ML – McLeod Makes Deal with Russian Oligarch for Mercator Minerals

Intergeo is controlled by Russian billionaire oligarch Mikahil Prokhorov who is also the owner of the Brooklyn Nets NBA team (Credit: David Yellen/Forbes)

Intergeo is controlled by Russian billionaire oligarch Mikahil Prokhorov who is also the owner of the Brooklyn Nets NBA team (Credit: David Yellen/Forbes)

Running out of financial flexibility, Bruce McLeod’s Mercator Minerals (ML:TSX) has agreed to a merger/takeover by Intergeo which is a subsidiary of ONEXIM Group(controlled by Russian oligarch, Mikhail Prokhorov worth an estimated $13 billion).  The deal will see Mercator’s assets get a much needed injection of capital.  Intergeo’s controlling shareholder Daselina (part of ONEXIM) will provide a $14 million bridge loan as well as $100 million (including the loan) by way of $0.13 per share private placement.  They will then rename it to Intergeo Mining and it will be rolled back 1:50.  Current Intergeo and Mercator shareholders will own the combined company 85% and 15%, respectively.

John Lill, CEO of Intergeo, stated: “We believe there are tremendous opportunities to create value based on a well-funded business plan for Mineral Park and the combined portfolio of world-class development properties in El Pilar and Ak-Sug. We intend to focus our efforts initially on optimizing Mineral Park, bringing El Pilar to production and then developing Ak-Sug in a financially disciplined manner. We have assembled a highly experienced management team and board of directors to execute our vision.”

Mineral Park produces roughly 87 million pounds of copper equivalent per annum (Source: Mercator Minerals)

Mineral Park produces roughly 87 million pounds of copper equivalent per annum (Source: Mercator Minerals)

The combined company will have the Mineral Park copper-molybdenum mine in Arizona which produced 87 million pounds of copper equivalent in 2012 at an average cash cost of $2.51 per pound.  There is a 20 year remaining mine life on the project.  It is higher cost, however, with adequate financial backing it should be a viable project going forward.  Intergeo believes they will be able to expand the existing resource and improve recoveries from optimized blending and regarding in the circuit.

Mercator is also bringing the El Pilar “construction-ready” project into the combined company.  The project is slated to cost $459 million to produce average annual copper volumes of roughly 80 million pounds.  The mine has adequate resources for a 13 year mine-life.  Although not clear yet, it appears the intention is move this into full-scale construction in the near-term.  This offers lower cost production at an average cash cost of $1.34 per pound, LOM.  Mercator also brings El Creston in Mexico to the table as well, although that is largely undiscussed.

Finally, besides the financial backing, Intergeo is bringing the Ak-Sug large-scale copper development project located in Southern Siberia.  The plan is to build this large open-pit copper porphyry after El Pilar around 2018-2019.  The initial capex is $1.9 billion.  Cash costs are second quartile, at $1.16 per pound.

This looks like a ‘best case scenario’ for Mercator given their looming debt obligations and the soft molybdenum market.  Judging by Mr. McLeod’s comment (below) it appears this was their last resort option.

Bruce McLeod, President and CEO of Mercator, stated: “We are very pleased to be announcing this transaction today. It is the result of a comprehensive process undertaken to evaluate the strategic alternatives available to the company, and we believe it represents the most compelling opportunity for Mercator.”

Although this substantially dilutes Mercator shareholders, it is better than the alternative, and they benefit from having a large pocketbook behind them as well as access to a large development option in Siberia.  Mr. McLeod is an astute deal man having laid the groundwork for Capstone Mining (CS:TSX) via founding Sherwood Copper which was merged in 2008 to create today’s Capstone.  He also founded Creston Moly which was acquired by Mercator at a substantial value gain for shareholders.

Mercator shares have plummeted over 90% this year.

Here’s the chart:

ML Chart
ML data by YCharts

Read: Mercator Minerals and Intergeo Combine to Create a New Copper-Focused Base Metals Company

Related: The Merger Presentation

CPN – Carpathian Closes $19.4 Million Equity Raise for Brazilian Gold Mine

Carpathian Gold (CPN:TSX) 12 month chart

Carpathian Gold (CPN:TSX) 12 month chart

Carpathian Gold (CPN:TSX) has closed its second tranche of a planned $16 million equity raise led by Cormark and Macquarie.  Surprisingly, the bought deal was fully subscribed to including the underwriter’s purchase of $3.4 million worth of stock which enabled the company to raise a total of over $19.4 million.  This is a good sign for equity markets which have, essentially, been frozen for the past 12 months.

I spoke to an institutional investor from London yesterday who said, the European resource investors tend to watch Canadian resource companies over the summer months and then begin to pick up cheap stock at the end of August and early September.  These investors have been burned and so they have allowed these companies to get to historically cheap levels.  Now, it appears, some appetite is coming back and this raise is a good sign.

Carpathian's RDM deposit in Brazil

Carpathian’s RDM deposit in Brazil

Carpathian raised the money for working capital needs at its RDM project in Brazil.  RDM is on track to be in production by the end of Q3/2013.   The project is set to produce approximately 100,000 ounces per year at approximately $558 per ounce for over 8 years through a 7,000tpd open pit operation.  The project cost approximately $160 million to construct. Given the company is set to begin commercial production at 100,000 ounces per year starting in the next couple of months, the $90 million market capitalization seems in need of a re-rating.  It is important to note that mining operations are notorious for having issues during ramp-up which can lead to delays and cost increases.

Map of Carpathian's Romanian RVP project

Map of Carpathian’s Romanian RVP project

The company also has a large gold-copper project in Romania called RVP, which the market is assigning little to no value to.  The project hosts 7.19 million ounces of gold and 1.42 billion lbs of copper and is set to produce some 200,000 ounces per year of gold and 50 million lbs of copper per year.  At current gold prices, their Romanian asset is worth approximately $1.1 billion.  This project has been engulfed in the permitting process since early 2011 and investors are concerned with the ability to permit a project in Romania.  Given that no value is assigned in the markets to RVP, it offers a free option on anything that occurs there.  And in the interim a shareholder gets cash flow from a 100,000 ounces per year gold producer in Brazil,

NOTE: Luna Gold, another Brazilian gold producer, has a market capitalization double that of Carpathian and is guiding production of 80-90,000 ounces this year.

News Release here: Carpathian Gold Closes Second Tranche of Financing

Disclaimer: I own shares of Carpathian. These are just my opinions and not investment advice. Do your own due diligence.

True Gold Drills 70.5 Metres of 1.91g/t Gold at Karma Gold Project

True Gold Mining (TGM:TSXV)

True Gold Mining (TGM:TSXV)

Dr. Mark O’Dea’s True Gold Mining (TGM:TSXV) continues to drill good heap leach gold intercepts and this morning announced assay results from a recent 9 hole campaign at the Watinoma zone of the Karma gold project in Burkina Faso.  The company twinned a couple previously drilled RC holes and encountered the same widths with improved grades.  One of the twinned holes resulted in 70.5m of 1.91g/t gold whereas the previously drilled RC hole encountered 72m of 1.31g/t gold.  New holes included 11m of 1.92g/t gold and 20m of 1.05g/t gold.

Dwayne Melrose, President and CEO of True Gold said: “we are pleased with the results of the core drilling program and our exploration work to date at Watinoma. They confirm the presence of widespread near-surface gold mineralization and strongly support our goal of adding near-surface oxide material within trucking distance of our proposed Karma project processing facility.”

The Karma project is composed of five deposits; Rambo, Nami, Kao, Goulagou I and Goulagou II, which the company anticipates processing at a central plant.  They are currently working on a feasibility study to improve the economics of their PEA which was published in September 2012 and showed a low cost heap leach operation with $525 per ounce cash costs and manageable capex of $125 million.  O’Dea and company were able to secure a strong strategic partner in the Boston-based Liberty Mutal group who invested $23.5 million into TGM in July 2013 for 19.95% of the company.

News Release here: True Gold Intersects 1.91g/t Gold over 70.5 metres at Northern Karma Target

Financing News Release here: True Gold Announces $23.5 million Strategic Investment by Liberty Metals and Mining

CB Gold Announces Results of Preliminary Metallurgical Testing at Vetas Gold Project

CB Gold (CBJ:TSXV)

CB Gold (CBJ:TSXV)

In the world before Brazilian billionaire, Eike Batista fell from grace, CB Gold (CBJ:TSXV) was a market favorite.  Prior to Batista losing the vast majority of his wealth due, in part, to the commodity price decline as well as some unhealthy personal leverage, Colombian gold juniors had a bid.  In February 2011, after a few attempts, Batista bought Ventana Gold for $1.43 billion which sparked a huge rush into junior gold exploration companies in Colombia.  CB Gold was part of that rush.  However, unlike many of the others in the space, CB Gold appeared to have something real.  The company hit one of the best gold intercepts I have ever seen; 114.98m of 7.57 g/t gold at its Vetas Gold Project.  This was at the end of October 2011 when the stock began to run from $0.70 per share to $2.00 per share.  During that time, Ross Beatty invested $11 million at $1.10 per unit through his Lumina Capital.

Once the damn broke and all of the ‘risk’ money fled the junior markets, CB Gold was left to hit lower lows on less and less liquidity.  While that was happening, the company was quietly moving the project along.  The company has continued to drill (albeit less aggressively) and has continued to hit intervals of high-grade gold at its Vetas Project.  Today, the company announced preliminary metallurgical test work for the Vetas Project.  The results showed 94% recoveries from cyanide leaching and 96.1% from a combined gravity/flotation concentrate.  The company recently completed its 2013 exploration program which was minimal due to management’s goal of conserving cash given the macro-environment.  The company will work towards a NI 43-101 project, but doesn’t sound to be in a rush to complete one, again due the market conditions.  This appears to be the case of another exploration company with a potentially world-class asset not being able to substantiate their project due to the fear of having to raise money at the current, dilutive, prices.

News Release here: CB Gold Inc Announces Gold Recoveries

Fission/Alpha Find Fourth Mineralized Zone at PLS

Fission Uranium (FCU:TSXV) and Alpha Minerals (AMW:TSXV) announced this morning, after being halted late yesterday, that they had discovered a fourth mineralized zone at their Patterson Lake South Discovery.  The fourth zone, R945E, is located 165m grid east of R780E zone and extends the total strike length of the PLS deposit to 1.05km.  Hole PLS13-084 hit 2.7m of ‘off-scale’ radioactivity in a total mineralized interval of 18m and the hole is still being drilled; currently at a depth of 302m.

Alpha Minerals (AMW:TSXV)

Alpha Minerals (AMW:TSXV)

Fission Uranium (FCUTSXV)

Fission Uranium (FCU:TSXV)

Fission’s President, COO and Chief Geologist, Ross McElroy said: “with the discovery of this mineralization at section 945E, we have now identified a 4th separate mineralized zone along a strike length of just over 1km. The significant breadth of mineralization in this drill hole will be aggressively followed up. Taken as a whole, this is further evidence that PLS is host to an extensive mineralized system.”

News Release here: Alpha/Fission Discover Fourth Zone at PLS

Mixed Second Quarter Results for Pacific Rubiales

Ronald Pantin - CEO of Pacific Rubiales Energy

Ronald Pantin – CEO of Pacific Rubiales Energy

Pacific Rubiales (PRE:TSX) the Colombian oil producer, headed by Co-Chairman Serafino Iacono, announced its second quarter results which were somewhat mixed.  PRE saw its net earnings diminish from $224 million ($0.76 per share) in Q2/2012 to $58 million ($0.18 per share) in Q2/2013.  The reason for the reduced earnings was foreign exchange losses as well as a 6% drop in the realized price of oil.  Even with a lower oil price, the company was able to sustain strong operating netbacks at $64.54/boe versus $60.88/boe in Q1/2013.  The company grew net production by 38% year-over-year to 127,555boe/d

“The Company is delivering on its promise to reduce oil operating costs by approximately $8/bbl pro-forma by the end of 2013, and we expect there will be more to come. During the current quarter the total of oil transportation plus diluent costs decreased by approximately $5/bbl compared to the prior quarter and the same quarter last year,” says Ronald Pantin, CEO of Pacific Rubiales. 

The company intends to continue its cost optimization program while at the same time receiving its permits on some key exploration blocks.  One of these blocks is the CPE-6 Block which the company expects to receive a blanket exploration and development license for in Q3/2013.  The company plans to drill five exploration wells in Q3 with 23 wells to be drilled in Q4, including six on the CPE-6 Block.

News Release here: Pacific Rubiales Announces Second Quarter Results

New platinum ETF doesn’t bode well for South African miners

Many analysts are claiming that new platinum ETF and trust products such as Sprott’s physical products have begun to wreak havoc on an already beat up and battered South African platinum industry.  Just as the gold ETFs did in the gold run over the last decade, these new platinum products could rip billions of investment dollars out of the hands of South African miners (Anglo American Platinum, Lonmin and Aquarius all down double digits this year) and into the ETFs as investors are less interested in the ‘leverage thesis’ of commodity producers and instead choose direct investment in the bullion.  However, platinum producers can’t get off that easy for their stock’s price declines.  South African producers have been the epitome of underperformance due to wide-spread cost increases caused by civil unrest and labor disputes which have cost these companies billions in losses.  Some of the largest inflows of capital into these platinum ETFs are South African institutions themselves, which doesn’t bode well for an already out of favor sector.  Investec’s Marc Elliott claims: “…right now, with the distress that pretty much every single mining company is in, it’s certainly better to hold the commodity than the equity.”

Deadly civil unrest has plagued South African miners over the past year

Deadly civil unrest has plagued South African miners over the past year

A Vancouver Landlord’s Secret

© Aleksandr stockfreeimages.com

With the market the way it is right now, some junior exploration companies are simply not going to survive. Since most of them are in Vancouver, we thought the city’s commercial real estate might offer some insight into which ones will.

We spoke with one Downtown Landlord about their experiences with resource companies as tenants. This slowdown in the markets shouldn’t affect them. “We have been fortunate in having very few defaults over the years.”

The landlord talked about how they evaluate a junior exploration company as a creditor and how they structure a deal. Their method has been responsible for almost a decade of relatively trouble-free leases. That kind of deal making with negative cash flow companies is definitely worth noting. Here is how they do it.

Firstly, the company evaluates the longevity of a venture-funded tenant by calculating their burn rate and comparing it to their cash position. This gives them a historical picture of how many years they have left to survive if they continue to operate as is. It helps them decide the length of a particular leasing contract but is limited in that it cannot always reflective of what could happen in the future.

Secondly, the company usually negotiates a pre-paid rent component as part of the contract. This is actually a bit of a benefit for both companies as it decreases the likelihood of a default while keeping the payment as an asset on the tenant’s balance sheet.

Lastly, the company tries to get a personal covenant from the CEO or another executive in the contract. This is the kicker, and the one that stood out to us the most. By turning away companies with leaders who weren’t willing to personally attach their name to a rent liability, this company has been able to find and retain the best exploration companies in the sector. Management that is willing to sign a personal guarantee are genuinely the ones to succeed over the long term.

That little piece of knowledge is what you can’t find in an MD&A and would probably have a significant impact on your investment.

 

Disclaimer: As a CFA Level I Candidate, I am required to disclose the following: I am not qualified to be giving investment advice and this should not be taken as such. The contents of this article are an opinion drawn from material public information. I reserve the right to actively trade the companies named in this article without providing notice. I advise you to do your own due diligence and talk to a licensed investment advisor before buying or selling any security. All facts to be verified by the reader.

A Recluse Exclusive

Ivan Glasenberg

Ivan Glasenberg – Photo: Daily Maverick

CEO Ivan Glasenberg, a superstar trader in the commodities industry, is being catapulted into the media spotlight after his company, Glencore, is to merge with Xstrata. Though the merger stands to make this billionaire an even wealthier one, it may come at a price not measured in dollars.

Having made past deals with Apartheid South Africa, Ayatollah Khomeini, and being suspected of tax evasion in destitute regions of Zambia, Glencore is a company with a mixed reputation. This sentiment is felt strongly by Glencore’s hometown of Rüschlikon, which is having second thoughts about using the enormous tax windfall Glencore has afforded them, as they feel the money is “tainted”.

In light of the attention the merger will bring, Glasenberg has retained UK law firm Shillings, notorious for issuing far reaching gag orders on media, though such a move may only further entice curious reporters, and media people alike.

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The Magic Of Happiness

Bloomberg|GAMECHARNGERS aired a documentary recently of one of my personal hero’s, Ervin ‘Magic’ Johnson. In this 44 minute film we learn from and are inspired by Magic’s successes as a human being both on the court, in dealing with HIV, and in building a business worth over $700 million dollars.

In this video we witness the magic of happiness; how the two wings of wisdom and compassion are an unstoppable diving force towards success and health. Watch:

Bloomberg

Web Legacies Of The Super Rich

I know some very rich people who squirm at the thought of any online attention, some who pay top dollar to consultants who promise to keep their names offline.

But I’m also starting to see a rise in rich people growing more comfortable with the Web. Wealthy people have been asking me more questions lately about publishing tools such as Twitter, Youtube and WordPress.

Like everyone else today, the wealthy are thinking about managing their personal brand online. The difference is that, while most people go online to connect with friends or promote their businesses, the rich want to shape their legacy.

It’s a modern version of the old question: What do you want your tombstone to read?

For example, billionaire takeover titan Sir Jimmy Goldsmith died in 1997, but his estate has done a marvelous job of designing his website (pictured).

Jimmy Goldsmith
Photo: SirJamesGoldsmith.com

Harrods Chairman Mohamed Al-Fayed is still alive, but he already has a well produced – and likely expensive – personal website, as does Microsoft founder Bill Gates.

I predict that, as today’s aristocrats age, many of them will undertake their own web legacy projects, and a niche production market will grow at the intersection of art, technology, history and public relations.

But, as I learned when I had a web design business, website projects have a habit of never ending. There’s always a tweak or two that needs to be added. Usually, people put a stop to it, but the super wealthy have the money to indulge their desires for an electronic monument that is living, even if they aren’t.

In this new industry of web design for the super rich, the best service providers will surely be on the speed dials of the wealthy.

People like Victoria, BC-based super designer Andrew Wilkinson can command $50,000 just to talk to you about a design (Note you can buy his templates for $50 apiece here). Ace storyteller Tony Wanless has a service for $35,000 to relax you and talk the content out of you, (but you can probably talk him down to $25,000).

In Walter Isaacson’s biography of Steve Jobs, which is a version of a legacy project, (Apple is a pretty good legacy in itself), Jobs let it all hang out.

But, let’s face it, most people want to cast themselves in a shining light, or at least have some control over their message.

In an age when we’ll all have our own mausoleum websites, what will yours say about you?

Would you take the Steve Jobs route, or would you shine up your image?

A Billionaire’s Bet on Inflation – Frank Giustra Interview

Frank Giustra in conversation with Tommy Humphreys

We had the opportunity to sit down with Frank Giustra last week, the lion behind Lionsgate Films, and an early architect of countless resource companies—most notably Wheaton River Minerals (now known as the $33B Goldcorp, which spun out the $12B Silver Wheaton), Petro Rubiales (now the $7B Pacific Rubiales), and Urasia Energy.

By all accounts Giustra is brilliant, connected and wealthy. He made headlines in 2007 by pledging over $100 million and half of his future earnings to establish a charitable foundation with President Clinton. Outside of philanthropy however, Giustra has been reluctant to draw attention to himself, and rarely speaks publicly about investing.

In 2002 however, he moved heavily into gold and published, “A Tarnished Dollar Will Put the Shine on Gold”, when it was trading under $300 an ounce. Ten years later and with gold now priced over $1600/oz., it still occupies the largest percentage of his investment portfolio, and his views remain the same.

In discussing gold during the interview he said, “I believe it’s going a lot higher…it’s going to have a parabolic spike, caused by some event or some loss of confidence…a US dollar crisis would be a perfect example. That will cause gold to go through the roof, and then everybody will want to own it…I don’t think we’re even close to that yet…Gold will probably have a much greater run than some of the other hard assets–because it’s also a currency.” (19:16)

On the subject of inflation he remarked, “It’s easier to make money with inflation than with deflation. All you need to make money with inflation is money…Those that influence policy are usually the ones that have access to money, or can borrow it very cheaply… They have a conflict of interest… [Inflation is] where a lot of people are getting rich, and the public is being educated—quote “educated” to accept that type of [inflationary outcome].” (11:10)

When asked about the parallels between today’s Western societies and previous civilizations, he replied that a strong example would be, “Sixteenth century Spain. In just over 100 years, it went from an almost nothing nation, to a great empire, and back to a nothing nation. They became a consumption economy…They waged a number of wars with almost everybody on the planet…because they felt they were a superior nation…[and] that’s what’s happening in America today…There’s no way out except currency debasement.” (15:30)

With respect to the mining shares, he said, “The resource market is in the worst state I’ve ever seen it in…people usually connect irrational and stupid market behavior with peaks of markets, but it takes place at the bottom of markets too. And it’s just as bad [at bottoms]…fear is a much stronger emotion than greed…[There are] companies developing world-class assets trading at pennies on the dollar.” (21:50)

Additional topics discussed included agriculture, success, and mentorship (31:07).

Giustra’s predictions for the western world economies are sobering, but his view of the resource sector is optimistic, and his case for inflation is impossible to ignore. We feel this interview is required listening for all those who seek and desire wealth.

So without further comment, here is billionaire mining and entertainment mogul Frank Giustra in conversation at the Vancouver Club last week. Special thanks to Cambridge House and VC for putting us up, and to Frank for joining the program.

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Silicon Valley Pioneer Tom Perkins’ Loft

Venture capitalist Tom Perkins puts his bold stamp on his San Francisco apartment  WSJ

VC Tom Perkins loft/apartment by Drew Kelly for WSJ
(Source: Sir. Dave Kelly – WSJ)

This is an unreal, visual piece of wealth content from WSJ.

“Another project,” for Mr. Perkins.

Genentech, Sun, Amazon, Netscape, Compaq, even Google, were just a few Kleiner Perkins deals…

Further exploration:

  1. Tom Perkins – The Captain of Capitalism (2007). Leslie Stahl. 60 Minutes
  2. Maltese Falcon mega sailing yacht. SY Maltese Falcon
  3. Valley Boy: The Education of Tom Perkins. Amazon
  4. Home page. KPCB