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Gold/Mining/Energy : Minefinders, MFL -- Ignore unavailable to you. Want to Upgrade?

To: Claude Cormier who wrote (287)	9/9/2001 11:42:40 AM
From: russwinter	Read Replies (2) \| Respond to of 578

I think IRR will be higher than 22%, but let's just consider that IRR for the sake of discussion. I'm going to submit that 22% is going to have to work in the "eyes of the operator" (Lassonde term) in some cases. Actually the best way to express it is "all in costs" (cash and operating costs and discovery and/or acquisition cost). Operators who plan on being around in five years, are going to have to push ahead if all in costs are solidly under 200 (@ 275 POG). But to justify 190 or 195, he will need to see the potential for a long life deposit (decade or more). The long life allows him to more fully utilize the call value of gold. In other words if the deposit is going to be around for 10-15 years, rather than the next 4 or 5, then at some point he is going to hit the fat tail of the POG/POS cycle and really clean up. Long life= higher call premium, which needs to be built into the model. Long life= fuller use of your invested capital. Delores is a perfect example of this. It fits the long life deposit model, and that's crucial. Here we have cash costs at 135-140, and total costs of maybe 175-180. The operator should forge ahead if he can acquire it for under $13/oz for the reserves AND resources. I'm going to say US$58 million, which is where the $4-$4.50 takeout price comes from. That task will be easier for ECO/FN as 21% owners than others. I say resources also because MFL has used a very conservative model to reallocate resources to reserves. I've been scrambling through my notes to credit this observation to someone (might have been Jim, you, my conversations with Mark Bailey, Robt van Doorn or another analyst report) but just can't pinpoint it. I'm sorry, as I've talked to a lot of people about this one, so if you're out there take important credit. Anyway the bottom line is that when you look at the drilling patterns at Delores, you will often see 50-100 meter drill hole gaps right in the heart of the deposit. Those are easily and inexpensively converted to reserve status by infilling. That's why you see the big jumps in Delores' reserve size after a little exploration activity. Additionally there are plenty of new targets that promise very low discovery costs. The problem that MFL has is that it's capital at a buck and change is just too underpriced to keep exploring at Delores. The other factor Bailey has to weigh is the burn rate cost of continuing the higher POG waiting game to capitalize the ounces a bit higher. I think Bailey has wisely elected to avoid dilution at this point and in part that's because he is a large shareholder and thus (unlike GEO?) has the shareholder (not just a salaried caretaker) mentality. IMO we are clearly at the point where additional work at Delores needs be conducted by a major. Interestly the Bailey strategy is to spend some money at the new Sonara prospect instead. I wonder if the idea is to create enough value there so that Delores can be sold or partnered, and leave a foundation elsewhere for MFL to carry on? The key though is to capitalize all or part of Delores ounces at the price above. Net net, I'm convinced Delores' time is at hand, and sooner not later. One lesson from GEO is that we need to pay special attention to management stakes. And I mean actual paid for shares, not just lucrative warrant or option plans. To that end I'm going to list those (stakes, and options) at Gold Mining at least for the stocks I'm involved in. If anyone else wants to get started, please join in. I'm looking for an ownership threshold: 10%? Anybody else have ideas on that?