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Gold/Mining/Energy : Precious and Base Metal Investing -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (6443)	12/29/2002 2:51:14 PM
From: que seria	Read Replies (2) \| Respond to of 39344

Mish: Pending Elizabeth's view, here's my take on your Q: Her category 3 companies (small producers, companies with drill defined resources that are economic or close at $350 gold) usually have little or none of what defines category 4, that being the very leveraged drill-inferred deposits that may be economic at $450+ gold. "May," because you have to drill enough holes to assess your chance at an economic mine at that higher price, and companies tend not to keep drilling off a deposit once it seems to be economic only at a much higher POG. You see some category one South African companies with huge resources that fit into category 4 and give leverage, but I don't buy SAF for the same reasons Elizabeth has given. I see the category 3 vs. 4 break in two factors. First, $350 vs. $450 gold is a huge product price difference to consider in projecting an economic mine. Buying stocks now at prices that reflect the still-dim expectation of the latter price is far more speculative than (although at today's prices, perhaps a better risk/reward play than) buying what is economic at $350 gold. We go back to $300 on some gov't intervention, and I think the $350 plays collapse. The category 4 plays of course suffer badly, but people tend to put more money into the category 3s, as if they're safe. Second, as those better versed in mining can explain, there is a significant distinction between resources (layman's definition: gold-in-ground you've drill proved, but not with tight enough spacing for "reserve" status or mine feasibility) that are drill-indicated and those that are just drill-inferred. More drilling is required to indicate than to infer, for mineralization in a given space. I've been speculating in gold stocks for many years, and gradually moved to a view similar to Elizabeth's. I avoid category 3 companies for the most part (with exceptions such as CBD.TO) because their prices tend to reflect a rosy sceniario, overweighted to expectation versus risk. Small producers will rarely be taken out at fat premiums unless based upon prospective ground outside the producing area, or sub-economic deposits that fit into category 4 or 5. Category 4 speculation is a bet on gold rising significantly, and is a hard step to take for those of us who consciously moved away from buying companies that had to have a lot of help from the POG in order to be viable. But times have changed. The dollar is looking more like a reserve currency pretender every week. Given further breaks in markets, the dollar index could plummet to 80. So I'm very recently willing to buy category 4 companies where I wasn't for years. Most of my gold stocks are the category 5s that have long been discussed on this board. Good luck outside the realm of tech stock technicals, where I've often enjoyed your posts.