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Good news for miners...
There have been some very significant and exciting developments in some of my favourite junior miners over the past few days.
One’s discovered what has the potential to be one of the biggest diamond deposits in the world; a second has struck gold; and the world's fourth-biggest silver producer has bought a 5% stake in a third.
So let's take a closer look at how these companies are doing…
African Queen could be the stock you retire on
Many of you bought stock in Pan African Mining when I tipped it around $2.30 last spring. Run by entrepreneur Irwin Olian, Pan African had several exciting properties in Madagascar, and various others across Southern Africa, including some gold exploration in Mozambique and some diamond exploration in Botswana.
The Madagascan properties were bought out by Asia Thai mining. The Southern African assets were spun into a new company, African Queen Mines (TSX.V:AQ; Frankfurt:QM0). For each Pan African share, shareholders received $4.50 in cash plus a share in African Queen. These listed in autumn as the market was selling off and have since traded in the 6c-12c range. Then on Monday morning, the company announced that its early sampling suggested that it may have found diamonds in the Okavango Project in Botswana.
This is a remote area covered by the thick (60 metre) sands of the Kalahari desert. There is no record of diamond exploration ever having taken place here. But there's a chance African Queen have hit a bullseye.
Why? There isn't space to go into as much detail as I would like, but without getting too technical, several factors such as the chemical make-up of the ground, and the layout of the landscape itself (for those who would like the full low-down, I suggest you read the report for yourself; all suggest the distinct possibility of a major, diamond-yielding kimberlite field on the property.
The company is now planning a drill programme for February next year. If you still own any stock in African Queen, do not sell it. It's still speculative, it's still exploration, but there's a chance this could be the stock you retire on – and you got it for free. Watch this space.
Sacre Coeur remains on track to be an elephant gold deposit
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Mr Olian is having a good week. I tipped his other company last week, Sacre Coeur Minerals, at 25-30c. Sacre Couer has some gold-copper deposits in Guyana that they are developing. Having only explored some 2% (Zone 1) of the surface anomalies, they have already proved up close to 500,000 ounces of gold. Yet, such is the state of the markets, they were barely trading above the value of the cash they had in the bank.
On Friday we got the initial drill results for Zone 3, next to Zone 1. Straight off the bat, their core drilling intersected a porphyry-type mineralized body containing significant grades of gold, copper and molybdenum. What's that mean in English? It means that this remains on track to be an elephant gold deposit.
The stock shot up to 65c and then closed last night at 55c. It's likely that those risk-takers who bought in the 20c range during the November sell-off are taking some profits and fair play to them. They've doubled their money. But this is one to hold. It could go a lot higher yet.
Good news for GORO
Finally we had Gold Resource Corporation (US:GORO), a junior gold miner in Southern Mexico, and an old favourite. I first tipped this as a buy below $3 in late 2007. We got up to $6 by the spring, then in the collapse of October-November, we went to $2. It's now trading just below $3 again. But in the meantime, the company has been making serious progress.
Aurelian's 'Fruta Del Norte' project in Ecuador, now owned by Kinross, was one of the great gold discoveries of the last 25 years. Many keep asking, who is the next Aurelian? The answer could well be GORO. The group's CEO Bill Reid, who has put six mines into production, describes his El Aguila project as having as "the best metallurgy I have ever seen".
He's obviously biased, but his statement is backed up by his drill results. The company has been returning bonanza grade after bonanza grade. And the deeper it drills, the more gold and silver it seems to find. In October alone it increased its resource by more than 60% and its 2010 production target moved from 120,000 ounces per year to 200,000. Its cash cost, once you offset base metal production, will be close to zero (yes, zero). Assuming gold at $800 an ounce, that is an income of $160m yet GORO's market cap is barely $115m.
Last week, London-listed, Peru-based
Hochschild, a mid-tier gold producer and the world's fourth largest silver producer, said it had taken a 5% stake in the company – at a significant premium to the market price. Hochschild clearly sees what the market hasn't.
Hochschild's backing will be useful. Mining is an expensive business and things can easily run over budget. Financing, however, has become a major problem in this credit crunch. One Canadian company with some thirty million gold ounces in the ground recently struggled to raise C$20m. Reid may or may not need the money, but it is useful in these cash-strapped times to have it in reserve and to have access to a cash-rich company should he need it. What's more the funding will speed up production and accelerate revenue.
And Hochschild brings more to the table than just money - it will give GORO more market credibility. It will also be a great source of mining expertise as GORO's mine moves in 2010 from open pit to underground, and will help in other essential areas, such as negotiating contracts with smelters. Reid argues that any dilution is offset by the huge, unexpected increases in resource we saw in October. In short, GORO remains an excellent junior mining play.
This is my last Money Morning for this year. Have a very Happy Christmas - go easy on the mulled wine and thanks so much for reading my Money Mornings over this past year. It's been a real pleasure writing them. Here's looking forward to the Great Gold Bull Market of 2009.
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