Look how under valued is HBK ?. Time to buy.
To hit pay dirt --just dig: The road to riches is paved with gravel, believes a Vancouver miner with a big plan
National Post
Wednesday, December 20, 2006
Page: FP3
Section: Financial Post
Byline: Drew Hasselback
Source: Financial Post
The mining boom has many investors rushing to cash in on high-value commodities such as diamonds or gold, but Marco Romero thinks his fortune awaits in a much grittier business at the other end of the value spectrum--gravel.
Mr. Romero is chief executive of Polaris Minerals Corp., a Vancouver-based junior that is weeks away from launching production at Canada's largest gravel pit, the Orca Sand and Gravel project on Vancouver Island.
"It's the most stably priced commodity you will ever see," Mr. Romero says. "It's one of those salt-of-the-earth industries that's always there, just part of the background noise."
Orca has reserves to produce about six million tonnes a year of gravel and sand for at least 25 years. The plan is to ship output from Orca by sea to ports along the coast of California, which Polaris believes to be facing a massive gravel shortage over the next 15 years.
"We're facing very stable, long-term business prospects," Mr. Romero says. "In fact, these quarries, once they mature, with the commodity price maturity that they offer, are very often much like utilities."
Annual production at Orca will start at about 1.5 million tonnes, then rise to full production capacity within seven years. Polaris expects the US$93.1-million project to generate US$3.5-million in cash flow during the first year, rising to US$46.6-million by full production in 2014.
Polaris went public on the Toronto Stock Exchange a year ago, selling 13.5 million shares at $4.80. Mr. Romero says the company went public reluctantly to finance the development of Orca. Attempts to raise funds privately didn't work, because financing partners were often too interested in taking control of the business, he says. "Every time we talked to someone about financing our business, they wanted to own it; they wanted to control it," Mr. Romero says. "We didn't want to lose control of the business because we think we have very significant growth prospects."
Just under three billion tonnes of gravel were produced across the United States last year at a total value of about US$17-billion. In terms of tonnage, gravel is the largest mined commodity in the United States. According to the U.S. Geological Survey, the price of gravel averaged US$5.70 a tonne across the U.S. during 2005. The price has risen about 13% since 2001, enough to keep slightly ahead of inflation.
While that hardly compares with the more than threefold rises in the price of copper and nickel, the gravel business has also avoided much of the volatility. "We got involved with this in 2000, when all the base and precious metals were in the tank," Mr. Romero says. "We were looking for something that made sense in the long term."
The gravel business is usually a regional affair, with local quarries supplying local construction firms. About two-thirds of the cost to the customer comes from trucking the gravel from the quarry to the customer. Polaris believes that by mining its gravel on Vancouver Island, then shipping the product south by sea to California, it will be able to compete with regional producers along the U.S. West Coast.
Polaris has signed a 10-year deal with CSL International Inc., the shipping company owned by the sons of former prime minister Paul Martin. According to Polaris, shipping sand and gravel by sea from Vancouver Island to San Francisco costs about half the price of trucking the same amount of material 100 kilometres by truck from a quarry at Stockton, Calif.
Catherine Gignac, analyst with Wellington West Capital, said gravel is a lot simpler and cheaper to mine than traditional commodities, such as copper or gold. Gravel mining is more of an "earth moving" exercise, she says. The ore is simply dug up, sorted, stockpiled and shipped. Very little expensive processing needs to be done, such as the smelting or leaching that is done to nickel or copper ores. The output from the Orca project near the northern tip of Vancouver Island will be used to make cement. "The uniqueness of the Orca sand and gravel is the ratio," she says. "It apparently has an ideal sand content to make better concrete."
It's not all risk free. Ms. Gignac notes that a key risk facing Polaris is whether the company will be able to ramp up production at Orca as fast as it expects. "It is planning a ramp up over five years to six million tonnes or full capacity. If demand is high and the company increases production sooner, can it sustain the volume and quality?
Quarries in California are depleting reserves. Local residents, angered by the noise and dust, are battling against the expansion of existing gravel pits or the development of new ones within the state. Mr. Romero says California demand was about 142 million tonnes in 2005, or 13 million tonnes ahead of supply. He expects its demand to grow 25% by 2020.
Supply, meanwhile, will drop by almost 50%, widening the state's supply deficit to about 88 million tonnes. California has announced a plan to spend more than US$200-billion over the next 10 years to upgrade the state's ageing network of roads and public institutions.
Polaris expects to receive US$6.69 a tonne for the gravel from Orca during 2007, rising to US$7.82 in 2008 and US$8.67 the year after that.
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POLARIS MINERALS CORP.
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