Colombian Mines (TSX: V.CMJ, Stock Forum; 80 cents)
www.colombianmines.com
This was a stock we did very well with through the Microcap paid newsletter (28 cents to $1.60), but it moved lower through the summer and has only had partial recovery since the gold rally started in early September.
The company had tremendous interest at the Colombia Resource Conference held a week ago and interest overall in that country is dramatic. CMJ management are fortunate in that they were one of the first juniors exploring in Colombia and started the process over a decade ago (as evidenced by their name). This puts them leaps and bounds ahead of many junior competitors. This is a country with huge discoveries but a long cycle in being awarded land concessions.
CMJ already has the rights to tens of thousands of acres, but they have many more pending approval - some have been in the process almost three years and are long overdue. This is nothing specific to CMJ, but a problem that is country specific and something many juniors fail to discuss. With the increasing demand on an archaic system, there is no short-term solution. Colombia is a great country to do business in (with huge discovery potential), but it takes patience and the knowledge of what you’re getting yourself into. Companies that only started doing business there in 2010 may disappoint a lot of investors with delays and premature news releases.
To avoid this risk, we have decided to focus on someone like CMJ with a long history, experienced management with a proven track record, a large exploration staff (based within Colombia), and a large portfolio of projects.
The company’s recent drilling focus has been its Yarumalito copper/gold project. The labs across the region have been slow in getting assays back so this drill program is early. Initial results are returning lower grades of gold and copper but management feels confident this will improve as drilling helps them understand the geology.
Unless there is hope of huge tonnage, I don’t get too excited with anything below 1 g/t gold. Many large mines are being developed with lower gold grades but copper also needs to be 0.5% or better to bring the operating costs down. CMJ’s most recent drilling (excluding some of the high-grade veins) has been in the range 0.6 g/t gold.
It will only take one good drill hit to change this picture overnight, but with mineral exploration, that is the big risk. Fortunately they have many other irons in the fire but for the time being we’re waiting to see what numbers come back on the current drill program. Below are examples of large mines in South America with lower grades (this can be used for a benchmark moving forward).
One additional note: Share structure on these companies is critically important. CMJ is fortunate in that they have less than 25 million shares outstanding (market cap of $20 million). Should they ever be fortunate to make a significant discovery, the share price would move dramatically. Several companies in Colombia have huge amounts of stock outstanding. One such example is Gran Colombia (TSX: V.GCM, Stock Forum). They raised a crazy amount of money ($275 million) for exploration and acquisitions in Colombia. But in doing so, they have over 700 million shares outstanding and more than 40 million options.
Some people like this type of structure but you need to discover a lot of gold to justify the higher valuations. One thing this company did, however, was demonstrate the demand for exploration projects and property in Colombia. CMJ has yet to derive that benefit but it should only be a matter of time if gold and copper remain at these levels.
Mine examples: Keeping in mind these are very large tonnage projects.
1) El Morro copper-gold project in Chile
Annual metal production estimates are 104 million pounds of copper and 94,000 ounces of gold over the 15-year mine life. Initial capital investment of $2.5 billion.
Grades - Gold 0.46 to 0.50 g/t and copper 0.50% to 0.66%
Operating costs are estimated at $10.55/mt of ore and a mine-site cash cost of 76 cents/lb copper, after gold credits
The El Morro project contains 6.7 million ounces of gold and 5.7 billion pounds of copper reserves.
2) Cerro Corona in northern Peru - owned by Gold Fields
The mine is expected to produce approximately 2.1 million oz of gold and 407 kt of copper in concentrate over a 15-year Life of Mine. Average total cash cost (exclusive of capital costs and taxes) is projected at US$358/oz AuEq.
Grades:
Gold: Measured 1.0 g/t /Indicated 0.8 g/t/Inferred 0.5 g/t
Copper: Measured 0.5% /Indicated 0.4% /Inferred 0.3%
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Disclosure: Danny Deadlock owns 25,000 shares of Colombian Mines (TSX: V.CMJ) – all purchased in the open market.
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Danny Deadlock has specialized in micro cap and small cap companies for over 25 years and is a registered member of the Stockhouse community since 1997. You can find his website at www.MicroCap.com - a service that has specialized in TSX and TSX.V penny stocks since 1998. You can also email Danny at microcap@telus.net.