Reality check At the precise moment when the Government of Kazakhstan enacted legislation (on 1/1/2009) requiring companies that acquired ‘Historical Data’ to begin coughing up ‘the unpaid amounts’, Alhambra didn’t even have operating governance over Saga Creek; for, at that hour, they had ceased to control their Kazakhstan Subsidiaries; and, only following a routine audit of Saga Creek by Kazakhstan tax authorities was it determined that they were liable.
But what of it; this constitutes a relatively small sum (dwarfed by Alhambra’s net worth, as measured by potential ‘assets’ available in various forms); with every reason to believe that a ‘payment plan’ can, and will, be negotiated.
Financials are sufficient (at June 30, 2011) with $922,000 in cash and $4.2 million in positive ‘working capital’; plus ample ‘other working capital’ of $12.6 million (work-in-progress anticipated to be sold during the next twelve months); and, worst case, if absolutely necessary, they could always raise cash by factoring accounts receivables.
Puma’s idea of swapping ‘proven gold reserves already on the heap’ for tax payments is a good one; especially since the government is so eager to posses the physical commodity.
All in all, there is an incredible ‘disconnect’ here; for, other than this single ‘manageable item’, 2011 constitutes a major turning point, with excellent momentum on numerous fronts:
After carefully reviewing Alhambra’s geology, projects, and prospects, one of the world’s most distinguished authorities on ‘Exploration Targeting’ recently concluded that the company’s license area is “very prospective” and “in elephant country” and that “current targets may not be primary targets”; predicting … “expect numerous world class deposits in this area“.
It is certainly judicious and wise to undertake a ‘big picture’ survey in light of all the recent knowledge and understanding that is now emerging concerning the complex evolution of this gold belt; for, as ‘experts’ reconstruct oceanic realms in time, with an eye toward better identification of spreading centers and suture zones across the entire belt, a ‘remote sensing survey’ (conducted over the entire license area) and a follow-up ‘extensive regional gravity survey’ are sure to disclose a vast number of high-priority mineral targets against which to go ‘elephant hunting’.
Here, a complex cycle of rifting, subduction, accretion and collision culminated in the ‘present’ complex assembly; where major mineral deposits distributed across central Eurasia were formed (during magmatic episodes from the Ordovician to the Jurassic) in association with magmatic arcs within the extensive subduction-accretion complex; wherein large ore deposits were sourced from the Earth’s crust. (Alhambra already enjoys an inventory of more than 100 such prospects; and a number of these high-potential ‘targets’ will be assessed shortly).
Clearly, this region’s late Paleozoic-early Mesozoic tectonic evolution provided a very favorable geological setting for the formation of gold deposits (along sutures between a number of the major Eastern Asia cratonic blocks), including Alhambra’s Altay Shan, where Orogenic gold deposits are known to be very widespread. In fact, within its unique geologic setting (the Northern Kazakhstan Metallogenic Province, which hosts numerous world-class gold deposits), pay zones at these immense gold fields ‘resemble’ those disclosed at Uzboy, Dombraly and Shirotnaia; except for the fact that they are ‘just’ much larger (in three-dimensional topographic extent).
As always, the largest gold fields will grow over time and space as additional drilling delineates their potential, and this is precisely the strategy currently being pursued (at Uzboy, Dombraly and Shirotnaia); and successfully so, as mineralization at each is steadily enlarged along strike and depth.
Perhaps as a harbinger of things to come on the rejuvenated exploration front, at the Zhanatobe deposit (site of an underground mining operation in the 1940's), something arousing a great deal of interest turned up when rotary air-blast drilling discovered two possible "Carlin-style" zones of gold mineralization; - one in the Central area and a second in the Northern area; with the zone of gold mineralization discovered in the Central area approximately 850 meters in length and 100 meters in width, and the zone of gold mineralization discovered in the Northern area approximately 400 meters in length and 150 meters in width (open on both ends); prompting management to remark that “we may have located a new very large, prolific area of gold mineralization.”
While Carlin-style gold mineralization has not been previously recognized in Northern Kazakhstan, it has generated a significant percentage of the world's gold production; and, needless-to-say, an aggressive drilling program is slated to determine the shape and size of the discovered zones of mineralization, prove the mineralization style, and most importantly, define gold grade at depth.
Alhambra’s exploration program has already been very successful in identifying new zones of gold mineralization around the Uzboy mine site; and the totality of this robust activity will be taken into account when calculating ‘soon to be released’ National Instrument ("NI") 43-101 compliant resources and reserves, - serving as the basis for an updated Economic Assessment (Scoping Study) on the Uzboy gold deposit that incorporates high gold prices into its economics.
Moreover, once these have been announced and in hand (for due diligence), this will establish a firm foundation upon which to raise capital: the ‘Study’ (for open pit development of oxide, transitional and primary resources) will constitute a decisive turning point if, as expected, the net present value (NPV) is $200 Million, or more, over a 4-5 year mine life, - opening the door to further investigation and definition of deeper primary resources with an eye toward the possibility of also pursuing underground mining operations at Uzboy; providing a ray of living light; setting a lot of things right.
Based upon recent drilling results, it seems likely that West Uzboy and East Uzboy actually represent two wings of a single mineralized anticline, the hinge line of which is plunging to the SW; and, if so, both mineralized zones could join, resulting in an area characterized by higher grades and wider widths.
At Shirotnaia, situated within the metallogenic province of northern Kazakhstan, where the first critical variable is geodynamics while the second is metal transport and deposition, the meta-context (for disclosing a world class gold field) has already been satisfied by petrological studies indicating the presence of ‘the top of a very large mineralized system’ (in a geological district where hypogene gold grades are typically higher than surface supergene grades), strongly suggesting that higher grades of gold mineralization will be encountered at depth; whereas (turning to specific drill targets), mesothermal and epithermal style alterations at the same level (implying telescoping of the alteration zones) coupled with a long-lived hydrothermal system (typical of world class districts) imply possible preservation of most of the mineralization; furthermore, in the significant widths of high grade gold mineralization previously encountered (where lower grade gold mineralization resided above, identical to these results), the high grade pay zone commenced at roughly 50 meters (just below where a shallow RC drilling program ceased); as such, this may well be just “the tip of the iceberg” of a prolific middle Ordovician volcano-sediment sequence of a complicated shape located in a major flexure of the Aksu-Balusti Mineral Trend (where massive Aksu gold deposits are known to dwell).
Alhambra is looking to have in hand a National Instrument ("NI") 43-101 compliant resource report at Shirotnaia by year end; and, as drilling is proving up numerous exciting gold intercepts, some exceptional, results announced to date may be merely “the tip of the iceberg”.
Also by year end, Alhambra is looking forward to obtaining a National Instrument ("NI") 43-101 compliant resource report for Dombraly, a former gold mine produced to a very high cut off of between 5 to 6 g/t. Here, were sufficient capital (say, through a strategic partner) available, an already approved 750,000 tonne large scale semi-industrial “bulk test” of the oxide gold mineralization zone could tap into significant near-surface gold (in low-grade stockpiles and open pit back fill areas) which is easily leached.
So, what’s the rub?
Despite being the leading market in Central Asia (positioned as a transit route between China and Europe), Kazakhstan resembles other former Soviet Republics in having not yet developed a transparent and effective business culture that will attract foreign investment (with punitive laws having the opposite effect); and, while Kazakhstan’s authorities realize the need to implement new laws and regulations that ‘improve’ the business environment, unfortunately, many of these are initially flawed (and require future adjustment), as well as being often incorrectly implemented at the local level; as such, foreign investors, as well as local firms, chaff at burdensome regulations that reflect a way of doing business reminiscent of the Soviet Union.
Against this formidable backdrop, what management is attempting to ‘pull off’ is amazingly difficult, being continually confronted as they are by distractions, disputations, tests (of every kind), threats, trials, and the endless caprice of local and national authorities; but (thankfully) they persevere on, knowing all too well that each and every new day is going to present them with yet more unexpected challenges to overcome; so, yes, sometimes things do go wrong, but, at the end of the day (when all is said and done) they are likely to pass the finish line in flying colors.
A great deal of time, effort, expense, and ‘thought’ has already been expended (successfully) by Alhambra in developing its franchise; and, despite unjustly being penalized by Kazakhstan tax authorities, management is pursuing a commonsense and proportional response to changing circumstances; aligning forces and advancing projects; steadily moving down a path from which significant subsequent benefits will accrue.
Even so, in the ethereal republic of Kazakhstan, where starting from point A to arrive at point B (more often than not) entails detouring by way of D and G, and sometimes Z, if not also P and Q, achieving seemingly routine activities is far from being “solely” under any management’s direct control; and, in particular, when it comes to issues of timing, everything will invariably take far longer than originally anticipated.
So yes, ALH is not for the faint of heart, requiring constitutional fortitude; and, while management is undoubtedly doing everything possible to expedite affairs, this is how things transpire, can only be attained; for, in the pseudo republic of Kazakhstan, satisfying an arcane and byzantine Kazakhstan bureaucratic system entails a definite and exacting way to suffer results.
Of course ALH has been steadily spiraling downward as exasperated investors wait perpetually; initially with impatience for any kind of news regarding core-sample assay results, then with burgeoning frustration (when stated deadlines were passed) to ‘finally’ get release of the Uzboy Scoping Study; followed, most recently, by a greatly exaggerated emphasis placed on taxes owed; and, if such endless agony were not enough, throw into this malignant mix an unceasing flow of negative commentary.
For years now, it has not been easy for ALH investors, who have endured everything from a seemingly endless sojourn before the Republic of Kazakhstan’s fearful jester courts of dreadful aspect to repeated prolonged periods of light deprivation while waiting for news. However, things are not nearly as bad as ‘the market’ would make them out to be: management is confident of success, exploration activity is underway, on-going fundamentals remain solid, significant positive announcements loom on the near-term horizon, and a negotiated settlement with tax authorities is underway; collectively culminating (if all goes according to plan, before year end) in three NI 43-101 compliant reports that will justify a valuation (reserves + NPV) of several dollars per share.
Yes, “country risk” has raised its ugly head (surprise, surprise), but this ‘risk’ is manageable; and once the dust of uncertainty and angst finally settles, both liquidity and price should improve steadily; and significantly.
Add it all up and the sum is an almost surreal upside potential.