Investor Angling: China, Flow-Thru Warrants

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The titans of Canada's mining industry have a set of prospecting strategies. This article is about how these "faces" set their strategies; individual investors take note.

The titans of Canada's mining industry have a set of prospecting strategies. This article is about how these "faces" set their strategies; individual investors take note.

By faces, we mean Canada's mining gladiators, such as silver and copper tycoon Ross Beaty, across-the-board investor Lukas Lundin and small but clever merchant banker David Mason.

First, Mr. Beaty updated me this week about his foundling Lumina Capital. Ross Beaty is the Vancouver financier with the silver touch, the fellow who launched Pan American Silver (NASDAQ: PAAS, Stock Forum) and Magma Energy (TSX: T.MXY, Stock Forum), among others.

Lumina's team of seven or eight folks had the foresight to snag about 10% of Ventana Gold (TSX: T.VEN, Stock Forum) just before word of its monstrously thick Colombia gold discovery hit the wires more than a year ago.

"Ventana was a happy event for us," Mr. Beaty says over a plate of sashimi in Vancouver. "It went to $12 from $1. But you had to see it when we did to understand the potential."

The Ventana discovery in Colombia is suffering what Ross calls "an attack on title." He and his team at Lumina are sticking with the company and have no intention of selling the Ventana shares they own until what he calls this "miniscule threat" is resolved. "We figure it takes another six months," he says during our miso soup.

Ventana revealed on November 26, that the Colombian owner of the mineral rights at its La Bodega property had sought arbitration vís a vís its option agreement with Ventana subsidiary CVS Explorations. Presumably the owner expects higher staged payments for the property, which continues to show appealing results.

The Lumina investing team, Ross Beaty says, includes a geologist, a mining engineer, a financial analyst, and a lawyer. "We have some horsepower and several hundred million dollars," the Scottish Canadian says. "But the scarcest thing is still good projects, finding them."

Magma Energy looked at 40 geothermal properties in 2009 and settled on one—in Iceland.

Mr. Beaty's thought train these days turns to China. The proposition is simple: China's American dollar reserves are $2 trillion and growing. Some say China's capital holdings are two-thirds in greenbacks. The China miracle needs to divest some of that Yankee dough to thrive.

"They're smart," Mr. Beaty says, referring to the Chinese government. "They are going to buy, buy, BUY hard assets, our assets, my assets, at a premium for years and years. That drives capital back into my market. That is why I want to own huge geothermal resources in our Magma for the next 20 years."

The Chinese are not just purchasing physical properties controlled by Canada prospectors. They also are participating in private placements. One of those recent offerings, by Ticker Trax Planetary Prospect Premium Exploration (TSX: V.PEM, Stock Forum), more or less was entirely taken up by a group of China investors operating out of Australia.

"We think they are happy campers right now," Premium CEO Wilf Struck tells me, just one day after the prospector revealed enormous grades over multiple meters at its Friday Petsite prospect in Idaho.

Back to Mr. Beaty, who by the way, is pushing neither the sashimi nor his Magma Energy at this private lunch. I ask Mr. Beaty whose investing approach he admires, and he says, "Look, you know what institutions and extremely wealthy investors want—oversized returns. That means you have to go big and you have to go long. I think Lukas Lundin does this well, even if he takes a lot of positions. Hunter Dickinson does it well with a smaller stable of companies."

Lumina is taking a position in a tiny uranium company run in part by smart kids in southern Argentina: Blue Sky Uranium (TSX: V.BSK, Stock Forum). "We try to be in big and in long."

RB's preferred metals right now: "I like nickel. I like copper. I love gold. It is easy to understand. It is perfect for junior prospectors. It has deal flow."

Tiny merchant banker David Mason hopes he has deal flow. The creative kind. The founder of Toronto's Augen Capital (TSX: V.AUG, Stock Forum) is also CEO of Augen Gold (TSX: V.GLD, Stock Forum), which secured the evocative ticker GLD for the teeny-tiny ($7 million market cap) Ontario prospector.

Augen Gold on Thursday distributed what looks like good-to-very-good drill results for its property in Ontario, which includes the old Jerome Mine at South Swayze. But this is not the creative part of the Augen Gold strategy.

Mr. Mason is among the first—if not the first in Canada—to structure a tradable flow-through warrant financing that produces both tax advantages for investors and dollars for Augen Gold. "We spent a lot of time getting this in place with the Canada Revenue Agency," he tells me this morning, Thursday.

A share offering issued by a miner or any prospector to help pay the expenses of fresh exploration. Flow-throughs allow investors to take massive tax breaks on their stake in the shares.

Warrants are long-term options with strike prices and thus provide extreme leverage to investors seeking massive returns and big tax breaks. This is a simplified definition of flow-throughs, by the way, so please feel free to append more information in the comments section of this Stockhouse article below.

"We have a CRA ruling that allows our flow-through warrants to trade, and are listing these 5-year warrants. (Available to trade most likely in late February.) This will be the first time flow-through warrants are allowed to trade in Canada. We think the market for the shares and warrants will be strong and that you could obtain a fast return on your investment by selling either. This will be a terrific financial planning tool," David Mason says.

I leave creativity with you all.

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Please see www.tickertrax.com to learn how you might become part of the Ticker Trax network. For three days, beginning right now, I will create discount codes for 10 folks who ping me at thom dot calandra at Stockhouse dotcom. The idea is creative subscribing, in keeping with the theme here. You name your price for one year of the $399 newsletter. I will take the highest 10, even if they are $49 or $59, and send you back the appropriate code to enter. The clock ticks.

Subscribers, please click here for password-secure Ticker Trax.HOLDINGS: Thom's stock holdings are listed for all Stockhouse members on www.Stockhouse.com under the "portfolio setting" for user TCALANDRA. It is public and free to view. He also owns recently minted gold and silver coins and shares of two private companies, one of them a nickel and platinum prospector in South Africa & DRC (Congo) operated by Robert M. Friedland. Thom does not do private placements—with the one exception this yea, he hopes, of Titiribi-Sunward in Colombia … nor does Thom accept payment in return for coverage. Thom participates in select company-sponsored and company-paid tours of mining sites after examining the properties off-site for many months and in some cases, years.

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THOM CALANDRA of Ticker Trax helps his audience find value in a quagmire of investment choices. Thom co-founded and was executive VP of news for CBS MarketWatch and MarketWatch.com. As the voice of Thom Calandra's StockWatch and The Calandra Report, Thom pegged $300-ounce gold as a long-term hold and dyed his hair blonde multiple times as gold surpassed $400, $500 and $600.

Ticker Trax™ is published by Stockhouse Publishing Ltd. Ticker Trax is an information service for subscribers and neither Stockhouse nor Thom Calandra is a broker or an investment advisor. None of the information contained therein constitutes a recommendation by Mr. Calandra or Stockhouse that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. Ticker Trax does not purport to tell or suggest the investment securities subscribers or readers should buy or sell for themselves. Subscribers and readers of Ticker Trax should conduct their own research and due diligence and obtain professional advice before making any investment decisions. Ticker Trax will not be liable for any loss or damage caused by a reader's reliance on information obtained in the reports. Subscribers and readers are solely responsible for their own investment decisions. Opinions expressed in Ticker Trax 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 Ticker Trax should be independently verified. The editor and publisher are not responsible for errors or omissions or responsible for keeping information up to date or for correcting any past information. Ticker Trax does not receive compensation of any kind from any companies that may be mentioned in the report. Any opinions expressed are subject to change without notice. Owners, employees and writers may hold positions in the securities that are discussed in Ticker Trax. PLEASE DO NOT EMAIL THOM SEEKING PERSONALIZED INVESTMENT ADVICE, WHICH HE CANNOT PROVIDE. Copyright 2010 all rights reserved.

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