DENIO, Nevada -- I just toured the historic Ashdown Molybdenum/Gold Mine.
Ashdown produced 16,000 ounces of gold (averaging 10 g/t) between 1880 and 1942 and was actively explored by some of the world’s largest mining companies in the 1980s and 90s. The mine has been revived by Win-Eldrich Mines (TSX: V.WEX, Stock Forum; WIDMF).
Since late 2006, the mine has produced 1.8 million pounds of molybdenum, including 101,000 pounds in the first quarter of 2011. The plan is to access the mine’s gold workings in either late 2011 or early 2012.
Some of the world’s largest mining companies, such as BHP Billiton and American Copper and Nickel (a subsidiary of Inco), spent roughly $8 million proving up resources at Ashdown in the 1980s and early 1990s. Collapsing gold and molybdenum prices led them to eventually abandon it.
The roughly 6,000-acre property in the Pine Forest mountains holds historical gold resources of 147,000 ounces and 43-101 molybdenum resources of 9.3 million pounds (including 3.8 million proven/probable).
When I arrived at Ashdown, the first thing I noticed was the heavy traffic, all mine related. Dump trucks full of high-grade molybdenum ore from the underground drift were busy transporting payloads over the mile-and-a-half distance to Win-Eldrich’s administrative center, which is the location of its sophisticated 100 tpd processing mill. Ten 4,000 pound bags of finished molybdenum ore sat outside waiting to be shipped to end users.
The molybdenum resource at Ashdown has an average grade of 1.65%, but the company has been able to selectively mine high grade (2%-4%) ore, with large fragments of shiny metal visible in the run of mine output I observed. Mill supervisor Tom Jones gets 100,000 pounds shipped per quarter.
Ashdown is an underground mine, with the mine portal located broadside of Mahogany Mountain. Tunnels drilled into host granite the past 30 years enable vehicles to drive mining personnel and equipment to planned ore beds, allowing mineralized rock to be dropped to offloading sites directly below the mined veins.
As favorable as the molybdenum story is at Ashdown, it is gold that is likely to leave its largest mark on the mine’s history.
Some 16,000 ounces of gold were produced at Ashdown from the time the “old-timers” discovered it in the late 1800s, until the U.S. Government instituted the L208 War Act in 1942, mandating all U.S. mining efforts to be redirected towards war-time needs. Consequently, many mines, such as Ashdown, were abandoned, in many cases for decades.
Win-Eldrich on the transaction side of all this just announced a deal to eliminate the majority of its outstanding debt, settling $5.3 million of debt incurred in its 2006 purchase of Ashdown from Golden Phoenix Minerals (OTC:BB: GPXM, Stock Forum) in exchange for $500,000 cash, three million WEX shares and a 2% NSR royalty on the mine that is expected to close this summer. (Both Golden Phoenix and Win-Eldrich are clients of investor outreach firm Torrey Hills, my employer.)
Immediately afterwards, it agreed with soon-to-be-public American Mining Corporation (“AMC”), an emerging Nevadan toll milling company, to acquire 50% of an additional 100 tpd mill, enabling Win-Eldrich to process up to 200 tpd of gold and/or molybdenum-bearing rock in early 2012, or perhaps late 2011 if incremental permits are acquired expediently. In exchange for 50% of all profits achieved by the two 100 tpd mills from toll milling activities, WEX will receive $2 million of cash and the new mill, which will be disassembled and moved to the Ashdown mine site from Southern Nevada later this year.
The $2 million cash payment from AMC, coupled with free cash flow from the ongoing molybdenum operation (which I estimate will be as much as $2 million in 2011), should enable WEX to pay down some or all of its remaining (non-interest bearing) debt of roughly $1.8 million and/or clear the tunnels leading to the historic gold resources, initially dug by ACNC in the 1980s.
Once the tunnels are reopened, at an estimated cost of $600,000-$800,000 over an anticipated period of three to six months, WEX will be ready to mine the high-grade gold ore left behind by Billiton and ACNC, potentially in early 2012. In a best case scenario, Ashdown could produce more than 10,000 ounces of gold in 2012 utilizing just half of the 200 tpd of milling capacity on site.
Which brings us back to the American Mining JV, scheduled to close in the second quarter following completion of AMC’s planned $8 million IPO. Toll milling can be among the most lucrative aspects of the mining business, particularly in the U.S. where permitting, financing, and constructing process facilities can be prohibitive for all but the largest (or luckiest) of mining companies. For small companies, limited alternatives exist for ore processing, enabling the few operators with existing, permitted mill capacity to have a strong bargaining position.
The AMC IPO is essentially a roll-up of three existing mills, all of which are capable of commencing ore processing activities in the near-term with minimal upgrade costs and permitting issues. One of these mills is being contributed to the 50/50 joint venture with Win-Eldrich, which has had numerous inquiries from local mine operators regarding capacity to toll mill their gold-laden ore. Also noted earlier, the JV should have at least 100 tpd of toll milling capacity for the foreseeable future, likely ready to commence operations around year-end.
The AMC IPO could heighten interest in Win-Eldrich stock. Win-Eldrich is a good example of a small mining company that spent several years fighting through the constraints of low commodity prices and limited capital availability, operating on a shoestring until finally given the opportunity to advance this year. Ashdown could turn out to be a very special property, particularly when coupled with 50% ownership of a significant toll milling operation. I hope so, anyway.
Andy Hoffman ofSan Diego Torrey Hills Capital can be reached at: ahoffman@torreyhillscapital.com
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