Gold Scales New Peaks U.S. $2,000 is in sight
Fall 2011
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Fall 2011 | Planning for Profits | Report on Mining 3
C AT H RY N J E N K I N S STONE SCU L PTO R
“ROOM WITH A VIEW”
W W W. J E N K I N SSC U L P TO R. C O M PRIVATE COLLECTIONS - FINE ART - CORPORATE PURCHASES 4 Planning for Profits | Report on Mining | Fall 2011
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Volume 14 | Number 3 | Fall 2011 Vancouver, British Columbia www.ReportOnMining.com Planning for Profits - Report on Mining edition is published four times a year by Fusion Publishing Inc. All rights reserved. Any reproduction or duplication without prior written consent of Fusion Publishing Inc. is strictly prohibited. Published by Fusion Publishing Inc. Canadian Office Fusion Publishing Inc. #317 – 1489 Marine Dr. West Vancouver, BC Canada V7T 1B8 1.888.925.0313 (Toll Free) USA Office Fusion Publishing Inc. 145 Tyee Dr. Pt. Roberts, WA USA 98281-9602 1.888.925.0313 (Toll Free) Publisher Terry Tremaine Associate Publisher & Editor Connie Ekelund Production Manager Christie Smith Contributing Editors Elvis Picardo Edward B. Barbier Account Managers 1.888.925.0313 Terry Tremaine Maureen O’Brien Marie Richards Garry Ferris Robert Setter
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The summer months have seen significant volatility in the markets what with concern about stability in the Euro and the U.S. deficit. No doubt the looming U.S. presidential election lent even more energy to an already high voltage atmosphere. During the reddest week in August, while my son-in-law was shorting, I was particularly taken with an article in the New York Times focused on a couple of investment bankers. Apparently, during one 24-hour period as the markets were declining, one banker in particular spent $114 million buying shares which had reached price points research had deemed attractive. Obviously, it will be over the next few months that it’s determined how successful those buys were. My son-in-law thinks two more opportunities like that and he’s got himself a new house. The conundrum for me is that as gold continues to historic highs the gold juniors trading on the TSX seem to be overlooked. Generally, all miners are working with commodities that are at price points assuring good profit margins for those able to develop producing mines. Plus with the economy of the world having become less focused on just a few countries, demand would appear to be difficult to supply. No matter current volatility successful miners look to be in a winning environment. In our overview of the markets $2,000 gold would appear to be in sight. Later in the magazine there’s a piece a little removed from our normal editorial focus. Sustainability issues are becoming an everyday part of our lives and will no doubt continue to be so for the foreseeable future. It’s interesting to note that successful countries have historically tapped into their natural resources. How countries address the issues of mining and sustainability over the near term is no doubt going to be a determination of their success. Being Canadian, I take pride in knowing that companies associated with the Prospectors and Developers Association of Canada have resolved to maintain high standards when it comes to those issues. On that theme it’s interesting to note that a nearby municipal public park boasts a huge natural amphitheatre used to present movies in summer months for the local populace. Prior to its current “green” incarnation it was a quarry.
Non-deliverables please return to: Fusion Publishing Inc. Report On Mining Magazine #317 – 1489 Marine Drive West Vancouver, BC Canada V7T 1B8 Subscriptions: 1 year $14.95 in Canada (+$8.00 in USA) 2 years $28.00 in Canada (+$16.00 in USA) 1.888.925.0313 x1001 info@ReportOnMining.com www.ReportOnMining.com Free Digital Subscription www.tiny.cc/rom The information in Planning for Profits - Report on Mining has been carefully compiled from sources believed to be reliable, but its accuracy is not guaranteed. www.ReportOnMining.com
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7
Commodities Outlook by Elvis Picardo
On The Move 10 Gunpoint Exploration Ltd. 14
Strategies for Copper Reserves Replacement by Metals Economics Group
North America 16 Buchans Minerals Corporation 20
Resource Scarcity by Edward B. Barbier
Fall 2011 | Planning for Profits | Report on Mining 5
S I H S U R E H T
! N O
www.solidGOLDcorp.com TSX.V: SLD
6 Planning for Profits | Report on Mining | Fall 2011
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As Gold Scales New Peaks, U.S. $2,000 is in Sight By Elvis Picardo, CFA
G
old has been moving inexorably higher this year, propelled by a host of macroeconomic developments globally. Chief among these is the issue of sovereign debt in the U.S. and Europe, a seemingly intractable problem that has no easy solution. At the time of writing in mid-August, gold is trading a shade below U.S. $1,750 per ounce, less than 15% away from the U.S. $2,000 per ounce mark. With that landmark level closer than it has ever been, the obvious question is whether bullion can crest it by year-end. Dramatic developments Two dramatic developments in the first 10 days of August have accelerated gold’s recent gains. On August 11, gold reached a record U.S. $1,817.60 per ounce, closing the week with a gain of 5.5%, the sixth straight weekly increase and the biggest one since February 2009. The first development occurred on Friday, August 5, when Standard & Poor’s (S&P) lowered the long-term sovereign credit rating on the U.S. to AA+ from AAA. According to the rating agency, the downgrade reflected its opinion that the fiscal consolidation plan recently agreed to by Congress and the Obama Administration fell short of the measures necessary to stabilize the government’s medium-term debt dynamics. Standard & Poor’s also said that in a broader sense, the downgrade reflected its view that the effectiveness, stability and predictability of American policymaking and political institutions had weakened more than expected at a time of fiscal and economic challenges. Figure 1: Dow Jones to Gold ratio – 2000 to Present
Source: Bloomberg www.ReportOnMining.com
Serving notice To say that the downgrade caught financial markets off-guard would be an understatement. On Monday, August 8, the first trading day after the downgrade, approximately $2.5 trillion in market capitalization was wiped out on global stock exchanges. The Dow Jones Industrial Average (DJIA) plunged more than 600 points, while the S&P 500 tumbled 6.7% for a three-day plunge of 11%. Gold rallied more than 4% and the yield on the U.S. two-year Treasury fell to a record low of just below 0.23%. To be sure, Standard & Poor’s had served notice of a potential downgrade on April 18, 2011, when it revised the outlook on the U.S. sovereign credit rating to negative from stable. At the time, S&P said that the negative outlook signalled there was a one-in-three chance that it could lower the long-term credit rating within two years. But few expected a downgrade less than four months after S&P had first served notice, especially as U.S. lawmakers had managed to cobble together a last-minute deal on the debt ceiling that averted potential disaster. Rising debt, more policymaking uncertainty S&P said that its lowering of the U.S. rating was prompted by its view on the rising public debt burden and greater policymaking uncertainty. S&P’s revised base case fiscal scenario—which it considers consistent with an “AA+” long-term rating and a negative outlook—projects net general government debt in the U.S. would rise from an estimated 74% of GDP by the end of 2011 to 79% in 2015 and 85% by 2021. S&P noted that the projected 2015 ratio of U.S. sovereign indebtedness is high in relation to those of peer credits such as Canada, France, Germany and the U.K. In addition, S&P believes that the trajectory of U.S. net public debt is diverging from those of these peer credits, whose net public debt burden is projected to decline either before or by 2015. On the subject of policymaking uncertainty, S&P said that the statutory debt ceiling and the threat of default had become political bargaining chips in the debate over fiscal policy. S&P has warned that the outlook on the U.S. long-term rating is negative. It said that it could lower the rating to AA within the next two years if the general government debt trajectory is higher than currently assumed in its base case due to lower spending cuts, higher interest rates or new fiscal pressures. Fall 2011 | Planning for Profits | Report on Mining 7
Federal Reserve on hold until mid-2013 The second development occurred precisely four days later, when the Federal Reserve for the first time gave an explicit timeframe for its low-interest rate policy. On August 9, the Federal Open Market Committee said that economic conditions, including low rates of resource utilization and a subdued medium-term outlook for inflation, likely warrant exceptionally low levels for the federal funds rate at least through mid-2013. The Fed’s decision was influenced by its expectation for a slower pace of recovery in the quarters ahead, and its assessment that downside risks to the economic outlook have increased. U.S. stocks responded by posting their biggest one-day gains since March 2009, with the DJIA and S&P 500 both gaining at least 4%. Gold rose to a new record while the U.S. dollar fell more than 5% against the Swiss franc, and also declined against the euro and yen. Gold is the prime beneficiary These two events underscore the following fundamental factors that are propelling gold higher: • Ultimate safe haven: Rightly or wrongly, gold has emerged as the ultimate safe haven over the past decade. 8 Planning for Profits | Report on Mining | Fall 2011
Consider the backdrop against which the precious metal has posted gains for ten straight years—two recessions, one of which was the worst one globally since the 1930s Depression; a multi-year commodity bull market; the 9/11 attacks and the Iraq war; currency turmoil that has cast doubts on the viability of the world’s second-largest traded currency; and wild swings in investor sentiment, ranging from utter complacency to sheer panic. The investment and speculative appeal of gold has remained intact through all these phases. • Weaker greenback: Some market watchers question the timing and logic of S&P’s downgrade of the U.S. credit rating; others view it as inevitable, given the challenges facing the U.S. economy and the extent to which its debt burden has spiralled. The historical negative correlation between the U.S. dollar and gold has held up for most of the past decade, although it has weakened from time to time as the greenback and gold have rallied in tandem. The U.S. dollar may now be poised to enter a phase of steady depreciation—absent any short-term yield support for another couple of years—which may be a tailwind for gold prices.
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Figure 2: Dow Jones to Gold ratio – 1915 to Present
Figure 4: Senior Gold Producers – Price to Cash Flow
Source: Bloomberg
Source: www.thumbcharts.com
Getting pricey But gold’s recent run means that it is no bargain at current levels, and in fact may be getting a little pricey. Figures 1 and 2 provide an indication of the relative performance of blue-chip U.S. equities versus gold, by estimating how many ounces of gold it would take to buy one unit of the DJIA. As Figure 1 shows, the ratio dipped below 7 on August 5, setting a new multi-year low that was below the most recent trough value of 7.06 reached on March 6, 2009, when U.S. equities bottomed after the 2008 bear market. As Figure 2 demonstrates, previous cycle lows were at 1.94 ounces in February 1933 and 1.29 ounces in January 1980. By that yardstick, gold may be poised for a blow-out rally, but investors should note that the odds of a significant pullback are also increasing by the day. Investors and speculators do not seem to share the same enthusiasm for other precious metals at they do for gold. The price ratio of platinum to gold fell below 1 on August 8, the first time it has done so since December 2008, and a level that is 33% below the 20-year average of this ratio. Silver, which had a terrific run earlier his year as it reached a record U.S. $49.79 per ounce on April 29, 2011, has since retreated more than 20% from that high.
Value in gold equities Investors are finally gravitating towards gold stocks, although the fact that senior gold producers are still trading at a cash flow multiple that is close to their 2008 lows (Figure 4) may suggest that significant upside remains in proven producers. Gold equities have been a little late coming to the party, as their appeal has been tarnished by capital costs exceeding budgets for some large mining projects, and perceptions of higher country risk in a number of leading mining jurisdictions. Nevertheless, mid-cap and large-cap gold equities now dominate the ranks of the best performers over the past one and three months not just on the TSX Composite but on the blue-chip TSX 60 index as well, where seven of the 10 best performers are senior gold producers. This flight-to-quality aspect also means that the better-known producers with substantial market capitalizations are likely to outperform their smaller counterparts as and when gold continues to move higher. The rising gold tide, far from lifting all boats, may well benefit mid-cap and large-cap producers the most. Elvis Picardo is Vice President-Research, and a strategist & analyst at Global Securities Corporation in Vancouver. The opinions expressed herein are his own.
Figure 3: Gold to Silver Ratio – 2006 to Present
Source: Bloomberg www.ReportOnMining.com
Fall 2011 | Planning for Profits | Report on Mining 9
G
unpoint Exploration Ltd. is a Canadian-based precious metal exploration company focused on its 100%-owned Talapoosa Gold project. The Talapoosa property consists of 10,780 acres and is located in northwestern Nevada approximately 45 kilometres east of Reno. Nevada has a long history of successful precious metal exploration and development going back over 150 years. Nevada is also known as a mining friendly jurisdiction with stable and well-defined mining laws and regulations. The flagship Talapoosa Gold property is a low-sulphidation vein/breccias-hosted epithermal gold-silver deposit. The property has an NI 43-101 compliant combined measured plus indicated plus inferred resource of 958,000 ounces of gold (32.3 million tonnes grading 1 gram per tonne gold and 12 grams per tonne silver). The resource estimate is based on 564 drill holes, predominantly Reverse Circulation, totalling 71,000 metres that were drilled prior to 1991 by Homestake, Placer Dome, Pegasus, Miramar, and Kennecott. The majority of these holes were vertical down to a depth of only 200 metres.
The favoured host-rock to the mineralization is a gently southward dipping welded tuff unit, giving the mineralized body an overall gently dipping tabular outline. However the high-grade veins, which were selectively mined in the past, are confined to several roughly east-west trending steeply dipping structural zones, which cut through the welded tuff, and are believed to continue to depth. Ongoing work by Gunpoint suggests that the overall grade of the Talapoosa ore body may have been understated due to the predominance of vertical drill holes, failing to representatively sample the higher-grade vertical structures.
Right: Chalcedonic high-level veining on Appaloosa structure. Below: Zebra property.
10 Planning for Profits | Report on Mining | Fall 2011
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Left: Sinter beds. Right: Sinter—veining up to 9 grams per tonne gold in trench.
In late September of 2011, the Company will commence a 4,000 metre diamond drill program, consisting of three fences of inclined holes, across the main ore body, as a first phase in its effort to increase the grade of the existing resource, and to provide material for continued metallurgical test work. As part of their drilling campaign in the 1990s, Newcrest Mining Limited ran preliminary metallurgical test work on vein material which showed an average bottle-roll gold recovery of >80 % for 11 samples at a 75-micron crush size. Some of the earlier test work on peripheral wall-rock hosted stockwork mineralization showed lower recoveries, however at this stage it is not clear how significant this wall-rock type mineralization will be in the overall scheme of things.
In late 2010, Gunpoint completed a program of surface mapping, rock chip sampling, induced polarization and ground magnetic surveys. The work program identified the Appaloosa Structure, approximately two kilometres north of Talapoosa, as a high priority target. Samples taken from outcropping veins have assayed as high as16 grams per tonne gold over a three metre interval. Individual grab samples from dump material assayed as high as 64 grams per tonne gold, in accordance with records of limited historic production. Sinter, high-level hydrothermal breccias and opal-chalcedony veining with anomalous gold, arsenic, antimony and mercury geochemistry, have been mapped over a five kilometre interval of this Appaloosa structure. This large untested area offers excellent potential for increasing the resource on the property.
Left: Rock Blind Spring—steep dipping fractures, Proposed Talapoosa pit area.
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Fall 2011 | Planning for Profits | Report on Mining 11
Left to right: Talapoosa Orebody and Targets. Appaloosa breccias, Looking east from the Rock Blind Spring area. Circle: Strong NE-trending vein-structure.
In the spring of 2011, Gunpoint completed a limited (1,200m) reconnaissance drilling to define the controls on peripheral high-grade vein mineralization peripheral to the existing resource and as well as several IP anomalies with outcropping high-grade vein targets on the Appaloosa Structure two kilometres to the north of the existing resource. While the drilling helped further delineate the mineralized structure, the company was unable to drill deep enough, due to technical difficulties, to test these targets at sufficient depth. The Talapoosa property offers Gunpoint an excellent advanced stage exploration project with tremendous blue sky upside. The drill program in late 2011 will focus on increasing the grade of the existing resource as well as upgrading the existing resource categories, and providing additional material for metallurgical test work, particularly within the higher grade vein structures. Gunpoint Exploration Ltd. is a newly formed company created by restructuring the Christopher James Gold Corp (CJG:TSX.V) and adding several properties from Chesapeake Gold Corp (CKG:TSX.V) including the Talapoosa property. Gunpoint also acquired from Chesapeake two properties in Mexico, the Le Cecilia gold-silver project located in Sonora State and the Le Gitana gold project located in Oaxaca State. As a result, Chesapeake currently owns 32,017,899 shares of Gunpoint representing an 82% equity position. The company is also looking to acquire additional advanced exploration properties through Nevada and Central America. The two Mexican properties are in the early stage of exploration and development, the La Cecilia project is a classic low-sulfidation, epithermal gold-silver system associated with a rhyolite dome complex. The mineralization consists of a high grade vein system over a strike length of 1,000 metres. 12 Planning for Profits | Report on Mining | Fall 2011
A shallow drill program conducted in 1995 by Cambior Inc. produced near surface intercepts of 30 metres grading 1.4 grams per tonne gold and 42 metres grading 0.5 metres per tonne. Subsequent surface work by Chesapeake has identified a new prospective area with a channel cut returning 119 metres grading 0.9 grams per tonne gold. The La Gitana project which comprises three mineral claims is 75% owned by Gunpoint and 25% owned by Goldcorp. In 2006, Chesapeake drilled 40 holes along a 1,000 metre section which confirmed the existence of a well defined mineralized zone 500 metres long, 50 to 150 metres wide with depths ranging from 50 to 300 metres. The deposit remains open along strike and at depth. While Gunpoint will be concentrating on the Talapoosa project in an effort to increase shareholder value, the Mexican properties offer shareholders additional upside potential over the longer term. The executive team at Gunpoint has extensive experience in the exploration and development of precious deposits. The President and CEO, Dr. E. Max Baker, is an exploration geologist with over 30 years international exploration experience in the Americas, Asia, Australia and Europe. Recently he was the director of Exploration for Oriel Resources PLC, in Kazakhstan and Russia. He has been Chief Geologist for Newcrest Mining Ltd., Chief Geologist for MIM Holdings Ltd. and Principle Geologist for Renison Goldfield Corporation. Dr. Baker has extensive experience from grass roots level target generation through to the design and management of advanced stage exploration programs.
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Board Chairman P. Randy Reifel has over 28 years of executive experience in the mining sector. Mr. Reifel’s distinguished career includes being president of Carson Gold Corp. which recognised the potential of the Kilometer 88 discovery in Venezuela during the late 1980s and subsequently, President of Francisco Gold Corp. which discovered the El Sauza and Marlin gold deposits before being acquired by Glamis Gold Corp. for $390 million in 2002. Mr. Reifel is currently a director of Goldcorp Inc. CFO Paul Robinson, a Chartered Accountant, has extensive experience in the mining and mineral sector, including working with numerous junior mining companies as well as 12 years with Ernst & Young and Deloitte & Touche LLP. Director Gerald Sneddon has over 45 years experience in the mining industry both international and domestic. Mr. Sneddon has held executive positions at Anaconda Company, Kaiser Steel, Beker Industries and Morrison Knudson. Director Daniel Kunz, a professional engineer, has over 30 years experience in mining, construction and the financing of resource projects. He is the former President of Ivanhoe Mines Ltd. Gunpoint has sufficient funds to complete the drilling at Talapoosa in November - December, 2011. The management and board of directors at Gunpoint exploration bring the experience and expertise required to successfully move the Talapoosa project forward through the exploration and development stages.
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Microwave towers - abundant vein float.
With gold at current levels, the Talapoosa gold project offers investors an excellent opportunity to participate in the development of a property with a known gold equivalent resource close to 1 million ounces and with the potential of substantial upside as exploration continues. This is the time in the exploration and development process when the potential rewards are the greatest. Investors looking for an exploration stage company operating in a politically stable and well known exploration region with experienced management will see an excellent opportunity in Gunpoint Exploration Ltd.
Gunpoint Exploration Ltd. 1620 - 1140 West Pender Street Vancouver, BC, Canada V6B 4G1 Phone: 1.604.408.8829 info@gunpointexploration.com www.gunpointexploration.com TSX.V: GUN Year Hi/Low: $1.80/0.75
Fall 2011 | Planning for Profits | Report on Mining 13
Strategies for Copper Reserves Replacement: The Costs of Finding and Acquiring Copper The Majors are Replacing Reserves, but Relatively Little From Recent Discoveries
M
etals Economics Group’s (MEG) recent Strategies for Copper Reserves Replacement: The Costs of Finding and Acquiring Copper study concludes that between 2001 and 2010 the top 23 global copper producers (those that mined at least 145,000 mt of copper in 2010) replaced nearly 290% of the copper they produced. Almost all these companies have added enough reserves to keep ahead of production, maintaining strong pipelines of projects to ensure stable or increased copper production. The major copper producers increased their aggregate annual production by 26% over the past ten years to 11 million mt in 2010—68% of world mine production. As of year-end 2010, these companies also held sufficient reserves for 34 years of production at the 2010 rate. However, increasing production has exacerbated their need to add reserves and most major producers forecast further production increases in the coming years. Based on 2010 production, the major producers each need to replace an average of almost 480,000 mt of copper in reserves each year; and if their near-term growth plans bear fruit, this could increase to almost 650,000 mt annually by 2016.
Globally, 62 significant copper discoveries (defined as a deposit containing at least 500,000 mt of copper) have been reported so far in the 1999-2010 period, containing 229.1 million mt of copper in reserves, resources, and past production. The Americas account for the greatest share of copper in these discoveries, which is not surprising given that the Americas have been the primary focus of discovery-oriented exploration spending. Although the copper found in the 62 discoveries is slightly more than the industry has produced over the past decade, the economic viability of these deposits relies to a large extent on location, politics, capital and operating costs, and market conditions, which inevitably reduce the amount of resources that will reach production. Considering that just 6% of copper in these discoveries has been upgraded to reserves so far, that many of the larger discoveries are low grade, and that almost half the copper in the discoveries is located in areas of medium or high political risk, the amount of copper available for production in the near term is likely far less than has been found.
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Copper in Reserves, Resources, and Past Production in Major Copper Discoveries by Country, 1999-2010 (Total Reserves, Resources, and Past Production of 229.1 million mt)
0.4%
Canada United States
Russia
2%
Macedonia 0.3%
18%
14% 1%
Turkey
2%
Eritrea 0.4% 5%
DRC Peru
10%
0.2%
Brazil
0.4%
Namibia Chile
36%
China 1%
Indonesia
Philippines
1%
Zambia 2%
Australia
6% 6%
Argentina
Only ten of the 23 major producers have made significant copper discoveries since 1999; of the 62 discoveries made, 24 can be attributed to these ten companies, accounting for 41% of the 229.1 million mt total in-situ value found. Given that just 6% of copper in the 62 discoveries has so far been converted to reserves, it is clear that we know the majors have added almost all of their exploration-derived reserves at existing mines and older projects, but very little of it through new discoveries. Metals Economics Group’s Copper Reserves Replacement Strategies study addresses key growth strategy issues facing the copper mining industry and compares the relative costs per pound of discovering or acquiring copper in the ground. In addition to an industry-wide review of the copper pipeline, acquisition activity, copper exploration spending, and major discovery successes, the study also provides a variety of metrics for measuring and comparing the relative costs of various growth strategies for the 23 largest copper miners and the industry as a whole. For more information on how to obtain Copper Reserves Replacement Strategies, please visit www.metalseconomics. com, email sales@metalseconomics.com, or call 902-429-2880. Note: At the time of writing, no qualifying copper discoveries were reported in 2010; however, due to the time required to assess a large deposit there may be qualifying discoveries attributable to 2010 in the future. www.ReportOnMining.com
0.3%
Mongolia
Discoveries are not defined solely by grassroots exploration, but require additional late-stage spending to further expand and define a deposit beyond its initial resource estimate. To account for this, MEG defines discovery-oriented copper exploration as 100% of grassroots spending plus 75% of late-stage spending, which we feel best reflects the cost of finding and subsequently defining a major new discovery. About Metals Economics Group (www.metalseconomics.com) Metals Economics Group (MEG) is the most trusted source of global mining information and analysis. We draw on three decades of comprehensive information and analysis, with an unsurpassed level of experience and historical data. To help our clients reach better decisions more quickly, we supply raw data and sophisticated analysis based on unbiased research and reporting. From worldwide exploration, development, and production to strategic planning and acquisitions activity—our databases and studies help you make confident decisions and, ultimately, improve results. Contact: Nadine Tanner, Director, Marketing, Metals Economics Group, Suite 300, 1718 Argyle St., Halifax, Nova Scotia, Canada B3J 3N6. T: 902.429.2880; F: 902.429.6593; ntanner@metalseconomics.com.
MEG Fall 2011 | Planning for Profits | Report on Mining 15
B
uchans Minerals Corporation is a Canadian-based exploration company currently developing base metal properties and regional deposits at the historic Buchans mining camp located in Newfoundland, Canada. Buchans represents one of the highest grade base metal mining camps in Canadian history. It has produced 16.2 million tonnes of ore from five ore bodies, averaging 14.51% zinc, 1.33% copper, 7.56% lead, 126 g/t silver and 1.37g/t gold. Buchans trades on the TSX-V under the symbol BMC and has a market cap of roughly $10 million with 150,898,545 shares outstanding as of July 2011. Buchans Minerals has three properties in this historic region encompassing a number of exploration prospects, including NI-43-101 compliant resources. Most of the properties are 100% owned by the Company including the Buchans property that encompasses the Lundberg base metal deposit, and Tulks North that encompasses the Daniels Pond base metal deposit. Buchans Jumbo drill inside Porvenir Mine. also has a 50% interest in the joint ventured Long Range property. Mr. Warren MacLeod, Director, President and Chief Executive Officer, is the leader of Buchans Minerals.
Mr. MacLeod began his mining career in Timmins, Ontario in 1986 working with his father, Dennis MacLeod. After completing a B.A. in geography and working in grass roots exploration programmes, Mr. MacLeod joined what was to become Caledonia mining in 1992. Caledonia was Mr. MacLeod’s first public company that enjoyed much success as evidenced by a share price that ascended to as high as $17. Mr. MacLeod left Caledonia in 1997 to work in mine development in Mexico. In 2004, he was asked to head up Royal Roads, which eventually became Buchans Minerals. Recent History On July 5, 2010, Buchans Minerals Corporation emerged from Royal Roads Corp and began trading under the symbol BMC. The name change reflects the focus on development of the 100%-owned Lundberg deposit. The first milestone in the evaluation of Lundberg was the completion of an open pit mining plan in November, 2010 whose solid numbers led to the recently completed NI 43-101 compliant positive Preliminary Economic Assessment conducted by Wardrop Engineering.
Photos across: Buchans Glory Hole with Lundberg Head Frame; V.P. of Exploration Paul Moore in the BMC Core Shack; Lundberg Deposit, town of Buchans, winter at Lundberg Deposit.
16 Planning for Profits | Report on Mining | Fall 2011
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The study was based on a 5,000 tonne per day open pit operation with a mine life expectancy of 10 years. The project is estimated to have a net present value of $217.8 million at a 6% discount rate for a 43.94% internal rate of return with $471.5 million cash flow over the life of the mine. Operating costs during the first five years are expected to average $24.53 per tonne with revenues of $61.76 per tonne yielding a 2.5:1 revenue to cost ratio. The average yearly production is estimated to be 27.1 million pounds of zinc, 16.3 million pounds of lead, 5.5 million pounds of copper and some 164,000 ounces of silver. With an initial capital expenditure of $120 million, project payback is estimated at just 18 months. Mr. MacLeod said, “Our number one goal now is to communicate the solid Lundberg valuation numbers and the real value that exists in Buchans Minerals.”
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Stock Price At the time of writing, the stock price was sitting between .06 and .07 cents Canadian with a 52-week range of .03 to .18 cents. Mr. MacLeod said, “Buchans Minerals is ridiculously under priced right now. Based on the PEA at Lundberg alone the market capitalization should be at $40 to $50 million.” The industry average price to book is 3.6, and with Buchans currently measuring just .5, a share price of .40–.50 is certainly justifiable. Mr. MacLeod elaborated, “A fantastic buying opportunity for the seasoned investor might be presenting itself right now. The TSX Venture exchange has sold off some 40% this year and the typical summer doldrums are upon us, so it may be the best time in years to buy undervalued mining companies at bargain prices.”
Fall 2011 | Planning for Profits | Report on Mining 17
Andrew Forrest, M.Sc., B.Eng., is a Director and engineer with 10 years mining and related industry experience including exploration and feasibility determinations. He has worked in new mine construction in the Americas, Europe and Africa.
Lundberg Block Model
Base Metals Environment When asked to comment on the future of base metal prices, Mr. MacLeod asserted, “We are very bullish on zinc, copper and manganese.” On zinc Mr. MacLeod stated, “Total production is peaking and Brook Hunt has forecast a supply shortage by 2014–2015. This bodes very well for Lundberg going forward.” In addition to their Newfoundland base metal properties, Mr. MacLeod commented on their recently acquired Woodstock manganese property in New Brunswick, “Historical activities on this property indicate it demonstrates the potential to be one of the largest untouched deposits of manganese in North America. Given that there is no North American manganese production we feel there is an opportunity to develop these deposits.” Buchans will evaluate using leaching techniques to extract manganese from the ore at their Woodstock property and pending the result will aim to fast track the project towards the completion of a Preliminary Economic Assessment as soon as possible. Management Other key management include Paul Moore as Director and V.P. of Exploration. Paul holds B.Sc. and Masters’ degrees in Geology and has been in the mining industry for 24 years. His past roles include Senior Geologist with what is now Teck Resources and Anglo American Exploration. Mr. Moore has been with Royal Roads/Buchans since 2007 as V.P. of Exploration. Edmund Merringer LL.B., is the legal advisor and has been a Director since 2007. Previously, Mr. Merringer was a partner in the law firm of Borden Ladner Gervais. Director Steven Poad, C.A. brings solid financial management expertise to Buchans. Mr. Poad has worked with High River Gold Mines, Falconbridge Ltd., and as CFO with Colossus Minerals. 18 Planning for Profits | Report on Mining | Fall 2011
Future According to Mr. MacLeod, Buchan’s Minerals is at a crossroads right now. Management is not considering raising more capital through share issuance but is seeking private investors and partners for the Lundberg and Woodstock manganese projects. The Company will also be considering the possibility of spinning out either or both projects into their own companies. On the exploration front, Buchans is currently evaluating the Goldquest discovery on its 50/50 Long Range joint venture with Benton Resources with a view to identifying drill ready targets this summer. The Company also has additional base metal exploration targets in its 100%-owned Clementine West and Buchans North prospects. Both have demonstrated potential for high grade Buchans style mineralization with future development tied hand-in-hand with the Lundberg project. Summary The ideal window may be open at this time to obtain sizeable positions in Buchans Minerals. Firstly, Buchans has an attractive share price by any measure. Second, the broader TSX-V is off 40% so far this year. Third, Buchans is in a very stable operating environment with zero external risks. Fourth, the macro backdrop of rising base metals prices with forecast supply tightening is bullish and finally, Buchans’ stable of historic resource rich properties for just pennies per share. For additional information take a look at buchansminerals. com and for securities related data, sedar.com.
Buchans Minerals Corporation 247 Dill Road, RR 1 Windsor, NS, Canada B0N 2T0 Phone: 1.250.571.5453 Fax: 1.902.472.3521 Email: daryl@buchansminerals.com www.buchansminerals.com TSX.V: BMC Year Hi/Low: $0.175/$0.03 www.facebook.com/reportonmining
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Fall 2011 | Planning for Profits | Report on Mining 19
Resource Scarcity and the Lessons of History By Edward B. Barbier
T
he history of natural resource use and development, from the agricultural transition 12,000 years ago to the present, suggests that humankind has had to surmount successive scarcity problems: from Malthusian population-land “traps” to fossil fuel scarcity, and now, ecological scarcity. For example, before the Industrial Revolution (ca. 1775), finding and exploiting new sources of land and natural resources were fundamental to successful economic development and seen as an important objective of conquering and occupying new lands, monopolizing trade links, and colonizing and populating other regions of the world. However, since the Industrial Revolution and certainly over the last century, supplies of strategic raw material, mineral and energy commodities have become so cheaply available through global trade that natural resource scarcity is no longer viewed as an economic constraint. Technological applications to land, fisheries, forests and other natural resource endowments have become sufficiently productive and routine that we believe that human ingenuity and innovations can overcome any resource scarcity problem. Today, we are on the verge of a new era, the “Age of Ecological Scarcity”. For the first time in history, fossil fuel energy and raw material use, environmental degradation and pollution may be occurring on such an unprecedented scale that the resulting consequences in terms of global warming, ecological scarcity and energy insecurity are generating worldwide impact. If humankind is to succeed in overcoming these global problems, we need to develop low-carbon sources of energy, processes of production and technological innovation that require less environmental degradation and pollution. It will also mean instigating institutional changes, creating global carbon and environmental markets, and implementing new policies to foster a new era of “sustainable” economic development.
History has shown that such changes in response to scarcity have occurred before, and those economies that have instigated the transformation first have emerged as leaders. Often such transformations occur at the height of major economic crises, when it becomes clear that structural changes in the pattern of economic development are necessary. In any age of natural resource scarcity, there also appear to be winners and losers. The winners adjust to the changing economic conditions imposed by scarcity, innovate before other economies do, and end up dominating trade and economic relationships as a result. The losers fail to adjust to the new economic conditions arising out of resource scarcity, and are left behind. Over a thousand years ago, China, India and other Asian Empires were among the most powerful economies in the world, because their rulers adopted long-term strategies to parlay their vast agricultural and resource-based wealth into regional and then global dominance. Today, modern China, South Korea and other Asian economies look to green and clean energy investments and technologies as propelling their economies to the forefront of global trade and development, as well as securing a more sustainable economic future. The result is that China’s status as a world economic leader in the coming decades will depend less on its current efforts to manipulate its exchange rate and generate trade surpluses than on its long-term goals of dominating clean energy markets and technologies. In this regard, China understands how economic development should respond to natural resource scarcity better than Europe and the United States.
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China invested one third of its fiscal stimulus over 2008–09 on green measures, and is now the leading global producer of solar cells, wind turbines, energy-saving lights, and solar water heaters, is aiming to be the world market leader in fuelefficient cars, and is experimenting with green pricing measures and regulations. Europe is cutting back government spending, including on its green stimulus, and has failed to reform its inefficient carbon-trading scheme. The U.S. declined to back the 15% of its fiscal stimulus devoted to green measures with any meaningful carbon tax or cap-and-trade measures or even reductions in fossil fuel subsidies. Now in the United States the emphasis is on cutting back spending to reduce debt rather than developing a long-term economic policy to build and invest in the innovative economy of the future. The result is that the West can only watch as its lead in green innovations and industries is overtaken by the East.
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Nothing reflects more this disparity in approaches to natural resources scarcity and economic development than how the East and West view and use the term a “Green New Deal.” Of course the original New Deal was the series of far-reaching policies and programs launched by the U.S. Roosevelt administration in response to the Great Depression of the 1930s. In response to the current Great Recession of 2008–2010, a Green New Deal is supposed to represent an equally comprehensive set of policies and spending initiatives, which aims to stimulate economy-wide jobs and recovery while protecting the environment, boosting clean energy and encouraging low-carbon development. Whereas in Asia, the concept of a Green New Deal has been taken seriously, in Europe and the United States the terms is employed only as a public relations ploy.
Fall 2011 | Planning for Profits | Report on Mining 21
For example, in February 2009, South Korea announced a national Green New Deal plan of spending from 2009 to 2012 amounting to U.S.$36 billion, with the aim of creating 960,000 jobs, through investments in developing railroads and mass transit, fuel-efficient vehicles, clean fuels, energy conservation, environmentally friendly buildings, water management and environmental improvements. In July 2009, the South Korean government announced expanding its Green New Deal into a five-year development Green Growth Plan, allocating another $60 billion to the same priority areas for clean energy and environmental investments. In contrast, in the U.K., the Cameron coalition government calls its national plan to insulate millions of British homes a “Green New Deal”. To summarize, China, South Korea and other Asian emerging market economies are not reticent about taking the leap in promoting green sectors and technologies. The economic recovery policies adopted by China and South Korea over the past few years reflect the belief that investments in clean energy technologies can have a major impact on growth, expanding exports, and creating employment. If the U.S. and European economies are not be left behind, they must begin soon to join in this process and take the lead in a global strategy for promoting green growth. At the beginning of the Great Recession, at the request of the U.N. Environment Programme, I put together a global strategy for instigating a worldwide “green” recovery, called a Global Green New Deal. I argued that, although the over $500 billion devoted by the Group of 20 (G20) largest and richest countries to clean energy and other green expenditures or tax breaks was a good start, it was not sufficient to launch a sustained green recovery. Instead, implementing further green measures will require G20 economies to commit to increased public investments, new pricing policies, improving regulations, more aid disbursements and other policy changes. But the positive multiplier effects of any additional short-term green stimulus and policies in support of an economic recovery will be counterproductive if they lead to unstably large fiscal and trade deficits, long-run real interest rate rises and inflation. There is also concern that green stimulus programs that emphasize short-term employment and environmental effects may be less effective in creating jobs and growth in the longer term.
A new policy strategy to enhance a global green recovery is therefore needed urgently. The new strategy requires two essential elements. First, there needs to be coordinated global response led by the G20 to support the main objectives of the Global Green New Deal. It recommends an expenditure of 1% global GDP over a period of years on green initiatives. G20 countries should prioritize energy efficiency and clean energy investments, and developing countries should aim to improve agricultural productivity, freshwater management and sanitation. Such investments should be accompanied by a swath of domestic and international policies—from removing perverse agricultural, fishing and energy subsidies to taxing or trading carbon emissions, instigating tax credits for low-pollution cars and other cleanenergy innovations, financing the transfer of green technologies to developing countries and creating a global carbon market through climate change negotiations. Second, the G20 also needs to target and coordinate assistance to developing economies in science, technology and innovation (STI) for clean energy and energy efficiency. Such assistance is necessary to overcome the technical and market behaviour that low and middle income countries face as obstacles to clean energy investment. Most developing economies lack even the minimum research and development (R&D) capacity and skilled workforce capable of attracting the transfer of many energy efficiency and low-carbon innovations. Reform and expansion of the Clean Development Mechanism (CDM) would be one important means of facilitating STI in clean energy for low and middle income countries. History has shown that an economic strategy fostering incentives and innovation in response to scarcity has occurred successfully many times before, and those economies that have invested in the transformation first have emerged as leaders. China, South Korea and the rest of Asia seems to understand this lesson; the United States, the United Kingdom and the rest of Europe clearly do not. It is time the West wakes up and smells the potential of the (green) roses rather than fear the thorns. Edward B. Barbier is the John S. Bugas Professor of Economics at the University of Wyoming, USA. He is the author of three recent Cambridge University Press books, Capitalizing on Nature: Ecosystems as Natural Assets (2011), Scarcity and Frontiers: How Economies Have Developed through Natural Resource Exploitation (2011) and A Global Green New Deal: Rethinking the Economic Recovery (2010).
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