The New Bre-X

Written by Gerardo Del Real
Posted December 20, 2016 at 2:49PM

The Fed finally raised rates and signaled a willingness for additional raises in 2017, sending precious metals lower and the dollar higher.

For the sixth straight week gold closed lower. It closed at $1,137, down approximately 2% for the week.

I’ve warned of lower prices and continue to believe that we will see a price closer to $1,000 than $1,200 an ounce before the year is over.

The dollar, meanwhile, enjoyed a 14-year high, a trend I see continuing in the near-mid term.

Silver was down approximately 4.7% for the week, closing at $15.95 an ounce, its lowest price since June. Expect lower silver prices as well.

Copper shed 3% last week, closing at $2.57/lb. Platinum gained nearly 1%, closing at $921 an ounce while palladium lost 6% for the week, closing at approximately $689 an ounce.

Oil managed a gain of approximately 0.3% as West Texas Intermediate crude closed at approximately $51.65 a barrel. Brent crude closed near the $55 a barrel mark and added nearly 1% for the week.

Uranium is showing signs of life. The spot price rallied from $18 to $22 and the juniors with the best assets and management teams have finally started to catch a bid.

It appears we may have seen capitulation in the uranium market and there are several names with attractive entry points I have my eye on.

The Week in Juniors

Arizona Mining (TSX: AZ) (OTC: WLDVF)

A lot of chatter last week involving Arizona Mining. On Sunday December 11, 2016, The Global Mining Observer published a piece titled “Zinc Discovery in Arizona looks like “'Bre-X’” that compared Arizona Mining, which has released some exceptional results from its Taylor zinc discovery, to Bre-X. 

The article cited manganese impurities as a potential fatal flaw that would prevent smelters from processing the metal which could therefore prevent the project from ever being economic.

That led to The Global Mining Observer fully retracting its article and stating that it "regrets any damage which the statements in that article may have caused.”

The Global Mining Observer then published a follow-up piece on December 13, 2016 titled “Banks Slam Manganese Concerns” and right underneath the headline included “But zinc industry specialists disagree, as Arizona issues statement on metal impurities.”

That didn’t help matters any for Arizona Mining and the retraction hasn’t kept the stock from dropping nearly 30% from the December 13th high of C$3.23 to today’s low of C$2.30. The stock was down 20.6% the first day of trading after the articles were published.

The trading action resulted in Arizona Mining halting trading in shares of the company.

I have the feeling this isn’t the last we’ll hear about this.

Argonaut Gold (TSX- AR)(OTC: ARNGF)

On December 16, 2016 Argonaut Gold announced that the Mexican Environmental Authority ("SEMARNAT") has denied the Environmental Impact Assessment (Manifiesto de Impacto Ambiental or "MIA") for its San Antonio project in Baja California Sur, Mexico.

Pete Dougherty, President & CEO, stated:

"We are disappointed with SEMARNAT's decision. We will review the factors that led to this decision and determine a path to move this project forward. San Antonio is a project that can have significant benefits to the local and regional economy and also provide important positive impacts to the environment. Our plan calls for a modern approach to mining including cleaning up historical overburden stockpiles and tailings and working to improve the local aquifer. We continue to believe that San Antonio remains one of the best undeveloped projects in the sector and we will continue to seek ways to unlock the benefits and value of this project for the local communities and for our shareholders.”

SEMARNAT cited the reasons for not approving the MIA as requiring additional information regarding potential identification, description, and impacts to the environment; additional information on the construction, operation, and closure plans for the project; and additional information regarding the impact on the local aquifer.

The company stated that this information is readily available and it has the ability to respond swiftly. It may want to provide that information beforehand next time.

Orocobre (TSX: ORL) (OTC: OROCF)

On the lithium front, Orocobre provided an update into studies conducted for the Stage 2 expansion of the Olaroz Lithium Facility.

On December 14, 2016 the company announced details from its positive scoping study for its project in Argentina. Here are the details from the release:

  • Lithium carbonate equivalent (LCE) production will be expanded from the current 17,500 tonnes per annum (tpa) capacity to 35,000 tpa with commissioning targeted for late 2018/early 2019

  • Capital expenditure for the additional 17,500 tpa of lithium carbonate capacity is circa US$190 million (including a US$25 million contingency) and is expected to be financed through a combination of project finance and Stage 1 operating cashflows

  • Construction of a 10,000 tpa battery grade lithium hydroxide plant is being investigated with the preferred location being in Japan. Additional capital expenditure is expected to be circa US$30 million before potential government incentives. Financing of this development is expected to include debt and/or off take financing

  • There are key strategic advantages to add lithium hydroxide to the Orocobre product range to feed the growing demand in the battery sector

  • The preferred location for a lithium hydroxide plant is Japan in order to be close to, or integrated with, cathode manufacturers servicing the growing electric vehicle sector

  • Only existing conventional processing technologies will be used in the expansion. All unconventional technologies reviewed carried a significant level of process risk and were not seen to hold any commercial advantage over conventional technologies

  • Stage 2 is expected to be fully funded by project debt and internal project cashflows

Stage 2 will entail the construction of a 17,500 tpa lithium carbonate production facility adjacent to the Stage 1 operations at Salar de Olaroz, in northern Argentina. The expansion is expected to include both Primary and Purification circuits capable of producing battery-grade lithium carbonate.

In addition, studies continue into construction of a 10,000 tpa lithium hydroxide plant, with a preferred location in Japan facilitating integration into production of cathodes for battery manufacture.

Orocobre is the first new brine-based producer of lithium carbonate to emerge in approximately 20 years and is in good position to take advantage of the growing demand for lithium.

The company has built, in partnership with Toyota Tsusho Corporation and JEMSE, the first large-scale, greenfield brine-based lithium project in 20 years at the Salar de Olaroz with planned production of 17,500 tonnes per annum of low-cost battery-grade lithium carbonate.

Oceanus Resources Corporation (TSX-V: OCN)(OTC: OCNSF)

On December 14, 21016 Oceanus reported additional assay results from the ongoing diamond drilling program on its 100%-owned El Tigre Property in Sonora, Mexico.  Highlights from the drilling include the following:

  • Hole ET-16-108 – 110 meters of 0.79 g/t gold equivalent consisting of 0.6 g/t gold and 14.5 g/t silver; including 16 meters of 1.69 g/t gold equivalent consisting of 0.82 g/t gold and 64.7 g/t silver.

  • Hole ET-16-109 – 20.4 meters of 3.23 g/t gold equivalent consisting of 0.4 g/t gold and 212 g/t silver; including 4 meters of 13.9 g/t gold equivalent consisting of 0.82 g/t gold and 981.2 g/t silver.

  • Hole ET-16-104 – 115.9 meters of 0.58 g/t gold equivalent consisting of 0.43 g/t gold and 11.4 g/t silver; including 67 meters of 0.81 g/t gold equivalent consisting of 0.56 g/t gold and 18.3 g/t silver.

Glenn Jessome, President and CEO of Oceanus, commented:

“These drill results continue to exhibit wide oxidized zones of precious metals mineralization that outcrop at surface, further supporting our hypothesis that El Tigre could be another significant bulk tonnage project in the Sierra Madre Occidental in Mexico.  The two drill rigs operating at El Tigre will continue to move north and south along the 1.6 km strike length over the old El Tigre mine during the first quarter of 2017 as the Company works to complete an updated NI 43-101 compliant resource estimate in 2017.” 

I like the asset and I believe the company will continue to be successful with the drill bit, but Oceanus didn’t do itself any favors earlier in the year when the company decided to do multiple financings at the C$0.23 and C$0.25 levels.

Share structures matter and I don’t think it’s a coincidence that regardless of the drill results the company can’t seem to break the C$0.25 level in any meaningful way.

Expect lower gold and silver prices going into 2017. It’s time to be initiating and adding to positions ahead of what I expect to be a sustainable and robust rally in the precious metals space next year.

To your wealth,


Gerardo Del Real
Editor, Junior Mining Monthly and Junior Mining Trader.

For the past decade, Gerardo Del Real has worked behind-the-scenes providing research, due diligence and advice to large institutional players, fund managers, newsletter writers and some of the most active high net worth investors in the resource space. Now, he is bringing his extensive experience to the public through Outsider Club, Junior Mining Monthly, and Junior Mining Trader. For more about Gerardo, check out his editor page.

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