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1/29/18

Bluestone Resources (BSR.v): Do not feed the animals (from IKN454)

This is the short article on Bluestone Resources (BSR.v) that first appeared in The IKN Weekly issue 454, out yesterday Sunday. A request from a pal is why it's now on the open blog.

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Bluestone Resources (BSR.v): Do not feed the animals

Via mailbag from more than one person, it has come to my attention that Bluestone Resources (BSR.v) is currently being pumped by at least two widely distributed mining newsletters, with one of them issuing the reco in the last couple of days. Without naming the publication and without going into too many details on what they say, I’m going to repeat the title blurb of the piece here because the exact wording is worth close examination:



“Bluestone Resources (TSXV: BSR) is a low risk mine development story. It has very strong management, an incredible roster of shareholders, a tight share structure for its stage, $38 million in the bank, and a project that is fully permitted and partly built.”



Aside from the over-use of breathless adjectives, there are substantive issues in those three lines that I cannot overlook. For the rose-tinted version, please subscribe to other publications or at least check out the latest company corporate presentation (23) but for the rest of us, if this is a “low risk” development story, I’m Chinese*. To expand on that, let’s take the above statement above piece by piece, starting with the only one with which I can agree:



  • Good shareholders: Presumably we’re talking about the Lundin Group, which bought in to the tune of $30m in the original placement. Note they didn’t buy the company, just 36% or so of a junior (correction), so Lukas et al must like the risk/reward on this enough to stake a small slice of the family fortune on it. Fair enough, we know the Lundins like going where others fear to tread and turnaround stories are their speciality, though they know better than anyone that the entry is a high risk one. By the way I only agree with “good” for the backers. “incredible” isn’t my idea of an epithet for anybody outside the range of Martin Luther King, Nelson Mandela or Albert Einstein.



  • Strong management: Presumably referring to Darren Klinck, one of the people who got OceanaGold to buy Pacific Rim while he was there. Remember how badly that turned out for OGC? I do and it tells me a lot about the presumptuousness of this company.



  • Tight structure: Yeah, so what? The key here is “for its stage, because BSR is a very recent listing and will be able to run off its reported current $38m treasury for quite a while, but if it ever gets a build decision Cerro Blanco will cost hundreds of millions to put into production, the few Kms of tunnels already in are a drop in the bucket.



  • Low risk: My stars, where do we start? Why not at the very beginning of BSR, because Goldcorp walked away and sold this project to Bluestone (accepting U$18m cash and 9.9% of shares in BSR for a project where it spent over U$230m) exactly and precisely because it was not low risk! To suggest otherwise is naïve at best, total BS more like.



  • Next there’s permitting risk. BSR correctly states that it is “fully permitted” because Cerro Blanco does indeed have its permits from the government of Guatemala. They were awarded to Goldcorp in 2007 in fact, which immediately begs the question as to why GG didn’t act upon those permits. The answer is simple; Guatemala is an extremely corrupt country, you can get any piece of paper you want at the right price and in this case, as GG found out to its cost those permits aren’t worth the paper they’re printed upon without the support of the local community. Cerro Blanco isn’t just un-loved by locals, it’s actively hated and the campaign against its development stopped the project dead in its tracks. Not only that, but the anti-mine protest here is international as El Salvador hates it too. That country has a nearby border to the mine, is on its run-off and at the height of the last move to get it moving almost caused an international incident with Guatemala due to its opposition. The anti-mine movement hasn’t gone away, anyone thinking otherwise needs to learn Spanish and get reading.



  • If that weren’t enough for you, Cerro Blanco itself is a technically challenging deposit. It’s in a volcanic thermal zone which makes the underground areas literally hot, there’s a lot of water to contend with (and I just used “a lot of” in order to avoid the hyperbolic adjectives used by the newsletter pumper above, it really is an understatement) and the mineralization itself is thin veined with multiple orientations, which makes both mine planning and eventual operations tricky and expensive.



With 63.82m shares out and this weekend’s price of C$1.45 showing on my screen, BSR.v has a current market cap of around C$92.5m. Subtract the reported C$38m in cash it has at the moment and we’re left with C$54.5m in asset value, for a project that GG ran away from for U$18m in cash. It’s magic!



To wrap up, I want to be as clear as possible on this: I am not saying the BSR share price cannot go higher on a classic Canadian promo pump from newsletters, sellsiders and who have you. What I am saying is that risk on this project isn’t low, in fact it’s quite the opposite at off-scale high and anyone who tells you otherwise is either naïve enough to buy into the company spiel or corrupt enough to ignore the mountain of glaring evidence to the contrary in order to push a nefarious agenda. Either way, not a person I’d want advice from on juniors in LatAm. That’s not me doing some type of catty patch protection either, I welcome strong analysis from other sector pros on regional plays and will often learn from their insights. But this is just bullshit and needs to be called out loudly. You telling me that BSR is low risk is like me telling you that Donald Trump is a meek, humble, self-effacing wallflower. Rant over.


*I’m not Chinese