Barkerville Gold: Sprott lent them money?!?!

Barkerville Gold “Mines” (BGM) is the poster child for everything that is wrong with the junior mining sector.  Insiders are overpaid, G&A costs are excessive, and they issue inflated technical reports.  The stock is currently halted as their latest technical report was massively inflated.  The halt was a little late but at least regulators did something for once.  The technical report claimed that Barkerville had a Bre-X sized deposit in the tens of millions of ounces and that it had the geological potential for 65-90 million ounces.  That would correspond to the largest gold deposit ever found by man.  Apparently Barkerville still has credibility.

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Sprott Resource (SCP.TO) – Trading below NAV but I’m not buying it

Sprott Resource Corp is somewhat similar to a publicly-traded closed-end fund.  It is a vehicle for generating asset management fees for Sprott Inc. (SII.TO).  SCP is currently buying back its shares as they are trading at a ~21% discount to NAV.  Normally I like situations where undervalued companies are buying back their shares.  However, I’ve been learning (the hard way) that management matters.  While SCP’s management is not the worst in the business, I am not enthusiastic about it.

Selwyn Resources – Harlan Meade is out, company will distribute cash to shareholders

See the press release filed on SEDAR.

KWG Resources update – they own the best route to the Ring of Fire

KWG and Cliffs have been embroiled in a legal battle over the surface rights for a transportation route to mineral deposits in the Ring of Fire.  On Sept. 10, the Ontario Mining and Lands Commissioner released its decision (you can download it from KWG’s website) and KWG won.  It wasn’t a close decision judging by the wording:

[…] the law is clear; the application must fail.

Cliffs could find an alternate route, though it could cost hundreds of millions more.  It makes more sense for them to buy the rights from KWG.  KWG is sitting on an asset that is worth tens of millions of dollars to Cliffs, if not more.

Selwyn Resources (CVE:SWN) update

Selwyn Resources is being taken over by activist investors who will likely liquidate the company.  Originally the proxy argued that Selwyn would be able to distribute a 10 cent/share dividend.  Because Selwyn trades at 0.8/0.85 cents, the return may be attractive.  However, the company burns through a lot of cash and there may be complications to actually liquidating the company.  As well, there is a healthy dose of drama.

*Disclosure: I am long Selwyn.

Mining Mania

I used to assume that large mining companies would not chase projects with negative returns.  This is a dangerous assumption that I need to rethink.  I’m starting to realize that most large miners regularly chase projects with poor return.  Or, they engage in business decisions that don’t make a lot of sense.  I shouldn’t rely on the due diligence of senior mining companies when trying to value the assets of a junior.

Here’s my analysis of various large mining companies and why they are crazy.

Pinetree Capital (PNP) update

I’ve sold out of Pinetree at 45 cents/share and above.  While it still trades at a discount to the market value of its assets, Pinetree’s management is truly awful as discussed in my previous post on the company.