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Thursday, 13 June 2013
Tamaka Gold’s CEO says Goldlund project offers what other miners want
Tamaka Gold, an advanced stage gold exploration company with multiple assets in Ontario, Canada, is moving ahead with work on its lead project with an eye to producing a resource update in short order.
As to the question of the company’s IPO, planned initially for early 2013, president and CEO Howard Katz need only reference the challenging environment in which mining juniors now find themselves to explain the company’s approach of biding its time.
“The bottom line,” says Katz, “is the market has not been co-operating.”
Katz identifies three factors as being most responsible for this state of affairs. The first is the volatility that has characterized recent gold pricing, and the resultant investor skittishness. The second is a series of what the chief executive terms “disappointing performances” from larger-cap mining companies that attract marquee attention for their marquee-sized setbacks, “both in terms of earnings and cash flow and high profile project delays that have highlighted permitting and political risk issues.” The third factor flows from the other two, and that is funding being in a state that Katz likens to “a buyer’s strike.”
“Put all those factors together, you’ve got a very challenging environment. So for now, those [IPO] plans are on hold -- although we are constantly monitoring the market for a conducive IPO window. We’re well capitalized to remain private for the time being. We’re not going to go public for sake of it. We’re going to do what is right for, and in the interests of, our shareholders.”
Meanwhile, work continues apace on the Goldlund property, the company’s lead project, with internal analysis being conducted on data from the 100 per cent controlled project, which already has a NI 43-101 compliant resource statement of approximately 377,000 ounces in the measured and indicated categories and roughly 624,800 ounces in the inferred category, with the hope of converting that work into a resource update ready for the second half of this year. Tamaka believes the deposit will eventually demonstrate visibility in the range of 4 to 5 million ounces.
“We’re still advancing our projects; we’re still doing work, just at a pace that is sustainable in current market circumstances.”
But of course, Katz says, “market conditions like these make for an ideal time for larger companies willing to scout around for a bargain like New Gold’s acquisition of our Goldlund neighbor Rainy River Resources for a price of $310 million.”
The Goldlund project has two major advantages that mitigate risk for any senior on the lookout: jurisdiction and infrastructure. As Katz points out, the high profile challenges being so publically experienced by some big name companies are all-too-often linked either openly or implicitly to the matter of jurisdiction, and that is a factor that is non-negotiable once a project is underway.
“There are only so many variables you can control and jurisdiction isn’t one of them.”
Thus it is all the more opportune that the Goldlund project is located in Ontario, a politically stable region that does not tend toward the overt or covert nationalization or quasi-nationalization to which other parts of the world are prone.
In addition, the Goldlund project comes up trumps on the crucial issue of infrastructure, with a road that runs “literally to the project doorstep,” says Katz, as well as power lines in close proximity, nearby railway lines, and natural gas pipelines close by, “all the logistical and infrastructure elements another mining company would have to consider from scratch.”
“We have, through the benefit of location, the benefit of hundreds of millions of dollars spend.”
Our projects would rank at the top of a number of metrics and those assets aren’t changing. We also are mindful of the challenges associated with projects viewed as high-capex projects. We are looking at ways to advance this project with the idea of a minimum of upfront capital expenditure.”
It is largely this reasoning which paved the way for the abundance of M&A activity in the Ontario gold mining sector recently. In addition to Rainy River (TSE:RR) (CVE:RR), Trelawney Mining (CVE: TRR), Prodigy Gold (CVE:PDG), Queenston Mining (TSE:QMI) and Northgate Minerals were all acquired within the last 18 months. And the potential M&A activity likely isn’t over with Agnico signalling its interest in Probe Mining as it recently made a sizeable strategic investment into the company.
As to the cost of production, the factor that determines whether a project is economical or not, Katz says the Goldlund site is well-placed for a cost-effective run. While the Goldlund site is “not at a stage when you can articulate specific costs,” Katz, using the principal that grade usually bears an inverse relation to costs, forecasts a low-cost operation at the site.
“Our primary zones are grading pretty high. We’re bullish that will translate into a low cost of recovery.”
Tamaka also holds a 100 per cent interest in Rundle Swayze, “a great little project”, Katz says, that can be put into production for a relatively modest amount of capex. The three properties that make up the project – the South Rundle, the North Rundle and the Swayze – are located about 100 km from Timmins and 70 km from the town of Foleyet in Ontario. Two of the three properties have the advantage of accessibility via an all-season gravel road while the third passes within a mile of an access road.
“It’s at a point where we want to make the leap into production, so it’s a good asset to look at in that regard. I would say this project would be attractive to producers looking to do 40,000 to 50,000 ounces a year.”
With his background as head of mining investment banking at a national investment dealer, where for almost a decade before joining Tamaka in June 2011 he financed and provided advisory services to many junior and intermediate mining companies in Canada, Katz has a special insight on the situation of fellow juniors and sees a future involving many trimmed-down miners.
“There will be some rationalizing in individual companies at the junior level; companies that don’t have sufficient funds will [die]. Necessity is the mother of invention. We are going to see lot of companies going into survival mode and they are going to be focussing on keeping projects alive and treating them as call options on the market.
“Some mid-tiers will pick up some good projects and put them into the production pipeline and in the mid-cap space, there is going to be some merger and acquisition activity.”
Nonetheless, Katz considers gold to have been oversold.
“I do think that at the end of the day people got overly pessimistic towards the sector and [now] people are looking at the gold market as a potential area to reallocate into.”
Most important, Katz sees the roller coaster ride that has characterized gold’s recent days as not being underpinned by anything substantial.
“It’s being manufactured by traders. Gold is not trading on the fundamentals but on technical charts and emotions. When gold starts selling [low] people step into the physical market, and that is indicative that the fundamental story of gold hasn’t changed all that much.”