Recent developments at Mexivada Mining Corp. (MNV.V)

NEWS: Recent developments at Mexivada Mining Corp. (MNV.V)

By Dirk Masuch Oesterreich

Mexivada Mining. Corp. (MNV.V, MXVDF) was having a lot of action in its share price during the last two months. It went from an intraday low of less than 50 cents to an all-time high at 1.20 CDN and back to 0.70 CDN. It is today at 0.78. What’s behind all this?

Mexivada adopted a shareholder rights plan on November 6^th, which did not occur in response to a proposal to acquire control of the company. There was, however, at that time a note by Eric Hommelberg of www.golddrivers.com that seemingly raised investor awareness. Cannacord and TD Securities acted as buyers at these levels, giving a great sign of confidence in the company.

On November 8^th Mexivada reported that it has discovered a previously unknown porphyry molybdenum-rhenium-gold-silver system at its Moly Dome property in the Owyhee desert in the very first drillhole of phase 1 drilling on the property. They staked 70 new claims around the property to protect the target areas.

What follows is the detailed geological description taken from the press release at their website:

Molybdenite-pyrite veined quartz stockwork breccia was intersected in brecciated metasedimentary rocks, just below the thin soil cover, down to a depth of 515 feet (157 metres, "m"). Local pyrrhotite is present in these rocks. A silled granitic porphyry intrusive was intersected between 157 and 168 m, which contains local molybdenite. Metasedimentary rocks continue downhole to a depth of 204 m, and these rocks also contain varying amounts of quartz-molybdenite-pyrite stockwork mineralization. A retrograded quartz-sericite-pyrite ("QSP") altered granitic porphyry intrusive with quartz-molybdenite veining was intersected down to a depth of 216.5 m, where a 6.7 m wide quartz-chalcopyrite-molybdenite vein was intersected. Retrograded QSP altered granitic intrusive rocks with molybdenite-quartz stringers persisted down to 258 m, where a 3 m wide fault zone was encountered, perhaps at the contact with a large intrusive body. Hydrothermally altered granitic intrusive rocks with spottier, local quartz-molybdenite-pyrite veining were intersected between 259 m and 323 m, the bottom of the hole as of November 7th. Drilling continues, with an expected completion depth at 457 m.

COMMENT: Note that these are very preliminary results. Cores still have to be analyzed to know what they really found.

Mexivada’s stock price spiked on the news at 1.20 CDN and then fell off a cliff to 0.70 in the next days. What happened? MNV has almost 2 million warrants expiring at 0.75 CDN per share and another 350k warrants expiring at 0.50 CDN per share until Wednesday this week, november 28^th. I guess a lot of the recent selling was done by early investors who took the opportunity to lock in profits.

Technically, MNV now sits at its 200 dma support and seems to be in oversold territory. Before you decide to jump in on the stock consider this: The 2-year chart shows a clearly established uptrend. It also shows some rather wild swings around the 200 dma trendline. MNV has something for every taste. As an investor with a longer term outlook you will like the established uptrend. However, be prepared to have your resolve gut checked on the way up. And as a gunslinging speculator it is just those wild swings that you will love for providing you with entry and exit points. Whatever you do, be careful with this stock. Mexivada is not for the faint of heart.

On a more personal note, I had the chance to sit down with Rick Redfern, Mexivada’s CEO and President, in the bar of Elko’s Comfort Inn during the GSN fall field trip. Rick just flew in that night from Colorado. I found him to be a very straight forward, results oriented guy who surely knows his way around Nevada and Mexico. Being in quite a talkative mood he was also excellent company to spend time with.

Mexivada was mentioned on this blog for the first time in May this year. If you got in then you would have been sitting on more than a double during the recent action.

(Map generated from my database of stock exchange listed Nevada mining companies, see here.)

Nevada Gold Investor

Servicios HidroGIS

Peak Oil in a Nutshell

Peak Oil in a Nutshell

By Dirk Masuch Oesterreich

Summary: Peak Oil is a reality. It is, however, a tough call to predict when world oil supplies will start to run out.

(The original article was published on Dexterity News, a commodities information bulletin from Brookshire Raw Materials.)

The Peak Oil debate is heating up. Even mainstream news media like Business Week and The Economist lately ran pieces about this topic. The discussion is anything but free from emotion and polemics. A bit of theory on the concept of Peak Oil seems in order to gain perspective on the discussion.

The recent discussion goes back to 1956 when Shell research geologist M. King Hubbert predicted US oil production to peak around 1969 which was an outrageous statement to make at that time. US production in fact peaked in 1970, never to recover to that year’s production level, despite new discoveries made afterwards. At its core, Hubbert’s method is easy to understand.

Imagine a graph that plots cumulative production of a determined area on the horizontal axis, and the ratio of annual production to cumulative production on the vertical axis. A falling trend line appears that will at some point intersect with the horizontal axis at which point production will equal zero. This is quite similar to what Dr. Colin Campbell, one of the most prominent advocates of Peak Oil, calls “a simple theory that any beer drinker understands”: Once the glass is half empty depletion is fully under way.

In terms of Peak Oil depletion means that once an oil field / a producing area / a country / the world is on the down side of the approximately bell shaped production curve it is never to recover to older levels on a sustained basis, even, and this is a point that is hotly debated, if new discoveries are made. Peak Oil theory implies that the biggest oil fields and the easy to find oil were already found. It says that the world’s ability to produce oil depends only on the amount of the non producing fraction, which is the amount to still be found. The less there is the harder it is to find. Exploring for what is left will be more difficult and more costly. Cheap oil is a thing of the past.

Let’s look at an example to illustrate this point. World demand for crude oil is presently well over 80 million barrels a day. Assume the discovery of a new oil field is announced with a reserve estimate of 1 billion barrels. It would be a boon for the company that made the discovery. However, at present consumption this would add less than two weeks to world supply. Considering the long time frame it needs to take a newly discovered field to production a dilemma becomes obvious: we need to find new big oil fields and we need to find them fast.

It is a fact of nature that a finite resource at some point will show a production peak and deplete thereafter. Discussion of Peak Oil theory does not evolve around this point but mostly centers on two issues:

1. When is world oil production going to peak (or did it already)?

2. What will be the implications?

In its recently published study “Statistical Review of World Energy” (June 2007) BP says that the world has enough proven reserves to provide 40 years of consumption at current rates. This quickly prompted a comment from the Oil Depletion Analysis Center. The critical issue here is that BP’s scenario is based on officially reported figures. It is precisely here where the debate ignites. Oil companies, especially state oil companies, and government agencies (like the US Geological Survey) tend to paint an optimistic picture. The fact is that real reserve figures are hard to get. For example, official reserve figures of Kuwait and Saudi Arabia raised concerns about their reliability in the past.

Though the exact year of peak world oil production will probably only be obvious after it occurred it makes sense to assume that we are presently living in the period of peaking oil production. No need for panic here, this is not the end of the world. It is, however, a transitional period that will be recognized as having profound implications for our way of living and that we will have to adjust for sooner rather than later.

There is, of course, a lot of criticism of Peak Oil theory. One particular argument, for instance, says that it does not take into account Canada’s huge reserves of tar sands or other unconventional reserves like Colorado’s oil shales. Remember that Peak Oil theory is not a doomsday scenario. It is not predicting that the world is running out of oil soon. Instead, it is all about the production decline of conventional oil and consequently, the end of cheap oil. It is about rising oil and energy prices based on the recognition of a geological constraint. It is not so much about economics either. It is about a fact of nature.

Nevada Gold Investor

Servicios HidroGIS

The Location Risk in Mining Investing

The Location Risk in Mining Investing

By Dirk Masuch Oesterreich

(This article was just published at Dexterity News, a publication of Brookshire Raw Materials).

When choosing the right location for doing business mining is fundamentally different from other industries. Miners have to go to where the commodity is found. This often means building a mine in countries that are politically unstable, have poor infrastructure, and often have a certain level of corruption. Once construction begins or a mine is built, a miner is “extortionable” due to the very nature of the asset: immobility. Investors have to choose carefully where to put their money.

Location is among the biggest business risks for mining companies. However, the risk of doing business in under-developed countries must be balanced against potential rewards to gain perspective. With enough probabilities of adequate rewards going into the riskier parts of the world may very well be worth the risk.

There is one group of mining companies that can substantially reduce the location risk so that investors would mainly have to assess only geological and company specific risks. This group of companies is the highly speculative junior explorers. The reason is simple: they have no assets to lose. Furthermore, in the (rare) case of a major discovery the rewards can be tremendous. A good example is the success story of Aurelian Resources. Shareholders saw their stock go from 60 cents to a top of 40 dollars in a few months after last year’s discovery of the Fruta del Norte deposit in Ecuador.

There is another compelling reason for the juniors to make the move into risky areas. Typically, troubles for mining companies start at the development or production level. Problems mostly arise when a company is at a vulnerable time or when there are assets in place that are being mined. Once a certain amount of money is sunken into the ground, miners, out of necessity, mostly will arrange themselves with changing conditions rather than face the risk of loss of their upfront investments and future profits.

Junior miners avoid this kind of risk almost completely. As long as they don’t have any assets they can mostly go about their business of exploration undisturbed and unmolested, often being helped by local authorities and specialists. Once they find a mineral deposit is when they usually appear on the radar screen. The spot on the screen becomes bigger and bigger the more reserves are being proved. Meanwhile, profits for shareholders begin to materialize by way of an appreciating stock price. From an investment perspective it can be a difficult decision to stick with the company through the development stage, to wait (or hope) for a buyout, or to (partially) get out in order to protect the investment.

Now, does this mean that junior explorers are less risky investments than established producers? Of course not. However, a quick look at potential traps that can lock up your money invested in a producer may possibly make you reconsider the perceived safety of going with the producers:

1) change of the tax regime

2) challenges to land ownership status

3) delaying / denying of permits

4) strikes of the workforce

5) assault and robbery (you think that’s unlikely? Earlier this year the Cerro Colorado Mine in Sonora, Mexico, was robbed twice at gunpoint, the gold in form of dore bars was stolen)

6) lawsuits, renegotiations, legal action

7) NGO activities

8) environmental issues (perceived or real)

9) accidents and safety issues

10) government exclusions of prospective terrains

11) outright expropriation and confiscation

x y z) insert our own nightmare here

I don’t know about you but for me this is more risk than I am willing to take. Furthermore, all of these factors are completely out of your control. There is not much you can do other than to sell your shares or sit tight and hope for the best. The whole situation leaves you feel rather helpless all the while you have money tied up that could be better deployed elsewhere.

These are all reasons that make the junior explorers interesting because almost none of these risks apply to them. But don’t let me be mistaken here. An exploration company is among the ultimate speculations because there is exactly one way for your investment to pay off: the discovery of an economic deposit. This is, in one word, the geologic risk. And for most market participants this one risk factor is more than they are willing or allowed to take.

As a geologist the geologic risk of course does not prevent me from taking a look at this asset class. To the contrary, this is exactly what I take up as a challenge when I go over a new company. I am much more concerned about the quality and honesty of management and the credits and capabilities of the exploration team. However, evaluating the geological risk factor inevitably gets to the roots of a company and often allows conclusions about the people running the company. Being able to evaluate the geological risk is what makes you see through all the fog and hype built around most companies. It puts you, the investor, in control.

When you are ready to take on the high risk / high reward opportunities of junior mining investing at Servicios HidroGIS we offer you three ways to help you reduce risk and increase your possibilities of picking a winner.

In a few hours time we can take a look at the information on the website of the company that caught your interest and see if there are any red flags coming up. If the assets of the company are in Mexico we back it up by checking against our own database of maps and articles.

We can dig deeper and check for available geological information by means of a comprehensive internet research for relevant material (SEDAR, Geological Surveys, professional associations, scientific publications, geologic maps and articles, and wherever else the trail leads us) within two or three days.

And in case you need a reality check on the ground we can go there for you and take an on-site look at the property or the mine operation (within the Americas), including a full geological report supported by a complete photo documentation.

Mineral exploration is a risky business. However, for the astute investor the rewards can be outstanding. The best opportunities for high rewards are never without risk after all. Investing in junior exploration companies is all about balancing risk and reward which can be done to a great degree by getting a hold on the geological risk factor.

Nevada Gold Investor

Servicios HidroGIS