There were several other of my readers who came, and we met, but Jake said he was a well-educated 27 year old who was looking for career opportunity. Jock said he was a telecommunications business expert with significant experience in Latin America, including government dealings, who was fluent in Spanish and Portuguese. Jock had a desire to explore opportunities in Rare Earth Minerals and in what he perceives as a need to clean up tailings ponds in Latin America.

So, I decided to show these two readers just what it means to attend PDAC. I took them into smoke-filled back rooms, introduced them to people whose faces they sometimes recognized -- like Rob McEwen -- and all the stuff one does at a convention of this type.

I’m sure they will long remember the experience.

Notes from Jake:

Bill, Nice meeting you this week. It was great to see with my own eyes what you depict on your blog. The mining industry really is a limited universe as far as number of people that actually matter and it was great to be introduced to many of them.

Thanks for taking so much time showing me around, facilitating meetings, and providing valuable insights. You really went out of your way and I learned a lot. Not only was it a very valuable experience, but I had a good time as well.

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From the moment I arrived last Saturday, the day before PDAC began, downtown Toronto was consumed by the convention. Riding into the city from the airport, I sat beside a gentleman from Guinea who was in town to promote investment in the mining sector for his government. This was the first of many conversations I would have over the course of the week related to the industry.

A number of recurring themes kept popping up. Severe shortage and scarcity of drills and qualified labor due to the commodities boom and the resulting increase in mining activity. I can't count the number of times I heard "we will start drilling as soon as we can get drills…" Uranium was also a hot topic still. This was exemplified by the quant-focused hedge fund manager, I met, who was in town to learn more on junior uranium companies and buying physical uranium.

There was also a lot more buzz on the juniors. Many feel that seniors are overvalued at this point as they are trading at much higher multiples of NAV (many are trading high enough that they even have future acquisitions baked into their share price). In my opinion, better value lies with the juniors for this reason as seniors will be forced to acquire in order to replace depleting reserves and validate their share prices.

One learns quickly that for every junior exploration company with world-class geologists and proven management, there are another five exhibiting with tenuous promotions and unpolished Investor Relations (IR) professionals manning the booths. It jumped out at me the number of companies leaving themselves in the hands of IR reps, who in some cases had a hard time articulating the value proposition of their company.

Not to say all IR reps were this way as some were able to get past the "sales pitch" and provide substantive information. Some were even geologists. Nevertheless, at the pinnacle annual event in the industry with many institutional and retail investors among the 18,000, you would expect more attention paid to how and by whom the company is presented.

Fortunately, thanks to Bill, I was able to get to see another side of PDAC. As the convention was in full gear at the convention center, prospectors, mining companies, financiers, and dealmakers were hustling and bustling and wheeling and dealing in the backrooms of downtown hotels, office buildings, and bars trying to get deals done before the week ended.

I saw with my own eyes what Bill depicts on his blog. Mr. Platinum was there in the middle of everything, smoking his pipe in a comfortable armchair in his hospitality suite while people streamed in to the room to see him and pitch multi-million dollar deals. Mr. Peru was there as well. Smaller dealmakers were busy in the background trying to put together $1-2 million deals. And the man responsible for the largest gold discovery in Canada was hosting a hospitality suite to get his new exploration venture off the ground.

The stories that jumped out at me most during the week were fairly small from a market capitalization perspective and early in the exploration process. Hopefully as a result, though, should provide some insight that is not as accessible elsewhere. Also, if these companies are able to execute on their business models, there should be some substantial wealth creation due to their early position on the value chain.

Traditional valuation techniques do not work as well for these companies as they are not producing and have little, if any, proven and probable reserves. They are long-term buy and hold opportunities based off of attractive business models, strong management/technical teams, joint ventures which reduce exploration risk and costs, and strategic land holdings, stakings and/or lease rights.

My investment strategy the past 2-3 years as it relates to the mining sector has been to seek out undervalued companies that are near term producers, or at the least, moving into the full feasibility stage. This strategy has been successful for me. I decided to focus on the earlier stage companies here, the long-term buy and hold, as one can get a fairly good sense of the economics and issues of the later stage companies with easily available data and research. The early stage is where first person insight is hopefully more valuable.

Azimut Exploration
Bill wrote up Azimut last week as an interesting story. I saw Bill after he had spoken with the team at Azimut and as a result of his enthusiasm in their story, I went to talk with the team myself. I came away equally impressed. Here are some key take-aways:

-Azimut maintains a large geoscience database of Quebec mining claims (including both PM and base metals)
-They apply a proprietary targeting methodology to the database to help select which properties to stake/lease. This methodology involves amongst other things, GIS remote sensing technology via a partnership with MIR Télédétection (although one of Mr. Platinum's consultants, a well-regarded and accomplished geologist did not feel remote sensing techniques hold much weight in exploration)
-Joint venture business model for funding exploration, drilling, operating, etc. Exploration is 100% partner financed
-Azimut currently has several partnerships, including with Goldcorp, Cambior, and Rio Tinto
-They retain a minimum 50% stake in each project (35% after full feasibility)
-They also take 2% royalties on yellowcake for uranium projects
-The CEO, Jean-Marc Lulin, was previously the Chief Geologist for SOQUEM, the mineral exploration arm of the Quebec government
-Ownership
-Directors/Administrators 15%
-Institutional 16%
-Fully diluted shares outstanding ~20 million
-Market cap ~$75 million

Like Silver Wheaton, this is a very low-cost business and there only 7 employees. I spoke with 3 of them and was encouraged. All were geologists by training and had a strong sense of the business. Their business plan and joint venture model conserves cash and limits dilution. This strategy has worked out well for the company as exploration is now 100% partner financed. Finally, as what is in essence a database company, I believe the CEO's background as head exploration geologist for the Quebec government provides them a superior competitive advantage.

EXMIN Resources
A second group that impressed me was EXMIN Resources, a junior exploration company operating in Mexico. EXMIN was founded by two ex-Minefinders managers. I spoke with both. Karl Boltz is the very dynamic promoter/CEO (on both days I spoke with him he was dressed in a conservative suit and tie - but with construction boots and an EXMIN baseball cap) and was very excited and eager to share his story to anyone inquiring. Craig Gibson is the other co-founder and is the Chief Geologist and VP of Exploration.

Like Azimut, Karl stresses that EXMIN is an exploration company (primarily gold and silver), not a mining operation. They also employ a joint venture/partnership strategy similar to Azimut to help finance exploration and Capex and to reduce exploration risk. Unlike Azimut, EXMIN's competitive advantage comes from the impressive portfolio of land claims they have been able to amass in Northwestern Mexico's gold/silver belt in the Sierra Madres over the past few years before many other junior companies followed them into the region. Here are some key take-aways:

-While working in the region for Minefinders, Karl and Craig discovered that many mining concessions had yet to be claimed
-They left Minefinders and began laying claim to land at cheap prices in 2004 and founded EXMIN
-Have been buying up mining claims ever since and now have accumulated large portfolio of claims and land holdings (over 100 claims)
-Were one of the first in the region
-Have signed partnerships with Penoles and Hochschild, two very large Latin American producers
-The Penoles deal will be for up to 75% of EXMIN's Maguarichi project. In exchange, Penoles will pay EXMIN $600,000 and agreed to spend $3.5 million for exploration over the next five years
-The Hochschild deal for 70% of the Morris project will provide EXMIN with $850,000 in cash and $4.5 million for exploration of the property
-~90 million fully diluted shares outstanding
-Market cap: ~$50 million

Miranda Gold
Miranda Gold is another very small cap junior exploration company which employs a joint venture/partnership strategy. I found their story intriguing as well. Miranda is active building up a portfolio in the Cortez & Eureka Trends in Nevada. The same Cortez Trend where US Gold is trying to build a Cortez Trend empire by acquiring adjacent land holdings to their properties. However, Miranda did not feel US Gold would be interested in working with or acquiring them due to their JV business model. Miranda was appealing to me because of their land holdings, partnerships, and management/technical teams which have been very successful in Nevada (in both the Cortex and Eureka Trends) throughout their careers. Key take-aways:

-Focus is on exploration & discovery and engaging in joint ventures to fund further drilling, exploration, and operation of projects
-Miranda retains at least a 50% stake in each project until full feasibility
-At least 30% stake after full feasibility
-They currently have 8 of 15 projects in Joint Venture with Barrick, Newcrest, and Agnico-Eagle among others
-Joe Hebert, the VP of Exploration has 16 years experience exploration management in Nevada (including a role as senior exploration geologist for Placer Dome in the Cortez and Eureka Trends) and was responsible for the 8 million oz Cortez Hill deposit
-~45 million fully diluted shares outstanding
-Market cap: ~$65 million
-Cash: $5.2 million

All in all, there were many early stage companies, each with their own unique story. Most were not particularly captivating. Listed above were stories that, based on conversations with the execs, I found had more meat on them and less of the high risk that is inherent in early stage junior exploration companies. That being said, the downside for all three is that they have little in the way of identifiable gold deposits at this point.

Strong drill results are obviously what would send these stocks up in the long-term. A number of factors which I have outlined above strengthen the chances of successful drill results in my opinion. And due to their business models, a lot of the drilling will be partner financed. Ultimately, though, successful drill results will be necessary to sustain and increase the share prices long-term.

Notes from Jock:

My main take-away from PDAC was a powerful demonstration of Bill’s adage: “bet on the jockey, not the horse”. Bill introduced Jake and myself to a couple of those jockeys: Don McKinnon (who discovered 30 Million oz. of gold in Northern Ontario) and Pat Sheridan (nickname: “Mr. Platinum”). Both exude straight-forwardness and approachability. Each entertained a low-key, small hotel suite with his wife of many years receiving and offering hospitality to friends and colleagues.

This contrasted mightily with an aviation industry conference I attended some years ago – led by corporate types engaged in “palace politics” and regulatory games. While Canadian mining has its corporate side, I think “Hall of Fame” individuals like Messrs. McKinnon and Sheridan set a tone for their industry, and shape the ethics and behavior of its best professionals.

I met several such professionals -- senior exploration geologists. Here too, you could quickly sense when you were speaking to an accomplished professional. For background, there were many references at PDAC to the Bre-X gold fraud 10 years ago as a seminal moment (perhaps comparable to Enron/Worldcom’s impact on US accounting) which led to tightened professional standards and regulations on testing and reporting by geologists.

As Bill reported, Inter-citic’s highly-respected senior geologist Garth Pierce was an old friend, who was planning to retire after his work with Inter-citic. I found that his business development counterpart spoke equally convincingly of Inter-citic’s partnerships with the Geological Survey of the Province in which they operate, and with well-connected business interests (curiously, NOT Citic).

Also reported by Bill was Azimut Exploration’s founder, with unique experience and knowledge of the Quebec provincial database on minerals. I asked Natalie Guillmette, geologist with the company, why competitors couldn’t benefit equally from the Provincial database. She responded (discreetly) that Azimut had exclusive services of the best firm for interpreting that data.

I noted that Northern Ontario had been intensively developed starting in the ’60s, and asked what Quebec’s timetable had been. She confirmed that infrastructure was later to develop in N. Quebec, and that the action in the Province was now. Since PDAC, Azimut has appointed a VP, Exploration whose resume includes stints with various juniors and with Barrick: http://www.newswire.ca/en/releases/archive/March2007/12/c9459.html

Silver Wheaton VP-IR David Awram is a geologist (!) with a keen sense of the business. He told me they had expanded from 7 to 9 employees – and I chided they were becoming just another bloated bureaucracy! He said inside the company was a heady, start-up atmosphere. They have been generating $13M in cashflow/mo. They have several deals in their pipeline expected to take them to 50M oz./yr. in just a couple of years. (PAAS produces 17M oz./yr.) At $15 per ounce, SLW would have $750M/yr. revenues, compared to last year’s $158M. SLW hasn’t yet paid over $4.59/oz. With their minimal expenses, margins are huge, and I’d expect their profits (and stock price) to grow as dramatically – with no country risk, no exploration risk, and no execution risk!

Everton Resources from Montreal concentrates on Quebec (3 properties totaling 2500 sq. km., including a JV with Azimut) and Dominican Republic (4 properties totaling 1000 sq. km. adjacent to Barrick/Goldcorp’s Pueblo Viejo mine which contains 18M oz. of gold, plus land next to Xtrata’s Falcondo nickel mine. Exploration VP Marc L’Heureux was with Barrick 10 years, and since has worked for juniors in various parts of the world. He spoke convincingly that Everton is for real. Consultant Carl Nelson of Recursos del Caribe told me half the gold discovered in the entire Caribbean basin is in DR.

Meridian Gold’s exploration director for Chile and Argentina, Nibaldo Rojas, spoke very enthusiastically of prospects for undercapitalized junior exploration groups in Chile. Also, he felt there was major new gold potential in Brazil, including several junior producers. Interestingly off the mainstream radar-screen.

Rare Element Resources (RES) was – surprisingly - the only rare earth explorer I found at PDAC. The other Canadian Rare Earth, Great Western Minerals, did not exhibit. Australia’s Lynas Corp. (expected to begin production in 2008) did not exhibit. These are the only rare earth exploration companies I could find. Production at the only North American mine (Mountain Pass) has been largely shut for environmental reasons. As a result, the US now depends for 95% of its REE upon China. Look at the chart from USGS given out by RES: http://pubs.usgs.gov/fs/2002/fs087-02/ Why this dependence, while REE are increasingly key to applications ranging from cellphones to flat screens to the batteries, motors, & magnets used in hybrid vehicles, to myriad defense applications? Why the apparent lack of exploration in REE? Does this spell opportunity?

Those are the few companies I got a significant impression of – just scratching the surface. It gave me a sense of what it will take to “harvest” PDAC systematically. I counted 400 exhibitors in the Investors’ Exchange. Perhaps 1 in 10 are of interest. They need to be sifted and cued up in advance. Even then, the logistics of getting the right information from 40 juniors is significant.

I think a team approach could do the conference justice. An experienced exploration geologist within the readership might both review test results, and help us identify the most respected Exploration VP’s of the juniors. (Prompted, one Aussie Exploration VP rattled off names of the 3 most respected exploration geologists in his country. Well-vetted lists for major mining countries could help identify the best juniors to be interviewed at PDAC.) Others might review financials (and managements) in advance. Based on the above, those attending would contact the candidate list and phone In advance to schedule contacts. PDAC was so information-rich that I hope to be part of such an effort next year. We could do justice to Bill’s notion of finding “the jockeys” to bet on.

If you wish, please send mail direct and in confidence to Jake and/or Jock.

Jake@BillCara.com

Jock@BillCara.com

When I’m up to it, I’ll review my own notes. As Jock says, even a team of three could not possibly do justice to this convention. There are simply too many people, too many activities, to see more than a small part.

BCara@BillCara.com