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Robert Martin's Precious Mettle A Tale of Two Mines The Saga ContinuesRobert Martin Once Upon a Time... As a measure of my publishing fame, every three months or so I get an email from some nice person saying something to the effect, "I read your articles about Sterling and Golden Phoenix last year. But you haven't written in a while. What's up? Fingers broken?" No, silly, my fingers aren't broken! The dog ate my CD Rom. For those of you who had the pleasure of NOT reading my prior articles, the basic premise was to bracket your precious metals portfolio by investing in leveraged junior mining companies - I called them "bookends" - one made of gold, the other of silver. For my "gold bookend" I chose Golden Phoenix Minerals (GPXM), a diverse Nevada-based junior that was ramping toward production at its Mineral Ridge Mine. And for my silver bookend I selected Sterling Mining Company (SRLM), a pure silver play based in Idaho. Now, as I gaze into the screen of my sexy new laptop, the dog's snout lovingly duct-taped to his water bowl, I guess there is no excuse. It's time to revisit my gold and silver bookends and see what's cookin'. A Cinderella Story Let's start with Sterling Mining, the Cinderella of the Silver Valley. From 50 cents to $14 dollars, Sterling burst forth on the scene bringing new respect to the term Pink Sheet stock. Having recommended this stock when it was still trading at $3.50, I came out shining like Jim Cramer's cranium. Boy can I pick em! Ray DeMotte, Sterling's tireless CEO, stunned the mining world by capturing the legendary Sunshine Mine back in 2003. The world responded by catapulting Sterling's share price a breathtaking 2800% in the space of eight months. I was clearly a genius. The stock hovered at $14.00, trying valiantly to break through resistance before retreating in classic 61% Fibonacci fashion to the $6.00 level, where it has nestled into a long-term basing formation. Not too shabby. But while the stock has been taking an Elliott Wave breather, Ray DeMotte has not. Single-mindedly, Ray has continued to search out adjacent properties to annex, and ways to add silver ounces so as to maintain his ounce-to-share ratio at an incredible 18.7-to-1. At the same time he has kept his stock float tight, with the total outstanding at a miserly 12.5 million shares. This is the definition of discipline, and the result is that Sterling appears to be rock-solid in the $6-to-$7 range, generously rewarding its early investors, yet offering huge headroom for its future buyers. Ray is a die-hard Silver Valley guy. He believes in its future and extols its past. But Ray never gets stuck in paradigm traps, and when he saw opportunities south of the border, he didn't hesitate to mobilize. His latest plan for adding value to the company is a series of initiatives in Mexico, principal among them the Baroness Tailings Project. Baroness is designed to not only expand the resources of the company by some 15 million ounces of silver, it will also deliver a source of immediate cash flow from the processing of five million tons of tailings bearing about three ounces of silver per ton. The tailings will be processed in a series of leach vats currently under construction. Crews are working double shifts so that the leach vats can be completed and in service by September, marking only eight months between the Letter of Intent and the start of production. Whew! At an estimated processing cost of $3.50 per ton, the tailings should yield low-cost silver and small quantities of gold. It is a brilliant way to have a mine up and running without having to actually do any mining. Baroness will be a steady source of dollars with which to fund continued exploration of Ray's 11 other Mexican prospects, as well as help in the eventual re-opening of Sunshine Mine and its satellite properties throughout the Silver Valley. The Baroness Project fits perfectly into Ray DeMotte's over-arching philosophy; simply put: gather as many ounces of silver under the company umbrella as possible while keeping share dilution to an absolute minimum. This strict adherence to a leveraged ratio of ounces-to-shares is what helped drive the stock to last year's highs, and sustain it following the recent silver price correction. Ray always weighs the cost of a new project in terms of the actual number of ounces it brings to the table. He keeps his eyes on the prize, which is to deliver to his shareholders as many ounces of silver as possible. Believing this to be only the early stages of the silver bull, Ray is determined to lay the groundwork for a massive silver holding which Sterling can draw upon for decades to come. If Wave One Up for Sterling saw it reach $14, I believe Wave Three Up can put it into the $30's, and Wave Five Up will double that. As the world's seventh largest primary silver company (and growing) Sterling Mining is here to stay. The Ugly Duckling But here is where my swagger ceases. Hot shot stock-picker that I am, I have to face the fact that my other bookend, Golden Phoenix, sits languishing on the shelf, a bit unloved and neglected by the investment community. It was valiantly trading at 35 cents when I brought it to the world's attention in 2003. But after fighting its way to 56 cents last December it has slid, like so many of its peers, back to its Fibonacci support in the 20-cent range. That is a 30% drop from when I first wrote about it, my heart full of hope and my head full of dreams. I found myself going from Golden Guru to goat. A washed-up has-been. A failure before my prime. Why has GPXM's share price so far failed to perform? One reason lies in its Mineral Ridge Project. After brilliantly acquiring the property for pennies on the dollar, then fighting tooth-and-nail to successfully permit and fund it, Golden Phoenix has struggled to get its heap leach operation to produce gold at profitable levels. They are close, mind you, pouring 400-to-600 ounces each month during this initial phase of mine development. But investors and managers alike had hoped that by mid-summer the leach pad would be producing at least 1,000 ounces per month (well above breakeven for the whole company), and while they are on the cusp of that target, it is not yet in hand. So GPXM has appeared to struggle, and so has its share price. BUT WAIT! There is still hope. For while I said it has "appeared" to struggle, behind the scenes we find a very different story. In one of those odd twists of fate, I am actually batting a thousand after all. Yes, I may still be that Guru of Gold, that genius, that Cramer's cranium. "How?" you gasp in wonder and disbelief. Well, consider this. Golden Phoenix is a beautifully balanced company. It controls four Nevada properties: Mineral Ridge, its gold and silver flagship; Borealis, an open pit gold mine under active j/v development; Contact, its billion-pound copper property that also hosts precious and industrial metals; and Ashdown, its molybdenum-and-gold mine. Gold, silver, copper and moly a nice balance. Did I say moly? As in $18-a-pound moly? As in (to quote the indefatigable Bob Moriarty) "China and Japan are pulling their hair out right now trying to come up with a dependable source of moly" moly? As in "the price could double or triple from here" moly? Yes, I said moly. And as luck would have it, the Ashdown Mine, located near Denio Junction (just 80 miles from Orovada, if that helps) is not just your run-of-the-mill molybdenum property. It's special. Seriously special. How seriously special? The Ashdown Mine may be the richest known molybdenum deposit in the world. It currently features a measured reserve of 147,000 tons of 2.9% moly sulfide. That's $153 million worth of moly at today's spot. It hosts an additional one million tons of drilled resource. And the property has yet to be fully explored. Let me put these numbers into perspective. The Adanac Moly Project which Bob Moriarty wrote up so eloquently a few days ago is a huge deposit of 151 million tons located in northern British Columbia. Ashdown is tiny by comparison. But while Adanac hosts a respectable average of 1.3 pounds of moly per ton, Ashdown hosts 58 pounds per ton. That is a 4400% difference. And while it is too early to tell, it appears that the moly at Ashdown may be of a purity and quality that ranks as some of the finest of its kind. This is important, as high quality moly can garner premiums in excess of 20% above spot price. Here's the clincher. Ashdown can be in production by Christmas. As in THIS Christmas. And at an all-in cost of about $400,000, to boot. Yup. The permits have been submitted for approval and if they are received by November, a 100-ton pilot mill can be in operation before year-end. Now, I know 100 tons doesn't sound like much. But at 2.9% concentrations it can yield 5,800 pounds of molybdenum sulfide per day, equal to nearly $40 million in annual gross revenue. GPXM retains 60% of that revenue through its partnership agreement. That's about 20 cents per share. Yet the whole dang company is trading at only 26 cents a share as I write this! And that is just the beginning. A drill program is nearly underway which will hopefully confirm existing reserves and greatly expand the ore body. The submitted permits call for a follow-on milling operation boosting production to between 600 and 1500 tons per day. Depending on the depth and breadth of the deposits, Ashdown has the chance of becoming a premiere molybdenum source for years to come. Possibly even a world-class elephant. And that is ignoring the 100,000 measured ounces of gold interlaced with the moly ore. There's nothing like having to dig through a bunch of annoying gold to get at the moly underneath. So instead of an Ugly Duckling, it looks like we have a Sleeping Beauty on our hands. And it gets more beautiful when you consider that Golden Phoenix just acquired the Lone Mountain Mill near Tonopah, a 1500-ton ball mill capable of producing over 50,000 ounces of Mineral Ridge gold per year. As usual, the lads at GPXM snared the mill (and 2.5 square miles of land underneath it) for pennies on the dollar. And with the cash flow generated by Ashdown, CEO Mike Fitzsimonds could fix up the mill and launch Mineral Ridge into full production without undue delay or share dilution. ...and they lived happily ever after It is said
that "luck" is where preparation meets opportunity.
Golden Phoenix may have just lucked into the greatest moly market
of all time, but it was hard work and foresight that made this
luck possible. Chief Geologist Steven Craig cut his teeth on
moly mining 30 years ago, so he knew a good thing when he first
saw Ashdown: 1,400 tons
of moly-laden ore piled up on the property, just waiting to be
milled. Apparently the previous operator dug this ore as a bulk-sample
program to prove up the 2.9% grades, and then was instructed
to shut the whole operation down by its parent company. That
was way back in 1981. So the moly piles became a "reclamation
problem." Despite some natural leaching of the moly over
the past 23 years, the ore piles were sample tested and are calculated
to contain over 80,000 pounds of moly worth nearly $1.5 million.
Gee, as a "remediation program" I guess they'll just
have to truck all that nasty ore off to the pilot mill. There
is enough ore to feed the mill for the first 45 days. That ought
to jump-start mill operations when the time comes. So stick with our two bookends. Do your own due diligence. I think you'll agree that the best is yet to come for Sterling Mining and Golden Phoenix as we await the next leg up of this generational bull market. It is a fairy
tale come true. 321gold Inc |
