Vital Metals (VML:ASX) - drill testing gold project

Vital Metals (VML.ASX) is on a roll at the moment. Check out the following chart. Note the up-trend in the moving average. They broke out above their 9c resistance, and are going higher on light Xmas trading. The appeal of the stock is the fact that they have brought forward a 16,000m drilling program on their Burkina Faso gold project. Aside from the exploration appeal of this project, we have:

1. The appealing rise in the gold price - destined to go to $2500/oz

2. The prospect of a stock going from $10/oz to $100/oz of gold inventory.

There is of course the prospect of some existing drilling results coming out in coming months, and this offers potential for even more upside. There is good reason to expect the stock to break 12c resistance, though the market will need some good results in order to justify that excursion. It looks like a promising gold project.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Union Resources (UCL.ASX) - making a move

Union Resources has attracted some interest of late. Clearly there are several reasons for this:

1. Resource value: Union Resource's holds a 43% stake in an offshore Namibian phosphate deposit, and a pre-feasibility study has placed a value on the project of $310mil, that's $140mil for UCL, and that's on pretty conservative parameters, particularly with respect to resource thickness and size. A larger resource might justify a larger scale of operations, so we might expect an a $500mil development instead. Depth of mining might give a great deal more upside again. So there is a lot of resource upside as a result of improving the technical merits of the project. Miners start from a conservative position. The greatest risk is actually about 3 months after they have started to mine. i.e. When they announce the first delivery of metal or product; that is the time to sell. There is only downside from there in terms of cost and market risk, and CEO risk, as a great many of them will deceive the market. ASIC doesn't care about shareholders unless more than 20,000 investors or 300 jobs are affected. Phosphate mining though is a pretty safe bet as its bulk mining.

2. Takeover potential: Minemakers Ltd (MAK.ASX) has a 14.9% stake in Union Resources. Expect a consolidation of these interests. I think we are no far off from MAK making a takeover offer for Union Resources. Mind you I think MAK will itself be taken over in future, so hang on to that script as well. I would not be surprised to see MAK use the next issue as an opportunity to acquire a lot of shares. UCL will need to fund a feasibility study. That will cost $10 million I guess, so their share is $5mil.

3. Director buying: You have the newly-appointed CEO of the company buying shares. That is always a good thing. A sign of confidence. Mind you, at this point, his investment is token. Just $25,000 worth of shares. I expect he will add to that, but maybe he will wait for a rights issue.

4. Zinc upside: UCL retains a 25% stake in the Mediahebad Zinc-lead project in Iran. I believe this is the largest undeveloped zinc project in the world, and it might stay that way for another 20 years, or their might be an overthrow of the Iran govt in the next year or 3. Who knows. Obama never said he wouldn't invade Iran. Anyway, war or revolution is good for UCL. That project is probably worth a billion, or $250mil to UCL, and much more when its in operation. Its a very attractive resource...but then I guess the Iranian govt knows that.

You can download the latest presentation by Union Resources here. The rights issue might not be too far off given the need to raise money, and the recent strength in the share price.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Vital Metals (VML:ASX) - Share issue

There is an announcement spending for Vital Metals (VML.ASX). The bad news is that it might be a rights issue. This actually surprised me because they apparently have $2mil in cash. The development might be considered a positive in two respects:

1. It means the company is fast-tracking resource development. They expect the cost of proving up indicated gold resources to be around $10/oz, and those resources have a market value of $100/oz, so that is a 10x value-add proposition. That is why gold exploration is attractive, and 'Africa is golden', with the same type of greenstone belts which made WA a strong gold province. So the fact that the company is undertaking 6000m of Phase 2 drilling is good news.

2. It might mean the company is developing the Watershed Creek tungsten project in Qld. This project has no great appeal to me. There is however a strategic value to this project now, which did not occur to me previously, and which the market has overlooked. China is starting to curtail development of its raw materials. It is recognising the strategic importance of retaining domestic inventories, just as the USA and Japan has done in the past. In the last few months, we have seen China restrict rare earth supplies, of which China produces 90% of the world's supply. This has prompted the Japanese consumers to enter into agreements with Lynas and support exploration. China also controls 85% of tungsten supply, so we might expect similar moves there. This is of course apparent to the Japanese and other consumer nations. We might therefore expect Vital to be talking to end-users about the development of this project. The Watershed project might turn out to be a very valuable resource. Already we can see the tungsten prices are on the increase. Consumers will be desperate to find non-Chinese sources of ore, feeling that the Chinese govt has too much market power.

For this reason, we can conclude that Vital Metals has two appealing projects. The tungsten project is advanced, whilst the gold project has the capacity to add to resource inventories, which in a strong gold market, will see this stock perform very well.

The implication is that this rights issue - if it is a rights issue - presents a very good opportunity to buy VML stock. If the announcement is solely a question of a strategic tie-up with a Japanese or Chinese partner for the tungsten project, then that is also good news because it means the strategic value of this resource is being recognised. It would likely entail JV financial support, and that would mean less dilution for shareholders, so this would be fantastic news. So if no tie-up, and dilution, better to buy stock after issue announced (i.e. wait for weakness/support), if a tie-up, then you will probably want to jump on-board as soon as possible, or miss out. It depends on the news.

If you want to know more about this company, you can download the latest presentation from the ASX website.

Japan Foreclosed Guide Profiting from the Gold Boom Mining Fundamentals eBook

Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com