Encouraging Article
Tanzania: Resource Rich and Mining Friendly
By Mobile Guru
With all that shines still be golden and the fact we are finishing up 2010 in the $1400 area for gold the projection of $2000/oz does not seem that crazy. Whether gold corrects some this year or continues on its bullish run finding junior gold companies can be very good investments. Keep in mind historically there are certain times to invest in a specific junior gold company and other times when the return may not justify the risk. As seen in this chart the initial run a junior development company makes is based on turning speculation about reserves in to actual drilling results. As these results are better known the stock reacts accordingly. At some point one of two things will happen. Either the company will go find the necessary capital to go into production which as seen on the chart shows the long road and a price decline as much of the excitement fades or they will simply get bought out by a much larger company and folded into them. Those that stay the course over the years and actually put their mine into production eventually are rewarded but it is a long road with many potential road blocks. A good example of that would be the Kensington mine that Coeur d'Alene Mines took years getting permitted and is finally in production. One company who is following this chart to the letter is Canaco Resources Inc. (CAN.V). Rising from roughly .50/share to a recent high over $6 they have had a great year. Relatively unknown a year ago they have spent the last year drilling in the Company's Magambazi gold discovery located in the Handeni region of the United Republic of Tanzania and is roughly 200 square kilometers of exploration space. Since starting their 10,000m+ diamond drilling program at Magambazi and Magambazi North they have continued to provide timely updates to investors of their very successful drilling program. This information has obviously led to the incredible return of the companies stock. Where it actually peaks will have a lot to do with actual reserves. Their market cap is now roughly $900M and will continue to rise as additional drill results identify other new key deposits. Another company with one of the largest land holdings in Tanzania is Barrick Gold Corporations (ABX) African spin-off African Barrick Gold (
ABGLF.PK) that currently has a $3.8B market cap. Spun off just 9 months ago they have over 17M reserve oz and are in the production valuation phase on the chart. A third company that also fits on the chart is Douglas Lake Minerals Inc. (DLKM.OB). Recent changes within the company have changed its Chairman of the Board and given it access to four PLs(prospecting licenses) which as a whole represents one of the largest continuous and adjacent land position in the Handeni District, and the boundary area is geologically contiguous to Canaco's Magambazi gold project and covers 800 square kilometers(see graph). The new Chairman of the Board is Reginald Mengi who is owner and Executive Chairman of IPP Limited, one of the largest private sector holding companies in Tanzania with subsidiary companies engaged in mining, manufacturing, bottling (Coco-Cola products and Kilimanjaro drinking water), and media which includes television, radio and newspapers. Current Market Cap is around $100M. In my mind there are two keys when looking at gold development companies. One is do they have access to capital which will be needed in order to prove out reserves? In this case the answer is probably yes based on the new Chairman of the Board and his vast resources. The second question is always what are the chances they will find significant reserves? A company can own all the property in the world but if there is no gold then it is not worth anything. In this case with their property surrounding the Canaco Resources property on three sides some level of understanding can be inferred from the positive Canaco drilling report. Plus they have just started early phase exploration using a fixed-wing aircraft and doing an aeromagnetic and radiometric survey to identify key target zones. This is the first step in a beginning exploration plan for an area that Canaco Resources is proving to be very rich in reserves. As with any early stage mining company the risks are high. Lack of funds, not being able to work with the local government and hard to get licenses can derail even the largest of companies. Not to mention proving up reserves is the ultimate goal to either eventually go into production or sell out to the highest bidder. I am long Douglas Lake Minerals (DLKM.ob)Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.