Been There, Done That
For the last dozen or so years, we have had a resource market unlike any in history. While the United States has done everything in its power to destroy the value of the dollar, China has been buying up everything in sight. Finally after an unparalleled 12 years of ever increasing prices, gold and silver have paused for a correction. The disaster that is Chinese Banking has finally blown sky high affecting commodities from coal to iron to copper. You can no longer count on every commodity going up each year. Supply and demand are back in play.
For a dozen years, every former cabbie or drill company supervisor in Canada has had an unlimited opportunity to form a company, raise money, spend money, raise money, spend money, do a roll back, spend more money, raise more money, spend more money. Finally the taps have been turned off and hundreds of former highflying juniors are destined for the scrap heap of history.
If management of a junior mining company is on its 10th private placement or 3rd rollback in the last 12 years, they are never going anywhere. For the only time in history, every single commodity was in high demand. You could make money advancing any project of any commodity. Alas, most mining companies were in the business of mining investors. If you couldn’t succeed in the past 12 years, you are never going to succeed.
James Robertson helped start a company to mine tungsten in Portugal in 2003 called Primary Metals. The stock did an IPO as a $.15 penny dreadful. Primary Metals put the Panasqueira tungsten mine back into production before being bought out by a Japanese company in 2007 for $3.65. They ran from $.15 to $3.65. Everyone in Canada promises to do the same but few do. Every shareholder made money.
James Robertson began another company intended to become a tungsten operator in Portugal. After all, he had that pretty well down. The company was incorporated in early 2011 at $.25. It is called Blackheath Resources (BHR-V). Robertson’s timing was excellent. When Primary Metals was sold for $3.65 a share in 2007, the price of tungsten was quoted as $180 per MTU. While I was in Portugal visiting Blackheath two weeks ago, it was quoted at $360 per MTU. (Or about $15 per pound, $36 per kilo) Now the price has shot up to $400 per MTU.
When he sold the Panasqueira tungsten mine under Primary Metals, the grade of the resource was about .20% WO3. The highest-grade asset of Blackheath’s three deposits, the Covas project, has a grade of .78% WO3. So the price of tungsten has doubled and the grade has quadrupled.
Blackheath has three major projects either with 100% ownership or in a JV. I visited the 1,949 square hectares Covas property north of Porto about two weeks ago. The project has a non-43-101 resource of 923,000 tonnes of .78% WO3. All of the three projects went out of production due to China dumping tungsten and were perfectly healthy when they shut down in 1985.
The .78% WO3 grade at Covas makes a ton of the rock worth about $250. There are a number of veins. Ore was mined both in open pits and underground. From 1974 until 1979, Union Carbide conducted an extensive drill program of 329 holes and surface mapping. Most of the data is available to Blackheath.
The terms of the JV call for Blackheath to earn 70% of the project by spending 1 million euros in exploration and an additional 15% from Avrupa, their JV partner, by conducting a prefeasibility study. In comparison, the Union Carbide drill and mapping program would have cost about $4 million in today’s dollars.
Blackheath began surface exploration at Covas in May of 2011 and as of March 31, 2013 had completed a 1606-meter drill program and spent about $760,000. The company is awaiting the issuance of an experimental exploitation license.
The company is well cashed up with about $1.8 million in cash with a tiny $4.7 million dollar market cap. With an enterprise value of under $3 million and cash in the bank, the company is in good shape financially.
While in Portugal, the group of investors and newsletter writers also visited the Borrahla tungsten mine. This mine, the 2nd largest in Portugal after Panasqueira, produced tungsten from around 1900 until 1985. It’s a 127.5 square kilometer project. A small 300-meter drill program about to get started will target two large tungsten-bearing breccia zones. While there are no historic figures on a resource, this was a big mine when in production.
Documents put out by the British Geological Survey in 2012 rank tungsten and rare earth elements as having the number 1 supply risk. While I do believe China is in for at least a slowdown in their economy and perhaps a major crash, I don’t see risk in the tungsten area.
There is another Portugal tungsten company called Colt Resources that has been a week or so from closing a $.45 placement for the last four months, awaiting money from a Hong Kong investment group. I suspect one day soon they will realize they should have been reading “Waiting for Godot” as they wait to get them into the right mood. If that placement doesn’t work out the way management believes, some of those investors will be looking at Blackheath a little closer.
I found Portugal exceptionally charming. Our tour began on a Monday but I flew into Lisbon on Saturday, rented a car and drove three hours north to Porto. Sunday proved interesting. There was a 15 km run finishing near my hotel right on the water. And in the afternoon I discovered what seems to be “Porto has Talent” in the Napoleon era fort just in front of the hotel.
The very best way to succeed in the future is to have succeeded in the past. I was sold on this project before I arrived in Portugal on the strength of Jim Robertson’s background. The company did their IPO at $.25 and one placement at $.35. The financial guys behind the company read like a who’s-who of Canadian finance. With any results from Jim Robertson and his team there will be money available. There are about 5 million warrants at $.50 and 1 million options at $.35 so none will be dilutive in nature.
Blackheath believes they will have a big impact from European investors so had some of the most influential writers from Europe on the trip. I expect a constant flow of news from the company and I expect a lot of publicity from some powerful commentators in Europe.
I don’t think I have had much experience with a company so tightly held. Today the shares are the lowest they have been since the company went public but I suspect any buying at all will drive the shares a lot higher. The share structure is tight and shares are in the strongest of strong hands.
One of the things I look for in management of the companies I visit is just how much they listen. When I run into a management team that think’s they know it all, I shy away, and those companies seem to never succeed. On the contrary, Jim Robertson and his team were exceptionally receptive to comments and opinions of those on the tour. I think that is a giant positive and I have great confidence that Jim Robertson is going to pull off another big tungsten deal in Portugal and perhaps beyond.
Blackheath is not yet an advertiser, they may advertise. I liked the company enough as soon as I saw the story to buy a position in the market. I am biased.
As always, do your own due diligence.