Ed, jumping into the gold mining sector is not that big of a stretch from the oil patch, lots of similarities: geologists, drilling, reserves (probable, proven, measured, indicated, inferred), partnerships, values based on reserves and production, etc. A few key differences in that in order to get the coveted 'reserve' designation requires a lot more drilling, and this drilling is hardrock drilling or diamond bit core drilling so it is by nature slower. Next once you have pin cushioned your property with holes you need to raise a LARGE amount of capital to get the ore out of the ground, and then extract the PMs from it. The process is a closer correlation to a refinery than a well field as one needs chemistry, equipment, and power in a continuous process and that process has real environmental and restoration concerns. Mismanaged mines blow the heck out of the rock and capture lots of extra non-ore-bearing material that ends up being processed (rock crushers, ball mills). Maintenance costs, especially tires for mining equipment, steel balls and fuel seem to be major cost items.
It would seem that the most attention is being given to properties with 1MM oz or greater reserves. Generally sample results with concentrations above 2.0 g/t are the best, with many companies using a cut off of 1.0 g/t. Then look at the length that the concentration occurs over. A few meters of double-digit concentration is nice, tens or hundreds of meters of single-digits are needed to make an economically mineable deposit. I'd take drill results over 'rock chip' or trench samples as the former can be used to 3D model the ore deposit and gain that needed 43-101 resource estimate on which feasibility studies and financing is based. Soil sampling and trench sampling are the preliminary exploration steps used to define prospective areas before drilling starts. Then there are the concerns with laboratory quality as measuring small concentrations of the rock samples is part art and part science.
If you want the PhD version of evaluating PM companies try getting a hold of this book:
Valuing Mining Companies: A Guide to the Assessment and Evaluation of Assets, Performance, and Prospects
crcpress.com
My quick scan of the PR you posted was interesting but not too exciting. Hundreds of guys are crawling out of the woodwork with prospects these days. Once that AK property gets drilled to death, FSs are complete, money is raised, extraction commences and cash flow begins could be another 5 to 7 years. Until the 43-101 defines the resource there is a lot of speculation based on tables of concentrations and lengths. A key factor is that mineralization occurs in discrete geochemical areas, not broad depositional environments. Kind of like evaluating someone’s hot prospect or land holdings in a hot new basin, one needs to evaluate something more than just the hype. Then again, there is and is going to be a lot of money thrown at PM stocks as the price of gold marches on so it may not matter which stock one buys on the short-term. Keep in mind that the inflation brought on by $100 oil will alone drive a bunch of money toward gold/ gold stocks as a value hedge. So the PR thrown out by ITF should produce some excitement, likely enough to raise the next tranche of private placements to conduct the 2006 drill program.
Look for successful juniors that are poised to bring production on line in the next year or are expanding existing production. In addition, as we have discussed before, while JVs are common in the oil field, they have a bit more sinister cousin in the PM field, especially if one subscribes to the warnings of Jim Sinclair regarding non-recourse loans. Apparently banks won’t/don’t loan on fractured assets in the mining industry. Guys that seem impressive in the PM industry are Ian Telfer and Rob McEwen.
Good luck wandering into Gold Bug territory!
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