 Ted says,
"Show me the Gold"
Bob Moriarty
Archives
Aug 9, 2007
"Are you ready for your
photoshoot with the 'traveling' hammer, Ted?"
"Forget the travelling
hammer, GrandPa Bob, Show Me The Gold!"
In the junior mining business,
failure is the norm. Most companies are never going to find a
project that will go into production. The standard business model
is drill and print shares, drill and print shares. Eventually
the company has so many shares outstanding that they could drill
into 400 ounce .999 bars at Fort Knox and the shares still wouldn't
go up. So they do a roll back and start over. Drill and print
shares.
No other industry would support
a business model such as that so commonly found in mining. Eventually
one in a hundred companies makes a real find and rockets to the
moon. And everyone else points to them and says, "See, that's
what we are going to do someday." Yeah, right.
I believe in the garimpeiro
school of mining. In Brazil, home of the garimpeiro miners, they
all make money. No garimpeiro would dream of mining at a loss.
As a matter of fact, I'm certain they would think a person daft
to consider such a thing. When economic conditions prevent them
from making a profit, they stop mining. If you think about that,
the garimpeiro model makes a world of sense.
If Ted wasn't a bear, I think
he would be a garimpeiro miner. His motto probably would be,
"Show me the gold."
I like that, "Show me
the gold." It works. I've been gone for two weeks visiting
some exciting companies with great projects. My favorite
buy signal is flashing again and both of these wonderful
companies are cheap by any measure.
 The first company I visited has two interesting
projects, one in North Carolina, the other in Belize. And indeed
they did show me the gold. Ted was actually up to his little
butt in gold.
Erin Ventures (EV-V) has a most interesting background.
Formed in 1996 the company developed a boron
project in Serbia as a joint venture with Elektroprevreda-Serbia
(the Serbian government's wholly owned national power company).
The company actually advanced the project to the drill indicated
resource stage and had invested over $8 million and intended
to be in production by 2002 in a joint venture with a NYSE-listed
partner.
But in 1999 a cigar at the
White House told Bill Clinton he needed attention focused elsewhere.
President Clinton tossed a dart at a board and the next thing
that happened was that Mark-84, 2000-pound bombs were hitting
Serbia. Erin Ventures President Tim Daniels put the project into
hibernation until 2001 when a new government took over in Serbia.
After years of meetings and
evasions, the current Serbian government gave the highly-advanced
project to a third-party. Erin has entered the project into arbitration
by the Serbian International Arbitration Court contending they
either deserve the project or compensation for the millions of
dollars they spent in development.
In simple terms, Erin had a
great boron (used in fiberglass) project in Serbia, Clinton bombed
the crap out of the place and the new Serbian government handed
the project to someone better-connected. Erin wants the money
they spent back. It may take another six months to have the case
settled one way or another.
Stuff happens to the best of
us. Erin Ventures was a well-managed company with about 20 million
shares outstanding, a market capitalization of $100 million and
a project on the verge of production. Then along came Bill. At
then end of the bombing, Erin was in debt, and the shares were
down to $.04 giving the company a market cap of $1.6 million.
Erin Ventures and Tim Daniels
have done an incredible job of recovering. Tim and I went to
see his gold porphyry in North Carolina. The project is called
the Deep River Gold Project and is located about 100 km SW of
Raleigh. It has many characteristics of the Ridgeway
Gold Mine just across the border in South Carolina.
Readers should know that the Ridgeway Mine averaged about 1 g/t
of Au.
Erin entered into a joint venture
with Triangle Minerals in 2006 requiring an expenditure of $450,000
by Erin in return for a 100% interest in the property with a
0.8% production royalty. They completed a 12-hole 1800-meter
drill program recently and drill results should be out soon.
The Deep River project is a
large gold/copper porphyry. Soil samples indicate the potential
for an 8 km by 5 km area of alteration. The key here is going
to be grade. Production today would require 1 gram per ton average
grade for gold.
Tim and I visited the property
with the former manager of the Ridgeway Mine, Pete Evans and
Ron McDaniel, owners of Triangle Minerals. The alteration is
obvious and Erin intends to continue with an exploration program
on the project designed to increase the resource.
From North Carolina Tim and
I made our way down to Belize City. We faced an incredible seven-hour
trek through an incredible jungle. The first three hours were
on nice roads, then another two on some pretty bad roads and
then two hours of hell on a primitive 4-wheel-drive beast.
 For ten months of the year, the Erin Ventures
crew can get to the project right on the western border with
Guatemala. But for 2-3 months of the year, the roads through
the jungle are virtually impassible. Erin has had to buy this
incredible tracked vehicle for the pretty bad times called a
Nodwell.
 But the saga was worth it. Tim and Jim Wallis
did literally show me the gold and Ted was soon standing
in high cotton. Or more literally sitting on 165-ounce pile of
gold. He and I both wish we had remembered to bring the double-sided
tape to stick on his backside.
Getting burned in Serbia turned
Tim Daniels into a tight wad. Having his major project yanked
out from underneath him dumped the stock down to $.04. He was
forced to issue tens of millions of shares literally for cents.
Where he once had a nice tight share structure, it took him an
additional 50 million shares to even get his feet on the ground.
But he understands cash flow as well as anyone I know of in the
Canadian Junior sector.
Cash flow is more important
than profit and if mining is to be a business, profit is mandatory.
If a company can't figure out how to make money in this market
with these prices, well, they just need to find something else
to do. Tim wanted a project with early cash flow so he could
issue the smallest number of shares while returning the company
to sound condition.
Tim was approached by Jim Wallis
about a placer/lode gold project in Belize. Jim is 68 and has
been mining since Christ was a Corporal. He lives in Atlin,
BC that is about as close to heaven as you can be and still
stand on Terra. Jim has been working in Belize on and off for
15 years.
The project seems perfect for
Erin Ventures and Tim snapped it up. Before I go any further,
I need to point out that placer gold is the kind of gold that
brokers love to hate. If you need to install the gag instinct
in any broker, just mention "PLACER GOLD" and you will
get your gagging action. Brokers hate placer operations. It might
just have something to do with the fact that companies claiming
placer operations are usually as close to scams as you can get
and still list a stock.
I only know of two still operating,
Golden Eagle (MYNG) claiming to soon be mining in Bolivia and
Silverado (SLGLF) claiming to be mining in Alaska. Go to the
pink sheets and look
at MYNG. "Gold production started 9/02 and produced 302,324
Gm or 9,720 Toz of gold as of 5/04." I make that out to be about 500 ounces per month.
But the management of MYNG has been printing paper faster than
the treasury and is now up to a blistering 790 million shares.
Even so, the company has an $11.2 million market cap.
Silverado spent over $5 million
a couple of years ago mining 500 ounces for the season so I stopped
following them. If they are the specialists in mining placer,
no wonder it has such a bad reputation. SLGLF has a remarkable
672 million shares outstanding. But a market cap of $55 million.
In any case, Erin Ventures
has a project right on the border with Guatemala and intends
to search for the lode source of a known placer deposit. Meanwhile,
quietly and way under the radar screen, Jim designed and had
an $89,000 dredge built. They aren't saying a word about what
they intend to do but they are producing gold today and at nice
profit margins.
 Ted and I saw the gold. Jim and his crew have
produced 165 ounces just in the testing phase of their operation.
The gold is fairly low grade, maybe a fineness of 82/100 or so,
that's what gives it the dull color. But they are maintaining
a production rate of 60 cubic meters an hour and are mining a
.5 gram/meter deposit. They are doing between 1 and 1.2 ounces
per hour. That doesn't sound like much but labor costs are cheap
in Belize and they only have $89,000 invested in the dredge.
Here's how the numbers work
out. They can work a 9-hour shift right now. Figure 9 ounces
at $670 but throw in a .75 Jesus factor. They can gross about
$4,500 per shift. I think they figured their costs were $150
an hour for operating costs and labor. That works out to about
$3,150 profit per day.
 And Tim intends to hire and train another shift
as soon as they get all the kinks worked out and the camp finished.
Now you start talking about $6,300 in profit a day for 300 days
a year. That's $1.89 million in cash flow for a company with
a $7.8 million dollar market cap. I don't think it will have
a market cap that low for very long.
Tim, Jim and I journeyed up
the creek to look at the source of the gold and we found some
arsenic stained quartz veins that are probably where the gold
came from. The area is highly folded, there is a lot of overburden
and quite frankly, if they are taking out gold today at those
margins, I think they would be wasting their time to try and
develop a hard rock source. They are doing far better already
than most companies ever will.
The answer is probably for
the shoemaker to stick to his last. They are brilliant at placer
mining; it looks as if they have a ten-year mining potential
where they already are. They should build more and bigger dredges
and fund everything else they want to do out of cash flow. Back
of the envelope calculations show me that four dredges working
similar grade material should produce 86.4 ounces of gold a day
and net profit of over $30,000 daily.
I have placer claims in Chile
and I know of lots of good placer ground for someone who actually
knows placer and understands how to run a mining company. If
Tim Daniels has made any mistakes, it's only been not screaming
from the mountaintops, "I run a placer mining company."
Jim has shown they can pay for a dredge in a month and for a
dredge & excavator in three months. Few companies can finance
themselves four times a year. They need to get moving.
***
Acadian Mining
My next visit was to another
Canadian Junior aiming to move up the scale quickly and my visit
showed me they probably will. I am putting both companies in
the same article because their business models are virtually
identical.
I got back to Miami and spent
one day recovering from being bitten to beat the band by tiny
black flies in Belize. I took insect spray but since I didn't
see any mozzies, I neglected to put it on. I paid the price for
the next week. But my next adventure took me to another wonderful
area in Canada, Nova Scotia.
If you wanted to locate a mine
near a major shipping port in a safe and sane part of the world
that was so nice the people you want to work with pay you to
work there, you need to be thinking about finding minerals in
Nova Scotia.
I'm getting nervous. Barbara
and I left the United States on a permanent basis because George
Bush and his gang of fools have brought fear to my country. Where
a US President once said, "You have nothing to fear but
fear itself," now we have a self elected president telling
us, "You have nothing to fear but the government."
I fear the government and if
you live within 12,500 miles of Washington, you either need to
fear the US or read more.
In any case, it's a genuine
pleasure to travel to airports not staffed by airport Nazis and
to deal with customs and immigration officials who don't look
at you as if you have Osama bin Forgotten in your back pocket.
I love going into Canadian airports and the terminal at Halifax
is just as beautiful as the one at Vancouver.
I was in Halifax to visit Acadian
Mining. (ADA-V) I had met with Will Felderhof CEO and President
along with Terry Coughlan, Vice President, at the New York gold
show a few months ago. I liked the story and made sure I visited
them as soon as possible.
Basically they want to advance
some interesting gold projects in Nova Scotia. They are going
to do it out of the cash flow from a lead/zinc mine they have
just now put into production called the Scotia
Zinc Project. Other than the most incredible timing I have
ever seen, I think it's a brilliant strategy.
While I was visiting the mine
and mill with Terry Coughlan, lead was hitting a record high
of $1.58 a pound. As Napoleon used to say, it's better to have
lucky generals than skillful generals. You can always beat skill
but you can never beat luck.
Acadian Mining completed the
purchase of the Scotia Mine for $7.5 million from HudBay Minerals
in July of 2006. That's not far off buying Manhattan from the
Indians for $24 worth of glass beads. Their timing was both lucky
and skillful.
Acadian hired the first employee
for the mill on August 8 of last year and had the mill back in
production in late May of this year. That's nothing short of
incredible.
Hiring people to work in Nova
Scotia isn't hard; they stand in line to get there. But getting
a mothballed mill up and running and having 100,000 tons of ore
stockpiled in 9 months is brilliant work.
Acadian Mining has so many
irons in the fire it's almost impossible for me to cover the
whole story. I'm going to hit the high points and I want
the reader to go to the Acadian website
and spend some time reading all the things they are doing. It's
a good site, well-written and clear.
I visited the Scotia Mine with
Terry Coughlan. Doug Keating, Mill Superintendent, had it up
and running in about 9 months. Granted, they are still working
out the kinks but they have a goal of 2500 TPD and I think they
will be there within 12 months. If you notice, all of their numbers
will be smaller than mine but they are conservative almost to
a fault. Still, I think my numbers will be closer to what they
accomplish.
They expect to produce about
30,000 tonnes of a 60% zinc con a year. If you go to the wonderful
Kitco Charts, scroll down the
zinc page and see if you would like to own a zinc producer.
They also expect to produce
10,000 tonnes of a 75% lead con yearly and each ton of con comes
with about 6 grams of gold they hadn't anticipated. I think it
comes from surface till and the reason it was unexpected was
that no one ever sampled the till. I'll bet that if they
did, they could run it through a dredge and recover gold. Look
here and figure out if lead might be desirable to own. The
gold kicker for the first year or two probably will be about
2,000 ounces or over $1 million in found money.
Their figures, using $1.65
zinc and $1.25 lead call for a revenue flow of $68-72 million
and $45-50 million in cash flow. I think you could increase those
numbers by 20%. They have a habit of under-promising and over-delivering.
Which beats hell out of the alternative.
Think about it. This is a company
with a market cap of just over $150 million. They have $10 million
in the bank. On a fully diluted basis, they will bring in another
$23.3 million in cash. They expect a cash flow of about $50 million
and I think $60 million will be closer to the mark if zinc and
lead prices stay the same.
That's a giant if. Our global
financial system with $460 trillion dollars in derivatives is
in a melt down. The good news is that probably Bush and the rest
of the Gang of Fools will have their hands so full trying to
plaster band-aids on a sinking financial system and dollar that
they won't go nuking Iran. The bad news is that at the end of
the day the US will be well on the way to becoming a 3rd world
economy run by a Fascist government. That's not going to be fun
for Americans.
But if Americans have to stop
serving as consumers to the world, I'm certain the Chinese or
Indians will step up to the plate and try to keep up. The world
economy will recover once we assume a real currency, one backed
by gold. The US economy won't.
Speaking of which, Acadian
has over 1.5 million ounces of gold in various 43-101 categories.
At $100 an ounce, which companies are getting in market cap,
today's share price fully values the gold and you get $50 million
in cash flow for free. That's a good deal.
The gold formations in Nova
Scotia are interesting. Company Chief Geologist Rick Horne drove
me around for a day while we visited their various gold projects.
He's a catch for a mining company if I have ever seen one. Rick
worked for the provincial government as the Chief Geologist for
Nova Scotia for 20 years. He literally knows where all the rocks
are hidden.
I think Acadian has a surprise
for the market with their various gold projects. Most of the
gold in Nova Scotia is found in a very unusual kind of deposit.
Rick Horne taught me everything I know about
saddle reef deposits. Not everything he knew, just everything
I know.
Saddle reef deposits are formed
when sedimentary beds are deformed into anticlines.
An anticline looks like a bell curve. When you have layers of
sediment, the shale is the weakest so when the sediment is folded
into a bell shaped anticline or saddle reel and a fluid mineralizing
event takes place, you often get gold-bearing silica or quartz
in the shale. Since the terrain in Nova Scotia was then scoured
by glaciers, the saddle reefs were scraped off and some gold
deposited in the glacial till. (like that over the open pit ore
body at the Scotia zinc/lead mine) Miners found the legs of the
saddle reef and mined them, not realizing the biggest gold deposits
would be found in the cap or top of the anticline.
No one has ever drilled any
of the anticlines for saddle reef caps in Nova Scotia but in
Australian
gold fields in Victoria much of the gold came from saddle
reef deposits. So while Acadian has some gold projects such as
Beaver Dam with 950,000 ounces in 43-101 categories, others,
which appear to be much smaller, may have similar or even greater
potential.
I'm not even going to go into
the Lake Ainslie Barite-Fluorite mine they picked up on Cape
Breton Island for $300 that contains a 4.25 million ton resource
of 34% barite and 17.3% fluorite. It's a historic resource, not
43-101. They don't even mention it on their website, it's too
new and they are so busy.
I don't think you can find
a greater opportunity. It's a producing zinc/lead mine when those
minerals have become precious, with a free perpetual call on
gold or it's a near term production gold story with a free perpetual
call on both lead and zinc and if oil ever is in demand again,
a free perpetual call on both barite
used in drilling fluids and fluorite,
used for flux in steel making or for glass or in the production
of hydrofluoric acid.
I see no difference at all
between the business model used by Tim Daniels at Erin Ventures
or by Will Felderhof at Acadian Mining. Each company has a number
of interesting projects all of which require sustaining capital.
Rather than finance exploration via the printing press, they
have chosen to finance internally. I don't see any more shares
being issued by either company in the near future other than
options - well-deserved options.
I expect both companies to
be profitable. I expect both companies to expand their other
projects and I expect to see far bigger and far more valuable
companies a year from now.
If Erin Ventures has a weak
spot, it would be putting such a giant load on the shoulder of
Jim. He needs to be passing on his vast store of experience as
soon as possible. Erin could use 2-3 new, young geologists eager
to learn how to do placer mining. Most of the gold ever produced
has been via placer mining and the fact that the Toronto and
Vancouver brokers don't have a clue as to how it should be done
has far more to do with the fact that Vancouver and Toronto
brokers often don't have a clue rather than there being any
real flaw to placer mining.
The North Carolina gold/copper
porphyry is an issue of grade. It will take 2/3 of a gram to
be viable at today's prices. Soon-to-be-released drill results
will show the present potential. If the grade is under 2/3 g/t,
the worst you can say is that it is highly leveraged to the price
of gold and is still worth advancing.
I didn't discover Acadian.
I think Greg McCoach of The
Mining Speculator found and wrote about them first. He has
a really excellent service, charging only $199 a year. He has
found and supported a number of great juniors that rocketed higher.
He's done it again.
I just really like Acadian.
I like the management and I love the model. I really appreciate
Rick Horne taking me around and teaching me about a whole new
type of gold deposit and I'm just dazzled by how well Doug Keating
has done getting the Scotia Mine into production.
I'm convinced we are in the
melt-down phase of the derivatives time bomb and I can almost
promise few understand the dimensions of change which are going
to happen between now and October. But I think you could invest
in both of these companies and sleep soundly no matter how many
financial houses are collapsing on Wall Street.
We have positions in each company.
Acadian is an advertiser at 321gold, and Erin is soon to be an
advertiser. I am biased, I happen to really like the model and
I really like management of each company. Do your own due diligence,
both web sites are excellent and filled with information.
By the time you read this I
will be in the boondocks of Alaska. So, as always, please hold
back on sending email for a couple of weeks.
 Erin Ventures Inc
EV-V $0.13 Canadian (Aug 8, 2007)
ERVFF.PK
71.3 million shares
Erin Ventures website
 Acadian Mining Corporation
ADA-V $1.11 Canadian (Aug 8, 2007)
ADAIF.PK
135.7 million shares
Acadian Mining website
***
Bob Moriarty
President: 321gold
Archives
321gold Ltd
|
