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Bottom-Fish Action
 Sun Jul 24, 2011
Kaiser Research Summary for Week of July 17-23, 2011
    Publisher: Kaiser Research Online
    Author: Copyright 2011 John A Kaiser


Kaiser Research Summary for Week of July 17-July 23, 2011

A Nation Wandering towards its Extinction

The resource sector had a decent week amidst signs that Washington would work out a compromise, whose essence appeared to be that the Democrats are willing to take the boots to retirees if the Republicans were willing to take some revenue from the top income earners. But on Friday the Republicans drew the line in the sand: absolutely not a nickel from rich people, just sock it to the not so rich. Meanwhile China, which is wearing $1.3 trillion in US debt, is getting agitated by American pushback over China's claim to parts of the South China Sea also claimed by China's neighbors. If America blows it with a default caused by 89 Tea Party representatives, will this cause China to quiver with fright over America's might? In Norway a Christian fundamentalist, anti-immigrant gun nut blows up a building Timothy McVeigh style and slaughters 90 plus young people with an assault weapon. I'm headed to the beach for a family vacation where I can chill in the fog.

Above Bottom-Fish Range Within Bottom-Fish Range Below Bottom-Fish Range Recently Closed Out
Updated this Week New 2 Year High New 2 Year Low New Bottom-Fish High New Bottom-Fish Low

Bottom-Fish Recommendations made from July 17, 2011 to July 23, 2011
Company Date
Price Recommendation Action Net
Gain New Status
Orbite VSPA Inc 7/18/2011 $3.12 Fair Absolute Spec Value Hold
$0 1,449 352% Fair Absolute Soec Value Hold at $3.12
Nevada Exploration Inc 7/19/2011 $0.19 Confirm BF XP Buy below $0.10
$0 10,000 90% BF XP Buy below $0.10
Rhyolite Resources Ltd 7/20/2011 $0.34 Confirm BF LP Buy $0.10-$0.19
$0 6,896 134% BF LP Buy $0.10-$0.19

New Comments
Volume High Low Close Chg Status
BE Resources Inc (BER-V) 31,882,000 $0.770 $0.080 $0.750 $0.650
Molycorp Inc (MCP-N) 23,273,300 $61.490 $50.680 $60.330 $8.070
Nevada Exploration Inc (NGE-V) 435,000 $0.110 $0.090 $0.105 ($0.005) BF XP Buy below $0.10
Orbite VSPA Inc (ORT.A-V)
8,312,900 $3.740 $3.060 $3.610 $0.320 Fair Absolute Spec Value Hold
Rhyolite Resources Ltd (RYE-V) 566,000 $0.440 $0.260 $0.440 $0.140 New BF LP Buy $0.10-$0.19
Spanish Mountain Gold Ltd (SPA-V)
614,100 $0.670 $0.610 $0.650 $0.030 Good Relative Spec Value Buy

Bottom-Fish Action Report for July 17-23, 2011
Orbite VSPA Inc (ORT.A-V: $3.12)

Spec Value Hunter Comment - July 18, 2011: Orbite raises $57.5 million through bought deal by Mackie Research

Orbite VSPA Inc is in excellent financial shape after completing a bought deal of 17,968,750 units at $3.20 through Mackie Research on July 7, 2011 to raise $57.5 million for its Grande-Vallee alumina clay project on Quebec's Gaspe Peninsula. The special warrants will be restricted from trading until Orbite files a prospectus, expected to be done before the end of August. The financing boosts fully diluted to 200,954,654 shares, implying a value of $627 million at a $3.12 stock price for the 100% owned alumina clay project for which an indicated resource of 1 billion tonnes of 23.13% Al2O3 at a cutoff grade of 18% was reported in March 2011. Since starting the pilot plant at Cap Chat in early February Orbite has produced metallurgical grade alumina (also known as "smelter grade alumina" or SGA) from the clay and announced that it can selectively extract scandium and gallium from the solution. On May 25 Orbite reached an important milestone when it reported that the National Institute of Scientific Research (INRS) had smelted aluminum from samples of metallurgical grade alumina produced at the Cap Chat pilot plant. INRS conducted tests involving the Hall-Heroult aluminum electrolysis process used for commercial production of aluminum from alumina. How well this works depends on the impurities present and grain size and shape characteristics (granulometry) of the alumina. The Bayer process used to produce alumina from bauxite ore has been refined to yield a standard form of alumina expected by the smelters; the Orbite process must not only cost effectively separate the Al2O3 from the rest of the clay, but it must precipitate the alumina in a form acceptable to the smelters. The INRS tests confirmed that Orbite was able to produce acceptable alumina. On June 21 Orbite reported that another research organization based in Norway called Sintef had produced a 2 kg ingot of aluminum through a 50 hour electrolysis of sample alumina from Cap Chat, which was a larger scale version of the electrolysis test conducted by INRS. The INRS and Sintef tests were important milestones for Orbite because they represent an advance indication of what Alouette will encounter when it tests sample alumina from Cap Chat and they provide clues on how to optimize the alumina production process.

This opitmization process is now underway, and will culminate with the startup of production runs up to 3 tpd in September which will produce sample alumina for Alouette to evaluate and to provide the basis for a feasibility study for a 1,750 tpd metallurgical grade alumina output commercial facility. The output rate is based on an input feed of 7,000 tpd of alumina clay with an average resource grade of 23.13% alumina, which is the maximum throughput allowed under a particular permitting regime in Quebec. The rules are such in Quebec that an operation can be expanded by cloning these production units. Orbite's Richard Boudreault hopes to have the feasibility study done by Q2 of 2012, with approval and a construction start occurring in Q3 of 2012. If the feasibility study is positive, financing in the "several hundred million dollars" materializes, and no unusual obstacles in the approval process arise, Orbite could be commissioning a commercial scale facility producing 1,750 tonnes of metallurgical grade alumina daily in Q3 of 2013, with full production achieved by the end of 2013. The financing proceeds will go towards converting the Cap Chat pilot plant into a commercial facility for the production of ultra pure alumina which Orbite believes it can turn into a viable business independent of the larger scale production of metallurgical grade alumina from Grande-Vallee. The conversion will start in Q1 of 2012 after Orbite has finished with the metallurgical grade alumina sample production runs.

At the recent AGM on June 27, 2011 Orbite approved a shareholder rights plan and a name change to Orbite Aluminae Inc. A TSX listing application has been made and will likely be achieved no later than regulatory approval of the prospectus that will clear the special warrant financing. While Orbite has demonstrated the technical ability to produce alumina from its Grande-Vallee alumina clay deposit that third party tests indicate should be acceptable as metallurgical alumina feed for Quebec's smelters, what we still need is confirmation that the smelters agree, which cannot happen until they have tested their own samples, and an indication of what it will cost Orbite to produce this alumina feed for the smelters. Since the independent tests were designed to simulate what the smelters would do internally, there is unlikely to be a negative surprise when they complete their tests by the end of 2011. The costs, however, will not be available until the engineers complete the feasibility study, which means Spec Value Hunters will have to wait until Q2 of 2012 to see what Orbite might be worth to the smelter industry. The company has filed patent applications for processes related to extracting other by-products from the alumina clay solutions such as hematite, an iron oxide that has industrial applications if it is of sufficient purity. If the market is to get a bounce between now and Q2 of 2012 not related to a pre-emptive move by the aluminum smelter industry, it will likely come from further clarity about the ability to recover scandium and gallium selectively from the alumina clay. Orbite is sufficiently financed to pursue its original business plan, which was to produce ultra high purity alumina for the speciality market, so if do we suffer a global economic downturn during the next 12 months that wipes out equity prices, it need not turn the business plan into roadkill. I have had Orbite as a Fair Absolute Spec Value Hold since March 2, 2011 when I converted the initial Good Relative Spec Value Buy at $0.69 made on November 11, 2010, and I am maintaining that recommendation in anticipation of a buyout related endgame in 2012.

Nevada Exploration Inc (NGE-V: $0.11)

Bottom-Fish Comment - July 19, 2011: NGE to raise $500,000 at $0.08 (no make that $750,000)

Nevada Exploration Inc has cancelled the remaining portion of the 15 million unit private placement at $0.08 first announced on February 23, 2011 and replaced it with a new one of 6,250,000 units at $0.08 with a half warrant at $0.12 for one year with a 30 day expiry acceleration clause if the stock manages to trade at $0.22 or higher for 20 consecutive days. Due to heavy demand NGE has now boosted the financing to $750,000 or 9,375,000 units at $0.08. NGE only closed 3,225,000 units of the earlier financing, of which brokers Bill Godson and Tom Seltzer took down 300,000 and 250,000 units respectively. This brings fully diluted to 141,821,725 shares, though as I mentioned in my Bottom-Fish Comment - June 24, 2011 there are 14,812,837 warrants exercisable at $0.10 that expire between August 20 and September 2, 2011. I own some of these and may exercise them and sell the stock during the next month to help the company raise some additional capital, but I am also participating in the current private placement to replace my expiring warrant exposure. NGE plans a quick closing of the current financing by the end of July and apparently has a Toronto group lined up to take down most of the private placement. Northgate is drilling the Awakening property north of Sleeper in Nevada and apparently has a good drill crew able to penetrate the overburden in a time and cost effective manner. Rather than relying on cheaper RC holes which may or may not stab the needle in the golden haystack at Awakening, Northgate is using oriented core to provide its geologists with structural clues as to where gold may have concentrated. Time is no longer on the side of the Northgate geologists who championed this project, because on July 12, 2011 Northage agreed to merge with Primero Mining Corp (P-T) on the basis of 1.5 Northgate for each Primero share. Primero was created in August 2010 when Mala Noche underwent a 20:1 rollback prior to acquiring the San Dimas silver mine from Goldcorp for $510 million. The merged company will be headed by Primero's CEO Joe Conway, former head of IAMGOLD, whose goal is to create value through M&A activity. After spending more than a year drawing up a definitive agreement with NGE and developing drill targets, Northgate is under the gun to deliver a discovery at Awakening before the merger closes. Apart from drilling hundreds of holes until getting lucky, the only pragmatic way to find a deposit under the Nevada gravels is to map the bedrock with a drill bit and reconstruct the structural history in the context of alteration trends in order to home in on the sweetspot where the golden needle is most likely to lie. Northgate should have enough holes into Awakening targets by mid-August to give a sense of whether a prize has come into sight, just in time for the market to digest a wall of warrants whose exercise would put NGE in good shape for the next year. Of course, NGE will end up in even better shape if the hydrochemistry program NGE is conducting on US Gold's Tonkin project ends up highlighting those gravel covered portions surrounding the main deposits which the Leask brothers always felt represented the best shot for a Cortez Hills or Pipeline style homerun, and drilling delivers such a discovery. In that event the juniors and majors will be lining up to option NGE's other prospects such as Kelly Basin and Bull Creek if Rob McEwen doesn't move quickly to absorb NGE as US Gold's exclusive tool for finding Nevada's missing gold endowment. I am confirming NGE as a bottom-fish buy below $0.10 pending confirmation that the private placement has closed.

Rhyolite Resources Ltd (RYE-V: $0.34)

Bottom-Fish Comment - July 20, 2011: Recommendation Strategy for Rhyolite Resources Ltd

Rhyolite Resources Ltd was recommended a low priority bottom-fish buy in the $0.20-$0.29 range on December 31, 2009 as part of the 2010 Bottom-Fish Edition. It was recommended as a bottom-fish due to its status as a well structured shell within the Quest Capital stable administered by Brian Bailey and Richard Graham who currently heads the company. These Quest shells typically end up with a good story and strong management that results in big price gains for bottom-fishers, but because of the associated pickiness these shells can linger on the bottom for a very long time, hence the "low" priority ranking. On April 8, 2011 Rhyolite split its stock on a 2:1 basis, as a result of which the recommendation was adjusted to a low priority bottom-fish buy in the $0.10-$0.19 range. Despite having fully diluted to 28,091,450 shares Rhyolite is a fairly illiquid stock that now trades in the $0.20-$0.30 range; about 20 million shares are stashed in "secure" hands. Who might become the driving force behind Rhyolite emerged In February 2010 when Rhyolite completed a pre-split private placement of 4 million units at $0.25 with 8 parties, two of whom were Jones Gable brokers John Gunther Senior and Junior with 400,000 units each, and Michael Murphy with 1 million units. The warrants at $0.32 pre-split were exercised in April 2011 so that on a post split basis the brokers own 1.6 million shares and Murphy owns 4 million shares. The Gunther-Murphy team were key drivers behind the success of Gleichen Resources Ltd, which was recommended a low priority bottom-fish buy in the $0.10-$0.19 range on December 24, 2008 as part of the 2009 Bottom-Fish Edition. Gleichen went on to acquire the Morelos gold project in Mexico from Teck and Goldcorp on which it is conducting a prefeasibility study with the objective of establishing a 5 million ounce open-pittable resource with a fairly high grade in the order of 3 g/t gold. Gleichen survives as Torex Gold Resources Inc (TXG-T), which has been a Spec Cycle Hold 100% recommendation since October 7, 2009. Murphy was instrumental in negotiating the Morelos deal and in securing funding for the hefty acquisition cost, but this story's destiny now lies in the hands of others. Murphy's current priority is Redzone Resources Ltd (REZ-T), which was structured on the CNSX exchange before listing on the TSX in June 2010. Redzone's flagship is the Lara copper project in Peru optioned 75% from Lara Exploration Ltd, but Murphy is on the lookout for a much bigger project. In other words, a major project for Rhyolite will come after Redzone has a major new focus, though in view of recent exploration results Lara might end up Redzone's primary focus, in which case Rhyolite jumps to the head of the priority queue.

Rhyolite went public on October 3, 2006 through a Canaccord IPO of 2,000,000 shares at $0.35 and an option on the Delta project in Alaska owned by Grayd Resource Corp. Rhyolite dropped Delta in February 2008 after spending $420,000, and focused its efforts on finding a farmout partner for the Paxson project it had staked in April 2007. Mike Basha, former exploration VP for Cornerstone Capital Resources Inc and current CEO of Aurion Resources Ltd, was brought on board as Rhyolite's exploration VP in January 2011. Paxson is located in Alaska at the southeastern end of the Tintina Gold Belt west of the White Gold district in the Yukon. The target is disseminated gold within metasediments similar to the White Gold and Koffee projects of Underworld and Kaminak on the Yukon side of the Tintina Gold Belt into which Placer drilled several holes in 2001 that intersected low grade mineralization. In fact, Paxson was originally called the White Gold project, but management changed the name to something more distinctive prior to Underworld's discovery hole in 2009 to the east in Yukon's White Gold district. He is the largest visible shareholder in Rhyolite, and while he is not on the board, it is safe to say that he has significant influence on Rhyolite's direction. For now CEO Richard Graham is managing an exploration program on the Paxson project on which a 1,500 m drill program began in early July 2011. Whether Rhyolite spends more of its $2.3 million working capital on Paxson will depend on assays expected in August, and on investor sentiment toward the "White Gold" area play to which Paxson can be viewed as a western, Alaska based outlier. The stock split was supposedly done to enhance liquidity, but the stock is so tightly held it has not traded much since the stock split. A better explanation is that the split was done to boost the size of the positions held by the "founders" in anticipation of dilution related to the acquisition of a substantial asset. Bottom-fishers should view Paxson as a shot at getting lucky through an exploration discovery at Paxson this summer which would boost the current $8-$10 million implied project value several-fold, and, failing success at Paxson, treat Rhyolite as a shot at seeing a deal done similar to Gleichen/Torex whichs ends up with a stock value in the $1-$2 range. Although trading slightly above the original recommended range, Rhyolite remains ideal for bottom-fishing, provided one is willing to absorb the timing risk.

Spanish Mountain Gold Ltd (SPA-V: $0.65)

Spec Value Hunter Comment - July 21, 2011: Spanish Mountain cashes up to complete PFS

Spanish Mountain Gold Ltd has completed a $20 million private placement consisting of 33,333,328 units at $0.60 which brings its fully diluted capitalization up to 223,270,828 shares. The proceeds will go towards completing a prefeasibility study on the 100% owned Spanish Mountain gold project in south central British Columbia which was the subject of a preliminary economic assessment (PEA) published on November 23, 2010. The PEA was the subject of Tracker 2010-18 published on November 28, 2010 in which I issued a Good Relative Spec Value Buy at $0.60 based on an after-tax net present value sensitivity analysis which projected a $4.85 price target at $2,000 gold and a 5% discount rate. At the time gold was at $1,378 per oz at which price the NPV worked out to $1.72 per share. I have re-run the sensitivity analysis using the same PEA parameters but applying the new 223 million fully diluted capitalization and a more conservative 10% discount rate. Last year I was hopeful that Ian Watson would avoid further dilution by getting some of the 33,709,339 warrants exercisable at $0.23-$0.42 between September 2012 and February 2013 exercised. These warrants would raise $11 million if fully exercised, which may not have been enough to get the PFS done by the end of 2011. Spec Value Hunters have not seen much profit during the past 8 months even though gold has traded above $1,600, though this disconnect between the gold uptrend and the trend in pre-production gold equities has afflicted the entire sector. More specific to Spanish Mountain, the junior had to clear two obstacles during 2011 while it in-fill drilled 13,000 m on the Main and North zones, conducted stepout drilling, and drilled 4,000 m on the Cedar Creek prospect adjoining the property. One was progress on the social license front, and the other was funding for the PFS. On March 17, 2011 Spanish Mountain signed a protocol agreement with the Williams Lake Indian Band which acknowledges respect by both sides for each other's goals and establishes that Spanish Mountain will provide "capacity support" for the WLIB so that the latter will not be out of pocket any expenses related to negotiating a benefits and impact agreement or getting trained to hold project related jobs. Getting a first nations group to the negotiating table is a key milestone, because it signals that the project is unlikely to be blocked simply for the sake of being blocked. Although dilutionary, the financing arranged by Ian Watson, who took down 5 million units himself, bringing his equity stake to 18,454,497 shares plus 12,903,640 warrants, represents the core funding group putting more of their own capital into this story at the highest stock price yet rather than rounding up new investors. With full warrant dilution Spanish Mountain would raise another $22 million at $0.23-$0.70 over the next couple years, which should be more than adequate to deliver a PFS by Q1 of 2012 and a BFS by Q1 of 2013.

In my after-tax NPV sensitivity analysis I have extended the fantasy gold price to $2,500 just to see what the project would be worth if the cost structure outlined in the PEA remains constant, but the price of gold spikes toward $3,000 in a repeat of 1980 when global confidence in the United States was under siege. If the debt ceiling crisis is not resolved, meaning that the American political process has become self-destructively dysfunctional, we will see a widespread rush into gold just as anybody who already owns gold cannot conceive of a reason to sell it for dollars, which includes reselling greenbacks for other currencies such as the renminbi, yen, euro, real or even Aussie and Canuck dollars. The result will be a massive upward move in the real price of gold against all currencies, not just an arithmetic adjustment to a currency decline. Such a move will likely be temporary, with a retracement to the $1,500-$2,000 range. When that happens putting deposits such as Spanish Mountain into production will no longer be clouded with uncertainty, meaning that investors will be comfortable plugging $1,600 gold into the DCF model, and perhaps using a 5% discount rate. At $1,600 gold the after tax NPV per share at 10% works out to $1.43, which is 120% above the current $0.65 stock price, and at a 5% discount rate it works out to $2.16 which represents a 232% gain. At $2,500 gold, which would represent a new all-time real high price for gold, the NPV would be $4.13 per share at 10% and $5.60 at 5%. If gold does undergo a massive speculative spike, many speculators will seek out gold equities rather than the gold ETF because there is considerably more leverage in a gold project whose revenue side of the equation is undergoing a big upwards revision while the cost structure remains constant. Right now the market is pricing Spanish Mountain as if the proper long term gold price will be $1,350 per ounce, which is why the stock has been such a disappointment during the past 8 months. But if the market undergoes a gestalt switch where the erosion of the US dollar's status as the world's reserve currency becomes common knowledge rather than an outlier lurking in the distant future, there will be a dramatic upwards repricing of equities such as Spanish Mountain. This is the calculated bet that Ian Watson and his associates made when they adopted Spanish Mountain in late 2009 and bankrolled advanced work, and judging by the modest market activity in the stock, it is a bet whose shrewdness has yet to catch on with a broader audience.

While it looks like Spanish Mountain is just a bet on a higher real gold price and successful de-risking of the PEA parameters, there is a chance to see a fundamental improvement in the resource size if stepout drilling is successful and infill drilling makes the geostatisticians less reluctant to connect the dots. If we were to double the tonnage at constant grade, the mine life would increase from 9 to 17 years and the NPV at 10% would jump from $1.43 to $2.65. The project had a 4.1 million ounce resource at 0.43 g/t gold before pit optimization kicked in. We would need success in stepout drilling to bring the grade back to that of the mining model; I point this out to show that the potential for better than expected gains is present. Spanish Mountain continues to be a Good Relative Spec Value Buy at $0.65 with a $1.40-$1.60 price target over the next 12 months if gold remains at current levels, and higher if circumstances trigger a rally that sees gold challenging $2,000. The downside risks are that gold sags below $1,200, the PFS significantly increases capital and operating costs (remember, a PEA has 35% error margins which typically swing to the wrong side at the PFS level), and upgrading to proven and probable reserve category further shrinks the resource. Metallurgy is an uncertainty that has dogged the Spanish Mountain project for a long time. It is interesting that in March 2011 metallurgist Morris Beattie, who has worked with Watson's Gallahad group, joined the board. Given that he owns a rather substantial position of 3,625,482 shares which he is now not at all free to sell, would he have done that if he had nagging doubts about the metallurgy?

BE Resources Inc (BER-V: $0.75)


Special Interest Comment - July 22, 2011: BE Resources reports rare earth results too good to be true

BE Resources Inc traded over 49 million shares and gained $0.66 to close at $0.74 on July 22, 2011 after releasing spectacular rare earth grades for its Warm Springs beryllium project in New Mexico. There are some serious red flags associated with this news release which prompt me to caution KRO members to stay away until we get further clarification and confirmation that a mistake such as a decimal off by two places has not been made. If the results are real and were correctly presented, not only do they rank among the highest REO grades over meaningful widths ever reported, but these grades are by far the highest ever reported for a rare earth system whose HREO content is running 20%-40% of the total rare earth oxide grade. So not only do we have fantastic high grades, but we have extraordinary high grades for what appears to be a zirconium silicate based system system such as New Mexico's Parajito deposit. The results included 58 ft of 9.12% TREO and 98 ft of 19.58% TREO in hole #3, 101 ft of 15.04% TREO in hole #19, 23 ft of 8.85% in hole #1 and 8 ft of 10.34% in hole #2. The results are reproduced below in the table excerpted from the news release BE filed on SEDAR.

The first red flag is that David Tognoni, BE's president and the person who signed off as the qualified person, has written a news release which seems to be oblivious to the spectacular nature of the results. It starts off declaring that holes #1, #2, #3 and #19 represent the last results for a program that started in September 2010 which included the previous result releases on December 2, 2010, March 29, 2011 and April 26, 2011. It then goes on to talk about how holes #5 and #10 were the most interesting in terms of beryllium. Then it provides the rare earth results table which does not include beryllium grades, nor does it provide a breakdown of the individual rare earth oxide grades for any of the holes. It mentions that true width is not known, that holes 1-3 were drilled on the periphery of a half mile diameter circular structure, and hole 19 was drilled on the main beryllium zone, which presumably is the area of #5 and #10. The news release does not include a drill plan or anything to indicate their location relative to prior results. Strangely, these holes are all missing from the drill plan the company has on its web site. BE was not able to get drill permits for the planned holes in the blue and orange colored areas, which explains the peculiar numbering system for the drill program. Except for hole 19, the mineralized intervals are fairly deep between 620-1736 ft in hole #3 and between 765-878 ft in #1 and #2. The news release does not indicate what angle the holes were drilled at.

Given that David Tognoni has been working at this project since 2001, with his share of regulatory permitting problems, it is very strange that in this moment of geological triumph there is no discussion of the minerals or the geological context, just a lame comment that "the company is in the process of examining these results more closely with a view to determining next steps". It really seems like Tognoni has no clue that he is reporting extraordinary results, which is hard to believe, because these results are over-limit and ALS Minerals would have had to run special assays which without question would have been communicated to Tognoni. Another red flag is that no effort is made to communicate that these grades have been verified.

Except for a burst of volume on Friday July 15 which took the stock from $0.06 to $0.10 on 2,563,605 shares, volume was muted Monday through Thursday last week, suggesting either that Tognoni was able to keep an incredible lid on this news, or he did not have reason to believe he was sitting on something special. In contrast to the paucity of data in this blockbuster new release, his April 26 new release contained detailed elemental assays in ppm for nearly half the periodic table which included peak and average grades for the reported intervals. I converted the REE ppm grades into REO % grades for each of holes #10, 11, 14, 15, 16, and 17 and came up with grades ranging from 0.032% TREO to 0.051% TREO and HREO percentages ranging from 26% to 46%. A weighted average for the combined 786 ft interval was 0.045% TREO with 38.6% HREO. These are really low grade results whose REO distribution is presented below. The peak grade works out to 0.103% TREO with 29.54% HREO.

As it turns out the average HREO percentage of the low grade holes is 38.6% while that of the best interval from hole #3 is 39.69% HREO. Assuming the distribution is the same and applying rare earth oxide prices as of July 21, 2011 to a 19.58% grade, we get a rock value of $61,364/t at FOB spot and $32,446/t at domestic spot. In so far that the market had reason to trust the reported results as accurate, the sharp price increase is justified, and we can expect the stock to run a lot higher during the coming weeks. But what is peculiar is the heavy volume which nearly equaled the 55.4 million shares fully diluted. Given the blockbuster nature of these results, one would have expected the shareholders to sit tight rather than start blowing out stock. It's as if the market knows the results are not real. KRO members should avoid BE Resources Inc until we see the results presented and confirmed in a professional and competent manner.

Molycorp Inc (MCP-N: $60.33)


Index Member Comment - July 22, 2011: Ecclestone uses Molycorp's Silmet acquisition to pump Ucore and Great Western

Chris Ecclestone of Hallgarten & Company has published on July 19, 2011 a detailed discussion about Molycorp's Silmet acquisition (Silmet - a key component for a global player) which includes his prescription that Molycorp would be wise to mount takeover bids for Ucore Rare Metals Inc and Great Western Minerals Group. Ecclestone is an articulate thinker who burdens his work with a narrative style redolent of Scar in the Lion King who declares "I am surrounded by idiots". Although he admits having been wrong several times about predicting an end to the rare earth "boomlet", he throws his lot in with the Wrong Way Hykawy story that the rare earth sector is a tempest in a teapot best served by small scale rare earth operations, preferably ones with high grade ore, though low grade American deposits such as Bokan apparently will do. Ecclestone's report would not be worth a second thought if his goal was simply to promote certain companies and their projects, but rather than simply cheering for his favorites he has adopted Hykawy's strategy of bashing the competition not on their lack of merits, but on the premise that they are too big for the tiny puddle that he believes the rare earth sector to be. Ecclestone has used Molycorp's Silmet acquisition as a platform to pump Ucore and Great Western, and heap scorn on the rest of the rare earth juniors by being afraid to single out examples of the sort of frivolous junior that in his view might have had its hopes dashed by Molycorp's Silmet acquisition. So rather than explicitly beating up on juniors that are not contenders in the race to solve the world's rare earth supply problem, which the media would ignore, he has deliberately crafted a misguided and ultimately harmful narrative in a manner that serves the interests of the shorts that have lined up against the leading non-Australian contenders such as Rare Element, Avalon and Quest, and in doing so fools the media into covering his Ucore and Great Western promotion.

Chris Ecclestone does do a good job describing Silmet. He, in my view correctly, deduces that the main objective behind Molycorp's Silmet acquisition is to secure a facility that is already permitted for the messy business of rare earth oxide separation and metal refining. He also correctly recognizes that Molycorp's Mountain Pass production profile is deficient in the heavy rare earths, something Molycorp has yet to acknowledge, but he goes on to make the absurd contention that Molycorp would solve this problem by taking over Ucore and its Bokan Mountain project in southern Alaska. The trouble with Ecclestone's prescription is that 1) the Bokan resource is small and low grade, 2) a metallurgical flow-sheet has yet to be established for the target minerals, and, 3) a PEA seems to be at least 18 more months down the road. As it now stands Bokan will be too little and too late to solve the supply problem of any major downstream processing operation and is in fact much better suited for small operations such as Great Western's Less Common Metals. In fact, it is strange that Ecclestone does not see that a marriage between Great Western and Ucore makes a lot more sense than Molycorp becoming their adoptive parent. While Molycorp could buy Ucore for chump change today, it is not yet clear that Bokan is worth anything. Ecclestone's affection for Ucore is strangely at odds with his contempt for rare earth juniors who hype the virtue of heavies, propagate pronouncements by politicians, and pump out rare earth price updates.

As an alternative or perhaps supplemental acquisition by Molycorp Ecclestone recommends Great Western and its Steenkampskraal project whose potential output pales against that which Lynas and Molycorp will produce when Mt Weld and Mountain Pass are fully on stream. Why would Molycorp want to deal with the headache of a South African permitting regime for a project with an even higher thorium content than Mountain Pass, and deal with the BEE component? He makes the incredible claim that Great Western's UK division Less Common Metals is "a major REO manufacturer" when in fact it is a boutique generating less than $15 million annually in revenues compared to the $400 million plus Neo Material Technologies Inc will generate in 2011. Ecclestone seems to be on a credibility suicide mission with comments like "HREE claimants...had their ego bubbles burst by the Silmet deal" (why would heavy rare earth supply contenders be upset by Molycorp's purchase of a rare earth processor?), and once Molycorp absorbs Ucore and Great Western "the vast bulk of other REE plays are going to be dead in the water" (has he bought into the demand destruction mantra under which the world only needs the incremental slivers of supply Bokan and Steenkampskraal can add?), and that moving Bokan swiftly into production would steal "the thunder of other players who might have ambitions to produce HREE in the relatively near-term". But perhaps the biggest credibility buster is his contention that the "real business is in downstream processing", which may have been the case before China initiated a consolidation of a polluting, hazardous and inefficient mining industry, but is no longer the case today in light of the elevated rare earth prices and demand growth projections.

In fact, Ecclestone sounds suspiciously like he has joined Patrick Wong and Gareth Hatch in their Innovation Metals Corp venture which is seeking funding for a "centralized strategic refinery". Patrick Wong, a former hedge fund manager with a passionate dislike for junior resource sector venture capitalism, has adopted a peculiar marketing pitch in which he urges potential investors to put their capital in downstream processing operations rather than potential rare earth producers because the latter, who are supposed to be the suppliers of mixed rare earth oxides for his proposed refinery, inevitably lead to disaster. Of course, there could always be exceptions such as Ucore and Great Western, though neither of these juniors have published any meaningful amount of technical information which would give the market comfort that Ucore and Great Western are destined to be those exceptions. That may yet happen, but the rate of progress at these two projects resembles more the movement in a slough than the swift current of a river. If indeed Ecclestone is serious about his contention that value within the rare earth supply chain resides almost exclusively in the downstream processing segment, then he is not helping the cause by recommending Molycorp take out the two supply contenders whose successful crossing of the production finish line would in his view make all other potential non-Chinese rare earth mines irrelevant. Unfortunately for Ecclestone's vision, Molycorp can afford to wait to take out these two juniors because even if some other entity scoops them, Molycorp is hardly losing an opportunity to secure a substantial long term supply of rare earths. It would be wonderful for the shareholders of Ucore and Great Western if Bokan and Steenkampskraal make it into production, but their annual output potential of less than 3,000 tonnes each make it inconsequential whether or not they succeed. That is why Ecclestone's opposite position amounts to a big thumbs down for the rare earth sector, a prognosis of comfort to the rare earth bears. (For a visual illustration, look at the brown sliver at the top of the above supply evolution chart and double its height; that is the difference the combined output of Bokan and Steenkampskraal will make to future global rare earth supply.)

New Bottom-Fish Highs
Volume High Low Close Chg Status
Cariboo Rose Resources Ltd (CRB-V) 55,500 $0.440 $0.340 $0.440 $0.040 New BF LP Buy $0.10-$0.19

Top 10 Bottom-Fish Volume Traders
Volume High Low Close Chg Status
Realm Energy Intl Corp (RLM-V) 8,245,400 $1.140 $0.980 $1.080 $0.060 BF MP Buy $0.30-$0.49
Prima Colombia Hardwood Inc (PCT-V) 6,573,400 $0.095 $0.075 $0.075 ($0.030) BF XP Buy below $0.10
B2Gold Corp (BTO-T) 6,516,900 $3.440 $3.270 $3.360 ($0.020) BF TP Buy $0.30-$0.49
Soltoro Ltd (SOL-V) 2,911,200 $1.360 $1.080 $1.320 $0.140 BF XP Buy below $0.10
Meritus Minerals Ltd (MER-V) 2,853,900 $0.080 $0.050 $0.065 $0.015 New BF XP Buy below $0.10
Ucore Rare Metals Inc (UCU-V)
2,553,800 $0.700 $0.580 $0.690 $0.100 BF Spec Cycle Sell 25% Hold 75%
Rare Earth Metals Inc (RA-V) 2,352,700 $0.330 $0.235 $0.315 $0.055 New BF MP Buy $0.30-$0.49
Avalon Rare Metals Inc (AVL-T)
2,166,700 $6.400 $5.810 $6.190 $0.090 Good Absolute Spec Value Buy
Silver Bear Resources Inc (SBR-T) 2,140,400 $1.230 $1.000 $1.220 $0.260 BF TP Buy $0.20-$0.29
Malbex Resources Inc (MBG-V) 2,006,800 $0.500 $0.435 $0.450 ($0.005) BF LP Buy $0.10-$0.19

Top 10 Bottom-Fish Value Traders
Value High Low Close Chg Status
B2Gold Corp (BTO-T) $21,952,041 $3.440 $3.270 $3.360 ($0.020) BF TP Buy $0.30-$0.49
Avalon Rare Metals Inc (AVL-T)
$13,224,306 $6.400 $5.810 $6.190 $0.090 Good Absolute Spec Value Buy
Sabina Gold & Silver Corp (SBB-T) $9,256,371 $6.420 $5.800 $6.040 ($0.100) BF TP Buy $0.30-$0.49
Realm Energy Intl Corp (RLM-V) $8,714,633 $1.140 $0.980 $1.080 $0.060 BF MP Buy $0.30-$0.49
Nevsun Resources Ltd (NSU-T) $8,154,387 $6.240 $5.790 $6.050 ($0.030) BF Spec Cycle Hold 100%
Strategic Metals Ltd (SMD-V) $5,320,182 $4.230 $3.930 $4.080 ($0.160) BF MP Buy $0.10-$0.19
Quest Rare Minerals Ltd (QRM-V)
$4,569,545 $5.990 $5.010 $5.790 $0.590 Good Relative Spec Value Buy
Rare Element Resources Ltd (RES-T)
$3,823,915 $10.680 $9.050 $10.520 $0.990 Good Relative Spec Value Buy
Soltoro Ltd (SOL-V) $3,652,418 $1.360 $1.080 $1.320 $0.140 BF XP Buy below $0.10
Orvana Minerals Corp (ORV-T) $3,590,840 $2.490 $2.300 $2.440 $0.130 BF TP Buy $0.50-$0.75

Top 10 Bottom-Fish Price Gainers
Volume High Low Close Chg Status
Rare Element Resources Ltd (RES-T)
386,800 $10.680 $9.050 $10.520 $0.990 Good Relative Spec Value Buy
Quest Rare Minerals Ltd (QRM-V)
834,800 $5.990 $5.010 $5.790 $0.590 Good Relative Spec Value Buy
Verde Potash PLC (NPK-V)
127,600 $7.990 $7.250 $7.950 $0.300 Good Absolute Spec Value Buy
Silver Bear Resources Inc (SBR-T) 2,140,400 $1.230 $1.000 $1.220 $0.260 BF TP Buy $0.20-$0.29
Uranerz Energy Corp (URZ-T) 553,200 $3.280 $2.740 $3.080 $0.200 BF MP Buy $0.50-$0.75
Champion Minerals Inc (CHM-T) 1,457,000 $1.840 $1.610 $1.830 $0.170 BF MP Buy $0.30-$0.49
Peregrine Diamonds Ltd (PGD-T)
718,200 $2.140 $1.910 $2.050 $0.150 Good Absolute Spec Value Buy
Gunpoint Exploration Ltd (GUN-V) 3,300 $1.090 $0.950 $1.090 $0.140 New BF TP Buy $0.76-$1.00
Soltoro Ltd (SOL-V) 2,911,200 $1.360 $1.080 $1.320 $0.140 BF XP Buy below $0.10
Rhyolite Resources Ltd (RYE-V) 566,000 $0.440 $0.260 $0.440 $0.140 New BF LP Buy $0.10-$0.19

Top 10 Bottom-Fish Price Percentage Gainers
Volume High Low Close Chg Status
Columbia Yukon Expl Inc (CYU-V) 186,600 $0.175 $0.110 $0.175 59% New BF MP Buy $0.20-$0.29
Rhyolite Resources Ltd (RYE-V) 566,000 $0.440 $0.260 $0.440 47% New BF LP Buy $0.10-$0.19
Meritus Minerals Ltd (MER-V) 2,853,900 $0.080 $0.050 $0.065 30% New BF XP Buy below $0.10
Silver Bear Resources Inc (SBR-T) 2,140,400 $1.230 $1.000 $1.220 27% BF TP Buy $0.20-$0.29
Playfair Mining Ltd (PLY-V) 864,600 $0.100 $0.080 $0.100 25% New BF MP Buy $0.20-$0.29
Rare Earth Metals Inc (RA-V) 2,352,700 $0.330 $0.235 $0.315 21% New BF MP Buy $0.30-$0.49
Ucore Rare Metals Inc (UCU-V)
2,553,800 $0.700 $0.580 $0.690 17% BF Spec Cycle Sell 25% Hold 75%
X-Terra Resources Corp (XT-V) 68,500 $0.500 $0.430 $0.500 16% New BF LP Buy $0.30-$0.49
Gunpoint Exploration Ltd (GUN-V) 3,300 $1.090 $0.950 $1.090 15% New BF TP Buy $0.76-$1.00
Estrella Gold Corp (EST-V) 173,200 $0.960 $0.790 $0.890 13% New BF TP Buy $0.76-$1.00

Top 10 Bottom-Fish Price Losers
Volume High Low Close Chg Status
Orko Silver Corp (OK-V) 961,100 $3.250 $2.900 $2.960 ($0.220) BF TP Buy $0.30-$0.49
Strategic Metals Ltd (SMD-V) 1,296,000 $4.230 $3.930 $4.080 ($0.160) BF MP Buy $0.10-$0.19
Torex Gold Resources Inc (TXG-T) 1,651,200 $2.180 $1.860 $1.880 ($0.140) BF Spec Cycle Hold 100%
Mega Precious Metals Inc (MGP-V) 1,673,800 $0.680 $0.560 $0.590 ($0.110) BF LP Buy $0.10-$0.19
Golden Queen Mining Co Ltd (GQM-T) 418,900 $3.240 $2.980 $3.040 ($0.110) BF MP Buy $0.30-$0.49
Sabina Gold & Silver Corp (SBB-T) 1,505,500 $6.420 $5.800 $6.040 ($0.100) BF TP Buy $0.30-$0.49
Salazar Resources Ltd (SRL-V) 39,900 $1.020 $0.840 $0.910 ($0.090) BF MP Buy $0.10-$0.19
Avnel Gold Mining Ltd (AVK-T) 274,900 $0.550 $0.455 $0.465 ($0.085) New BF MP Buy $0.10-$0.19
Reva Resources Corp (RVA-V) 13,300 $0.200 $0.175 $0.175 ($0.075) New BF LP Buy $0.20-$0.29
Golden Valley Mines Ltd (GZZ-V) 600,400 $0.500 $0.400 $0.405 ($0.075) BF XP Buy below $0.10

Top 10 Bottom-Fish Price Percentage Losers
Volume High Low Close Chg Status
Reva Resources Corp (RVA-V) 13,300 $0.200 $0.175 $0.175 -30% New BF LP Buy $0.20-$0.29
Prima Colombia Hardwood Inc (PCT-V) 6,573,400 $0.095 $0.075 $0.075 -29% BF XP Buy below $0.10
Quadro Resources Ltd (QRO-V) 1,400 $0.210 $0.210 $0.210 -19% New BF Spec Cycle Hold 100%
Firestone Ventures Inc (FV-V) 175,100 $0.090 $0.075 $0.075 -17% New BF LP Buy $0.10-$0.19
Calibre Mining Corp (CXB-V) 486,700 $0.150 $0.120 $0.125 -17% BF XP Buy below $0.10
Mega Precious Metals Inc (MGP-V) 1,673,800 $0.680 $0.560 $0.590 -16% BF LP Buy $0.10-$0.19
Golden Valley Mines Ltd (GZZ-V) 600,400 $0.500 $0.400 $0.405 -16% BF XP Buy below $0.10
Avnel Gold Mining Ltd (AVK-T) 274,900 $0.550 $0.455 $0.465 -15% New BF MP Buy $0.10-$0.19
Source Exploration Corp (SOP-V) 500,400 $0.360 $0.280 $0.280 -15% BF XP Buy below $0.10
Planet Exploration Inc (PXI-V) 128,000 $0.300 $0.280 $0.280 -15% BF MP Buy $0.10-$0.19

New Bottom-Fish Lows
Volume High Low Close Chg Status
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