A little on the consolidation announced Monday.  Bottom line, it needed to be done in order for them to move forward on their mine financing.  In Formation Metals’ case, a share consolidation is a positive move done to open financing doors and put the company more in line with its mid-tier base metal producer colleagues.   It is more attractive to mine financiers to finance a company with 34 million shares out trading closer to $2.00, than one with 240 million shares out trading under 30 cents.   I applaud their decision.  Their new consolidated share price is expected to start trading on Friday morning, based on seven times the value of Thursday’s closing price.  Their symbol remains the same; FCO.TSX

Now the financing news.  A few major points I read into this:  1)  To start, basically this is a 70:30 debt to equity financing.  This is a favorable ratio in today’s market where many financiers appreciate the fact that resource stock prices are depressed and want as many shares as they can get their hands on.   2) they have structured the financing so that after two years, when they expect to be in production and generating cash flow, they can at their election, re-finance their debt under what is expected to be more favorable terms.  Management was insightful on this one.  The news release, however, is unclear on this point, and does not drive home this critical fact.  3)  At the end of the day it looks like they will still be diluted by close to 100%, which at first glance seems excessive.  However, this could generate on the order of  $275 million dollars that would come with the equity issuance, depending on what the shares and warrants will be priced at, and of course, help facilitate a revenue generating mine. They are not giving them away!  Considering that their current market capitalization is around $60 million, to issue 100% additional shares to generate $275 million puts things in better perspective. 4)  Lastly, the equity portion of this financing will not be set until the debt portion of the financing is completed, or in other words, until they have successfully raised $115 million for the cause.  I would expect that at that point their share price should reflect this  accomplishment and fewer shares may need to be issued to raise the remaining $45 million, which I also note, does not have any warrants attached to it.

I wonder what would have happened if they announced instead that a major mining company was going to fund the entire project for 50% of the cobalt mine.  I suspect the reaction would have been very positive.  Ironically, this is also equivalent to 100% dilution, (giving up 50% of your primary asset) yet in this case you would also give up 50% of all future earnings!  This is not the case here, yet the markets obviously expected something better.  I’m not sure what else management could have done but they are doing exactly what they said they would do – raise the money to build their mine.

I see than Jenning’s Capital Morning comment today still has a $1.20 target price.  That’s an $8.40 target post consolidation.  That at least is what one mining analyst is saying.  While some near term weakness pre/post consolidation is possible, I think the smart thing to do here is to look at 2010 and beyond knowing one owns the only pure cobalt mine in North America.

There has also been a lot of interest in the Raglan area since Jilin Jien Nickel, a major Chinese company, bid on Canadian Royalties, one of the Raglan area players. Many feel that the bid is undervalued because the project is already permitted and is expected to produce 26 million pounds of nickel and 39 million pounds of copper. Renewed interest in the Raglan area is undoubtedly a positive thing for other nickel exploration plays in the region. Minesite.com posted an article Nov. 9^th about how Canada’s Far North opens up for more investment opportunities from the Far East.

Above all, what the Canadian Royalties deal shows the world is how valuable resources in the Raglan region can be. The junior that I use to be engaged by in the Raglan area is Knight Resources (TSXV:KNP), a company in a joint venture nickel/copper project with Anglo American, one of the largest mining companies in the world.

Knight and Anglo have exploration drilling results with high-grade nickel over width like 36.43 metres of 2.66% nickel and 1.10% copper, and 8.80 metres of 4.73% nickel and 1.16% copper. The market paid no attention to announcements of results like this in late 2008 because it was right in the middle of the world financial storm. Granted a lot was going on at that time, but these are still some excellent results and should no longer be overlooked. Anglo’s $3.5 million summer field program has further invigorated the West Raglan Project when they served up a platter with multiple new drill targets that look good, and that’s in addition to the targets from 2008. With a pipeline of drill-ready targets, the Anglo/Knight technical team is recommending a $5M drill program in 2010.

The Chinese are watching nickel and copper in Northern Québec; if Knight and Anglo are going to the West Raglan area together in 2010, we should expect more interest in this valuable region. You can read more about Knight at www.knightresources.ca.

The only two ground rules I request are:

• BNN makes available past interviews of both of us on the air and our ability to show some of them and their results.
• The moderator be either Kim Parlee or Howard Green.

I await your response.

Peter Grandich

The more I look at metal prices and Bisha, the more I love Nevsun Resources. Given what metal prices have done of late, I think $3 or under is relatively cheap for NSU shares. Great Basin Gold remains quite cheap given the big bump up in gold prices.

Friday’s employment number is almost certainly IMHO the key to what the U.S. stock market does for the balance of the year. Any real indication that unemployment is easing should give the “Don’t Worry, Be Happy” crowd the ammunition to resume it’s march towards DJIA 10,500+. On the other hand (I never like to hedge but it’s the right choice at the moment), a surprise bump up in unemployment should remove whatever hot air remains under the market and lead to a sharper decline. Friday is key!

The floor I spoke of in gold at four digits is now in. Numerous so-called experts, money managers, investors, etc., were either outright bearish, turned bearish or became weak kneed and looked for a correction when gold was around $1,000. They never got a chance to get back in and now the market has gotten away from them. The natural tendency is to try and talk the gold price back so you can justify not chasing to get back in but that has not been a worthy approach for years in gold. The bears have a gigantic problem. Sorry but I won’t lose any sleep over the anti-gold getting their just dessert.

The U.S. Dollar continues to be long on anticipation of a bear market rally but way short on delivering on it. Again, it needs to get above 78 on the U.S. Dollar Index before we change even our short-term outlook.

I still hope to see oil at $85+ in hopes of getting short again. Natural gas is ho-hum.

I continue to like shorting U.S. Treasuries 10 and 30-yr maturities.

Off to Toronto for BNN tomorrow then Montreal Investment Conference.

Good news for NY Jets fans. They can’t lose this Sunday. Wish I could say the same for NY Giants.

Yankees clinch World Series tonight!

A story that I have written about before is Timmins Gold and its San Francisco mine in Mexico. Timmins Gold is ramping up in hopes of full production before the end of 2009.  The company has begun the leach process and now has gold in the leach fluids. The next step will be to extract the gold using the gold plant on site.  This is planned for the next few weeks. Next year Timmins Gold can be producing between 80,000 and 100,000 ounces of gold at a cash cost of approximately $400 per ounce. The company has been drilling around the current pit and should also have some exploration results before the end of this year.

Timmins’ expansion plan consists of expanding the current reserve and lifespan of the San Francisco Mine, advance its other exploration projects and to make strategic acquisitions all utilizing future cash flow and not by dilution. The recent deal with Sprott was a watershed event IMHO. I’m of course bias due to my working relationship but I feel with the fundamentals finally firing on all cylinders, gold’s big break-out, and the chart on TMM suggesting a close above $.88 could be a break out for the stock, most speculators need to consider the company ASAP.

I am pleased to have been engaged by Silver Quest Resources. Silver Quest and it’s predecessors have a long history in the mining industry as one of the first junior mining companies to list on the Venture Exchange.  Silver Quest is an exploration company filling a niche in British Columbia, Yukon, and Ontario by advancing and developing silver and gold resources.  I like this company for three main reasons.  The company’s president, Randy Turner, is committed to the success of the company, as proven by his more than 15 years of involvement in various roles.  Second and third, I like the two main assets, the Capoose –Silver Trend property and the Davidson Property, both silver and gold properties with vast upside potential located in central BC.
Great Leadership
Mr. Randy Turner, the new President and CEO of Silver Quest, is a skilled and qualified professional geologist with over thirty-eight years of mineral exploration, business and financing experience to draw from.   Mr. Turner has spent the majority of his career working for Canadian mineral companies.  As president of Winspear Diamonds Inc., Mr. Turner guided the company from the discovery of the Snap Lake diamond deposit in northern Canada through its sale to De Beers Mining for C$305 million.
Prior to his position at Winspear, Mr. Turner was president of Trimin Resources Ltd. where he was involved in the development and sale of the McIlvenna Bay copper/zinc deposit in Saskatchewan.  Mr. Turner also spent many years working on property acquisitions and joint ventures for Esso Minerals in Canada and AGIP Mining in the US and Australia.  Mr. Turner’s knowledge, contacts and experience in the exploration industry are an invaluable asset to Silver Quest, and one of the reasons, I believe, that this company is truly one to watch as they have great potential knocking at their door.
BC Properties
Silver Quest’s main area of exploration is Central British Columbia, approximately 120 kilometres southwest of Vanderhoof.  The company’s three main assets, the Capoose-Silver Trend, the Davidson and the 3T’s properties are all located within this region.  Although I won’t go into too much detail at this time on the 3T’s property, it is worth mentioning that the property already has NI 43-101 inferred resources of 2,356,937 ounces of silver and 148,100 ounces of gold.  Management has also informed me that 3T’s should be the site of a winter drill program early in 2010 with the goal of expanding the known gold and silver resources.

BC Property location map

Capoose – Silver Trend
The Capoose-Silver Trend property is the Company’s flagship project.  Silver Quest has put together a land package totalling over 14,000 ha surrounding a historical mineral resource of 32.66 million ounces of silver and 308,500 ounces of gold.  To-date, 112 drill holes have defined three mineralized zones which remain open in all directions and at depth.  Also of significant interest is a five kilometre long silver-gold-copper-lead-zinc soil geochemical anomaly with multiple high priority targets that are defined and drill ready, but currently untested.  The five kilometre long mineralized trend encompasses the historical resource and trends in a north-easterly direction.  At the south end of the Capoose-Silver Trend land holdings there are multiple mineralized showings that need to be further explored; these include the Fawn, Buck and Rut mineral occurrences.
Silver Quest’s recently completed drill program included 1,692 m spread across 13 diamond drill holes.  The focus of the program was to test the extensions of the south end of zones one and two, as well as to test the area between the two zones.  Silver Quest’s concept is that the current three zones are actually connected creating one large disseminated gold and silver deposit.  Last year’s program included drill hole D-08-91 which successfully connected zones one and two at their north ends and yielded 240 m of 45.5 g/t silver and 0.76 g/t gold.  Silver Quest has only received assay results from the first hole of this years program, D-09-100, which was drilled at the south end of zone one and appears to expand mineralization to the south.  Two areas of significant mineralization were intersected in this hole; an upper zone of 16 m grading 67.9 g/t silver and 0.26 g/t gold, and a lower zone of 30 m grading 23.1 g/t silver and 1.99 g/t gold, with a 9 m higher grade zone within the interval of 61.8 g/t silver and 4.72 g/t gold.  These results are extremely encouraging and I look forward to seeing further high-grade results from the remaining twelve drill holes completed this year.  I also anticipate an NI 43-101 resource calculation on the Capoose-Silver Trend property by the second quarter of 2010.

Capoose-Silver Trend drill hole location map and estimated zones of mineralization

Davidson Property
Silver Quest holds 100% interest in the Davidson property, located 10 kilometres west of the Capoose-Silver Trend property.  The Davidson Property has been optioned to Richfield Ventures, which included Davidson in a larger land package called the” Blackwater Project”.  Richfield has completed 15 holes totalling more than 2,450 m this year.  The majority of these holes have been collared on Silver Quest’s Davidson property and have confirmed and expanded historical mineralization in three mineral zones.  Richfield believes the area may contain a bulk tonnage gold deposit.  The best hole to date on the Davidson property was a Silver Quest hole drilled in 2005, DAV-05-02, that assayed 3.4 g/t silver and 1.43 g/t gold over 140.5 m.  Richfield has recovered many intersections that have similar values of gold and silver over long intervals including BW 48 which returned 148 m of 5.0 g/t silver and 1.26 g/t gold.  Richfield is lead by a group of experienced and knowledgeable individuals.  The group is well financed and plans on completing the earn-in option on the Davidson property towards the middle of 2010.  It is expected that Silver Quest will retain a 40% interest in this property; a significant amount for the upside potential, but a reasonable amount to be able to fund their portion of further exploration while also being able to advance their flagship project, the Capoose-Silver Trend Project.  I look forward to the release of the results from the remaining four drill holes, and hope to see a resource calculation released prior to next summer.

Drill hole location map from Richfield.  Davidson property is above the blue line

Additional Properties
In addition to the Company’s BC projects, Silver Quest has a package of early-stage projects located in the booming White Gold Area of the Yukon and the Thunder Bay Region of Ontario, creating an in-depth pipeline of projects for advancement.  At the top of the list is the Boulevard project recently optioned from Kiska Metals and Northgate Minerals.  A new gold discovery was made last year in the trenches on Boulevard.  The discovery trench, TRV0801 returned 7.04 grams per tonne (g/t) gold over 6.0 metres.  A second trench, TRBV0802 returned 6.43 g/t gold over 2.0 metres.  The Boulevard project has been soil sampled, trenched and drilled over the past three years.  Silver Quest completed an auger soil sampling program this year to better define the targets to be drill tested next season.

Bottom line
Silver Quest is a company in all the right geographical locations, building and defining resources with a pipeline of strong exploration properties to deliver upside potential. The quality of Silver Quest’s Projects, and the added value of an experienced management team and board, makes this worthy of consideration for most speculators portfolios.

With this in mind, I updated the model portfolio this morning.

In regards to some clients of Grandich Publications:

Formation Capital (FCO-TSX) is so close to finalizing their mine developing package one could taste it. Stay tuned.

Sunridge Gold (SGC-TSX-V) management tells me they’re quite please with their on-going exploration program. The $.60 area appears to be a level those not yet believers can become one at an undervalued entry point.

Timmins Gold (TMM-TSX-V) is perhaps one of the most undervalued companies on my entire list.

Gee, gold options expired today and what do you know gold fell $30+ the last three days. What a coincidence. I suspect we’ll see a bounce in gold followed by some selling to see if the bears can finally do some real damage. Based on their track record up until now, I wouldn’t break into a sweat if you’re long term bullish like me.

The U.S. Dollar is once again trying to get some sort of a counter-trend rally going but needs to get a close above 78 on the U.S. Dollar Index to do so. Even if it does, any rally looks like it should be capped below 84.

I remain neutral on oil and screaming bearish on 10yr. and higher U.S. Treasuries.

I’m going to put a buy again on NSU as this sharp correction from $3.40 just last week seems to have been enough of a correction. I paid up to $2.60 today and will use that as a buy limit.

I’m adding a new recommendation to my model portfolio. Buy East Asia Minerals (EAS-TSX-V $1.78) up to $1.85

Keep a $1.55 buy limit on KMK until further notice. There’s a lot more to this situation than meets the eye so be careful of what you assume is real information from people who may be playing with one or two hands tied behind their backs.

I’ve been speculating that KMK is a takeover target. The recent entry of a Chinese mining company as the second large Chinese company to hold a significant stake in KMK, IMHO has set off a ticking clock for either them or another party or parties to make a bid for KMK. This news today was the tip off as far as I’m concerned. I believe they’re posturing to make a bid. The original large shareholder can not afford IMHO to wait and must be preemptive.

I’m raising the buy limit on KMK to $1.55. Please remember, one must be prepared to lose part or all their capital when speculating/gambling.