Dave,
Since you are the president of Tyhee, and as showned
on your Silicon Investor Profile a consultant business,
most likely you know directly or indirectly many of
the officers of other mining companies that are discussed
on the thread SI: StockTalk: Gold and Silver Mining Stocks.
Member Profile
Name: Dave R. Webb
Member Since: 09/03/96
Company: DRW Geological Consultants Ltd
Occupation/Title: President
Location: Western Canada
College: U of Toronto, Queen's U., U of Western Ontario
Degree: B.A.Sc., M.Sc., Ph.D.
Favorite Stocks: Junior Resource
Experience: Several decades
Below i did a cut & paste of todays post on that thread,
and removed names so that maybe there will be a better chance
available for you to comment on what is said.
My first question is my opinion that Thyee fits the following.
"Mining execs know that, and it's why they feel it's
a waste of capital (and poor odds)to explore for gold."
"The place to find more reserves is at a mine
that has already produced. The gold is there,
geologically speaking, not Brex speaking."
My second question is really a request for you
to do something i am sure you will not,
and that is to critique posts of others
that are not on-topic on a thread you post on.
I'm really asking if you could add any direction
or changes to the what or how these posters
are pursuing their quest to understand gold
mining companies. I have been left in the dust
reading them mainly because i am not active
in investments since my basket is full of pennies,
and their focus is on those companies that already
have been in production.
If you could suggest anything for these guys
to look into based on your view as being inside
an actual mining company and knowing the inners
of most others, then i'm sure they would welcome
any comments you post here for me to take over there.
I posted over there with a comment of me doing this,
over here, so that most of them will read this post.
thanks, Doug
SI: StockTalk: Gold and Silver Mining Stocks
From: Ram Rao
I never said they won't find more gold to mine.
But unless you can answer how much it will cost per ounce
to prove up and develop more mineable reserves,
it is misleading to state that they will be left
with piles of money. The replacement cost needs to be
taken into account since it is not their plan
to close up shop in 3 years time when their current
reserves are depleted.
From: Stephen O
They are planning to spend $900,000 US this year
for exploration at ***,
about what they spend every year + *** is starting
on a $5 million program on surrounding areas to earn 50% interest.
From: russwinter
Not to pick on just ***, but let's use it as an example
of the issue Ram raised. First, one can go to the first quarter
financial report for clues. They are producing about 85,000 this year
at ***. On page 6 they state they spent $175K on exploration.
At a $700K a year pace, that means they need to replace reserves
at $8/oz ($700K/85,000 oz). At least they announced some drilling
results that are good (see page 5), so maybe they have?
I don't know, but it's a fair question for Ram to have
brought up about this outfit.
The point I'm making generally (about all producers)
is that on average it costs far more than $8 an ounce
to find an economic ounce at 268 POG.
For instance *** is considered one of the best explorers
among the majors, and they are at $12/oz finding cost.
The average that I've seen (anybody have other data?)
is close to $20. That's probably low and reflects results
from days with more robust prices.
My gut from just observing exploration results
as closely as I have in the last year,
is that it's much higher because of the almost
impossible threshold (sub-160 cash cost) that needs to be crossed.
Mining execs know that, and it's why they feel it's
a waste of capital (and poor odds)to explore for gold.
But producing gold above $210 total cost is a waste of capital too.
Here are some production and exploration budgets,
and likely replacement based on low range $20/oz
finding cost averages (some may get lucky, others may be unlucky)
of the companies I've analyzed so far. Like I suggested,
actual replacement rates could well be much worse than this.
*** production 414K exploration $7 million,
would need to replace at $6/oz,
likely replacement rate based on $20 worldwide average:
30% ***: 5.7 million production, $45 million expl.,
or $8/oz, likely replacement rate 40%
***: 3.8 million production, $27 expl., or $7/oz, r.r- 35%
***: 2.2 million prod., $24 expl., or $11/oz, r.r - 55%
***: 2.8 million prod., $32 expl. $11/oz, r.r-55%
***: 7 1/4 million prod., $46 million expl. or $6/oz, r.r - 30%
***: 613K prod, $1.6 million expl. or $2.50/oz, r.r- 12%
From: Stephen O
Yes he can raise it, but the company has a history of operating
with a small reserve and replacing it as they go.
The place to find more reserves is at a mine
that has already produced. The gold is there,
geologically speaking, not Brex speaking.
Besides they have 2.5 million ozs in resource category
at all their locations and at $5 an ounce
that's worth 14c per share Cdn,
the price at which the stock is trading.
They also have 43 million ozs of silver
which at $0.25c an ounce is worth 12c per share.
The operating mine valued at 3 times C/F is worth 19c a share
at current gold price. Working capital is worth 4c per share,
all in all a very cheap stock, limited downside and huge upside
if gold goes to $350.
From: russwinter
You've obviously done your homework
and that's all any of us can do.
The main thing is to make a well thought out bet
and you are comfortable with yours. Hope it pays off.
From: N.Wayne Agee
russ....excellent work!
From: Bob Johnson
> history of operating with a small reserve
and replacing it as they go
Excellent point - all firms have a replacement rate,
which is why doing a static analysis
such as 1moz in reserves at a production rate of 100koz
is a 10 year life may be mathematically correct,
but not really correct. If enough work is done each year
to move 50% of resources into the reserves category,
then the 10 year static mine model has a 15 year dynamic lifetime.
From: russwinter
Bob, of course there are several reasons ounces might be
scored resources rather than reserves. One of course
is marginal economics. We saw this often at year end
when reserves at 350 were rerated resources at 300.
Except now we are at 267, so some of those same resources
may now be rated zip. As investors, how excited should we be
about $300 basis resources in old deposits?
The answer is some, especially if you are a strong gold bull.
If the debate is about the survivability of production at 267
(or less, heaven bid), then that kind of resource is nearly worthless.
The evidence is that producers are making nominal attempts
on those ounces. The resources I like are the ones early
in the exploration cycle (also scarce now)where more work
needs to be done, often infill drilling, etc, to tighten up
deposit quality and predictablity. That's a different animal
from the resource mentioned in the first paragraph.
The microeconomic question should be,
how many resource ounces in these older operations
are resources because it's early in the exploration cycle
and more work needs to be done, versus how many ounces
are now rated resources because frankly they are marginal
at 300 POG, and worthless at 267, and plenty of work has been done?
Very good observation on microeconomics.
I do however consider derivatives and carry trades
to be in that "micro" class. I just don't believe
the manipulation aspect of it (even though I believe
there is manipulation) can be coherently debated.
I'm kind of like you, have mostly given up on the "Monitor" thread. |
