“They’ve marked down their ‘bad’ assets. What they do not realize is that their ‘good’ assets are bad, too.”
“The bond insurers have no ability to meet their obligations.”
James Cramer – CNBC January 18, 2007
Love him or hate him, we have arrived at this place. It is a place we have not been in this writer’s 34 years as a financial and investment professional.
I hope that one day soon (within 6 -18 months) I will be able to write as enthusiastic recommendation for our first nanotech stock as I can now about my first resource stock investment in 8 years, Animas Resources, below.
We remain confident that the next 2 – 3 years will be the best time to get in on the ground floor of the coming Nanotech Boom (having kept you out of that “space” for the last few years while others were exaggerating and promoting “Nano-stocks” with careless abandon and ignorance of how speculative markets work). We hope to help you uncover many opportunities to make huge profits in cutting-edge technology companies. However, we would be remiss, despite our focus, not to help prepare our members for a possible, serious economic meltdown.
It seems self-evident that one should have precious metals mining share component in their portfolio.
This letter contains our research report on a speculative gold mining stock - Animas Resources (Symbol ANIMF in the U.S. and ANI in Canada – easily traded through companies like Schwab and E-Trade). It controls the core of an entire, historic, prolific yet grossly under-explored, gold mining district (numerous mineral deposits within hundreds of contiguous square miles) and trades in the U.S. and Canada.
Just prior to New Year's, we typically make predictions for the next year that either are off the screen of mainstream investment professionals or are contrary to the overriding current opinion in the markets. In the past, these contrarian views have had exceptional results. (For example, in 2006 we called a major top in the Chinese stock market for 2007, at a time when there was universal certainty that the shares would continue their long-term bull market.)
We recently named early-stage, speculative, developing, precious metals mining stocks as the #1 investment for 2008 and named four of the companies that we own as excellent examples and recommendations for purchase. Many of these junior mining shares have not kept up with the prices of the metals. We believe this will change soon for the high-quality issues, but the not so great ones will probably continue to under-perform or have even more severe problems for now.
Some of you e-mailed to say you had bought them at great prices in December 2007 and were profiting, but were interested in more information.
While I have been personally and professionally investing in natural resource shares since 1980, continuing through my years focused on nanotech, “small” and advanced technologies (like MEMS, micro fluidics and advanced materials, etc.), I am taking this opportunity to share a research report on a mining stock for the first time in almost 8 years.
We hope you enjoy it and profit from it!
If you do, and wish to hear more in the future, please e-mail ([email protected]) and tell us you wish be on a list for possible gold and silver mining and natural resource stock information.
In our experience of over 25 years, natural resource and mining stock investing has offered and continues to offer dynamic, profit-exploding potential for absolutely, astoundingly huge returns. However, timing and ability to distinguish quality are everything.
Those of you who have read Nanotech Fortunes or our other writings on nanotech investing at www.Nanotechnology.com know that I have had a successful career focused on venture capital, private equity, investment banking and trading in mining and natural resource shares. My detailed background in this area is at the end of this article and I encourage you to read it. It will enable you to understand our level of credibility in the natural resource sector. Just as importantly, you may appreciate our deep expertise in the Canadian public venture capital markets and the TSX Venture Exchange, which we have been endorsing as the best venue available for early-stage company finance in nanotech and other advanced tech-related fields.
Now, allow me to present one of the best, if not THE BEST, gold mining speculations I have ever seen. By way of fair disclosure, I own shares in this company and have participated in private placements to fund its treasury (please review the disclosures at the bottom of this paper).
Animas Resources: ANI-TSX.V (ANIMF-U.S.)
Corporate Website - http://www.animasresources.com/s/Home.asp
Corporate Profile – http://www.animasresources.com/i/pdf/CorporateProfile.pdf
Shares – app. 24 million
Fully diluted – app. 35 million
Approximate share price range January 2008 - US $1.30 - $1.75
Approximate fully diluted market capitalization – US $48M
Recommendation: Aggressive accumulate and “buy” recommendation for speculative accounts in the current range - $1.30 – 1.70
Target: 2.0 - 3.5 million ounces of gold in “drill inferred” category within 24 months; 5 million plus ounces “drill indicated” with several millions more inferred within 48 months.
Potential valuation at exit based on 38 million shares and $150/drill indicated ounce (based on $850/oz gold): We see an eventual US $500M to $1B market capitalization; indicating a potential share price of US $12 - $24.
The Animas story is a very simple mining stock story. All stories that lead to incredible profits are.
Great people and a great property make for highly profitable investment potential.
Excellent people and an excellent property make for a “profit-exploding” investment potential.
Excellent people and a “world-class” mining district can virtually ensure stupendous profit potential.
In addition, please note: there is a kind of “triple-whammy” if you will.
There is Bonus Pool directly tied to the development of the gold resource.
Animas will reward officers of the Company by granting them one million shares when 1.6 million of “43-101 compliant” (a Canadian regulatory standard based on the opinion of a “qualified person” in geology) ounces of gold have been outlined. Another one million shares will be granted when 2.7 million ounces have been similarly “circled”.
2.7 million ounces is a very solid mineral asset; one that can attract the serious attention of major mining companies and the Animas team seems to have “happily” signed up for this high standard.
Think about that a moment if you will.
Now, let’s take a close look at these people and the gold mining district and see why I’m so excited.
First, allow us to personalize this to indicate why it is so appropriately my first written mining stock recommendation in years.
About 2 years ago, an old partner and close friend approached me to look over some data on mining properties. He had decided he was going to go into the gold mining business again (great timing, huh?), possibly taking the deal public on the Toronto Venture Exchange. I was the only expert he was still in contact with at the time (all that’s changed now, because of Animas he is becoming one of the most “connected” movers & shakers in the junior mining business). I studied 13 projects and told him 2 were very good and would make excellent choices, but one of the others, The Santa Gertrudis property, was the 2nd best property I had ever seen in my life at its stage of development. However, it had a completely messed-up land package. Disputes, non-contiguous properties throughout potential ore zones, recalcitrant and demanding owners, etc. would cause problems, but if someone were to take the time and money to “put it all together”, one would have a gold mining district holding the potential of multiple, individually significant mines.
We never thought that he would do it; but he did!
And that mining district brought a truly world-renowned group of geologists, mining engineers, geophysicists and mining executives (the type of team major mining powers like Newmont or Barrick would be ecstatic to bring aboard) out of retirement and/or lucrative consulting careers to a small company, Animas Resources.
Please deeply review this group. This is not a typical list of CVs one finds on just any mining company. This is a “world-class” team.
Greg McKelvey, MS. Geol., the CEO, has more than forty years of extensive, international experience in Latin America, Africa, and Europe in expanding responsibilities for significant mining companies such as Kennecott, Cominco, Homestake, and Phelps Dodge. He has also consulted for Lundin Mining, Codelco, Phelps Dodge and Newmont Mining among others. Mr. McKelvey has successfully directed and led innovative exploration efforts that resulted in the discovery of several major ore deposits. He was the VP of Exploration: Latin America, Phelps Dodge.
John Wilson is VP Exploration. He brings more than 35 years of experience around the world in exploration and discovery, resource definition and mine development.
John Reynolds is a consulting geologist/geophysicist with more than 35 years of experience. He has worked around the world, leading successful geophysics programs for many companies. His role is to lead the Company’s efforts to understand the immense existing data from previous work on the Santa Teresa District, as well as collecting new data in order to target new deposits.
Dr. Odin Christensen is an active member of the Advisory Board. Significantly, Dr. Christensen worked as Newmont Mining’s Chief Geologist in his last position there. He was responsible for oversight of the technical quality of Newmont's worldwide geology programs. As Exploration Manager for the Carlin Gold Mining Company (later Newmont Gold Company) in the late 1980’s, he guided the exploration teams that transformed the Carlin Trend from a single mine into the largest gold district in the U.S.—and one of the most prolific gold districts in the world. Throughout Nevada’s Great Basin, he was responsible for all of Newmont’s geological activities at five separate mines with a staff of ninety geological professionals. Dr. Christensen was involved with the initial exploration and definition of the world-class Yanacocha gold deposit in Peru and of the Mesel and Batu Hijau gold deposits in Indonesia.
Catherine McLeod- Seltzer co-founded Arequipa Resources Ltd., a gold exploration company operating in Peru that is one of the most acclaimed junior mining stories in history. As President and CEO, she was responsible for raising over $34 million, and was instrumental in orchestrating a $1.1 billion takeover by Barrick Gold (ABX).
Donald Ranta, Ph. D. is an eminent exploration and development mining executive. He has managed successful exploration and acquisition programs throughout the world, and he has extensive experience in economic evaluation, strategic and business planning. In addition, he is a former President and Board member of the Society for Mining, Metallurgy, and Exploration and the current Vice President-Finance and a Board member of the American Institute of Mining Engineers. Dr. Ranta is the CEO of junior mining company Rare Element Resources. Significantly, Dr. Ranta was previously VP exploration North America for Phelps Dodge and VP Exploration for Echo Bay, two giant mining companies that were acquired by even larger giants. Importantly for Animas Resources, while at Phelps Dodge, he managed exploration of the team that discovered many of the ore bodies at Santa Gertrudis.
By no means are these the only folks of significant merit on the Animas team. We simply covered a few; others on board have had great success in their respective fields. See the rest on their website: www.animasresources.com
Now that we have covered some of the “world-class” people, let’s review the world-class mining district.
The historic Santa Teresa gold mining district, featuring the Santa Gertrudis and Amelia properties are in northern Sonora, Mexico, right on the Arizona border.
You need to know that:
Mexico great, mining-friendly domicile with a strong mining culture and history, as well as modern mining laws (in fact, Animas Resource’s Mexico attorney and member of their Advisory Board, Rodrigo, Sanchez-Mejorada, is credited with writing them!). With one of the highest ratings in the world for respect for mineral property rights (said to be in the top 5), country risk should be considered quite low.
When people ask, “Darrell, what first attracted you to these properties; what made you think they might be great?” I can point to a 68-page report by Behre Dolbear (http://www.dolbear.com/home.php) on the “Deep Carlin Potential” of the Santa Gertrudis done in 1997 that was part of all the documentation I went through as being key.
Here it is if you’d like to try your hand at it: http://www.animasresources.com/i/pdf/BehreDolbearonSGCarlinPotential.pdf
You see Behre Dolbear is one of the oldest, most respected, independent, continually operating minerals industry-consulting firms in the world. Everyone in the industry listens when they speak. So, when they said the following, my ears stood up:
“The deep exploration potential at Santa Gertrudis is very positive and the chance for deep mineralization is very good. The surface potential is, as you know, without question. Santa Gertrudis is at the same position the Carlin Trend was at the point in time Barrick bought the Goldstrike property from Western States Minerals and started their deep exploration program.”
Barrick is now Barrick Gold (ABX), the largest gold mining company in the world, and $44 B major, and the Goldstrike STILL has 15 million ounces and is just one of their many major gold mines. They were a junior, like Animas in the early 1980s and the Carlin Trend “made” them. http://www.barrick.com/GlobalOperations/NorthAmerica/GoldstrikeProperty/default.aspx
The Carlin Trend in Nevada is the largest gold producing district in the U.S. The deposits run from broadly disseminated gold, right on the surface, that is literally mined with large shovels, to deep underground, bonanza-type deposits.
How could Santa Gertrudis not still be being mined in 2007, and be available to a small mining company if it was so great?
In the presence of much lower gold prices, the earlier operators targeted oxide ores near surface that could be mined inexpensively and cyanide heap-leached to extract the gold from the crushed rock (also very cheaply). The first miners had difficulty with debts and other financial problems, paid off part with pieces of the property and finally shut down operations with all those ounces of gold left in the ground.
They even left the very extensive sulfide gold deposits, outcropping right on surface! Back then, and even today, the process for extracting gold from “sulphides” is more labor intensive, requires more treatment processes and is thus more expensive.
However, with today’s much, much higher gold prices (today, well over $825, but over $600 is considered high by most mining people) the surface “sulphides” can probably be considered “ore” (an economic, not a geological term meaning roughly mineralization from which metal can be extracted at a profit). Furthermore, there are MANY additional deposits and many structures yet to be drilled, and they portend potentially millions more of ounces of gold.
Understand, we don’t just believe there is gold to be found; gold has been mined there for a very long time. In fact, in not so distant years, Santa Gertrudis produced over 564,000 ounces of gold at an average grade of 2.13 grams per tonne from 1991 to 2000. In addition, Santa Gertrudis has an historic (non-Nl43-101 compliant), current resource of approximately 720,000 ounces of gold.
Animas Resources controls 323 square kilometers of the Santa Teresa District now. That is about 125 square miles. 10 miles by 12.5 miles is one way to look at it. They have consolidated several of the past operators’ positions, and now control more of the District than any of those companies in the past. Now it is easier to imagine the possibility of several mines existing if you take into account the gold seems to have been found in most all the rock types within the district.
We are not contending there are 20 million + ounces of gold in the Santa Teresa (there well might be; there have been about 60 million already mined in the Carlin Trend), or even that they will drill-indicate another 3 million ounces within 30 months (they might). However, we believe that those 720,000 ounces represent a fraction of the gold, in a fraction of the deposits, in a fraction of the property, in a fraction of the district.
The work that has been done to date is immense, and you should be ready; we expect 2008 drilling to begin sometime between now and April with first results as early as this May. Here is some of what Animas Resources has already and is hard at work utilizing for the benefit of shareholders:
- 1,017 reverse circulation drill holes totaling 98,620 meters
- 225 diamond drill holes totaling 21,122 meters
- 34,000 rock samples
- 21,000 soil samples
- District wide airborne geophysical and ASTER surveys
- 55% of district covered by a soil geochemical survey
- Gold production since 1991 occured in an area over 18 km by 4 km; truly a district-sized system
- Only cursory exploration was done below 400 meters
- Known mineralization extends under post-mineral gravel
cover and is open at
Allow us to quote directly from the
company’s corporate profile (first part
from the Behr Dolbear report again):
“’The deep exploration potential at SG is very positive and the chance for deep mineralization is very good. The surface potential, as you know, is without question.’ (Editor note: my bold) There is excellent potential for additional shallow gold deposits both adjacent to known oxide gold occurrences and under shallow gravel cover.”
That “shallow gravel cover” covers an incredible number of square kilometers on Animas’ property. Highly technical, but commonly used tools for finding deposits below the surface of the ground, without “seeing them with your eyes” (and before drilling them to prove they are there) like Induced Polarization (IP), magnetometer work (EM) and other geophysical work and techniques, indicate many potential deposit targets in the Santa Teresa District, outside of the known Santa Gertrudis deposits. Gold mineralization of ore grade also comes right to the surface (outcrops) persistently in MANY places on the properties.
Over a 10-year period, two mining companies at Santa Gertrudis produced an average of 60,000 ounces of gold a year at a grade running between 2.1 and 2.88 g/t.
Those numbers do not even include production at the Amelia Mine, which was operated by an Australian company at the time and is now controlled by Animas.
We believe the current known resource with little credit for upside is worth more than twice the current, fully diluted market capitalization of about $40 million. It will likely be a great value at $3/share as drilling uncovers 100s of thousands or millions of ounces more of gold.
We believe it is a “steal” at under $1.50, and still a great bargain at $1.75.
The team in place is unlikely to mine gold from these properties. That will likely be the job of a major mining company acquirer once Animas is able to indicate through drilling (prove up) a minimum of 2-3 million recoverable ounces and get to the inference (an additional inferred resource) of at least another 2-3 million ounces. By then, assuming $700+ gold, and good economics after the engineering plan is on the “back of an envelope”, do not be surprised to see the sale of the company for about US $1 B.
We’re sorry: Successful professionals like Greg McKelvey and some of the top members of his team don’t come out of comfortable retirements for a decent salary or to spend years and years building a mining company. I fully expect that our shares of Animas owned in 42 months (full disclosure: I and my family and friends own many shares) will be traded to a major company for cash and/or stock within 42 months.
We are unlikely to find a better, lower risk, junior gold mining company for the speculative part of your portfolio. Certainly, we will not find one with a more impressive team with proven, mine-finding, mine-making expertise and direct experience.
There are always risks in any speculative endeavor. No one can see underground; the drill may not find the amounts of gold in the grade needed to justify building a mine; the price of gold may fall precipitously or Mexico may dramatically change its ways or its taxes. There are innumerable general risks to owning stocks and speculating in micro-cap issues (see disclaimers below for even more). However, certainly, where no risk exists, there are no exceptional returns.
We would buy and/or accumulate Animas Resources aggressively, in the current $1.30-1.70 range.
I plan to visit the properties and the Santa Teresa District in March with a group of geologists and mining analysts. The enlightened perspective I hope to take away will form the basis of a follow-up report which you will receive if you sign-up as indicated above. Just email that you want to be on that natural resource and mining list to [email protected] If you wish to receive our regular Nanotech Insights on successful investing in “small” & advanced technology stocks, write at [email protected] Feel free to write only once to request both.
My Mining, Natural Resource & TSX Venture Exchange Background
After graduating from Duke, I worked as a commodity futures broker, specializing in trading, sales and research related to options on the London Exchange in gold, silver, copper and nickel.
After meeting Doug Casey in 1975 at a brokerage firm, we became close associates in the 1980s in a variety of gold mining share related businesses. To those “in the know”, Doug (duly credited with also introducing this writer to “nanotechnology” in 1988) is the most important promoter of junior gold stock investing on the planet. He became the author of the best selling financial book in history to that time, Crisis Investing in 1981. In that and his other, two bestsellers, he called the newsletter our firm penned, The Prospector, “The source for junior mining shares” and this writer the leading junior mining stockbroker. When my firm bought the rights to the Norman Lamb classic, Small Fortunes in Penny Mining Stocks, we re-edited it, published it with Doug’s forward in 1983 and sold thousands of copies.
Starting as a stockbroker at First Georgetown Securities, Inc. in Washington, DC, the directors appointed me president of company in 1978, and we developed one of the largest junior mining stock broker/dealers in the U.S. We managed up to $300M in 2007 dollars, specializing in the Spokane (silver mining) and Vancouver Stock Exchanges (gold and copper mining), and were among the top grossing U.S.-based brokers in junior mining shares from 1981 – 1989.
We met Robert Friedland (see The Forbes 400) in 1982, and were among the first to recognize his unique genius and promotional capability, recommending his first four mining companies. For those of you who have not heard of him, he is best known for Diamond Fields, which struck it rich in nickel at Voisey’s Bay in Canada and was sold to giant, Inco, for US $3.3 B. During a good part of 1988, at his desk in Vancouver, I worked with his European institutional investors and sat in with geologists, mining engineers and geophysicists, taking active role on joint venture, property acquisition and company acquisition discussions for those companies.
After we turned our book of 4,000 clients over to an old partner of ours in 1989 (after we correctly predicted a 3-5 year decline in gold and silver prices), he built it aggressively, adding his own genius and unique twist, growing the assets to incredible heights. His name is Rick Rule, and most folks today consider him the top junior mining share broker and merchant banker in the entire “space”. He has made untold millions for his clients over the years.
From 1981 to 1990, we published The Prospector and were an SEC Registered Investment Advisor. Many considered it the premier junior mining stock newsletter. We recommended, at early, highly profitable stages, stocks involved in the Carlin Trend (1981), the Hemlo District (1983) and most major discoveries during that time. In addition, we protected our next letter’s subscribers from catastrophic loss, calling the Bre-X fraud early. We believe we were the first to call the Delgratia fraud in newsletter, while making effective use of our network of top geologists, engineering and geophysical consultants. We made exceptional profits for our subscribers in names like Pennaco Energy, Galactic Resources, Sonora Gold, Cornucopia, Ultra Petroleum, Temple Mountain, Metallica Resources, Wavecrest, Gold Standard and dozens of other names you have probably never heard of but zoomed in the natural resource booms of the past.
In the late 1990s, we established a mining financial PR and merchant banking firm for Canadian shares in the U.S.; part of our success was a hedge and private equity fund called Excalibur Natural Resource Venture Capital, which had audited, 21% compounded returns, after all fees, when closed in 2001.
Over more than two decades, I have spent significant time with more than 100 geologists, 100 mining engineers, 100 prospectors, 100 promoters, 100 mining brokers and dozens of newsletter writers and visited dozens (if not a hundred or more) of properties since 1981 . . . . Along the way, I have had the fantastic experience of spending time with Adrian Day, Bob Bishop, Lawrence Roulston, Robert Friedland, Greg McCoach, Doug Casey, the Coffin Brothers, Ken Gerbino, Brien Lundin, Rick Rule, Richard Band and Paul Van Eeden, among many other well-known mining stock luminaries and analysts (see these per Google).
During this career, our clients, associates and subscribers invested more than $200 M in private equity that has become more than $11 B in public market capitalization.
Disclosures and Disclaimers
No investment opinion or other advice is being rendered on any stock or company. All of the trading stocks we recommend should be considered highly speculative; you can lose some or all of your money. It should be assumed that the Author and editor and their associates may hold or dispose of or trade in positions in any securities mentioned at any time. No fee in cash, shares or options was paid for this report. Please be responsible for understanding the terms and vocabulary of stock market investing. Here is an unaffiliated glossary site that may be useful:
Disclaimer: The Nanotech Company, LLC, Darrell Brookstein and/or Resource Development, Inc. are not registered investment advisors nor broker/dealers. Readers are advised that the material contained herein should be used solely for informational purposes. The Author does not purport to tell, or suggest to, readers which investment securities they should buy or sell for themselves. Readers should always conduct their own research and due diligence and obtain professional advice before making any investment decision. The Author will not be liable for any loss or damage caused by a reader's reliance on information obtained in any of our newsletters, special reports or on our web site or sent by email or mail. Our readers are solely responsible for their own investment decisions. The information contained herein does not constitute a representation by the publisher or a solicitation for the purchase or sale of securities. Our opinions and analyses are based on sources believed to be reliable and are written in good faith, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. All information contained in our newsletters or on our web site should be independently verified with the companies mentioned. The editor and publisher are not responsible for typographical or other errors or omissions. There is no guarantee of investment results herein whatsoever, either explicit or implied. Past results are no guarantee of future results or even profitability. Investors are cautioned that they may lose all or a portion of their investment if they make a purchase or short sale in these speculative stocks.