 Now in Production
Bob Moriarty
Archives
Sep 10, 2009
A little over a week ago, an
obscure Chinese Government agency threatened to allow Chinese
companies to
default on their derivatives losses. As regular readers well
understand, I have been warning about the dangers of a massive
derivatives induced financial collapse for 8 years. It may be
here. It may be now.
Derivatives are about $600
trillion now, down from $700 trillion a year ago; up from $100
trillion eight years ago and totally out of control. Every fool
in the world is making giant bets with monopoly money borrowed
from other people. A year ago, with oil prices north of $140
a barrel, a number of Chinese companies bought futures contracts
on energy. Those are way underwater and those companies don't
much feel like paying.
The Chinese government knows
that at some point in the future the US Government is going to
default. We owe $100 trillion on a $14 trillion dollar economy.
There is no way that debt is ever going to be paid off in real
dollars. So the Chinese may preempt the US in default. If they
do, every other fool playing with derivatives and hiding losses
is going to default as well in a series of cascading defaults.
Call it The End Of The World
As We Know It. 'Cause it is.
It won't be a week later before
the entire world's financially system grinds to a halt. Lots
of people believe the financial system is going to collapse.
I am one of the very few who believe it will be an overnight
catastrophic collapse. I have gotten permission to use this quote
from Steve Saville at his excellent site Speculative-Investor.
"Many years into the
future there will come a time when our present monetary system
is so ravaged by inflation that a complete system change will
be unavoidable. At this future time the reintroduction of an
official monetary role for gold could become a realistic possibility.
"Rather than having
a Gold Standard or some other official (government-mandated/controlled)
link between the currency and gold, the optimum solution would
be for the government to get out of the money business altogether
and let the market use whatever money it chooses to use. The
trouble is, the optimum solution is so far outside the realm
of mainstream thinking that it won't even find its way to the
discussion table until after there is a total monetary collapse."
Steve has it exactly right.
It will take a total monetary collapse for anyone to wake up
to even discuss the very real benefits of a using gold as money.
We are not going to go to gold because it makes sense. No government
ever does something because it makes sense. That's how you continue
to fight wars when you have absolutely nothing to gain for 8
years and still claim victory. We are going to go to gold because
we simply have no other alternative. I really like Speculative
Investor but he thinks the crash will take years, I think it
will take days.
You want to own some gold,
physical gold in your hands, as an insurance policy and you need
to be investing in wealth. That's in productive companies that
produce things of value. The best thing of value is going to
be gold and the best companies to invest in will be those producing
gold.
Lucky for you, I just came
back from visiting one of those companies.
I first wrote
about Little Squaw Mining Company two years ago after a visit.
I said they needed to get into production right away. I make
lots of suggestions to mining companies. Most of them get ignored
and lots of times people come back to me years later and admit
they wished they had listened to what was good advice.
Little Squaw changed their
name in response to the God of Political Correctness and that
was a shame, Little Squaw is 100 times more memorable than Goldrich
(GRMC-OTCBB). They ignored me there, too.
Goldrich was as high as $1.60
a share as recently as 2007 and tumbled on the lack of news to
a miniscule $.06 a share in December of 2008. You can safely
presume the weak hands are gone. Recently on news of production
the stock has climbed to a high of $.44.
Based on 4700 meters of drilling
in 2007, Goldrich announced a resource of 258,000 ounces of gold.
That's placer gold, not hardrock and in Canada placer is a four-letter
word. That's silly. It's a lot cheaper to produce than hard rock
gold.
Richard Walters, President
and CEO of Goldrich, was a founder of Yamana Gold and he thinks
hard rock and big company. He had a study prepared showing production
of about 20,000 ounces a year for 13 years with a capex of $23
million and a total mine life capital of $33 million.
That's all rubbish of course.
You can get started in production of placer a whole lot cheaper
than that. I am a partner in a project in Northern BC near Dease
Lake. We have about $1.5 million invested and should be producing
about 9,000 ounces a year. Our season is about a month longer
but the fact remains that placer mining doesn't cost as much
as hard rock mining to get started.
So my suggestion to Dick two
years ago was to shelve all the $23-million-dollar 3-years-to-get-started
plans and for him to get cranking. He ignored me. It wasn't the
first time, it won't be the last.
Dick's heart is still in hard
rock and he really wants to develop the giant hard rock potential
he has at Little Squaw Creek. Nothing much happened during the
2008 season except the stock fell off a cliff and got everyone's
attention. By early this year Dick and his team had a major interested
in doing a JV and a major drill program in the hills overlooking
the Little Squaw Creek. The JV partner was going to put $2.5
million into the program. At the last moment the partner bailed
out, leaving Dick and his team at the altar looking forlorn.
Someone mentioned the unmentionable,
"Why don't we just use the equipment we have and put
it into production?" With a shudder of disdain, the
rest of the team agreed and off they went.
I must say they did exactly
the right thing for exactly the wrong reason but who is counting?
Production is production and contrary to the Gnomes of Vancouver
and Trolls of Toronto, a gold bar made from placer gold looks
just like a gold bar from a hard rock mine.
I think they started planning
in May and by July had a 6-foot Trommel on the way to Chandalar
for assembly. They hoped the machine would be assembled and production
started by August 10th but they ran into the usual delays. We
were there the last week of August and the Goldrich team really
got cranking.
This year is just a test to
get all their systems working. While we were there, they were
doing as high as 4 ounces an hour. A couple of days after we
left, they did as much as 5 ounces an hour. A double shift working
20 hours a day could produce 100 ounces a day next year and you
start getting into some serious numbers at that point.
Mining placer gold is little
more than moving dirt. You need to move it as few times as possible
since that all costs money. You need some sort of plant that
is geared to the type of gold you are trying to recover. Goldrich
spent about $250,000 on their plant and our tests showed that
it recovered the large gold; some nuggets were almost 10 grams,
and the fine gold that is so important to profitability.
Now that they have jumped into
the water, I'd like to see them do more and do it faster. Dick
Walters wrote me at the end of last week and said they had recovered
over 200 ounces, including 55 ounces in one 10.5-hour day. While
we were there in late August, the nights were starting to freeze.
They probably can work until about the 10th of September but
by the 15th, winter will have set in. They may have somewhere
between 500 and 600 ounces this year.
That's all cash flow and very
important. Goldrich sold up to 1500 ounces forward and will repay
the investors out of the actual gold produced to finance this
year's operation. I'd like to see them double or triple the amount
of heavy equipment they have on hand. In theory, if they can
put their hands on some plants at the right price, they could
set up as many as three operations, all aimed at doing 50+ ounces
a day. It's possible to run a plant, two dozers or excavators
and a loader and dump truck with 6-7 people per shift. You need
to be running two shifts because you only have a 120-130 day
season and the more you run, the lower your costs.
Goldrich will need to raise
a couple of million dollars. Dick Walters has done a great job
of keeping a tight share structure and if the shares respond
as I believe they will, he can do the financing at a higher price
to reduce dilution. It's a low risk investment because all of
the money is going into plant and equipment, not overhead.
I like the company and the
fact they are finally in production, no matter what the incentive.
They won't make costs this year but it's been a very valuable
learning experience and they know what they need to do next year.
With some capital, they could be a serious producer of placer
gold and be self-financing from here on.
The company not only has 258,000
ounces of easy-to-access placer gold, there is a giant hard rock
potential that has been barely scratched. If they can finance
that exploration out of production, they have a lot more potential
than a $16 million dollar market cap would suggest.
We participated in a PP at
a much higher price. Goldrich is not an advertiser because they
don't really have the cash to spare and I understand that. I
really like management and the team that Dick Walters has put
together. He needs to double or triple the number of people working
at Little Squaw Creek for next year and he needs to raise some
money and they will be off and running.
Obviously the shares should
respond to positive news about production from the test mining
and then there will be an absence of news except about financing
until next year. Don't be tempted to chase the stock, the shares
are tightly held and the market makers play a lot of games. Put
in a bid and wait patiently. This is a stock that could get a
lot of traction out of higher prices for gold.
Obviously as a shareholder
I am biased and anything I write should be considered before
you do your own due diligence.
I took some very nice photos,
you can view them - in 'gallery' form - by
clicking here.
Goldrich Mining Company
GRMC-OTCBB $.39 (Sep 9, 2009)
37.5 million shares
Goldrich website
Bob Moriarty
President:
321gold
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321gold Ltd
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