Searching for value can be difficult in a bull market… but, ironically, it becomes easier in a bear market, particularly a long one. That said, the more severe a bear market is, the less likely retail investors are to look for opportunity. They get investor-fatigue. Regretfully, this is why the majority of retail investors miss out on early gains, having long thrown in the towel, waiting for things to ‘turn around’ before they dip their toe back in the water.
With the current mining bear market in its 4th year, companies able to tick the boxes with the right
criteria have become few and far between, making the well-positioned junior miners/explorers stick out like a sore thumb.
In the search for our second Featured Company of 2015, we were adamant that it operated in the junior mining space, and that the company be partnered with a major who had invested considerable cash, expertise and time in the project. (We wanted to see serious commitment, not soft ownership with limited skin in the game.) Reason being is because far too often juniors get stuck attempting to finance and advance an asset with no backing from a major or partner. In bear markets, this can lead to work grinding to a halt, news flow drying up, and plummeting valuations – just as we’ve seen with many juniors in recent years.
We also wanted a production angle to the story. This is an added benefit — in some unique situations — when juniors partner with bigger players. And in our new featured company’s case, even the small-scale production achieved at the project told us many things about the region, and the relationships already in place.
Thirdly, there had to be demand for product. While that sounds obvious, for many commodities in this economic environment there just isn’t enough global demand. Several commodities are in extreme global supply gluts right now, selling at a significant discount or simply out of favor.
The subtitle of our new-featured company’s press release from May 12th, reads:
“Receives Highest Premium Yet Achieved for Product”
How many juniors do you know of who are selling commodities for a premium in today’s market?
Key fact: The major whose subsidiary is partnered with our new-featured company has approximately $2.7 billion in assets under management.
Enter Manganese: an agricultural mineral and critical micronutrient.
Manganese is the 4th most used metal, in terms of tonnage, along with iron, aluminum and copper,according to the International Manganese Institute. Over 300 minerals are known to contain manganese, but only 12 are worth mining, according to the International Manganese Institute.
Key fact: Just four countries — Australia, Brazil, Gabon and South Africa — supply over 90% of the world’s high grade manganese ore.
Manganese is widely used in fertilizers, making it more diverse than most metals – hence our description of this commodity as an agricultural mineral and critical micronutrient. Only the high grade manganese (approx. 48% Mn or higher) can be used in fertilizers for agricultural purposes. More importantly, it must comply with the statutory ceiling on heavy metal content. So finding deposits with this calibre of manganese is very important to the global agricultural industry. And, in part for that reason, Brazil is heavily relied on as a manganese source.
The pressure on manganese supply is best explained like this: Approximately 93% of manganese goes into steel manufacturing. There is no substitute for this commodity in steel making. Furthermore, a rising demand for high grade manganese has come to pass in recent years as farmers/growers look to boost crops like soybeans to meet soaring global demand.
It can be argued that no country has felt this pressure for manganese demand more than Brazil, which overtook the US in early 2014 as the world’s largest producer of soybeans. Brazil is also the home of our newest featured company’s flagship asset, which is currently in small-scale production.
Key fact: Brazil exported 94.50 million tons of soybeans from April 2014 to April of 2015. This is up from last year’s 2013/14 crop, where exports reached 86.70 million tons; and 2 years ago in 2012/2013 when Brazil’s exports totaled 82 million tons.
Brazil’s share of the global soybean market has grown exponentially since the late 90s, as can be witnessed from the above chart.
Manganese Fertilizer 101
Manganese is essential to plant growth. It is a major contributor to various biological systems, including photosynthesis, respiration, and nitrogen assimilation.
According to pioneer.com, from an article titled Manganese Fertility in Soybean Production:
“Of all micronutrients, manganese tends to be the most common deficiency noted in soybean production.”
For years we’ve written about the importance of agriculture and the looming global food crisis, which already impacts much of the world. Quality, high-nutrient content food needs rich soil to grow; and manganese is a critical micronutrient found in healthy soil, used increasingly to boost crops.
Key point: Manganese must be high grade (at least 48% Mn) and have very low heavy metal content for it to be applicable to the agriculture industry.
Our new Featured Company, as mentioned, is partnered with a major private equity firm (via its subsidiary). The project they are partnered on is in small-scale production and has produced some of the highest grade manganese in Brazil (approx. 53% Mn). The product is being sold directly to fertilizer manufacturers in that country.
What’s more, for the first time, our new Featured Company and its partner on the project are starting drilling to test whether the vein systems on the property have the potential to host a large global deposit of manganese. It is critical to understand these initial drill targets represent less than 10% of the known areas of mineralization; and in conjunction with the first ever regional airborne program, the company aims to prove up its geological model. Additionally, the property is located in close proximity to a region in Brazil credited with making the South American country one of the world’s largest producers and exporters of soybeans.
Our New Featured Company is Cancana Resources Corp. (CNY:TSXV)
Cancana Resources Corp. (CNY:TSXV) is focused on exploring and developing the BMC Manganese Project in Brazil with its joint venture partner Ferrometals.
Ferrometals is a special purpose investment vehicle for The Sentient Group. Sentient is a resource-focused private equity fund with approximately $2.7 billion in assets under management, and a 15-year track record for advancing resource projects from early stage to pre-feasibility and development.
Ferrometals has invested roughly US$24 million in the BMC project to date, both directly and through Cancana.
Cancana Resources (CNY:TSXV) and Ferrometals formed the Brazil Manganese Corp. (BMC), and are employing a two-pronged strategy at the project. The primary objective is to advance the BMC Manganese Project to an initial resource and onward to pre-feasibility, while also expanding current small-scale production to support those exploration activities.
The BMC Manganese Project includes two small-scale manganese production plants, known as Rio Madeira and Jaburi, and a land package totaling 104,000 hectares. Cancana has a one-time option to increase its ownership in the JV from 32.5% to 39.5%, which expires in November of this year.
The potential benefits of being partnered with a bigger player are obvious: Access to capital, followed by deep industry connections and expertise.
Ferrometals has consistently demonstrated their support of Cancana, participating in each of the Company’s financings since getting involved with BMC, most recently in the financing announced April 23rd.
The most recent example of Cancana’s ability to attract top tier human capital came on May 12th when it announced that Paulo Gontijo had joined the Brazilian JV (BMC) to expand existing operations. Gontijo is a former RTZ Corp. (now Rio Tinto Group), Yamana Gold Inc. and Vale S.A. mine manager.
Not many juniors have a previous mine boss from Rio Tinto Group, Yamana and Vale to draw from. Gontijo is a senior mine engineer with over 30 years’ experience. He brings BMC’s total employee count to 71, of which roughly 98% are Brazilian.
It’s the Grade and Purity That Counts
Just how high grade are some of the results from Cancana’s JV BMC Manganese Project? Although selective in nature, a regional sampling program returned an average grade of approximately 54%. More importantly, pilot production at the BMC Manganese Project from 2014 totaled 4,631 tons at an average grade of 53.2%.
Below is a map highlighting the recent sampling program. The red circles represent assays greater than 55% manganese.
The two small-scale production plants located on the property are also highlighted in light beige boxes above.
Fertilizer manufactures require a minimum grade of 48% manganese and statutory low levels of heavy metals. According to Cancana, its JV BMC Manganese Project has the highest manganese (Mn) grade in the country and little or no heavy metal content. That’s noteworthy when you consider that Brazil is one of the main suppliers of higher grade manganese in the world.
A premium is paid for high grade, high purity manganese that meets or exceeds mandatory statutory compliance on heavy metals content. This can be seen in Cancana’s May 12th press release, subtitled“Receives Highest Premium Yet Achieved for Product”.
Cancana’s President & CEO, Anthony Julien, made the following comment on May 12th:
“This quarter successfully demonstrated the value of our strategy of targeting the higher priced manganese fertilizer market rather than the steel market. We achieved a notable premium that was our highest to date. We continue to make quality and infrastructure improvements that will enable us to expand production…”
Click here to read the entire quote and press release.
In respect to Q1 sales, BMC averaged more than a 30% premium on current CIF prices and represented a 15% increase in sales price on previous sales from 2013.
Highest Grade Manganese in Brazil
Whatever commodity a company is mining, the higher the grade, the better. That’s universal for any commodity. We have seen this in the gold sector in recent quarters as several high grade assets were acquired or closed significant financings.
Cancana’s JV BMC “project has the highest manganese (Mn) grade in the country”, according to its investor presentation. In light of Brazil’s standing as one of the world leaders in manganese production, it can be argued that the BMC project has some of the highest manganese grade ore in the world.
image source: Cancana investor presentation
The Right Market – The Right Time
Between now and 2020, Brazil will need current manganese production to increase 170% to meet domestic demand.
Location, Location, Location
While being located in Brazil is advantageous, Cancana’s JV BMC Manganese Project is located close to where the majority of soybeans in the country are produced. This potentially puts Cancana at a geographical advantage to other producers.
The red dot (map above) outlines BMC’s 104,000 hectare Manganese Project. The dark green area represents the highest soybean production region in Brazil, whereas the lighter green represents more modest production.
Soybeans are Big Business
By far the largest category of Brazilian agricultural exports to China is soybeans, which totaled 32.8 million metric tons, worth roughly $17.15 billion, in 2013. This made Brazil China’s top supplier of soybeans.
Significant amounts of soybeans are harvested in the State of Mato Grosso, Brazil, directly east of the State of Rondonia where Cancana’s JV BMC Manganese Project is located.
Back of the Napkin Thoughts
While there is a hungry domestic market in Brazil for agricultural manganese, specifically from the soybean sector, a large tonnage production scenario would service the steel sector as well. This is why projections show that between now and 2020, Brazil will need current manganese production to increase 170% to meet domestic demand.
If Cancana and Ferrometals can prove up a world-class resource in regards to size and grade, they could be well-positioned for the next commodity bull market.
A perfect example of what can happen in a bull market for a high grade, large-scale resource can be seen in Australia’s Woodie Woodie Manganese deposit. Woodie Woodie is a 36 million ton manganese asset that has a 1.3 million ton annual manganese production capacity at an average grade of 44% Mn. The previous project owner, Consolidated Minerals, was purchased for AUD$1.3 billion at a time when it was only producing 250,000 metric tons of manganese per year in 2007.
A key geologist that worked on Woodie Woodie is Ganesh Bhat. He happens to be the senior geologist and investment manager at the Sentient Group supporting Ferrometals’ management team. He has a BSc (Geology), MSc (Applied Geology), PhD (Geology) and a Master of Applied Sciences (Environmental Science). He worked in Australia at various nickel and gold operations for Lion Ore and Coolgardie Gold Mining Company before joining Consolidated Minerals as Senior Geologist where he was involved in the resource development for the Kambalda nickel operations, and Coobina chromite mines and Woodie Woodie manganese mines in Pilbara, Western Australia.
Cancana’s Built-in Advantages
Through its partnership with Ferrometals, risk is somewhat mitigated for Cancana as its majority stake partner is responsible for investing the majority of capital into the asset. As a 32.5% stakeholder in the BMC Manganese Project, Cancana is in a unique position.
Cancana’s President & CEO, Anthony Julien’s final comments in May 12th’s press release were this:
“Our goal is to increase production for the remainder of the year. That will enable us to move toward economically subsidizing the development of a flagship resource, that will see its first drill campaign begin later this month.”
Having completed an extensive regional sampling program, the next major goals will be to prioritize and test drill targets from the regional geophysics program, while ramping up and modernizing its current production. With production offsetting some of the costs to work the project, the current drill campaign will start the search for potential large-scale, high grade resources at Cancana’s BMC Manganese Project. This is the first time that regional bedrock exploration drilling has been undertaken in the project’s 10-year history. And that’s why we are introducing it to you now. The program is expected to commence in late-May.
We are biased towards Cancana Resources (CNY:TSXV) because they are an advertiser client and we participated in the company’s recently completed private placement for our own investment purposes. We may also increase our share position in the company following the release of this report. Please take responsibility for practicing your own thorough and independent due diligence.
This marks the initiation of our coverage on Cancana Resources (CNY:TSXV). Its shares last traded at CDN$0.235. We will have further updates in regards to this story over the coming weeks.
All the best with your investments,
*Cancana Site Visit – February 2015
Disclosure, Risks Involved and Information on Forward Looking Statements:
Please read carefully before proceeding. THIS IS NOT INVESTMENT ADVICE. All statements in this report are to be checked and verified by the reader. This report may contain technical or other inaccuracies, omissions, or typographical errors, for which Maximus Strategic Consulting Inc., owner of PinnacleDigest.com, assumes no responsibility.
Important: Our disclosure for this report on Cancana Resources applies to the date this report was released to our subscribers (May 26, 2015) and posted on our website. This disclaimer will never be updated, even after we have sold all of our shares of Cancana Resources.
In all cases, interested parties should conduct their own investigation and analysis of Cancana Resources Corp., its assets and the information provided in this report.
All statements in this report, other than statements of historical fact should be considered forward-looking statements. These statements relate to future events or future performance. Undue reliance should not be placed on forward-looking statements because we can give no assurance that such expectations will prove to be correct.
Forward-looking statements are often, but not always identified by the use of words such as “seek”, “anticipate”, “plan”, “aim”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “predict”, “potential”, “targeting”, “intend”, “could”, “might”, “should”, “believe”, “budget”, “scheduled”, and similar expressions. Much of this report is comprised of statements of projection.
Forward-looking statements include, among others, statements with respect to Cancana Resources’ plans for exploration and development of the Brazil properties and potential mineralization. These statements address future events and conditions and, as such, involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of Cancana Resources Corp. to be materially different from any future results, performance or achievements expressed or implied by the statements. Such risk factors include, among others, failure to obtain regulatory approvals, failure to complete anticipated transactions, the timing and success of future exploration and development activities, exploration and development risks, title matters, inability to obtain any required third party consents, operating hazards, metal prices, political and economic factors, competitive factors, general economic conditions, relationships with strategic partners, governmental regulation and supervision, seasonality, technological change, industry practices, volatility in stock price, and one-time events. In making the forward-looking statements, this report has applied several material assumptions including, but not limited to, the assumptions that: (1) the proposed exploration and development of mineral projects will proceed as planned; (2) market fundamentals will result in sustained metals and minerals prices and (3) any additional financing needed will be available on reasonable terms.
Maximus Strategic Consulting Inc., owner of PinnacleDigest.com, expressly disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
We caution all readers of this report that Cancana Resources Corp. has not completed any feasibility studies on any of BMC’s mineral properties, and no mineral reserve estimate has been established. Because the Company production decision is not based upon a feasibility study of mineral reserves, the economic and technical viability of the property has not been established.
Risks and uncertainties respecting mineral exploration companies are generally disclosed in the annual financial or other filing documents of those and similar companies as filed with the relevant securities commissions, and should be reviewed by any reader of this report. In addition, with respect to any particular company, a number of risks relate to any statement of projection or forward statement.
Investors are cautioned not to consider investing in any company without looking at said company’s regulatory filings and financial statements. Every reader of this report should review Cancana Resources’ regulatory filings and financial statements (found at SEDAR).
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Most companies featured in the Pinnacle Digest newsletter, and on our website, are paying clients of ours (including Cancana Resources Corp. – details in this disclaimer). In many cases, we own shares in the companies we feature. For those reasons, please be aware that we are extremely biased in regards to the companies we write about and feature in our newsletter and on our website.
Because Cancana Resources Corp. has paid us CAD$60,000 plus gst to provide our online advertising and marketing services, and we (Maximus Strategic Consulting Inc.) own shares in the company, you must recognize the inherent conflict of interest involved that may influence our perspective on Cancana Resources Corp.; this is why we stress that you conduct extensive due diligence as well as seek the advice of your financial advisor and a registered broker-dealer before investing in any securities mentioned in our reports.
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Disclosure of Compensation and Stock Ownership:
Set forth below is our disclosure of compensation received from Cancana Resources Corp. and an explanation of our stock ownership in the Company as of May 26, 2015:
Maximus Strategic Consulting Inc., owner of PinnacleDigest.com, has been paid CAD$60,000 plus gst to provide online advertisement coverage for Cancana Resources Corp. for a pre-paid nine month online marketing agreement. The company (Cancana Resources Corp.) has paid for this coverage. The coverage includes, but is not limited to, the creation and distribution of reports authored by PinnacleDigest.com about Cancana Resources Corp. (reports such as this one), as well as display advertisements and news distribution about the company on our website and in our newsletter. We (Maximus Strategic Consulting Inc.) participated in Cancana Resources’ recent private placement (see company press release from May 8, 2015 for details). In that private placement we purchased 263,158 common shares of Cancana Resources at $0.19 per share. The shares we own of Cancana Resources are subject to a four-month hold period expiring on September 9th, 2015. We (Maximus Strategic Consulting Inc.) intend to sell every share we own, as well as any shares we may purchase in the future, of Cancana Resources Corp. for our own profit. All shares we (Maximus Strategic Consulting Inc.) currently own or purchase in the future of Cancana Resources Corp. will be sold without notice to our subscribers. Please recognize that we benefit from price and trading volume increases in Cancana Resources Corp.. Please recognize that we are extremely biased when it comes to Cancana Resources Corp.
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