SAN FRANCISCO – “This is a drill play.”
This is the line I am hearing most this weekend and into today at the SF Hard Assets conference.
A “drill play” is industry chat for a company that is using drill rigs to boost the value of its prospective resource. Usually gold, sometimes silver and copper.
We at Ticker Trax have pointed out these past two years that the most solid mining gainers are miners and not just prospectors. When commodities prices, metals in particular, attain and maintain these robust levels, investment communities outside of the Wild West drill-‘em-up Canada, the USA and Australia respect cash flow stemming from production.
“Take London. They want to see positive cash coming in or they won’t even look at you,” says Gregg Sedun, a longtime Toronto venture capitalist and lawyer who chairs Mexico gold producer and prospector Goldgroup Mining (TSX: T.GGA, Stock Forum).
Now, there are exceptions. China investors, for example, actually let executives into their office suites to tell their stories, then go up front with their cash on equity placements. Especially “drill plays” in their own backyard. Case in point: Jim Moore’s Inter-Citic Minerals (TSX: T.ICI, Stock Forum). The prospector’s Dachang Gold Project just unveiled an average of almost two-gram gold over a nice stretch.
“Sure, we’re a drill play,” big Jim Moore told me here in SF. “But we try to either fill in the existing picture or step out to possible new discoveries, and I think our Asia investors appreciate that.” (It helps to have solid maps and graphics on intercepts, estimated true widths and so on: See ICI’s release.)
Who else? I thought Clifton Star Resources’ Harry Miller offered decent support for his first words to me, “We’re a drill play.”
Clifton Star (TSX: V.CFO, Stock Forum) is in that joint venture with Osisko Mining (TSX: T.OSK, Stock Forum) at its Duparquet Project in the Abitibi area of Quebec. “We expect a budget from Osisko in December. If they provide us with a budget of $15.7 million for 2011 drilling after the $15 million Osisko has already spent, that is a good indication of their intent,” Harry Miller tells me.
Osisko will not earn “a penny of interest” in the project until it spends an agreed amount of $70 million. That means $55 million these next three years. I also liked what Mr. Miller had to say about the $5 stock. “We are told it is a triple-peak breakout or something like that,” he says. “Next stop is $6.25.”
Joseph Farrell at GMP Securities in Toronto appears to concur. He wrote, “The stock is verging on a technically significant breakout at the top of its five-month trading range and 200-day moving average at $5. We continue to anticipate a sustained breakout that targets initial upside to $6.25. Higher targets remain clearly visible.”
Drill plays & cash: When a “play” combines with a corporate treasury that does not require immediate replenishing, that rocks my boat. Especially this week in stormy, cold San Francisco. Gold Standard Ventures’ Jonathan Adwe says the tiny company is drilling in Nevada. “We have 15 holes planned and $6.2 million in cash. There are three rigs on property right now, and we have the geologist, Dave Mathewson, who discovered the Rain District in Nevada in 1992.”
Gold Standard (TSX: V.GV, Stock Forum) and its Railroad Project are near the city of Elko. Newmont Mining is putting its nearby Emigrant Project into production. Other companies in the area, whose characteristic is collapsed breccias (low sulphidation gold deposits) include Evolving Gold (TSX: V.EVG, Stock Forum) and US Gold (TSX: T.UXG, Stock Forum). Mr. Mathewson, lead geologist, once headed Newmont Nevada’s exploration unit.
Best Slide Show: One of the better ones, anyway, was Marshall Farris’ Philippine Metals (TSX: V.PHI, Stock Forum) presentation. It’s pretty intensely documented and sourced, and so is Mr. Farris, a director at the microscopic prospect generator. Feisal Somij, who was active in Peru recently, is CEO. Here is Mr. Farris in a photo, “sliding” with San Diego-area investor Jeff Phillips, the fellow with the moustache.
BEST FEST: The Gold Report’ssecond annual wine reception at the San Francisco Mint. StreetWise Reports’ Gordon Holmes owns Lookout Ridge winery on the crest that separates Napa and Sonoma counties. He donates one wheelchair for each bottle of Lookout Ridge sold. The collection of red wines includes Syrah, Sangiovese, Cabernet, Pinot Noir. They’re crafted by veteran winemakers such as Andy Erikson and Marco DiGiulio. Buying cases of wine at the reception: more people than I could count, including Frank Holmes of U.S. Global Investors and Glen Watson of La Quinta Resources (TSX: V.LAQ, Stock Forum).
Note:Thom Calandra owns none of the stocks in this report.
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THOM CALANDRA of Ticker Trax helps his audience find value in a quagmire of investment choices. Thom was founding editor of MarketWatch, CBS MarketWatch and FT MarketWatch. He was the voice of Thom Calandra's StockWatch and The Calandra Report. Thom has been covering life-sciences and natural resources since 1988.
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