The best trades we've ever made were situations we figured out in advance of the crowd — like Peak Oil in 2003.
Unpopular trades, if you will...
These are situations that test your mettle, yet reward you handsomely for being correct.
Look at it this way: A situation or investment that's in fashion has often had its biggest profit potential wrung out of
it. What's left is mounting risk.
Last week, we gave you a bit of background on a company we think is flat-out the best chance at 1000%+ gains
you can find today. And, as you'll see, that could be just the beginning. Returns of 5 or 10 to 1 are very real here,
and why we're drawn to the story.
The company is DNI Metals (DNI: TSX-V,
.25).
DNI holds mineral rights in the black shales of Northern Alberta’s Birch Mountains that stretch over 2,700 square
kilometers. It’s north of Fort McMurray, adjacent to where the world’s biggest energy companies mine oil sands.
Mining the black shale, for metals, could take advantage of industrial infrastructure built to harvest the tar-like
crude oil.
The company is an absolute nano-cap, currently valued at about $10 million. And considering what this junior
exploration firm has, it's a laughably small market cap that has an immense amount of blue sky built in. A 5-for-1
gain here or more would be just a warm up, based on the company's assets.
Read On...
DNI has a gigantic package of low-grade, polymetallic deposits in Northern Alberta. These formations — known
as 'black shale' deposits — host a potpourri of base, precious, and rare earth metals.
These deposits don't lend themselves to traditional mining methods. In fact, the extraction process DNI will use to
prove these deposits up could completely redefine mining in the future.
DNI’s geologists believe the Birch Mountains might contain as much as 20 billion to 24 billion tonnes of
mineralized shale scattered over six different deposits on their property. A miner's dream, three of these deposits
are exposed at the surface; they slowly dip underground over the course of several kilometers. So that means the
deposits are easy to access — and easy to process.
Also, these deposits sit right next to the Athabasca oil sands, the largest deposit of heavy oil in the world. This
immediately brings one word to mind: infrastructure. And lots of it.Everything you could want to run a massive mining operation — right down to the last nuts and bolts — is readily
available. Plus, these deposits are situated within one of the most pro-mining provinces in the world.
Land of Giants
The size and scope of the deposits is hard to grasp at first. At standard production rates, these deposits could be
continuously mined for 50 to 100 years.
But, like most junior resource outfits, DNI has no interest in operating a mine. That's just not their specialty.
They find the resource, unlock its value and potential, and sell it to a group who can take the project into
production.
“We have the metal equivalent of the oil sands,” said geologist Shahe Sabag, president and chief executive of
DNI Metals Inc.
“We believe these deposits are as large as the oil sands, and that this can have as lucrative an impact on Alberta
as the oil sands... these types of deposits are like the Walmarts of mining — one stop shopping.”
The comparison to the oil sands is an interesting one, not simply because these deposits exist literally on top of
one another; the oil sands have a long history, too, going back to when Indians used the gooey tar to waterproof
their canoes. Yet it was not long ago that higher prices and modern technology came together to make them a
viable source of crude oil...
Now, these deposits hold a resource larger than that of Saudi Arabia and current proven reserves puts the oil
sands second in the world behind the Saudis.
But, as we discussed last week, it was human ingenuity and the free market that made this possible.
And that's exactly what happened in Finland with the Talvivaara mine back in 2006... and what's happening in
Alberta with DNI right now.
These vast swaths of mineralization stretch for dozens of kilometers; the company's land package alone is over
2,700 square kilometers. There are six mineralized systems on the property.
DNI's black shale deposits host nickel, cobalt, copper, zinc, uranium, gold and silver, molybdenum, lithium, and
vanadium. Based on tests done by DNI's geologists, all of these metals can be extracted.
Talvivaara recently announced it was adding uranium to the list of extractable metals from its Finnish mine, saying
it has the resource to meet almost all the needs of Finland’s nuclear power industry. Any success Talvivaara
achieves by expanding its production of metals boosts DNI’s contention their deposits can be mined profitably.
You can see the oil sands went through this back in the 80s. People laughed at the idea. Same thing back in the
70s with sub-gram gold deposits. Then they proved you can get oil out of rock, and look at it now...
The United States — with the huge success of the Bakken — is now a returning oil producing juggernaut.
As for DNI, they are advancing these targets as they go, starting with one deposit called Buckton.
BHL
Geologists have known about these polymetallic black shales for years, but the metal concentrations were
considered too low to recover.
What made the key difference is biological heap leaching (BHL), which was proven successful in 2008 whenTalvivaara Mining put its operation into production in Finland.
Since then, the company has become a low-cost producer of nickel, cobalt, copper, zinc, and other metals like
manganese and uranium, from low-grade ore.
Right now, Talvivaara is producing 50,000 tonnes of nickel — or 2.3% of the world's annual production. By next
year, they expect to ramp that up to 4%.
Bio heap leaching isn't new, either. In fact, it's just an extension of a natural process. Yet over the past 30 years
there have been some very big advances, allowing the process to be used on a commercial scale.
In a nutshell, BHL uses natural bacteria to leach metals from the host rock. It's a low-cost method that uses very
little energy, very little water, and produces none of the harmful byproducts of a typical leach operation.
And because the solution is recycled, it can realistically be called “green.” In fact, a BHL operation on DNI's
property could even use some of the waste products from the oil sands (like sulfur), alleviating another
environmental concern.
It's the BHL process that makes it possible to recover very low-grade, super-sized deposits at a profit.
So far, BHL tests on the black shale host rock at DNI's Buckton zone have shown excellent recoveries. Next,
these tests will increase in size to better mimic a commercial operation.
Meanwhile, the company will move forward on getting a new resource calculation for one of the six mineralized
systems on the property...
Climbing the Confidence Ladder
DNI is waiting on results from drilling to classify a resource. The grades are so consistent (historic drilling shows
consistent grades up to 8km, and 60km in trenching), you drill on a half a kilometer spacing to block out
resources. This is important, as spacing requirements are usually much tighter due to the variability of the deposit.
It's also important to note that this is a result of the consistency of the grades.
Once we have a definitive quantity for a portion of just one of these six deposits, we expect to be able to make
some accurate calculations on the rest of the property.
This is, by the way, one reason why this company is completely under the radar.
These properties had been previously mapped out, so the geology is already sorted out. And so is the production
end. The company wouldn't have bothered to spend money on drilling if they hadn't already determined that these
metals can be recovered, and in what concentrations. So all of the science has largely been figured out as well.
That means recoveries were high enough to warrant moving forward to the stage we're at now: waiting on results.Late last year, the company started a drill program. And, after raising several million dollars, they're ramping up
the effort to get more drilling done and to start to classify a portion of the property into a 43-101 compliant
resource.
Due to the size of the property, it's not feasible to get it all classified at once. So by summer's end, we'll see a new
resource calculation for about 15% of the Buckton deposit. From there, we'll get a good handle on the true size of
this thing.
Of course, we already have a good idea...
This is the type of operation a major mining outfit dreams about. Funny thing is these giant deposits are wellknown.
There are only a few of them in the world; until now, the giant mining companies just couldn't figure out
how to make them work.
Some miners, however, have to be petrified. This means their business models are stillborn.
Consider uranium...
Denison, a company with a market cap of $780 million, has total annual production of 1.5 lbs U3O8. Heck, Talvi
spins that out as a free byproduct, meaning that it's a byproduct of their nickel production.Almost sounds like someone's entire business plan just became obsolete...
In fact, Cameco gave Talvi a $60 million up-front payment to build a uranium circuit. Just like that, a new uranium
mine is born. Cameco has agreed to buy the next 15 years' worth of production.
And for the record, the uranium grades seen so far at Buckton are higher than those at Talvivaara.
Next Up
As you probably know, mine finders aren't the same as mine operators. The folks at DNI specialize in exploring
for — and to some extent, developing — mineral deposits. But they don't have the expertise or interest in
operating a mine.
So well before we get to that point, you can bet that some of the biggest names in the industry will come sniffing...
And eventually, we'll see the project handed off — either to a large multi-national or perhaps a firm that can take it
right up to the point of production. But for now, the magnitude of this project is very difficult for people to wrap
their heads around. And until the company has some official numbers in the way of an updated 43-101 resource
report, it'll likely fly under the radar.
So the company is climbing the confidence ladder.
In a few months, they will have the resource calculation for Buckton, which will make it possible to calculate the
size that deposit and put a value on it. And, due to the consistency of the grades (which we talked about earlier),
we'll be able to measure the total resource with some confidence.
It's the ability to put forward concrete numbers — and valuations on those numbers — that will drive this story.
At the same time, the company will begin working on larger bio heap leaching samples.
In terms of the resource, we expect to see a number around 200 million tonnes. If we use a contained metal value
of $20 per tonne, we're looking at $4 billion.
Now, remember, these are broad numbers at this point. But it gives you a better sense of the leverage we're
looking at. Heck, let's discount that by 50%...
A $10 million company, sitting on a resource worth somewhere around $2 billion. For one of six deposits on the
company's property. As an example, Talvivaara has a market cap of $1.9 billion.
We think you'll agree that the stock is a tad underpriced. But let's not get too carried away...
The risks are obvious and well-known — exactly what you want for a high-potential play.
This is a junior mining stock. Even though the deposit is there and the methods to extract it are proven, there's no
guarantee this will project will ever be financed...
A dozen different events could derail the project in a heartbeat.
Having said that, let's consider what we already know: The company has raised enough money to complete the
resource calculation. This will provide confidence and certainty to the numbers. At the same time, the company
will again prove the concept with lab tests, which will determine what the recovery levels will look like with the host
rock.
It's worth noting that a few mining financiers who have heard the story tried to buy the entire project outright. Yet,
at this point, the company is still virtually unknown.
But when the resource calculation is complete and the company begins to tell its story, it'll be impossible to
ignore.
It's very rare to have this kind of upside built into a company. At $10 million, you have to understand that this thing
can't realistically get much cheaper.
If you look at some of the wild speculations going on in the Yukon, you'll find scores of companies with nothing but
some moose pasture and a prayer... companies valued at $30 million, or $50 million, yet they have nothing of
value.
DNI has a $10 million market cap and a resource with a potential value of $2 billion plus. If that doesn't get your
attention, I don't know what will.
There's your leverage.
We're recommending the company for immediate purchase.
We'll be conducting a site visit in June or July, and will have updates in each issue.
Sincerely,
Brian & Bill