Play your didgeridoo, Ron
My visit to ATW,
Downunder
Bob Moriarty
Archives
Nov 19, 2007
If you are doing business with
someone in China and he says that he hopes you live in interesting
times, he hasn't wished you good fortune. It's a Chinese curse.
We live in interesting times. As much as I despise the Dumb and
Dumber tag team routine of Bush and Cheney they can hardly be
held solely responsible for the decline and fall of the American
Empire. As we have learned since the last election, the Democrats
are just as venial and capable of looting the treasury and destroying
our republic. Bush/Cheney are merely the steel I-Beam that broke
the camel's back.
I've been warning readers for
six months of disaster on the horizon. We've had gold rocket
to levels not seen since 1980, the dollar plunged, the stock
market is next. Everyone tiptoes around pretending the banking
system isn't really bankrupt as the massive fraud in $460 trillion
dollars worth of derivatives comes home to roost.
You want to own gold both as
an insurance policy and a preservation of wealth. If you read
what is really going on as opposed to the crap filling the Boob-Tube,
you still have the opportunity to buy an insurance policy on
your home after mobsters have set it ablaze. That's unique in
world history. There have been lots of interesting times but
rarely did the public get warned in advance. The main difference
between 1929 and today is that no one can say this time they
weren't warned.
I do not suggest that the Internet
is the be-all and end-all of truth. There is lots of disinformation
here. But there's a lot of really good and really timely information.
The dollar is dead. Other currencies
aren't much better. When banks start closing we are going to
realize that while the US Peso is worthless, the Euro Peso isn't
any better. There will be a panic out of all currencies.
Gold is about to regain the
function its held for 5,000 years; a financial safe haven in
dangerous times. We live in both interesting and dangerous times.
If you are prepared, you will make it through. If you are not
prepared, the out of control spending by both political parties
is about to destroy America's middle class. Remember, gold is
the only reserve asset with no corresponding liability.
At times like this, I think
you want to be in producing assets. I'm not dead set against
junior exploration, not at all. But you want production stories.
At $800 gold, it's either a production story or moose pasture,
take your pick.
When I go on a site visit,
I do a lot of unpaid consulting. One of the primary benefits
of site visits is to get new minds thinking about the problems
with every project and company. There is a lot of stuff I say
and do which never makes its way into print. My function is to
try to help companies succeed and when they are going down what
I consider the wrong path, I let them know.
About six months ago, just
at the start of winter in Argentina, I flew down to Mendoza to
visit a new porphyry copper/gold project of ATW Venture. (ATW-V)
The project is called the Amarillo project.
ATW had come up with encouraging
chip samples up to 261 G/t gold and had planned a 2600-meter
drill program.
Barbara and I participated
in a private placement at $.64 a year or so ago because we know
the management of the company. I had a vested interest in going
down to Argentina to see the progress. I went at the end of May,
just as winter began in the Southern Hemisphere at high altitudes.
ATW had completed two holes and had eight more planned. I was
too late. The project is above 14,500 feet. By the time I got
there the roads were closing and it was a battle to get the drill
down the hill before they were entirely snowed in.
Visual indications from the
completed two drill holes were encouraging. The tightly held
company with only 20 million shares outstanding had climbed as
high as $1.46 in anticipation of the results.
In the junior market, no news
is bad news. As we sat around the hotel in Mendoza, I told ATW
Venture President and CEO Brent Butler the bad news. ATW was
in deep trouble, with no possibily of news for 6-9 months because
of the season, impatient shareholders would drive the price down
to $.30 if he didn't come up with something PDQ. Preferably a
production story.
This scenario is repeated all
the time in junior markets. Management puts their focus on a
region where you can't do anything half the year. It's just as
true of the Yukon as it is of the higher reaches in the Andes.
All it takes is an early winter or months of delay at the assay
labs and the shares get whacked.
The Powers-That-Be behind ATW
listened and told Brent it was time to shape up or ship out.
Find a project. Now.
Sometimes I feel like I fly
a lot. For the last year or so, I've been gone 50-75% of the
time on site visits. But Brent beat me hands down. In the next
few months he reviewed some 80 projects. In the end, he found
one, a winner, in his own back yard of Western Australia.
I was a fighter pilot when
I was young and our training had little to do with learning to
fly airplanes. Actually we were put under the most incredible
pressure to perform under dreadful conditions. Anyone can fly
an airplane but only survivors can fly under pressure. Brent
Butler was under lots of pressure and he came through.
As a matter of fact, he found
a deal for ATW that happens to be one of the best deals I've
seen in the last few years. It ranks with discovering NovaGold
at $.55, Pediment at $.75 and Southern Arc at $.35. It's unbelievable
but to understand it, you need to understand how Australia works.
The English settlement of Australia
consisted of two groups, prisoners and guards. Guards naturally
worked for the government and came up with thousands of rules
to keep the convicts in line. Many of the rules made no sense
at all but were designed to have a rule for all occasions.
The tradition continues. Members
of our party were chastised for having tourist visas when they
were conducting business. (The travel agent did the visas and
nowhere on the visa did it say what sort of visa it was.) My
customs agent had a fit because I had a few pieces of candy with
me.
"Do you have any toffees
with you?" she demanded as she rummaged through my backpack.
"Huh?" I responded,
ass dragging after a 41-hour journey from Miami. I don't even
know what toffees are. "No," I responded.
"Then what are these?"
she asked, holding up three or four caramels.
"Those are kar-mels,"
I said.
"You mean care-a-mels,"
she said.
"No, I mean kar-mels,"
I said.
"Well," she sniffed,
"You haven't declared them. You said you have no food and
these are food."
"Huh? Those are a couple
of pieces of candy. I didn't see anywhere on the form where you
ask if we are carrying a couple of pieces of candy." I said.
"They are food and you
said you have no food." She shoved the customs declaration
under my nose while stabbing at it with a blood colored fingernail.
"I could confiscate them and fine you."
I'm standing there wondering
if she'd been smoking something. I've never seen anyone get so
carried away over a couple of pieces of candy.
"OK, whatever. You want
them, you can have them." I responded.
"I'm going to let you
off but a customs declaration is a very serious document and
it's important that you fill out every box correctly. If I catch
you again, I will fine you." She fired as her final shot.
I nodded my head as if I actually
cared.
We were sitting down at breakfast
a few days later and everyone in the party had a similar story
to tell. The Australian government had never forgotten their
heritage as prison guards and they continue to make thousands
of silly rules everyone manages to violate.
As a result, the national pastime
in Australia, second only to horseracing, is beating the system.
That attitude had made it over into the mining arena. I've seen
a number of Australian mining companies and they are far more
interested in beating the system than in making a profit for
their shareholders.
Which creates a lot of opportunity
if you understand it. Brent Butler did and, boy, has he come
up smelling of roses.
The 80th project Brent found
was a 42,000-ounce a year gold producer right in his back yard.
It's called the Burnakura mine and consists of an almost 400,000
ounce JORC gold resource, a 440 TPD mill which cost $28 million
only two years ago and blue-sky potential all the way to the
moon. All for $4 million Australian, (at about a 10% discount
to the Canadian Dollar) 5 million shares of ATW and 5 million
ATW warrants exercisable at $.79.
[The little animal
in the photo, bottom right, is a quokka]
Burnakura is in the Meekatharra
mining district some 760 km North of Perth in Western Australia.
Gold was first discovered at Meekatharra in 1897 and gold mining
has taken place on and off over 110 years. Half a dozen of us
flew up to see the mine and mill in a chartered Beechcraft. I
got to ride in the co-pilot's seat and for 100 km all I saw was
one small pit after another. I want to emphasize, there is a
lot of exploration potential to the area; it's barely been scratched.
Two Australian companies entered
into a 50-50 joint venture to develop the project. It had been
mined as a series of small open pits with oxide ores running
up to 20 g/t before the JV built a 440 tpd mill which entered
production in November of 2005. Depending on which side of the
partnership you talk to, either expenses were too high or the
contribution of capital too low but the partnership ended up
in a rapid divorce with each side blaming the other. In any case
the two companies made their minds up to divest themselves of
the property and mill. Along came Brent Butler looking for a
project.
Burnakura is the best deal
I've seen since the Indians got $24 worth of beads for Manhattan.
There is nothing wrong with the project that good management
can't resolve. The gold is an oxide ore of about 8 g/t. It can
be mined either as an open pit or an underground mine. Over $28
million Australian was put into it in the last two years. There
never was anything wrong with the project, only management and
capital issues.
With any deal such as this,
it may look great on paper and certainly, picking up $28 million
dollars of mill for $4 million is a hell of a deal, even if you
ignore nearly 400,000 ounces of gold in the ground as a resource
but you have to have the management talent to run the place.
On one of his due diligence trips to the deposit, Brent met a
contractor named Ron Huston and they struck up a conversation.
It turns out that Ron's company had been brought in to help turn
the operation around but no one would listen to him. Ron had
big plans for operating Burnakura the way it should be run but
no one wanted to know.
His plans landed on fertile
ground when he spoke to Brent Butler. Brent had a wonderful deposit
and no one to run it. Ron had wonderful ideas but no one to fund
and support them. It's a marriage made in heaven. It's all well
and good to pick up a great project for pennies on the dollar
but without the personnel to operate it, you have nothing.
I really liked Ron and I liked
his ideas. He's a rough, tough redneck from the true outback
and he's exactly what ATW needs right now. And management knows
it and knows how valuable he is to them. Without someone of Ron's
skills, ATW would own a pig in a poke.
I think Ron has been burned
out by the "beat the system" so common in Australia.
To me, the 2+2=5 approach I've seen work so well with the good
Canadian juniors makes a lot more sense. Ron loved the idea of
someone actually supporting his ideas and funding them. The numbers
ATW was given indicated they had a 42,000-ounce a year production
rate. Ron has ideas for bringing that up to 80,000 to 100,000
in the next 24 months and they made a lot of sense. I think he
can and will do it.
Canadian juniors are great
as cross-fertilization. Even though Brent Butler is from Perth
and lives there with his family, his experience was all over
the world with Kinross and he knows how juniors and mid-tier
Canadian companies work. I spoke at length with Ron about how
he envisaged expanding the mine. The rock is a mesothermal deposit.
Those tend to go deep and often the grade increases with depth.
There has been virtually no drilling below 100 meters. There
is a giant opportunity to increase both the grade and the size
of the resource. Flying along a north trending structure dotted
with dozens of small open pits, the richest grade gold appears
to fall in a series of east-west running cross structures. Again,
none of this has been tested with drilling.
ATW expects to close on the
deal in the next couple of weeks and has already set up a drilling
crew to begin a 5,000-meter drill program in January. Ron has
plans to begin a major refurbishment of the mill as soon as the
deal is signed. He expects to be pouring gold in March or April.
It's a very aggressive program but with $800 gold it pays to
be aggressive. I believe the production is going way up and the
cash cost is going way down very soon.
One of the things than occurred
to me was that the project has vast tonnage of low grade, sub-1
gram gold material. I talked to Ron about the possibility of
setting up a heap leach for the low-grade material while continuing
to run the high-grade material through the mill. To my very great
surprise, Ron didn't know very much about heap leaching.
It's barely been used in Australia
and while every Nevada miner is familiar with leach pads, Australians
aren't. It's an open area with a lot of potential. I think the
Canadian junior's expertise in raising money and the Australian
contract miner's range of experience can be very profitable for
everyone. In this case, the Canadian can bring some interesting
potential to the mix.
The only deal I've seen recently
as good as this is when Pediment took over a 50,000-ounce producer
at La Colorada. But even Pediment intends to do a lot of exploration
before getting the mine back into production. ATW is striking
while the iron is hot and their shareholders are going to be
greatly rewarded.
The news about the acquisition
has been out for weeks but the website isn't very clear about
the takeover and doesn't go into much detail. The stock is absurdly
cheap. I think there are about 51 million shares fully diluted
after you add in the 10 million shares and warrants to the vendors
and the 21 million shares and warrants in the financing. The
goal of 42,000 ounces of gold production in 12 months is easy
and 60,000-100,000 ounces of gold in 18-24 months certainly possible.
I am very impressed with Ron Huston and given Brent Butler's
wisdom in picking up this deal, I see ATW moving a lot higher
very soon.
I think the float is pretty
small for the stock and I'm going to suggest to interested shareholders
that if you want shares, buy them now. This is a hell of a deal.
We own shares, we have participated in both recent placements,
ATW is an advertiser and we are biased.
I intend to be back
over in Australia for a gold pour in March/April or I will be
beating on Ron Huston's head with my Didgeridoo.
ATW Venture Corp
ATW-V $.87 Canadian
(Nov 16, 2007)
20.6 million shares outstanding
ATW website
Bob Moriarty
President: 321gold
Archives
321gold Ltd
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