SEATTLE – That small Quebec junior exploration company run by an HMO deal maker? The one no Toronto banker wanted to touch 15 months ago?
Harry Miller’s Clifton Star Resources (TSX: V.CFO, Stock Forum) might find itself the feather, or star, in joint-venture partner and bulk-tonnage doyenne Osisko Mining’s (TSX: T.OSK, Stock Forum) market cap.
“We could become a takeover target,” Mr. Miller tells me from his Seattle-area home. “We have run all sorts of scenarios.”
This is the value proposition for Ticker Trax and Stockhouse readers: How to turn a profit on a Canadian mining stock that has risen to near- $200 million of market worth from $20 million 15 months ago.
First thing, kill all the bankers (Shakespeare) who declined to support Harry Miller, an industrial engineer with no mining mettle on his belt buckle. Next, make a case that one of the Canada stock market’s top gainers this year still has another $200 million to $300 million of market cap left in it. Or more.
So. Harry Miller: HMO specialist with a homegrown degree in prospecting Quebec gold. Harry Miller: 76-year-old financier who fashioned successful medical organizations in Florida and Puerto Rico.
Harry Miller: Lives in Bellevue, Washington, but was born in Canada.
“When Harry came here (to Toronto in early 2009), no one cared about a $25 million (market cap) company,” geologist and executive John Burzynski of Clifton Star Resources’ joint-venture driller Osisko Mining told me the other day.
Mr. Harry Miller: I first met him via an introduction from investor Laura Stein in January 2009. At the time, there was little to connect the dots between Clifton Star’s Duparquet gold project’s high-grade veins and Osisko’s monstrous Malartic Gold Project some 90 minutes’ drive on a paved road. I confess as a writer and as an investor not “getting it” in terms of Laura’s value proposition for Harry’s company’s shares.
In the stars
In the 60 weeks or so since then, Clifton Star’s Canadian-traded shares have risen to a market worth of $185 million from $20 million. Osisko, whose company – not counting debt -- is worth 15 times the market value of Clifton Star, is on paper agreeing to spend $70 million to drill holes (and explore) Duparquet.
For its part, Osisko has become a monstrous winner in all categories. Osisko transformed into that doyenne of Canada’s stock market and has fortified its coffers with as much as $1.2 billion Canadian in cash and project equity.
Osisko has moved a town, built a hospital and a school or two, put together a recreation center and an entire neighborhood. It has assembled, ahead of schedule thus far, an open-pit operation, including a mill, that will be processing 55,000 tons of ore daily at the get-go.
Osisko’s executives are looking for at least a 12-year mine life for Canadian Malartic: average output 630,000 gold ounces yearly starting as soon as April or May 2011.
Osisko and Clifton Star’s joint venture for developing Clifton Star’s deposits and sizing up Clifton Star’s inferred resource (bulk tonnage) along the Beattie-Donchester porphyry came together in November 2010.
Harry Miller tells me Osisko’s drilling of the joint-venture 120,000 meters is already under way and will go a way toward estimating the width of mineralized zones on Clifton Star’s properties. “If you make a comparison of the Canadian Malartic for Osisko, and Duparquet for us, you will see we have a long way to go to reach the global resource that Osisko has in terms of ounces. Or do we?”
On Osisko’s end: “We’ll know if we are wrong,” Osisko’s John Burzynski tells me about the scope of Duparquet’s deposit, “far long before we know we are right.”
Dot to dot
Connecting the dots between OSK and CFO is what kicks it in for bankers, miners, geologists, investors and fund managers, including early Clifton Star backer Paul Zweng of the Resource Venture Advisors Fund in Hawaii. (Please see Thom Calandra photo of Paul Zweng, at center.)
Some landscape: Clifton Star’s project is in the historic layout of the province’s Beattie, Donchester and Duquesne gold mines. Those mines and what Clifton Star calls its Beattie-Donchester Project all lie along the Porcupine-Destor fault in the Abitibi belt in Ontario and Quebec. Osisko’s Canadian Malartic property is a straight-shot drive down the road from Duparquet in tax-friendly Québec.
“Look at it,” says Mr. Zweng, a Stanford University-trained geologist who runs his hedge fund with a California partner. “There are more than 80 million ounces of gold from this belt. Most of it came from relatively narrow quartz lodes starting in the 1930s.”
Paul Zweng understood the geology of the gold deposits of western Quebec after studying the Camflo gold mine, which is located near the Canadian Malartic mine. He did this as part of his doctoral dissertation at Stanford University. “I found that the ores at Camflo were virtually identical to those at the Canadian Malartic. I wanted to find a twin,” he says.
Most of Paul Zweng’s leads came up “empty” until, he says, he met Laura Stein in February 2009. Laura, a New Jersey investor, is consistent. She was then and is now a steadfast backer of Clifton Star.
Paul, enticed by Laura, met with Clifton Star’s CEO and chairman, Mr. Miller. Mr. Zweng went to see Duparquet in June 2009. After logging a few hundred meters of drill core, Paul Zweng says he was “astonished to find the rocks at Clifton Star were dead ringers for those at Camflo and the Malartic.”
A lot of the core surrounding Duparquet’s lodes had never been sampled or analyzed. The reason is perhaps similar to themes swirling around other legacy mining districts that have all but given up the ghost and are a cental part of our Ticker Trax reporting. To wit: mines on the Abitibi belt extracted gold from narrow veins that dipped nearly vertically. Thus, mine operators were not able to drill the entire ore body “to determine how much gold was present before sinking the shaft,” Mr. Zweng notes about the region.
Barrick, Newmont (NEM), Anglogold Ashanti, Kinross and other large miners “shunned the Abitibi gold belt,” Paul Zweng says.
“You see, few on Bay Street and Wall Street (the banks) had any idea of the full potential of Clifton Star’s deposits,” says Mr. (or shall we say Dr.) Zweng, who with a hedge fund partner began purchasing Clifton Star shares in mid-2009 or so. (OK, so maybe we don’t kill all the bankers who did not have a clue.)
If Harry Miller, as he tells me this week, is in the ballpark when he says Osisko’s 50 percent earn-in stake in CFO’s properties is worth about $1 a share to Osisko’s market worth, what does that make Clifton Star worth? Our Ticker Trax math says $500 million – or 1.5 times more than CFO shares are worth now.
Mr. Miller in Seattle gives much credit to Osisko founder Robert Wares, who examined the geology of the Canadian Malartic mine in 2006. Mr. Wares discovered that low-grade rock surrounded high-grade lodes that already were mined. Bob Wares directed an exploration program at Canadian Malartic that outlined a global resource of about 12 million gold ounces at a 0.34 gram per metric ton cut-off grade.
Harry Miller and his backers, including loquacious Laura Stein and inquiring Dr. Zweng, were fortunate to have purchased shares of CFO early. Exploration companies with gold projects in Quebec in mid-2009 were trading at $100 to $200 per ounce (per share) in terms of their gold resource (in all categories). Clifton back then was trading at $13 per ounce per fully diluted share
Dr. Zweng goes one step greater than $500 million on CFO’s market value. If the drilling were to show 10 million ounces of gold at Duparquet, and if inquiring investors were to grant Clifton Star $125 per ounce for its half of that gold, Clifton Star’s value could be in the ballpark of $625 million US.
That’s $17.75 Canadian per CFO share. “In nine months we’ll have a pretty good idea if the ounces are likely to be there or not,” he says. And hey, we have not even addressed Harry Miller’s “ takeout target” scenario.
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Please see tickertrax.com to learn more about this wealth service and its 12 Planetary Prospects. Also, see its breakout feature examinations of several Colombia gold and copper prospectors. One of those 12 Prospects, Colombian Mines (TSX: V.CMJ, Stock Forum), is in breakout mode – up 20 percent March 17. Another company we follow in Ticker Trax, Focus Ventures of Peru (FCV), also is activeWednesday– a week or so ahead of drill results. Subscribers, please click here for password-secure Ticker Trax.
HOLDINGS: Thom’s holdings are listed for all Stockhouse members at www.Stockhouse.com under the “portfolio setting” for user TCALANDRA. It is public and free to view. He and his family own recently minted gold and silver coins and shares of a number of public and two private companies: Ivanhoe Nickel & Platinum in Africa and an Internet company called Mobyling. Thom does not own Osisko or Clifton Star. He does not own Focus Ventures. Thom does own each of the 12 Planetary Prospects in Ticker Trax.
THOM CALANDRA of Ticker Trax helps his audience find value in a quagmire of investment choices. Thom is the bozo who co-founded CBS MarketWatch and MarketWatch.com. As the voice of Thom Calandra's StockWatch and The Calandra Report, Thom pegged $300-ounce gold as a long-term hold.
(All photos by Thom Calandra. Thom owns shares of each of the 12 Planetary Prospects in subscriber service Ticker Trax. Thom’s personal holdings are available for all to see on Stockhouse, the Canada publishing company.)
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