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 |   Thu May 22, 2008
Hard Rock Analyst
Author: David Coffin and Eric Coffin
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| | With the northern summer approaching we are in the process of updating companies that have been sidelined by seasonal realities. Included on that list is Bitterroot Resources (BTT-V; up 6.5 cents at $0.37 on 225 k shares) that has suddenly become more prominent based on two back to back news releases, even though neither deals with the reason we have had BTT on accumulate over the winter months. Yesterday's release was about permitting for its Michigan uranium joint venture, about which we have a bit more to say below. After the close today BTT announced that it has made coal applications on the Manitoba side of its border with Saskatchewan, and this we think offers a very low risk second entry into the area play generated by the Goldsource discovery. On the basis of the coal spec combined with work that should soon begin on the Linda high-grade gold vein we are moving BTT to the HRA list with an initial outlook of strong speculative buy.
The three coal permits Bitterroot is picking up in Manitoba are within the same geology as the Goldsource discovery, and all have either rail links or existing road access crossing through them; the road accessibility on the two southern blocks should allow some drilling of this ground during summer if permitting can get done in time. BTT president Mike Carr does have a coal background, so these areas have been chosen as knowledgably as current understandings of the play allows. One thing that distinguishes Manitoba from Saskatchewan is a significantly higher upfront entry cost in the former, largely refundable as work is done on the ground, which may explain in part why there has been less noise about applications there even though geological considerations would indicate this should be a cross boundary play. The relative lack of "rush" in Manitoba also means that permitting should be simpler since the government offices won't be overstressed as they are in Saskatchewan. Manitoba's mining culture, though more focused on hard-rock situations than soft-rock, is as strong as that in Saskatchewan and we see no reason at this point to favour applications in the overstressed Saskatchewan play over these well considered applications next door. We expect the market to have a similar view, but we are as interested in BTT for its other holdings and view the coal spec as a free punt on top of them at today's closing price.
The Bitterroot holding that is simplest to grasp hold of is the Mineral Creek -Linda (very high-grade) gold joint venture on Vancouver Island. BTT's private partner is the operator and will be gearing up for an initial bulk sample from the vein as quickly as snow conditions allow. We have laid out our thoughts on this in the past, but to quickly recap the essential point is that the 5,000 tonne bulk sample to be done here on a vein segment that has returned up to 50 oz/ton in recent sampling could very quickly generate a strong cash position for the company. The point of the bulk test is to determine whether there is enough gold distributed through this shoot to generate a small very high-grade operation and to get a better handle on how to treat results from further drill testing that will be done to test its extensions and several other targets on the property. This is however a situation in which a program with further upfront costs in the $100,000s might actually generate enough gold to supply a one-off 8 figures ($10 million+) revenue stream to BTT and outline a fairly simple route to revenue generation that quickly exceeds the company's current $21 million valuation. While we emphasise this is a test, we also have to say we would be surprised if this program did not generate sufficient revenue to at least pay for itself, and that is a rare enough occurrence on its own. We will have more to say on Mineral Creek as the program gets into operation and further exploration work is laid out, and we will have more to say on gold exploration programs the company is planning for later in the summer on its central British Columbia projects as they approach drill stage.
The third leg Bitterroot is standing on, and the one that has actually sustained much of its market interest over the past few years, is the uranium exploration joint venture in Michigan on which Cameco Corp (CCO-T) is earning in. Last year's work indicated this new exploration district has the right parts without having generated results of ore quality. Some further targeting work is planned here before the drill actually starts turning, but the permitting may generate some more lift for the stock before that. Again we will have more to say on this work as targeting is completed, but we think the combination of the coal acquisitions in Manitoba and the gold projects in British Columbia may supersede the uranium exploration for the time being at any rate. Bitterroot has about $3 million in cash. Warrants and options exercise would bring in a further $5 million and add a further 8+ million shares to the current 58 million on issue, but most of that dilution is at prices between 50 and 80 cents and therefore not an immediate issue. There could be selling from recent 35 cent placements as the share price moves up, but if the coal leases garner the same kind of attention seen in other companies these placements would not be a large issue. We think Bitterroot has a much better underlying asset base and asset to valuation base then other players we have noted in the coal play other then GXS, and hence our decision to move it the HRA list and strengthen its outlook. http://www.bitterrootresources.com/ |
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