Dynasty Metals & Mining

[AceofKY]

Dynasty (DMM.V) is an interesting company with gold production that will be coming online within a year. I've had good luck so far buying this type of company - they typically get revalued higher as construction nears and commences.

 

First the bad news. Dynasty's properties are located in Ecuador. They recently elected a semi-leftist government in Ecuador and there is concern on the part of investors that this government's policies will be unfavorable to the mining industry. On the other hand this country is the location of Aurelian's once-in-a-decade bonanza gold strike, and the market has rewarded Aurelian with a market cap over a billion dollars. Dynasty was recently awarded the final construction permit on its Zaruma project, so I am feeling better about the situation and have decided to buy shares since I feel that the market is overly discounting the country risk.

 

Market Cap: ~US$140M (~US$4.75/share) of which ~US$12M (~US$0.40/share) is cash on the balance sheet. They have a pink sheet listing for US investors.

 

Management Ownership: CEO Robert Washer - 33.5% of shares, Other directors own an additional 3% of shares.

 

Resources: Gold - 2.1M oz M&I; 2.5M inferred. Silver - 9.1M oz M&I; 11.8M inferred. Most of these resources are at grades over 12oz AU/tonne, which for those of you who follow gold mining should know is pretty good. Cash costs will likely be below US$200/oz to extract the gold.

 

Production - Zaruma is currently being built (Capital costs ~$25M) and is fully permitted and should be in production within a year. It will produce 100k oz AU/year for 10.5 years based on M&I resources. For those of you who are/were Rio Narcea investors, you should realize that this one project alone more than justifies the current market cap (compare to Tasiast which has lower grade ore). The Jerusalem project is waiting in the pipeline as soon as management's attention and cashflow/financing will allow it to be developed. It will also be a +100k oz producer but mine life is currently only 4 years using M&I resources.

 

Exploration - Both Zaruma and the Jerusalem properties are still being explored to prove up more resources. Also there is the Dynasty property which is lower grade but looks promising none-the-less. They are finding lots of surface mineralization via channel sampling so it may be open-pittable.

 

Technicals - I don't do TA so no comment here. Share price is currently falling on news that has all been good, so I bought some on Friday and will probably buy some more if the price continues to drop.

 

As always, do your own DD and don't blame me if Ecuador turns into Venezuela. This is not a double-your-money-in-a-month investment as it will take time to build out the mill at Zaruma and (hopefully) we may see some investors coming back to Ecuadorian companies over time. The new President is semi-leftist but he's a product of American universities so I'm hopeful he won't screw up too bad.

Ace

[AceofKY]

I forgot to mention that all of Dynasty's properties are within a 150km radius of IAMGold's Quimsacocha project. Quimsacocha only has ~3.4M oz of M&I gold (at 3.2grams/tonne), so if Dynasty continues to prove up resources without the share price responding they will likely become a takeover target. Depending on IAMGold's timeline for developing the Quimsacocha mine, the cashflow from Zaruma could potentially finance the Quimsacocha project without moving any cash into or out of Ecuador.

Ace

[drbubb]

i used to own DMM.

 

I sold early in the big run that started in late 2005 : weekly chart

 

missed out on most of those big gains, and see that it has been highly volatile of late.

 

I think they have a good gold deposit, but i dont entirely trust Ecuador, nor do i fully trust management,

though i can see they have done a good job at building the deposit and interest in the company

 

i would want to see it testing those lows on light volume to come back in,

and may therefore miss out on any gains from here

[AceofKY]

Please describe your concerns with regard to management so I'm not in the dark. I sent an email this weekend requesting that they let me know the next couple of trade conferences Washer will be attending. I've got a small position so far but probably won't increase it much until I meet him in person.

Thanks,

Ace

[drbubb]

sent a PM.

 

I dont want to be negative on someone i hardly know.

Best thing is to meet him, and make your own assessment.

He may now have a strong and well-rounded team on board, which would add confidence

[AceofKY]

Sorry, I can't respond to the PM for an unknown reason. For some reason I have to continuously log in even if I never close out my browser window.

 

I googled Robert Washer when doing DD on Dynasty. Frankly, I couldn't find much on him beyond his bio on Dynasty's website:

"Mr. Washer has 29 years experience in the mining industry and has been involved in the construction of five gold processing plants (four Carbon in Pulp "CIP" and one alluvial). Mr. Washer has also been directly involved in discovering and/or opening 6 gold mines and locating a new gold field in Ecuador. He was also responsible for the financing and construction of a 2 million tonne per annum gold processing plant in Western Australia and has developed a number of mines on his own prospects. These ultimately produced approximately 100,000 oz of gold per year. Mr. Washer was chairman of the board of directors and major shareholder of AVATAR Petroleum Inc, an oil production company listed on the TSX Venture Exchange, which held 30% interest in the Tiguino Oilfield in Ecuador."

 

It looked like Avatar got bought out by Viceroy Resources back in 03 but I'm not sure about the circumstances.

 

I thought the Board of Directors looked pretty competent, although I have a concern that Washer likely dominates the BOD due to his outsized shareholding in Dynasty. Here is the link to the Board of Directors:

http://www.dynastymining.com/management/index.php

 

The wild card is still Ecuador. I figured since they went ahead and gave Dynasty the permit we at least won't be stuck in limbo forever like Crystallex. I'm sure they'll probably increase the taxation or institute some type of royalty, but I've built in 40% taxes into my cash flow model and this company still looks like a steal. As long as they don't nationalize the assets Dynasty should thrive.

[drbubb]

maybe you want to see what others DMM is bringing onboard,

and see if they have the breadth of experience the company needs

 

my fear (i havent checked) is that it might be a little bit of a one-man band

[Arn]

You can listen to Rob Washer

 

http://www.kitco.com/Kitco_Radio/past/index_01May06.html

 

Arn

[AceofKY]

Dynasty has been a big winner for me this year. I'm taking some profits here. It is still somewhat undervalued relative to peers by my figures, but the risk/reward considering location in Ecuador is much different now that the stock price is so much higher.

 

Also I'm taking some profits in Jaguar Mining. I like their management a lot, but the stock price is getting ahead of itself in my opinion and could be exposed to a large drop when gold corrects.

[AceofKY]

Never underestimate the ability of a leftist to confiscate property and screw up an economy.

Glad I made it out of this one in time.

 

Ecuador's Correa backs large-scale mining freeze

QUITO, April 17 (Reuters) - Ecuador will suspend large-scale mining exploration projects while a new mining law is approved to regulate the country's nascent sector, President Rafael Correa said on Thursday...

http://www.reuters.com/article/oilRpt/idUSN1744670820080417