TGR: Do you have any picks in the platinum space?
LR: Within the precious metal realm, platinum has very favorable economics, even better than gold. Platinum is primarily an industrial metal and its fundamentals are very positive. There are not a lot of platinum companies to choose from. I particularly like Wellgreen Platinum Ltd. (WG:TSX.V; WGPLF:OTCPK;). The company's new management team has re-evaluated what was previously seen as a large, low-grade nickel-copper deposit. Now, that type of deposit often has platinum associated to it. Wellgreen re-thought its geological approach and re-assayed a lot of the old drill core. Then, it drilled new holes and confirmed its new geological interpretation: It is now looking at one of the most attractive, undeveloped platinum deposits on the planet.
TGR: What is going on for precious metal juniors in Asia?
LR: There is a great company in Fiji called Lion One Metals Ltd. (LIO:TSX.V; LOMLF:OTCQX; LY1:FSE). It recently bought a deposit that had been evaluated about a decade ago by a company that was operating a nearby mine. The previous company had planned to develop the deposit as a satellite. But the main mine went bankrupt and the situation was tied up for years until the Lion One group bought the deposit. Lion One has re-evaluated the old drill core and by re-assaying it found significant intervals of gold that had not been picked up in the previous round. It has drilled quite a number of new holes and confirmed the presence of a very substantial area with a high-grade gold occurrence. It is moving toward permitting and developing a new mine.
TGR: What about Mexico?
LR: Our Resource Opportunities newsletter has had huge success covering the early days of First Majestic Silver Corp. (FR:TSX; AG:NYSE; FMV:FSE) andEndeavour Silver Corp. (EDR:TSX; EXK:NYSE; EJD:FSE). We are now looking for companies following a similar path. Santacruz Silver Mining Ltd. (SCZ:TSX.V; 1SZ:FSE) fits that trajectory. Remember, First Majestic and Endeavour achieved fantastic success by developing past-producing silver mines and then bringing subsequent mines on with a strong operating team. Santacruz has four silver deposits with past production. The company has now brought the first mine into production. It has started development on the second deposit and the other two are in the pipeline.
I really like the model of looking at past-producing mines with a data set in place. For example, Cayden Resources Inc. (CYD:TSX.V; CDKNF:NASDAQ) has optioned a Mexican property from a major that was not quite able to put all the pieces together for a district-scale play. Cayden is coming up with very good results that support the idea that there are a number of significant gold deposits along what could become a very substantial trend.
Another firm looking at past producers for redevelopment is Western Pacific Resources Corp. (WRP:TSX.V) in Utah. The company has the Deer Trail mine with a production history spanning more than 100 years. There is already a mill in place. Western Resources just announced a financing package intended to bring that property back into production. In fact, I recently worked with a U.S. private equity group to put the Western Resources package together. There is a really interesting twist to it: base metal streaming.
TGR: Please explain the nature of this streaming.
LR: Most investors in the precious metals sector are familiar with Silver Wheaton Corp. (SLW:TSX; SLW:NYSE) and its silver streaming strategy. Streaming is fronting the cash to buy the right to the output of a particular metal over the life of a mine. Silver Wheaton has put up billions of dollars to assist a large number of companies to bring their mines into production or to expand existing operations.
This private equity group is doing it from a different perspective: It looks to stream only the byproduct—the base metals production—of a precious metal company. The company gets access to capital and is able to keep control of its precious metal production. The public companies in this space get a higher multiple on income from precious metals than they do on income from base metals. Streaming is basically a value creating mechanism.
TGR: Who else does this?
LR: A number of private equity groups are looking at doing it. But we have not seen any other transactions of the type that we did with Western Pacific Resources—streaming a byproduct from a precious metal-dominant mine. Sandstorm Metals & Energy Ltd. (SND:TSX.V) streams, but its deals access the dominant base metal stream.
TGR: Any final thoughts about gold today?
LR: The message for the non-crybabies is that the resource market is notoriously cyclical and it makes a whole lot of sense to come in at the bottom of the cycle. Evidence is mounting that we are close enough to the bottom of the gold cycle and the resource market cycle that this is a good time to acquire shares in the best quality junior companies.
TGR: Have a good day, Lawrence.
LR: Thank you.
Lawrence Roulston is an expert in the identification and evaluation of exploration and development companies in the mining industry. He is a geologist, with engineering and business training, and more than 30 years of experience in the resource industry. He has generated an impressive track record forResource Opportunities, a subscriber-supported investment newsletter. Roulston has launched an investment fund, the Metallica Development Fund, to take advantage of severely oversold positions in high-quality resource companies. The focus of the fund is on companies with production and/or advanced-stage exploration and development projects—companies with potential for near-term recovery in value that also have potential for longer-term growth.