[Editor's Note: With yesterday's announcement of TeckCominco's (TCK) acquisition of Global Copper, there's a renewed interest in exploration mining stocks.]
The recent 3 year moratorium on mining in Labrador’s Inuit lands has created an interesting opportunity for value investors seeking gold exposure. Fronteer Development Group (FRG on both the TSX and the AMEX) has been subjected to about a 45% haircut in the past couple of months due to its equity position in its spinoff uranium explorer Aurora Energy Resources. Aurora controls a large uranium deposit in Labrador - a project that will likely be delayed by the moratorium.
FRG's current market cap of approximately $400MM represents about $85 per measured and indicated gold equivalent ounce, not including inferred resources or any of the uranium resource, and at least two resource updates will be issued this year. FRG trades over $1.7MM/day (average) on the AMEX alone.
Let’s have a look at FRG’s assets:
1. A top-notch exploration team that has discovered several million ounces of gold and over 130 million pounds of uranium.
2. 40% of Agi Dagi and Kirazli deposits in Turkey – A combined 3.5MM ounces of gold equivalent with plenty of exploration upside. The other 60% is owned by a subsidiary of Teck Cominco – one of Canada’s top mining companies.
3. 40% of Halilaga, a new discovery in Turkey that is generating drill results averaging around 250 meters from surface of 0.5% copper porphyry with 0.5 g/t gold. Teck is the partner on this discovery, also. Halilaga will easily exceed a 250MM tonne size, and could possibly reach the 500MM tonne size.
4. Northumberland Deposit – A 2.5MM ounce gold/silver deposit in arguably the world’s best mining location – Nevada. A resource update is due within a month.
5. Sandman, Nevada – One of the top exploration targets in Nevada, with an initial resource estimate of 300,000 ounces of gold. Newmont Mining (one of the world’s largest gold miners) is very interested in this property due to its location close to existing infrastructure, and Newmont recently negotiated an option to gain control of the project by advancing it through feasibility to a production decision within 3 years.
6. Majority option on Long Canyon, Nevada – A new gold trend in Nevada. Resource estimate has not been prepared yet, but drill results are looking very good.
7. Fronteer retains over 40% of Aurora’s equity, a position that is still worth about $122MM even after the steep drop in Aurora’s market cap due to the moratorium.
8. Fronteer currently has about $98MM in cash.
With these assets, I believe Fronteer represents one of the best values in gold exploration available at the present time.