Silver Hedge of the Decade?
Silverfox Analysis
Nov 21, 2006
In the summer of 2002 Newmont
opened a data room to sell its Calcatreu gold deposit in Patagonia.
IMA Exploration (IMR) and Aquiline Resources (AQI) were two parties
which looked into buying Calcatreu. One of them, IMA, obtained
regional exploration data not given to other prospective purchasers,
which had been collated with a view to expanding Calcatreu. This
data revealed a massive silver anomaly 40 kilometres from Calcatreu.
Newmont had not proceeded on the data as silver had been of secondary
interest and, following the merger with Normandy, at the time
Newmont was focusing attention away from Argentina (literally,
"land of silver").
Despite a confidentiality agreement forbidding bidders from using
confidential data other than for the purposes of evaluating Calcatreu,
IMA went ahead and staked the silver deposit, which it called
Navidad. Shortly thereafter, Aquiline Resources concluded the
purchase of Calcatreu, including the regional data, and queried
IMA's staking of Navidad. Litigation ensued, and in July 2006
Aquiline won a constructive trust over 100% of Navidad in the
Supreme Court of British Columbia. IMA appealed, and the appeal
is due to be heard from April 10th-12th 2007.
Navidad is a measured and indicated 300+ million ounce silver
deposit. Prior to the judgment in July, drilling was disrupted
by the court case, although Aquiline has recently raised significant
funds to resume drilling under the terms of a trust agreement
with IMA. It is thought that the Navidad area could contain significantly
more silver than the current resource calculation; potentially
up to a billion ounces. In any event, it is one of the if not
the, world's premier pure silver exploration deposits. There
are only a few silver mining companies in the world with silver
resources greater than Navidad's current resource estimate. Whoever
holds Navidad will be a major takeover target.
The court case hinged on the definition of confidential information
and the context in which IMA received it. The judgment was fairly
unequivocal in favour of Aquiline Resources. It is available
at www.aquiline.com. The
effect of the judgment was to send IMA's shares plummeting towards
book value (current share price is CDN 57c), and Aquiline's shares
up beyond CDN $5.
Whichever way the case turns (Aquiline will be hoping that the
appeal is denied and further appeal refused), what is true is
that currently for around CDN $7 you can match up an equal number
of shares in both companies to secure a hedged stake in Navidad's
300+ million ounces. If the appeal court judgment following April
12th does not immediate conclude the matter then the resumption
of drilling and silver price increases hopefully should keep
investors entertained until it is resolved.
As to Navidad's correct valuation, comparisons are inexact in
terms of grade and size, but it has been spoken of in the same
breath as Apex Silver and Western Silver, and certainly appears
to match up to Bear Creek Mining's silver deposit.
The best case scenario for Aquiline Resources is an appeal court
judgment following April 12th which upholds the view of the judge
at first instance and refuses IMA leave to further appeal a case
twice lost. If this transpires, it would not be unreasonable
to expect Aquiline's share price immediately to substantially
appreciate. If the decision is not definitive then hopefully
Navidad will continue to be explored in advance of the final
judgment. What is undeniably true is that the market capitalisation
of a company holding Navidad outright ought to be some way greater
than Aquiline and IMA's current combined market capitalisations.
The post-judgment trust agreement between Aquiline and IMA forbids
the parties from soliciting takeover bids. It is in one sense
surprising that no major has yet thought to launch a conditional
bid for both companies, which if successful would automatically
eliminate the reason for the discount implicit in the combined
capitalisation.
It is worth mentioning
that there are some anti-mining issues in Chubut province where
Navidad is located, which should be thoroughly researched
by anyone with an interest in the story. In the latest instalment IMA
issued a press release on July 7th 2006 indicating that
a recent piece of anti-mining legislation affected a separate
part of the province, some 150 km west of the Navidad property.
Is such an amount of silver
on offer at such a price anywhere else? Is it the hedge of the
decade to take an equal position now in shares of both Aquiline
Resources and IMA Exploration? Maybe so, maybe not. But it's
an interesting story to consider as silver breaks upwards out
of its recent price triangle.
Nov 21, 2006
Silverfox Analysis
email: silverfoxanalysis@yahoo.com
Silverfox has
been a private investor and commentator on precious metals stocks
since 2003.
Disclaimer: It is hoped that others
may find this article interesting, but investors are cautioned
that this is not an investment recommendation and that each investor
must consider his or her own investment criteria, horizon, suitability
and other factors and undertake independent research before making
an investment in these or any other stocks. Inexperienced investors
should consult with a registered investment advisor, which the
author is not. Information contained herein is believed to be
accurate but no guarantees are made to that effect. No obligation
can be accepted to correct errors or update any information,
which is only timely as of the date of publication, and responsibility
or liability cannot be accepted for any losses incurred as a
result of reliance on any opinion or statement contained herein
or any omission. Individuals should consult with their broker
and personal financial advisors before engaging in any trading
activities. Do your own due diligence regarding personal investment
decisions. All viewpoints expressed herein are solely those of
the author and do not necessarily represent the opinions of anyone
else. The author owns shares in both companies mentioned and
is therefore biased in their favor. No compensation was received
from the companies mentioned nor was the author asked by anyone
to produce this commentary.
321gold
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