Buying while its quiet, Liberty makes another junior speculation

True Gold's (TSV-TGM) C$23.5 million financing with Liberty Metals & Mining is a sign of the times for explorers. It's certainly not a frothy, excited market gorging on new issues like unsupervised kids on jellybeans.

Recall the larger financings that juniors recently closed. And here I use the term “larger” in a relativistic sense now that shoestring financings - say for C$200,000 - are the norm, replacing those made in days bygone when multimillion-dollar placements abounded.

In April, Pretium raised C$40 million, also from Liberty Metals & Mining as it happens. Then this month Lowell Copper raised about $11 million as part of a reverse takeover that launched it on the TSX Venture Exchange.

Here we have three major financings that favoured a very particular class: crack management with a history of some outstanding successes. Pretium Resource: headed up by Robert Quartermain, former head of Silver Standard. Lowell Copper (TSX-V: JDL): the latest vehicle of octogenarian and revered geologist David Lowell, credited with multiple discoveries including La Escondida. True Gold: headed up by, among others, Executive Chairman Mark O'Dea who was part of the team that sold Fronteer Capital and its Long Canyon deposit in Nevada to Newmont Mining for $2.3 billion a couple years ago.

It's taking this kind of pedigree to raise more than chump change these days. Most cash - especially as far as Liberty Metals & Mining goes - is headed to advanced stage gold projects. Indeed in this respect Lowell's financing was one of the only ones this year that I can think of where more than C$10 million went to a mineral pirate. That is, someone with a map looking for buried treasure, in this case the legendary extension to the Chuqui copper deposit in Chile, a quest that has stymied so many others in the past few decades.

Otherwise, the common thread flashes in neon lights: “$$$ 4 HIGHLY EXPERIENCED MANAGEMENT WITH GOLD DEPOSITS NEAR PRODUCTION WITH THEORETICAL FIRST QUARTILE CASH COSTS. RISKY COUNTRIES NEED NOT APPLY.”

It's not easy money either, even for those with loaded CVs. “It takes a lot more effort on behalf of the issuer,” O'Dea explained to Mineweb in an interview Thursday. In True Gold's case, O'Dea says, getting its cash meant taking a more targeted approach to source a pool of capital that matched the type and stage of its project. In other words: knowing what Liberty Metals & Mining likes and having it.

Lukas Lundin recently remarked it was a great time for investing, or speculating, if you prefer, because there was less competition to fund even the most highly successful junior teams.

See Also: Lundin chairman calls bottom - Junior survival series part III

True Gold's financing bears this out. The broader market just isn't the place to find the millions that it takes to advance a gold project like True Gold's Karma. But the specialist, junior focused funds and companies are not so shy.

GOOD KARMA?

As noted above, for Liberty Metals & Mining - a subsidiary of Liberty Mutual - investing in True Gold marks its second foray into an advanced stage gold junior this year (that we know of). It bought about five percent of Pretium, which just released a feasibility study on its Brucejack project. It's a high grade, multimillion ounce project in BC that pegs 2016 for first production.

Like Pretium, though with fewer ounces, True Gold is at a similar stage on its lead oxide gold project in Burkina Faso, West Africa, which it calls the Karma project. A feasibility study is set to come out on Karma by year's end and O'Dea sounds confident permitting will be wrapped up by that time as well. Meantime, O'Dea says True Gold is exploring its options to source somewhere between 50 to 70 percent debt to fund the project.

In this respect, Liberty clearly has its sights on projects where production is on the horizon, and the economics, theoretically that is, beat even the latest bust in the price of gold. In 2012 scoping study True Gold outlined a 90,000 ounce per year gold mine with a 10-year mine life that yielded an average $525 per ounce cash cost.

Since that study, however, True Gold has grown in pit leachable resources by 24 percent to a million ounces gold, indicated. So the feasibility study could come with a moderately higher production scenario. O'Dea says True Gold is looking at bumping the mine outline from 3 million tonnes a year in the scoping study to between 3.5 to 4.5 million tonnes per year in the feasibility study. Last time round, True Gold estimated a 37 percent, after tax, internal rate of return at $1,350 per ounce gold on a project with capital costs around $125 million. While you have to think capital costs will creep up in the feasibility study if it centres on a bigger project, O'Dea says he doesn't see a huge surprise coming on that front.

No one knows where the gold price is going. But it would seem like Liberty Metals & Mining is buying on the thesis that gold won't go down much farther and that in projects with teams like True Gold's it can turn a profit.