Stockhouse Ticker Trax is equity specific research (Canadian listed and market cap < $300 million) published every Monday to paid subscribers. Our free Friday column may feature companies previously featured to paid subscribers (with a minimum one month delay) or discuss topics of interest to the general investment community and relevant to overall portfolio management.
Andover Mining (TSX: V.AOX, Stock Forum; 23.5 cents)
www.andovermining.com
This year I have primarily focused on junior exploration companies with large bank accounts and significantly discounted assets/reserves.
Our report this weekend is a departure from that balance sheet focus only because it is my belief that Andover may have some interesting developments in the pipeline. Over the past six weeks the CEO has been to multiple countries meeting with institutional grade investors in preparation for 2013.
If the fruits of that labor are to produce gains for shareholders, I believe we would begin to see that within the next 30 to 60 days. For the sake of being wrong on my timing, I will give them a 90-day window. If nothing tangible occurs by January, we would simply look at other opportunities in the junior market (of which there are no shortage).
The speculation is that this low 20-cent range is near bottom and presents an attractive risk/reward scenario given the following insight:
People & projects
There are three necessary components to building a company, and the same effort is required to build a million-dollar company as to build a billion-dollar company. Those three components are an experiencedmanagement team, projects, and access to capital.
Andover Mining is led by Gordon Blankstein, a serial entrepreneur who built and sold several telecom companies in the late 80’s and 90’s from IPO to billion-dollar market caps. He has raised over $5.5 billion in the capital markets over his career and has strategically designed the board for Andover in anticipation of the development of another large-scale endeavor.
Kent Turner was tapped last year to be Andover’s COO. Kent spent over 30 years with Cominco (now Teck) mainly focused on Alaska. Kent was part of the discovery teams for Red Dog (largest zinc mine in the world), Pogo, and Pebble. Equally important, Kent did his master’s degree in Economic Geology at University of Arizona with Rick Van Nieuwenhuyse, CEO of NovaCopper. NovaCopper is the largest land holder in the Ambler Belt, and a key partner to Andover, as the successes of both companies benefit each other economically in terms of the development of the 3P (Public-Private-Partnership) access road into the belt being designed by the state of Alaska.
Director Jerry Booth has over 40 years in mineral exploration, and spent 24 of those also with Cominco, where he was the manager of Alaskan operations and led the exploration and pre-development of the Red Dog Mine. Mr. Booth, along with fellow Andover Director, Dr. Stuart Jackson, were the first to explore the Ambler Belt back in 1973, and negotiated the purchase by Cominco from Anaconda in 1985. Mr. Booth also worked closely with fellow director Willie Hemsley, then head of the Nana Corp., on the development of the Red Dog Mine.
Dr. Stuart Jackson has 50 years of experience in exploration and development of mineral projects, development of mineral projects and the management of public companies. Dr. Jackson, who at one time was the head of exploration worldwide for Cominco (now Teck), was a key component of the exploration and development of the Red Dog Zinc mine, which produces over 73% of the U.S.’s zinc annually.
Willie Hemsley, an Inuit native of Alaska spearheaded the foundation of the NANA Corp. (Northwestern Alaskan Native Association), negotiated a billion-dollar settlement and 44,000,000 acres of land for the Alaskan natives, via the Alaskan Native Land Claims Settlement of 1971. He has spent more than 40 years with the Alaskan Federation of Natives, held numerous executive roles including Director, President, and Chairman, and is widely considered one of the most influential people in the state of Alaska.
Director John Mears is the chief geologist for The Sentient Group., a multi-billion dollar natural resource sector focused private equity group, based out of the Cayman Islands, and is the strategic investor in Andover Mining, owning roughly 17% of the company’s outstanding shares.
Sherman Young, B. Sc Geo, JD, is a partner at Ivie & Young, a law firm based out of Provo, Utah that has represented Andover subsidiary, Chief Consolidated Mining, since the late 1970’s. More importantly, he is the great great great nephew of Brigham Young, who brought the Mormon’s to Utah, which gets Andover the political access they need.
Michael Carter, who is the General Manager in Utah, has run numerous mines throughout his 40 years in the industry including mines for Alamos Gold, Coeur D’Alene, Capital Gold, and Occidental.
The Andover board also has three investment bankers included on it as the Company anticipates M&A activity in the coming years. Board members receive no remuneration outside of the granted options and there is no executive who is paid more than $15,000 per month. Gordon, a full-time employee, is paid $5,000 per month. He and his family have invested more than $15 million into the company and own more than 32 of the 110 million shares outstanding of Andover.
Andover acquired the SUN deposit (Alaska) and surrounding claims at a bankruptcy auction back in 2005 for $13 million. The historical PEA assembled for Anaconda back in 1977 of just over 20 million tonnes grading 6% copper equivalent (including over two ounces per tonne silver). The land package, which is more than 36,000 acres, is situated along the Ambler Belt, which is considered by Metal Economics Group to be one of the largest undeveloped VMS structures in the entire world. The land package on the Ambler Belt is essentially made up of three players, Andover, NovaCopper, and Teck.
NovaCopper acting as explorer with joint venture partner on its Arctic Deposit has delineated the most mineralized ore material to date at just over 30 million tonnes. Rick Van Nieuwenhuyse and Co. have been very aggressively exploring their central claim on the Ambler Belt since 2004, and produced the first PEA for any project in the district in March 2012. Andover, who purchased the SUN deposit and surrounding assets out of bankruptcy back in 2005 for $13 million, spent last year re-assaying historic holes, further delineating the existing strike length of the SUN, Southwest SUN, and Picnic Creek Deposits, and expanded their land position to over 49,000 acres along the Ambler Belt, with several drill targets to be explored in 2013.
Andover’s management has stated that they expect to release an NI 43-101 complaint resource estimate on the SUN Deposit in December and expect the PEA to be completed and released in Q1 of 2013, giving guidance of February as when they expect it to be released.
Teck Resources holds the western-most claim in the district, the Smucker, which hosts a current resource of some seven million tonnes. Since Andover staked the grounds to the north and south of the Smucker when state claims were allowed to expire back in 2006, and it has been stated that some of the holes drilled by Teck now lie on grounds controlled by Andover, it seems likely the two companies may discuss some type of arrangement to further explore the area, in the near future.
The key catalyst for monetization of this district is the 3P (public-private-partnership) road, which is backed by both Sean Parnell, governor of Alaska, and the local Inuit natives. The Alaskan government has spent some $12 million studying the most effective and acceptable placement for an access road into the district. After deciding on the route to be built, the Public-Private-Partnership road, which will be built by the state and paid for over the life of the mines (think of it as a toll road of sorts), the Alaskan Department of Transportation completed a study over the summer, one which expected to be published imminently, which will give guidance on the project to AIDEA, the development arm of the Alaskan government who will be responsible for bonding, permitting and financing the road.
NovaCopper and Andover are currently in negotiation with the state of Alaska on the 3P road. As Andover Directors Jerry Booth and Willie Helmsley played key roles in the negotiations of the first 3P road in Alaska to the Red Dog Mine, it is expected that their experience here will play a key role in seeing this road come to fruition and completely changing the economic dynamics of the projects in this polymetallic belt.
Andover’s other endeavor, which is in the Eastern Tintic District Utah, is with its 82% owned subsidiary, Chief Consolidated Mining. Chief (acquired in March 2008 from Genco Resources for $5 million in cash, $2.5 million of debt, and a $60 million liability from a fine levied by the EPA for polluting mining practices by Chief in the town of Eureka, UT back in the 1800’s. The debt and EPA fine were both negotiated away for about five cents on the dollar by Gordon Blankstein back in 2010), a mining company that was publically traded for over 150 years, is the third largest private land holder in the state of Utah with more than 19,000 acres, and has historically controlled, through subsidiaries, more than 23 producing silver-lead-zinc mines, including the flagship Burgin Complex, which was operated by Kennecott from 1958-1978.
The Eastern Tintic District has historically produced over 2.7 million ounces of gold, 270 million ounces of silver, 250 million pound of copper, 2.2 billion pounds of lead, and 250 million pounds of Zinc from only 16.5 million tonnes of ore. Andover is looking to bring the Burgin Complex, which according to a June 2011, PEA & NI 43-101 updated resource calculation contains 18.5 million ounces of silver (grading 225 g/t), 560 million pounds of lead (grading 12%), and 200 million pounds of lead (grading 4.25%) from 2.3 million tonnes of ore, with significant exploration potential.
There are two additional high grade ore deposits within the Burgin Complex, previous drilled by Kennecott, which will be further explored in the coming year, so that they will have enough drill holes to bring a resource calculation and PEA. This work will be funded by the Enirgi Group, via the October 22, 2012, announced (proposed) joint venture. The Enirgi Group has committed to funding all exploration expenditures, development studies and securing financing for mine development through production to earn 51% ownership in Andover’s Burgin Complex and Trixie Mine (a small gold and silver producing mine that is fully bonded and permitted, including a 800 TPD mill that ran for only six months until being shut down in 2001 due to the EPA fine).
Andover also has a joint venture with Kennecott Explorations on its Big Hill lithocap project. On this joint venture, signed in 2010, Kennecott can earn a 51% stake in the project by spending $20 million or taking the project to pre-feasibility, and can earn an additional 4% by funding the project to full feasibility. At which time Andover maintains a put, and can request that Kennecott buy them out for their full NPV, should Kennecott make the decision to advance the project to production.
Conclusion
Gordon Blankstein has a proven track record of taking companies from initial IPO to multi-billion dollar market cap – and then selling them. He knows how to put the right people in place on his management team and on the board of directors, and he has the skills necessary to structure financings, work with the government or negotiate contracts with much larger joint venture partners.
When you combine this with Andover’s projects and exploration potential - and the fact that Gordon and his family are heavily invested in Andover – it makes for an attractive speculation.
Disclosure: Danny Deadlock owns 35,000 shares of Andover Mining (TSX: V.AOX).
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