Jay Taylor makes GPXM pick of the week:
Stock Pick of the Week
Golden Phoenix Minerals
Minerals of Significance: Molybdenum, gold, copper, silver
A few weeks ago, I noted some Internet badmouthing of this company that
appeared to be responsible for a drop in the stock price down to around
$0.12. I said then that I could not agree with the remarks that were made
and I suggested they might provide investors with a good opportunity to
acquire a position in GPXM, particularly in view of the steady progress that
has been made by this company since a management change was made several
months ago. In fact, as I review what is going on at GPXM, I am more
bullish than I have been for many months about this company¹s prospects.
More than ever, the potential exists for this company to evolve into a
successful mining firm, built on what may well be a spectacular molybdenum
project on its Ashdown Property in Nevada. What really excited me about
this story was the press release that went out on August 18. In that press
release, management reported that it has received approval from the Bureau
of Land Management (BLM) to extract 1000 tons of molybdenum mineralization
from its Ashdown Mine near Denio, Nevada, for the purpose of metallurgical
³testing.² The approval was issued by the BLM as an amendment to an existing
Notice of Intent (NOI). Under the amended NOI, Golden Phoenix may access
and remove molybdenite-bearing material using underground mining
techniques, and then mill, metallurgically test, and trial-market the moly
concentrates. Okay, so unless you stop to think a bit about what this
message is saying, you treat it with a ³ho-hum² response. But if you stop
long enough to put 2 and 2 together here, you will see what this press
release means to this company. First, this ³test² mining should enable GPXM
to generate some significant cash flows. I say that on the basis of more
information contained in the press release, including the following factors:
€ The 1,000 tons of ³ore² to be mined is part of the extremely rich
³Sylvia² vein. How rich is the Sylvia? Well, it is my understanding that on
the basis of some fairly extensive sampling along a 200 ft. section of the
vein, it grades about 8%, meaning that every ton contains approximately 160
pounds of moly.
€ The price of molybdenum concentrate is currently about $29 or $30 per
pound, meaning that each of the 1,000 tons GPXM expects to mine and have
processed should be worth approximately $4,640 per ton, or somewhere around
$4,200 or $4,300 after custom milling fees and transportation costs are
factored out. Multiply $4,200 by 1,000 and you come up with something on the
order of $4.2 million in the company.
€ Multiply $4.2 million by 21.55 and you come up with a total net value for
this molybdenum ³reserve² of something like $90 million.
€ The Sylvia vein contains incredibly rich ore, especially given current
molybdenum prices. To put the value of the ³sweet spot² 200 ft. section of
the Sylvia Zone in perspective, 8 percent molybdenum at current prices
equates to a gold deposit grading about 10.6 ounces of gold per ton, given
current gold prices! Simply put, the Ashdown molybdenum deposit is
extraordinary. Typically, molybdenum production comes as a copper or other
base metal by product. In many instances, grades of less than 1/10 of 1
percent are considered good. But what Ashdown appears to represent is a
³fluke of nature² that has the potential to be a ³company maker² for this
much maligned little Nevada-based company.
€ No one save Almighty God knows how much of this rich material exists on
the Sylvia Zone at this time. However, it is very much worth noting that a
drill hole put down along strike about 150 feet away from the 200 ft.
³sweet spot² intersected 15 percent molybdenum! Moreover, the molybdenum
bearing structure reportedly has been traced over virtually the entire
length of the property, which extends for several thousand feet. So the
exploration potential of this rich structure appears to be quite
substantial. I would expect management will in the not too distant future,
drill out the space between that 15% molybdenum drill hole and the known
rich zone, and to do more step out drilling to ultimately determine the
grade and extent of this deposit. But the prospects of the Sylvia containing
still more high-grade material would appear excellent at this time, even if
overall, the Sylvia vein turns out to host only a fraction of the grades in
the 200 ft. sweet spot, the prospects of an economic mining operation
appear quite good on the basis of information we have at this time. It is
important to note that the company expects to have the remaining permits
required for it to enter mining and production quite possibly by the end of
this year. The 1,000 ton ³test² ore extraction permit noted above is aimed
not only at producing some meaningful cash flow for the company and at
repaying some borrowed money that is financing current progress, but also
to get set for commercial production hopefully by year end. As for
Mineral Ridge, management is in the process of minimizing negative cash
flows from that project until it has Ashdown operating profitably. I would
expect that a reassessment of that project will be forthcoming in the not
too distant future. In my discussions with various people in the know at
GPXM, it is my understanding they still believe Mineral Ridge has a great
deal of promise, but that the project needs to be approached differently in
order to turn it into a profitable operation.
SUMMARY & CONCLUSION
I must admit to misjudging the competence of the management team of GPXM
when I first recommended this stock back in 1999. In recent months,
inadequacies of the prior team have come into focus and if what I hear is
true, I find those allegations to be both shocking and sad. What I do know
for sure is that with the change in management, what we have seen from the
new team have been decisive, tough actions to correct past excesses and
mistakes and steady progress in moving Ashdown toward production and in
reducing negative cash flows at Mineral Ridge. Especially in the area
of financing, the prior management¹s record was abysmal. The inadequacy in
that regard as well as excessive operating losses are the reasons this
company has more than 133 million shares outstanding. While those shares
will always represent dilution of shareholder interest, in my view, this
company¹s Ashdown Project may well provide the foundation for a still bright
future, especially if Ashdown turns out to sizeable molybdenum reserves. At
its recent price of $0.18, GPXM still has a remarkably low $24 million
market cap, which, as I see it, could easily quadruple with success at
Ashdown alone. |
