Funny-Looking
Rocks You Should
Never Throw Away
by Sean Brodrick
Last week, while the fog still blanketed Vancouver like the Devils own pajamas (cold and uncomfortable), I kept myself warm by running fast.
I was on my way to visit a copper company, searching for a new opportunity for you. And I had no time to waste. Ill tell you why in a moment.
But first let me tell you the story of another man, in another time, who was also running through a thick fog, searching for new opportunities.
The year was 1883, and he was a doctor by the name of William Howey.
The Canada Pacific Railway had sent him to look after its crews just north of a small lake in northern Ontario.
When a local magistrate, Andrew McNaughton, became lost in the bush in a heavy fog, Dr. Howey joined the rescue party. He found the lost man all right. But thats not all he found.
On the same spot, Dr. Howey picked up some funny-looking, copper-colored rocks. He sent samples to Alfred Selwyn, director of the Geological Survey of Canada, who quickly pronounced the samples worthless.
So the doctor threw them away.
But thats not the end of the story. A local contractor, Thomas Murray, picked up Dr. Howeys discarded rocks, and, unencumbered by scientific analysis, thought the rocks held promise. By February of 1884, he and his friends staked out the spot.
The resulting mine produced ore worth millions of dollars. Some of the worlds largest deposits of copper were discovered in the area. A new town, Sudbury, grew and prospered.
Just two years later, in 1885, prospector Thomas Frood staked out what became the Copper Cliff mine, the first to ship ore.
Another, by the Canadian Copper Company, started in 1886. Its president, S.J. Ritchie, had unsuccessfully mined iron ore at Coe Hill. So he turned his attention to Sudburys copper and bought the Copper Cliff Mine.
Today, its the International Nickel Company.
At right is a photo of an early form of transportation used by the company in Sudbury a rail car.
It got you from here to there, and you certainly didnt have to worry about running off the road!
The company experienced its first brush with its future greatness when, in 1887, during processing, it became clear there was a significant nickel content in its ore. At the time, there was no demand for nickel, and it had little value. That changed in a hurry!
What about Dr. Howey, the first person to discover anything of value in the area?
According to the history books, he developed an understandable contempt for geological experts.
Todays Copper Boom
The boom in copper prices today is probably the most dramatic of all metals booms, exceeding the booms in iron, gold, silver, and platinum.
Yesterday’s hot action in the metals is a case in point.
Gold surged $7, or about 1.4%, cleanly busting through the $500 barrier to $506 per ounce. That’s impressive.
Meanwhile, copper surged a whopping nine cents, or 4.3%, to $2.16 per pound. That’s even more impressive three times faster than gold’s $7 jump.
Strangely, everyone I talk to on Wall Street says the copper-mania is a fluke. They talk about this or that trader that got caught with short positions, or this or that anomaly thats about to end any day.
But the engineers and mining company execs, who are typically very cautious, dont see it that way. Even if prices settle down from their current peaks, their profit margins on copper are still huge. And they see no sign of prices settling down.
They see too much steadily rising demand pouring in from all sides not just from China, but also from traditional buyers in North America and elsewhere.
And so far theyve been right. The price of copper continues marching higher week after week, month after month, accelerating at each step of the way.
Whats fueling copper prices is demand from China.
According to Bloomberg Financial, last year, China consumed 2.9 million tons of the metal, a 9% increase year-over-year, and an all-time high. Chinas demand for copper in 2005 is expected to finish the year at 3.5 million tons. And only 1.9 million tons of that can be produced domestically.
This week, copper has come off its recent peak by a tad. But its still just a pause. The miners tell me the big, mean bull market in the metal is just beginning. I think theyre going to be right.
The Copper Company
The company I just visited is an early-stage operation with some very interesting twists.
Their biggest project was an existing copper mine until copper prices cratered below the mines production cost of 60 cents a pound in 1984.
Mind you, this was a working copper mine. When it shut down, the remaining in-situ resources were estimated to be over 5,083,178 tonnes, grading 1.84% copper. So, that works out to about 93,530 tonnes of mined copper, or 206,140,120 pounds. At $2 a pound, thats more than $400 million worth of copper.
Just to sweeten the pot, the ore body this mine is sitting on also has significant deposits of silver, cobalt, even gold.
Now, copper reserves in the ground are not the same thing as finished copper ready for industry. But factoring in the costs of mining the copper and other mineral reserves this company has, I figure the companys fair market value should be $48 million. Meanwhile, the company has a market cap of just $9 million.
Yes, thats right its valued at pennies on the dollar.
The mine was built in an inhospitable, frozen corner of British Columbia. In fact, originally, it was smothered by a glacier! But the world has moved on. Theres a nice road leading to the mine now. And you know whats not there anymore?
The glacier!
The glaciers are in full retreat, and the retreating ice has uncovered more copper. Plus, there are technological resources, including high-tech 3D imaging and mapping techniques, that have convinced the engineers of this company that the known copper mine is just the tip of the iceberg, if youll pardon a glacier pun.
In fact, some of the best, richest areas were never discovered by the original miners back in the 1980s.
So why isnt the company hauling out copper with abandon? Because they dont want to sell themselves cheap. They want to convince the big money that this copper mine is rich indeed so they can get a better price for it.
They dont have a lot of cash, but they dont spend a lot of cash. Im going to double back over all the numbers and study the market activity for this stock. Then, unless I turn up some kind of a hickey, Im going to recommend it early next week, probably Monday.
By the way, I left out the best part. Despite the rising cost of fuel, despite the rising pay of miners, the company expects it can cap its cost of mining the copper at 60 cents a pound the same as it was when the mine was going back in 1984.
How do they plan to do that? Technology has come a long way since then, and with the glacier gone, they can keep miners onsite 24/7.
Are they blowing smoke? I dont think so.
I think this is worth tucking away. I mean, a thousand shares will cost just $400.
Its not a slam-dunk. None of this stuff is. But with copper and other metals prices going ballistic, and with this companys valuation still reflecting the much lower, outdated copper pricing, I think the winds in our sails.
Why I Was Running So
Fast in the Cold Fog
The reason I was running so fast had nothing to do with the fog. It was because I also had back-to-back appointments to visit a few other amazing companies.
So let me give you some brief snapshots:
- A small-cap gold miner. The company has plenty of cash, a new mine coming online next year that will produce gold at under $200 an ounce, and plenty of other projects on its plate. It trades on both U.S. and Canadian exchanges, giving it lots of liquidity. Some bad news this year is already priced in, making this a bargain.
- Remember that tungsten company I told you about? The one with assets worth triple its market cap, valued at 31 cents on the dollar? Well, it turns out they have a whole nother mine that you get for free. It hasnt started up yet, but its even richer than the first one. I spoke to those guys in Vancouver, and the way they were choosing every word carefully made my spidey-senses tingle. I think something big is brewing, and I think its good. Ive just recommended it to my Red-Hot Canadian Small-Caps subscribers.
(By the way, the rock Im holding in the picture at the top is rich tungsten ore.)
Then I went to see a gold/silver/molybdenum explorer. This company has a great business model run by guys who have been rock-hounds for 20 years and have a good head for business. They know how to share risk as well as wealth, and theyve got some prospects that are rich. This is very early and Im not sure we want to buy it yet. But I learned more from these guys in an hour than you can learn from a book in a lifetime. (Ill tell you more about it next time.)
I think silver is especially exciting right now.
I know Larry used to frown on it because of the rise of digital photography, and he was right. Then.
But now, look! Silver has just busted though three critical barriers on its way to much higher prices, jumping ANOTHER 22 cents yesterday.
A little tidbit I picked up along the way: Did you know that you or me, or anyone can stake a claim in the British Columbia gold fields? It will cost you about $5, and you can do it online, but you have to work your claim or lose it. Hey, everyone! Lets go! The Great White North beckons!
Not now? Well, OK. Maybe another time.
But if youd like to join a limited number of other folks (max 500) in this copper company, along with some other very exciting investments, let me know before Sunday night. I plan to get the recommendation out Monday.
Call Art at 800-871-2374. If you have any questions about the service, hell answer em for you. Or check my latest report on the copper company on our webpage.
In addition, be sure to heed the warnings and recommendations Larry and Martin have been giving you.
Larrys e-mail from yesterday Gold Hits My $500 Target! What Next? is a good place to start. And our special edition of Money and Markets tomorrow morning is a good place to go from there.
Best wishes,
Sean
About MONEY AND MARKETS
MONEY AND MARKETS (MAM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Larry Edelson, Tony Sagami and other contributors. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MAM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MAM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Contributors include Marie Albin, John Burke, Beth Cain, Amber Dakar, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others.
2005 by Weiss Research, Inc. All rights reserved.
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