Fury Explorations Ltd.
A Pure Silver Play/Near-Term
Producer
David H. Smith
Dec 13, 2007
Fury Explorations Ltd. FUR:TSX-V
::: FURXF:OTC
27.5 m shares issued; 39.6 FD
Working capital : $6.4 million
Institutional ownership: 43%
Insiders: 5%
Share price 52-week range: $0.46-$1.22
Fury Explorations website
::: Blog
As silver indicates the probable
start of its next explosive up-leg, investors are likely to continue
placing a premium on a producer or near-producer, as opposed
to an explorer. The reasons for this are simple.
When a company becomes a producer or indicates they are likely
to do so (ideally within 18 months), shareholder risk is perceived
to be reduced. With cash flow, the company can begin to fully
participate in the (anticipated) rise in metals prices. There
is less need for trips to the financing well, causing more shares
to be issued with the attendant dilution.
Explorers tend to live and die by drill results. Even a good
strike is just the first hurdle to be overcome on the way to
profitability. Will the company now sell the property, JV with
a producer, or continue to delineate resource leading to a feasibility
study? This drawn-out process can mean three to five years or
more before construction on a mill even begins.
With a producer, as opposed to even the best explorer, cash generally
comes in on a regular basis. Unfortunately, much if not all the
expectation for this profitability will have already been reflected
in the current share price. The stock can still rise, but offer
less bang for the buck.
So what's the alternative? Consider a play, which, in addition
to delineating a resource, also has acquired an existing mill.
One such company, located in mining-friendly Nevada, but also
with properties in Mexico, is Fury Explorations Ltd (TSX:FUR;
OTCBB:FURXF).
Fury Explorations is a junior exploration and development company
with a formerly operating production facility, the Taylor Mine,
located 10 minutes from the town of Ely, Nevada, population c.
5,000.
The mill was built in the late '70s, began producing in 1981
with an average silver output of 1.2 million ounces per year,
and has been in maintenance mode since 1991 as the lengthy bear
market in the metals ran its course. The complex consists of
primary and secondary crushers, eight ball mills, a flotation
circuit, a leaching and filtration circuit, a maintenance shop,
assay laboratory, electrical substation and a mine office. Production
is rated at 1,300 tons per day, with ramp-up potential taking
it to 2,000 tpd. Through an active drill program, Fury Explorations
lists an NI 43-101 compliant measured/indicated/inferred resource
of 16.8 million ounces of silver. Geological evidence suggests
that this resource could be expanded on strike and at depth.
Earlier this year, management made the strategic decision to
focus drilling emphasis on its Mexican properties and concentrate
on moving the Taylor Mine toward full-production mode. To this
end, permits are being submitted to the proper agencies for operations,
water pollution, and air quality control, with final permit approvals
expected next year. A pre-feasibility study, mill refurbishing,
tailings upgrades, and finally reopening of the mine and mill
are expected to be completed as early as the fourth quarter of
next year.
A technical feasibility study submitted to the U. S. Forest Service
and the State of Nevada is needed to meet bonding requirements
for water/resource/production model/waste location-a process
literally involving "permits to get permits."
Fury Exploration is one of those sector rarities-a pure silver
play rapidly moving toward producer status, which in addition
offers blue-sky potential for significant further delineation
of silver and even gold. Underlying this activity is a sustainable
business model that intentionally elevates the desire to accrete
shareholder value as its major goal.
Operational plans call for open-pit bulk mining. Based upon current
delineation alone, expected mine life is at least 14 years. Capex
required to refurbish the mill is estimated at $2.5 million.
(Construction of a new mill could have taken several years and
cost upwards of $65 million.)
Silver vein lengths at surface run 2-3 kilometers through highly-altered/fractured
geology, with additional drilling planned to determine what is
at depth.
Blue-Sky Potential in Mexico
To be a "player"
in the silver producer camp, a company almost has to hold property
in Mexico, one of the world's most prolific silver-producing
areas... and Fury Exploration Ltd. does.
At their 100% controlled Guijoso Property, and their joint venture
Magistral Project (with Southern Silver Exploration - TSXV:SSV)
in Jalisco State, Mexico, Fury Explorations has established their
corporate footprint in an area rife with silver potential.
The Guijoso Project sits in a mining district that historically
has been active since the mid-1500s. Old mine workings dot the
region, with considerable area yet to be explored utilizing modern
mining practices. A 2,000-meter Phase I diamond drilling program
is currently underway and will, according to a company release,
"target mineralization in several vein structures, which
recently sampled up to 3,000 g/t silver and 4.7 g/t gold and
have a combined strike length of two kilometers."
The Magistral 1 Project, described as a "district"
scale project, is viewed as a potentially high-grade copper/gold/silver
prospect. It is a 337 sq. km. claim package, which was assembled
in part through option agreements between Southern Silver and
Fury Explorations, "together with the purchase from the
Mexican Government of the El Magistral Concession, which includes
a historic producing copper mine with some gold credits."
Fury Exploration's corporate mandate is to favor properties in
politically stable situations. The idea is to locate an undervalued
property and then leverage wealth into it. With only a relatively
small percentage of the Taylor Mill Project having been drilled,
the potential exists for significant delineation of silver, and
possibly gold resource, going forward.
It Helps to Have the Locals on
Your Side
Of the many risks facing
mining operations, one of the most serious and unpredictable
is "country risk"-where the political stability of
the host country (or regulatory jurisdiction) is questionable.
Zimbabwe and Venezuela come to mind as places where mine owners
and shareholders can wake up one morning to the news that their
operations have been taken over by the government or that permits
have been delayed/revoked.
Even in Canada (note new tax laws recently passed in Alberta,
affecting the profitability of tar sands oil production there)
and the U.S. (legislation working its way through Congress that
would revise mining laws that have held sway since the late 19th
century), producers and explorers face a certain level of unpredictability
regarding permitting and taxation.
A real plus for Fury Explorations is that they are located in
the mining-friendly state of Nevada. While regulation issues
certainly have to be addressed, the process there is much more
transparent-and predictable. It also helps to have support from
the locals.
This analyst, along with several others, visited the Taylor Mine
Site recently, and afterwards had an enjoyable and informative
dinner, which saw Ely's mayor, the president of the local chamber
of commerce, and several other leading citizens in attendance.
The town of 5,000 souls is very supportive of Fury Exploration's
plan to restart production, knowing the positive effect it will
should have on employment and business there. Many in the local
workforce have a mining background and will likely find employment
opportunities, which with a 15minute commute would make most
of us who live and work in large metropolitan areas more than
a bit envious.
Technical Take
At this writing, On
Balance Volume (OBV) and Money Flow are positive. Most volume
currently comes from Canadian investors, as is frequently the
case for stocks trading on the generally lower-profile OTCBB.
Accumulation/Distribution is neutral. MACD looks to be establishing
a higher low; Money Flow and Volume on the OTC are relatively
low, most likely changing as the story for this company becomes
more widely told and appreciated.
After moving from about C$0.48 in September, price has risen
at this writing to trade in a range between .80 and .90, on a
"price platform" in the .80 area. A move that closes
above .90 and then $1.00 would start building a base formation
to attack longer-term resistance just above $1.20.
Summary/Conclusions
- Fury Explorations offers a
compelling story for investors who wish to own a near-term producer
whose current share price most likely does not come close to
reflecting its emerging status, as it moves from being an explorer
to a producer, with further upside exploration potential
- Management has a well-thought-out
plan of attack going forward, both strategically (moving quickly
now toward production in Nevada, to delineate further resources
there later) and tactically (emphasizing an aggressive drill
program at their highly prospective Guijoso Property and Magistral
Project in Mexico)
- Groundwork has been carefully
developed at the local, regulatory state and federal levels,
so that a smooth continuum of progress for receiving operating
permits can reasonably be expected. Conservative estimates show
production beginning in first quarter 2009, but the very real
possibility exists for startup to commence as early as the fourth
quarter of next year
- Realistic cost estimates show
that beginning production at the Taylor Mine Site can be achieved
without significant shareholder dilution. Once this begins, cash
flow can be used to set up/execute a drilling program to further
delineate silver, and most likely gold resource, on the property
- The current volatility (with
significant movement both down and up) in mining share prices,
in tandem with large swings in the underlying gold and silver
prices, offers an opportunity for the investor who has done due
diligence and who considers taking a position, to do so "under
cover" of the emotional trading being conducted by weak
hands and day-trading speculators
- Consider using this volatility
to place "limit" orders, which can offer good odds
for achieving value fills on intraday weakness
- When silver moves convincingly
above $16, expect mining stocks, especially silver producers,
as well as near-term producer plays like Fury Explorations, Ltd.,
to follow upward in pursuit
- No need to chase this stock.
If you are a buyer, consider a program that "legs in"
attempting to achieve a good average price... then sit back for
the ride
David H. Smith
The Morgan Report
email: silverguru22@hotmail.com
website: http://www.silver-investor.com
Sign up for the Morgan Report:-
http://www.silver-investor.com/amember/signup.php
David H. Smith is a regular
contributor to The Morgan Report. This analysis follows
his recent on-site tour of Fury Exploration's Taylor Mine Project.
Disclosure/Disclaimer:
This
analyst owns shares in Fury Explorations Ltd., purchased in the
open market.
Information
contained herein has been obtained from sources believed to be
reliable, but there is no guarantee as to completeness or accuracy.
Because individual investment objectives vary, this Summary should
not be construed as advice to meet the particular needs of the
reader. Any opinions expressed herein are statements of our judgment
as of this date and are subject to change without notice. Any
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and/or independent consultants or members of their families may
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321gold
Ltd
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