An Underappreciated Silver Explorer: Cream Minerals
- Posted by Robert Sinn
- on January 30th, 2012
I have been involved in analyzing and investing in junior resource companies for over eight years. Over the next few months I intend to highlight a few promising companies that may offer attractive investment opportunities should the precious metals bull market continue. Several months ago I wrote a piece recounting my investment in Copper Fox Metals, I plan to update this story in the near future. However, today I would like to focus on an underappreciated silver explorer called Cream Minerals.
Cream’s prized resource is its 100% wholly owned Nuevo Milenio mine – a silver-gold property in Nayarit State, Mexico. Nuevo Milenio is comprised of 2,560 Ha’s of which Cream has only explored 600 Ha’s. Low metal prices that persisted for many years and a lack of significant funding limited exploration work at Nuevo Milenio. Despite these and other obstacles Fred Holcapek, P.Eng, Cream’s head geologist and German Francisco, Geologist, persisted and in December 2008 defined a NI 43-101 Compliant Inferred Mineral Resource of 54.6 million ounces silver equivalent, or 41 million ounces silver and 271,500 ounces gold. The resource estimate assumed a cut-off grade of 131 g/t silver equivalent highlighting average grades of 251 g/t silver and 1.66 g/t gold. At the time the resource estimate was completed silver was $USD10.28 per ounce and gold was $USD816.09 per ounce.
Like many areas of Mexico, the Tepic region was explored and mined by the Spaniards until just over 200 years ago. Nuevo Milenio contains many Spanish workings (old mines) some of which are comprised of shafts up to 30 metres deep with three levels (drifts or tunnels) where the Spaniards mined very high grade gold and silver.
Nuevo Milenio is a low sulphidation epithermal precious metals deposit containing silver-gold mineralization within quartz veins and quartz stock work zones. The mineralization is set in a collapsed caldera. Regionally the caldera is contained within an early volcanic caldera field of the Sierra Madre Occidental Volcanics, which in turn is traversed by the Tepic-Zacoalco rift zone, a structural zone forming the boundary zone with the Jalisco block. The Tepic area is overlain by the young volcanics of the Trans Mexican Volcanic Belt. Historical volcanic activity of this magnitude is very important as it suggests the possibility of highly mineralized zones to be discovered.
Nuevo Milenio (Click to enlarge)
The mineralization within the caldera is comprised of three distinct zones that trend SE/NW and are open in both directions and at depth. The current resource is comprised of three higher grade quartz veins that reside within the eastern rim of the caldera. The balance of the resource is contained within a zone on the floor of the caldera. Within the eastern rim of the caldera there is the possibility of two or more additional higher grade veins that could be drilled off and on the floor of the caldera there are five known zones that require additional drill testing. Employing the three year average prices for silver and gold the zones on the floor of the caldera represent open pit mining potential while the veins within the eastern caldera rim represent underground mining potential.
Cream spent 2011 conducting a 20,292 metre drill campaign totalling 89 drill holes focused on upgrading a significant portion of the current resource from the inferred category to the indicated category and expanding the current resource. Cream has assay results from 21 (to be confirmed) drill holes pending release in Q1 2012. In addition the Company will be releasing a new Mineral Resource Estimate by the end of Q1 2012. Following that Cream will embark on another significant round of exploration drilling targeted at increasing the size of the silver-gold resource, the next step in building a world class silver and gold deposit.
What makes Cream so attractive to me as an investor (Full disclosure: I am a shareholder and on 2/1/2012 I received compensation for ad banner placement on www.robertsinn.com) is the cheap exposure to silver – at current levels Cream is being valued at roughly .60/oz of silver in the ground vs. $1.50/oz for its peer group. Moreover, the Nuevo Milenio resource is likely to be significantly upgraded in the new Mineral Resource Estimate which should be published by the end of Q1 2012. The largest silver miners which have fully producing mines and large reserves are generally valued by the market at anywhere from $2.50 to $5 per ounce of silver reserves. In addition, the company will be coming out with an independent 43-101 within the next couple of months which should further serve to build investor confidence.
Now for a few caveats and lessons that I have learned over the years about investing in the junior resource space. While the upside potential of a well researched and well timed investment is unmatched, the downside risk and volatility involved with investing in smaller capitalization companies that often depend on the financial markets for financing is also rather significant. During the first half of 2006 the junior resource space went through a mini dotcom bubble phase in which even some of the more suspect names went parabolic to the upside. Fade the scene just over two years later, the post-Lehman crash in the junior resource sector was like nothing that even the most grizzled industry veterans had ever witnessed. This is the super charged “love ‘em or hate ‘em” nature of the sector – the trick is to diversify among a basket of attractively valued companies with compelling stories and to buy them at cheap valuations at a wide enough discount to fair value that one is afforded some cushion from the inevitable whimsical volatility of the market.
Cream has a top notch management team with decades of industry experience and a great deal of local knowledge and experience in Mexico. CEO Michael O’Connor and his team are fully committed to and focused on advancing Nuevo Milenio to final feasibility, permitting, and potentially full scale production if Cream is not snapped up in the meantime. Investors should also be aware that Cream will likely need to finance further exploration soon – additional capital raising is dilutive to the share structure, however, from my experience additional exploration with the goal of proving out a high quality resource is highly accretive to shareholder value.
The chart (listed on the Canadian Venture Exchange: CMA.V) looks quite constructive with volume beginning to build on the recent move higher, remember that every half penny is 2% on a .25 share price so use limit orders and it is almost always better to be patient and buy on the bid:
Two of Canada’s largest investment houses (Pinetree and Sprott) as well as three insiders are Cream’s five largest shareholders, it is always good to see shares in strong hands:
Finally, here is a quote from Cream Minerals CEO Michael O’Connor along with a recent interview:
“Our mission is to create shareholder value through acquiring highly prospective properties, then grow a substantial economic resource through a systematic exploration and development program”.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.blog comments powered by Disqus
Robert Sinn is a professional trader and market analyst who focuses on multiple asset classes including equities, futures, options and currencies. He integrates fundamental and technical analysis. More »