Resource World Magazine

AT THE M A R K E T Rodne y B la ke Mine: A confidence crisis – PwC report Second hole blues O ne of the most difficult tasks a junior explorer faces is to keep long-term investor momentum in their stock price after reporting exceptional assays from a discovery drill hole. Not that discoveries aren't great; they are much better than the alternative. But, for whatever reason, many junior explorers' share prices are discounted once the rush of the original discovery has abated and assays are reported. In a recent case of what I call the second hole blues, is Colorado Resources Ltd. [CXOTSXV], whose exceptional copper-gold assays from the initial drill hole from its North ROK property in northern British Columbia excited a depressed junior resource market whereby their stock surged from under $0.20 to over $1.70 in less than a month. Colorado then received much attention with North ROK being compared to the nearby giant Red Chris copper-gold deposit being developed by Imperial Metals Corp. [III-TSX]. All this from one hole! Then the market anxiously waited for the results from the second drill hole. Rumours abounded and the stock traded great volumes daily for about six weeks as core from the second hole was logged, split and sent for assay. Then, in early June, the second, third and fourth drill holes of the current program were released, and while admittedly not as good as the first hole, two of the three, I would consider encouraging for such an early stage project. But the market, instead of building upon this additional information, sells off immediately to drive the stock all the way back down to just $0.70 – a tough crowd to please indeed. Why would investors discount this discovery so quickly? I think the answer is in the assay numbers themselves. Remember, Colorado had the fortune of reporting exceptional copper-gold assays from its first drill hole, which was very exciting for investors. Unfortunately, to the market, these numbers now represent the standard for this deposit. That is, anything less than those first assays would be seen as disappointing for this deposit, even though they may be considered very good if they were reported there first, or in another drill play altogether. So, when Colorado released the second set of assays, the market was disappointed, even though the numbers added to the size and scale of the North ROK deposit and gave management much needed information for spotting future drill targets. Bottom line – be very cautious of chasing discovery stocks higher. Mineral deposits are developed with many drill holes, over many years. Chances are, after a discovery, the next set of assays will bring the stock price back to reality. Wait for the second set of assays. Not only will you have more information from which to evaluate your investment decision, but chances are, you may be a shrewd buyer while others are feeling those second hole blues. n Rodney Blake is an Investment Advisors with Canaccord Wealth Management, a division of Canaccord Genuity Corp, Member-Canadian Investor Protection Fund. The information contained in this article is drawn from sources believed to be reliable, but the accuracy and completeness of the information is not guaranteed, nor in providing it does Rodney Blake, Canaccord Genuity Corp, or its subsidiaries, or affiliated companies, assume any liability. This information is current as of the date appearing in this article, we do not assume any obligation to update the information or advise on further developments relating to these securities. This article should not be considered personal investment advice or a solicitation to buy or sell securities. Canaccord Genuity and holdings of its respective directors, officers and employees and their associations, from time to time may buy or sell any securities mentioned herein. The views expressed are those of the author and not necessarily those of Canaccord. Rodney Blake can be reached at 604-6437567 or rod.blake@canaccord.com JULY 2013 PricewaterhouseCoopers' recently published tenth annual review covering global trends in the mining industry, Mine, has a subhead A confidence crisis; however, it's not all bad news. While the mining sector has "clearly outpaced the broader markets" with mining stocks up 235% over the past 10 years, the past year has not been kind to this industry. The world's top 40 mining companies (by capitalization) may have increased production volumes by 6%, but the revenue for 2012 was only $731 billion. 2012 was the only the second year in a decade that mining revenue did not increase. In addition, net profit was down 49% to $68 billion due to lower commodity prices, a rising cost base and $45 billion in impairment charges hurt the bottom line. The return on capital employed, at 8%, was the lowest in the last 10 years. The result has been a loss in investor confidence in the mining sector's ability to do things right. This includes concerns over cost controls, proper use of capital, delivery on promises, returns on capital employed, resource nationalism, commodity prices and potentially bad decisions. The report noted that now is the time for mining executives to respond to these concerns and show investors they are good stewards. Shareholders have already called for changes and PwC's review pointed out that since April 2012, fully half of the world's top 10 mining CEOs have been replaced. On the demand side, the long term fundamentals are still there. China still consumes about 40% of global metal production and growing economies such as Brazil, India and Indonesia are taking up the slack. n www.resourceworld.com 29

• Cover