Colossus Minerals (CSI.to)
My problems with Colossus Minerals (CSI.to) are threefold; geological, political/social and the market hype combined with the brokerage conspiracy of silence.
There are significant technical issues with the project as regards its geological location. As you know, I am not a geologist and any due diligence on this matter that you do should be taken up with a professional. With that said, I understand the Serra Pelada project to be flood prone and the host rock of Serra Pelada is very unstable, making the site very challenging as a site for either an underground (most likely) or open pit operation. Put in the most basic terms possible, mining engineers have been scratching their heads about how to get the precious metals bearing minerals out of the ground for years on end, not just since the time CSI arrived on the scene. Those mining engineers include the people at Vale, a company that finally decided to hand the project off to a small Canadian junior miner called Colossus.
Of course the prize is worth the effort. The precious metals target is small but of very,very high grade. This gives CSI flexibility and will enable them to consider solutions to the issue that are more expensive than the box-standard ones of the mining industry. For example the company has noted that red siltstone cores the fold at Serra Pelada and that this rock may give them a “way in” to build the necessary underground ramps. However the presence of the red siltstone is not some magical new discovery in the last 18 months, as the geol guys who know the site have always recognized its presence. The bottom line is that after more than a decade of geological heasdscratching there is still no viable solution for the über-basic issue of “how do we get the mineral out the ground?”.
An IKN post back in December 2008 (9) contains an embedded video about the political goings on at Serra Pelada. What most people know about the Serra Pelada project is that it’s a 60/40 JV between CSI and local artisan miners’ association, COOMIGASP (the 60/40 ratio can change to 75/25 if certain terms of the option deal are fulfilled going forward). What people don’t know is that until May 2008 the president of COOMIGASP was against the deal with CSI. The man at the top’s name was Josimar Barbosa and he was assassinated by gunmen on a motorcycle in that month. The people that then took control of the union were pro-deal with CSI and in the subsequent union elections were ratified as the leaders of COOMIGASP.
I want to make it clear that I am not suggesting, not even hinting, at any involvement of CSI in the assassination of Josimar Barbosa. What I am saying is that COOMIGASP is not some kind of unified association. It is a fractured group, made up of a total of 43,000 people with entrenched views, that has been in-fighting over the best way to take advantage of the precious metals left at Serra Pelada for decades. The latest episode has seen one side of COOMIGASP take hold of the reins, a side that prefers the current deal with Colossus. This does not mean that the faction of COOMIGASP that was previously headed by Barbosa has disappeared into thin air and to say there is bad blood between the two sides is putting things mildly.
This may come to a head in 2010, not 2009. CSI has an exploration permit for work at Serra Pelada that is valid only until next year. At that time the company must re-submit its paperwork to continue its right to explore at Serra Pelada. It is, of course, likely that CSI is given its extension, but it is by no means a certainty. It should also be said that CEO Ari Sussman believes he can deliver a final exploration report ahead of schedule in 2009 (thus perhaps nipping any paperwork re-submission problems in the bud). What can surely be said about CSI at Serra Pelada is that it does not have the full support of locals, not even inside the association with which it JVs the project. Its rights to exploration are not automatic. People that worked on the project previously, such as the person who explored the project site in the 1990s, CSI geol Augusto Kinshida, are no longer welcome in the town or at the project for unspecified reasons according to sources. There is nobody that can give a guarantee on future regulatory and social calm at the Serra Pelada. Finally, I wouldn’t be at all surprised to hear of “renegotiations” appearing on the horizon between COOMIGASP and CSI in the near future that are then spun as positives for the company. All that remains to be seen.
Here’s an extract from an article about Serra Pelada and its remarkable drillcore assays:
A historic drill core from the Serra Pelada open pit was only recently assayed and has spectacular gold, palladium, and platinum grades over a 43-m-depth interval (4,709 g/t Au, 1,174 g/t Pd, 204 g/t Pt). The Au-Pd-Pt mineralization in a bonanza-grade interval (54.5–55.0 m @ 132,000 g/t Au, 11,400 g/t Pd, 359 g/t Pt) consists of coarse-grained, up to several centimeter-large, dendritic palladian gold aggregates (Au7Pd) with abundant inclusions of guanglinite (Pd3As), “stibio-guanglinite” (Pd3[As,Sb]), sudovikovite (PtSe2), palladseite (Pd17Se15), and an unnamed Pd-Pt-Se alloy. The palladian gold aggregates are often coated by goethite and are embedded in a powdery, ferruginous, clay-rich matrix with fragments of vein quartz. Iron and manganese oxides occur as vug fillings in palladian gold and are associated with native palladium and Pd-oxygenated compounds. The near-surface bonanza palladian gold mineralization is part of a larger, deeply weathered, hydrothermal system which, in deepest drill holes (>
300 m), has a relict sulfide assemblage with a variable degree of overprint by iron oxides, sericite, and kaolinite. The deep system still has gold, palladium, and platinum grades in the g/t range and displays erratically high contents in light rare earth elements, bismuth, and selenium. Drill core samples from intermediate depth (157–275 m) are high in gold, palladium, and platinum and show a very pronounced bismuth enrichment, as well as enrichment in iridium, mercury, rare earth elements, uranium, copper, and lead. The shallow drill core is extremely enriched in gold, palladium, platinum, mercury, and manganese.
The occurrence of gold dominantly as an Au-Pd alloy, the abundant selenide and arsenide inclusions in palladian gold, and the characteristic mercury signature point to an origin of the near-surface bonanza ore from a sulfur-deficient hydrothermal system, with apparently only minor supergene precious metal enrichment.
These kind of numbers are indeed spectacular, as the article extract mentions. Yes, that really says four point seven kilograms of gold per metric tonne over
43 metres, with bonanza grades of 132kg/MT intersections included and then PGM credits on top of all that. These are the kind of numbers that Canaccord analyst Nicholas Campbell called ‘incredible’, but the thing is that the above article was published in 2002. Why should the professional community be so hyped up about what was nothing more than an infill drillcore that was planted in a spot where everybody with knowledge of the project knew...I mean KNEW... would return such numbers? And it was more than a little suspicious that an infill drillcore that should have surprised nobody at all was presented as the greatest mining achievement of the year by a band of brokerages that then announced a $57.5m bought deal financing for Colossus that very same week.
Yes, I know it’s how the game is played. Yes, I’m quite aware that the houses are not charities and are in this world to make a profit. But the pattern is one that experienced market-watchers know of old and ignore at their own peril. It’s particularly disconcerting when this kind of market hype comes with an industry-wide conspiracy of silence. Under normal circumstances and as regards other companies, the strengths, weaknesses opportunities and threats are discussed by the investment community and the resulting discussions give us all a good idea on whether this-or-that stock is a worthy investment. We are given an idea of the risk/reward ratio and we are then in a position to make an informed decision. Not so with CSI.to; despite being one of the hottest and most analyzed junior exploration stocks in the Canadian universe today, nary a word is spoken about the significant red flags of the project, a veritable omerta. I know for a fact that the analysts at these companies are not stupid. They come with degrees in finance, or geology, or metallurgy and are typically inquisitive, brainy people. So why is it so difficult to find out about any of the very significant investment risks that surround CSI from these supposedly independent, third party analysts? I assume you do not need me to fill in the answer there.
The bottom line to Colossus Minerals is that it could double and double again from here but I would never go near the stock personally. Never. You could accuse me of failure to tip a winner if you like, but this would only be a loss in the style of opportunity cost. By saying “I’m not going there” I don’t cost myself a single penny. There are simply too many things that can go wrong around this stock and, very importantly, those risks are not being faithfully presented to the investment community by people more interested in getting their cut (after all, bought deals tend to run with better commission percentages) than a dialogue to get to the truth. With the current share price the stakes are higher than ever. Caveat emptor.