 Golden Phoenix Minerals
Flight
of the Phoenix, Out of the Ashes
Ralph Kettell
Archives
May 25, 2003
In Ancient
Mythology, the Phoenix was a bird of great beauty, which would
die in an intense flash of fire only to rise again from its own
ashes. In Chinese mythology, the Phoenix was a symbol of great
virtue and grace and represented power and prosperity.
In August 1997
following Newmont's buyout of Santa Fe Pacific Gold Corp., Golden
Phoenix Minerals (website) was formed by six
employees of Sante Fe. However, the founding vision for Golden
Phoenix came primarily from Mike Fitzsimonds who had been a manager
at Santa Fe. This all occurred against the backdrop of a falling
gold market about a year after gold's peak in early 1996, and
just four months after the Bre-X scandal rocked the gold mining
industry with the revelation of widespread defrauding of their
investors.
I imagine that
the choice of Golden Phoenix Minerals for the company's name
reflected management's belief that the gold market was in the
process of bottoming following gold's peak in 1996. They were
likely positioning themselves to capitalize on the next bull
market in gold, expecting it to begin in the following year.
It was to be a powerful force in the gold exploration business
in Nevada and would rise from the ashes of gold's previous bull
market.
Their bet would
have appeared quite safe in light of the historically cyclical
nature of the gold market. The gold market had been in a sequence
of rhythmic cycles with a period of three to four years. There
had been market peaks in '87, '90, '93, and '96. Naturally they
would have expected another one to occur in '99. This would have
given them 18 months or so to really get into the swing of things
and be able to capitalize on the expected rise in '99. Unfortunately
for the management of Golden Phoenix, not to mention the rest
of the gold mining industry, gold decided to take an extended
vacation. It opted for a 4-5 year depression rather than the
more normal 12 month recession This added a bit of delay to Golden
Phoenix's plan for rising from the ashes. I imagine it also gave
Mike Fitzsimonds (President and CEO), and Steve Craig (VP of
Exploration), a few more gray hairs than they bargained for.
Now let's fast
forward to 2000. In November, Golden Phoenix purchased the Mineral
Ridge Mine from a Federal bankruptcy court. Mineral Ridge had
been seriously mishandled by its previous owner, Mineral Ridge
Resources. They did not do proper metallurgy and as a result
their gold recovery rates were quite low, leaving much of the
gold (free milling) on the leach pads. This adversely affected
their cash flow and their technical snafus combined with the
downturn in gold spelled opportunity for Golden Phoenix.
Golden Phoenix
was able to pick up Mineral Ridge out of receivership for the
phenomenally low sum of $225,000! It seemed stupid at the time,
but in retrospect is turning out to be a brilliant move. Mineral
Ridge has 217,644 ounces of mineable reserves, which calculates
to only about $1 per ounce. That is I repeat "reserves,"
not drill indicated resoures, not probable resources, not a global
resource, or a geologists pipe dream, but a known bankable reserve
with the mine and equipment thrown in to boot. It definitely
pays to be in the right place at the right time.
After acquisition
of the mine, they began to more thoroughly investigate why the
previous operator was getting such poor gold recoveries (<50%).
This investigation revealed that the problem was largely a result
of having a large percentage of free milling gold in the ore.
Free milling gold is pretty to look at, but it is very stubborn
when it comes to dissolving in the cyanide leach fluids. It just
sits there and continues to look pretty as it takes a cyanide
shower. They have subsequently designed a new process which will
accomplish over 95% recovery of the gold from the mined ore.
The metallurgical investigation also revealed that there is potential
for a substantial industrial mineral credit which will offset
a large portion of their mining costs.
By April of
2002, Golden Phoenix had raised the funds they needed to post
the interim bond which enabled them to begin low level start-up
of the facilities. It did not allow them to bring chemicals,
aka cyanide, onto the property, but they were able to make changes
to the plant and equipment. They also start washing the leach
pad to neutralize the existing cyanide and at the same time recover
a small bit of gold and silver dore from the pad. Within a month
of the announcement that the interim bond had been posted Golden
Phoenix stock ran up from $0.18 to $0.55. It subsequently pulled
back, but averaged over $0.30 for the last half of 2002. That
is a sustained gain of over 67% and that was from the interim
bond announcement only.
As time wore
on the investment community grew weary waiting seemingly forever
for the mining permit to be finalized and for Golden Phoenix
to raise the money for the full bond of $2,690,000. In early
2003, they enticed many of the warrant holders to exercise early
in order to raise money for the bond. Then on Tuesday, May 20th,
they received the long awaited permit (see press
release)
from the BLM ( Federal Bureau of Land Management). As a result,
the stock jumped up a bit (from $0.18 to $0.25). A rather small
bit to my way of thinking considering the magnitude of the event.
The next major step is for Golden Phoenix to post the bond. They
have two options under consideration and will make a decision
soon on which way to proceed. They have the funds for either
option, it is just a matter of deciding which one makes the best
use of funds and maximizes the return on capital.
As soon as
the bond is in place, they will start to circulate cyanide through
the existing pad which will result in a substantial recovery
of gold and silver. During the initial phase of operations (first
two years), they should recover approximately 10,000 gold equivalent
ounces per year at a cash cost of <$200 per ounce. This should
equate to a positive cash flow of $1.5M for the first two years.
The $3M in profits which would have accrued will then be used
to fund part of the second phase of mining at Mineral Ridge.
The second phase will include adding a full gold mill and possibly
a gravity circuit to capture the free milling gold as well as
expanding the capacity. The expansions should increase the production
to over 50,000 ounces per year and with the industrial mineral
credits the mining costs per ounce of recovered gold should be
significantly lower.
At these price
levels Golden Phoenix is a slam dunk to see 5-10 X returns over
the next two years. How do I justify that statement? They have
approximately 100M shares on a fully diluted basis. Their Contact
Copper property alone is worth $.28 per share. This is based
on a copper price of $0.75 per pound a profit of 5% and the fact
that there is 7 lbs of copper resource per share. The recently
announced joint venture deal (see press
release)
on the Borealis project will advance it towards production in
four to five years. Assuming that they are diluted down to 30%
in the Borealis JV, they would still add approximately 30,000
ounces of gold production to their annual totals. The beauty
of the Borealis deal is that a qualified mining company is going
to spend $9M to bring their property to feasibility, and they
can go full speed ahead on their flagship property, Mineral Ridge.
The cash flow from operations over the next two years at Mineral
Ridge is worth $.015 per share per year. When they enter phase
II of production at 50,000 ounces per year and say $200/ounce
profit, they will be earning $0.10 per share per year. At typical
multiples for Nevada mining companies that would put the share
price over $2.50 without adding any value from their other properties.
To top it off, Mineral Ridge is under-explored and there is great
potential to substantially increase reserves and resources.
>From a
purely technical standpoint, Golden Phoenix seems to have been
in an accumulation phase for the past two to three months. Furthermore,
it may have left a breakaway gap in the charts on Wednesday,
May 21. Time will tell for sure, but it has the telltale signs.
I have discovered
during the past four years of serious investing in the gold shares,
that the most money is made by investing in exploration companies
that are about to become gold producers. Golden Phoenix represents
a golden opportunity at this time. Golden Phoenix seems finally
ready to rise from the ashes and assume its role as a full-fledged
Nevada Gold mining company and join the ranks of the junior producers.
Relevant Facts on Golden
Phoenix Minerals
Stock Symbol
- GPXM (GPXM.OB on Yahoo!)
Exchange - OTCBB
Recent Price - $0.26 US
Outstanding Shares - 76M
Fully Diluted - 103M (with all warrants exercised)
Company Website - http://www.golden-phoenix.com/
May 23, 2003
Ralph W. Kettell, II
Archives
email
Disclosure:
The author is not an investment advisor and this article should
not be construed as a recommendation to invest in the discussed
securities. The author is presenting some possible scenarios
and some of the risks and rewards associated with an investment
in those securities. The author has not been paid to write this
article, either in cash or securities. The author is a substantial
shareholder in the company and will benefit from any increase
in the company's share price. The author will not benefit in
any way from a short term bounce in the stock as his shares are
restricted.
Disclaimer:
The author's objective in writing this article is to make potential
investors aware of the possible rewards of investing in this
stock and to elicit interest on their part in this stock to the
point where they are encouraged to conduct their own further
diligent research. Neither the information, nor the opinions
expressed should be construed as a solicitation to buy or sell
this stock. Investors are recommended to obtain the advice of
a qualified investment advisor before entering into any transactions
in the stock.
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321gold
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