Vanstar Mining (VSR.V) saw its share price fall by about 20% on Tuesday when the company released an exploration update on its Felix project. While the company’s press release started off with the results of an IP survey, the real reason why the market seemed to be upset was the second paragraph of the two-paragraph exploration update: In its first phase drill program, Vanstar Mining did not encounter any significant gold values at Felix. The second phase drill program will now be targeting the iron formations rather than the metasediments in the Phase 1 drill program.

It’s too bad the drill bit didn’t intersect any decent mineralization at Felix, but that also doesn’t really matter: in the greater scheme of things, the Felix project is quite irrelevant. The entire market value of Vanstar Mining is backed by its 25% (to be reduced to 20%) in the multi million ounce Nelligan gold project where joint venture partner IAMgold (IAG, IMG.TO) has kicked off a 9-10,000 meter drill program focusing on both step-out drilling as well as definition drilling in the main resource area, which should result in an updated resource estimate.

Vanstar will end up owning a 20% carried interest in the project once IAMgold completes a feasibility study at Nelligan. And owning that 20% carried interest in the 3.2 million ounce project is likely worth more than the current C$42M market cap of Vanstar.

Disclosure: The author has a long position and added more stock on the recent weakness. Vanstar Mining is not a sponsor of the website. Please read our disclaimer.

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