Silver Lake Resources

Silver Lake Resources’ 72% stake in Brazilian exploration company Paringa Resources will be whittled down to 33% when Paringa floats shares on the ASX in December. Silver Lake shareholders must decide whether to take up a priority entitlement in the explorer, which is issuing 33m new shares at 30c to raise $10m.

Upon listing, Paringa will have a market capitalisation of just $18m and cash of $10m. The size of the business betrays its intention; this is an early stage explorer. It has pegged land prospective for gold, copper and graphite in several Brazilian states, but the miner is still searching for a viable project. This is speculation at its most extreme and, given the infancy of the exploration program, there is little to distinguish Paringa from any number of wannbe miners other than having the successful Silver Lake as a shareholder.

The cash raised will be used on exploration, mostly on drilling a historic gold mine known as Minacu. A small amount of cash will also be allocated to a graphite project. Brazil produces 6% of the world’s graphite, the equivalent of a quarter of the world’s non-Chinese output. Both the graphite and gold projects have a long way to go before we get excited about them. Until Paringa can prove it has a feasible project, we’re giving it a miss. AVOID. As for Silver Lake, its share price has barely changed since 06 Sep 12 (Hold – $3.27) and we’re sticking with HOLD.

Note: The Growth portfolio owns shares in Silver Lake Resources.