern-Canada mine, in parallel with the refurbishment of the associated Sigma mill, Eldorado stated.

One of the reasons why 2017’s output did not surpass the guidance was that the firm’s flagship gold mine in Turkey, Kisladag, produced 171,358 ounces when its guidance was between 170,000-180,000 ounces of gold at cash costs of $500-550 per ounce. The flat result was caused by lower than expected recovery rates and slower leaching from sections of the leach pad. Average ore grade placed on the leach pad during the year was 1.03 grams per tonne gold and the average cash operating cost was $500 per ounce.

In Greece, despite the fact that the Olympias Phase II project achieved commercial production by the end of last year, the company had to deal with a legal arbitration started in September by the Greek Ministry of Finance and the Ministry of the Environment and Energy. Both government agencies allege that the technical study for the Madem Lakkos Metallurgical Plant for treating concentrates from the Olympias and Skouries mines was deficient and therefore in violation of the Transfer Contract and the environmental terms of the project.

Also in Greece, Eldorado saw a slowdown in its Skouries project due continued permitting delays. In response, the company announced its intention to move it into care and maintenance and expects to fully ramp it down in Q1 2018.

“2017 was a year that was overshadowed by political headwinds in Greece and technical challenges at Kisladag,” said the company’s President and CEO, George Burns, in the media brief. Burns added that 2018, although starting up as a busy year, is expected to generate positive results given the new or updated technical studies underway at the Lamaque, Skouries and Kisladag sites. “Our overarching goal for 2018 and beyond is to move Eldorado back into a growth phase and create value for all our stakeholders,” he added.

Since metallurgical testwork on the Kisladag orebody is still underway, Eldorado decided to provide partial operating and financial guidance for 2018, with the promise of notifying full guidance at the end of the first quarter. “Full year gold production of 160,000-190,000 ounces is expected from Olympias Phase II, Efemcukuru, and pre-commercial production at …read more

Barrick just makes 2017 production guidance

Shares in Barrick Gold Corporation (NYSE:ABX)(TSX:ABX) retreated slightly in after hours trade on Tuesday after the company announced full year production that came in at the lower end of production guidance.

Barrick, the world’s top producer of gold, is up 5% since the start of the year in line with a stronger gold price which set fresh 4-month highs around $1,340 an ounce on Tuesday. The Toronto-based company is now worth $18.4 billion in New York.

According to a statement preliminary full year gold production for 2017 came in 5.32 million ounces at the bottom end of its 5.3-5.5 million ounces guidance; a number twice adjusted downwards from its outlook at the start of the year of a range of 5.6–5.9 million ounces.

Barrick sold 50% of the Argentina mine to China’s Shandong Gold for $960 million mid-year

Only Barrick’s flagship Nevada operations managed to increase output last year adding 157koz. Lower output compared to 2016, when the company produced 5.52 million ounces of gold, was also the result of a stake sale in its Veladero mine in Argentina. Barrick sold 50% of the mine to China’s Shandong Gold for $960 million mid-year.

A steep decline at its 64%-owned Acacia unit in Tanzania, which has been at loggerheads with the East African nation’s government over tax payments, and lower output at its Turquoise Ridge mine also depressed full year results.

Preliminary fourth quarter gold production was 1.34 million ounces, and preliminary fourth quarter gold sales were 1.37 million ounces. Barrick said preliminary full year gold sales were 5.30 million ounces. Barrick achieved an average market price for gold in the fourth quarter of $1,275 per ounce.

Preliminary full year copper production was 413 million pounds, which was slightly below the company’s adjusted guidance of 420-440 million pounds for 2017, but in line with Barrick’s original full year guidance of 400-450 million pounds.

Preliminary full year copper sales were 405 million pounds. Preliminary copper production in the fourth quarter was 99 million pounds, and preliminary copper sales in the fourth quarter were 107 million pounds. The average market price for copper in the fourth quarter was $3.09 per pound.

Barrick said fourth quarter and full year financial results will be released February 14.

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Rio’s Oyu Tolgoi mine in Mongolia hit with $155 million tax bill

Shares in Rio Tinto-controlled Turquoise Hill (TSX, NYSE:TRQ) were hit Tuesday after the miner revealed its massive Oyu Tolgoi copper and gold mine in Mongolia has been handed a $155 million tax bill.

The Vancouver-based company said the amount relates to an audit on taxes imposed and paid by the mine operator between 2013 and 2015.

Amount relates to an audit on taxes imposed and paid by the mine operator, Oyu Tolgoi LLC, between 2013 and 2015, said Turquoise Hill.

“Turquoise Hill is of the firm view that Oyu Tolgoi LLC has paid all taxes and charges required under the Investment Agreement (and reconfirmed in the Underground Mine Development and Financing Plan) and Mongolian law,” Turquoise said in the statement.

Shares in the miner were almost 5% down on Tuesday in Toronto at 11:03AM, and had lost 2.7% of their value in the New York exchange by 11:20AM.

Situated in the southern Gobi desert of Mongolia, about 550 km south of the capital, Ulaanbaatar and 80 k north of the border with China, Oyu Tolgoi is jointly owned by the government of Mongolia (34%) and Turquoise Hill (66%), of which Rio Tinto owns 51%.

The $6 billion Oyu Tolgoi first-stage open pit mine began producing in 2013, when the project logged a $90 million full-year loss. A planned underground expansion was put on hold shortly after, as the Mongolian government became concerned that cost overruns would cut into profits.

The project was resumed in 2016 and, currently, the mine is expected to be world’s third-largest copper operation at peak production in 2025, with output of over 550,000 tonnes per year.

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These four factors will boost gold demand in 2018 — WGC

These four factors will boost gold demand in 2018 — WGC

Gold demand is set to jump this year thanks to government policies targeted at transparency and economic growth, the World Gold Council said Tuesday in its annual outlook report.

In particular, the industry body believes that gold will maintain its relevance as a strategic asset in 2018 thanks to four key trends — synchronised global economic growth, shrinking central bank balance sheets, rising interest rates, insubstantial asset prices and market transparency.

“Our research shows that continued economic growth underpins gold demand,” the WGC said. “As incomes rise, demand for gold jewellery and gold-containing technology, such as smart phones and tablets rises.”

Income growth also spurs savings, helping increase demand for gold bars and coins.

Monetary policy tightening in the countries including the US and Britain pushed up short-term bond yields across the board last year and, logically, the group expects that trend to continue favouring gold.

“In our view, the potential headwinds to gold may not be as strong as some think.  Gold can help investors manage financial market risks,” it said

The council also expects China’s economy to continue expanding, but the nature of growth is changing from investment-driven growth to a consumption-led model.

“This could affect the economic growth rate, but even if the Chinese economy grows at a slower rate than in the past, we see a more balanced model, aided by further global integration through its One Belt One Road initiative supporting a sustainable growth trajectory,” it added.

Demonetization and tax implementation that shocked the market last year are now expected to boost gold consumption in India, where mandatory jewellery hallmarking will put an end to under-carating, the WGC said.

Finally, the report also spells out four reasons why investors should hold on to gold: “It has been a source of return for investors’ portfolios; its correlation to major asset classes has been low in both expansionary and recessionary periods; it is a mainstream asset that is as liquid as other financial securities; and it has historically improved portfolio risk-adjusted returns,” it concludes.

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'Grossly Undervalued' Miner Enters 2018 with Abundant News about Its Argentinian Projects

Source: Streetwise Reports 01/16/2018

A small-cap miner moving forward on its prospects in Argentina has caught the attention of several industry watchers.

Golden Arrow Resources Corp. (GRG:TSX.V; GAC:FSE; GARWF:OTCQB), operating the Chinchillas gold/zinc/lead deposit and the Pinquitas silver/zinc mine in Argentina, released significant news toward the end of 2017. In November, the company announced it was initiating a $1 million “exploration program at its 100% owned Pescado Gold Project” in San Juan, Argentina. “The exploration program will include additional geophysics and surface work to refine drill targets, with up to 1,800 metres of drilling budgeted,” according to the press release. “Work permits have been granted by the provincial mining authorities, and the technical team is now commencing exploration at the Yanso target area.”

In December, Golden Arrow announced Puna Operations Inc., “a joint venture comprised of the Pirquitas property and the Chinchillas property, owned 25% by Golden Arrow,” had secured “approval of the Environmental Impact Assessment from the Argentine regulatory authorities in Jujuy Province, Argentina, and therefore is now permitted for exploitation.”

For Brien Lundin, writing in the December-January issue of the Gold Newsletter, “Golden Arrow fits the mold of near-term production stories that I think will perform well in the new year, assuming the precious metals markets play out like I expect.”

Lundin noted that among the “vast footprint” of the company’s holdings in Argentina, “the key holding in its portfolio is its 25% interest in Puna Operations, a joint venture with long-time Gold Newsletter constituent SSR Mining, the updated moniker for Silver Standard Resources.”

This joint venture “includes current production from stockpile mining at [the] Pirquitas mine,” as well as “a plan to extend the mine life at Pirquitas by trucking ore from the companies’ now-shared Chinchillas silver-lead-zinc project,” Lundin wrote.

“Golden Arrow plans to use the funds from operations at Pirquitas and Chinchillas to make additional property acquisitions in Argentina. It also plans to spin out its large exploration portfolio into a separate company in early 2018, so shareholders who buy in before this event will get to participate in that portfolio’s considerable upside,” Lundin added.

GSA-Silver also reacted favorably to news from Golden Arrow, adding the company to its GSA Silver Fave 5 Portfolio. In its analysis, GSA pointed out that “Golden Arrow has history of exploration success.” The company possesses “many potential upside opportunities,” including a “possible spinout of exploration assets [that] could create additional value” and the possibility that “UG mine expansion focused on small scale, high grade feed at Pirquitas could boost already strong Puna [production] and economics.”

In an article published on Seeking Alpha, writer Steven Goldman noted that “the Puna JV with SSR Mining will be a cash-generating operation anticipated to begin in H2 2018 generating annual revenues for Golden Arrow equal to about 2 million oz of Silver Eq.”

Goldman noted that, “for those willing to take on some risk at its current share price, trading …read more

European metals technology companies want to lead anti-corruption fight

Following the 2016 launching of the Collective Action Initiative for the Metals Technology Industry, the program announced today that it has added Techint Group’s Tenova S.p.A. as a new member.

Tenova is a mechanical engineering company for the steel and non-ferrous metals processing industry headquartered in Castellanza, Italy. The other three members of the initiative, Danieli & C Officine Meccaniche SpA, Primetals Technologies Limited and SMS GmbH, are based in Buttrio, London, and Düsseldorf respectively.

According to a press release distributed on Monday, the MTI Collective Action Initiative is facilitated by Swiss-based non-profit anti-corruption International Centre for Collective Action, which operates within the Basel Institute on Governance. The goal of the initiative is to provide a forum for the members to develop anti-corruption compliance best practices and ensure fair competition in the metals technology industry in the countries in which they operate.

In the media statement, Tenova’s CEO Andrea Lovato said that the objectives of the anti-corruption group fall within his firm’s code of ethics. “All companies in the metals industry face similar corruption risks around the world. We immediately saw the benefits of joining forces with other industry leaders in harmonising our anti-corruption management approach,” he said.

In reaction, Gemma Aiolfi, Head of Compliance, Corporate Governance, and Collective Action at the Swiss institute said that the addition of new members encourages others to continuously improve their anti-corruption compliance systems.

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Following detention, journalist publishes controversial story about Venezuela’s Mining Arc

Dutch journalist Bram Ebus has just published an entire website dedicated to Venezuela’s Mining Arc, a mega project that is at the centre of a national controversy given the devastation to both the natural environment and local communities that it is causing, as well as the innumerable allegations of rampant corruption surrounding it.

Ebus spent three months investigating the many different aspects of the Mining Arc, which is located in the southeastern Bolívar state. His presence in the area caused nervousness among military officials operating there and he was detained for 24 hours, for no apparent reason, back in September. Those officials have been accused by opposition MPs of smuggling minerals to different islands in the Caribbean.

Despite the incident with the Venezuelan National Guard, the reporter went ahead with his work and forged a partnership with the Pulitzer Centre, a digital platform called InfoAmazonia and local newspaper Correo del Caroní.

In the lengthy piece released today, he reveals how the 111,843 Sq.Km-concession area destined for mining gold, diamond, iron, copper, bauxite, coltan, and other resources has become a dangerous cocktail of violence, armed gangs, deforestation, foreign companies, guerrilla groups, corruption, military officials, malaria, three-digit inflation and many of the other concerning situations taking place in the cash-strapped country.

According to Ebus, Venezuela’s failed petro-economy, disastrous governmental policies, and nonexistent job market are driving people en masse and despite the risks towards remote mining locations. He says many of them belong to different Indigenous tribes and their goal is to eke out a hardscrabble living and feed their hungry families. However –the journalist writes– “violence against, and conflicts with, indigenous communities can be expected to escalate as Venezuelan armed gangs and military organizations, and Colombian guerrilla groups continue to expand their presence in the region, and flex their muscles in the mining areas.”

Photo from Virginia Behm’s report.

Partner Correo del Caroní states that the Mining Arc came to institutionalize the ecologic and social devastation already taking place in southern Venezuela. “In this region, mercury and blood get mixed together. As are violence, anarchy, and impunity.”

However, President Nicolás Maduro says that the Arc would help curb long-standing illegal mining practices taking place in the southeastern Guayana region, whose reserves have been estimated by the government in 7,000 tonnes of gold. But different sources interviewed by Ebus for his story, such as former military officials, lawyers, and environmental and human rights activists, say not much is known about mining in a country that has built its entire economy on its nationalized oil industry. Their conclusion is that the Mining Arc is Maduro’s last-ditch attempt to inject the broken economy with any sort of capital at any cost.

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