Forbes West Management Corp

As we reach the mid-point of 2012 in what has been a difficult bear market for the junior mining stocks, the obvious question becomes “where do we go from here?” The truth of the matter is no one knows for certain but Almighty God. But with that said, the current state of the junior resource market does represent some significant opportunities for those speculators with the appropriate tolerance for risk. As I mentioned in my “2012 Outlook” back in January, when it comes to the junior resource market, failure is the norm and I will have my fair share of it. Although odds are certainly daunting, one should not view the sector as hopeless. I believe one of the most important parameters that a speculator can look to, with respect to ferreting out potential opportunities, is a close examination of management. Particularly in the junior space, success or failure is due in large part to management’s ability to navigate a myriad of hurdles in order to get projects into production. When looking at management teams, a key indicator is a track record of success. One team that I have mentioned several times as having that track record is Mark Morabito’s Forbes West team in Vancouver.

I have known Mark for many years and I can tell you that he is one of the hardest working people in our industry. Our industry would definitely benefit if we had more people with Mark’s drive and integrity. His firm, Forbes West, has recently rebranded itself through a business association with Forbes & Manhattan, a private merchant bank based in Toronto which also has its primary focus in the junior resource sector. Mark and his Forbes West team have a number of public companies in their portfolio including Alderon Iron Ore Corp., Ridgemont Iron Ore Corp., Cap-Ex Ventures, Excelsior Mining Corp., and Crosshair Energy Corporation. Now, in the interest of full disclosure, these companies are clients of mine and I own them in a big way.

Alderon Iron Ore Corp.

Alderon is a Canadian iron ore development company currently focused on the goal of bringing its wholly-owned Kami Iron Ore Project into production by 2015. The Kami Project has a Measured and Indicated mineral resource of 1.1 billion tonnes at 29.8% iron and an Inferred resource of 277.4 million tonnes at 29.5% iron. The project is located in Labrador, Canada which is Canada’s most prolific iron ore producing area. The project benefits from straightforward access to rail, port and power, as well as a local workforce that is skilled in all aspects of iron ore mining. For a development stage mineral exploration project, the Kami project appears to be as good as it gets.

To come back to my point about track records of success, Alderon has assembled a management team drawn in large part from Consolidated Thompson and the Iron Ore Company of Canada, a Rio Tinto subsidiary. As you may recall, the Consolidated Thompson team advanced the Bloom Lake iron ore deposit from an initial market cap of about $6 million to a final sale to Cliffs Natural Resources for $4.9 billion in less than five years. Progress on the Kami Project so far indicates an even more rapid pace of advancement.

A list of what this team has been able to accomplish in the past 12 months includes:

• Completed the final mineral resource estimate on North Rose, Rose Central and Mills Lake of 1.1 billion tonnes at 29.8% iron in the Measured and Indicated categories and an additional 277.4 million tonnes at 29.5% iron in the Inferred category;
• Completed a Preliminary Economic Assessment (“PEA”) on the Rose Central zone of the Kami Project which indicates a positive pre-tax NPV of US$3.07 billion (discounted at 8%); pre-tax IRR of 40.2%; payback period of 2.7 years and an annual production of 8 million tonnes at 65.5% iron;
• Initiated the Federal and Provincial Environmental Assessment processes, followed by the Government of Canada and the Provincial Government of Newfoundland and Labrador issuing draft environmental impact statement guidelines for public review;
• Added former Newfoundland and Labrador Premier Danny Williams to its Board of Directors;
• Added several senior former Iron Ore Company of Canada and Consolidated Thompson executives to the management team, most notable appointing Tayfun Eldem as President and CEO;
• Completed a strategic investment with Liberty Metals & Mining Holdings, LLC of approximately C$40 million;
• Entered into an agreement for a strategic partnership with Hebei Iron & Steel Group Co., Ltd., China’s largest steel producer, for an aggregate investment of C$194 million;
• Graduated to the Toronto Stock Exchange under the symbol ADV;

• Commenced trading on the NYSE MKT exchange under the symbol AXX; and
• Completed its final exploration drill program on the Kami Project which consisted of 32 holes, totaling 12,300 metres.

2012 and Beyond

With the completion of this final mineral resource estimate Alderon has achieved another important milestone for the Kami Project in that it is now fully in the development phase. Now that the final resource numbers are complete, the single most important priority for the technical team is completion of the Feasibility Study in Q4 of this year.

In association with the Feasibility Study, the Alderon team is working hard to secure the rail, port and power agreements in addition to continuing their search for additional potential end-users with the aim of securing further off-take agreements.

Once these are in place, construction can begin in earnest, as Alderon continues to work towards its stated goal of production by 2015. While the current markets are definitely unsettled and much is being made of slowing growth in China, the sector fundamentals remain intact. Chinese urbanization shifting from the coastal area to the interior, as well as continued urbanization in other emerging markets like India should continue to drive increasing iron ore consumption into the next decade. And it is this consumption that Alderon is working hard to position itself to take full advantage of in the years ahead.

Ridgemont Iron Ore Corp.

Another iron exploration company within the Forbes West group is Ridgemont Iron Ore Corp. and they too have been quite busy during the first half of 2012. With the arrival of Brian Penney as President and CEO in late 2011, Ridgemont has been working hard to expand its project portfolio. With Brian’s 20+ years of iron ore experience, much of it with the Iron Ore Company of Canada in the Labrador Trough, it was only logical that he would focus his search in this area, particularly since 98% of all Canadian iron ore production comes from the Trough. The culmination of this search was Ridgemont’s recently announced acquisition of IronOne, coupled with a C$9.1 million financing. IronOne’s most advanced project was the Lac Virot iron project and this will be the focus of Ridgemont’s 2012 exploration effort. It’s easy to see why, given that the Lac Virot Project is located roughly 20 km from four operating iron ore mines (Mont-Wright, Carol Lake, Scully and Bloom Lake). The project is also within close proximity to readily available labour, as well as the necessary infrastructure including nearby power and a common-carrier railway which would transport the material to a year-round deep sea port. This should all sound very familiar as this is the very same world-class infrastructure that has enabled Alderon to advance so rapidly.

2012 and Beyond

The first phase of the approximately C$3 million 2012 exploration program at Lac Virot consists of a drilling campaign of up to 26 holes, totaling 5,000 metres, as well as an 882 line-km airborne geophysical gravity survey. The program is focused on following up on the positive, coincident airborne magnetic survey and surface sampling results that IronOre acquired last year. The 2011 program confirmed the presence of outcropping iron formation along three magnetic trends at Neal Lake, Emma Lake, and Sunday Lake which exhibit apparent strike lengths ranging from 1 km to over 5 kms. Analytical results from 33 grab and chip samples collected from these exposed iron formation outcrops ranged from 16.6 to 60.5% iron, with an average for all samples collected of 30.6% iron.

The precise makeup of the second phase of the 2012 program will be dependent on the results acquired during this first phase. However, with a multi-million dollar war chest and an iron project located in the best possible location in Canada, Ridgemont is clearly leveraging its existing strengths and positioning itself for a real chance for success.

Cap-Ex Ventures Ltd.

The newest addition to the Forbes West portfolio is Cap-Ex Ventures Ltd, another iron exploration company with highly prospective ground in the Labrador Trough. Cap-Ex has several properties within the Trough, but their most notable is Block 103, a roughly 20,000 hectare property located approximately 30 km northwest of Schefferville Quebec. The property, which lies entirely on the Labrador side of the Labrador/Quebec border, has two distinct zones of magnetite mineralization, the Greenbush Zone and the Northwest Zone, identified as a result of a 6,000 metre drilling campaign conducted in 2011. Mineralization was consistently encountered at shallow depths with thicknesses of up to 260 metres. Laboratory analysis of the samples collected during this 2011 program revealed very consistent grades of mineralization ranging from 28.5% to 34.6 % iron. This grade range and consistency is a hallmark of Labrador Trough iron deposits.

The company is led by President & CEO Francois Laurin, ex-CFO of Consolidated Thompson, who brings significant direct experience in developing iron ore mines in the Trough to the position. Supporting Mr. Laurin, at the board level, is Brian Penney, who provides guidance as the Chairman of the operations committee. This association is an excellent example of how the Forbes West connection serves to benefit the various companies in the portfolio, enabling high-calibre senior executives to utilize their skills in advancing a project, but not creating an overwhelming financial commitment that earlier stage companies like Cap-Ex couldn’t afford.

2012 and Beyond

Following on the excellent results from last year’s drilling, Cap-Ex is currently executing an ambitious, C$10 million exploration program on Block 103, with the goal of outlining 800 million to 1 billion tonnes at 29% to 32% iron within a four sq. kilometre area of the Greenbush Zone by the end of 2012. Although assay results haven’t been received yet, the first two lines drilled confirm mineralized intersections very similar to last year. This fully-funded program involves four diamond drill rigs and will include a minimum of 15,000 metres of drilling. It’s important to note that this four sq. kilometre area only represents approximately 15% of the Greenbush Zone and expectations are that the final resources numbers for the entire Greenbush Zone will be well north of the current 800 million to 1 billion tonne target.

Cap-Ex Ventures represents another great example of how successful management teams leverage their experience and expertise to advance projects as quickly as possible, thereby creating opportunities for investors to better manage their risks and position themselves to maximize their up-side.

Excelsior Mining Corp.

Sticking with base metals, Excelsior Mining Corp, another exploration/development company in the Forbes West group, is currently working to advance its Gunnison Copper Project in southeastern Arizona. Excelsior is setting itself up to be among the lowest cost producers of copper in the industry based on using the in-situ mining method on their multi-billion pound copper deposit in Arizona. Just like almost every other junior mining story, Excelsior has been beaten up by the market recently but there doesn’t appear to be any strong fundamental reason for the decline decline other than overall market sentiment. With the market downturn I have devoted extra time to evaluating the companies that I am involved with, and in Excelsior’s case, all I continue to see are reasons to be a shareholder. The project really seems to be that good and for the most part, it’s all about location and “location” will be the theme of my comments on Excelsior today. First of all, Arizona seems to one of the only places where one can find a copper deposit that is amenable to in-situ mining. Finding oxidized copper sitting below the water table is a true geological rarity and it is because of this that Excelsior should be able to capitalize on the superior economics that come from using the in-situ mining method. If the project were located anywhere else, it would have to be mined conventionally. Secondly, the project is located in a remote section of a very remote county called Cochise. There are no large communities in the immediate area and no one is using the local ground water for drinking or for agriculture. You often hear mining companies spouting the line, “The community is behind the project!” I have yet to see an example where this is 100% true but in Excelsior’s case, there is no significant community in the area. Having an operating copper mine located only one mile from the project further enhances Excelsior’s argument that their in-situ copper mine should avoid community push-back issues and successfully navigate the permitting process. Thirdly, the location of the project is not managed by the State in terms of water use. This is important because the mining concessions owned by Excelsior come with unrestricted water use. I should take this moment to point out that in-situ mining uses far less water than conventional copper mines.

2012 and Beyond

We can look forward to seeing metallurgical results in August, and I expect we shall see assay results in July from the expansion drilling program that was done on the northern section of the ore-body. Excelsior remains on track to deliver a pre-feasibility study with the goal of delivering a document that mirrors the excellent results that came out late last year in the Preliminary Economic Assessment. That report projected operating costs of $0.68 per pound based on an operation producing around 85 million pounds over 20 years – that’s a good story and I believe that the current management group has the ability to make this a reality.

Crosshair Energy Corporation

The last company I shall mention is the uranium explorer, Crosshair Energy Corporation. As I noted earlier, the entire junior mining sector has been taking a beating lately, but the uranium juniors have been having a particularly rough time. However, 14 months after the Fukushima earthquake a number of significant developments may be indicating some positive momentum in the uranium market. The first post-Fukushima long term uranium price increase was recorded in June, closed at $61.50/lb, a 2.5% increase. This up-tick occurred just a few days before the Japanese Prime Minister announced that the two nuclear reactors in Fukui prefecture would be allowed to restart. This is seen as an important milestone as Japan moves to restart its entire fleet of 50 reactors that were idled following the earthquake. At about the same time the Japanese government was moving its nuclear power generation industry forward, the Chinese government was doing the same, restarting its nuclear reactor approval process. The Chinese government had suspended the approvals process in the wake of the Japanese earthquake. As these developments highlight, the fundamentals of the uranium industry remain strong. We have increasing demand, with several countries having recently laid out aggressive plans to expand their nuclear power generation capacity, coupled with tightening supply. The Russian/American Highly Enriched Uranium down-blending agreement, which currently accounts for 25 million pounds of uranium for the market, should be ending in 2013 and all indications are that it shall not be extended. There are no projects in development that should be able to make up this shortfall in the near-term. No matter which way you look at it, the world’s energy needs continue to grow and uranium is going to be a key factor in meeting these energy needs and with tighten supply the price should have a bias to the upside.

With this as a backdrop, Crosshair continues to forge ahead, working to develop both its properties and its management. In keeping with his trend of putting together very specialized and experienced management teams, Mark Morabito has selected a skilled duo to lead the company as they work towards their goal of production. Mark Ludwig recently took over as Crosshair’s President and CEO, after having been COO for the previous year. Mark is a senior mining engineer with over three decades of mining experience in North America including VP Operations for Neutron Energy and prior to that in various positions with Hecla Mining Company and BHP Billiton. Overseeing the exploration activities is Tom Bell, Ph.D., VP Chief Geologist and U.S. Project Manager. Tom has spent over 30 years as an exploration geologist for BHP Billiton, Arco Oil and Gas, Anaconda, Utah International and the U.S.G.S. Together, they plan to take Crosshair to the next level as the company works to complete its 2012 exploration programs.

2012 and Beyond

With a C$7 million financing completed in February, Crosshair remains one of the few junior mining companies that has a solid cash position supporting its 2012 exploration plans. The start of the summer will focus on both the Juniper Ridge Project in Wyoming and the CMB Project in Labrador. Crosshair has planned to spend roughly C$2.8 million on Juniper Ridge in order to complete 18,000 metres of drilling to verify more of the historic geological resources estimated to range from 7 to 10 million pounds at a grade between 0.056% and 0.067% U3O8. The program should also include metallurgical testing, as well as ongoing baseline environmental studies. In Labrador, Crosshair has budgeted C$2.2 million to complete 3,500 metres of drilling on the Two Time, Firestone, Blue Star and C zones. The goal of the program is to expand the existing uranium and vanadium resources, as well as test new uranium targets within the main property. With the lifting of the moratorium in Labrador in March, Crosshair has once again begun to advance its Labrador projects, however, with the success that Crosshair has had in Wyoming, the company’s management team is continuing to search for additional uranium projects outside of Canada.

The Bottom Line

Albert Einstein is often quoted as having said, “in the midst of difficulty lies opportunity”. Well, it doesn’t take an Einstein to see that the junior mining stocks are in the midst of some major difficulty. But as I said at the beginning, this very difficulty presents the shrewd speculator with some significant opportunities. However, many of these opportunities are not ready apparent, being obscured by broader market sentiment. One of the rules of thumb that speculators can use to identify these opportunities is to stick with management teams who have been successful. Experience has taught me that success does, in fact, breed more success. And as a speculator, I look for those management teams that have track records of success and hope history does intend to repeat itself.

Posted in A Grandich Company Alderon Iron Ore Base Metals Canadian Stocks Copper Crosshair Energy Excelsior Mining Exploration Shares Iron ore Mining Shares Precious Metals Ridgemont Iron Ore US Stocks Uranium cap-ex world economy by Peter Grandich.