Steve Todoruk explains where he’s speculating now
Recent developments in the mining sector have shed some light on the future of the industry, says Steve Todoruk, a broker at Sprott Global.
Steve worked in the field as an exploration geologist for 18 years before joining Sprott in 2003.
Mining companies will pay ‘top dollar’ for the next discovery that could be turned into a profitable mine. Readers will remember Cayden Resources, an exploration stock where investors saw a 300% share price increase earlier this year after miner Agnico Eagle made a takeover offer.
In October, Steve told readers to use low share prices to gain positions in potential takeover targets.
Recent news from mining giants Rio Tinto and BHP suggests that even deep deposits will get built, he says. This may be good for two deep projects that he’s currently watching.
Last week, two of the biggest mining companies in the world – Rio Tinto and BHP — announced they had reached a major milestone at their massive copper deposit located in Arizona, called ‘Resolution.’
Resolution is an underground copper deposit located in Arizona near the Magma Copper mine, a massive depleted copper mine. Rio Tinto calls Resolution “one of the world’s top ten undeveloped copper resources.”1
BHP and Rio Tinto had been seeking to acquire additional adjacent land in order to build mining infrastructure for Resolution, which they have finally succeeded in doing according to their announcement last week.
The key here is that Rio Tinto and BHP are aggressively moving to have this new mine built and producing by 2020.
Why does that matter to us as investors? The deposit is extraordinarily deep at 7000 feet below surface.
Many people don’t believe mining can be done profitably at those depths, but the move by BHP and Rio Tinto says otherwise. I don’t believe they would be going ahead if they didn’t think they would make money at this price.
The Resolution deposit is over one billion tons grading 1.5% copper with a small molybdenum credit. 1.5% is a high grade, as the worldwide average for new discoveries is around 1% or lower – see the graph below.
There are other large underground mines out there that have lower grades than Resolution, but they are closer to surface (though still too deep to be mined directly from the surface as an ‘open pit’ mine).
The Resolution deposit stands out because it is one of the first large underground mines to be designed at such depth. In my view, this is most definitely where the future lies for mining companies.
In order to sustain or grow their annual production numbers, miners will be producing from deeper and deeper deposits.
What deep deposits are worth looking at now as potential takeover targets? Steve says there are two projects he is following closely. The first is the Cukaru Peki project in Serbia:
Freeport McMoran and Reservoir Minerals Inc. (in a joint venture) have discovered one of those rare very high-grade copper-gold deposits, the Cukaru Peki deposit in the Eastern European country of Serbia, with mineralization starting at 1,320 feet below surface.
The deposit is 62 million tons grading 3.5% ‘copper equivalent,’ which is what the copper grade would be if all other metals in the deposit were converted to an amount of copper of equivalent value. That is considerably higher than the 1.5% grade at Resolution.
Freeport and Reservoir have also discovered an even deeper deposit nearby with much lower grades (lower than 1% copper equivalent). This second deposit may work too, as it could turn out to be very large (similarly to the Resolution deposit) allowing for economies of scale and bulk underground mining. The miners may be able to use ‘block cave’ mining, consisting in controlled cave-ins to extract the rock, a cheaper method than conventional underground mining.
A second project he’s interested in right now is the Cascabel discovery, in Ecuador:
A joint venture between Cornerstone Capital Resources Inc. and SolGold Inc. led to the discovery of Cascabel, which they have been drilling for the past year.
High-grade mineralization similar to that of the Resolution deposit has occurred in the early drill holes.
These high grades occur over significant widths ranging from 500 to 1,800 feet, and are enveloped by lower grades of less than 1% copper equivalent. This tells me there is the chance for a significant-sized deposit.
This deposit’s high-grade mineralization starts at around 2,300 feet below surface, making it deeper than the Cukaru Peki deposit but much shallower than the Resolution deposit (at 7,000 feet below surface).
Some experts in our industry say that discoveries like Cascabel in Ecuador, or the lower-grade portion of the Cukaru Peki discovery in Serbia, are too deep to be mined, even if they can be shown to be large.
BHP and Rio Tinto’s move forward on their Resolution deposit shows that deep deposits can receive attention from mining companies and become new mines.
Keep an eye on Reservoir’s Cukaru Peki, as well as Cornerstone’s Cascabel in Ecuador. Also, bear in mind that only a handful of drill holes have been obtained from the new Cascabel find, so the outcome is far from known.
We’ve discussed before why Steve believes Ecuador could loosen its taxes and laws on mining, further benefitting projects located in the country like Cascabel.
The discovery of Cukaru Peki and Resolution also highlight where explorers should go looking for new deep deposits:
Both Resolution and Cukaru Peki were found in areas that were known for harboring gold and copper deposits at or near surface.
Resolution is located beneath one of the most prolific regions for near-surface copper and gold mines in the United States. As to Cukaru Peki, it is located in an area known from Roman times to host metals deposits.
Mineral deposits tend to occur in clusters. Where there is one, there are likely more. Some may lie undiscovered at depth near existing mines.
Steve wouldn’t feel comfortable owning a company that hadn’t yet made a discovery. Still, we expect to see more exploration focused on going deeper in known mining jurisdictions and looking for new deposits at depth. Those are projects to watch for new discoveries.
P.S.: If you would like Steve to review your junior mining portfolio, please call him at 1.800.477.7853 or e-mail him at [email protected].
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Steve Todoruk worked as a field geologist for major and junior mining exploration companies after he graduated with a B. Sc. in Geology from the University of British Columbia, in 1985. Steve joined Sprott Global Resource Investments Ltd. in 2003 as a Senior Investment Executive.
Companies discussed above are used for examples only and do not constitute an endorsement or recommendation. If you would like more information, please contact a Sprott Global Resource Investments Ltd. broker.
By Henry Bonner ([email protected])
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