Monday, March 05, 2007

What does Eric Know?

Attached is yet another article on Molybdenum and how bullish Eric Sprott is on moly.

The article mentions Roca mines, Rok on venture. Roca should mine about 3 million pounds this year. At $25 US/lb, I calculate a 2007 eps of about $0.44 taking into consideration the most recent private placement that Roca offered. That private placement has given an excellent buy-in opportunity for investors. For each extra dollar/lb, add about 2 cent eps.

The private placement was to fund immediate construction for Phase II of the Roca's mine. This construction will take place simultaneously with mining, or perhaps during the built-in shut down periods. The current limitations of the Phase I mine is that because of ventilation concerns, new areas of the mine can not be prepared during mining, so it must shut down for 1-2 weeks after a section is mined out to get the next section ready. With the phase II construction, the next sections to be mined can be prepared at the same time mining is happening and it makes Roca a continuous producer.

For 2007 Roca is permitted to mine 150,000 tonnes, which at 1000 tonnes per day is 150 days. For 2008 Roca once permitting is in place, Roca can mine continuously. With the lower grade, I calculated about 4.8 million pounds and at $25/lb eps of about $0.65.

The previous two article explain the amazing fundamentals that support molybdenum demand to remain strong for many years, most likely stronger than most base metals.

Note: Roca is my largest portfolio holding.

Energy Guru Eric Sprott Wants More Molybdenum
March 05, 2007 01:00 PM EST

Canada’s legendary natural resource investor, Eric Sprott, has got moly fever! His eponymous management firm is now preparing a molybdenum participation fund, which will buy and sell physical molybdenum. The Sprott Molybdenum Participation Corp will also invest in companies that explore for, mine and process the metal.

Sound familiar? Uranium Participation Corp (TSX: U; Pinks: URPTF) debuted in late 2005, accumulating physical uranium for as low as US$20/pound range. Shares in the uranium fund nearly doubled in 2006 in tandem with the spot uranium price.

We interviewed Eric Sprott in October 2004, when he forecast the steep rise in uranium and offered his selection. As usual Sprott Asset Management had entered the uranium market through large, very speculative investments in complete unknowns. Since then, those unfamiliar penny stocks have begun boasting market capitalizations well above $1 billion. Examples include SXR Uranium One (TSX: SXR), which recently announced a $5 billion merger with UrAsia (TSX: UUU), and Paladin Resources (TSX: PDN), which once traded at for three cents, and is now capitalized around C$3 billion.

We followed many ‘Sprott stocks,’ some trading sub-$1/share in 2004, and which have recently traded above $12/share – such as Energy Metals (NYSE: EMU). At one point, the Sprott family of funds held more than 20 percent of the shares in uranium companies such as Energy Metals and Strathmore Minerals (TSX: STM). In late February, Jim Cramer recommended Energy Metals on his ‘Mad Money’ television show.

Last summer’s big question in Canada’s financial circles and in the media was: ‘What will be Eric Sprott’s next big thing?’ We concluded it would be molybdenum stocks and reported on that in late July. We interviewed Sprott Asset Management research associate Maria Smirnova and discussed how investing in molybdenum stocks might be another way to ride the energy bull.

While nickel, zinc and uranium prices have soared, molybdenum lagged behind in 2006. After a stellar 2005, during which moly prices jumped to a record $40, increased byproduct mining from copper producers brought the moly price back into the twenties.

But that may not last long. Changes in China’s export laws may help the molybdenum price firm up, according to Ken Reser, one of the early molybdenum mining commentators. In our email exchanges, Reser strongly believes the molybdenum price could go much higher. He’s backed Adanac Molybdenum Corp (TSX: AUA), a company which hopes to bring its large Ruby Creek deposit into production in 2009.

Early Sprott favorite, Blue Pearl Mining (TSX: BLE; Pinks: BLEFF), has since become the world’s fifth largest primary molybdenum producer and is the world’s largest publicly traded primary molybdenum company. The key word is “since.” After Eric Sprott began backing the company, Blue Pearl announced the acquisition of privately held Thompson Creek Metals Company for US$575 million. The acquisition brought the then-tiny company into the molybdenum mining spotlight. During 2007, the company plans to produce about 21 million pounds of molybdenum (gross value at Friday’s closing price: US$593 million). That’s about five percent of global molybdenum mining production!

Another Sprott favorite, Roca Mines (TSX: ROK; Pinks: ROCAF) hopes to commence molybdenum mining operations this spring as a small-scale producer in British Columbia. The company hopes to expand its molybdenum deposit by pouring in some of the cash flow from its mining production during the first year in hopes of building a much bigger moly mine.

Judging from Eric Sprott’s keen investment eye, the molybdenum price may soon be rising again. And, of course, so will the moly stocks his fund invests in. (We have no relationship with Sprott Asset Management.)

COPYRIGHT © 2007 by StockInterview, Inc. ALL RIGHTS RESERVED.

James Finch contributes to StockInterview.com and other publications. His focus on the uranium mining and nuclear fuel sector resulted in the widely popular “Investing in the Great Uranium Bull Market,” which is now available on http://www.stockinterview.com and on http://www.amazon.com

Taken from http://www.theconservativevoice.com/article/23251.html

4 comments :

Duzi Guide said...

I want to say I really enjoy your blog and just wanted to add a link. Sprott's holdings as of this last December, it may give some help to you or your readers.

http://www.secinfo.com/$/SEC/Filing.asp?T=16v21.ua_1xg

Deborah said...

Thanks Duzi.

1200thoughts said...

darn you're good!

another great call. Roca has nearly tripled since this posting.

Deborah said...

Thanks 1200thoughts. Someone mentioned this one and I loved the numbers when I started punching them.

I think it needs to do some catching up now. The numbers were so good there was lots of room for mistakes and problems, but there isn't so much room now and I think it will take back if they have problems.

Actually, the market makes no sense. When they announced a delays last December lots just dumped their shares, so even if it is grossly undervalued and has problems it takes back.