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The Gold Stock Strategist analyzes leading junior gold producers and major gold mining companies.

Comments are welcomed!

Friday, January 2, 2009

Happy New Year!!!

Welcome back to the Gold Stock Strategist in 2009!!!

I'm back in the saddle, plan to post more often and rekindle my fundamental analysis models of emerging junior gold producers.

The timing is right given the recent trend in the price of gold. We are also beginning to see a relative settling of volatility amid the global private sector deleveraging and public sector monetary and fiscal stimulus dynamic. The general markets seem to have bottomed out, for now, on November 20, 2008. More traditional and profitable safe haven plays like emerging junior gold producers should benefit from all these trends.

There is speculation on Stockhouse that the motivation for the recent Metanor private placement was due more to lower then expected grades at Barry then an expectation of higher gold prices as explained by the company.

There are a couple of points to make. First, don't forget that the government of Quebec mandated that Metanor spend $4 million to upgrade the tailings pond. That $4 million was targeted for mill expansion and exploration.

Second, the gold is there. Yes, Barry is low-grade. But it is relatively inexpensive to mine despite the distance to the mill because it is open pit. The plan had always been to mix Bachelor Lake ore with Barry ore. An assumption of 3-4 grams per ton at Barry has always been in the overall plan.

I visited Barry at the peak of exploration late this summer. Again, the gold is there. It is just so spread out (open at depth and in three directions) with an occasional group of nuggets that it is difficult to predict the grade of the ore amid uneven grades. Measuring grades using an extensive drilling program would be expensive. So why waste money on measuring if you know the gold is there? That is a great business decision.

In addition, management suggests the POG will rise over the next few months and they would rather be milling at 1,200tpd than 750tpd with higher grade mill feed than Barry can provide in this gold price environment. Seems straightforward to me.

I'm not reading more or less into the Metanor private placement than management has stated. They had unexpected, unfunded expenses for the tailing pond and want to catch the next wave up in the price of gold.

Remember Ockams Razor, "All other things being equal, the simplest solution is the best."

In another development, Jay Taylor appears to prefer Alexis Minerals over Metanor according to Stockhouse.

I like Alexis Minerals and think they may find a nice strike around Lac Herbin or Lac Pelletier. But Alexis management is not building the same kind of company as Metanor is building. Just because both companies are in the Val d'or region, doesn't mean it is an either/or decision to invest. That is a "false choice."

Alexis is run by geologists and engineers (not businessmen), has C$500+ cost per ounce produced, uses expensive custom milling, and has just over 600,000 ounces MI&I at Lac Herbin and Lac Pelletier and a couple of other properties.

Metanor is run by businessmen, has C$375 cost per ounce produced, owns the only mill in the region, mills their own ore, and has just over 1,000,000 ounces MI&I at eight properties.

In May 2008, Alexis was projecting production of 80,000-90,000 ounces per year for calendar year 2009. Now they are projecting 36,000 ounces of gold. What happened?

Alexis has a 1,400tpd mill (Aurbel), but no plans to refurbish it and get it up and running. They are "looking at" refurbishing, etc.. Getting a gold mill up and running is expensive.

When I talked to Alexis management at a gold show last year, they couldn't answer several of my questions on their strategic direction, custom milling cost per ounce, plan for mill refurbishment, acquisition strategy, etc.. My sense was they wanted to prove up resources and get bought out by a major. That is a great strategy for Alexis, leveraging their strengths. But, it doesn't make them undervalued compared to Metanor.

At the end of the day, an investment in Metanor is an investment in quality resources AND management. They are businessmen who hire the best geologists, engineers, millers, etc.. They find a way to overcome adversity against long odds and make good things happen. They want to build a company.

Metanor is still my #1 holding.

Best of luck to both Metanor and Alexis in 2009,

Gold Stock Strategist
Full disclosure: I own shares in Metanor Resources. The information provided in this post is believed to be correct, but not guaranteed. Investing in junior gold miners entails risks. Readers are responsible for their own investment decisions. Do your own due diligence.


MontyHigh said...

Welcome back. I still have a bunch of metanor. I think the market is waiting for some no-kidding production results.

My spreadsheet says MTO beats the crowd on price / annual oz and price to operating cash flow, but is a little weak on price / oz in the ground.

I think the private placement is a way to use the tax code to shore up that one area of weakness in a low-cost fashion.


Anonymous said...

Good to see you back! Missed your comments. Dan Ross

Anonymous said...

Alexis is trading at nearly a 50% higher SP than Metanor at the time of this writing on triple the volume. Where is the interest in Metanor and why is the market pricing Alexis significantly higher at this time?

Anonymous said...

er, Me thinks Alexis is really run by businessmen....if one looks at the underlying ownership by Forbes & Manhattan. However, I don't doubt your observation that in the long run Bharti would rather gussy up Alexis for a quick sale.

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