How did molten magma deliver buried precious metals into the hands of this tiny explorer?
Imagine a volcano erupting in an area that is rich in precious metal deposits.
What happens when molten magma that is loaded with concentrated precious metals from deep in the earth rises to the earth’s surface and solidifies?
Precious metals delivered on a platter – that’s what.
In the last 2 weeks, the tiny $5 million company we have added to our portfolio today has not only secured critical government drilling approvals, they have just raised AUD $1.25 million via a New York based fund – setting the stage for their upcoming drilling program in prime volcano country.
A very impressive achievement by this minerals explorer in the current market climate – and a huge vote of confidence for their project.
And wait until you hear what they are drilling for…
Not to mention it’s located in a booming region for mining exploration. Yes, such a region exists – even in current market conditions.
The team that brought you The Next Mining Boom and The Next Oil Rush are pleased to present The Next Small Cap, where we will be searching for and identifying the most promising small cap companies. At this point The Next Small Cap would like to warn readers of the highly speculative nature of small cap companies – whilst there is potential for high rewards, there is also a big chance that you may lose all your money! It’s the nature of investing in small cap companies.
As keen bargain hunters looking for long term plays, we love that the mining scene is currently in the doldrums. Most mineral explorers are broke and out of favour, and there is a sector wide fire sale on right now for the savvy and patient investor.
The tiny explorer we are reporting today has thrown up a giant green flag for us in the last 2 weeks, and we have added them to our portfolio.
Any explorer who can raise $1.25 million in the current market is worth attention, especially one that is drilling for such “low hanging fruit” as today’s addition to our portfolio.
Put them on your watch list and thank us later. Introducing:
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ASX:PRA
Regular readers of The Next Oil Rush and The Next Mining Boom will be familiar with our long-standing interest in reporting on high potential stocks that we uncover.
Our latest report on Rey Resources (ASX:REY), revealed them to be the mystery third man in the Canning Basin, and following our article release, REY has been up nearly 75% since.
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The past performance of this product is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.
TSX:AOI was our ‘tip of the decade’ in February 2012 at around CAD$1.8 and has been as high as CAD$11.25 since – that’s over 600%!
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We published a report on Swala Energy (ASX:SWE) titled The last junior oil explorer operating in this exciting region with this same JV partner went up 800% in a matter of months. SWE has traded as high as 90% since.
Following a recent report on Pura Vida (ASX:PVD) titled Why has this stock got analysts predicting four thousand percent gains?, the PVD share price rose as high as 40%.
We have also covered Trafford Resources (ASX:TRF) which has been up 30% and Tigers Realm (ASX:TIG) which has been up over 20%.
The past performance of this product is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.
In addition to our full coverage of PRA, we will be assessing the company against our exclusive Pre-Investment Checklist Criteria. You can read in detail the full 20 point check list (and a whole lot more of investment guidance) in our eBook: “How to Make Money Investing in Junior Resource Stocks”.
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The Low-Down on PRA
PRA is a $5 million market small cap explorer, with over 34,000 hectares of land in prime mineral provinces in Peru, searching for “big deal” copper-gold-molybdenum porphyry deposits… with projects and targets you would expect to see from a BHP, Barrick, Newmont or Rio Tinto.
Hang on – what is a porphyry? And how do I even pronounce it?? Well it’s pronounced ‘PORE-fer-ee’ and it’s a type of igneous rock created by magma, often covered up by volcanoes or volcanic rocks.
If you paid attention in school, you would remember that igneous rock is the type that comes from the cooling and solidification of magma or lava – this is where porphyry deposits come from. These deposits are the prime targets for PRA’s exploration team.
As magma flows up through the earth’s crust, it begins to solidify, trapping precious metals during its upward flow. The end result is typically mineral rich porphyry clusters near to the earth’s surface, ready for intrepid explorers to collect. For the budding geologists out there, keep reading, as we will go into more detail about exactly how such rich mineral deposits are formed shortly.
Porphyry deposits tend to have large, bulk-mineable, localised, metal ore deposits, often occurring in clusters, and may contain MULTIPLE precious commodities like gold, copper and molybdenum in large volumes. It appears PRA are close to a few of these deposits in Peruvian high country.
Copper and gold are familiar to all, but this molybdenum commodity might be a new one. Molybdenum is a dark, silvery metal, used as a strengthening component in steel. In fact, 60% of molybdenum production goes into steel manufacturing – so it’s a very useful commodity, and tied to a lot of emerging economies.
PRA is focussed solely on Peru right now and have the following projects at discovery stage:
Alumbre – PRA’s flagship project, with drilling approval recently granted, this is the main “project of interest” we are focussing on today; Quinual – PRA’s most advanced project after Alumbre with a recently completed geophysics program; Olleros – PRA are completely engulfing Barrick Gold’s concession here; Yarpun & Huajoropampa – PRA recently took up these projects as strategic landholdings around major and mid-tier mining houses and still require further investigation.
For all you magma enthusiasts, you will be well aware that Peru is located smack bang in the famous “Ring of Fire”:
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The Ring of Fire is an area where a large number of earthquakes and volcanic eruptions occur in the basin of the Pacific Ocean – in other words Magma-central.
PRA has found what looks to be a rather large porphyry deposit in their flagship Alumbre project. All indicators are pointing to a large, shallow depth, deposit within a regional scale copper-gold-molybdenum target.
Critical drilling approvals have just been granted by the Peruvian government for PRA’s flagship porphyry project – this is likely to generate unprecedented investor interest in anticipation of drilling results.
Now that PRA have the much anticipated drilling approvals, they will soon be revealing exactly what lies beneath the surface of their flagship Alumbre project.
And to do this drilling, PRA just has secured $1.25 million in funding – at a PREMIUM to its share price, via a New York based fund.
PRA’s Alumbre project lies around 70 kilometres southeast of the major town of Trujillo in Northern Peru, within kicking distance of the Pan American Highway and other arterial roads.
In this region, geologists are obsessed with discovering behemoth deposits of copper, gold and molybdenum – which is massively leveraged to Chinese growth – and PRA look to have scientifically justified targets from their 340 km2 of prized assets in Peru.
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If a porphyry deposit is confirmed, it would likely cause a “volcanic” market re-rating and an “eruption” in the PRA share price, which in turn may lead to a handsome takeover offer from any one of numerous super-majors operating in the vicinity.
Investors in mining don’t need to be reminded that times are tough. The industry is at the bottom of a cycle, however all shrewd investors know that the best strategy is to BUY LOW and SELL HIGH. Of course, this is easier said than done! The Next Small Cap, in partnership with our good friends at The Next Mining Boom and The Next Oil Rush plan to bring to investors our picks of the small cap guys where entry prices are low and the potential rewards are high. At the same time, please be aware that small cap companies like PRA are speculative, high risk investments! Whilst it’s possible to make money, it’s also possible to lose all your money!
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Alumbre’s porphyry – glowing like Jupiter
The big wait is finally over. PRA now have been given approval to commence their drilling program at Alumbre.
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PRA’s Alumbre shows strong potential to host to a giant, copper-molybdenum porphyry with bonus gold credits.
Remember a porphyry is a big, fat, mineral rich deposit formed from the cooling of magma. Imagine a time when the Andes was extremely active –millions years ago – back before the Inca tribes built Machu Picchu, the Cerro Alumbre was blowing some serious precious metal laden magma– fast forward to now and any mineral deposits found will be ripe for picking.
The Alumbre Project covers an area of 28,500 ha, next door to excellent infrastructure, with the port of Trujillo being an easy cruise down the Andean foothills.
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PRA’s Alumbre project shows potential for a giant, shallow (easy to get out of the ground) anomaly that appears to measure 700m by 1500m. Deep drilling is required to unveil its true dimensions.
Following a $1.25 million capital injection, PRA can now kick off major exploration at its flagship Alumbre project with 2,200m of diamond drilling, just the first phase of a 5,600m campaign carefully designed by esteemed geologists.
PRA are not just drilling anywhere in the hope of hitting it big. High priority targets have been painstakingly identified via extensive geological mapping, rock geochemistry, ground magnetics, and induced polarisation geophysics. This scientific data indicates that the potential for a significant porphyry system exists at Alumbre. PRA are pushing forward with the drilling program, and The Next Small Cap are watching intently to see what the drill bit reveals.
Nothing excites the market like the prospect of a big porphyry discovery.
Geologists, investors and stock markets can get into a giddy, manic state at the mere hint of a new copper, gold and molybdenum porphyry deposit being uncovered.
This is because if it’s porphyry, it has the potential to be colossal (potentially leading to colossal profits for the explorer) and they generally contain substantial quantities of multiple metals… whilst nothing is confirmed for PRA just yet, based on previous studies, there is potential for a porphyry at Alumbre. With drilling imminent, soon PRA will find out what’s truly within its acreage.
Mapping, rock chipping and geochemical sampling, together with an induced polarisation (IP) survey has modelled potential for a huge, near surface copper-gold-molybdenum porphyry target for PRA, in a district dotted with world class mines developed by Barrick Gold, Newmont, X-Strata and Vale.
(An IP survey is a geophysical imaging technique used to identify unusual underground features, such as a metallic ore body… sort of like an X-ray or MRI machine).
And mapping, rock alteration and geochemistry on the tenement surface corroborate the ‘X-ray evidence’ for a large porphyry system.
Geology 101 – qualified geologists please skip this section!
The Next Small Cap always hit the books hard before even considering investing in a stock. For PRA, we spent many late nights distilling untold numbers of academic geology papers and charts. We have saved you the time and will now pass on to you the valuable technical insights we have picked up on MAGMA, PORPHYRY FORMATION, CHARGEABILITY and MOLYBDENDUM.
Class 1: Magma and Porphyry Formation
When two of Earth’s tectonic plates smash into each other, a lot of pressure, stress and heat is generated. This intense heat melts some of the earth’s crust, turning it to liquid. The liquid below the earth’s surface is called: MAGMA.
So how do you get a porphyry deposit from magma?
Any physics student can tell you that liquids are less dense than solids. Imagine giant plumes of white hot magma rising toward earth’s surface. This magma will begin to solidify within a few kilometres of the surface due to cooling. Now, within the magma chamber, there are copper and related minerals, which remain in a silica (quartz) rich solution as the magma continues to cool and rise.
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Eventually this metal rich solution, still stuck in the crystallising magma chamber, overcomes its containing pressure and explodes violently through the cracks and fractures of the surrounding solid and semi- solid rock. The result is a network of metal rich veining, typically playing host to friends like gold, silver, copper or molybdenum.
From this explosion, the sudden depressurisation causes a rapid solidification of the remaining magma into an igneous rock – larger crystals form during the magma rise, along with a fine grained groundmass forming at the later depressurising stage. This rock texture is called ‘porphyritic’.
The conduit formed by the ascending magma is often exploited multiple times by the source of the igneous rock, leading to multiple intrusive events – which can add additional metal to the porphyry deposit.
This is why porphyry deposits often host mineralisation in cracks and fractures as well as disseminations of mineralisation through the body.
Just take a look at the alteration to this porphyritic sample from PRA’s records:
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Not all magma was created equal. Some magma is rich in precious metals. Some is not.
This is the stuff that keeps geologists up at night, dreaming of the next big mineral rich discovery.
All the different stages of cooling outlined above lead to the separation of dissolved metals in distinct zones. Hence the existence of rich, localised metal ore deposits such as those of gold, silver copper, & molybdenum.
The below picture is another impressive piece of porphyry… as you can see, it’s no ordinary type of rock.
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The following video gives a good guide to the steps in mining a porphyry deposit, from exploration (where PRA are at right now), discovery (hopefully after the recently approved drill program) and development and export of the resource (the final goal!).
http://www.youtube.com/watch?v=93LWVCie8FM
As you would have seen, the steps of exploration are as follows:
IP Geological Survey: COMPLETED BY PRA Definition of porphyry target based on high chargeability locations: COMPLETED BY PRA – more on this below Drilling, which defines the resource beneath high chargeability target: NEXT STEP FOR PRA
PRA’s Alumbre Project, based on all investigations so far, shows all signs of following the typical porphyry model.
Class 2: Chargeability leads to Metal
So now you understand porphyries, it’s time to take a closer look at chargeability.
Below is PRA’s main target at Alumbre, glowing like Jupiter. The red in the model below indicates the very high chargeability zones, along with the proposed drill trace locations.
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So what is a ‘very high chargeability zone’ and how does it affect the chances of PRA making a world-class mineral discovery?
Chargeable ground has the ability to retain electrical charge, rather like a capacitor or a rechargeable battery. You have probably worked out already than plain old rock wouldn’t hold an electric charge… a chargeability zone indicates METAL!
The higher the chargeability, the higher the implied metallic content of the ore.
To be chargeable, a substance must be able to conduct electricity and hold the electrical charge. Hence chargeability and conductivity anomalies are very closely related. As you can see from the below figure, the chargeability figures for PRA’s Alumbre concession are white hot!
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Final Class: Molybdenum – the “dark horse” of the porphyry family
The porphyries that PRA are identifying in Peru look like they contain a fair amount of some more common minerals, like gold and copper, but also another mineral which you may not have heard of before: Molybdenum.
Molybdenum is a dark, silvery grey metal, inextricably linked with construction growth in China, with 60% of its production being used as a strengthening component in steel. High strength steel alloys, typically contain between 1% and 8% molybdenum.
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It is one of the metals most highly leveraged to resurgent Chinese and global economic activity.
The versatility of molybdenum has also ensured it plays a significant role in cutting edge industrial technology, which increasingly requires materials that are resistant to high stress, expanded temperature ranges, and highly corrosive environments.
More is used in armour plating for combat vehicles, chemical applications and high speed cutting tools. Few of molybdenum’s uses have acceptable substitutions – it is one of the more irreplaceable metals, and has a monopoly over its current demand. PRA’s cornerstone project shows strong potential for molybdenum and drilling will soon determine more.
As you can see from the chart below, Molybdenum production is on the rise, and has been for decades:
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If PRA do uncover a large copper-gold-molybdenum porphyry system, they could be digging this stuff up in spades… along with the copper and gold of course.
Peru is the Rolls Royce of overseas mining destinations… in fact it’s even better than Australia in several key aspects.
PRA have invested all of their efforts in Peru for good reason. Peru is nestled completely within the mineral rich ‘ring of fire’ and has a super charged economy to boot.
The economy is motoring at a rapid state of growth. In fact the Peruvian economy has averaged a growth of 6.5% a year over the past decade. Perfect timing for PRA, who have been scouring the Peruvian Andes in search of a big find since 2010.
The booming Peruvian economy and the associated importance of the mining sector was summed up nicely by Luis Oganes, JP Morgan head of Emerging Markets Research Group at JP Morgan in New York in the video below. This backs up PRA’s entire reason for taking such a big stake in Peru.
As you would have seen, the biggest driver of the Peruvian economy comes from private investment. Peru is rich in diversified deposits of gold, copper and silver. The mining sector continues to remain very strong, and justifies why PRA are investing in Peru above other regions.
The government is extremely keen to attract more foreign investment in their mining industry, as reported in the ABC article below. The current government has continued with a pragmatic economic approach, maintaining an open market. Peru lets market forces operate, providing a sound basis for investment. One way investors can get exposure to the Peru market is through PRA.
Matched up with Peru’s motoring economy, South America is one of the most mineral-rich continents on earth… and Peru is particularly so. It’s the W.A. of South America when it comes to endowment of metallic deposits. Mineral production capacity in most countries has flat-lined in recent years, but South America’s clout in the copper industry been rising exponentially. PRA has been involved in Peru since 2010 scouring the country for the tenements with the most potential.
Peru is expected to attract $15 BILLION worth of copper mining projects between now and 2015, in which time annual copper production will rise from 1.5 million tonnes to 2.8 million tonnes.
Gold mining activity in the country is equally impressive. Peru is the largest gold producer in Latin America, and the sixth largest worldwide.
Barrick Gold, the world’s largest gold miner, operates the Lagunas Norte mine in Central Peru, which produced 411,000 ounces of gold at all-in costs of just $633 per ounce, and hosts proven and probable gold reserves of around 6 million ounces.
And Newmont Mining, the world’s second-largest gold producer, may be preparing a bid for the highly coveted Las Bambas copper project, which current owner Glencore Xstrata has put up for sale.
The other big news is that now China is making a move on Peru. Two Chinese mining companies, Jiangxi Copper and Hong Kong-listed MMG, have officially submitted separate bids for Las Bambas. The Chinese are moving quickly, desperate to secure a stake in Peru. Luckily for PRA investors, PRA already holds 34,000 ha of prime mining real estate!
Molybdenum-copper porphyry deposits, so valuable to the Chinese economy are being discovered in Peru at an increasing rate. This is where PRA fits in, with the Alumbre Project showing strong potential.
Political uncertainty or civil unrest can have negative effects on a mining project’s potential, and hence cause a suppressed stock price. No problems here – the Peruvian mining industry is established, well regulated with straight forward, equitable laws, and a stable, mining-friendly political landscape.
After all, you don’t want a nasty surprise like a “Minerals Resource Rent Tax” coming in and negatively affecting the value of your investment (like in SOME countries we know!). PRA won’t have to worry about this in Peru.
The continued growth of the economy can be attributed to one main thing – private investment in mining. A series of majors are making big commitments in the country – BHP, Vale, Xstrata, Newmont, some of the biggest miners on the planet, are pouring billions of dollars, and a lot of energy, into Peru.
BHP snapped up 144 separate exploration permits in Peru last year alone, and now hold the rights to 1,425 potential projects in Peru.
The reasons that these major miners are getting all hot and bothered about Peru is that Peru is blessed with some of the biggest low cost gold and metal deposits in the world. The key commodities being gold, copper and silver. Exactly what PRA are chasing.
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We here at The Next Small Cap are excited about junior exploration in Peru, as outlined in our previous article Wave of Mining Juniors Entering South America. PRA can slot themselves alongside these companies, as they stake their claim in Peru.
In summary, Peru ticks two very big boxes when it comes to investing in small cap explorers – a mineral rich landscape and a booming, welcoming economy.
Crucial Pre-Investment checklist
The Next Small Cap Pre-Investment Checklist Criteria has been carefully considered and put together by a team of contributors that have been successfully investing and trading mining stocks for many years.
The Pre-Investment Check List explains exactly what to look for prior to making any investment in a speculative mining stock. You can read in detail the full 20 point check list (and a whole lot more of investment guidance) in our eBook: “How to Make Money Investing in Junior Resource Stocks”
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For now we will be assessing PRA against a select few of the checklist criteria:
Pre-Investment Checklist Criteria: What is the track record of management?
PRA management well and truly has the expertise, energy and experience to make the most from their impressive suite of mineral prospects.
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What’s more, together they own over 23,000,000 shares in PRA – we view this as a huge vote of confidence in the projects and the ability of their own company, and it highlights that management’s interests aligns the interests of shareholders.
Market Cap: Does the company have a small market capitalization? How many shares are on issue?
At The Next Small Cap we aim to identify companies with the highest potential for growth or take over – small and microcap companies. These companies carry an inherent risk that needs to falls within your investment profile, but also have high prospects of sudden, significant and sustained price appreciation if chosen correctly… that’s where The Next Small Cap comes in!
PRA is currently capitalised at just $5 million, which leaves a lot of room to grow.
As a crude simplification, if a $5 million company finds a low cost deposit likely to deliver $100 million in early cash flow, the share price might go up 20-fold.
However if a $50 million company found the same deposit, its share price may only double.
Therein lies the benefit (and risk) of investing in micro-cap mineral explorers.
Infrastructure: Are the company’s assets close to infrastructure: roads, rail etc?
PRA’s flagship projects, Alumbre and Quinual, lie around 70 kilometres southeast of the major town of Trujillo in Northern Peru, within kicking distance of the Pan American highway and other arterial roads.
Trujillo is an agricultural, commercial and transport hub, and the most important economic centre in northern Peru. Conveniently, it’s also located on the banks of the Moche River, near its mouth as it enters the Pacific Ocean.
Another benefit of exploring close to large existing economic deposits, aside from the increased likelihood of discovery and takeover, is the fact that the big miners have already done all the “heavy lifting” in terms of mining-specific infrastructure such as mineral processing mills.
All this will result in low cost capital and operating expenditure, high margins and strong cash flows, if PRA make a big find… and if one of the big miners doesn’t take them out pre-production.
The Next Small Cap Conclusion
PRA is the one that highlighted itself from the crowd in several key areas, including:
A: Level of market enthusiasm likely to be generated in the lead up to and during drilling;
B: Genuine likelihood of a game changing, company-making deposit being discovered and confirmed, and;
C: Management capable of leveraging any discovery to raise sufficient funds for development and production, or to negotiate a takeover deal offered by a mining major that would line shareholders pockets with gold (and copper and molybdenum)!
With a license to drill in the bag, and first stage drilling imminent, PRA investors will be watching closely!
PRA Price at posting:
3.5¢ Sentiment: LT Buy Disclosure: Held
