This article appears in the latest edition of Investor's digest.
Pele Targets Established Ontario Mining Camps
By Michael Kachanovsky
The junior mining sector is typified by the potential for high rewards and a high level of risk for investors. Since most mineral-exploration projects do not result in the discovery of an economic deposit, prudent investors are best served by focusing on companies that have several high-quality projects under management. One such company that offers great leverage to the resource-bull market is Pele Mountain Resources Inc. (GEM-TSX/VEN $0.34, 416-368-7224, www.pelemountain.com). It holds five properties in some of the most prospective mining camps in Ontario. Pele Mountain’s five late-stage projects, any one of which could develop into a company-making discovery, provide built-in diversification through exposure to diamonds, gold, base metals and uranium prospects. Founder Alan Shefsky’s strategy to acquire properties in several prospective Ontario mining camps is now paying dividends, as Pele Mountain is achieving impressive exploration success, at a time when investors are again aggressively seeking exposure to resource companies. The challenge for a small outfit with many projects on the go is how to fund the expensive exploration work necessary to advance to a major discovery. The company focused on completing the early stage work at each property, necessary to establish the real potential for a resource deposit. It has attracted high-quality joint-venture partners willing to contribute funding for further exploration and development work in order to earn an interest in these projects. Three projects are fully funded by partners. The 100 per cent owned Highland Gold Project in the Wawa mineral belt, north of Lake Superior, is considered the flagship project. Several rounds of drilling have been completed on various targets, establishing near-surface gold-bearing zones of economic interest, with average grades above five grams per tonne. The company followed up with a 10,000-tonne test-mining initiative in 1999. The ability of the program to generate a profit, at a time when gold was trading for only US$300, illustrates the attractive economics of this project, especially since the value of gold is now twice as high. Pele Mountain then expanded its holdings through additional staking, increasing the total area controlled to over 4,000 hectares. There are no fewer than 16 mineral occurrences that have been mapped within the project boundaries. Additional drilling during the winter season this year encountered further intercepts of high-grade gold values (up to 12 grams per tonne over an interval of 3.2 metres), extending the limits of the known deposit, both laterally and at depth. The district is evolving into an area of interest for gold production, as other companies are also reporting exploration success nearby. There is a very good existing infrastructure serving the region, including milling facilities at Hemlo and Island Gold. The company plans to continue exploration in order to define a larger resource before proceeding to a feasibility study. One unexpected bonus to come from exploration at the Highland Project was the discovery of a diamond-bearing kimberlite in part of the core sample that was originally targeting further zones of gold deposits. This new discovery underlines the great potential of this region, which has been only sparsely explored, and the area could develop into an entirely new diamond camp. Wawa is the location of another nearby project targeting diamonds for the company. The Festival Diamond Project is a property package amounting to over 100-square kilometers along the Trans Canada Highway. Pele Mountain was one of the first companies to discover diamonds in this part of Canada, and its exploration revealed large zones of diamond mineralization hosted in xenolith-bearing rocks. A xenolith is a foreign rock fragment, some of which are formed deep within the semi-molten core of the earth, and subsequently carried to the surface as part of a magmatic eruption. The unique distribution of commercial-size and gem-quality diamonds near surface at the Festival Project suggests the possibility of favorable conditions for a low-cost diamond mine. This attracted the interest of Goldcorp Inc. to enter into a joint venture agreement with Pele Mountain in 2004, to earn up to a 60 per cent interest in the project. A bulk sampling program is currently underway to test some of the deposit zones that have been identified, and a technical study will follow. Diamonds are also the focus in the James Bay Lowlands, at the Attawapiskat Diamond Project and Alliance Diamond Project. In January 2005, Pele Mountain signed an option agreement with Trigon Exploration Canada Ltd, forming a joint venture that allowed Trigon to earn a 60 per cent interest in each project. These projects occur as part of the Superior Craton, a geological formation that is considered one of the most prospective diamond-exploration districts in the world, which has only been tested by limited exploration to date. A ground sampling and airborne geophysics program was completed to identify high-priority targets, and a followup drilling program is currently underway. This region is rapidly evolving into a premier diamond camp. The Victor open-pit diamond mine, operated by DeBeers on a nearby property, is scheduled to begin production in 2008. In the prolific Sudbury Basin mining camp, the company controls the Sudbury Offset Project. Base-metals deposits are targeted, occurring in breccias and offset dike structures that extend for several kilometers, similar to others that have generated some of the highest-grade discoveries in the region. Project geologists are reviewing encouraging data from the airborne surveying and surface sampling work that has been completed, in order to define targets for a future drill program. Pele Mountain also controls a large gold project near the city of Thunder Bay. The Ardeen Project targets a system of high-grade gold mineralization hosted in narrow veins that were encountered during a 10,000-metre drilling program. It is believed that a wider zone of lower-grade mineralization may occur across the property, which could amount to a very large resource potential. Ardeen is also of interest for base metals due to encouraging results from other nearby projects. In June 2005, the company signed option agreements with Maple Mining and East-West Resource Corp., allowing each to earn a 30 per cent interest in the project by funding additional work programs through to feasibility. With so much activity on the go, investors can expect a steady news flow from Pele Mountain. There are only about 52 million shares of the company currently outstanding, providing great leverage for investors, and the market capitalization, slightly above $20 million, can be considered very undervalued for a company that has such high-quality projects. Since any one of these projects has the potential to create enormous value for shareholders, the low market capitalization is a condition that may not persist for very long. The company has a clean balance sheet, with no debt and about $1.5 million in the treasury. In a sector that is known for spectacular gains, the company represents a lower-risk option for investment that could well blossom into the next big success story.
Michael Kachanovsky is a freelance writer who specializes in Junior mining stocks. He can be reached at mike*smartinvestment.ca.
c) Copyright 2006 MPL Communications Inc. Reproduced by permission of Investor’s Digest of Canada 133 Richmond St. W., Toronto, Ontario M5H 3M8
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