I am sending you this excellent review of my company, Tan Range
Exploration, which appeared in a recent issue of Resource Trader Alert.
Jim Sinclair
RESOURCE TRADER ALERT
http://www.rtalert.com/
May 2, 2003
As Tan Goes for the Gold, We'll See Green!
Dear RTA member,
Now that gold has completed -- we believe -- the first major correction of
its new mega-bull market, we think it's time to add another junior mining
stock to the RTA portfolio... but not just ANY junior mining stock.
Our new recommendation is Tan Range Exploration (TNX: TSE, C$1.25), and it
is not your run-of-the-mill junior mining company. Its business strategy is
a variation of the one used by Franco-Nevada Mining, which last year merged
with Newmont Mining and Australia's Normandy Mining to form the world's
largest gold producer.
Longtime gold investors will recall that Franco-Nevada was one of the most
successful gold stock investments of the 1980s and 1990s. During a time
when most gold mining companies were fighting for their very survival,
Franco thrived. A big part of the reason for the company's success was its
unique financing structure, based upon purchasing royalty interests.
Unlike Franco-Nevada, however, Tan Range's business strategy does not
include the outright purchase of production royalties on the open market.
Rather, the company intends to develop royalty income by joint venturing
its portfolio of strategically located properties in the Lake Victoria
Greenstone Belt with senior industry partners.
In the company's view, this royalty strategy offers investors significant
leverage to gold prices with minimal risk and limited shareholder dilution.
Royalty interests in production from its portfolio of gold projects will
provide Tan Range with a direct interest in a mine's cash flow, with
exposure to new discoveries and production growth, without the capital
obligations and environmental and social liabilities associated with direct
ownership. This arrangement provides Tan Range with a stable source of
rental income while the potential of its properties is being evaluated.
Working With the Best
Annual work commitments are also a requirement of all agreements negotiated
with industry partners. In years 1 and 2, these commitments are expressed
as cash requirements. However, in years 3, 4 and 5, the work requirements
are expressed as numbers of meters to be drilled annually. Failure to make
rental payments and work commitments by the anniversary date of the
agreement will see the licenses revert back to Tan Range.
All agreements call for a production decision at the end of year 5, full
access to draft feasibility studies and penalties for any production
delays. While the optionee retains absolute discretion as to the manner in
which commercial production is achieved, if the mine has not reached a
commercial production rate of at least 50,000 ounces gold per year on or
before the
eighth anniversary of the effective date of the agreement, the optionee is
obligated to pay Tan Range $25 for each ounce of production shortfall
beneath that threshold.
At the present time, Tan Range holds 75 prospecting licenses in the Lake
Victoria goldfields, 11 of which fall under option agreements with Barrick
Gold. That includes Itetemia, where Barrick has already expended
approximately $4 million.
Itetemia is adjacent to Barrick's 12 million ounce Bulyanhulu mine, which
is expected to produce approximately 415,000 ounces of gold this year at a
cash cost of $175 per ounce.
Another nine projects are the subject of royalty agreements with
Montreal-based Northern Mining Explorations, whose Tulawaka gold project
involves a joint venture with a subsidiary of Barrick.
Tan Range is also negotiating royalty agreements with an international gold
mining company for another 11 prospecting licenses in Tanzania.
And Tan Range is exploring several projects for its own account. Luhala is
the most advanced, followed by Lunguya and then Kigosi, a new project where
initial sampling has produced some
spectacular results.
Several large, relatively high-grade open pit and underground gold deposits
have been discovered in Lake Victoria Greenstone Belts of Tanzania in
recent years. These world-class greenstone belts constitute one of the
largest underexplored goldfields on the African continent and compare
favorably with prolific gold-producing belts in Western Australia and
Canada.
Discoveries in the Lake Victoria Greenstone Belt have produced robust
economic returns for companies such as Barrick, AngloGold, Ashanti Gold and
Resolute Mining -- all of whom remain active explorers in the region.
Barrick has described the producing greenstone belt in Tanzania as "the
premier developing gold region in the world" for at least one very good
reason: Barrick's $280 million Bulyanhulu mine near (Mwanza) Kahama in
northern Tanzania is the largest underground gold mine in the country, with
a production rate in excess of 400,000 ounces per year and an anticipated
life-of-mine cash cost of $130 per ounce.
Mines such as this have boosted Tanzania's annual gold output to more than
1.3 million ounces, the third largest in Africa after South Africa and
Ghana. All of the major producers in the belt are reporting cash costs that
are under $200 per ounce. Barrick's discovery/acquisition costs for
Bulyanhulu are believed to be less than $20 per ounce, while Ashanti Gold's
discovery costs for its Geita Mine are an incredible $2 per ounce.
Late to the Party... But Brings Lots of Potential
By employing strict selection criteria and due diligence procedures, Tan
Range has accumulated a portfolio of projects in Tanzania that have the
potential to host large gold deposits with low unit production costs. Tan
Range has nearly 80 other properties that are being advanced. The policy of
advancing properties beyond the high-risk grass roots exploration stage
provides its exploration partners with a low-cost entry point into the
heart of Tanzania's emerging Lake Victoria Goldfields.
With its progressive investment climate for mining companies, Tanzania has
become a role model among developing countries. In fact, by the year 2005,
the minerals sector is expected to account for 6% of the nation's GDP,
compared to the current level of around 2.5%. In the past five years,
foreign investment in new mineral development projects has reached over
$1.2 billion, and the nation continues to attract the majority of African
exploration expenditures.
Tanzania's gold production history is relatively short, reflecting
unfavorable investment policies in the past and, until recently, the lack
of recognition accorded to its highly prospective greenstone belts. In
1998, Tanzania's first large-scale gold mine, Resolute Mining's $48 million
Golden Pride project, came on stream at a design rate of 180,000 ounces per
annum. By August 2000, the $165 million Geita project (545,000 ounces per
annum), jointly owned by Ashanti Goldfields and AngloGold, was
commissioned. It was followed a year later by Barrick's Bulyanhulu mine,
where resources jumped from 3.6 million to 12 million ounces in less than
three years.
Over a period of six years, approximately 36 million ounces of gold have
been discovered on the Tanzanian portion of the Lake Victoria Greenstone
Belt -- more than half the aggregate reserves of Barrick Gold and Newmont
Mining in Nevada's prolific Carlin Gold Belt.
A Man With A Golden Touch
The mind behind Tan Range is none other than that of James Sinclair, a very
successful gold investor. When Sinclair addresses a gold investment
conference, the audience listens with rapt attention. He has no slide
presentation, no formulaic prepared text. Some notes perhaps. In fact, he
may not even discuss his company at all. More likely, he will outline his
thoughts on the financial markets, with a focus on a longtime favorite
topic --gold. People edge forward in their seats, and the room quiets. Jim
rattles off the bullet points of his gold thesis. When Jim finishes, the
audience swarms around him like bees around a hive. It has been like this
for 30 years.
Following an enormous financial and mining success with Sutton Resources in
the 1990s, Jim lowered his profile for a few years while building his next
venture methodically and carefully. He has now re-emerged with Tan Range
Exploration.
Sinclair is not merely an enthusiastic gold bull, he is also the primary
financial backer behind Tan Range. At present, the company is sitting on
about C$3 million in cash. Under the terms of a financing arrangement
between Sinclair and Tan Range, Sinclair will purchase a minimum of C$1.5
million worth of stock over the next 21 months and a maximum of C$2.5
million. At the
end of this financing period the company has two important expectations:
(1) It will still have no less than C$3 million in cash in the bank; and
(2) It will have signed enough royalty deals to become cash-flow positive
and in need of no additional funding... ever.
If Tan Range's Tanzanian properties contain as much gold as Sinclair hopes,
this stock will provide a very nice ride for shareholders.
Action to take: Buy Tan Range Exploration (TNX: TSE, C$XX) below C$1.45.
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