A Story of David Teaming up with Goliath.
It’s been stated time and again in respect to the junior resource market: you must be a contrarian to hit home runs. For months now our team at Pinnacle has been accumulating stocks while the masses have been selling. Our sole purpose behind buying shares in juniors, at this point in time, is to accumulate at historically low prices. When this overly negative sentiment turns positive, and the mass of sellers become buyers, that’s when profits will be realized.
We took the same approach in late 2008 and for most of 2009. Needless to say, the strategy paid off handsomely as investors were throwing their shares away, for pennies on the dollar – much like they are today.
Back to the present: Volume on the TSX Venture has really started to dry-up. Considering the Venture has come off nearly 50% in a year, we are viewing the lack of volume as a signal of ‘seller exhaustion’. The tide may be turning and we are placing our calculated bets on the table as the masses sell what they have left for pocket change prices.
Today we’re introducing you to a company that is trading at $0.105. At this price, one can pick up 10,000 shares in the company for $1,050. Take a look at the 1 year stock chart for our new Featured Company:
Its stock price has been pummeled since last year with tight consolidation of late. In the last 45 days, some of the most volatile and toughest trading days on the Venture, this company’s trading range has been between $.095 and $0.14. Its 52 week low is $.09. Its 52 week high is $0.275 and its market cap currently sits at roughly $5.8 million.
Our new Featured Company is partnered on an advanced Zinc and Silver rich polymetallic base metal project with Brazil’s second largest miner. This major partner (Brazil’s second largest miner) has $17.5 billion in net revenues and productive assets in 20 countries.
On top of that, this partner, with the production expertise and 40,000 employees globally, is doing all the drilling and providing the know-how only a company of its stature can. All our Featured Company has to do is supply its portion of the money on the project and let it play out. And considering our new Featured Company’s CEO has raised roughly $300 million dollars in his 30 year career, the financing connections are evident.
So far, this partnership, which also includes a third party, has worked out quite well as a massive resource estimate (largely in the Measured and Indicated categories) was released on the project in February 2012.
Without further adieu, our new Featured Company is El Nino Ventures (ELN:TSXV).
El Nino is partnered with Votorantim (the second largest mining company in Brazil) on a project with a resource estimate containing more than 1 billion pounds of zinc (NI 43-101 compliant). This project is located in the Bathurst Mining Camp, and is situated in arguably the most mining friendly region of the world – New Brunswick.
El Nino‘s partnership with Votorantim, as well as a third party, is on a project known as Murray Brook. The Murray Brook Project is an advanced multi-element asset consisting of Zinc, Silver, Copper, Gold and Lead. It’s a very diversified deposit with a large resource calculation already completed.
Murray Brook is located in the Bathurst Mining Camp of New Brunswick. This mining camp is world famous and contains billion dollar infrastructure as it’s host to the world’s largest underground zinc mine, owned by Xstrata. What must be noted is that one of El Nino‘s partners on Murray Brook, Votoratim, is amongst the most competitive global producers of zinc – an important fact to remember.
Now is the time for a major to bring additional production to the Bathurst Mining Camp due to the fact Xstrata is closing down operations at the Brunswick #12 mine in March of 2013. Xstrata‘s mine has been in production for 90 years and has been a global supplier for zinc. Reuters states that the mine has run dry.
This is a huge blow to the zinc market (given that Xstrata‘s Brunswick #12 underground zinc mine is the largest in the world) and provides an opportunity for the Murray Brook project to garner some additional exposure. Upon closure of Xstrata‘s underground mine next year, the Murray Brook Project arguably becomes the 2nd largest VMS deposit in the prolific Bathhurst Mining camp. This is a significant asset for a company with a $0.105 stock to be involved in.
The other VMS deposit in the Bathurst Mining Camp, which is larger than Murray Brook, is known as the Caribou Mine. Trevali Mining Corp recently entered into a definitive combination agreement to acquire the Caribou milling and mine complex. Trevali currently has a market cap of roughly $160 million and this mine is approximately 16 Km away from Murray Brook.
Although the zinc market is in a surplus right now, there are countless top institutions predicting massive shortfalls in 2013 and beyond.
Scott Lowe, managing director of Blackthorn Resources, which is digging a new zinc mine in Burkina Faso, recently stated, “The turnaround is more a shortfall in supply than it is about the growth in demand that is occurring.” We think we’re on the cusp of a good thing,” added Lowe, citing analysts as viewing the zinc market heading for the tightest supply conditions in 30 years (source Reuters).
Given that Xstrata‘s zinc mine (Brunswick #12) is being shut down next March, the door is now wide open for a new player in the region, and would likely be welcomed with open arms given the amount of jobs being lost from the mine closure.
And for El Nino, being partnered with a company like Votorantim (whose main focus is production and is amongst the most competitive producers of zinc in the world), we like its current positioning. Take a look at the strategic positioning of Murray Brook within the Bathurst Mining camp. Notice how close it is to both producing mines and the expansive infrastructure:
Votorantim has productive assets in 20 different countries. It, along with El Nino and a private third party company, is developing the Murray Brook Project in the highest ranked mining jurisdiction in the world: New Brunswick. Just last month, The Fraser Institute Annual Survey of Mining Companies revealed that New Brunswick is the world’s most attractive jurisdiction for mineral exploration and development in the view of the international mining industry. This is a prestigious ranking and will continue to attract international investors and mining companies to the province.
Votorantim understands the advantages of pursuing project advancement in New Brunswick, judging by its commitment to the Murray Brook Project. The company has led two large programs at Murray Brook (financed by itself and El Nino) of roughly 28,000 metres of drilling in 18 months.
The infrastructure within this mining camp (Bathurst Mining Camp) is phenomenal given the producing mines and supportive political climate.
Aside from El Nino having Votorantim as one of its partners and the operator at Murray Brook, this opportunity stands out for several other reasons. The resource calculation on Murray Brook, released in February, was derived from just under 10,500 metres of drilling. As mentioned, it was funded by El Nino and Votorantim. The results from the resource were:
Measured and Indicated Resources: 18,684,000 tonnes grading 2.61% zinc, 0.95% lead, 0.42% copper, 39.3 gpt silver and 0.51 gpt gold at a $20 per tonne NSR*cut-off.
Inferred Resources: 3,021,000 tonnes grading 1.83% zinc, 0.75 % lead, 0.62% copper , 35.0 gpt silver and 0.75 gpt gold at a $20 per tonne NSR cut-off
To break it down in simpler terms, the contained metal content at Murray Brook, in the Measured and Indicated categories, is below:
* Over 1 billion pounds of Zinc at 2.61% in the Measured and Indicated categories (126,110,000 Measured and 947,720,000 Indicated)
* Over 391 million pounds of Lead at 0.95% in the Measured and Indicated categories (42,510,000 Measured and 349,750,000 Indicated)
* Over 23 million ounces of Silver at 39.3 gram per tonne in the Measured and Indicated categories ( 2,298,000 Measured and 21,288,000 Indicated)
* Over 170 million pounds of copper at 0.42% in the Measured and Indicated categories (9,650,000 Measured and 161,710,000 Indicated
* Over 300 thousand ounces of Gold at 0.50 grams per tonne in the Measured and Indicated categories (26,100 Measured and 279,800 Indicated)
These figures we noted in bold do not include what the resource calculation outlined in the Inferred category. See the tables below:
Mineral resources which are not mineral reserves do not have demonstrated economic viability. The estimate of mineral resources may be materially affected by environmental, permitting, legal, title, taxation, socio-political, marketing, or other relevant issues.
1) The quantity and grade of reported Inferred resources in this estimation are uncertain in nature and there has been insufficient exploration to define these Inferred resources as an Indicated or Measured mineral resource and it is uncertain if further exploration will result in upgrading them to an Indicated or Measured mineral resource category.
(2) The mineral resources in this news release were estimated using the Canadian Institute of Mining, Metallurgy and Petroleum (CIM), CIM Standards on Mineral Resources and Reserves, Definitions and Guidelines prepared by the CIM Standard Committee on Reserve Definitions and adopted by CIM Council
(3) The Dec 31, 2011 two year trailing average US metal prices used in this estimate were $3.71/lb Cu, $1.03/lb Pb, $0.98/lb Zn, $1,397/oz Au, $27.63/oz Ag. The C$/US$ Exchange rate was 0.99.
(4) Overall payable metal in the NSR calculation were 81% Cu, 72% Pb, 64% Zn, 71% Au and 56% Ag.
(5) Mineral resources were determined within a Whittle pit shell with 45 degree slopes utilizing mining costs of C$2.50/tonne for mineralized material and waste rock, and C$1.75/tonne for overburden.
(6) Costs used to determine the C$20/tonne NSR resource cut-off value were processing at C$15/tonne and G&A C$5/tonne.
(7) The Murray Brook Mineral Resource Estimate was undertaken by Eugene Puritch, P.Eng. of P&E Mining Consultants Inc.
On a zinc-equivalent basis, the resource measures 8.17% zinc equivalent in the Measured and Indicated category and 8.47% zinc equivalent in the Inferred category. The zinc-equivalent numbers were based on a total NSR value of the constituent metals plus smelting and shipping charges divided by $14.05, the recovered value of 1% zinc.
What is important to note is that the entire resource calculation was defined in a 1 kilometer stretch on the Murray Brook Project.
The above fact should ultimately result in a smaller environmental footprint as the resource is highly concentrated to a small area. Many high grade, low-cost mining operations are concentrated in nature.
Having the resource calculation largely in the Measured and Indicated categories, at this stage, is an advantage for El Nino and would have never been achieved without the expertise of Votorantim‘s team.
Most often, if a company has a market cap of roughly $6 million or less (like El Nino), they’re fortunate to have a stake in an Inferred resource. Herein lies the distinct advantage of being partnered with a company such as Votorantim. Votorantim has the expertise and financial capabilities to exploit an asset very quickly.
El Nino doesn’t control 100% ownership in the project, but what is the likelihood of a junior explorer taking an asset through to production on its own – especially in this market environment? History shows it’s less than 5%. El Nino isn’t partnered with just another junior explorer.
They are partnered with one of the larger mining companies in the world. Thanks to this partnership, Murray Brook has quickly become a respectable massive sulfide deposit and has advanced at a rapid pace.
The Murray Brook Project is a rich zinc and silver deposit and starts right at surface. Unique to most deposits in the Bathurst Mining Camp, Murray Brook is much higher grade in the precious metals category. This should come as no surprise given the fact that Nova Gold produced gold and silver on the property for three years back in the 80′s and 90′s.
So despite Murray Brook hosting a large zinc resource, there are byproducts involved that could change the economic dynamics of the project. Keep in mind that Murray Brook is located in the heart of the Bathurst Mining camp in New Brunswick, the highest rated region on earth to perform mining exploration activities, according to the Fraser Institute.
Aerial view of the project area showing outline of the massive sulphide deposit (red) projected to surface * Note the road access and power line
Votorantim is nearing the completion of an 18,000 metre drill program on Murray Brook (financed by El Nino and Votorantim). Results from this program are expected to be released shortly. It is expected to be a busy news-flow season for El Nino, with a planned resource calculation update in late fall (from results of the 18,000 metre drill program). The kicker to this is that none of the ongoing 18,000 meter drill program was included in the resource calculation released in February.
Take a look at some of the results recently released from this new drill program:
- 11.58% zinc, 4.55% lead, 1.53 gpt gold and 147.8 gpt silver over 24 metres in MB-2012-70
- 6.43% zinc, 3.67% lead, 0.598 gpt gold and 85.5 gpt silver over 8.65 metres in MB-2012-70
Two rigs are currently drilling as part of a $2.5 million drill program to better delineate the outer perimeter of the Murray Brook deposit and advance the resources into the measured (highest confidence) category. The 2012-2013 program also calls for $500,000 exploration of the Camel Back and Murray Brook properties. In addition, metallurgical testing has begun on the property as well as new target exploration drilling at the northwest extension of the deposit. Further plans include a PEA (scoping study) in early 2013.
It’s tough to find a comparable company to El Nino, with a $5.8 million market cap, that is involved in a project which is developing at this pace. This is the benefit of having the right partners and not having to finance a project on your own.
What’s important to note is the agreement in place for Murray Brook between the working parties. As of April 30, 2012, earn in expenditures and property payments (by both ELN and Votorantim) have totaled $3,702,791 and $300,000 respectively, of which ELN has contributed 50% as its share of the costs to earn its initial 25% interest.
All expenditures which exceed the initial earn in amount of $2,250,000 will be counted towards the $2,250,000 required to earn the additional 20%. Upon earning in for 70%, the parties will enter into a formal J/V Agreement consisting of the following; ELN 35% / Votorantim 35% / MBM 30%.
To simplify, El Nino needs to commit another $350,000 (approximately) to enter into the formal Joint Venture agreement with the three parties. The benefit to forming this type of joint venture is obvious. You have El Nino, a company being valued by the market at roughly $5.8 million, partnered up with one of the most competitive zinc producers and a private land holder (Murray Brook Minerals).
The JV agreement would mean that each of the three companies is responsible for their respective capital expenditure requirements (i.e. El Nino would fork out 35% of all costs for 35% ownership) and in that, receive the expertise of Votorantim‘s team. As well, Votorantim is conducting all the work on the project.
In a market environment like today, we found this to be favorable for a junior. Work program budgets must be agreed upon by all parties. In theory, no one will be strong-armed out of a position. All parties bring value to the project and if Votorantim wasn’t leading the charge, there is no way the Murray Brook Project would be developing as fast as it is.
Due to the speed in which development at the Murray Brook Project has progressed, El Nino is currently working on raising $2 million at $0.11 and $0.13 respectively. In this partnership (at the Murray Brook Project) $1 million from El Nino can go a long way in developing the asset – much further than if El Nino was to go at this project alone.
As mentioned, according to the JV agreement (which will kick-in once El Nino contributes another $350,000 approximately), El Nino is responsible for 35% of all costs. So let’s say a budget agreement between the JV parties is made and that El Nino will contribute another $1 million to drilling the project (after JV agreement is formed). Votorantim would then have to contribute the same amount and Murray Brook Minerals would have to contribute roughly $800,000.
If the allotment of capital were to go towards continued drilling, that would translate into another 15,500 metres of drilling (going by the approximate cost of $180 per metre). This is the advantage for El Nino. That amount of drilling can go a long way in developing an already advanced project.
There is a Preliminary Economic Assessment expected on the project following the updated 43-101. Remember that the updated NI 43-101 is expected in the fall of 2012. In the meantime, more drill results from the 18,000 metre program will be released.
The resource calculation at Murray Brook has estimated more than 1 billion pounds of zinc. It is a rich, concentrated deposit. There is the potential that Votorantim may eventually want to go at this project alone. In which case, a sensible beneficial agreement could be made between the involved parties.
Now that we’ve explained the Murray Brook Project, El Nino’s strategic partners and management, let’s talk about the ‘wildcard’ for this company.
The Kasala Copper Project in the DRC (Democratic Republic of Congo) is something we like to call, ‘El Nino’s wildcard’.
Back in 2007, El Nino’s shares traded around $1.30. At the time, its properties of focus were in the Democratic Republic of Congo. In late 2009 a copper discovery was made by El Nino on the Kasala Copper/Cobalt project in the DRC, which at the time was one of the newest copper discoveries in the Central African Copperbelt. The Central African Copperbelt contains over 10% of the world’s copper and 34% of the world’s cobalt. It is where some of the largest miners on earth ‘play ball’ and contains excellent infrastructure.
The prolific Neoproterozoic central African Copperbelt is one of the greatest sediment-hosted stratiform Cu-Co provinces in the world. In reports from 2005, figures totalled 140 Million tonnes of copper and 6 Million tonnes of cobalt. Needless to say, it is home to several world-class deposits.
When El Nino drilled on the Kasala property (roughly 9,500 metres total), strong results began to surface. Management believes that a significant copper discovery was made on the Kasala Project with the known mineralized strike length being traced to 800 metres.
Highlights of the Drilling and Exploration to date:
The 2008 drill program identified consistent mineralization over large widths, from 50m to 91m. Highlights included high-grade intercepts:
* 22 m @ 3.28% Cu
* 29 m @ 2.82% Cu
* 31 m @ 2.19% Cu
* 11 m @ 3.68% Cu
The copper grades from some of these intercepts are very high. These results confirm the presence of significant mineralization within the Kasala Main Zone with the potential for expansion based on the results from an IP Survey completed in early 2009.
You’re probably wondering why the results we are showing date back a few years. Well, El Nino has been stuck in a legal battle over the rights to the property. The company has stated that, to date, it has won all of its legal actions and is currently finalizing legal action in the DRC. Subject to continued positive results, El Nino expects to be able to resume its exploration activities this year.
The company states the happenings regarding this matter on its website and how the judgments have favored over the past two years:
“Unfortunately the Company has been unable to advance its exploration programs for the past two years as it was forced to respond to a series of spurious and unsubstantiated claims which the Company has successfully challenged, which resulted in having its former manager removed and a new manager appointed for its DRC joint venture company, Infinity Resources Sprl. As well, the company has filed a series of specific claims against the previous manager and is proceeding with arbitration in British Columbia, scheduled for June, 2012.”
The company goes on to state:
“The following is a chronological order for these claims and of our success to date in addressing these charges, the result of which has allowed us to begin re-establishing our ability to conduct business and secure our assets in the DRC.
* June 24, 2010: ELN successfully defends its position resulting judgements in the DRC being dismissed.
* August / September 2010 – El Niño files two judgments in the DRC against George Kavvadias and GCP Group to remove him as manager of Infinity Resources Sprl for both incompetence and negligence as well as for gross misuse of a Power of Attorney
* October 1, 2010: El Niño charges Georges Kavvadias and GCP Group with Fraud, Fraudulent Misrepresentation, Misappropriation of Funds, Breach of Agreement and Claims for USD$ 850,000 + damages in the Supreme Court of British Columbia.
* January 5, 2011 – El Niño received notice from the Supreme Court of British Columbia of the hearing held on November 25, 2010 regarding its Notice of Dispute and Petition against George Kavvadias and GCP Group. The Company was successful in having the Court determine that these claims should be decided through arbitration.
* April 11, 2011: Announcement that DRC court rules in favor of El Niño for two judgments against George Kavvadias. Removing him as Manager of Infinity Resources Sprl and charging him with incompetence, fraudulently issuing minutes of a shareholders meeting and for gross abuse of a Power of Attorney.
* June 20, 2011: Results of the above Court action allows El Niño to take over possession/control of its 70% owned subsidiary, Infinity Resources. El Nino appoints new manager.
* BC arbitration to commence first week of June, 2012″
El Nino goes on to state “Appeals have been submitted for all four judgments in the DRC with two being dismissed and the final two to be heard in June 2012. It was imperative that the Company do everything in its power to protect its investment and assets on behalf of its shareholders.
To support its decision in devoting substantial time and money on securing this important asset, the Company has conducted ongoing extensive re-evaluation of all of its historical geological data and has had meaningful and informative discussions with major companies who have shown a serious interest in the Kasala project.
Due to the quality of the asset and the following the project has generated from senior and mid-tier mining companies and institutional investors, the Company plans to conclude the above mentioned legal matters on a timely and cost effective basis so that the Company can move on to explore and develop our DRC assets.
In anticipation of removing these last obstacles the Company has prepared a budget for an extensive exploration plan which will include both surface and drilling programs to successfully realize the full potential of these highly prospective properties.”
For more info on Kasala click here.
Obviously, when courts are involved, we can’t draw any conclusion to what might happen with this project. However, therein lies the ‘wildcard’ component to this story. The results from the Kasala Copper Project speak for themselves and if El Nino can get back to work on this asset, it brings a whole other dynamic to this $0.105 junior.
Lastly, it’s always nice to see a company whose CEO has substantial ‘skin in the game’. It was reported on April 4, 2012 that Harry Barr, El Nino‘s Chairman, CEO and director, acquired ownership and control of 537,948 shares and 268,975 warrants of ELN pursuant to the Company’s non-brokered private placement of units at $0.13/unit (non-flow through) and $0.15/unit (flow through).
As a result of Mr. Barr‘s personal holdings and those of PFN’s, Mr. Barr has ownership of, and/or control and direction over, an aggregate (both directly and indirectly) of 6,668,063 common shares of ELN on an undiluted basis, representing 11.56% of the issued and outstanding shares of the Company.
El Nino is an advertiser on Pinnacle Digest and we participated in the company’s private placement at $0.13 as well. For those reasons, consider us bias as we have a vested interest in the company. We’ve found the company to be very welcoming in communication and encourage any potential investor to contact El Nino if you have any questions. As always, we encourage you to practice independent and thorough due diligence.
We intend to add to our position in El Nino (ELN:TSXV) following the release of this report. The company currently trades just 2.5 cents above its 5 year low.
A company the size of Votorantim, a large producing miner, does not worry about day-to-day fluctuations in metals prices. Successful producers must look several years into the future when evaluating assets to advance. Mining giants position themselves to benefit decades into the future as cycles of demand rise and fall.
Reuters has recently reported that “Zinc miners are betting a long-running global supply glut of the metal used in steel making will turn into a deficit over the next five years as old mines run dry, sparking massive investment in new projects.”
Reuters has gone on to state that “In 2013, the Xstrata-owned Brunswick and Perserance mines in Canada, along with the Vedanta Resources Plc-owned Lisheen mine in Ireland run dry, removing more than half-a-million tonnes of zinc from the global system.”
The Murray Brook Project is in the same Mining Camp as Xstrata’s mine which is being shut down next year because it has ‘run dry’. When the mine shuts down, the infrastructure will still be there – not to mention the fact that the region was rated as the world’s most attractive jurisdiction for mineral exploration and development in the view of the international mining industry, according to the Survey of Mining Companies: 2011/2012, released by the Fraser Institute.
Stock Symbol: ELN (trades on the TSX Venture)
All the best with your investments,