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.

I guess a lot of people have heard of Starfield and their extraordinary discoveries in the Ferguson lake property in Nunavut/Canada. This big piece of land is basically what makes the company; not only does it hold a huge sulphide-nickel-copper-cobalt-PGM-iron mineralization, but lately there have been diamond and gold findings, as well.

The latest resource estimation (indicated and inferred) gives 44.2M tonnes grading 1.01% Cu, 0.67% Ni, 0.08% Co, 0.28g/t Pt and ~1.7g/t Pd. Note that this discovery is still open at strike and depth. What should also be mentioned is that under the latest mining evaluation the PGM metals were not included and it remains unclear how these will be handled.

Because of the special nature of the discovery it will be mined/enriched in an unusual way, I don't want to go into all the technical details, but basically a leach process creates hydrogen sulphur which then reacts with oxygen to produce a lot of heat and thereby making it possible to power the entire mining operation with it and possibly selling what's left over. This process would make the operation relatively inexpensive and environmentally friendly.

The value of what's known to be in the ground today is (very approximate): $1.5B Cu, $2.7B Ni, $3.2B Co, $411M Pt and $482M Pd. Total value is $8,3B. Let's not forget that this discounts the value of sulphuric acid and iron.

The mcap is ~C$50M, they have ~C$6M cash and no debt. On the scoping study base model (which roughly translates to the same valuations as mentioned above), the EBITDA result for the operation is expected to be about C$266M per year, and the initial cost to build the mine would be about C$1.2B (expected to start construction in 2011).

The mineralizations of Ferguson lake are very likely to be heavily expanded, foremost at depth. This makes for a very long lived mining operation that even under these poor circumstances of a financial crisis is looking to make good profits.

With the crash of metal prices the share price of Starfield has gone down from 1.2 to 0.14, where it sits today. What is interesting about Starfield as opposed to Roca mines for example, is that it is a very profitable operation even at these prices and at the same time it is a great leverage opportunity if prices turn up again.

I don't know exactly where the checks are for global price stability of metals these days or coming years, but I don't honestly think it's important. Starfield has a great discovery that will stay profitable a lot longer than many of the other suppliers. Sure the SP can drop heavily next week if metal prices crash further, but for the long term this is a money making machine. Based on the value of what's in the ground, the great expansion potential and the gold and diamond discoveries - C$50M is not expensive. So even for a short-sighted investor this could be interesting as they might actually be bought out.

Only until very recently was Roca Mines on everybody's lips - it was the greatest thing and it was going to make everybody lots of money. And then it fell from over 3.50 down to 0.16 (last close 0.23). It fell for good reasons; since it is a purely Molybdenum play, it had to fall as moly-prices fell. Between '04 and mid-'08 the average price of moly was ~$33, now it's at $8.20.

Buying into a moly-miner is decided by your belief in the price of moly. Knowledgeable people in the industry have maintained for some time that there will be a shortage of moly for some time to come and that prices will on average stay higher. I would think that the spending binge of world governments will affect moly-prices positively and force it higher, since they're spending most of their money on building stuff, which in some cases requires a lot of moly. For example, the world is planning to build a lot of new nuclear reactors (none of which are likely to be postponed) and these suckers take up a lot of moly.

One can argue for and against a rising moly price, but I think that the fairly high and persistent price of moly these last few years seems to show some long-term stability and the sudden fall since this summer looks a bit artificial, so the price will probably move a bit higher.

Basically what makes up Roca is the so-called MAX-project where a mine was recently started. This project holds about 100M pounds of molybdenum, at grades varying from about 2% down to 0,2%. The Ore-body extends towards depth where it remains open - it has been compared to other moly projects that have the same structure, where there are very large high-grade mineralizations at greater depth; this remains a very intriguing possibility.

At the latest reported quarter of the company's operations, they showed a net loss of ~C$5M. The cash-cost per pound of moly was at $5.80 and the MAX-mine produced 679,697 pounds during the quarter at average grades of ~1%. The revenues were C$8.3M (Sept 1 - Nov 30). The company currently has no debt and through recent financing a $2-3M cash position.

I assume that the company is working on cutting down a lot of the unnecessary costs to try and make the loss as small as possible. The exploration properties are pretty much on hold now and I would be suprised if the loss wasn't smaller in the coming report. Considering the low cash-cost of $5.80 I think they might be able to make this a profitable operation at these prices (very uncertain however!).

Today the undiluted mcap of Roca is about C$23M and with a yearly production of, say 2.5M pounds, that's revenues of $20.5M if prices stay the same and after cost of production, a result of $6M. If prices of molybdenum would rise to $12, then the result from the mine operation would be $15,5M, instead. The great increase in revenues with increasing moly-prices is pretty obvious here...

Just based on todays profitability of the MAX-mine I would not buy Roca shares. This is purely a play on the possibility of rising moly prices, since the leverage would be really good here. And as prices move up the company would go ahead with an expansion of operations, and make even more money. As stated above - I beleive in a slightly higher moly price, but this is still very uncertain. I simply can't tell if a few trillion of government spending is going to really do it and as I explained in my previous post, we should perhaps look for signals such as a massive auto-industry bail-out before we can safely say that the governments of the world are really willing to spend any amount to get things going. For some people the signals may already look strong enough to jump on the inflationary rocket-ship... and I would say there's a clear overweight in favour of inflationary price appreciation.

UNE caught my attention lately after having gone up about 200% in short time, without any clear reason for it. I've heard some call it a pump&dump story, mostly because of this thing going around (http://smallcapfortunes.com/uneff/index.html). Well, it's possible that some people wanna put a hype on this company to make quick money, but it doesn't necessarily mean that the company is bad or overvalued.

UNE is a developer of unconventional gas and oil. Today they have a small amount of production and their main activities are in exploration. In the latest financial report (nine months ended september 30, 2008) they showed a total revenue of $658,357, up 350% from last year. Mcap today is about $10M and net cash position is about -$1M, but from what I've seen they have been quite able to raise money.

The 350% increase in revenue is mostly attributable to higher production since gas-prices between the two periods (on average) changed little. So there is definitely a strong growth in the company. The basis of the "hype" for the company is the fact that in total they have almost 2 trillion cf (cubic feet) of natural gas resources. Remember that resources are not reserves, they are merely an estimation based on the large geological structure, whereas reserves are created by lots of drilling. Total reserves are today at about 32 billion cf.

UNE is active in the Appalachian basin and the Western Canadian sedimentary basin. These areas are mainly exploited through unconventional methods that have really just been devloped in recent years and still can be considered cutting edge technology that enables companies like UNE to exploit these shale and tight-sand reservoirs without spending too much money.

Because the operation of installing unconventional wells is a bit tricky, it usually takes a lot of preparations and careful planning before going ahead and installing a well. Therefore in the last three years that he company has been active the development has been going slowly. But as we all can see from the revenue growth, the expansion in productivity can assume quickly. Of course with the financial crisis the activities of the company have been more focused on acheiving higher production and the less developed properties will be put on hold or even sold. It also remains to be seen what happens with the price of natural gas, it has already gone down more than 50% since the top and although it could drop further there still is a long-term shortage of natural gas in North America - that's why unconventional plays came into the picture in the first place.

Besides the pump&dump rumours going around about the recent upswing in the share price, there have at the same time come out two positive news-items. First there was the announcement that a well is being drilled to test a very promising structure in the Appalachian basin (results coming in April). Secondly there was the newly drilled well in Canada that showed flow-rates of 2.3MMcf/day.

To put all this is some perspective: Natural gas is priced in MMbtu (million btu) and one can roughly say that 1000btu is 1cf natural gas. 1 MMbtu today costs about $4, which means that 2 trillion cf of gas is worth ~$8 billion. It would be impossible for UNE to exploit all this gas, but as is mentioned in the "pump&dump"-letter, they might be able to recover 25% - which is still worth a lot. The 2.3MMcf/day well would make UNE $9,200/day - that's $3.4M per year!

As the company now is focusing mostly on ramping up production and putting geological testing/exploration more aside, there could be a good upswing in revenues, even with lower gas prices. The recently drilled well showed very positive results and there is a lot of promise in the other ongoing work, as well. It isn't impossible that the company might not be able to raise more money in the future as things are looking now and the whole thing could be more or less put on hold. But the resource they hold is worth a lot in the long term and should always be of interest, especially with the recent developments in exploting these resources.

To conclude, I can't see how this company is overvalued at only $10M, it might be that I'm underestimating the impact of (potentially) lower gas prices and overestimating the ability of management to ramp up production. But as a long term investment - they have the resources that are just waiting to be developed - and it will be sooner or later (even if it means being bougth out by a larger company).

(Note: I wrote this post a little hastily and forgot to mention that management of UNE sees at least another 30 wells being drilled in the same area as the 2.3MMcf/day well - which once completed could bring revenues of up to - or more - than $100M/year. That's ten times more than the current mcap!!)

When writing about Goldsource Mines, I realized that it's hard to really get a good grip on the pricing of coal. All coal deposits seem to have different characteristics, but by doing some fairly simple comparisons one can perhaps estimate a reasonable price. Below are excerpts from Homeland Energy and Goldsource Mines - about their coal quality:

HEG.TO: "up to 26,000 kJ/kg, 12-13% Ash, 53% FCC (fixed carbon content), 4% H2O, low sulphur"

GXS.V: "20,640 kJ/kg (8,874 Btu/lb) to 23,358 kJ/kg (10,042 Btu/lb) on a "dry" basis. The seam has raw ash values ranging from 11.4% to 18.7% and moisture contents from 24.8% to 37.9% on an "as received basis". Once air dried, the moisture contents drop significantly to as low as 4%."
(FCC was on average ~44%)

In the 3Q of 2008 HEG signed a contract to deliver coal at $88/tonne. The comparison above shows that the HEG coal is a bit better than the one of GXS, but the difference is not that great and besides GXS is still in a very early stage. So as an addition to my previous post, I would claim that $50/tonne for the GXS coal isn't unreasonable.

Now that that's out of the way we can look closer at Homeland Energy. This company is operational in South Africa with one producing mine, two mature projects and a couple of exploration properties. The exploration properties have not yet yielded significant results so I will not get into those. The position of this company is a bit similar to that of GXS, their shares have crashed from about $2 this summer to $0.2 today. The mcap is ~$30M.

The operational mine (Kendal) began deliveries of coal in October 2008 (as mentioned above) at a rate of about 500,000 tonnes a year. The production rate will be ramped up to about 1.8M tonnes and the EBITDA-result is expected at ~$15M in 2009 and as production increases, ~$20M in 2010/11. The resource at Kendal is today at 34M tonnes, the expansion-potential of the resource-base currently looks limited.

The mature projects (soon to be in production) are the Northfield and Eloff projects. Northfield is an old shut down very high-quality coal (coking coal) mine that has a tiny resource left, but will give a small profit for a few years, when operated (cash-costs to get it going are ~$1M).

What's really interesting in terms of resource is the Eloff project. It has an estimated resource of about 500M tonnes of coal with about the same quality as Kendal. It's projected to begin production in 2011/12 for a initial cost of ~$100M, but this would be a very large, very profitable operation that would be running for many years. Profit from Eloff is expected to end up above $32M EBITDA per year.

I should mention that HEG also has a holding of 42% of the Homeland Uranium corporaton. The cash-position of the company today is ~C$8M. What's a little worrying is that they have about $36M of liabilities, but most of these can be written off as the company starts making money (unrealized gains).

As I've mentioned in my post about PGM's, I'm not too optimistic about the situation in South Africa. However, the state-run energy company Eskom is mainly running on coal, so really the outlook for a SA coal miner might actually be quite good (unless the state confiscates the mines). Well, they haven't really confiscated anything yet as far as I know, but things could get crazier in this country, just bear that in mind when investing there. HEG is expecting a $46M EBIDTA-profit in 2011 and although I'm certainly no seer of coal price development, I think it's a fair estimate.

The uncertainty of the South African situation is a pretty large cloud in the sky, but I wouldn't worry too much. HEG has a comparatively very low valuation today and a large proven resource with production already bringing in plenty of money. In conclusion I would say that there's easy money to be made in this company, unless some very unfortunate development brings down coal prices heavily.