2006 share count and onfo
TagishLake Gold(TLG-V $.25 Canadian, 67.7 million shares outstanding) Goldnear-term production story located in the Yukon. They have twomines and a mill. It won't cost much to get back into production.They have spent a ton of money this year in development coststo drive a drift but look for continuous release of gold assaysnow they can drill underground. Easy five-bagger. Productionin 18-24 months.
YGC Resources (YGC-T $1.55 Canadian 56.5 millionshares outstanding) Gold near-term production story locatedin the Yukon. 1.8 million ounces of gold resources, look foreye-popping increase in 43-101 any day now based on 20,000 metersof drilling this year. Should be back in production in 2008.Has a mill, doesn't need to spend much to get into production.Their biggest problem is learning to communicate effectivelywhat they have. Until then buying them is as easy as fallingoff a bike. Slam dunk for five-bagger and the biggest dangeris a major taking them over soon. Fully cashed up into production.Desert Sun story with half the shares and five times the gold.This is my number 1 gold pick.
When Ounces Don't Count
Bob Moriarty
Archives
August 7, 2006
By March of 1997, a Canadian mining junior called Bre-X claimedto have discovered a vast gold deposit containing upwards of200 million ounces of gold in the sweltering jungle of Borneo.Actually, 200 million tons of hot air would be more likely. Thecompany collapsed, destroying billions of dollars of market capitalin the process. They were salting the samples and got caught,eventually.
In response,the Canadian government issued a new set of guidelines concerningdisclosure in 2000 called 43-101. These guidelines carefullylaid out just what a mining company could and couldn't say. Andit required someone, a Qualified Person, to put his license andreputation on the line with every disclosure. As with all governmentdecrees, 43-101 has its good points and its bad points.
We haven'thad another Bre-X since 1997 but no one doubts we will have oneeventually. Mark Twain may have been the first person to putinto writing his version of 43-101, "A gold mine is a holein the ground with a liar standing next to it." But forcertain, he wasn't the first to think that. We still have lotsof gold mines and lots of liars and one day, no doubt the twainshall meet.
I deal withhundreds of mining companies and the way they comply with 43-101varies as does night and day. Often you can go to a company'sweb site and be totally baffled by trying to figure out justwhat business they are it. Many times they just don't say andI've had arguments with mining company executives who actuallybelieve 43-101 means they can't say anything but drill data.(and if there is anything on earth more boring than drill data,keep it for yourself) I know of a silver/lead/zinc company inMexico which was in production for months before their investorssuspected something was going on. Their financials showed incomeand the investors couldn't figure out how that could possiblyhappen. I know management quite well and I was pretty baffledmyself.
We own sharesin a mining company in Ireland which was supposed to have a millup and running last quarter. When I called to ask them the status,they flatly refused to tell me anything, saying that 43-101 meantthey couldn't tell anyone if they were in operation or not. Thatleft me clueless as to the status but I felt better knowing theywere just as clueless. I don't think 43-101 is quite that strict.
But if thereis a giant negative to 43-101 it has to be in how the Vancouverfinancial houses treat resources. It seems to me that they believeif there isn't a 43-101, there aren't ounces. In other words,until you have an official government stamp of approval, ouncesdon't count.
Which is hogwash,of course. For many centuries, miners have mined without knowingjust how many ounces they have. Actually until drilling started,all they could do is guess. Myself, I'm of the Mexican schoolof mining, drill until you find ore and then drift. You needat least one hole.
When you aredealing with projects with millions of ounces of gold or hundredsof millions of ounces of silver, if you treat 43-101 as if itcame down the mountain with Moses, you risk spending all yourmoney on drilling and by the time you make the production decision(which after all, is the whole purpose of this exercise) yourstock is so diluted that your shareholders can't make any moneyno matter how many ounces you count.
With the exceptionof the 5-10 brokers who actually have a mining background, stockbrokers are pretty lazy. I've seen the good and the bad on trips.Everyone wants to act as if they know as much as the chief geologistbut they would be a lot better off admitting they don't knowmuch. And when it comes to the significance of counting ounces,Vancouver penny dreadful brokers just don't get it.
Two years backI went to Brazil to see the Jacobina project of what was DesertSun at the time. As I recall, the gold was contained in a perfectlyvertical structure about 10 meters thick and something like 120kmlong. They could drill as many ounces as they wanted. The deposithas been mined for 400 years and for all I know, it may be inproduction 400 years from now. Who cares how many ounces thereare? They aren't going to be mined in your lifetime or mine.Counting ounces beyond what you can reasonably be expectedto mine in the next few years is pretty much a waste of time.In the case of Desert Sun in Jacobina it was obvious that atsome point 43-101 ounces were perfectly meaningless. You couldfigure out how high the structure was, what the thickness was,the length and the specific gravity and have a real good ideaof how many tons they had. All you had to do from there is comeup with a reasonable guess as to average grade and you couldfigure out how many ounces they had on a map.
Full MetalMinerals
I just cameback from a fascinating two week trip to Alaska and the westernreaches of Canada where I visited some really interesting projects.The first two I am going to lump together because they are bothgold mines, both have been in production, both will be goingback into production and in both, the 43-101 ounces are a meaninglessnumber.
Rob McLeodof Full Metal Minerals (website)invited meto Alaska to visit their flagship gold property called LuckyShot. It's located via excellent roads some 110 kilometers northof Anchorage. Lucky Shot was an existing mine in production untilthe events of 1942 prompted the government to shut down all existinggold mines since the miners and equipment were needed for thewar.
The WillowCreek district traces its gold history back to 1897 when placergold was found. In 1906 a miner named Bob Hatcher discoveredhard rock gold. From 1906 until 1942, the Willow Creek districtproduced more gold than any district in Alaska except Juneau.Officially, (and you know how government figures are) the districtproduced 652,000 ounces while the Lucky Shot produced about 250,000ounces of that total at an average grade of 1.5 oz/ton gold.
When gold andsilver began their meteoric rise in 1979, oil companies startedgetting into the business. After all, if you have seen one holein the ground with a liar standing next to it, you have seenthem all. There may be more sure ways of losing money but I knowof no faster way then to watch oil guys try to pan gold for aliving while tearing up $100 bills.
Ensearch Explorationof Houston dropped $40 million into a few of the local minesand built a 100 ton per day mill. That doesn't sound like muchbut the Lucky Shot ore averages about an once and a half perton based on past production. The Lucky Shot was and will oneday again be one of the richest gold mines in North America.
There was lotsof gold there but guys running oil companies almost always failwhen they attempt the gold business. Ensearch drove a 500 meterdrift below the Lucky Shot mine and drilled over 3100 metersbut couldn't make the mine work economically. They produced but7,000 tons prior to bailing out of the project in 1985.
Lucky Shot Mine |
Old ore cart |
Drill core with VG & that travelling bear |
Fog stops play |
Full MetalMinerals was formed in 2004 with the intention of being a majorplayer in Alaska. They have picked up twelve major projects inthe state and are trying to cover all the bases. They have amajor gold play called the Lucky Shot deposit which I visitedbut also they are drilling this year for zinc in the 40Mile district and drilling a 3,000 meter drill program for uraniumin a JV with Triex Minerals in the Nome area this season. Theyare targeting multiple copper-gold porphyry and epithermal goldprospects on 1.4 million acres of native-owned land on the AlaskaPeninsula, funded by JV partner Metallica Resources. They alsohave what they call the Pebble South land package just adjacentto Northern Dynasty's Pebble project, the largest undevelopedcopper/gold project in North America. Pebble South has a 2,000meter drill program scheduled for 2006.
Their businessmodel calls for them to acquire good projects and joint venturethem out, taking a small position in the companies they jointventure with and letting their partners spend their money. LuckyShot is the exception to the rule but Rob McLeod, VP of exploration,knew what Lucky Shot was and used their chips wisely to drilltheir top project as a 100% owned deal.
When I gotto Anchorage, I stayed at Full Metals in-town house. A youngwildly enthusiastic geologist, Andy Angel was going to driveup the next day so I arrived a day earlier than I had planned.Going a day early turned into good fortune. I spent the firstday wandering around the property.
The Lucky Shotproperty is one of those properties where you can see the generaloutline of the deposit from a hill top a mile away and it becomesvery easy to figure out rough limits to the deposit. Believeme, Full Metal doesn't need to drill every ounce to be able tofigure it out. they have outlined the general faults which controlthe deposit and have a real good idea of the ultimate potential.Ounces don't count here, production does.
Full MetalMinerals according to Rob McLeod, does not intend to even tryto count every ounce of gold in the hopes of attracting a bigbrother takeover. They want to count enough ounces for a bankablefeasibility study and to go into production. Back of the envelopefigures show production of 160,000 ounces per year witha capex of somewhere in the $35 million dollar area with cashcosts of $160 per ounce. Rob and his smooth running team havecommenced environmental baseline and engineering studies withthe hope of getting into production in about 24 months.
Explorationcompanies in Alaska run into a problem every year. Investorsgo to sleep in May and don't even start to wake up until at leastSeptember. You can come out with the most outstanding drill resultsin July and you are lucky to change the volume of the snoring.Or worse. On June 27, Full Metal announced incredibleresults;51.8 grams to the ton over 4.53 meters true width. That's justshort of two ounces to the ton. The stock dropped 7% over thenext three days. On July 18th they made another blockbusterannouncement,3.48 meters of 32.8 gram gold. And the shares dropped for twodays. You can drill through solid gold bars in Alaska in thesummer and no one cares.
But they will,September is just around the corner, and the story is beginningto be understood. The Vancouver sharks may not understand whenounces are important and when they are meaningless but I'd bequite happy to see a production decision made with half a millionounces in the till. I've seen the deposit, there are a lot moreounces waiting to be mined.
The originalplan for Lucky Shot for the 2006 season called for a 10,000 meterdrill program with 60 holes. Their success so far in both gradeand dimension of strike has encouraged Full Metal managementto increase the program to 15,000 meters in a minimum of 80 diamondcore drill holes.
I was luckyto have gotten the one day of great weather. We got up on thefollowing day and found a blanket of fog covering the entirearea. I was really looking forward to a helo flight over thearea but time ran short and I had to skip it.
There are probably15 or so parameters I think about when looking at deposits. Themost important in my view is management. Michael Williams ispresident and CEO of Full Metal Minerals. He is about as experiencedin promotion and marketing as anyone in the business even thoughhe's still in his 40s. Rob McLeod is the perfect offset for Michael,Rob was born with a rock hammer in his hand and has the easeof communication when talking about mining that takes a hundredyears of experience. His family, the McLeods, go back generationsin mining and it's literally in his blood. I know of few miningcompanies with such a perfectly balanced management team.
The projectis near power and infrastructure, the grade is amazing, theyhope to have the richest mine in North America. 450 tons perday production will be all it requires to produce 160,000 ouncesper year with one ounce gold ore. That keeps the capex down.And the ore is free gold, easy to crush and recover via gravitydevices. If they can avoid the need to use cyanide, they can save a lot of money and avoidenvironmental issues. Historic gold recoveries commonly exceeded90% recovery (which is damn high) using simple gravity recovery.
If I soundenthusiastic, it's because I am. I loved the project and I lovethe company. All you are ever buying when you buy a junioris a lottery ticket and you pray for a big payoff. Lucky Shothas already shown the gold potential. Drills are turningas I write on the uranium and the zinc properties and by theend of the summer, the most blasé investor will be blasédout of his seat with the results.
The stock isup and down like a bride's nightie. I liked it enoughto want some shares but the price shot up after my visit andI hate chasing stocks. But a couple of weeks later it got reasonableand I picked some shares up at what I think is a good price.With a $60 million dollar market cap, there is not a lot of downsidebut there is a lot of upside. Think Exall or Silvercorp.
Tagish Lake Gold Corp
While on thesame two week trip, I managed to fit in a quick visit to anotherbeckoning junior gold, Tagish Lake Gold (website). Tagish is locatedabout 40 miles south of Whitehorse just inside the Yukon. Headedby 30 year mining industry veteran Bob Rodger, Tagish has consolidatedthe entire Skukum District with claims covering 178 square km.Three known and past producing mines have a resource of 1.1 milliontons with 7.99 g/t gold and 153.2 g/t silver.
This districtisn't as rich as the Willow Creek area owned by Full Metal. Youare looking at about 1/4 of an ounce per ton for Tagish as comparedto an ounce per ton at FMM. Tagish hopes to be in productionby 2008, they have an existing 300 tpd mill which they want toexpand to 900 tpd. They require about the same Capex as FMM,$31.3 million.
But to evena greater degree than Full Metal, the stock has slipped underthe radar scope of investors and is selling for a give-away $.16a share. I used to love buying the penny dreadfuls, you coulddouble your money in a week or two. But there aren't many left.Tagish, with a $10 million dollar market cap, is a gimmie.
Tagish Lake Gold offices |
gold/silver sulfide ore & Ted |
Bob Rodger
President |
300tpd mill |
Bob at adit |
Underground drill |
Tagish planson production in 2008 of 30,000 ounces of gold and 518,000 ouncesof silver. This will climb to 110,000 ounces of gold and 920,000ounces of silver by 2011.
Tagish hasspent almost $1 million this year putting in a 350 meter accessdrift. And there isn't a bit of news in spending that much moneyto put a hole in the ground. But the 2006 extension allows themto drill from underground and they have a continuous drill programgoing which will continue to generate drill results.
Drill resultsbore me, I like seeing vision. In comparison to FMM. Tagish isa base hit while FMM is a home run. But Tagish is $.16 and won'tbe there for long. Throwing in the return for silver credits,their gold cash costs are about $220. FMM will be a lot lower.But Tagish has a lot better leverage to the price of gold. Ifyou believe as I do that the price of gold is headed higher,much much higher, Tagish could turn into, well, into a gold mine.
We own sharesof both companies because we like both companies. The managementteam at Full Metal is the best I have seen in quite a while.Tagish is loaded with experience and should smoothly make thetransition into full production. We are not paid to produce thesepieces, we do it because we enjoy it. Before spending your moneyon anything, including stocks, understand that it's your moneyand your responsibility.
We are ownersand as such are biased. My favorite indicator, the XAU/gold charthas turned positive and I think you can buy precious metals shareswith both hands right now. Come September-October, there is anexcellent chance that the Gang of Fools in Washington will havestarted a nuclear war based on the war plans of Paul Wolfowitzin his "Clean Break" written for Israel in 1996. Ofcourse we will lose the war and it will be the end of the USdollar. All I can do is try to warn people. Do your own researchand I suspect you will come to the same conclusion as I have.
Full Metal Minerals
FMM-V $2.30 Canadian (August 4, 2006)
FLMTF-OTCBB
29.6 million shares outstanding
Full Metal Minerals website
Tagish Lake Gold Corp
TLG-V $.165 Canadian (August 4, 2006)
THLGF-OTCBB
64.2 million shares outstanding
Tagish Lake Gold website
Bob Moriarty
President: 321gold
Archives
321gold Inc
