Mining, as in every other enterprise, requires some sort of competitive advantage to make business sense. You need either the highest grade or largest tonnage or be working in the most favorable economic environment to have any advantage over all the other 2999 junior mining companies competing for scarce investment dollars.
There are times my job brings great joy. I ventured down to Southern Argentina, deep in Patagonia, to see the Pinguino Project owned by Argentex Mining. (AGXM-OTCBB) It's your bog standard, silver- lead- zinc- gold- copper story. They have 58 kilometers of known vein structure exposed at the surface with lots of up to $400 rock that could be mined and milled for $10 a ton or so. Boring?
But then, they do have the indium card to play. And that's a good card to have as a hole card.
Indium is one of the unusual metals that those of us who did not take chemistry in high school or college often confuse with Pluto. Is it an element or is it another planet on the fringes of the Solar System?
It's an element and a metal near zinc in the periodic table. Some three times as common in the earth's crust as silver, it's recovered mostly as a tiny byproduct of zinc and lead smelting. It's not really rare but it's also rarely found in economic quantities to mine. The metal was first discovered in 1863. As late as 1924 there was less than 1 gram of pure indium in the world.
The primary use of indium is in high-tech applications, for LCD and LED, plasma flat screen displays and in leading edge thin film solar-cell technology. With the increase in demand for flat screen displays the price of indium has jumped from about $94 a kilo in 2002 to over $1000 a kilo now. One gram of indium is worth $1. [Corrected, thanks to Andre for pointing out that $1000/kilo = $1/gram not $10/gram as originally stated] Argentex has some intersections of 177 gpt.
The project is a lot more interesting than I have really indicated, indium aside. It's in a district with a rich mining history of 4 mines in production and 9 more in advanced stages. Argentex has already outlined almost 60 km of veins outcropping at the surface, only 5% of which has been drill tested. Actually, we had a number of pretty bright people on the tour. Everyone sort of agreed that while Argentex had done an excellent job of definition of the areas they had drilled, they needed to be doing some deeper holes and a lot more step-out holes.
For all they know, the entire 60 km might be mineralized. Since I was there, they have completed some 250-meter deep holes and rather then stepping out at 40 meters, they are stepping out 100 meters. The project has world-scale potential and management is willing to listen.
The project has had 10,000 meters of drilling completed; they are in the process of doing another 10,000 meters of drilling with assays pending. There will be news and results on a regular basis, which is very good. Argentex expects to have a 43-101 resource completed by the third quarter of this year. Basically they are going to keep the drills turning. The deposit is open along strike in both directions and at depth. Truly, it's barely been scratched.
Argentex paid $450,000 cash for the property over five years for a 100% interest. There is a 2% NSR that they can buy back for $1 million a point.
I personally don't like OTCBB stocks. I won't participate in any more private placements in any OTCBB shares; the money is tied up for far too long. The company has applied for and been accepted on the TSX Venture. It should be complete in the next two weeks. That's a giant step forward and I'm going to be a big buyer when that's complete.
I spoke at some length with President and CEO of Argentex, Ken Hicks, on the site tour. It's my view that he needs to play the indium card. With the production of LCD screens consuming over 50% of indium, the demand far outweighs supply.
Until 2006, a mine in Japan, the Tohoya mine, produced the highest-grade indium in the world. The mine has been shut down. Some of the holes at Pinguino had a higher-grade indium than the Tohoya mine. Pinguino has the potential for being the swing producer for indium in the world. That means they get to set the price. Indications are that the average grade could be in the 100+ Gpt range.
The Japanese make the most LCD screens today and have a vested interest in controlling a safe stable supply of indium. I believe some Japanese company will make a major investment in Argentex just to secure a reliable supply. Mining companies deal in numbers that major manufacturers consider chump change. Argentex has a $37 million dollar market cap right now. That's probably a day's production of LCD screens for a good-sized producer. Someone is going to be breathing real hard to do an off take agreement with Ken very soon and at a big premium to the market.
Indium aside, there are gold-silver rich veins as well as zinc-lead-silver-copper-gold rich veins. Argentex has a wide range of alternatives in mining and processing depending on the value of the different minerals at the time of processing. Mine planning is going to be critical and it's going to be important to set up a very flexible mill to process all the different variations of ore. It's going to be a challenge but it means they will be mining when prices shut a lot of mines down.
When I go on a site visit, there are a lot of small and subtle elements I use to determine what I think about the company and the project. It's axiomatic that good companies invite good people. The higher the caliber of people on the tour, the higher the caliber of the project. Dumb management invites dumb writers in the hopes of pulling the wool over their eyes and it works. We had a great tour with high-class visitors. (With the sole exception of myself).
Ken and his team did a brilliant job of communicating the very real progress and value of Pinguino. In many cases, management uses information to confuse. All of the briefing material we were provided was germane, short and sweet. We weren't buried in details but we had all the information we needed.
Argentina and the province of Santa Cruz in particular are very mining friendly, unlike other areas of the country. The province has strong infrastructure, power, roads, ports and labor. Interestingly enough, the wind was howling while we were on the site. Wind power is not the magic bullet many greens would have you believe but it is some help. When a prior junior was doing cost projections, they dismissed wind power as being too expensive. But oil costs 4 times as much now as it did then and I suspect putting in some wind units may well make sense down the road. The wind is pretty constant and is well above 15 knots. We had to park into the wind or risk having a door close on your leg or knock you over.
Drill results, obviously will be important and will be released on a regular basis. The 43-101 resource will be a key milestone and I think will result in a valuation 2-4 times higher than today. The company is very, very cheap.
The management is as strong as any I have seen in the last year or so. They have built a great team on the ground and unlike most juniors, have put together a team of real directors, not just a bunch of guys holding a rubber stamp. Ken Hicks knows he has a world-class project and he's building the production team that can put together a world-class company.
I don't own shares; I'm not buying until I can buy Canadian shares, that will be shortly; within a few weeks. Without a 43-101 resource it's simply not possible for an investor to come up with a number they can hang a hook on. The drill results are great, the project is in a mining friendly country and area of Argentina but we need some numbers. It will be higher than most investors think and will put a base under the price of the shares.
Argentex will probably advertise, they are at the area where they need name recognition and we provide that. I am biased because I have some potential interest. We don't share in your profits so do some research yourself; it's your money.
I really like the management and the project. They have a bunch more of assets in Southern Argentina but all they do is confuse me. This is the money tree and anyone buying shares at these prices will be rewarded down the way.
Mar 18, 2008