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Two long shot stocks offer great reward, or great losses

Ron Walter discusses a couple of small companies trying to develop major mineral projects.
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Bizworld by Ron Walter

This Bizworld column features a couple of small companies trying to develop major mineral projects.

If they succeed, the rewards could be astronomical. If they fail, the loss could be 100 per cent of investment. Chances of success hinge on a number of uncertain factors.

Explorers looking for gold often go where mines have previously existed. That’s what Scottie Resources did, obtaining rights to the former Scottie Gold Mine in northeastern British Columbia. 

This area around Stewart, B.C. is known as the “Golden Triangle” with half a dozen gold mines in operation or under construction.

The Scottie Gold Mine operated in the 1980s producing over half an ounce per tonne — a high grade. Low gold prices forced closure.

Scottie Resources acquired leases on three other adjacent properties. Since 2019 about 75,000 feet of drilling has been done with the limited budget available.

The company has only sales of new shares to raise funds. A low share price, currently 27 cents, has limited funding with 243 million  shares outstanding.

Drilling results have been superb, with only the occasional hole returning less than one-quarter ounce gold per tonne. Results of drilling are quite variable ranging from more than one ounce per tonne to one-tenth.

Scottie plans 60,000 feet of drilling this year, mostly in the prolific Blueberry Zone where the company hopes to develop a resource over the three-quarter mile of gold-bearing rock.

Infrastructure — power,  port, and road  — are close by the site.

Rare Earth Elements have been declared critical to the electric vehicle industry with that sector needing over 100 per cent of current  global production by 2035. Rare earth metals, things like neodymium, dysprosium and lanthanum, are used in many sectors from aviation and agriculture to technology

Defense Metals Corp. is developing a rare earth deposit containing 10 different metals 80 km northeast of Prince George, B.C. Plans are to have project financing by 2025.

The preliminary  economic assessment (PEA) last year indicated a profitable mine with payback of the $619 million project in five years and a 60 per cent operating margin.

The critical issue for Defense Metals is funding at 32 cents a share. Like Scottie, the company has only sale of shares to fund development.

The PEA estimated another $16 million work is needed to bring the project to where financing can be sought.

The project needs a deep-pocketed partner to develop the mine, and has hopes of government-related support. Both the Canadian and U.S. federal governments have indicated support might come for these critical minerals. China is the main source.

This deposit will produce 10 per cent of global REE production. Demand being driven as it is, that should not impact pricing of these elements.

Neither of these stocks should not be a large part of one’s investment. Be prepared to lose money.

CAUTION: Remember when investing, consult your adviser and do your homework before buying any security. Bizworld does not recommend investments.

Ron Walter can be reached at ronjoy@sasktel.net

The views and opinions expressed in this article are those of the author, and do not necessarily reflect the position of this publication.       


 

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