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AceofKY

Fronteer Group (FRG)

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A reader has sent me a private message inquiring as to my current view on Fronteer Group. I apologize for being unable to respond privately (I have severe problems with authentication with this forum due to my satellite internet connection), but I guess we might as well start a thread anyway.

 

Fronteer's equity price is falling very fast. I bought a small position a while back when it looked like it might hold chart support. It then proceeded to break chart support, and that small position got much smaller. I don't think I've ever lost 48% in only a few weeks.

 

There is one fundamental issue that I wasn't originally aware of - there may be a 3 year moratorium (which could lead to project cancellation) on the uranium project of Aurora Energy which Fronteer owns something like 42% of. The fall in Fronteer's market cap is ridiculous, however, since that uranium project is only a portion of it's intrinsic value. I do think it is a good buy; the problem is I have no idea when it will stop falling or how long it will take to recover.

 

The vote on that moratorium should be soon, I think, so hopefully we'll get some resolution one way or another soon.

 

FRG's current market cap of $404MM represents $85 per measured and indicated gold equivalent ounce, not including inferred resources or any of the uranium resource. And at least two resource updates will be issued this year.

 

The following is what I issued in my newsletter earlier this month. I wasn't aware, at the time, of Aurora's difficulties as my decision to buy FRG was based on their gold assets. If I had been more thorough in my due diligence, it's possible I wouldn't be down so far. Oh well, I will just wait it out like all of my base metal positions which have been hit hard over the last few months. The market cap numbers are, of course, outdated already:

 

Fronteer Development Group (FRG) – Fronteer is the latest addition to the portfolio. They are a well-established gold explorer listed on the American and Toronto Stock exchanges. It sports a ~$680MM market capitalization – very hefty for a pure explorer. So why did we make this decision? What do we get for $680MM in market cap? Here’s a list of primary assets:

 

1. A top-notch exploration team that has discovered several million ounces of gold and over 130 million pounds of uranium.

2. 40% of Halilaga, Agi Dagi, and Kirazli deposits in Turkey – A combined 3.5MM ounces of gold equivalent with plenty of exploration upside. The other 60% is owned by a subsidiary of Teck Cominco – one of Canada’s top mining companies.

3. Northumberland Deposit – A 2.5MM ounce gold/silver deposit in arguably the world’s best mining location – Nevada.

4. Sandman, Nevada – One of the top exploration targets in Nevada, with an initial resource estimate of 300,000 ounces of gold. Newmont Mining (one of the world’s largest gold miners) is very interested in this property and recently negotiated an option to gain control of the project by advancing it through feasibility to a production decision within 3 years.

5. Majority option on Long Canyon, Nevada – A new gold trend in Nevada. Resource estimate has not been prepared yet, but drill results are looking good.

6. 42.3% Equity stake in Aurora Energy Resources – a uranium company spun out of Fronteer some time back. Aurora’s current market cap is $606MM, of which $256MM is owned by Fronteer.

7. Almost $100MM in working capital.

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Fronteer talks up gold growth amid uranium worries

Posted: March 25, 2008, 2:54 PM by Peter Koven

Mining

Shares of mining exploration powerhouse Fronteer Development Group Inc. have been in a freefall over the last month. Much of that can likely be attributed to the company's 42.3% stake in spin-off Aurora Energy Resources Inc., which is facing a proposed three-year moratorium on uranium mining in Labrador. While that would not affect Aurora's production timeline, it has clearly spooked some investors.

 

 

With that in mind, this is an ideal time to remind investors that Fronteer is about much more than Aurora, and that is what the company effectively did Tuesday morning.

 

Vancouver-based Fronteer unveiled a global exploration program that aims to double its gold resource base over the next two years. Fronteer's measured, indicated and inferred resource is currently 4.87 million gold equivalent ounces, and chief executive Mark O'Dea expressed confidence that it can add another 5 million ounces. The gold is in projects in Turkey and Nevada, and Fronteer has rock-solid partners (Teck Cominco Ltd. and Newmont Mining Corp.) in each place.

 

 

"We believe there is an opportunity for Fronteer to become the next high-quality, mid-tier company in the gold sector," Mr. O’Dea said in a statement. With gold hovering close to US$1,000 an ounce, it's a worthy goal.

 

And investors apparently got the message - Fronteer shares were up more than 15% in afternoon trading.

 

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