Mariana Resources : AIM-listed Mining Company Sees Bright Future Ahead

So here is a question for you. Who do you think is more likely to run a successful mining exploration company in South America? A man who for forty years has been scouring the geological maps of that great continent, tramping the stony ground and swapping stories in bars where grizzled prospectors wash the dust from their throats? Or a man who, forty years ago, had not even been born?

This was the question exercising your Penny Sleuth as he returned from meeting two such gentlemen in London last week. The older of the two, John Sutcliffe, is a Yorkshireman. A lifetime spent thousands of miles away from his beloved Wharfedale in the Yorkshire Dales has weathered his bearded face but not quite disguised his accent, or the blunt opinions for which his native county is famous. ‘The oil industry,’ he told me, ‘is made for idiots.’ Once the drill bit hits oil, he explained, you leave the rig exactly where it is and just start pumping for all you are worth.

Not so in mining…

It’s as much who you know as what you know

Finding metal is only a step along the way. Before you can actually get it out of the ground you need a mining permit, a feasibility study, and all the necessary equipment. And by the time you are ready to actually dig the stuff out of the ground the price of the metal could be anything. So you have to cut deals. You have to raise cash amongst your friends and contacts. You have to bring in partners. You have to get all the local officials on-side. You need to hang out in the right places and meet the right people. It’s as much who you know as what you know.

So, sixty-two year old John Sutcliffe should have the edge over twenty-eight year old Jeremy Martin. Jeremy does not have a grey beard or a weathered face. Smart in a suit and tie he looks more like a young banker than someone whose idea of fun is hacking away at rocky outcrops in the hills of Peru. Inevitably he lacks the self-confidence of John, who already has discovered several major mines in his career and knows that he can do it again. John told me how Mariana Resources, his AIM-listed company, was born. ‘I met a couple of my old University mates at a conference in Toronto. Over a few beers we decided to start a new company. We raised some money from people we knew in Australia and then got some properties together.’

A little credibility goes a long way

You can do that when you have won your credibility. But Jeremy still has it all to prove. Having plunged into South America with little more to sustain him than a stint at the Camborne School of Mines and a degree from the University of Leicester he founded Horizonte Minerals, he gave me a measured account of its strategy. He insisted that he had no scatter-gun approach to exploration. His project criteria are well-defined and work proceeds in a controlled manner. He wants to take projects to the stage where the resources are proven and a bigger company can be found to bear the expense of setting up a mine. Horizonte is sticking to established mining areas and to the large license areas that attract bigger players.

Horizonte and Mariana have a similar stock market history. Both were listed on AIM in May 2006. Then Horizonte sold shares at 30p. Today the price is 11p, valuing the company at £4m. Mariana sold shares at 20p. Today they trade at 5p, so Mariana is valued at about £3m. Horizonte has projects in Brazil and Peru; Mariana in Argentina and Chile. Both have been through the time-consuming and sometimes frustrating process of exploration – studying satellite photographs, taking rock and soil and water samples, digging trenches and making small drill holes. And both have been frustrated that investors seem unable to recognise the value of all this work.

A $60m drilling success?

Now, though, they are both hoping for a change of fortune, and Horizonte seems to have the stronger case. Last week it announced that the first eighteen of sixty wells to be drilled at its Lontra nickel project in Brazil had encountered significant grades of nickel. If the remainder of this drilling programme comes up with similar results then Jeremy Martin reckons it could conservatively be worth $60m to Horizonte. On top of this it has already brought Australian miner Troy Resources into its Brazilian gold project and if Troy decides to take the mine into production then Horizonte stands to receive a $2m cash payment and $15m of royalties.

For Mariana the story is a little different. It is yet to announce a significant discovery, although this could be about to change with drilling programs scheduled later this year at a copper project in Chile and at the Sierra Blanca property in the Argentinian province of Patagonia. But John Sutcliffe has something else up his sleeve that could give Mariana’s share price a boost. He has been calling on all those contacts of his. People who have known him for years and accept his judgement. Some of them, he thinks, might like to buy their way into Mariana’s projects. He reckons that he could cut a deal that would show just how undervalued are Mariana’s shares. The question for Jeremy Martin, as he tries to exploit Lontra for the maximum benefit of Horizonte’s shareholders is – can he do the same?

Regards,

Tom Bulford
Penny Sleuth

P.P.S. If you want to follow the insights of a small company investor, and uncover the hidden gems of the stock market, find out more about The Penny Sleuth by clicking here.

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Mariana Resources : AIM-listed Mining Company Sees Bright Future Ahead

The Old Miner and the Young Miner