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Gold/Mining/Energy : Golden Eagle Int. (MYNG) -- Ignore unavailable to you. Want to Upgrade?

To: Douglas Lapp who wrote (30596)	2/23/2003 8:09:50 PM
From: Claude Cormier	Read Replies (1) \| Respond to of 34075

<By proving Reserves,It will be easier for us to raise the necessary funds to expedite the Business plan.> I agree with that. But the question is when and how will GE prove reserves. Production alone will not be enough to prove any number of ounces especially if the production varies from 0.25 g/T to 5 g/t depending on where the company is geeting its feed. After months or a few years of production, and 2 or 3 plants producing 50,000 to 100,000 ounces per year we will be able to say that the odds of having important gold reserves are 100%, but we will still not be able to put acurate numbers on how many ounces there are exactly and where they are located. Is there 2 millions ounces on this hill or on this one? Still, I agree that when the above condition is reached (or even before), GE will be able to raise much larger funds. How much will depend on the stability in their operating cash flows. <Why do Mining Companies prove Reserves at all?> Because it is less risky and not that expensive compared to bring up full scale production. Once you have proven reserves, you can also get financing which will be pay back from cash flows instead of diluting your shareholders by issuing more shares. <Using your thought process makes it silly for Barricks, Newmont and all the others to prove anything, since they only need production for valuation and expansion funding.> These are very large companies with hundred of millions of cash flows. And they still drill and explore to prove reserves to themselves before they engage into large CAPEX. It make sense because they cannot engage large CAPEX if they don't know what they will be processing. Furthermore, if they had no reserves, they would not sell at the large cash flow/price ratio they sell now. <Claude that does not sound sensible.> What can I say. That is what 99% of the miners do. I am sure you will agree that it is not feasible for MYNG to borrow $250 millions now and build 50 plants immediately capable of producing 500,000-100,000 ounces in the next year or two. But it is feasible for Barrick to borrow $500 millions or more and develop Pierina to produce 700,000 ounces of gold equivalent in 2005-2006. They have proven reserves in excess of 20 million ounces and 400 millions ounces of silver. When you have proven reserves you can either develop them into a mine or sell them like Francisco Gold did when it sold its deposits to Glamis or like Corner Bay Silver did when it sold Alamo Dorado to Pan American Silver. When you do not have proven reserves, the only thing you have is what comes out of your operations month after month. In other words you have to build your credibility. This is feasible, no doubt. But it takes time and is progressive. But when you prove up 2 millions ounces that is economic at $300 gold, the reward is immediate as you can sell the deposit for $100 millions or more.