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Rusoro Mining – Leverage Your Investment with Warrants

April 16, 2008
Dudley Pierce Baker
Precious Metals Warrants 

My personal focus as the owner/editor of PreciousMetalsWarrants.com is discovering warrants trading on the natural resource shares of particular interest to me and my subscribers. The underlying company is always of most importance, which is why Rusoro Mining has recently caught my attention.  As a junior producer, it has 12.8 million ounces in reserves and resources – one of the largest I have ever seen.

Rusoro has become a well funded junior gold producer very quickly – with a remarkable number of ounces in the ground.  The company’s only set of warrants (RML.WT-TSXv) entitles the holder to purchase one share at a price of CDN$4.00 per share until Nov. 29, 2012. There are 93.75 million warrants outstanding.  The stock currently trades around CDN$1.50 and the company has a market capitalization of roughly $580 million.

The company went public in 2006 as a fast developing gold exploration play in Venezuela .  Venezuela is home to several multi-million ounce gold deposits, which is good, and to President Hugo Chavez, resulting in a large discount for the huge number of ounces in the ground.  Rusoro quickly bought out their joint venture partner, Mena Resources, and throughout 2007 had at least 10 drill rigs on their properties, drilling a total of more than 200,000 metres.  They grew their resource base from 1 to 4 million ounces during this time.

In late 2007, they purchased the Choco 10 Gold Mine in Venezuela from Gold Fields International (GFI). They paid about half the going rate for ounces in the ground. GFI liked the properties so much they took a big chunk of the purchase price in Rusoro stock, and after management, remain Rusoro’s largest shareholder.

Rusoro’s controlling shareholder is Chairman Vladimir Agapov, a Russian entrepreneur.  The company has been very open that having Russian connections in Venezuela has helped make business simple and straightforward there, and GFI agreed, which is why that deal got done.  

The Choco 10 mine is on track to produce about 120,000 ounces of gold in 2008 for Rusoro.  The acquisition also significantly increased its reserve and resource base -- the combined company's measured and indicated resources will total 6.6 million attributable ounces with additional inferred resources of 6.2 million attributable ounces. Choco 10 has 1.7 million attributable reserve ounces, which are included in the resource ounces described above.

Few junior producers even have 5 million ounces in reserves, much less 12.8 million ounces.  Drilling is continuing to find new ounces – new resource estimates are due on Choco 10 and on one of Rusoro’s original properties, Valle Hondo, very soon.

Rusoro management has also said they intend to triple production  from Choco 10 within the next four years. The mill is located very close to one of Rusoro’s other properties, Increible 6, which has similar ore as Choco 10.

We like gold companies with strong growth profiles in both production and reserves.  Rusoro fits that bill in spades.  But it is getting a deep discount because of investors’ fears that Chavez could one day nationalize the gold industry there.  We don’t know , but see that as unlikely – gold is very small compared to oil in Venezuela .   

TECHNICALS 

Now is a good time to look at investing in Rusoro.  It has been in a long term downtrend since coming public in late 2006, hitting a high of $4.50 in its first month of trading.  While still not able to overcome the downtrend line, there are several signs of a bottoming with strong support evident at the $1.40 area – now tested four times since December 2007.  However, a 3 day panic reaction breakdown to the $1.20 area, while an anomaly that was quickly reversed, has established that buyers and sellers are willing to go to that level.   We tend to give greater credibility to the time spent at $1.40 as a potential base but $1.20 and the $1.30-$1.40 gap may yet be filled.

LEVERAGE & WARRANTS

If the story of Rusoro Mining has intrigued you, and if you are seeking additional leverage, the warrants look very interesting at these price levels.  With the common shares currently around C$1.50 and the warrants around C$.38, we feel the warrants offer great leverage over the long-term.

At we noted above, the warrants give holders the right, but not the obligation, to purchase shares at $4, and expire on November 29, 2012, giving investors a wonderful opportunity to participate in the growth of Rusoro and the bull market in natural resources for only pennies. 

The stock is well out of the money now, but we see a volume bottom forming.  Potential catalysts for the share price in the near term include new resource calculations, improving financials, and the price of gold moving higher.

If you are interested in additional opportunities with warrants, I invite you to visit my website, Precious Metals Warrants and take a look at the numerous services which I offer. 

Dudley Pierce Baker is the owner/editor of Precious Metals Warrants, a market data service which provides you with the details on all mining & energy companies with warrants trading on the U. S. and Canadian Exchanges.  As new warrants are listed for trading we alert you via an e-mail blast.  You are provided with links to the companies’ websites, links to quotes and charts, tips for placing orders and much, much more.  We do not make any specific recommendations in our service.  We do the work for you and provide you with the knowledge, trading tips and the confidence in placing your orders.

Disclaimer/Disclosure Statement:

PreciousMetalsWarrants.com is not an investment advisor and any reference to specific securities does not constitute a recommendation thereof.  The opinions expressed herein are the express personal opinions of Dudley Baker.  Neither the information, nor the opinions expressed should be construed as a solicitation to buy any securities mentioned in this Service.  Examples given are only intended to make investors aware of the potential rewards of investing in Warrants.  Investors are recommended to obtain the advice of a qualified investment advisor before entering into any transactions involving stocks or Warrants.