April 14th, 2009

I admit I was very hesitant about Colossus at first, it seemed like one of these explorers that had acquired a project that nobody else really wanted because of various issues, but after some research I would say they're not looking too shabby.

The mcap is ~C$100M today at C$2.30/share, and only as late as december was the price at C$0.50. They have about $30M cash and basically no debt.

The flagship project of CSI is the Serra Pelada deposit which was discovered in 1979. It is an extremely high grade gold-PGM deposit and it saw a huge inflow of artisanal miners during a few years - until the pit where mining took place collapsed and pretty much shut the whole operation down. The property has seen exploration since 1980 and in 2007 it was moved into the hands of a Brazilian company (COOMIGASP) which then optioned 75% to CSI in exchange for a R$18M exploration expense plus a cumulative payment plan decided by the size of the deposit (5-7M Oz = R$275.1M (US$123.8M)) as well as covering costs for the mining operation.

It's estimated that the artisanal mining in Serra Pelada uncovered about 2M Oz of gold (PGM's not included) during the active years. As mentioned earlier this is an extremely high grade deposit which is clearly shown in one of the most prominent drill-cores: 43m of 4709g/t gold, 204g/t platinum and 1174g/t palladium. The company leaves no estimates of the amount of metal now available in the ground, but based on earlier estimates and the current size of the deposit as delineated by drilling I would say there's possibly about 5-7M Oz of gold eq. at today's prices.

The extremely high grades would make for very inexpensive mining. If there really is 5M Oz of gold eq. then that would be worth $4.5B at $900/Oz and even after the splitting up of profits to royalty-holders and other payments, this could easily mean a total net profit of somewhere like $1B. I'm just throwing this number out pretty loosely, but if you consider that a deposit of a few million Oz at grades of 1g/t gold would be profitable then this is not an unrealistic estimate - it could even be higher.

The other project of Colossus is the Natividade and although it has shown some interesting results it is still a very early stage project and one would do best to wait for more drill results before making any kind of guesses there.

Although Colossus will most likely make a good profit from the Serra Pelada, I would still warn that my estimates of the amount of metal in the ground may be way too high and also one should consider the fact that the project is probably going to have to be an open-pit type because the rock material is so unconsolidated that the material (40m or so) above the mineralized areas will have to be dug away. Further the project is not in a great location as far as infrastructure goes and so the start up of the mine could prove to be more expensive than what many think.

The mcap of today is somewhat moderate with the appreciation of the last few months - for example if one were to compare Colossus to Starfield (which I covered last week), Colossus still really has no determined resource whereas Starfield has a resource already that is much larger than the potential one of Colossus and a much MUCH better expansion potential. Starfield is valued at about half of Colossus. Still the grades of Colossus are so good that it will take prices so low for precious metals that they will basically have to be given away for Serra Pelada not to be a profitable operation. So, on the whole I wouldn't go nuts about buying Colossus today, but I wouldn't go nuts about selling if I was holding, either.