A New Sonora Mineral District
I think we had a very clear bottom in gold/silver and the resource shares at the middle of last month. I let my readers know in advance how to recognize it and it appears to have been nailed. I’d like to see a strong retest of the bottom and then we will be off to the races. My opinion is that it will be soon. This is probably the opportunity of a lifetime to be buying resources.
Dozens of stocks are selling for less than the cash they have on hand. You have to go back to 2001 and 2008 to see the same thing. But gold was $252 and change in 2001. There was very real risk. One of the smartest guys in the business, Robert Prechter, was predicting $200 gold. In 2008 gold got as low as $690 and again there was very real risk. Gold is $1626 today yet all I hear is whining and crying about how low shares have gone. Stop whining and start buying, it doesn’t get any better than this.
If I had to pick a country for starting a profitable mine, I think I’d go for Mexico. They have a 500-year mining tradition, great infrastructure and a “perfect storm” of deposits. Like many other mining jurisdictions such as Peru, Bolivia and Argentina, the government of Mexico got stupid and thought they could modify the laws of supply and demand. But they realized after 90 years of stupidity that all they had accomplished was to kill one of their most important industries. The mining laws were revised in the mid-1990s and since then dozens of projects have advanced into mines.
I’ve written a lot of pieces about Sonora but I went to Southern Sonora a little while back and found what looks to be a new district. The company I went to see is named Westminster Resources. (WMR-V) The stock pretty much trades by appointment but it’s been a long time since I have seen a company accomplish so much so cheaply.
The El Cobre Property (28,246 hectares) is located just east of Ciudad Obregon in Southern Sonora State Mexico. It contains the 8,000 hectares Cumbral target that is the subject of a 70/30 JV with Capstone Mining.
Cumbral was discovered by Westminster in 2010 through the use of ASTER imagining. It appears to be an IOCG deposit and that’s a big deal. Iron Oxide, Copper and Gold deposits (IOCG) are generally large similar to porphyries but higher grade. Some of the biggest mines in the world are IOCG deposits such as Olympic Dam.
Big deposits require big budgets for exploration. Far too many junior mining companies spend much of their time looking for the mother lode only to run out of money when it needs a hundred million dollars in drilling to prove a resource. Westminster Resources management came from Starfield Resources where they took a small deposit into a $4.4 billion dollar NPV resource. They have used the same bootstrapping logic to complete a giant ground exploration program before doing a JV with Capstone.
In early 2012, they ran a ground mag survey, did 3D-IP, conducted soil samples, mapping and established a grid. Smart juniors, and those are rare, work constantly to reduce risk. Westminster put about $2 million into the ground over the last two years but reduced the risk by entering into a JV on the Cumbral target with much larger Capstone Mining with a billion dollar market cap and two operating mines.
The $9.3 million deal calls for Capstone to spend $1.6 million by the end of this year, another $1.7 million by year-end 2013, $3 million by end of 2014 and $3 million by the end of 2015 to earn 70% of the 8,000 hectares project. Westminster remains the operator and also retains 100% ownership of almost 38,000 hectares of similar ground nearby.
It’s a brilliant deal on the part of Westminster. They are fully funded for $9.3 million in exploration, they work the project and everything they learn, they can use to advance their own 38,000 Hectares.
I’m going to climb way out on a limb and suggest to my loyal readers that this is the best opportunity I see in Mexico this year. There are dozens of excellent projects and well run companies but I saw what looks to be a shear zone hosted IOCG with hundreds of million of tons potential.
Westminster has about 77 million shares outstanding and another 32 million options and warrants but the options and warrants are priced far higher than today’s price so are non-dilutive. Basically the company has a market cap of about $8 million and should not have to issue more shares any time soon. While many juniors at this price have a gun held to their heads, they either finance or die, Westminster was smart enough to offer Capstone something attractive enough to do a major financing deal.
Summer is here in Sonora and it gets hot. The rainy season is also coming up. Westminster plans on starting a short 1200-meter drill program within the near future. In their deal with Capstone they made a provision for accelerating the drilling if the results justified it. When the heat and the rain permit it, they will continue with a larger drill program.
I am going to go into an area of great subjectivity. When I write any opinion piece, no matter if it’s about $648 trillion in derivatives or the wisdom of investing in a junior, I try to buttress my opinion with facts. In this case, Westminster’s website sucks and it’s even hard for me to match the projects I saw with what the website says. The website needs a total revamp. It gives a lot of information without doing any communication.
That said, project manager Bruce Ballantyne took me around the Cumbral project a little while back. We saw one structure after another after another and they were all mineralized. I suspect this project is going to be very big and a big surprise to everyone except Westminster and Capstone management.
Management has done it exactly right if you want a big and profitable mine. They found a new and unstaked area using the most advanced techniques available, they did all the necessary groundwork to prove the potential for a very large system and they derisked the project by finding a well-heeled mid-tier mining company. All for about $2 million and two years.
When you are looking for an investment vehicle, look at the record for the last 11 years since we had $252 gold. If they haven’t done anything in this most favorable environment, they will never do anything. Westminster and Capstone will begin drilling shortly and their truth machine will tell the tale. I think they are on to a very large IOCG target.
With a market cap of $7.6 million and being fully funded, Westminster is perfectly positioned for the financial storm about to hit. Management and the project impressed me enough that I bought shares in the open market as soon as I got back from Mexico.
Westminster Resources is [going to be] an advertiser. I own shares purchased in the open market and naturally if the price went up, I would benefit. Take some responsibility for your own investment decisions and do your own due diligence. I share in neither your profit nor your losses.