Great Panther Mining Ltd GPLDF

Cap-ex problem?

[texasbob]

This may be why we got whacked at the end of the day.

Trey Wasser: More Stars in the Mexican Precious Metals Universe (Part II)
Source: Interviewed by Karen Roche, Publisher, The Gold Report  01/11/2010
As we learned in Part Iof Trey Wasser's interview, his Mexican Gold & Silver ExplorersModel (MSG) tracks junior explorers and producers as they define anddevelop precious metal assets and bring them into profitableproduction. Trey's model-based index has enjoyed a 250% increase sinceinception in January 2007—including no loss in the 2008 crash—so heclearly has a keen eye for what it takes to make a winner. Read on asTrey willingly shares insights on lots of his favorites in Part II ofthis exclusive interview.

TGR: Why don't we start Part II with some of your current top picks in from the MSG Model?

TW: Absolutely. Two of my standout companies are Capital Gold Corp. (TSX:CGC;OTCBB:CGLD; Frankfurt:CGU) and Fortuna Silver Mines Inc. (TSX.V:FVI),due to their impressive profitability. Capital Gold produced about50,000 ounces in their year ending July 31 and reported over $10million in fully taxed net profits. John Brownlie, who has been withthe company since 2006, was just made President and COO in September.He is arguably one of the best operators amongst the juniors. He builtthe El Chanate mine in Sonora on time and on budget. It is now one ofthe lowest cost mines in the industry with a cash cost of just $330.Its reserves have grown from about 400,000 proven and probable (2P)ounces when the mine was built to more than 1.5 million 2P ouncestoday. They have just installed a new crusher module and built a secondleach pad. They should produce about 70,000 ounces in calendar 2010.The residual leaching from the old pad could add another 20,000 ounces.They are unhedged and at current gold prices will generate cash flow ofabout $40 million. The stock is selling at less than five timescalendar 2010 cash flow and less than eight times earnings.

Fortunais another well-managed company. Their production and profitabilityprofile is based on their Caylloma Mine in Peru, but they have a veryexciting project—San Jose—in Oaxaca State. They have built animpressive resource and begun mine construction. San Jose will bemostly financed from their treasury and from cash flow from Caylloma.We were set to visit the property last June, but had to cancel due tothe H1N1 flu outbreak. I am looking forward to seeing this project thisspring.

TGR: In Part I, you mentioned adding Oro Gold Resources Ltd. (TSX-V:OGR) and Rochester Resources Ltd. (TSX-V:RCT) to the model. What stage are these companies in? Early Explorers, Advanced Explorers or Producing Explorers?

TW:I added Oro Gold to the Early Explorers category, and have Rochester inthe Advanced Explorers category. If you look at the model itself, thereare stated criteria that can move a company from one category toanother. To some degree, though, a bit of it is subjective. Forinstance, I don't move an Early Explorer up just based on the resourceand having a 43-101 resource. Those are among the criteria, but if Isee some stumbling blocks in the development or feel they aren't makingenough progress moving a project toward economic feasibility I won'tmove them up. For example, if they still have a lot to do in the way ofmetallurgical testing, dealing with access and surface rights issuesand water issues and other potential permitting problems, I may keepthem in the Early category even if they have a bigger resource thansome Advanced Explorers.

TGR: You say Rochester is an Advanced Explorer? Aren't they producing?

TW:Rochester does have some production, but it's very small so far. Theyhave had issues with feeding their mill from narrow underground veins.They have just raised some capital and have a new mine plan andexploration program. I look for the company to move up to the ProducingExplorers category as their story unfolds this year when they reallyramp up production and start showing earnings or at least cash flow. Sothis was a bit of a selective placement on my part, but it allows me tomove them up and alert my clients that they are executing. One of theexciting things at Rochester is that Eduardo Luna is now President andCEO. He was Goldcorp's president of Mexican operations (Luismin) and isone of the most respected mining names in Mexico. He could have pickedfrom many companies in Mexico to run. He chose Rochester and put hisown money in the deal. I always like management with "skin in thegame." Eduardo's goal is to grow production and resources at Mina Real,which is in Nayarit State, in the same way he built mines for Luismin.

TGR: Have you added anything else to the model lately?

TW: In addition to Oro Gold and Rochester Resources, I've recently added Silvermex Resources Ltd. (TSX-V: SMR)to the Advanced Explorers. Silvermex is a new management story. CEODuane Nelson has just brought on Mike Callahan and Art Brown to helphim manage the company. These are retired Hecla executives who couldmake this a very exciting story in 2010. Duane also added two new boardmembers, Joe Ovsenek and Ken McNaughton. They both work for Silver Standard (TSX: SSO; Nasdaq: SSRI)and have been involved many significant discoveries and minedevelopments. This quality of people doesn't get involved in a juniorcompany unless they really see something they like.

Silvermexhas an option on the San Marcial property, a near-surface deposit ofover 20 million ounces of high- grade silver in Sinaloa State. Theyalso just bought the old Rosario Mine from Aurcana Corporation. This isa mine that was operated by Grupo Mexico in the 1990s and was shut downdue to labor issues and low metal prices. The infrastructure at Rosariowill allow Silvermex to fast-track San Marcial into production. Thereis also a couple of years' worth of production left behind by Grupo atRosario that is very economical. There is significant explorationpotential at the old mine, at San Marcial and within the district.Either of these projects on their own may not have been developablewithout a lot more exploration, but together they make a very powerfulstory and a near-term silver producer.

TGR: What's the Oro Gold story?

TW:Oro Gold is managed by a group who worked for Placer Dome. They arevery smart and have a project outside of Mazatlan called Trinidad. Thisis an old Eldorado Mine that is very difficult rock to drill, but Ithink the Oro Gold people are figuring out the deposit and it is goingto be pretty big. The grades and widths are very impressive.

TGR: Would you give us updates on some of the other companies in your model?

TW: Sure. Great Panther Silver Limited (TSX:GPR)has done a lot of drilling at their Guanajuato Mines and they're seeingsome very good grades and widths. But it's much deeper, so they'regoing to have a lot of cap-ex to build new shafts and ramps to accessthe ore. This is a silver mine with gold credits, which I like.Meanwhile, they have continued to do a very good job at their TopiaMine-making improvements to lower cash costs and increasing resourcesthere. But that is a poly-metallic mine and as we discussed in Part I,it's challenging these days to get cash costs down on silver whenyou're dealing with lead and zinc concentrates and having to send it tothe smelter. But Topia's grades are over 450gpt silver with 3% lead and3% zinc, so they are able to deal with the processing costs. They havesteadily increased production for the past four years; hopefully theywill now start showing some significant profits as well.

I really like First Majestic Silver Corp. (TSX:FR; OTCQX:FRMSF).They have done some things to come around the smelter issues at theirthree poly-metallic mines—and by the way, I have just moved FirstMajestic from the watch list to the Producing Explorers. On a recenttrip I was able to spend some time with Keith Neumeyer, FirstMajestic's president and CEO. They have three mines—all withsilver-lead-zinc ore. They have made some significant improvements atall three of them to increase production. As I have said, removing thebase metals can be uneconomical, so First Majestic has installed leachsystems to remove the silver and pour silver dore bars onsite. Thefloatation cells are still in place, but the lead and zinc concentratesare not produced, unless they are economical. This allows them toincrease both production and profitability. They have an excellent teamin Mexico and have been building resources at all their mines. Theyrecently purchased Normabec Mining who owns the old Real de CatorceSilver mine in San Luis Potosi State. I have visited this property andit has huge potential. Keith tells me they are going to slow downcapital spending and focus on profits this year. They could generate$30 million in free cash flow.

Another one I'm looking to move up in the model this year is Timmins Gold Corp. (TSX.V:TMM).They just did their first pour at the San Francisco Gold Mine inSonora. I'm going down to see the mine in operation in late January. Ithink they're behind schedule and somewhat over budget, but $1100 goldpretty much solves those issues. Timmins also has some very interestingexploration properties through Mexico. So I look for this to be a veryattractive growth story as they get San Francisco into production andhave the cash flow to develop some of these other properties.

TGR: Any other companies come to mind that are exciting right now?

TW: I've been to Paramount Gold and Silver Corp. (NYSE-A, TSX:PZG)'sSan Jose project a couple of times. I think they have a great team inMexico. They're well-funded now and have just begun to release theresults from a large drilling program. It's a very interesting area.It's very near the Palmarejo Mine just brought online by Coeur d'Alene Mines (NYSE:CDE)and is the same type of deposit. As I mentioned in Part I, it'schallenging for junior companies to explore at depth in Mexico on thesenarrow epithermal vein systems. To really be economical, they need tofind ore shoots called clavos or mantos in Mexico. These are placeswhere the mineralization has pooled along the vein. These sometimesoccur where the veins flex or shift, where multiple veins intersect orwhere multiple mineral producing events occur over time. When they findthese, they can grow quickly into developable deposits that are muchmore economical to mine. Paramount has found three that they're doingadditional drilling on. If they can expand those clavos, or find more,they should have a very developable deposit. I issued a full report onthem in April at $.,when they completed a financing with AlbertFriedberg.

Animas Resources (TSX.V:ANI)is another. It's an Early Explorer, so I'm watching the drill results.Its situation is similar to Paramount's, but Animas is earlier in theprocess of trying to find the economic mineralization in the deeperveins at Santa Gertrudis. Results have been somewhat slow coming out onthat property, but they're very active now and have had a couple ofdrill rigs turning down there. If they're successful and they prove upthat some of the deep Nevada-style Carlin-type deposits are runningdown into Sonora, that deposit could get very big, very fast.

MAG Silver Corp. (TSX:MAG) (NYSE:MVG)is moving along very well—there is no question they will be moving intoproduction—with Fresnillo, their joint venture partner, on their inZacatecas project. It's kind of a typical good news-bad news story fora junior company when they have a major as a partner. They are at themercy of their partner regarding the timing and news flow. And as Imentioned in Part I, Fresnillo is showing no mercy dealing with MAG.They are well-funded at this point, and are doing exploration in someother areas. They've probably got one of the best teams in Mexico withPeter Megaw's group (Minera Cascabel) advising on their explorationprograms. They have a new property in northern Chihuahua that I havenot visited yet. That project, called Cinco de Mayo, is showing somevery good initial results. They don't have a resource defined yet, butthey are exploring for carbonate replacement deposits (CRDs), which canget very big.

Speaking of large CRD deposits, I recently visited Excellon Resources' (TSX-:EXN)La Platosa mine. This is another deposit that was originally discoveredby Minera Cascabel and is arguably the highest grade deposit in Mexico.The average grades at La Platosa run about 986 gpt silver with 9% leadand 10% zinc. Needless to say, at those grades the lead and zinc addsome significant by-product credits to the silver and reduces theircurrent cash costs to $3 per ounce. Unlike most companies, this is an"all in" cash cost that includes corporate G&A and explorationcosts. They have a very active exploration program and are adding tothe mine life while also exploring the district. They recentlypurchased Silver Eagle Mines and picked up a newly refurbished mill atMiguel Auza, about 200km away. They paid $5MM for Silver Eagle and gota $15MM mill and $24MM in Mexican tax losses. They are crushing the LaPlatosa ore and trucking it to Miguel Auza, which is producing about200TPD. They are currently permitting an onsite mill and have all theequipment already at the mine. This mill will be capable of closer to350TPD and cash costs will go even lower, probably to a negativenumber. New management is really focusing on getting corporate expensesin line. Excellon has a current market cap of about $150MM. When thenew mill is built, I think they will be producing about 3MM ounces ofsilver at a
or negative "all in" cash cost. That means potentially$50MM to $60MM a year in cash flow and some huge profits. It has allthe ingredients so I added EXN to the Model right after the visit.

TGR: Any other Early Explorers?

A couple of other companies in the Early Explorers category are making some very good progress. One is Riverside Resources Inc. (TSX-V:RRI),which has several assets in Mexico. They operate under a projectgenerator model. They go out and find properties and then look forjoint venture partners to put up most of the money for exploration.John-Mark Staude, the company's President and CEO, is a very smartgeologist who has worked in Mexico almost exclusively for the last 20to 25 years. He's got a very good team. They have a database of all theMexican properties that are either in private hands or public handsthat might be coming available. They are in a joint venture with Kinross Gold Corp. (K.TO; NYSE:KGC),which owns about 9% of the Riverside Resources. In certain areas ofMexico, mostly in Durango and Zacatecas, Kinross has the first right ofrefusal on all the projects Riverside brings in.

But Riverside Resources has several projects that are under joint venture with other companies, too—including Geologix Explorations Inc. (TSX-V: GIX) on its Libertad Gold Project in Sonora and Arcus Development Group Inc. (ADG: TSX-V)on its Chapalota property in Sinaloa—and they're continually bringingin new properties. They have another property that I visited that Ilike very much called El Capitan, in Durango State. They've drilledabout eight holes there and it looks very promising. I think they'regoing to drill some additional holes, to outline a resource, so theycan get more value for their shareholders by improving the projectbefore they joint venture it out. They are already doing this withtheir Sugarloaf property in Arizona.

Another company making really good progress is Nayarit Gold Inc. (TSX-V:NYG). The company is run by a couple of ex- Gammon Gold Inc. (NYSE:GRS; TSX:GAM)people, so it's very well managed. I've visited their Orion project innorthern Nayarit, about two hours from Mazatlan, several times. Thedeposit is very interesting. Again, it's one of these epithermal veinsystems that can be very expensive for a junior to explore, but theyhave outlined one clavo on a very long vein system that now has a43-101 resource of 432,000 ounces. It's a combination silver and gold,maybe a little more silver-oriented. As I said, the key to theseepithermal vein systems is finding that first clavo to really establishthe project as developable. And in this case, the deposit is near thesurface so it will be more economic to mine than many others. Theirfeasibility study should be out in the couple of weeks and I'm prettysure that Nayarit will be moving up to the Advanced Explorers this year.

Another company that I've just added to the watch list and intend to visit soon is Corex Gold Corp. (TSX-V:CGE). They have a project on the Santana property in northern Sonora that's not too far from Alamos Gold Inc. (TSX.AGI)'sMulatos Mine. The results there so far are very interesting. If I likethe project, you will likely see them in the Early Explorers later thisyear.

TGR: You mentioned that you also look at energy stocks, is there anything there you are following?

TW:My primary focus at this time is clearly Mexican silver and goldcompanies and energy has been relegated to only special situations thatare still mining related. I think that the uranium market is veryinteresting, longer term. The supply/demand for uranium has only oneway to go as the rest of the world is "warming up" to nuclear power. Ireally think that the U.S. is going to have to consider more nuclearenergy if we seriously want to deal with carbon emissions and energyindependence. We currently operate the world's largest fleet of nuclearreactors, which produce 20% of our electricity. The U.S. currentlyconsumes 56 million pounds of uranium annually, but only produces 4.5million pounds. So without adding a single new reactor we are shortabout 50MM pounds of uranium a year. That is hardly energyindependence-especially considering that we have one of the world'slargest resource bases of the metal. Most of our uranium currentlycomes from Russia, who has indicated that they will not be renewingcontracts in 2013 as they wind down the dismantling of their nuclearweapons stockpile. This secondary source made up the bulk of theworldwide mining/consumption shortfall-which was about 70MM pounds in2008. Both the Democrats and Republicans are exploring ways to workuranium mining into their separate versions of the new energy bill. Itis not going to happen tomorrow, but I think that uranium mining willsee resurgence in this country.

I had a chance to visit a property in New Mexico recently with Mickey Fulp. I have tremendous respect for Mickey and he covers a uranium company called Strathmore Minerals (TSX-V:STM).Strathmore has two major properties that have had significantexploration and the deposits are outlined, if not defined. This is notan exploration story, but a permitting and production story. Mickey andI toured their Roca Honda property outside of Grants, New Mexico. It isunder joint venture with Sumitomo. The Japanese are very motivated tosecure uranium resources and they have committed a minimum of $50MM toadvance the project following a positive production decision. RocaHonda has over 33MM pound of very high grade ore and will likely getmuch larger when development and production commence. They have justsubmitted the permit which in and of itself is a milestone. These aresome very smart and experienced uranium guys and seeing the extent ofthe permitting process was a real eye-opener. Grants has a long historyof uranium mining and I believe this project will be permitted in thenext two years.

Their second flagship project is called GasHills and is in Wyoming. This is also in the permitting stage but in isin a district that has seen over 100MM pounds of historic production.They already have 17MM pounds identified which can be mined in an openpit. The property includes several other areas of known mineralizationand is 70 miles from the idle Sweetwater Mill owned by BHP Billiton.BHP is trying to sell the mill and if I am right about uranium miningin the U.S., it will be re-opened. The Gas Hills assets will be veryvaluable to whoever ends up with Sweetwater.

Strathmore has manyother non-core assets that they are selling off to avoid share dilutionas they move towards production. They just sold one property for $30MM,yet the entire market cap of Strathmore is only is only about $55MM.Selling this property will probably allow them to permit both RocaHonda and Gas Hills without selling additional equity.

Uraniumstocks have been pretty strong recently despite the metal pricedropping to $45. I think that anyone investing in uranium needs to betaking the long-term view and Strathmore is an excellent way to play it

TGR: Any other standouts in your MSG Model you want to talk about?

TW: Pediment Gold Corp. (TSX:PEZ) (OTCBB:PEZGF) (FSE:P5E)has done an excellent job of advancing two projects in Mexico, SanAntonio and La Colorada. They have been building resources at bothprojects through exploration, but they are also moving towardfeasibility by dealing with surface rights and water issues.

SilverCrest Mines Inc. (TSX.V:SVL),likewise, has done a great job of building resources and developingtheir project with minimal dilution to shareholders. It's now fullyfinanced and has begun construction at Santa Elena. They are pouringconcrete and have all the equipment standing by to build a heap leachmine. They should be pouring gold by June.

Another company whose project I like very much is Grayd Resource Corporation (TSX-V:GYD).Their La India project, in Sonora State, continues to grow and theyhave been adding some seasoned Mexican mine builders, including RitchHall to their management and advisory team. Ritch made me a lot ofmoney in Metallica Resources and he is now Chairman of Grayd. He hasbrought in several of the guys who helped him build Metallica and theyare doing everything right at Grayd. La India is another of my probabledestinations during the first quarter of 2010.

TGR: Judging from several sites you've mentioned, 2010 is shaping up as another busy travel year for you and DD Tours.

TW:Indeed it is. Nothing is cast in stone yet, but these are interestingand exciting times in Mexico. At $1100 gold and $18 silver, a lot moreprojects are coming into play.

TGR: Via con Dios, Trey.

C.F.(Trey) Wasser III spent 20 years as a bond salesman and trader withMerrill Lynch, Kidder Peabody and Paine Webber, specializing incorporate cash management for many Fortune 100 companies andinstitutional money managers. He counts some of those sameinstitutional money managers among his clients today, in his capacityas President and Director of Research for Pilot Point Partners LLCand President of Due Diligence Tours. It is via DD Tours that Treytakes analysts and fund managers on periodic site visits to juniorminers' properties in Mexico. An entrepreneur who is also active in theDallas real estate development market, Trey formed III-D Capital LLC in1993 to assist early-stage technology companies develop business plansand secure venture capital financing. That work evolved into a range ofconsulting assignments and finance activities for mining companies. Healso serves as a pro-bono consultant for a number of regulatoryagencies, including the Financial Industry Regulatory Authority(FINRA), which is the largest independent regulator for all securitiesfirms doing business in the United States.