speaking of VAN, Greg McCoach just published this article on one of my fave Black & Gold stocks, Vangold....when the revenue/cash flow start showing serious numbahs, VAN will appreciate eXponentially, just the way I like it....
Gold and Black Gold Part II
Greg McCoach
The Mining Speculator
Nov 10, 2005
True diversification in oil, gas and mineral resources
Last year at this time a Focus Brief entitled Gold and Black Gold came out highlighting an opportunity we felt was exceptional for our investors. While I was excited about the opportunity then, I am even more optimistic about what is happening for Vangold Resources now.
While we have had to be patient waiting for everything to come together, it looks like that patience is now about to pay off in a big way for investors. What is even better is that it is still not too late to get on board before major news for the company starts to get released to the public.
Vangold Resources is now positioned to capitalize on this past year's activities in oil and gas. During the past 12 months, CEO Dal Brynelsen has had a major string of successes in acquiring and drilling several key oil and gas projects. Some in the oil patch would consider that a major understatement! To have such back-to-back successes is rare indeed in the industry, but that is what has happened for Dal and Vangold. The company now has a total of 5 oil and gas projects that look to be seriously in the money in addition to their great advanced stage gold properties.
At this point, it is my opinion that Vangold's oil and gas properties will be worth well over $100,000,000 in the marketplace. The company shares continue to trade at ridiculously low levels (C$0.30 - C$0.40 range) as the proof of such an evaluation will begin to be released during the next four months. With only 55 million shares outstanding, this could mean, "greased lightning" for our share price.
Please read below as to why I am being conservative when I say the company is worth well north of $100,000,000, just on the oil and gas properties alone.
The Killam Field
Last year the company drilled one hole in this potentially large oil field located in Alberta, Canada. Not only was the company successful with this first hole, but also is now deriving $25,000 a month in revenue from the oil being produced. At the time of our first Focus Brief, I suspected that many more successful holes could be drilled into this field greatly increasing the monthly revenue to Vangold. That is coming true!
Over the summer months, 2D and 3D seismic work confirmed what we had suspected. Not only is the oil there, but the field is much larger than we first realized. All told, the Culane Oil Field is believed to hold an estimated 4-5 million barrels of sweet crude. I had hoped that by now we would be further along in the drilling of this property, but inclement weather and impassable roads to the site over the summer have slowed us down. Currently, the ground is beginning to harden with the cold weather and the company is now drilling more straws into this oil field. Vangold should have a total of 15 wells (4 wells with 3 legs each, 1 well with two legs, and our original well that is already producing) going by the end of January, (Each well takes about 20 days to complete). And this will only be 50% of the wells that can be drilled on this field. This property is now considered as a "new virgin oil field" by the Alberta Energy board!
Let's do some math to figure what this could potentially be worth to Vangold. The first well when drilled flowed at 300 barrels a day. It was choked back and has been producing ever since at a very conservative and steady rate of 120 barrels of oil per day. Using this number of 120 bpd for our calculations, (but remembering that it very well could be increased at some point), we come up with $25,000 per leg per month to Vangold. With 15 legs going at that rate the company could expect to generate $375,000 a month just on half of the potential of this field! At this point there is very minimal risk now that the seismic work has been done. The drilling is underway and results will soon be reported to the market.
The way the market would value such a property would be as follows:
120 bpd x 15 legs = 1800 bpd x .256 (Vangold's interest) = 461 bpd. The oil industry gives roughly $60,000 per barrel a day for market valuation. $60,000 x 461 would be a market valuation of $27,660,000! And this is just 50% of the fields potential at conservative estimates! In other words, this one field when fully developed would have a market valuation of more than $55,000,000 for Vangold.
The Sarcee Gas Field
Adding to the Killam field is this incredible gas field that looks to add quite a bit more market value. Independent gas engineers estimate that 4 wells will produce at least 20 - 30 BCF gas per well. The wells around this field are producing 80 BCF! So let's use 40 BCF as a realistic number to do some calculations.
4 wells X 40 BCF a well = 160 BCF x 6% (Vangold's interest) = 9.6 BCF. In market evaluations, 9.6 BCF is worth 5-6 million per BCF. The market would value this at about $45,000,000 = (9.6) x 5,000,000.
Monthly income to Vangold on this field starts at 10% and then reverts to 6%. 5,000 feet a day at $14 = 70,000 x 10% or $7,000/day. This would revert to $4,200 a day after the initial start-up period. $4,200 x 4 holes = $16,800 x 30 days for $504,000 in monthly revenue to Vangold!
The Strachan Field
Another highly prospective property is the Strachan Field natural gas project near Rocky Mountain House in Alberta. The company has a 9.166% working interest in this project. In the next few weeks, Vangold is about to find out what they have on this field as completion of the well is finished very soon. This is a great asset that has 3D seismic and is designated with "tight hole status". This term refers to a situation where there is a high level of operational secrecy due to the prospect of a prolific flow rate on the well. If successful, up to three more contingent wells could be drilled in 2006.
Deep Basin
Vangold will put up C$1.7 million to drill the first hole and receive a 21% net working interest in the Deep Basin project. The potential to Vangold for this well is in the neighborhood of C$117, 600 a day or C$3,528,000 per month in revenue! And this is just one hole. There could possibly be another hole of two drilled on this property.
Remaining Oil and Gas Properties
Other oil and gas properties that Vangold has interest in are located in California, Texas, and other areas in Alberta from what has already been mentioned. Currently, the company receives C$100,000 in monthly revenue from production on all of its oil and gas properties. This number will grow substantially as the activities from all the properties can be disclosed to the public. With such oil and gas revenue, Vangold would be eligible for a Toronto Stock Exchange listing.
Vangold's Resource Properties
In addition to all these oil and gas projects, Vangold has continued to progress on its seven advanced-stage gold properties in Papua New Guinea. To date C$25 million has been expended by Vangold and others over the years to bring these properties to their drill ready status. Below is Vangold's working interest in each of the properties.
Feni Island (Gold) 50-75%
Mt. Penck (Gold) 40%
Mt. Allemata (Gold) 50%
Bismarck (Gold) 50%
Fergusson (Gold) 50%
Yup River (Gold) 50%
Mt. Nakru (Copper/Gold) 50%
A company owned drill rig will commence continuous drilling in December on one of these properties (Mt. Penck), and move to the others as circumstances dictate. This is very exciting for a junior exploration company with such incredible properties, since they are very close to self-financing all the gold exploration work they would like to do. What these properties need is exactly what Vangold is planning and will have the money to do... and that is drill, drill, drill, without further shareholder dilution.
The properties on Papua, New Guinea encompass large land areas (1700 square kilometers) and may take many drill holes before we hit the success that we know is there. Previous workings on many of these properties show visible gold in the stream and surface samples. We know the gold is there. Vangold needs to unlock the geological puzzle of where this gold has its origin, and that will take lots of drilling. Neighboring Lihir Gold with its 50 million ounce gold deposit wasn't originally discovered until after the 120th drill hole!
While any of these properties could host a major gold deposit, I remain particularly optimistic about the Mt. Penck, Feni, and Bismarck properties. Below is an update on two of these flagship properties for Vangold.
Mt. Penck
Recent work completed on Mt. Penck is showing similarities to the Round Mountain deposit in Nevada that hosts 9 million ounces of gold. Dr. David Lindley, PhD, and Vice President of Exploration for Vangold recently returned from a 3-week trip to the site. In a news release dated November 4th, Dr. Lindley reported the work that has been achieved in the last 5 months on Mt. Penck. The news is very encouraging and shows the emergence of a major gold system. The company will commence drilling the most promising Kavola East and adjacent Koibua targets in December of this year.
The Kavola East discovery zone is only a small part of the land package on Mt. Penck's mineralized systems. Up to this point, past drilling, trenching, and sampling programs have consistently returned rich ore-grade mineralization and a preliminary inferred gold resource. The company now intends to do a grid-based program of infill and step-out drilling that will continue for at least 12 months. Such a program should greatly increase the resource calculation on the property and possibly give us a chance to hit a major discovery hole!
There has been a lot of work done by Vangold and others over the years on this property. Oftentimes it is not the first of second explorers that get to have the ultimate success on a property. It is usually the latter companies who are able to assimilate the data and work of others, and calculate a better understanding of the property. This is certainly the case with Vangold on the Mt. Penck property.
I see an exciting year ahead as results from all this drilling are released.
Feni Island
The Feni Islands lie within the Lihir Corridor, which hosts the world-class porphyry copper-gold deposit at Bougainville (16 million ounces gold) and the world's largest gold porphyry, hot spring gold deposit at Lihir (50 million ounces gold). Feni exhibits strikingly similar geology, including widespread gold mineralization, similar alteration styles and similar alkaline intrusives to the Lihir Mine. As a result, Feni is highly prospective for large bulk mineable gold deposits, such as the Lihir deposit.
The property currently has a number of well-defined targets and already has a drill-inferred resource base. Past work by other explorers on the property includes 180 drill holes spanning 16,413 meters to arrive at the preliminary resource calculation, which unfortunately cannot be reported on because it is not 43-101 compliant due to being outdated.
However, recent drilling within the past year has identified a new discovery zone in addition to what historically has been found. Drill highlights included an intersection of 53 meters of 2 g/t of gold within 188 meters of 1.2 g/t gold. There are now over 40 known gold occurrences in the Feni Islands project area. Vangold plans a systematic program of geochemical sampling, ground-based geophysics, and trenching to identify the best targets for drilling.
This property in my opinion holds the greatest potential for finding a monster deposit. Vangold owns 50% of the Feni Project, with an option to go up to 75%. NGG owns 25%.
Uganda Project
Since our first Focus Brief on Vangold Resources, the company has added a very exciting copper/cobalt project in Uganda for even further diversification of resources.
Through strategic business relationships over the past ten years, CEO Dal Brynelsen has been able to acquire 100% interest in seven copper-cobalt properties that total 80 square miles in Western Uganda. These properties are in the same geological area that hosted the famous Kilembe Mine. That mine produced over 38 million tonnes of ore grading 2-3% copper/cobalt. In addition, infrastructure is already in place in this area because of the mine, thus making an ideal situation for someone such as Vangold who controls the key properties surrounding the mine.
The history of these properties and how Vangold came to acquire them is worth mentioning here.
Falconbridge Resources originally identified 5 anomalies with past exploration work years before political deterioration under the rule of Idi Amin closed access to the properties. After Idi Amin, generals in the Army acquired the mining rights to this area, and Vangold was able to acquire them from there. This is due to Dal's relationship building for many years with key people in Uganda.
Vangold's Uganda properties now surround the Kilembe Mine, much to the chagrin of Uganda Gold who owns the mine. Some of the properties that Vangold controls also exhibit the potential for gold discoveries as well.
All in all, this is just another gem in what is already an incredible and still growing inventory of great world-class properties!
Management Team
Of all the factors to consider when evaluating junior exploration companies, there is nothing more important than company management. In this regard Vangold is abundantly blessed with the talent and experience to get results. Below is a brief outline of key personnel on this top-notch management team that collectively has discovered and developed 15 other mines during their careers.
Dal Brynelsen, President/CEO
Dal has over 30 years experience in the mining industry - 15 as Vangold's driving force. He has discovered, financed and brought to production two gold mines in Canada. Dal has done an incredible job in positioning Vangold to take advantage of the long-term bull market in gold, which is only in its early stages.
Mike Muzylowski, B.Sc.,
Audit Committee Chairman
Voted Mine Developer of the Year by the PDAC in 1988.
Mike is a geologist credited with a number of successful discoveries (15 mines). Formerly President and CEO for Granges Exploration - where he took revenues from $4 million to $65 million per year. Mike was also Chairman/ CEO of Hycroft Resources where he increased gold production to over 100,000 ounces per year.
Locke Goldsmith M.Sc., P. Eng., P.Geo.
Vice President Exploration, North America
Locke's professional career started in 1958 as Assistant Geologist for Campbell Red Lake Mines, and Assistant Mine Engineer and/or Geologist for Glen Lake Silver Mines, Agnico Silver Mines, Copper Range Co. and Algoma Steel Corporation. He was Chief Geologist and Exploration Manager for Pan Nevada Inc. and Chief Geologist and Exploration Manager for Horizon Explorations Ltd. (Australia). Locke is the founder and President of Arctex Engineering Services.
Dr. David Lindley, B.Sc., Phd.
Vice President Exploration, Papua, New Guinea
David is supervising the fieldwork at Vangold's Feni and Kanon projects. A practicing geologist in Papua, New Guinea since 1977, he previously worked for CRA Exploration (now Rio Tinto), Esso Papua New Guinea Inc. (Exxon Minerals) and Highlands Gold. David has an extensive knowledge of the geology, mineralization, government liaison and indigenous culture of Papua, New Guinea. He has a BSc and Phd from the University of New South Wales, Australia, and is a Member of the Australian Institute of Geoscientists.
Summary
Vangold now has 18 quality projects that provide this small junior with an incredibly well diversified portfolio. Bottom-line, the company simply is not getting the respect it deserves with such a portfolio of properties and a growing monthly income.
Vangold is well on their way to becoming a self-financing junior exploration firm! To use oil and gas revenue as a way to finance a junior resource explorer is simply a brilliant strategy. If you can grasp what this means to a company like Vangold with such a vast array of world-class properties, then I need not say much more.
The developments of this past year have placed Vangold in the enviable position of realizing tremendous monthly revenue from their oil and gas activities. This will allow the company to more aggressively explore and drill their gold and resource properties in Papua, New Guinea and elsewhere without further shareholder dilution. The company has dramatically increased their value in the past year and yet the share price is still a fraction of where it should be. This provides investors with about as good an opportunity as you will find to buy low and sell high with very limited risk.
With strong long-term fundamentals for oil, gas and gold all in their favor, Vangold's future looks amazingly bright! Investors could easily see these shares north of a $1.00 very quickly as revenue numbers and drill results from just a portion of their many projects are reported. And with such a diverse set of properties, Vangold provides long-term investors with many opportunities for really big exploration success in gold, oil, natural gas, copper and cobalt.
I am recommending Vangold as a STRONG BUY for immediate purchase of up to 10% of your mining stock portfolio.
As always, please do your own due diligence.
VANGOLD RESOURCES
Canadian Symbol VAN
Trades in the US under VNGRF
Shares Outstanding 55 million
Fully Diluted 75 million
52 week range C$0.48-0.18
CEO Dal Brynelsen
Phone 604-684-1974
Website
vangold.ca
Cash on hand: C$3,000,000
Greg McCoach - November 2005
email: amerigold@msn.com
The Mining Speculator |
