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Mosquito Consolidated is the Elephant in the Room
By James West
MidasLetter.com
Wednesday, Novemeber 18, 2009
Mosquito Consolidated (TSX:MSQ) CEO Brian McClay makes no bones about the prospects for his company.
“How many companies are there that can say they have 50% of a major gold discovery as well as the largest un-mined open pit moly deposit in the world?” he asks. With that rhetorical opening, McClay outlined the progress and prospects of his company in the calm logical voice that illuminates the frequency with which he encounters the standard first reaction, “Too good to be true.”
“Without question, the Cumo deposit is coming close to becoming the largest molybdenum project in the world, mined or unmined. We’ve only drilled off 25% of it and we’ve proved up, over a100 year life-of-mine, 4 billion pounds of moly, 5.5 billion pounds of copper, 300 million pounds of tungsten, and 250 million ounces of silver, not to mention gallium, indium, rhenium, sulphuric acid etc…so the dynamics are just staggering.”
Staggering to say the least. With a market cap of under CA$70 million, those numbers seem like so much hubris. But a recent Preliminary Economic Assessment conducted by Ausenco Minerals Canada, a Vancouver-based engineering firm with corporate headquarters in Brisbane, Australia. The Ausenco group of companies provides world-leading engineering, project management and operations solutions to global resource, energy and process infrastructure industries; and has a workforce in excess of 2,200 people in more than 26 offices across 13 countries.
“These are hard technical facts,” said McClay. “The property is worth $10 to 16 billion, according to our most recent scoping study. And we think they’re light by about 35%. The IRR at $10 moly is 28% and at $15 moly its 36%. These are National Instrument 43-101 compliant scoping study numbers generated by one of the largest mining engineering firms in the world.”
Based on a pre-tax financial model (earnings before interest, tax, depreciation and amortization) and using a long-term, base-metal price scenario, Ausenco's study showed the CUMO project having a Net Present Value (NPV) of US$16 Billion for a 150,000 short tons per day ore production rate and US$10 Billion for a 100,000 short tons per day ore production rate. Corresponding Internal Rates of Return (IRR) were 36% and 29% respectively - significantly above the minimum 12.5% to 15% IRR typically required for United States-based projects to be considered for production - and straight-line payback periods for startup capital costs were 2.3 and 3.0 years respectively. These very substantial figures indicate that Mosquito should be developing CUMO toward an initial ore production rate of between 100,000 and 150,000 short tons per day.
Ausenco's PEA of CUMO outlined several options for the further development of the project under four different production rates: Ore production rates of 50,000, 100,000, 150,000 and 200,000 short tons per day were considered for the data analysis. All associated costs were also tabulated corresponding to these production rates, including: preliminary pit designs, scoping-level tailings, storage facilities and waste rock sites, power and water requirements, mine scheduling, mine plant, capital and operating costs.
"Ausenco's assessment of CUMO provides independent confirmation of the staggering economic potential of this project," said Mosquito President Brian McClay. "Our well-researched belief is that CUMO can be designed in an environmentally-friendly manner while providing thousands of high paying jobs and taxes to one of the poorest counties in Idaho. CUMO contains one of the world's largest, strategic stores of mineral wealth. Based on this report, we will continue to significantly further develop the project and maximize value for our shareholders."
Adding to Mr. McClay's comments, Mosquito's Exploration Manager Shaun Dykes said, "This evaluation outlines the mineral resource/reserve targets required to bring CUMO into production. Geologically, the mineralization has been identified and our drill programs have been designed to convert the current inferred resource, and expand the measured and indicated resource in order to achieve these targets. The extremely short payback periods outlined in the PEA is one of the most significant aspects. The path to production continues, with the updated resource calculation for CUMO being completed at the end of the 2009 drill season."
Never Mind Moly – Where’s the Gold?
Mosquito Consolidated also owns a 50% interest in certain assets comprising the Cariboo Gold Project in northern British Columbia, Canada, which is the flagship operation of Wayside Gold (TSX.V:WYG). This project includes the recent discovery made at Bonanza Ledge, where drilling result highlights include:
Hole BC09-14B: 70.9 meters (232.6 feet) of 10.7 g/T (0.311 oz/t) gold
- Including: 38.7 meters (126.9 feet) of 19.0 g/T (0.555 oz/t) gold
- 92.2 meters (302.6 feet) to 203 meters (666.0 feet) Assay Results Pending
Drilling of BC09-14B was recently completed to a depth of 203 meters (666.0 feet) and the core samples from pending assays were split and sent to Eco Tech Laboratory Ltd. for analysis on October 24, 2009 and will be released when received. BC09-14B was drilled 50.5 meters (165.6 feet) southeast of BC09-12 which returned assays of 84.4 meters (277 feet) of 16.5 g/T (0.481 oz/t) gold (see News Release October 7, 2009). Assay results have been received to 92.2 meters (302.6 feet).
The Bonanza Ledge, for which Wayside received a positive a pre-feasibility study, in September, 2009, is a gold deposit on the southwest flank of Barkerville Mountain, about 2 km northwest of the Barkerville historic town site.
Wayside has the right to acquire up to 100% of the Cariboo project claims owned by Mosquito Consolidated which will ultimately result in a Net Smelter Royalty of 3% for Mosquito Consolidated, a potentially substantial income considering the recent exploration results.
What Else?
The Cumo deposit contains a wide variety of “high tech” metals, used in various technology related products.
Gallium values range from US $500 to $600 per kilogram, and closely follows the per ounce price of gold. Approximately 35% of gallium production is used in the manufacture of LEDs (light emitting diodes, ie: Christmas lights), cell phones, computers, photo-detectors, optoelectronic devices and solar panels. The United States, which consumer 21,000 kilograms annually, is the world's second largest consumer of gallium, second only to Japan.
Indium is used primarily in the manufacture of thin-film coatings which are used in applications like electroluminescent lamps and LCDs (liquid crystal displays) in flat panel video screens and televisions. Indium semi-conductor compounds are used in infrared detectors, high-speed transistors, and high-efficiency photovoltaic devices. Indium values currently range from $1 to $5 per gram, depending on purity. Currently, the United States obtains all of its indium from China, Canada and Japan.
Rhenium is used in petroleum-reforming catalysts, in the manufacture of super alloys used in high temperature, and turbine engine components. Rhenium is also used in petroleum-reforming catalysts for the production of high-octane hydrocarbons used the in the production of lead-free gasoline. Rhenium improves the strength properties of some nickel-based high-temperature (1,000 degree) super alloys used for electrical contacts, electromagnets, electron tubes and targets, heating elements, ionization gauges, mass spectrographs, metallic coatings, semi-conductors, and temperature controls.
In 2005, the United States consumed 35,800 kilograms of rhenium, with 28,900 kilograms imported from Chile at an average price of US $1,170 per kilogram.
As evidenced by select large in-production molybdenum and copper mines, Mosquito Consolidated predicts that high-value by-product elements like gold, silver, rhenium, indium and gallium could underwrite all of the productions costs for every one of the company's molybdenum and copper properties, making them among the most profitable resource properties in North America.
Where to From Here?
Mosquito Consolidated is developing a strong relationship with a Chinese industrial partner, as characterized by the acquisition in June of this year by International Energy and Mineral Resources Investment (Hong Kong) Company (“IEMRI”) of 9 million shares, or 15% of Mosquito Consolidated shares. Hongxue Fu, the president of IEMRI, was also appointed chairman of the board of Mosquito Consolidated.
Fu’s role is expected to bring Mosquito access to major capital sources for the development of the Cumo deposit in China, as the Chinese have a very keen interest in acquiring major resources capable of supporting their very substantial steel and related metals industries.
There is little doubt that the Cumo project will see development in the relatively near term, and the low market capitalization relative to Asset NPV represents nothing short of a major buying opportunity for investors with a commensurate risk profile.
Follow the company’s progress online at http://www.mosquitogold.com.
SOURCE: http://www.midasletter.com/news/09111801_Mosquito-Consolidated-is-the-elephant-in-the-room.php
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Gold, Molybdenum
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