This post supplements the latest post in this series (click here) which continues the series on Open Pit Gold miners begun here, continuing here, here, here, here, here, here and here
now profiling another gold miner in which I just opened a speculative
position.
I've been spinning up more on Dynastry Metals (DMM.TO) and would like to provide some more information.
Stockhouse.com's Importent read my article and had this to say:
"MontyHigh,
Dynasty
Metals and Mining's first two properties that will become active mining
operations (Zaruma and Jerusalem) have grades over 10 times the average
grade of current producing gold mines (over 13 g/t versus the average
worldwide grade which has dropped from 1.65 g/t in 2005 to 1.25 g/t
today despite the fact that exploration has increased from $1 billion
in 2001 to $5 billion last year). The capex required to get Zaruma and
Jerusalem from the current annual production of 100,000 oz/year to
350,000 oz/year is under $50 million. Production costs will be very
low. DMM's share structure is incredibly tight, suggesting that cash flow
per share and earnings per share will be many dollars per share within
about 3 years even if gold does not continue its impressive ride
higher. DMM's properties also have incredible exploration potential.
For example, 90% of the Zaruma property has yet to be even explored
and its main ore body is over 13 g/t. Compare that potential to other
junior mining companies that will crow from the rooftops over hitting
10m of 2 g/t quasi-ore. IMHO, if DMM's properties with their imminent
production and exploration potential were located in Canada or the
U.S., then institutions would be tripping over themselves to pay
$25-30/share for this stock.
The only thing
holding DMM back from a very dramatic rise in the shareprice is
perceptions of political risk. The reason I have heavily invested in
DMM is that I believe the market is measuring the political risk of DMM
completely incorrectly. Why is the market wrong? Lets start with a
few facts. First, there was strong executive and legislative support
for the new mining law that promotes large scale mining in Ecuador. In
fact, President Correa has tossed far left radicals out of his
government and waged an aggressive, public campaign against the small,
crazy minority in Ecuador that seems to want the country to starve to
death on a mountain of gold (to paraphrase Correa's colorful
description of them).
The need for a
successful mining sector in Ecuador has increased dramatically over the
last year as revenues from oil production have plummeted. Therefore,
it is very much in Correa's interest as well as the interest of Ecuador
for the country to play nice when it comes to mining over the next few
years. Because of the need to nurse the nascent mining industry into
something much more robust, DMM is in an ideal situation. The reality
is that DMM is going to be the only significant gold producer in
Ecuador for years to come. So, if DMM doesn't get a fair deal when it
comes to royalties, taxes and general treatment then the whole mining
sector in Ecuador will be stillborn. The same reasoning applies to a
potential Windfall Profits Tax. When DMM is the only company that will
be producing, it makes little sense for the government of Ecuador to
get aggressive on this issue. Yes, they would milk a few extra dollars
off of DMM, but they would risk becoming a mining pariah state before
Fruta Del Norte, Corriente's properties and many other early-stage
properties can develop.
People who think DMM
will get a raw deal must be of the opinion that President Correa is
going to take a very self-defeating approach to the mining sector. I
believe, on the other hand, that despite Correa's socialist leanings
that he is at least pragmatic. Unlike Hugo Chavez and Evo Morales,
Correa appears to be someone that is rational and who will take a much
more moderate approach.
Of course, things
might be different if there was a meaningful local opposition to Zaruma
going into production; however, there is strong local support for DMM
and there have been no protests, unlike elsewhere in Ecuador. One of
the reasons there has been no visible opposition to the construction of
the Zaruma mine is the whole project has been built to the highest
environmental standards. Furthermore, being an underground mine,
President Correa was extremely surprised at what a small environmental
footprint the project has. When Correa has made recent statements
about how great and environmentally friendly Canadian mining companies
were (the best in the world according to Correa) you can be assured
that he was referring to DMM's Zaruma project.
You
asked about the Dynasty Golfield's potential to be open pitted. I
can't answer that, since there is no feasibility study at the moment,
but I can tell you this: there is some very high grade ore near the
surface, and to exploit this potential DMM is currently building a road
from Zaruma to the Dynasty Goldfield project. I expect to see DMM
trucking high grade ore from Dynasty Goldfield to Zaruma soon after the
plant expansion is completed. This will be a nice bonus that the
market has yet to consider in its calculations about DMM.
You
asked about Kinross takeover talk. While anything is possible, I don't
expect to see this happen. The company is very tightly held, and
Robert Washer is the man who controls the company's destiny. I have
spoken with Washer on a couple occasions, and he doesn't strike me as a
guy that has any plans of bailing-out for a paltry profit of a few
bucks per share on Dynasty. He has a quiet, no BS confidence in the
company. He knows DMM's imminent potential for growth and cash flow,
and he is prepared to build the company. He is NOT a fly-by-night
promoter looking for a quick score."
Being a little picky, I'd like to make the following comment on Omniportent's post:
- I grant you that DMM's Zaruma project's ore grade is way higher than average, but the average includes open pit miners. If you include just underground mines, I'd put Zaruma at between 2x and 3x average. Still that's very impressive.
Since I posted the story there have been a couple of other items:
- Dr. Jose Serrano Delgado, Sub-Secretary of Mines in the Ministry of
Mines and Petroleum of Ecuador (the "MMP"), announced that the MMP has
lifted all suspensions on mining activities in Ecuador, and that formal
letters to this effect are in the process of being sent to mining
companies. This confirms that the political risks are settling down.
- DMM's CEO was interviewed on BNN (click here). He reports DMM is on-track to commission the Zaruma mine's processing plant by the end of March. By the way, how long has it been since you've seen a mining CEO with this kind of giddy smile?
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