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Strategies & Market Trends : Ride the Tiger with CD -- Ignore unavailable to you. Want to Upgrade?

To: Condor who wrote (21056)	11/20/2004 12:39:45 PM
From: Condor	Respond to of 312611

Goldrea Resources Oct 24/04 The last part of my trip to China was a visit - along with my favorite traveling companian, Rick Langer of Canaccord - to Rushan City in Shandong Province to look at a gold project of Goldrea Resources [GOR-V $.215 Canadian, 19.5 million shares, 25.5 million fully diluted. Website]. Goldrea has entered into a JV with China Rushan Gold to earn a 74% interest in a 650 square KM property near Rushan City in eastern China. Shandong province produces 26% of all the gold produced in China today. Chairman Larry Reaugh of Goldrea has pulled a near slam dunk. He negotiated the contract in Canadian Dollars, a first as far as I know. Which should also give viewers an idea of what the Chinese think of the US Dollar. The contract calls for Goldrea to invest $2 million Canadian over a four year period for 74% of a 650 square KM region. The package comes with a Chinese resource of 707,000 ounces (not 43-101 compliant) which won't mean anything until Goldrea reviews the data and brings it up to 43-101 standards. But China Rushan operates a 65,000 ounce per year mill and has granted an option to Goldrea to buy the existing mine and mill based on a mutually-agreed appraisal price. The Daye Gold Mine, currently in operation with 4 years of reserves, operates the 2,300 TPD capacity mill at a rate of 1750 TPD so there is excess milling capacity available immediately. Also once Goldrea takes over the mill, it would be dead easy to expand production capacity. We walked some of the area covered by the JV. One major deposit already identified lies beneath a small village. In most areas of the world, that would be a killer to at least that portion of the deposit. But China intends to build new living facilities for 400 million people over the next 25 years and it's not all that difficult to build new homes over an area with no gold. It's fairly unusual to find sulfide ores at the surface but this project contains a sulfide ore at the surface. It has gold associated with pyrites and chalcopyrite. When we visited the existing pit and looked at the mining going on, it was easy to pick out the ore grade rock visually. When we walked around the village, you could pick up the identical rock type. Developing a 43-101 resource of some quantity isn't going to be difficult. The rock being mined today grades between 3-5 grams per tonne. The ore bodies are near surface and that makes for cheap drilling. This is not a greenfields project where some scatterbrained geo thinks there may be some gold. There is an existing mine, there is a producing mill with up-to-date equipment, there is a resource which at least the Chinese believed and there are trained and qualified workers available at once. The Daye Gold Mine does both open pit and underground mining. The existing pit doesn't have much expansion capability until they move the pit wall back and it's right next to a highway. They report about 3.5 grams from the underground mining which wouldn't be much by western standards in most mines but works for the Chinese. Larry Reaugh wants to explore the idea of finding a larger but low grade bulk mineable resource at the surface. There is a lot of work already done by the Daye Gold people. If I had to guess, I'd say the Chinese showed us maps and drill results which would have cost a lot more than $2 million Canadian. There will be problems, there are with any new project. Management of any company is in the business of solving problems. The first problem is that the most accessible gold is right under a village. That may be an easy problem to solve. The JV has the rights to the gold under the existing pit and that may require moving the road. A high priority will be developing a reserve quickly and coming to an agreement on purchase of the existing mill. The mill had equipment with a replacement value of $25 million which will be worthless once the existing mine runs through its reserves in 4 short years. I hate picking numbers on gold potential, it is like walking through a minefield with a blindfold. But I also think I owe it to our readers to give them as honest an appraisal as possible. At $.20 a share, the company has a market cap of about $4 million Canadian. Goldrea has just completed a placement. They wanted to raise $600,000 which would have gotten them through the next year and were overwhelmed with demand and increased the placement to $1.2 million which will give them a lot of operating space. There aren't many companies out there with an agreement of this value who are priced at such a low market cap. Goldrea is cheap. Shandong is in a reasonable moderate climate and I know Larry Reaugh will be arranging for a drill rig as I write. He's going to hit the ground running and the company could easily have a 1-2 million ounce 43-101 resource by late summer of 2005. They know where the gold zones are, all they have to do is drill. Ounces in the ground vary all over the place. On the low side, $10 an ounce is really cheap for an operating junior. The average I saw on a recent report was $68. You can work out the math, I won't bother. But this is about as low risk, high potential as you will ever come across. Especially if you like either China or the future of gold. I like both. These two companies represent two totally different approaches to mining gold in what is a new frontier. There is risk in China but there is risk walking across the street. You can get run over walking across the street but you can't get rich. Investing in new frontiers can make you rich. I believe the future - the next 50 years at least - will belong to China. While I recognize there is a very real risk of a Boom-Bust in their banking and construction industry, the Chinese have built enormous production capacity over the last ten years and at the end of the day what we produce is what we are. And, on a side note, the Chinese recycle everything. Dynasty is batting for home runs. They have the largest and in my so humble opinion, one of the best land positions of any gold junior in China. They were one of the first five in the country and I suspect they will all be rewarded for their vision. But Dynasty has some giant financial commitments which almost certainly will require substantial dilution of their stock. It's going to take a major management effort to succeed and I'd like to see them shore up management. It wasn't the most organized company I've ever had dealings with. But should they succeed, they will succeed grandly. Goldrea on the other hand is going to be hard to screw up. Larry Reaugh has negotiated an excellent package and price. I fully expect him to exercise the option to buy the mill as soon as reasonable. He will have a resource next year and it will be worth reading. My meeting with his Chinese partners was memorable if for no other reason than the fried bumble bees, silkworm larva, jellyfish and sea slug dinner. The Chinese can not only mine gold and build buildings at a rapid rate, they drink like fish and smoke like chimneys. Both companies are advertisers. We own stock in both companies. I am biased. I like them and I like the opportunities I saw in China. We try our hardest to be both balanced and complete but everyone is biased. I wouldn't have bought the shares in the first place if I wasn't biased. I suspect the Chinese will go to a gold backed currency, certainly articles over the past month have seemed to me to indicate they have a realistic view of the future of the US dollar. If and when China goes to a gold backed currency, every country in the world who intends to compete on the world market will be forced to do the same or see their currency turn to something with the rough value of used toilet paper. Owning a piece of a gold mine, especially in China, might be real handy about that point in time. And FYI there are gold shops everywhere. I bought Barb a small gold bar and a 24kt miniature sword for her 60th Birthday, that I missed because I was on this trip. Gold is sold by the gram and costs about $15 per gram. That reflects about a 10% premium over the value of the gold which as good a price as I've found anywhere in the world. Note: On Wed October 27th I am packing my bags once again, and leaving for Kazakhstan via Frankfurt. I will be back on Tues. November 2nd, so PLEASE don't send me email. October 24, 2004 Bob Moriarty President: 321gold Inc Archives 321gold Inc 321gold.com