CLK:
Each situation is unique. Some underground mines have all-in costs as low as US$20-$25 per tonne mined, net of by-product revenue. Assume the miner is paid 60% of the gross, contained zinc net of mining dilution, milling losses and a variety of smelter charges. At a zinc price of US$0.46 one needs 90.6 pounds per tonne of ore (net of the mentioned losses). On a metric tonne(2204.6#)thats a grade of 4.11% needed to breakeven.
Next, one needs to consider the capital investment and yearly after-tax cash flow required to generate an adequate return on investment, considering all manner of risks - mining, country, currency, political, etc.
So, there'e no simple answer and professionals often know that a stock that is flying high on drill results will ultimately flop because seemingly high grades won't "make the grade" given inherent risks, poor rock mechanics, or inherently high mining costs, etc.
This is why its a little dangerous to get your investment recommendations from market letter writers who have no technical training. I (geologist, financial analyst and mining Securities Analyst (30+years)) have sometimes flown (pilot, also) market letter writers and MBA-trained Securities Analysts to patently bad prospects or mines, and they have had, simply, no clue.
As an example, I was asked by a major Toronto-based fund management to check out the best performing stock of that year on the TSE. Something was wrong with the company's copper production but the stock was C$4.75/share, up from C$0.50/sh. I went, I looked, I photographed, I killed it. The company was attempting to leach copper from waste dumps. No one can statistically determine what grade is left in waste dumps. Its an assumption that is usually highly flawed. Further, the dumps had too much water in them so the sulphuric acid would not mix and was flowing out the top edge of the dumps without leaching copper. Then, bad metallurgical control was letting all manner of miscellaneous metals precipitate in the preg tanks. So little copper was being recovered that only half the cells had starter sheets in them. Further, the company had bought used aluminum starter sheets for the electrolytic recovery of copper, and the sheets were so badly etched that much of the copper would not release.
This company was a fiasco from the top down and only one analyst had visited it - the analyst for the brokerage that was underwriting the stock!!! He was also a director of the company (conflict of interest) and had suddenly left the business. This scared the fund management.
This company quickly went bankrupt without any Canadian Securities Analyst,letter writer or regulator doing their job for the public or the shareholders.
Beware, little fishes; sharks big and little swim in this pond.
RH |
