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Metanor Resources: One Attractive 'Bachelor'

October 17, 2006

Before getting into the fundaments, let's briefly look at Metanor Resources from the perspective of a technician.

"All charts are courtesy of"

Weekly Technical Analysis Chart of Metanor Resources

In order to get a clear picture of the price action one should look at the weekly chart to filter out all the 'noise' of intraweek movements.

If we ignore this year's earlier price rise, what we see in the above chart is a falling wedge pattern (magenta), something that normally leads to a breakout to the upside followed by a move back to the beginning of the wedge. In this case, this would represent aprice target of $1.10. This chart also tells us that at least up until now, when the price crosses the 17 w. MA a further advance is triggered.

With the price just below the 17 w. MA at this point, the chances are steadily rising that a new, large rise in the share price could be just around the corner.

The indicators confirm this expectation.

  • The MACD is again at the point where prior rises started.
  • The RSI and OBV are simply waiting for a signal to support a bigger rise in price. They could trigger buy signals immediately.

Let's take a glance at the daily chart to see if these expectations are justified.

Daily Technical Analysis Chart of Metanor Resources

Although it seems that nothing much changed in the chart in these past several months, there have been some good developments in the background. That is to say, even though the price is still within the range between resistance and the support, the indicators are showing a build-up of positive sentiment.

  • The RSI has maintained its positive divergence and remains near the 50 level ready for a breakout to the upside.
  • The buying power in the DMI managed a positive cross and is now well above the selling power, serving to build positive momentum.
  • The MACD and OBV are both waiting on a signal to break above their individual trigger lines, which when broken, would serve to give additional buy signals.

Last Friday (October 13th) the price closed just below both MA's. If early next week the price rises towards the resistance zone, the possible buy signals in the MACD ad OBV will become fact.

The expectations from the weekly chart are confirmed by this daily chart. All we need is a confirmation by some positive price action, preferably a breakout of price above the $0.60 level.

And Now for the Fundamentals

*All numbers below are quoted in USD unless stated otherwise

Share Data:

  • Symbol: MTO.V or MEAOF.PK
  • Outstanding Share Count: 20.5M (September 1, 2006)
  • Fully Diluted Share Count: 31.8M (September 1, 2006)

There are 9M warrants which are exercisable at Cdn$0.85/share. All of them expire in December of 2006, which means they are all currently out-of-the-money with MTO trading at Cdn$0.60/share.

  • Fully Diluted Market Capitalization @ $0.50/share: $15.9M

Remember that this capitalization accounts for the warrants as if they are already free trading, but they are not. If these warrants were exercised, this would raise nearly Cdn $8 million for Metanor, a significantly large chunk of the estimated Cdn$30 million* needed to bring the Bachelor Lake property back into production.

*In reality, only a total of about Cdn$18 million will be needed, because of Quebec's 51% tax credit incentive. For instance, if Metanor raises Cdn$10 million through an equity financing, and spends that on underground exploration/development while the company is still considered an explorer, it will receive a tax credit of about Cdn$5 million back from the government. This tax credit in the amount of Cdn$5 million can then be spent on further exploratory activities, and Metanor will receive another tax credit of about Cdn$2.5 million as long as they are still classified as an explorer, and so on and so forth. Quebec is the only Canadian province to offer this phenomenal 51% tax credit.

  • Cash: ~ Cdn$1.7M
  • Debt: $0
  • Ownership:
    • ~20% held by Management (that's good incentive)
    • ~25% held by Institutions
  • Website:


Between 2001 and 2003, Metanor explored their first property, the Dubuisson property in Quebec, and proved up nearly 460,000 ounces of NI 43-101 compliant gold resources. Shortly afterwards in December of 2003, Metanor completed its IPO and became a publicly traded company on the TSX Venture Exchange.

Private Placement and IPO History:

  • 2001-2002: Private placements raised $1.2M at Cdn$0.70/share
  • 2003: IPO Public placement raised $3.45M at Cdn$1.00/share
  • 2004-2005: Private placements raised $4.3M at Cdn$0.60/share

The significance of the above is that interested investors today can still get in at prices at or below those offered only to accredited investors several years in the past.

Don't expect this firesale to last long though, because interest in the company is growing. For instance, David Bond (editor of recently wrote a nice report on Metanor Resources shortly after visiting the property a several months ago (See: Mad About Metanor).


Metanor's main focus is the Bachelor Lake property, which is expected to begin a pre-production bulk sampling program in Q3 2007, and then official production around Q2 2008. The important thing to keep in mind is that the bulk sampling program will be milling the gold ore at a rate of about 500 tpd, no different than when Metanor Resources becomes a formal producer in early 2008.

Rate of Production: ~50,000 oz/year initially (using the current 500 tpd mill), and then soon afterwards ramping up to a 650 tpd milling operation. This upgrade is only expected to cost about $350,000, and would result in the production of roughly 65,000 oz/year.

Looking forward, the ultimate goal for the Bachelor Lake project is to reach a production rate of some 100,000 oz/year, but only after the mill undergoes a more costly expansion to the 1,000 tpd level sometime around 2009/2010 (est.).

Total Operating Cost: ~$325/oz.

Assuming a fully diluted share count post financing of 40M shares, the low-end 50,000 oz/yr model should yield profit of roughly $0.34/share if operating costs prove accurate. If Metanor can prove up additional resources that would allow for a 10 yr. mine life, we could have a $3.40+/share stock in 18-24 months using a P/E of 10 (a ratio which is quite low for a gold producer). By 2009-2010, if the 100,000 oz/yr production model is realized without any further dilution, Metanor's stock could justifiably trade as high as $6.87/share, again using $600/oz gold and a P/E of 10. Please keep in mind that these valuations would only account for the potential at the Bachelor Lake property, which is just one of the four prospective properties owned by Metanor.

The icing on the cake is that Metanor will still be considered an exploration company while they sink their shaft down an additional 600ft. in 2007, which means they will receive $0.51 in tax credits for each $1 spent. From this new shaft, Metanor will then construct drifts downwards and outwards in an effort to expand resources to the 1-2 million ounce range over the next 12-16 months. In the process of digging out the shaft, about 100,000 tonnes of ore is expected to be stockpiled and then eventually processed in the mill beginning in Q3 2007. It is assumed that this 100,000 tonne bulk sample program will yield an average gold grade of 8.5 g/t at a recovery rate of 95%. This would produce roughly 26,000 ounces Au over a period of about 6 to 7 months, all while Metanor is still considered an exploration company and earning $0.51 in tax credits for each $1 spent!

Furthermore, all of the revenue generated during this period of bulk sampling will be tax free!! This means that Metanor will net about 13,000 ounces in 'free gold'. That's $7.8M of added value at $600/oz gold. During this bulk sampling program, Metanor will apply for all the necessary production permits, and if received, there shouldn't be any delay as Metanor shifts overnight from explorer to producer status in early 2008. Again, please understand that even though Metanor will technically be classified as an explorer during the bulk sampling program, they will, in essence, be a gold producer.

In addition, Metanor will also receive tax credits for wages paid to employees, a 'tax for training'. This, combined with the above, is ample proof that Quebec (the Val-d'Or region in particular) is a very mining friendly place.

More detailed information on all the four properties owned by Metanor, including Bachelor Lake, follows below.

The Bachelor Lack Property

The Bachelor Lake Property hosts the former Bachelor Lake Gold Mine which produced over 131,000 oz of gold during the 1980's, and is located in Quebec, 225km northeast of Val-d'Or. The surface and underground infrastructure needed to begin production are on site and in good state, the township is connected to provincial power grid and telecommunication systems, and there exists a large population of experienced miners and related tradesmen within a 240 km radius of the mine.

There are NO land claim issues or ownership disputes.

There are NO environmental issues.

In a report dated February 27th, 1989, LESLIE ENGINEERING LTD. documented and carried out a detailed appraisal of the Bachelor mine facilities and equipment on a fully installed basis. At that time, an appraised value of Cdn$18,251,000 was estimated. The infrastructures, namely a 500t per day mill, consist of the following:

  • Office, warehouse and shop complex;
  • Head frame, bins, hoist and air compressor complex and substation;
  • Underground mine complex;
  • Gold processing mill;
  • Tailings disposal area.

Currently, the access infrastructure to the mineralized zones are evaluated at Cdn$11 million, and the cost of building the 500 t/d mill Cdn$27.8 million. Therefore, the total value of the infrastructure now totals at least Cdn$38.8 million (US$34.3 million), which is more than DOUBLE the current fully diluted market capitalization, and more than TRIPLE the undiluted capitalization!

The mill complex, already built on site, could be rehabilitated for about Cdn$3.5 million. Not only that, but once the mill is operational, Metanor will be in the catbird seat, for the simple reason that there are about 15 small potential gold operations surrounding the Bachelor Lake property with aggregate gold resources of roughly 1.5M ounces. Since Metanor will have the only working mill in the area, it will have the option to either process this outside ore for a nice fee (>Cdn$10/tonne), or to begin acquiring these smaller operations as the cash flow starts coming in from Bachelor Lake.

Access to the gold deposit within the Bachelor Lake mine is provided through a fully operational and dewatered 12 level, 563 m deep shaft. Measured Resources are already accessible from the actual underground infrastructure, and Indicated Resources are located just below the footprint of the existing underground development.

The Bachelor property also has significant potential for discovering additional gold resources located in the immediate environment of the existing surface and underground mine infrastructures. As such, Metanor intends to proceed with an advanced underground 12-16 month exploration program designed to increase resources following the acquisition of Halo's 50% interest in the property in November 2006. Meanwhile, a feasibility study will be carried out, followed by mill rehabilitation and production start-up by early 2008.

The current undiluted measured and indicated gold resource at the Bachelor/Hewfran property is 210,857 ounces (7.79 g/t), and there are an additional 89,000 ounces (6.52 g/t) in the inferred category. This isn't large by any means, but the potential to expand this gold resource into a 2 million ounce deposit does exist based upon the 2005 drilling program.

Hewfran will be the primary target of surface exploration in 2007, where it is expected that Metanor can significantly increase their resource base. It is hoped that this will create a steady stream of news during a period of time largely spent making all the necessary repairs/changes/improvements to the Bachelor Lake facilities and underground workings before it is production ready in 2008.

The News That Has Gone Totally Unnoticed

Mentanor recently announced (May 2006) their agreement to acquire full 100% ownership in the Bachelor Lake property from Halo at a cost of C$3.5M and 750,000 shares. The transaction should be completed within 1-2 months. But despite this excellent news, due to the recent sell-off in gold the price of Metanor is still hovering around all-time lows, having lost about 50% of its value since its inception on the TSX exchange in December of 2003.

I don't know of many precious metals stocks whose charts look so depressing considering that the price of gold has risen over 50% during this same period, but I do expect Metanor to have its day in the sun very soon.

Though Metanor is currently focusing nearly 100% of its efforts on the Bachelor Lake property, it also has 3 other exciting properties which will allow for continual expansion well into the future. Of the 3, Wahnapitei (located in Sudbury), is the most likely target of any near-term exploration due to its close proximity to Falconbridge's Nickel Rim deposit (more below).

Wahnapitei Property (Sudbury)

This Property is composed of two mining leases covering a relatively small area of 130 hectares.

During 2004, diamond drilling carried out on the property demonstrated that this area is prospective to high grade gold (7-15 g/t), along with significant amounts of cobalt and nickel. These results corroborated nicely with the drilling carried out in 1988.

The mineralized zones identified in this drilling program are located less than 5 km north-east of the Nickel Rim South deposit, where Falconbridge Limited is actually investing over $368 million in underground development of its deposit.The geologists at Falconbridge apparently already agree that mineralization from their property extends into Metanor's. The question is how much.

As a result, an exploration program is currently being prepared to define the extent and continuity of all gold and cobalt bearing zones. The field work will be starting in the next few weeks to establish targets to perform 3,000 meters of diamond drilling in the following months. Afterwards, if the drilling results continue to validate significant gold mineralization on the property, it is perhaps most reasonable to assume that Metanor will wait for Falconbridge to approach them with an offer while they focus their attention on Bachelor Lake.

Dubuisson (Val-d'Or, Quebec)

The Dubuisson Property consists of mining claims covering 432 hectares within the city limits of Val-d'Or, Québec, where 9,000 m of exploratory drilling has confirmed a measured + indicated + inferred resource of over 450,000 oz. Gold.

There are NO known environmental or land claim issues pending with the Dubuisson gold property.

Since the city/region of Val-d'Or is already one of the major mining centers in the Province of Québec, it is not anticipated that their will be any restraints in conducting mining activities on the property.

The city of Val-d'Or is a comprehensive mining centre capable of providing personnel, contractors, equipment and supplies to a number of operations in the area. Power is available from a provincial power line which crosses the entire length of the Dubuisson Property. The property can be reached via highway and a 0.5km newly built gravel road that leads directly to the property. A railroad line also crosses through the entire length of the property.

According to the available geological data, it appears that the Dubuisson Property displays similar geological characteristics to that of the nearby Sigma Mine, which has produced approximately 4.3 million ounces of gold to date.

In about 18 - 24 months, after cash flow starts coming in from Bachelor Lake, Metanor expects to conduct a major exploration program on the Dubuisson property.

Opinaca Property (Northern Quebec)

Metanor recently (March 2006) acquired this 4,827 hectare property, which is located in Northern Québec.

This new property lies about 30 km south-southwest of the Éléonore gold property (Virginia Gold Mines), which Goldcorp has now acquired, issuing 19.6 million common shares to shareholders of Virginia Gold Mines. These shares were valued at about $669 million at the time of the transaction.

Furthermore, in this same area, Beaufield Consolidated Resources mentioned in its 2005 annual report that it had located a neighbouring property about 15 km south-southwest of the Roberto deposit, which returned gold values ranging from 6.02 g/t Au to 12.03 g/t Au over a strike length of 75 m.

Hmm…remember that Metanor's property lies only about 15km further to the south-southwest?


Metanor has basically lain dormant for over 2 years while most other mining companies have seen triple digit rises in their stock price, and as such, it looks to be very much undervalued when compared to its peers. Now that Metanor has emerged from its shell, I believe the share price has some serious catching up to do.


18 October 2006

Contact: [email protected]

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This report contains information that is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. The information contained from these sources is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed herein are those of David Zurbuchen and are subject to change without notice. The information herein may become outdated and there is no obligation to update any such information. Please seek advice of professionals, as appropriate, regarding the evaluation of any specific security, report, opinion, advice, or other content. We do not in any way warrant or guarantee the success of any action you take in reliance on the statements of the designated subsidiary.

I, David Zurbuchen, own shares in Metanor Resources, but I have not been compensated in any way by the company to write this report.

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