in the US, the Bush administration spends money like a drunken
sailor in the feeble hope of preventing an economic disaster
far worse than the Great Depression. And this fall, we get to
look forward to two fools fighting over who gets to rearrange
the deck chairs on the Titanic. You may safely assume I have
as much money stashed in resource stocks as I can.
find at Regal Ridge near Finlayson Lake began as an accident.
On a chilly late August day (winter comes early in the heart
of the Yukon) in 1998, a geologist working for Expatriate Resources
named Bill Wengzynowski spotted a patch of green rock. Hoping
to find malachite, a copper ore, Bill found something far more
rare and infinitely more interesting, emeralds. But Expatriate
Resources wasn't interested in pursuing emeralds, they were in
the base metals business.
Projects such as this take a lot of time and money to bring to fruition. True North knows they have high quality emeralds but the issue is, do they have emeralds of sufficient size and value to justify the expense of creating a mining interstructure? That's a tough question as yet without an answer. True North did a bulk sample last year but has yet to be able to put a firm value on their stones.
companies are crap shoots and an emerald company has to be even
more of a long shot since there isn't all that much experience
around in emerald mining and marketing, there being only about
six emerald producing regions in the world. And most emerald
mines are pretty much mom and pop operations so True North has
to spend a lot of time and money inventing the wheel.
To be honest, I'm not crazy about diamonds myself. There are two processes for producing diamonds which are just as good as the real stone. But the history of diamonds is the story of a master stroke of brilliance in marketing. DeBeers and the CSO created the market for diamonds. For 100 years, the cartel has maintained total control of the diamond market. How the new synthetic diamonds will affect them has yet to be determined. But if you like diamonds, you just have to like emeralds, sapphires and rubies. And if you don't like diamonds you just have to love emeralds, sapphires and rubies.
In any case, IR whiz Ken Shortt of True North put together an interesting group to do a tour of the Regal Ridge emerald property. We had institutional investors, individual investors, an English reprobate pool shark named Michael Phair - who I had to promise I wouldn't publicly identify (see photo here :) - and, of course, me.
We met at Vancouver Airport Friday, two weeks ago, and flew Air Canada to Whitehorse. From Whitehorse, we loaded our gear into a pair of Piper Navahos for the hour-long flight into the outback of the Yukon. Rains have been sparse this year in the Yukon and while we were there, over 300 forest fires were burning, casting a layer of smoke across the territory.
In real estate,
there are three important factors to consider when buying a property,
they are, (1) location, (2) location and (3) location. As far
as True North Gems and their emerald find at Regal Ridge is concerned,
I think they have a winner as far as location is concerned. True
North uses the Inconnu
as a staging point for people and fuel. The location couldn't
possibly be more superb.
On Saturday we all piled aboard a turbine Beaver for the 20 minute leg to the airstrip at Regal Ridge. The 2004 program for True North at Regal Ridge consists of a $2.2 million dollar program to expand and evaluate the known emerald bearing areas. They plan on doing 3,000 meters of diamond drilling to define the mineralized structures. And they will continue to process the bulk samples from last year.
There are a
couple of key issues True North needs to solve at Regal Ridge.
The key issue in my view is going to be the size of the stones.
While the quality of the emeralds found in sampling from last
year is high, the size is small. Stones averaged under .25 carat.
Basically with all precious stones, as size increases, price
goes up on a curvilinear scale. I think CEO Andy Smith told me
75% of the profit in diamonds came from the biggest 25% of the
So Andy Smith stole the lesson from the CSO and has embarked on a major marketing push to brand their Regal Ridge stones as a Canadian product of both high quality and high value. One of our fellow travelers on this trip was Nick Houghton of Vancouver, a diamond broker, jewelry designer and newly appointed director of True North Gems. I'm subjective as hell but I think it's a brilliant move on their part.
A large part of the problem of natural resources producers is their reluctance to think of their end users. It's hard to buy gold and silver and I can think of few companies who would even consider their actual consumers. But True North Gems realized early on that they need to create a market demand and then fill it. Andy Smith also realizes that if you can create a brand name for emeralds, it's just as easy to do the exact same thing for sapphires and rubies.
True North Gems lacks
a single simple objective way of measuring their true value.
They need more work at Regal Ridge to define the ore body and
to come up with an objective measure of what revenues a ton of
ore will bring in once it's been whittled down to a few carats
of green beauty. This isn't a gold mine where you can say they
have X grams of gold per ton.
I was impressed at Regal Ridge. They obviously have emeralds, the morale is sky high, the drillers were hurling lengths of drill rod around like they were match sticks. I've never seen a more professional drill rig team. The guys I watched didn't waste a moment, they knew what they were doing. Everyone was busy and seemed to be productive.
By chance, Heather Neufield, a company geologist, had just made a major discovery in a valley about a mile away of a large surface showing of emerald and tourmaline veins with emeralds literally littering the surface. At the end of the tour, the head geologist had a head lock on Andy Smith going pss, pss, pss into his ear and sounding like a swarm of bees. Obviously something was going on, everyone was acting like they had ants in their pants and was walking around with big grins.
Sure enough, two days after the visit True North made an interesting press release. They were carving out a road to the discovery while we were there. True North intends to begin trenching operations at the new Howdy Ridge find by the end of July/early Aug.
And a week
after that announcement, True North issued another press release,
this one on the sapphire
property on Baffin Island.
I like the
quality of management, where they don't have all the answers,
at least they have a good handle on all the questions. I think
True North is undervalued today with a $15 million dollar market
cap. It has far higher potential than the market now recognizes.