X-Grid
For any trailer park wannabes (some of us long-term ETG shareholders have felt like we have been deposited in the Trailer Park areas of OT) keep current with our obsessions by visiting the ETG BB at Investor Village.
In a few digressive nutshells (hey, you have to be nuts to follow this circus):
Both Hugo North Extension and Heruga resource calculations have upside multiples - especially the expansion of the Hugo North Extension ore, which is based on drilling that stopped in 2006 pending the IA negotiations with Mongolia. Like location, location, location is real estate, in mining ... grade, grade, grade ... and at the HNE the best OT grades remain open along strike and at depth. As early as 2003 IVN geologists were pondering whether the Hugo North deposit was centered in the region of the JV line ... meaning it has great prospects to be in bonanza country for some distance north from the 625m N mark - IVN is supposedly drilling 800m further north right now. Those results may well immediately double the JV high grade at HNE, with potential for multiples of value. It's where the big $$$ are for now.
At Heruga, the deposit is open to the SW and there are excellent prospects for a much larger resource calc. Better than excellent - Heruga and the SW offset of Heruga are elephant country targets in one of the best area plays going in the copper/moli/gold world. Heruga has stand-alone mine potential as a spin-out to a new player/partner - a double-down for Mongolia and OTLLC that could instantly pay off a big chunk of OT's capital costs. Weep to realize 80% of this was thrown-in to the IVN pot.
Ulan Khud - the northern showing, and the new BHP/IVN results to the immediate north, highlight the big question mark of what lies in the major fault system that runs about 8km from Hugo North to the Northern JV border. All untested by deep drills.
X-Grid. To the East of Hugo North lies a massive IP target. In 2003/2004 ETG dropped six shallow RC holes that outlined a large area of mineralization - a priority target for some deeper drilling .... seemingly kept entirely under wraps by IVN (our JV "partner") notwithstanding both the BHP Falcon survey and the Zeus survey by IVN that IVN has claimed can discern targets up to 3500m deep. Yet no information given positive or negative to the long-suffering public shareholders. This looks like it should be a priority target for diamond drilling - ETG said publicly it was second in priority only to the HNE drilling in 2004 immediately prior to the IVN Earn-in Agreement (or should we call that the IVN sell-out?). Was that deal made purely for pragmatic risk-reward reasons when ETG, being an exploration company, might well have gone to market to raise the capital for a drilling program to maintain 100% of HNE, Heruga and the X-grid? Ponder the thought that 80% of the best ground was sacrificed into the consolidation of the OT property when supposedly all the geologists at both ETG and IVN considered the prospects for an extension of Hugo North to be excellent, AND, the JV ground for the earn-in was expanded to cover the other most juicy IP targets - Heruga, which came up roses, and X-Grid, a card still held face-down. And where was the shallow ground that motivated the 10% better split for ETG (shallow ore to be split 30/70 instead of 20/80). The X-grid? Why no drills in almost 7 years? Management has never explained (at least clearly enough for me to understand) exactly what ground they had in mind in negotiating that supposed benefit for shallow ore.
Why not a non-IVN partner? Back in those days observers like Teck's Don Lindsay were calling OT the most exciting drill play in the world. IVN's drills were marching towards ETG's 100% ground at Hugo and nobody was willing to throw the dice on drilling? What was there to lose? If it came up craps the other targets remained. Did our BofD shop the deal? Hmmm? Consider the thought that if we weren't in this JV straight-jacket ... could ETG scrape up a partner to drill Heruga, HNE, X-Grid, the Western 100% ground, well, it would all be 100% ground, wouldn't it? What was the rush in any event in 2004? Why not just wait for IVN - they had the most skin already in the game to languish.
The 100% ETG ground on the Western trend immediately adjacent to the OT trend - numerous targets, especially to the West of HNE (Zone III) and way SW to the West of Heruga. Just the prospective value of IP targets and soil showings in the immediate area of one of the world's great deposits ought to have been propelling share value. Why no new partner to drill there if the idea of having IVN drill the best target for an 80% take-out was seen as good risk management for the JV ground? And no 80/20 sell-out either - compare for example BHP and IVN going 50/50 over the Falcon survey ground.
Ann Mason and Yerington just don't have the grades to compete with these targets. The OT project is pedal to the metal by RioT for good reason. This stock is so undervalued as to both existing resources open along strike (Heruga and HNE) and the OT area camp play it is almost inexplicable. I for one don't agree diverting cash to Ann Mason makes any sense when potentially higher-grade targets adjacent to OT (and a new concentrator, and infrastructure, and a government IA, and China, and a new railway a'building yada yada) remain woefully, perhaps disgracefully, under-explored. A US target? Welcome to environmental nightmares (Yerington is already an EPA superfund site), ancient indian burial grounds, public-interest intervention and decades of development red tape. And a long, long trip to expanding markets.
The coal prospects in Mongolia are also intriguing but the market is indifferent. Another area play to one of the world's greatest mineral developments at Tavan Tolgoi.
Our BofD just voted themselves bonuses and salary raises, and continue to accumulate larger option positions - one has to wonder at their consultant Mercer's report recommending compensation to the compensation committee of the BofD that supposedly included "shareholder value" as a component during a period when gold and copper prices have increased substantially (no thanks due to management) and the SP has languished with a few trading bounces for almost 18 months while huge capital expenditures have been made or committed by both OTLLC and the Mongolian government adjacent to our ground (the mining complex but also the new railway connection, advancement of TT, water pipeline, power line to China, road upgrades ... you name it), none related to ETG effort as far as I can see.
Sure, market cap increased with the PacMag deal, but has been offset by share price dilution - nothing there yet for shareholders. Pre-Lehman market collapse the 200 day MA was in the $2.00 range, by the end of 2009 the Mongolian government had promised abolition of the windfall tax and inked the IVN/RioT IA creating a three-way equal partnership in OTLLC, and ETG's SP was in the $2.90 range by October 2009 - no thanks to anything done by ETG except sit on its thumbs and watch. Locked in a trading range with the 200 day MA almost straight-lined around $2.70 for the better part of the past 15 months or so. Limited volume bounces above $3 beaten down regularly. In the meantime, IVN produces IDP-10, locks-in financing, reaches a stand-still and financing agreement with RioT, floats a new share issue fully subscribed. Copper prices run from the $3 level to well over $4, gold from $1100 to $1500. In the same period - fiscal 2010, IVN essentially doubles its SP from $12 to $25. The word "pathetic" comes to mind in considering delivery of ETG shareholder market value in 2010 - a time when all conditions are favorable to copper and gold developers. The inherent value of OT and (for what its worth) Ann Mason mineral reserves rise close to 30% and our ETG SP plugs along essentially flat. What gives with that?
Hard not to wonder whether somebody has wanted ETG's massive upside potential at OT to cruise under investor radar, and the major shareholders (IVN, RioT, Caisse Depot) have been content to pay huge babysitting fees to both their own nominees (Mr. Meredith from IVN, and Lord Howard as a likely friend of RioT). Until when? We are talking several millions in compensation every year when you tote up all the BofD and supposedly "senior" management.
My own bet is at current prices ETG stock is being given away to those willing to guess there was always and is still something very good coming down the pipeline. We have Seabiscuit property in Mongolia pulling a management mule cart here. Can our management possibly be such chumps they gave away some of the best ground in the world - or is there another shoe to drop? Granted, BHP had walked away, but they had their hands full elsewhere and were drowning financially, and that was before RF and the brilliant Hugo Dummett dropped their discovery hole at Oyu South - after that the game had changed completely.
Hang in there, bottom feeders, this horse is eventually going to be allowed to run. If IVN is looking for an exit to RioT, you might guess that finally there will be a concerted effort to prove-up the huge potential of the JV.
In the meantime, suffer with dignity.
CG