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$37 Moly, Moose-Poop & a 2-line phone

Bob Moriarty
January 5, 2005

If molybdenum has been the worst possible investment of the last 28 years, it's sure looking as if it may be the best investment of the next 28 years.

I've heard it said that even a blind squirrel finds an acorn now and again. In
a piece we posted last August, I made this comment about moly, "Some metals literally are on the verge of running out such as copper and for all purposes, moly has run out and the price could double or triple from here easily."

Moly was about $14 then and $37 now. Due to the nature of mining and bureaucratic delay, there are actually fewer sources of moly today than there were back then and demand continues to explode. Moly is up 150% and isn't even close to a peak in price. It will take a collapse in Chinese demand to start to dent the price. Yet I don't see anyone else writing about the few investment opportunities around. In mid-December I braved the elements and visited another prospect.

The MAX property now owned entirely by Roca Mines Inc (ROK-V, $.35 Canadian 28.8 million shares outstanding market cap $10.8 million Canadian; website) was initially developed in a joint venture between Esso Canada and Newmont between 1975 and 1982. The pair spent about $15 million on what they called the Trout Lake Project before shutting it down due to low moly prices in 1982. I'd guess it would cost twice that to do the same work today so that should give you some idea of what Esso-Newmont thought of the project. Eventually the property was reclaimed and finally the claims dropped entirely. It's located about 60 km southeast of Revelstoke in southern British Columbia.

Some local prospectors in the area picked the property up and optioned it to Roca Mines who have an option to earn 100%. Roca President and CEO Scott Broughton bought the drill data and reports from Newmont for about $100,000. Since the company's key property is the Foremore VMS project in northern BC, the moly project was just an after thought until moly prices began to shoot up. In September Roca brought the Newmont data up to 43-101 standards which show a 43 million tonne resource of .20 moly sulfide or about 160 million pounds of moly sulfide.

But within that resource is a high grade core of 706,000 tonnes averaging 1.07% or 15 million pounds of moly sulfide which equates to about 10 million pounds of moly. Now here's the key to the whole Roca story: they could go into small scale production of 200 tons a day for a cost of about $8-10 million dollars and be producing about $100,000 per day in cash flow in as little as six months, but you can search their website high and low and never get a clue.

Of all the companies we work with, sometimes those run by the brightest guys are the most difficult to deal with. Engineers and other scientific types are almost always bright and always left brain dominated. In short, they are so bright they don't trust anyone else to know their job. When I was in the computer business, the term we used was NIH. If something is Not Invented Here, it doesn't count.

When Scott briefed me on what he had in mind for Roca, I went to their website to make sure I had my numbers right. And there wasn't a conclusion to be found on the entire site. It was filled with facts of all colors and sizes and shapes but not a conclusion anywhere. In short, I didn't know any more after I read their website than before I went.

I suggested he needed to start using the site to communicate rather than to simply list facts. He nodded his head sagely and promptly ignored me. I've been telling him for three weeks to communicate his business model and he won't. So if anyone wonders why a company capable of $100,000 a day in cash flow is selling for $10 million Canadian, there's your answer. They have a great game plan, they just don't tell anyone what it is.

Scott plans on releasing a press release in mid-January announcing Roca filing for a small scale mining permit. It's a fast track process of getting permission to mine up to two years and I think 75,000 tonnes per year. That's big news and worth telling. But I don't know a person in the world who actually cares which day of the week they file it. Roca has the cart before the horse. No one cares when it is filed, only that Roca intends to go into production and if all goes well, can be in production for, say $10 million, in as little as six months.

There will be a scoping study released in February and again, Roca believes the fact of a scoping study is important without explaining that all the scoping study will do is verify figures they can work out on a napkin.

At the very least, a company's website should let a reader know what their business model is. It should allow the reader to know what they intend to do. It should be capable of selling the company to a prospective investor. Roca's site does none of the above and since they are so bright, they don't need to listen to anyone who understands the web a lot more than they do.

I won't even go into their Foremore project which is brilliant, it's another Eagle Plains junior. In fact, since exploration is so different from production, it makes all the sense in the world for Roca to spin off the MAX project into another company. The two are as different as chalk and cheese.

While I was in Cranbrook, we also flew over the Sullivan Deeps drill rig where Roca's sister company, Stikine Gold Corporation (SKY -V $.35 Canadian 23.2 million shares $8.2 million Canadian market cap; website) is preparing to drill an offset wedge hole into the Sullivan Deeps project. It's another magnificent story left unsaid. If you know the story, you can worm your way around the website long enough to verify your facts, if you don't already know the story, sorry about that, you aren't about to learn.

The Sullivan mine with its 100 years of production of silver, lead and zinc was the biggest and most valuable mine in BC history. The Sullivan shut down in 2001. The owner, Teck Cominco, cut a deal with Stikine where Stikine could earn a 50% interest in the prospective property by spending $4 million before August of 2007.

Originally, Teck Cominco believed there was a northern extension of the ore body at the Sullivan mine which had been cut off by a lateral fault shift. Now the thinking seems to be after a lot of study that the target zone for Stikine which appears to be a massive 3 by 3 km geophysical conductor, is yet another "black smoker" vent system similar to the Stemwinder Mine 8 Km south of the Sullivan and the North Star Mine 4 km south of the Sullivan and of course the Sullivan. Except Stikine appears to have found the edge of yet another, and even bigger, super conductor only 4 km NW of the Sullivan. Four in a row, all nicely lined up. The northern target appears to have shifted 15 km to the west and 13 back to the east but if Stikine's theory is correct, it will be the big momma system.

The Sullivan and all "black smoker" deposits form when an underwater fault opens and allows a vent from deep in the crust to spew a zinc rich, silver and lead loaded fluid to blast out of the sea bed. When the hot fluid hits the colder sea water, the minerals precipitate out into a solid form. They still exist and are forming massive ore bodies today. In the case of the Sullivan structure, eventually many layers of sedimentary material built up over the main body. The mines to the south of the Sullivan had mostly eroded away and all that was left was the feeder vent. But with the Sullivan and hopefully, the Sullivan Deeps project, the main ore body existed well around the vent area.

Scott announced drill results from the $1 million dollar+++ hole on the 1st of October and the stock took a nose dive. It was the classic, buy on the rumor and sell on the news. I suspect that if shareholders understood what Scott and crew had in mind, the stock wouldn't have gotten cut in half. The stock was a gimmie at $.69 and at $.35 it's simply absurd. They have found exactly what they were looking for and the company is selling at about the price of a company with an option on 400 pounds of moose poop and a 2-line phone.

The offset wedge hole will be drilled shortly and plans are in the works for bringing in a second drill rig to drill another million dollar deep hole. If either of them shows a continuation of the mineralization already found, Stikine may well have a major mine on their hands.

There is an old adage in the computer business that if something isn't worth promoting, it isn't worth owning. Mining company managers could well learn from their computer brethren. In the case of both Roca Mines and Stikine, management has made a decision to tell not a word more than 43-101 demands. But 43-101 was never designed as a set of handcuffs to prevent communication. It was designed to stop over promotion, not to stop promotion.

Promotion is part and parcel of running a company. Any company, not just a computer company or a mining company. The single biggest issue in the mining industry isn't finding good projects, good projects are a dime a dozen. The single biggest issue in the mining industry is finding capital at a reasonable cost. There are a zillion projects which could be put into production if capital was available. So promoting your stock by communicating your business plan to your potential investors isn't some sort of crime prohibited by 43-101, it's part of management and if you fail to communicate your very real plans and goals, you stiff your existing shareholders and doom your future. At some cost of capital, all projects become uneconomic. If a company fails to communicate in an effective way, they shortchange existing shareholders since all financing will be done at prices under what the market would gladly pay if communication was taking place.

At 321gold, we are proud of the job we have done promoting the industry in general and some red hot mining companies in particular. We understand both the limits on promotion and the problems caused by over promotion. And there is a lot of over promotion. Goldcorp and Silverado are only two examples of companies promoted far beyond management's capabilities.

But failure to promote via communication is just as foolish and just as costly. We like both Roca Mines and Stikine. I actually own shares in both companies. When I heard the business plan for both companies, I was excited. When I realized it was their corporate culture to not communicate, I was disappointed. With projects of this quality, shareholders deserve far more than they are getting. Both projects will need additional financing and they can either sell shares at a reasonable price or give them away for pennies on the dollar. Me? I'd learn to communicate.

Neither company is an advertiser. We own shares in both companies.

Roca Mines: website
Stikine: website

January 4, 2005
Bob Moriarty
President: 321gold Inc

321gold Inc

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