Found this article that was done few months back. Called for a focus on unique metals.
Leonard Melman, prodigious writer (The Melman Report) and leading authority in the metals and mining arenas, sees opportunity for some "really good moves" and "fabulous returns" on the horizon, citing vibrant charts on random juniors whose values have multiplied during the last six months. Also noting the possibility of some "good price pops" in the metals themselves, Leonard considers the price of the base metals as a real key to the future of the economy. On the other hand, he shares some serious concerns about the economy in this exclusive interview with The Gold Report. For example, he is alert to several "ominous red flags" that warn of the potential for devastating hyperinflation and worries that the Humpty Dumpty of savaged financial assets may be beyond repair.
[Editor’s Note: For Part 1 of this interview please click here]
TGR: So investors who are dabbling in the juniors market should be watching metals prices carefully as a signal of when, potentially, to take profits.
LM: Exactly. And there’s an additional point. The markets always tend to look ahead and the base metals are no different. So if the price of the base metals starts to rise unaccountably, that’s also a positive indication that this economic recovery or boomlet will indeed take place. So the price of the base metals is a real key to the future of the economy—at least it’s a good solid indication. And the precious metals are also historically very good indicators of monetary stability or instability. So price is a vital consideration.
TGR: Can you share with us some of the juniors you track that are good examples—with good balance sheets and good properties and poised to take advantage of the price in metals as it goes up?
LM: There are several categories within base metals and precious metals, but also specialty metals. One company I have studied at some length is Commerce Resources Corp. (TSX: V.CCE). One particular advantage Commerce has is that they raised considerable cash during the time when their stock was much higher, which was a very, very advantageous thing to do. The cash raised was then used to conduct a very substantive investigation program throughout 2008. They’ve recently reduced their burn rate, the rate they’re using up their capital. They still have more than enough work for their geologic team to thoroughly analyze all the drilling they did last year and put together plans to advance the property, which is located near Blue River, British Columbia, toward production.
By the way, the two metals that Commerce is concerned with are tantalum and niobium and a great number of new uses for those metals are being developed. So they have the potential to move forward because they have cash reserves on hand. If I had to pick a number, I’d say they probably have $11 or $12 million Canadian still in their treasury. That’s a good example of a balance sheet working in favor of a company.
TGR: What are some of the uses of tantalum or niobium?
LM: In general, tantalum and niobium are suitable for applications requiring hardness, resistance to extremely high temperatures, and the ability to store and release electrical charges quickly, so they’re ideal for aircraft, motor parts, cell phones, and particularly for capacitors where electricity changes in fluctuation very rapidly. And, as mentioned, new uses are being discovered and coming forward very rapidly.
TGR: Do you think there will still be a demand for these metals if we face more economic downturn?
LM: There is a moderate demand. Because of the economic slowdown, a lot of manufacturers have cut back production. I’m thinking as soon as it appears clear that the economies are going to advance, there’s going to be a great deal of catch-up on the part of these manufacturing companies to rebuild their inventories of tantalum, niobium and other specialty metals. So I look forward under those circumstances to a very sharp increase in new demand to come into the market.
And there’s something else very interesting about tantalum. Much of the supply that has been entering the market for several years has come from the Democratic Republic of Congo, or DRC. But the DRC right now is afflicted with huge social disorder and so there’s an uncertainty about the future supply from there. Also, DRC production is being carried out in an anti-environmental manner. For those reasons, many of the end users of tantalum are specifically looking for a good North American supply and that’s where Commerce Resources’ reserves in British Columbia could become very advantageous.
TGR: I know you’ve also been following some silver companies and a lot of them were in Mexico. We’re getting a lot of press now about Mexico, specifically all of the drug wars and kidnappings and such. If you’re reading resource papers, you’re hearing a lot about Mexico’s depleting oil supplies and a potential pending economic situation there. What’s your feeling about investing in companies that have properties in Mexico?
LM: As it happens, I travel to Mexico quite frequently and, for example, I’ve been able to visit the Orko Silver Corp. (TSX: V.OK) property in Durango State. There are areas of social concern for Mexico; there’s no question about it. I have had the unfortunate experience of being in a vehicle headed out on a highway, which was suddenly pulled off to the side of the road by the Mexican Military Police and being searched for any indication of drug traffic while soldiers hold rifles turned on you. It’s unsettling, you’re standing there by a road with an armed soldier pointing a rifle at you, but they’re doing that to control the drug traffic.
But in terms of mining, Mexico has had good reliable laws that have supported the industry. Heck, the mining industry in Mexico goes back 400 years, right back to the Conquistadores and even before that to the Aztecs. Qualified geologists have reported that the geology of Mexico looks excellent, the production facilities in Mexico are of a high order and, as I say, the mining law is very solid and reliable.
One important question is whether the Mexican economy will hold together, as it is being negatively affected at present by two factors. First, there is ongoing depletion of their petroleum reserves and the resultant diminishment of cash flowing into the country from those reserves and, second, for quite a while Mexico has relied on the inflow of American cash from expatriates living in the United States. That’s been a big staple of their economy and with the U.S. economy declining; the flow of such cash into Mexico has been diminishing.
So they have some economic problems that are serious along with the drug problem. That has to be weighed by investors. On the other hand, the geology is favorable, the production facilities are generally of a high quality, and the law is good. So it’s a balanced equation and investors would have to determine their own level of risk.
TGR: You said you visited Orko Silver. Can you give us an update on what you saw there?
LM: They have a very prospective new area under exploration called the Martha Zone. It lies in a relatively flat plain with excellent ease of access compared to many reserves that are in very mountainous terrain and can be investigated only with great difficulty. Orko is building their reserves, they’re also planning an updated resource estimate and obviously, the goal is to bring the property into production at the earliest possible time. According to company geologists; the quality of the reserves appears to be very substantial, perhaps six to eight ounces per tonne silver, and they are working with the goal of attaining profitable mining down the road.
TGR: Are there other silver plays there you can tell us about?
LM: As a matter of fact, right in the very same area as Orko is Avino Silver & Gold Mines Ltd. (TSX: V.ASM). It’s quite a story. They went into silver production back in the 1960s and produced until the 1990s. They had both open-pit operations and underground mining and then finally shut the operation down because of low silver prices. In the last few years, they have gone back into the underground areas, reinvestigated and found an entire new zone of silver. They are refurbishing the plant that’s still onsite and their goal, of course, is to bring the whole property back into production as fast as possible. Their aim is to re-start production by the end of this year, or early 2010 at the latest.
Leonard Melman is a leading metal exploration, mining and investment authority who’s been writing about precious and base metals for a quarter century. At the upcoming April 4-5 Calgary Resource & Clean Energy Investment Conference, he will serve on the “Eye Opener” panel and present the “On the Road to Hyperinflation” workshop. Early in his career, Leonard gained valuable knowledge and experience as manager of multi-million dollar consumer lending operations and as a securities and commodity broker. In 1985, he started contributing a monthly column on precious and base metals to ICMJ's Prospecting and Mining Journal (and its predecessor, California Mining Journal) and also writes a monthly column entitled "Speculations" for Resource World Magazine.
By 2003, alert to the potential for an enormous bull market, he decided to write full time and recently launched his own website, www.themelmanreport.com. The Melman Report aims to provide top-quality, objective and factual information—“not ‘buy’ or ‘sell’ recommendations but information from personal observation and from reliable sources.” Aside from magazine articles that are specifically company-related, Leonard says that his goal in writing is “to apply the world of economics and politics to the world of metals and mining, and take the influence of one and project how it will affect the other.”
For additional comments on Commerce Resources Corp. (TSX.V:CCE) (PK SHEETS:CMRZF), Orko Silver Corp. (TSX.V:OK), Avino Silver & Gold Mines Ltd. (TSX.V:ASM) (OTCBB:ASGMF), and Hawthorne Gold Corp. (TSX.V:HGC) from newsletter writers, money managers, and analysts, click on the respective links or visit The Gold Report.
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