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Take physic, pomp

What? You want to know more about that Ecometals correction press release of July 17th?

Following on from the previous post (better read first), here’s how we broke down the EC.v July 17th PR as a case study in The IKN Weekly, issue 12:

If you want to believe everything you read in junior miner press releases, be my guest, I’m not going to stop you.

The news release from Ecometals (EC.v) dated Friday 17th July is one that we’re going to take apart and examine carefully here today as an object lesson in the things written for the benefit of suckers. There are two parts to this story. The PR dated yesterday (10) was published to ‘clarify’ (their word, not mine) an earlier PR dated June 29th 2009 (11) that told the world about a successful shipment of manganese ore from its Brazilian operations and the rosy prospects the firm had for the future of its Brazil operations. I’ve been trying to think how to do the analysis of these two press releases in the most concise way possible, but really we need to go the long route, be a little tedious with word count and lay out the two PRs here to look at them in parallel. We’re taking up room this way but it’s the only real way of applying the scalpel correctly, at least as far a I can see. So here goes, and this is the paste of Ecometals’ first release, dated June 29th:

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TORONTO, ONTARIO–(Marketwire – June 29, 2009) – Ecometals Limited (TSX VENTURE: EC BERLIN: GDQ FRANKFURT:GDQ; the “Company”) –

The Company wishes to announce that it has completed its first manganese ore shipment from Port Santana, BrazilThe Company believes this first shipment represents a major step forward for its business activities in the State of Amapa. With the completion of this shipment the Company will now apply for three new permits. The first application will be for the export of up to a further 300,000 tonnes of manganese ore direct from its manganese stockpiles at Serra do Navio which will significantly raise the Company’s market profile as a creditable supplier of manganese ore in the world market ahead of long term sustainable sales out of Serra do Navio. This will also provide interim funding prior to the completion of the processing plant at Serra do Navio. The second and third licenses will be the simultaneous applications for the Preliminary and Installation Licenses which will enable the Company to commence the construction of a jigging process plant at the Serra do Navio mine in order to value add and sell the remaining 3.5m tonnes of stockpiled manganese ore.

The Serra do Navio Project design work is well advanced and the Company is in discussion with a development bank for funding. The Company will provide updated statements on the Project as and when information is finalised.

Chief Operating Officer Daniel Major said, “This first shipment is a major step forward for Ecometals as it represents the commencement of the Company’s commercialisation of its projects in the State of Amapa. Subject to funding and permits, we intend to now actively progress our manganese capital project at Serra do Navio with resulting further manganese beneficiation and shipments from Brazil.”

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All very positive, bright and warm future, for sure. That news came on the back of its June 26 announcement (12) about its plans to drill its Rio Zarza property in Ecuador, close to the now famous FDN discovery, that doubled the EC.v stock price on that same day. The news about the manganese shipment pushed EC.v stock back up 27.8% on June 30th on heavy comparative volume.


So now we have the second PR, dated Friday 17th July. Here goes, and this time I’ve added my notes between the lines in bold type to see what all the trouble is about.

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TORONTO, ONTARIO–(Marketwire – July 17, 2009) – Ecometals Limited (TSX VENTURE: EC BERLIN: GDQ FRANKFURT:GDQ) –

As a result of a review by the British Columbia Securities Commission, Ecometals (the Company) is issuing the following news release to clarify its disclosure in a previous news release issued 29 June 2009 and in its Management Discussion & Analysis for the 9 month period ended December 31, 2008.

In other words, the regulators in Canada have, for once, been doing their job correctly. The BCSC has reviewed recent EC.v filings, called “bullshit” and told them to rectify or else.

Serra do Navio Mine Site

The Serra do Navio manganese mine was operated by Industria e Comercio de Minieros SA (ICOMI) from 1957 until closure in 1997, producing a reported 34Mt of commercialised products. Ecometals owns 66.67% and operates a joint venture company, which is the owner of the mineralised material, with ICOMI (now Alto Tocantins Mineracao Ltda).

On closure of the mine, Roberto Costa Engenharia Ltda completed a report which covers the geology, historical mining and processing methods, production, metallurgy, mineral economics, and an estimate of the remaining in situ mineralized material. Ing. Roberto Costa is a registered mining and metallurgical engineer in Brazil under CREA MG-4381.

As the Costa resource report was completed in 1997, the resource is “Historical” under NI43-101.

The above is preamble to make clear that the resource referred to by EC.v is not 43-101 compliant. This was not made clear by the company in its previous PR. The theme is revisited as this clarification PR continues.

Costa reports the remaining in situ (in ground) resources as 1.2Mt oxide @ 38.43% Mn and 4.4Mt carbonate type @ 30.61% Mn mineralised material. The historical mineral resource was not classified as measured, indicated or inferred, and the Company considers the mineralized material is comparable to a potential mineral deposit for which there has been insufficient exploration to delineate a mineral resource.

Stockpiled manganese mineralised material at Serra do Navio was surveyed by Topgeo Servicos Ltda as 1,615,759 cubic metres in 34 stockpiles. Using a density of 2.5t/m3 for floated mineralized material from the Costa report, this amounts to a total of approximately 4Mt of stockpiled manganese mineralized material. However, the stockpiles are comprised of material which has been processed to different sizes and grades, and contain both oxide and carbonate type mineralization. A more conservative density of 2.02t/m3 taken as the lowest density measured by SGS do Brazil Ltda on similar stockpiled material at Porto Santana is assumed by the Company. This results in an estimated 3.3Mt of stockpiled manganese mineralised material at Serra do Navio.

Small point: The ‘3.5Mt’ (million metric tonnes) mentioned in the original puff-piece PR is now 3.3Mt ….or perhaps 4Mt.

Grade ranges from grab samples taken from larger stockpiles range from 28.3% to 45.3% Mn, but there has been insufficient work to determine the inherent inhomogeneity of the material and the samples are not considered representative of the total volume of the stockpiles. The Company considers the stockpiles of 3.3 to 4Mt with potential grades in the range 28 to 45% Mn are comparable to potential mineral deposits for which there has been insufficient sampling and test work to determine the average grade or delineate a mineral resource.

Neither the in situ resource nor the stockpiled mineralized material at Serra do Navio are considered current Resources by the Company according to CIMM/JORC definitions.

Important point: What this means is that EC.v simply cannot go around telling people it “has” 3.3Mt or 3.5Mt or even 4Mt of stockpile to sell. This stuff is not CIMM 43-101 (or JORC, the Australian equivalent to the Canadian certification process and equally as trustworthy) compliant and EC.v needs to put it through the correct procedures to certify it. The 43-101 certification process came into being after the Bre-X scandal for this precise reason; it stops mining companies from being able to say “we have this, we have that” to a less knowledgeable audience (i.e. you and me) before the claim is proven by a reputable and qualified person. In its June 29 PR, EC.v was playing fast and loose with this fundamental point and was representing its stockpile of manganese mineral as something that it is not. There are two things to recognize here; firstly EC.v has to get a third party in before it can shoot its mouth off again like this, secondly that 3rd party will cost EC.v both time and money. One of the recurring themes in this clarification PR is the way it disassambles the whole impression EC.v was trying to give of “well, we just scoop it up, put it on a boat and collect the cash” and this is the first example of that.

Previous references to the term “ore” in Company disclosures referring to some of the above material were inappropriate because the Company does not have a current mineral resource, pre-feasibility or feasibility study to demonstrate economic viability.

Very important point: This part shows clearly that EC.v is either incompetent or dishonest. If you or I laypeople in the word of geological science, mix and mush the words “mineral”, “resource”, “ore” etc nobody worries too much about it. However in the world of geology and especially mining the word “ore” has a very specific meaning. Here’s a good definition as culled from my ‘Boys’ Own Guide to Mining, 1973’

“A mineral or an aggregate of minerals from which a valuable constituent, especially a metal, can be profitably mined or extracted.”

Because EC.v has not certified its stockpile of manganese mineral as a resource (or a reserve), it cannot possibly state that the mineral in question is profitable. No way. Therefore it simply cannot call it an “ore”. This is so basic it hurts and so that’s why I say they’re either incompetent (i.e. called it an ore without realizing the mistake…and what kind of mining company doesn’t know the difference?) or dishonest (they knew it wasn’t an ore by any definition but went ahead and called it so to fool the suckers who were about to read their PR). Yes, what they have is a stockpile of mineral. No, what they do not have is ore. So why say so?

On 29 June 2009, the Company disclosed “…project design work is well advanced”, and referred to discussions with a development bank for project funding. Metallurgical recovery tests on beneficiation of the manganese stockpiles at Serra do Navio are being conducted by Bateman Engineering NV and in-house conceptual process design is ongoing, to enable a management decision to be made on advancing the project to commercial production. Preliminary discussions with Banco Amazonia SA in Brazil have taken place, with the objective of financing up to US$10M for the capital and development costs for construction of a beneficiation plant to process the stockpiles at Serra do Navio.

So much for that “scoop it up, put it on a boat and collect the cash”, eh? So apparently the stockpile at the mine will need to be put through a machine that will cost U$10m to build before it gets shipped and sold. Also, not a stone’s worth of foundation has been laid yet. Also, they don’t have the money to build it and have had “preliminary discussions” with a bank about going (further) into debt in order to raise the cash. Despite all that EC.v sees fit to tell its audience that things are ‘well advanced’. The background whiff of PT Barnum and his phrases about how suckers are born every minute has now turned into a stench.

But wait! There’s more! Read the next bit about the Porto Santana stockpiles and we’ll put it into context in the next comment section:

Porto Santana Stockpiles

Stockpiled manganese mineralized material at Porto Santana was mined from Serra do Navio but was not shipped previously by ICOMI due to prevailing economic conditions. SGS do Brazil Ltda surveyed the volume and density of nine stockpiles at the Anglo Ferrous Brazil (AFB) port resulting in a total of 57,935.4t. Grade estimates by SGS ranged from 29.46 to 48.05% Mn.

The stockpiled mineralised material was transhipped by road from the AFB port to the public port operated by Compania Docas do Santana (CDSA). Material from the nine stockpiles was blended into two stockpiles of high and low grade. Topgeo Servicos Ltda re-surveyed the two blended stockpiles and concluded 13,079.78m3 for stockpile A (low grade) and 6,031.79m3 for stockpile B (high grade), with 2,715.31m3 remaining at the AFB port. Not all the material was shipped to the CDSA port as the maximum size vessel limited by the depth of the Amazon River delta is 45,000t.

Using the density measurements estimated by SGS, the total material at the CDSA port was 42,394t with 6,023t remaining at the AFB port. A discrepancy of 6.5% between the original stockpile survey at the AFB port and the survey after transhipment is attributed to loss of material on the laydown area and error inherent in the volumetric surveys.

A sales contract with an undisclosed buyer was made for 35,532t of mineralized material from the stockpiles at CDSA. The sales contract required a minimum of 43% Mn of high grade material (all of stockpile B) and the remainder of minimum 35% Mn from stockpile A (low grade material) to fill the hold of the ship.

Continuous sampling according to ISO Standard 4296/1:1984 during ship loading was conducted by Inspectorate do Brasil Inspecoes Ltda. Results of draft loading and analysis measured 12,088t of 41.62% Mn (high grade material) and 23,444t of 35.96% Mn (low grade material) loaded on cargo ship MV West Lake.

There remains an estimated 12,885t (6023t at AFB port and 6,862t at CDSA port) of low grade stockpiled manganese mineralized material available at Porto Santana. This material is potentially saleable, and the Company is actively pursuing buyers. This remainder will be supplemented by additional material from Serra do Navio stockpiles to fulfil the 65,000t purchased by Ecometals separately from the JV agreement with Alto Tocantins.

In the first PR we were told that 35,532 tonnes of manganese ore was shipped from from Port Santana and had a gross value of C$1.1m. This is apparently true. However we knew nothing about the “high grade” and “low grade” stockpiles. We didn’t know that the high grade stuff is now all sold and there’s only 12,885t of low grading mineral left (not the 15,000t it mentioned in the first PR). And we certainly didn’t know there may be a contractual dispute about the shipment, as the buyer specified a grade of manganese mineral (43% for the high grade) that EC.v has apparently not been able to supply. Whether this point is resolved quickly or becomes a payment-delaying dispute is not mentioned. Next, in the original PR the sale of the remaining mineral “is planned shortly, as soon as shipping can be arranged” while in the clarification PR we’re told that EC.v is “actively pursuing buyers” (i.e. can’t sell the mineral) and isn’t just trying to find a ship to load and float to a happy customer. And then finally, we’re told that EC.v has another 21,000Mt or so to come that it purchased from the JV, but it isn’t specified when that ore will ever arrive portside; from the looks of things it will have to build that U$10m sorting device first so don’t hold your breath.

Manganese is not traded on international commodity markets, and prices are based on negotiation of individual contracts. For this shipment, the total gross revenue to the Company based on a negotiated price was C$1.1M.

A little math breakdown: according to my calculator there were a touch under 29 million Lbs of contained manganese in the shipment that left port (35,532Mt x 37% avg grade Mn x 2204.62), which means it was sold at about 3.8 Canadian cents per Lb of pure manganese. A theoretical of course, as it has to be processed, there will be wastage etc, but infomine today has manganese selling at a little over U$1/lb, down from around U$1.80/lb this time last year. I can’t help thinking that in the rush for a little cash flow EC.v is leaving plenty of cash on the table….

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