Tuesday, October 23, 2012

How to make money in mining.

First thing you need to know is that it takes time. To make those huge gains you have to lay the ground work early. Really early. So how long are we talking? 2-4 years is normal. We are not talking about smaller investments here. Bu this I mean your trading money. At a certain point the ability to buy and sell is limited by the stocks ability to absorb that without moving too much in the process. We call this liquidity.

The first thing we need to look at is supply and demand to get an idea of what will be hot. There are a lot of resources out there. Google is a powerfull tool but in many case you have to know what it is you are looking for. That can be problematic if you don't know where to start. There can be a number of other things that can cloud the research too. You also need to have an understanding of technologies as well. The point in case today will be no exception.

Let me build a case here. Tungsten. For years it was the source of fillaments in light bulbs and teeth on saw blades. It was the machinists best friend but it's uses were limited. Being the highest melting temperature metal you can get it was expensive and mostly came from China. So google up some history links and confirm this.

  • Tungsten is a metal with unique properties making it an essential component in many industrial applications. Critical properties include - very high melting point, very high density, hardness close to diamond, thermally and chemically stable, excellent conductor, and environmentally benign.
  • The most important use is as tungsten carbide in hardmetals, used mainly for industrial drilling and cutting tools. Secondary uses are in electronics and specialist steels.
  • China accounts for over 80% of world tungsten mine production; western world supply is very limited.
  • USA, Europe and Japan consume ~55% of world tungsten, but produce only ~5%.
  • Chinese domestic demand has increased, and China has moved from a net exporter to net importer of tungsten concentrates.
  • Tungsten prices have more than doubled since the start of 2010
  • Concerns over security of supply of tungsten concentrates to western processors and industry end-users resulted in the EU categorising tungsten as a "critical raw material".
  • Tungsten demand is forecasted to grow by 5-8% annually between 2012 and 2016.
  • Growth markets for tungsten are still being identified, such as nickel-tungsten alloys that could replace chrome plating and nickel-tungsten alloys that could replace gold-nickel plating.
  • Tungsten, with essential applications in industry, aerospace and military, is a strategic commodity. US, Russia, China and Japan have indicated that they have or intend to build stockpiles.

What is Tungsten?

Tungsten (symbol W) is an extremely hard, heavy, steel-gray metal that is one of the heaviest of all the elements, amazing for its strong physical properties and vast uses. It has the highest melting point of all the non-alloyed metals (3,410°C), the lowest vapor pressure and the highest tensile strength (19.3 gms/cc).

Tungsten does not occur naturally in its pure metallic state; rather, it is found in several ores, including wolframite and scheelite. Most of the world's reserves are in China, which supplies more than 80% of the world's demand. Tungsten is also found in Australia, Bolivia, USA, Russia, Portugal and Korea.

In its purest form it is quite pliant and can easily be processed. With high binding energy, tungsten alloys and some tungsten compounds cannot be substituted in many important applications in different fields of modern technology. 

Here are some quick facts on todays tungsten uses:

Tungsten Uses:

Tungsten is used in diverse applications and industries that range from aerospace and automotive to medical devices and machining and tooling to homeland security and sports and leisure. Its specific applications are almost endless and include weights and counterbalances, rotor blades, guidance platforms, vibration governors, radiation shielding, industrial instrumentation, electrical components, gyro rotors and fly wheels, ordnance components, armor penetrating applications, boring bars, grinding quills, die cast tooling and many others.

As the number of uses climbs the demand grows. Since we are all pretty wary about the global macro environment a natural question to ask is how will this effect tungsten. So the next thing we want to look at is the tungsten market. Start with the base information. http://minerals.usgs.gov/minerals/pubs/commodity/tungsten/mcs-2012-tungs.pdf  You will want unvarnished facts. Later we will dispell some other mythical information so you can see why the stocks introduced later are good bets. While your on this site look here too. http://minerals.usgs.gov/minerals/pubs/commodity/tungsten/mis-201206-tungs.pdf  Have a look at this company's facts. http://www.malaga.ca/malaga/en/tungsten-world-market.php  These guys are part of the history of one of the stocks you'll read about later. For a quick brief on todays market look here.

Are you beginning to see a trend? China used it's mineral wealth to get foreign currency for over a decade. They sold everything and that kept markets down. This gave them enorous wealth but it came with a price. Now China is forced to choke of supplies of resources like tungsten and REEs. Don't let the title Rare Earth Element fool you. The REE markets is being filled and the stcks there have dropped from fashion. Tungsten on the other hand is not so readily found. In fact, many old mines are being reopened and exploration is being re done with modern technology. This trend will go one for another decade because like copper, supplies are dwindling and the quality of the deposits is dropping. In today's copper you have to process twice as much rock to get the same supply and this is why large scale porphry deposits are growing. Here's one more reseach article on the supply demand issue. http://www.prnewswire.com/news-releases/tungsten-market-anticipates-new-supply-133426148.html  Since its publication the money only became harder to get and only a handfull of the deposits are even close to producing.

A quick discussion on the field is in order. The Koreans came to Happy Creek to look at David's deposits recently discovered in British Columbia. A deal was not struck and it is believed that the terms were not good enough since David knew there was a lot more to be discovered so he wasn't about to give it away. Korea has a company called Woulfe (WOF.V) who is developing tungsten in Sangdong. Korea and China are at odds over supply. This is why Korea was out thumping the bushes for more supply. China and Japan are clearly not in a cooperative mood over the supply of several critical metals and tungsten is a big one. Google critical metals list. While we are at it, one more site to look at. You'll see that Warren Buffet is buying. You'll also see Happy Creek (HYP.V) is on the list of companies to watch. Later you be introduced to another ground level company with what can only be considered as having a Rock Star team behind it.

Moving on, let's talk about the global marco issues a bit. In all of history things come an go all except for one thing. That is people will be people. We want our life's to remain just the way they are. You hear an aweful lot about fiat currencies failing. Did you know that one of the most enduring forms of portable property was what was known as the Tally Stick? Yup, a stick of wood. Here's a link to give you a quick (sort of quick) look at the history of money. This comment explains a great deal about why we are where we are. See the Readers Comments below the Article:  http://www.testosteronepit.com/home/2012/10/11/fear-mongering-and-hysteria-about-the-fiscal-cliff.html  It is true that there is a war going on. From the comment you can see that is has gone on ever since the invention of money. Recently the Former Chair to the FDIC stated that the only bubble out there is the bond bubble. This is true. Here's a cheeky site with an abundance of opinions that are largely well written and accurate. http://www.zerohedge.com/news/2012-10-13/us-fiscal-moment-cliff-slope-or-wile-e-coyote

Once the reader has done the background checks on fiat currencies they begin to get a feel for what's ahead. While the comment proposed a simple solution we all know things are not that simple when a power group(s) has an agenda. What might emerge is a scientific economy where everything is measured in joules of energy and carbon output. Perhaps a basked of goods will set the bench mark for the value of a country's currency and this will level the field a bit. A lot of people think gold is the solution but they don't realize where the majority of the gold comes from. In this respec, Canada stands out against all others. So it's very unlikely we will get to control the worlds currency values with our output. We could be the OPEC of gold. That would be a nice turn around but it's unlikely. There's a reason The USA helped for OPEC and it was not for the benefit of Americans believe me. But that's another sorid story.  For now, assure yourself that people will continue to be people, they have a very hard time breaking the molds they came from.

With this in hand let's turn to where the hottest bed of tungsten activity will be and the company you should reserch. Blackheath. (BHR.V) Before we get into their activities and holdings a brief discussion on what makes a good company is in order.

I want the bios and About to read like this when I research a company:
holds a B.Sc. in Metallurgy from the University of Nottingham and is a Professional Engineer in the Province of British Columbia. 40 years and founded several companies, two of which graduated to full listings on the London Stock Exchange. owner of Midas Management Inc., founding director and Vancouver manager of Primary Metals Inc. is a self-employed accountant with over 20 years' experience in accounting practice for private and public resource companies. was a director and CFO for Primary Metals Inc. over 35 years of experience in marketing and metal sales with particular experience in tungsten. previously employed by Minorco plc and Waller Metals Inc. as Sales Manager with particular reference to the sale and trading of tungsten concentrates and products. was President and a director of Primary Metals Inc., 30 years of experience in fund and portfolio management. was a Senior Portfolio Manager with CQS Management of London. is a member of the Institute of Chartered Accountants of England and Wales and holds a Bachelor's degree in Geology from the University of Liverpool and a Master's degree in Geochemistry from the University of Oxford. Mr. Roberts currently serves as a director of Agnico-Eagle Mines Ltd., and Eastern Platinum Limited,
actively involved in assisting public and private companies with corporate operations, capital development, corporate communications and regulatory compliance activities for over 20 years.co-founder and principal of Ascenta Finance Corp.
Most important, a proven track record:
Blackheath's management are seeking to repeat similar objectives: Tungsten development in Portugal and to return shareholder value through successful exploration, aaquisition of additional attractive projects as well as M&A activity. Management's previous involvement in Primary Metals grew shareholder value significantly from its IPO at 15 cents in 2003 to an all-cash buyout in less than 5 years at $3.65/share.

Accolades are not enough for me. You have to have been in the winners circle to make me happy. Short of this you have to have an outstanding financial record, an awesome property and be in the right location with the right minerals.

So here is a company with the right management team who is adding to the external resources by bringing in people who are just simply a cut above. Here's the first example of the calibre of people joining the team:
Blackheath is pleased to report that Jonathan Henry has been appointed as a member of the recently-announced Advisory Committee of the Company. Mr. Henry has extensive experience in tungsten exploration and development including the formation of Primary Metals Inc., a company which owned Portugal's Panasqueira Tungsten Mine as well as other global tungsten assets.

Mr. Henry has over 18 years of experience in the international mining industry including responsibility for execution of exploration, development and M & A activities. Mr. Henry was formerly the CEO of London Stock Exchange-listed Avocet Mining PLC from 2006 to 2010 and previously served as Avocet's Finance Director from 2002. During that time, Mr. Henry's responsibilities included assessment of the company's tungsten assets and their spin-off into Primary Metals Inc., a successful Canadian company that was subsequently sold to a Japanese conglomerate in 2007.

Mr. Henry resides in the United Kingdom and currently serves as President and CEO of TSX-listed Gabriel Resources Ltd., which holds a major gold deposit in Europe. Several of Blackheath's directors were previously involved with Primary Metals and the Company is delighted to welcome Mr. Henry to the Advisory Committee. Mr. Henry joins Mr. George Cavey and Mr. Brett Matich whose appointments to the committee were announced on September 25, 2012.
This is what we want to see in a company. As a standard practice the investor should google to see who the directors are connected to and look for failures in the circle. This is a quick way to out any shagy companies from your investment list. Tolerate very few failures. It's also wise to vette those failures to find the specific reasons and to go as var as examening their share price charts for anomalies.

So there you have it, a solid team in the works with guys who have proven it in the past. Since their last success they have been busy examining the prospects and the timing issues. This process took about 4 years. Their star project is the Covas property. Guring this time the team expanded on the historical data, made site visits and examined the core sheds. To our delight the majority of old cores are still there under lock and key. This would allow for reassaying should it be deemed necessary. You will find the complete review here: http://www.blackheathresources.com/s/TechnicalReports.asp  After parsing every line and comparing the information to every source online it became apparent that this claim area has the potential to host 2-3 times the historical resources. In addition, the Dome area has not received modern attention and is known to have gold. Clearly, when you find a rock sample containing 10g of gold you have to look into that. We'll discuss that later.

So what do you do next? You've examined the company, vetted the team and read the technical reports. The next step is to call the company. What follows is the conversation with the Company's chief director who prefers the short name Jim. It's a little less formal and he probably prefers the less portentuous.

Let me start by telling you what my objectives were. First, you should know that this call wasn't about the geology. That will come after the first set of assays so we have something to talk about. That does mean a second call will be made. Now, some people are reluctant to call a company and in many cases it's because they don't know what to ask. I suggest you start by opening the presentation material of a company and tell the person you're talking to to guide you throught it. This is the first test of a company. They should be able to explain it to a house plant. Any company that can't do that is not worth investing in.

So what does the investor want to know?  Below are some of the questions that arose from the examination of the company's documentation.

Q. What were they doing after their last success?
Q. Obviously knew about this deposit.
Q. Knows the area very well.
Q. Drawing gold comparison to Tintinia (Yukon). Is there enough evidence to support that.
10g of gold in sample had to come from somewhere.
Q. Why was the skarn ring ingnored? Was it though to be well understood?
(Note, it was the Dome that didn't get a proper examination. They will correct the document.)
Q. A big part of Midday Mnt is not covered by the Covas permit. Who owns it/try get it?
Q. Why is this deposit now a going concern?
Q. Colt Resources seems to be moving swiftly in the last year.
Since 2007 interest has revived. Will Blackheath move quickly?
Q. What kind of timeline do you expect given the markets today and the historical and recent work on the claim area?
Q. Make a compliant resource and then?
Q. Do you take it to production?
Q. Who is buying W (tungsten is W on the elements table) deposits?
Q. Explain the buyers market?
Q. What are the current conditions for the country? Inflation, labour supply, general sentiment?
(Note, he just returned so we can get a real answer and not what the media wants us to think.)
Q. Why won't China just open the flood gates again?
Q. What about other deposits like Happy Creek and Woulfe Mining?
Q. What's their edge in completing the requirements and getting this to market?
Q. What about money? Can this company raise money without excessive dilution?

After the introductions we got right down to business. Jim asked what I knew about the company and the project so I cited a few details that only the very well studied would pick up on. That way he knew what level of discussion would be appropriate. We started off discussing the people and thier past successes. This led us to the formation of the current company. As written above, this is shaping up to be a top notch team of people. I had looked at the budget for the year so I knew something was not quite right here. I ask myself why so little and why such a power team for what I'd consider a smaller project. The budget is very small and very tight but you have to submit a plan if you want to get listed. They went for the fastest track to get listed. Now this is a minor point but it let me ask what the real plans are for developing the property. I can state for a fact that they will be rising more money and submitting a bigger plan very soon.

The next thing we discussed was why bring a bazooka to kill a fly. I had a hunch they were up to something bigger and as it turns out, that's exactly what they are thinking. This project is a stepping stone, a foot hold as it were into the Portugal mining scene. They are indeed looking for more properties. I did bring up other companies and asked for opinions. I wanted to know how well connected these guys are. We'll get into this later. So the plan is to bring this project to a head as fast as possible. All the work behind the scenes over the past few years is now going to pay off. With a team like this the company can be frugal while delivering results. They even have consulting peers who are not being kept in lavish style just to save a few bucks. The site does have lodgings and this serves as a cost savings. Given the climate a roof is about all you need. This is one of the big benefits, you can work all year round except xmass of course. The terrain is a lot easier to work with the few exceptions of some steep ground where low mountains protrude from the landscape. Unlike the Yukon or the coastal regions of British Columbia where you're lucky to get 4-6 months of work done before you get buried in snow.

I won't have time to finish this as the company is moving faster than I can edit. They just bought more land and we are expecting even more news shortly. I'll update this when I can.

Cheers for now.

1 comment:

  1. Just a quick note. These guys are making a major play for Portugal's tungsten. I can't wait to talk to them again.