Pat McKeough responds to many requests from members of his Inner Circle for specific investing advice as well as questions on investment strategy and the economy. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle.
This week an Inner Circle member asked Pat whether it was time to sell a stock. Arctic Star Exploration is one of those mining stocks that has promising exploration prospects, but is still a long way from production. Pat assesses the company’s progress in exploring for diamonds at its Redemption project, which lies near two world-class diamond mines. He also looks at the company’s funding and its long-term prospects of success.
Q: Pat, I have a stock that I am questioning whether I should sell: Arctic Star Exploration. Thanks!
A: Arctic Star Exploration (symbol ADD on Toronto; www.arcticstar.ca) owns the Redemption project in the Northwest Territories’ Lac de Gras diamond field.
Redemption is near two world-class diamond mines: Diavik (47 kilometres away) and Ekati (32). It has what Arctic Star sees as strong diamond indicator mineral chemistry.
Prospector Chuck Fipke’s theories about indicator minerals led to the discovery of Ekati, Canada’s first economically viable diamond-bearing kimberlite deposit, in 1991.
Over the last 1.5 million years or so, a series of glacial ice sheets has eroded the surface of Canada and Greenland. As part of that erosion, the glaciers scraped the surface of kimberlite pipes, which may contain diamonds, and dispersed indicator minerals from the pipes over hundreds, or even thousands, of kilometres.
Kimberlites are cone-shaped pipes comprised of magma (molten rock) and rock that volcanic activity carries to the surface from depths greater than 150 kilometers. Diamonds form at those depths, under a mixture of extreme pressure and high temperatures. Kimberlites may also pick up diamonds along the way—sometimes in quantities large enough to justify a mine.
The indicator minerals are resistant to weathering, and Fipke theorized that glacial dispersion of them leaves patterns that can be traced back to their source. Applying this theory led him to discover Ekati.
Arctic Star gets $55 million injection of capital from North Arrow Minerals
In April 2013, Arctic Star began drilling for kimberlite pipes at Redemption after a number of years of tracing indicator minerals. Some of the indicator minerals found where it is now drilling were attached to kimberlite fragments, which could indicate that a kimberlite pipe is nearby.
In July 2013, North Arrow Minerals (symbol NAR on Toronto) agreed to spend $5 million on drilling prior to 2017 to earn a 55% interest in Redemption—including a firm commitment to spend $1 million before July 2014.
In addition to Redemption, Arctic Star owns the El Havila gold exploration property, located 32 kilometres east-northeast of Frontino, Colombia. The company plans to spend $500,000 over one year to earn an 85% interest in El Havila.
To fund its activities, Arctic Star recently raised $650,000 by issuing 10 million common shares at $0.065 each.
In the Inner Circle Q&A, Pat examines whether the funding from North Arrow can offset the very high risk of diamond exploration for Arctic Star, especially since kimberlite pipes are hard to find and very few of them hold diamonds in mineable quantities. He concludes with his clear buy-hold-sell advice on this stock.
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