Philippines Mining Stocks to watch

I generally only concern myself with Australian mining stocks, but since I have had the opportunity to see some information on a few Filipino mining stocks, let me comment on a few:
1. Philex (PX.PSE) - buy
2. Lepanto Consolidated Mining Company (LC.PSE) - buy
3. Apex Mining (APX.PSE) - buy

Philex (PX.PSE)
Philex has a stake in the Bayogono gold project in Mindanao being developed by Anglogold. I think Anglogold will eventually take over their partner. This is a very large gold mine. Not sure of the development lead times for this project.

Lepanto Consolidated Mining Company (LC.PSE)
Lepanto Consolidated Mining Company is selling 20% of its Far South East gold/copper project to Zijin Mining Group for $70mil. Zijin is a HK-listed company, and one of the biggest gold producers in China. They will immediately develop the project. The project is located at Mankayan, benguet province, philippines. The project feasibility was completed in 1988 by JS Redpath Corp, but uopdated in 1995. The porphry copper reource is 657mil tons at 0.65%Cu and 1.51g/t gold. The 1995 study was based on $1/lb copper and $400 gold. Any upgrade of the feasibility study is likely to highlight the financial merits of this project.



- Andrew Sheldon www.sheldonthinks.com

Specs that could face project delays

I am what you might call a 'spec lover'. By that I mean its not just about the money. I love tracking down these underloved stocks and investing in them - seeing value before everyone else. It has however dawned on me before that there are certain market-related news that is slow to come out because it is contrary to the vested interests of project sponsors. These examples include:

1. Emerging miners that overstated their capital and operating costs, eg. Gleneagle Gold, View Resources.

2. Emerging miners that overstated their resources, eg. Batavia Mining

3. Emerging miners that overstate the value or utility of reprocessing plant, eg. Oroyo Mining, which found a consultant willing to state that its processing plant was able to refurbished for a very low number. If you want to see the photos of the plant, I can show you.

4. Emerging miners that understate their development lead times, eg. Matilda Minerals, Red 5 Ltd. Matilda took forever, whilst I think Red was caught by surprise

To be fair, there need not be anything dodgy about these disparities in corporate reporting. But I am suspicious because I am a trained cynic and because there is really no process in place by the ASX to protect investors, except in the area of resource calculations, ie. The JORC code. But even so, that is an industry-sponsored initiative, and not an initiative by Australian Stock Exchange (which monitors disclosure), and the over-riding investment regulator - the Australian Securities & Investment Commission (ASIC), which is as useless as piss, and twice as yellow, have no interest or capacity to regulator publicly listed companies. They have no money, and they are only interested in high profile cases. Why? Because thats the way 'big business' wants it, and they are the one's paying the political parties donations. I'd like to know what Rene Rivkin did to the establishment because he was targeted by ASIC. Maybe someone doesn't like Jews or his flamboyance.

So one has to be impressed when a company like Universal Resources (URL) upfront discloses that their plant will take a long time to build because of the delays procuring a SAG (semi-autogenous grinding) mill. In fact the delay is up to 2 years. The implication is that IF you can't buy a 2nd hand one, you need to wait 2 years. I dare say this is because astute mine developers are ordering ahead. It may depend on the size of the grinding unit being sought. But consider the implications:

1. Huge project delay risks for emerging miners - thats alot of the companies I recommend

2. Potential risk with hedging agreements - though I think this is true only for precious metal mine developers using hedging and it is rare to hedge these days

So its important to know whether your project sponsor has secured vital equipment. If they are affected, their share prices can be expected to languish despite the very favourable commodity prices. They will eventually do very well, but you should trade them in the short term, and focus instead on the larger stocks which can expand with brownfields (incremental) capacity expansions that use existing SAG mills, or just stocks that can add to resources, eg. Matrix (MRX.ASX) is a good stock because it can easily add capacity. Why? Heap leach type plants are discontinuous mining processes involving the stacking and leaching of ore on prepared pads. Thus since there are weeks of irrigation, crushed ore could be stockpiled (if not stacked), allowing existing crushing capacity to be better utilised. Alot of gold mines are heap leach operations, so these project types should be favoured. Resolute Gold (RSG.ASX) might be an example.

- Andrew Sheldon www.sheldonthinks.com

Tantalum – emerging miners

There are 3 companies currently developing tantalum mines in the world. From a risk management point of view there are several issues to consider:
1. Sales contracts - Gippsland and Noventa have contracts.
2. Low unit production costs - Gippsland is best here because of the scalability of the project
3. Diversified output - Gippsland (Ta/Sn/feldspar) and Commerce Resources (Ta/Nb) are best here
4. Production lead time - Gippsland and Commerce Resources are years away from production, which means is any market weakness these companies will suffer most. Gippsland does however have a low unit cost (1:1 strip ratio, low fuel cost) advantage.

The details for each company are:
1. Gippsland Ltd (ASX.GIP): Gippsland, listed on the Australian Stock Exchange, is developing a very large tantalum-tin-feldspar deposit in Egypt. The project is a 50-50% JV with the Egyptian government. The project is close to financial closure, though its still 2 years away from production. The project has a contract for the supply of 600,000tpa to HC Stark of Germany. See www.gippslandltd.com. This stock is weaker today (10c) I think because the 2yr development lead time surprised the market - as it surprised me. They are capitalised at $A33mil and are projected to generate $A. For a forum discussion on Gippsland - see Google Finance.
2. Noventa Limited (AIM.NVTA): They have already commissioned the mine, and production is being ramped up in 2008 to 400,000lbs per annum. The attraction of this company is that it is in production, which justifies the higher market capitalization for this company. See my Google discussion forum on this stock. See www.noventa.net and www.minesite.com/companies/comp_single/company/noventa-limited.html.
3. Commerce Resources Corp (CCE.V): This company hosts a much smaller resource at its Fir project in Canada, but the resource is open along strike. Importantly the resource contains a very high concentration of niobium. Join my discussion of this company at Google Finance. See www.commerceresources.com/s/Properties.asp?PropertyInfoID=892&View=All

As we can see from Gippsland's price comprison below, they are suggesting that Gippsland is 400 below fair market value based on their resource inventory. Unfortunately resources equals long mine life, but it doesn't automatically convert into mine revenue, so we need to consider output. In fact Gippsland is scheduled to produce 600,000 lbs per anum of tantalum, so it will produce 50% more than the others, despite the much larger resource. Gippsland does have the benefit of tin output. Tin supply is quite tight. We need to also acknowledge that the market capitalisation of Gippsland is discounted because its still a project. Nevertheless, the stock has not received a re-rating since it announced its off-take agreement with Germany's HC Stark. Clearly investors are waiting for a bank to commit to finance this project. This is too conservative. I can see upside to 18c over the Xmas period - the driver being completion of the Final Feasibility Study and bank finance commitment. I dont however see this stock continuing up because its still 2 years away from production. Investors are not that patient.

For more info on the tantalum – read www.noventa.net/pdf/presentations/tanatalumSCR_presentation.pdf. The tantalum capacitor market has been soft in recent years. Many tantalum capacitors were designed out of cell phones and computers after the tantalum capacitor shortage of 2000 caused prices to spike to over $US200/lb. Tantalum lost market share to ceramic and aluminum electrolytic capacitors. Nevertheless China remains an attractive market for tantalum since many capacitor manufacturers there weren't around for the shortages of 2000 and have since designed tantalum capacitors into their new products.
See http://www.kemet.com/kemet/web/homepage/kechome.nsf/weben/Tantalum%20Capacitors. There is very litle price info available for tantalum. The best I could do was the US Geological Survey report for 2007 - http://minerals.usgs.gov/minerals/pubs/commodity/niobium/tantamcs07.pdf which suggests tantalum prices have been flat for the last 5 years at between $US30-35/lb. Its a pretty competitive arena with alot of substitutes - niobium, ceramics, 'coltails' tailings. Thats not to say value doesnt lie in the projects or any future shortfall in capacity. It happened in 2000. Anyway you will know what to buy is a shortage develops again.

- Andrew Sheldon www.sheldonthinks.com

AIM Resources - buy

AIM Resources (ASX.AIM) is an Australian based company publicly listed in Australia and if I remember correctly, its also listed on the Alternative Investment Market (AIM) in London, but I could be confusing acronyms. This company is developing a zinc deposit in Burkina Faso, West Africa. It has a 12 year mine life. The stock peaked at 46c and has since fallen to 15c - a huge drop considering the project is moving closer to production. No doubt the reason is the weaker commodity price outlook. The stock has fallen back to a major (strong) support, so I thought it worth a quick trade. If you would like to participate in a forum on this stock - see Google Finance.

- Andrew Sheldon www.sheldonthinks.com