Jay Taylor’s Weekly Hotline Message - December 7, 2007
Tax Loss Selling Provides Some Golden Opportunities
Golden Phoenix Minerals (OTCBB-GPXM-$0.23) In light of recent market softness, we continue to view this company as having very considerable upside potential from both its Ashdown Project LLC high-grade molybdenum mine as well as its Mineral Ridge gold mine, both of which are in Nevada.
By now, the company’s Ashdown Molybdenum Mine could be expected to be producing two shipments of moly concentrate per month. If so, this represents monthly sales of over $1.2 MM at current moly prices, and these market prices have been firming and holding over the past several months. (As we were going to press, the price of moly oxide was $33.19 per pound.) That level of sales can put the Ashdown operation at or above breakeven, more than covering the costs of production. The next step is for the mine to produce three shipments per month, with that third shipment representing a solid profit. At that point, by ramping up to four shipments per month, Ashdown can be generating serious cash flow for Golden Phoenix and its Canadian minority partner. Let me assure you, neither management nor its shareholders appear in the least bit interested in merely breaking even.
So how can management turn Ashdown into a cash cow? In my opinion, what it needs to do is increase the average grade of the ore that is sent to the mill by about 1%, while boosting daily tonnage up toward its 100-ton design capacity. Once the mine is delivering the tonnage and grade to the mill, it is reported to have the capacity to produce the additional shipments per month, which would double current output.
When I visited with President Rob Martin last summer, what was most impressive to me was the growing talent base at Ashdown. Rob observed at that time that one of the positions still being sought was the right metallurgist to help optimize the mill. Last month, Ron Johnson, a seasoned metallurgical engineer working for Barrick at its Turquoise Ridge Mine in Golconda, accepted the challenge and now heads up the Ashdown Mill team. As reported by the company, his staff is now generating moly recoveries of over 92%.
As an added benefit, when Ron Johnson arrived, this freed up David Tretbar to leave his milling duties and move into his area of expertise as a mine engineer. David is now charged with grade control, mine planning, reserve development, and future expansion, all of which supports the drive toward higher head grades and larger tonnage. I expect this drive to be supported by the NI 43-101 ore reserve study for the Sylvia Deposit, reported to be nearing completion. The study has experienced delays from third-party engineering providers (a situation that is all too commonplace in the over-heated mining sector), but when published, should help to quantify the incredibly high-grade Sylvia Vein, currently being mined.
Regarding the economics of the Ashdown Project, the most important factor here is that given its fixed costs, this level of increased production can come with little or no additional expense. Therefore, assuming the company is successful in achieving three and then four shipments per month, we would expect GPXM to show some very robust profits and the stock to finally begin to perform closer to our long-held expectations.
Mineral Ridge Could Kick in Too
So things appear to be shaping up at Ashdown, thanks to the leadership of Rob Martin, CEO Dave Caldwell, COO Don Prahl, VP Craig Patrick, Ashdown GM Kent Aveson, and the directors of Golden Phoenix We see the company moving forward in a very positive manner, not only at the Ashdown Mine but also at Mineral Ridge, where the international engineering firm AMEC has been hired to design a dry stack tails impoundment to support a planned gold and silver mining operation on this project.
In the past, Mineral Ridge was a very profitable high-grade underground gold mine. However, during the open-pit heap-leach craze of the 1980s and 1990s, several abortive attempts at converting this high-grade mine into an open-pit heap-leach operation were tried and failed, in no small part because of low recovery rates. A main reason for low gold recovery rates was because a high percentage of the ore at Mineral Ridge is comprised of coarse gold and as such will not leach well.
Given its size and volume, I believe that thousands of ounces of unrecovered gold still remain in the leach pad at Mineral Ridge, which is currently under remediation as required by law. To recover a high percentage of this gold, the material must be run through a grinding mill, which is typically capable of 90%+ recoveries. AMEC has been contracted to engineer the removal of current heap material for reprocess through a grinding circuit and eventual restacking on the existing heap-leach liner system. Since it is recognized that a milling operation will be required to return Mineral Ridge to profitability, the reprocessed material can be blended with higher-grade material originating from Mineral Ridge’s open pits and extensive underground workings. In this way, the geologists and engineers at Golden Phoenix are seeking to turn a remediation liability into a stockpile asset and put more gold ounces into Mineral Ridge’s reserves. This is a testimony, in my view, to the ability of this management team to come up with creative solutions to problems.
As with many if not most of the other companies on our list, GPXM’s share price is way below its highs for the year, which we suspect is also making it susceptible to tax loss selling. An added factor in its recent price softness may be market discomfort regarding a binding arbitration between Golden Phoenix and its Ashdown partner, in which Golden Phoenix stands to gain as much as 9.5% additional ownership of that property, with no legal downside that I can see. Because such arbitrations tend to advance slowly, the markets may view it as a source of uncertainty, which in turn leads to an atmosphere of false speculation and grossly misleading chatter on the bulletin boards, further clouding what, for Golden Phoenix management, appears to be a clear, straightforward, and defensible position. Without taking sides, I look forward to the arbitration being resolved early next year, and because it is binding, I expect it to be final. Then we can all get back to the focus on expanding Ashdown to everyone’s benefit.
Personally, I would never bet against the kind of people who, in the space of a couple of years, have taken Golden Phoenix from seven employees and near bankruptcy to over 70 highly-skilled, pedigreed staff, solid cash reserves, two fully permitted mines, and what is shaping up to be over a million dollars in gross operational cash generation per month. If Ashdown’s fourth quarter production exceeds Q3 sales by 150% or more, we continue to think management is addressing its development in a professional, savvy, and responsible manner, and we expect 2008 should see considerable progress on both of the company’s two focal projects.
In great part, this is due to an incredible improvement in the personnel that has joined Golden Phoenix since Rob Martin and various other activist shareholders enabled this company to survive. While one’s personal risk tolerance should always be assessed, we think acquisition of GPXM shares, especially at these prices, would be prudent for those of you who do not own this stock. From their current price levels we think these shares could easily double over the next 12 months. |
