07goldinsight02

Since our report on "Gold Mining, Supply Side Predicament and 2007 Gold Price Forecast" seven months ago (March 6, 2007) there have been a number of developments on the Jr. gold exploration company featured in the report, Metanor Resources Inc. (TSX Venture Exchange: MTO chart news)(US listing: MEAOF).

In our informative and prophetic piece back in March we discussed how global gold supply from new production is not rising to support demand and prognosticated on how gold would readily reach $730 within the year on its way to $3,000 within a decade. We discussed how Mining production is stressed to bring sufficient gold to market and the companies engaged with this responsibility have exceptional upside exposure to rising gold prices, thus offering Metanor Resources Inc. for consideration as a candidate for investment portfolios as Metanor is about to become a gold producer utilizing their 100% owned Bachelor Lake Gold Mill in the prolific Abitibi Mining District of Quebec. Below is an update as Metanor is now within days of pouring its first gold bars.

2007/2008 Gold Price Forecast is found at bottom of this report

Upside Valuation/Summary: For those not familiar with the story, time to pay attention is now as in Q4 2007 Metanor Resources will commence gold production, pouring their first gold bar. Metanor will become a gold producer at their 100% owned Bachelor Lake Gold Mill in the prolific Abitibi mining District of Quebec. With the refurbishment of Metanor’s 1000 tonne capacity per day mill (initially configured to 750tpd and upgradeable within days), initial mill output from the Q4 test batch is ready. Production next year should accelerate to 45K oz in 2008, ramping up to 65K oz in 2009. The mill is configured to produce dore bars of approximately 90% gold, with a small component of silver. MTO.V appears to offer exceptional opportunity; their 2008 and onwards EPS will likely be very significant as a debt free unhedged gold producer. The current market cap relative to expected revenues is disproportionate (analysts report pegs $3 per share price). With plans to readily upgrade the resource base from over 500,000 oz of gold to over 1,000,000 oz, with approximately 60M shares outstanding and currently trading under CDN$1/share, the present valuation of MTO.V provides exceptional opportunity for investors. (See additional upside valuation commentary in footnotes).

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Metanor's Barry Deposit is turning up interesting findings as it readies to supply ore for first gold bars at Canada's newest gold mine

We caught up with the management at Metanor Resources for an update on progress as they were prepping to blast ore at their Barry Deposit for processing at their nearby Batchelor Lake Mill. Andre Tremblay, Metanor's director of explorations, explained there have been many developments and that Metanor will have the Bachelor Lake Gold Mill ready to begin processing the ore extract from the open pit operation on their Barry gold deposit, approximately 65 km southeast of the Bachelor Lake property. The plan is to first mine the Barry deposit as it is ready to go now and has an excellent strip ratio of 1:1 and then mine Bachelor Lake once Metanor has taken the time to deepen the shaft, prepare areas, and define new resources to be mined. It will take a couple years to ready for mining at Bachelor Lake which works out perfectly as there is 2 - 3 years worth of defined resources at Barry as it stands. But more importantly was the optimism and level of confidence the director of exploration had in explaining the likelihood of the Barry deposit having a substantially longer mine life, which is one of the main reasons Metanor has gone about paying $1M cash to buy out the 7%NSR on the property and increasing the claim area from 6 to 206 claims. Mr. Tremblay is very optimistic and confident there is an excellent chance to continue following the vein now beyond the currently known length and 100 foot depth, buying out the 7% NSR could mean a lot of money over the next 10 - 15 years, especially since they own the entire area now and will be able to follow the extension wherever it goes. Mr. Tremblay's perspective is as follows:

"The highly mineralized zone is close to surface, approximately 200ft wide and this deposit is at depth to 25 meters or 100 ft deep, we have not bothered yet to see what happens after that as we just want to mine the deposit from surface to 100 feet by open pit. ... I am very optimistic to find where the extension goes, the chances of such a very big zone 200 feet on surface going to nothing at 100 feet [depth] is a bit too close for the closing of this zone at zero".

When we contacted Metanor's director of exploration he explained how he had requested the geologist that had painted up the ore zones to make a channel across the zones including the waste zone in between (where no gold or not enough gold was expected to be) and take a sample of all these zones. The results they receive back were "very interesting and encouraging"; there was more than 3 grams of gold in the waste material, approximately .1 ounce of gold per tonne, certainly worth taking to the mill instead of the waste pile. "We prefer to crush it and send it to the mill if it contains sufficient gold, because it costs money to break rock and take to the Barry waste pile, there is no revenue in that, it is very encouraging for this to have happen on the very first channel sample". With results like that it makes sense to sample all these areas as they come up, no matter if it looks like ore zone or waste material, even waste material if it is fractured can carry gold.

"In the very first channel we also had a very nice sample with visible gold in the ore part, that was not expected. Native gold is not part of the resource calculations because they are random pockets that are considered bonus. These visible gold pockets are higher grades than what we planned to mine, the more of these we come across the better. The very first channel sample we hit very nice visible gold in the quartz vein, I can not believe there is no visible gold to be crosses in other places. So I expect more of that in the course of mining."

Image 2: MTO.V's Batchelor Lake Gold Mill

(A beehive of activity as Metanor completes the last of improvements on the 1000 tpd capacity operation)

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to

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Image 5: Arial View of Metanor's Barry Deposit - Stripped Area

Image 6: Barry Deposit - Painted-up Stripped Area

Added Commentary - November 9, 2007:

Since our October review Metanor has provided an update (copy of Nov 8, 2007 update release can be found below) on operations that confirm restoration of the Bachelor Mill (mechanical and electrical) is 95% completed and the company is progressing towards production, among other insightful points.

The Nov 8^th release also had a synopsis of considerations that make Metanor a more attractive investment than was previously taken into account in economic studies. Madison Avenue Research notes some interesting points touched on that make Metanor an even more undervalued entity include (but are not limited to);

With the meteoric rise in gold prices the obvious being the fact that Metanor’s Geostat economic study used a gold price of $660 CAD versus the current higher price, suggesting that the cash flow could be significantly higher.
Métanor repurchased 7% of the NSR from Murgor on the Barry deposit, and this was not factored in this study. As stated in Geostat's economic study of the Barry-Bachelor project, the project will generate a cumulative operating cash flow of $6.5M over 7 years. During spring 2007 the Company repurchased NSR's that will create savings of $3M thus increasing the operating cash flow of the same amount. Furthermore, the Company was successful in raising over $20M in fiscal year 2006-2007, this amounts was not taken into consideration in the Geostat economic study and will increase Metanor's cash flow.
The study used very high costs of operation however most of these costs will be decreased. For example, this study uses 27 peoples that would be necessary to operate the mill but Métanor budgets only 15 due to automation, this represents an appreciable savings.
The recovery of further resources that were not used (477,930 T containing approximately 110,298 ounces of gold), assuming the same operating costs, would increase mine life and total cash flow.

Latest new release from Company confirms they are on schedule, nearly complete mill improvements, and have started blasting ore for processing:

Excerpt from Metanor's Nov 8, 2007 News Release

Copy From Source

Update of the Work Completed on the Barry and Bachelor Properties

TSX VENTURE EXCHANGE: MTO 60,800,974 shares

VAL-D'OR, QC, Nov. 8 /CNW Telbec/ - Metanor Resources Inc. (MTO: TSX-V) is pleased to provide an update of the work carried out on the Barry and Bachelor properties located in the north of Quebec, and comments on the recommendations from the Preliminary Economic Study carried out by Géostat International Inc. (Press release of October 30, 2007).

In spring 2007, Géostat International Inc, was retained by Métanor to prepare an economic study whose objective was to evaluate the economic potential to exploit the deposit of Barry by open-pit mine and using the rehabilitated mill at Bachelor. This economic study, whose results are positive, was initiated last spring and was delivered to Métanor October 16, 2007.

During the preparation of this study, the majority of its final recommendations were already being carried out by Métanor who invested close to $12M on the rehabilitation of the Bachelor Mill and the preparation of Bulk Sampling at Barry.

The work executed so far by Métanor at Bachelor and Barry includes:

<<
- The Repair of the External Infrastructure of the Bachelor Mill,
including the coating and the insulation, which was completed a few
months ago.
- The Restoration of the Components of the Bachelor Mill (mechanical and
electrical) is 95% completed. Métanor has even begun the commissioning
of the internal components of the initial circuit of the mill made up
of the crushers, ball mill and the conveyors bringing the material
towards the ore bin.
- On the Barry Property, the Preparation of the Site and the Installation
of Surface Buildings (Service, warehouse, etc) are completed. The
original stripped zone was extended significantly and Bulk Sampling has
been underway for a few weeks. The first blasts made it possible to
establish the starting point of Bulk Sampling and other blasts of mill
feed are regularly being carried out. The broken ore is crushed
immediately and stored on the site.
- The Repair work of the road connecting Bachelor to the Barry site
(which uses the principal roads of Domtar) is finished and is ready for
the transport of the mill feed.
>>

This study depicts a scenario of operation with very conservative parameters such as only 63% of the total resources were used in its calculation. Further, this economic study's income was calculated using a price of $660 CAD/oz and still shows positive conclusions as to the profitability of the project.
Other factors not taken into consideration in this study include:

The potential resources were evaluated by InnovExplo inc., in a NI 43-101 technical report, dated of October 31, 2005 as follows: measured and indicated resources of 841,591 t at 7.79 g/t Au (or 210,857 oz of gold) and inferred resources of 426,148 t at 6.52 g/t Au (or 89,366 oz of gold). Several mineralized zones were not included in the study: zone A and C of Bachelor property, and the zones A and B as well as portions of the East Zone and the West Zone of Hewfran property. From a total of 212,300 T of measured resources calculated by Innovexplo in 2005 at Bachelor, only 84,477 T (40%) were used. Therefore, a greater total of 477,930 T (110,298 ounces of gold) representing 37% of the total resources was not used at the time of this study.

During the preparation of this study, Métanor repurchased 7% of the NSR from Murgor on the Barry deposit (Press release of September 6, 2007), and this was not factored in this study.

The study used very high costs of operation however most of these costs will be decreased. For example, this study uses 27 peoples that would be necessary to operate the mill but Métanor budgets only 15 due to automation, this represents an appreciable savings. A feasibility study has not yet been completed and there is no certainty the company's projections will be realized.

At the time of this study, Métanor had just completed a $20M financing which has been used for development work carried out until now on the 2 properties. As stated in Geostat's economic study of the Barry-Bachelor project, the project will generate a cumulative operating cash flow of $6.5M over 7 years. During spring 2007 the Company repurchased NSR's that will create savings of $3M thus increasing the operating cash flow of the same amount. Furthermore, the Company was successful in raising over $20M in fiscal year 2006-2007, this amounts was not taken into consideration in the Geostat economic study and will increase Metanor's cash flow.

Considering all of the above factors and that the Geostat study used a gold price of $660 CAD versus the current higher price suggests that the cash flow could be significantly higher.

Additionally, the recovery of further resources that were not used (477,930 T containing approximately 110,298 ounces of gold), assuming the same operating costs, would increase mine life and total cash flow...

...Full Copy from Source

Footnote to Upside Valuation/Summary section found near top of this report addendum: There should be no further share dilution or bank financing in Metanor's future, as Mining Expert David Bonds put it "they're a pay-as-you go operation with Class A properties on their books". It is not often a new gold mine comes online in a stable jurisdiction, especially offering as much near term operational value and future potential as Metanor. Once the shares that are currently available in its current trading range are absorbed it is likely the stock price of MTO.V will rise significantly. There is just too much going for Metanor and its future prospects, the window of opportunity being made available by shares at the current price level (while still available) are considered by those in-the-know as extremely undervalued with tremendous near-term upside potential.

Madison Avenue Research Group's outlook for gold as articulated seven months ago (March 6, 2007) remains extremely bullish. Our sentiments at the time were shared with Louise Yamada, managing director of Yamada Technical Research Advisors LLC in New York, former head of technical research at Citigroup. Yamada saw (and correctly so) gold surpassing US$730 on its way to US$3,000 within a decade. "Gold is the purest play against the dollar,'' said Louise Yamada. Yamada is highly respected and was was voted Wall Street’s best technical analyst from 2001 to 2004.

2008 Gold Price Forecast: Madison Avenue Research Group's near term prognostication on gold echoes Robin Wilkin, technical analyst at J.P. Morgan who said "I am bullish on the metals complex and bearish on the dollar. I am still in the camp that believes that we will work towards $775 to start with, then $800 and then we could head up towards $850 at some stage".

Investment bank Morgan Stanley & Co., the second-biggest U.S. securities firm, said last week (Friday Oct 12, 2007) in its 2008 gold price forecast that:

The psychological level of $850 is our next target as it is the record peak struck in January 1980. Gold rallied to a 28-year high of $845.40 an ounce on Wednesday (Nov 7, 2007). Investors seem keen to drive the metal to a record high as the dollar continues to tumble to an all-time low against the Euro and oil continues to rally. Gold is a safe haven with credit markets in turmoil and the health of the U.S. economy in doubt. A downbeat economic forecast by Federal Reserve Chairman Ben Bernanke has added fuel to the fire this week.

Looking forward, Madison Avenue Research believes that gold is technically overbought now and profit-taking pressure should grow, but funds will flow into gold on weakness because gold has been performing extremely well and the psychological $850 barrier should be taken in the near-term; the powerful bearish momentum on the US dollar is driven by fundamentals, technicals, and psychology – a difficult combination to reverse trend on.

Disclaimer & Disclosure: The information contained herein is believed to be accurate but this cannot be guaranteed. The analysis does not purport to be a complete study of securities and issues mentioned herein, and readers are advised to discuss any related purchase or sale decisions with a registered securities broker. Companies mentioned herein may be very early stages of development and thus can therefore be subject to business failure, and are to be considered speculative and high risk in nature. Reports herein are for information purposes and are not solicitations to buy or sell any of the securities mentioned. The author may or may not hold a position (long or short) in the securities mentioned herein. This is a journalistic article and the author is not a registered securities advisor, and opinions expressed should not be considered as investment advice to buy or sell securities, but rather opinion only. The publisher may make take journalistic liberties employing the use of pseudonyms as reference contacts and accepting information at face value from what it believes to be credible sources. Further disclaimer and disclosure regarding various aspects of this report / article including compensation and other points may be seen at http://www.madisonaveresearch.com/disclaimer.htm.