Low grade deposits are expensive to mine as more tonnes of rock are processed to extract the gold driving high initial capital costs to build infrastructure to process large ore volumes and high energy costs for volume of mining and processing.
These deposits are potentially just "geochemical anomalies", as Brent Cook might describe them, rather than economically mineable deposits.
A large number of these deposits, which may appear very very cheap on a $/oz basis, are also remote with enormous infrastructure requirements, beyond the immediate mine, to make them viable.
Further risk comes with jurisdiction; making enormous capital investments requires long minelife and stability of political regime, taxation etc.
If high gold prices come about due to currency devaluation, and if this similarly spikes high oil prices and cost push inflation or hyper-inflation, there is a risk that these deposits will remain uneconomic due to the amount of energy required to mine them. The Gold:Oil ratio would be a key indicator.
If however currencies and debt are to be devalued against gold whilst controlling energy costs to sustain economic growth and recovery then these will be incredibly rich deposits, at which point the key concern becomes jurisdiction, "windfall profits" and taxation.
Many of these deposits occur with base metals, in particular Copper, so both copper and gold prices will drive economic potential.
Newletter writer John Kaiser has taken an interest in a number of the low market cap deposits and there are public "trackers" on his site which give a lot more details to follow up to date.
The fact that so many of these projects, especially the lower cap companies, with potentially large projects, remain at low valuations implies a number of possibilites;
a) That the market does not believe continued high gold and especially copper prices will be sustained, perhaps seeing a hard landing in China.
b) Equally it alerts us to the difficulty of raising project finance which will see enormous dilution of current shareholders in raising funds to complete asset build-out.
Availability of funds & liquidity could change dramatically if QE / LTRO continues to expand Central Bank credit lines and takes hold through bank lending and monetary devaluation, with a possible "commodity wars - scramble for assets" described by Jesse.
The acquisition of Equinox by Barrick for $7.6bn seems to point to a different view of copper's future. Against Barrick's $50bn market cap this is a big non-gold bet.
"Dr Copper" itself has shown a strong price base at $3/lb during the October 2011 bottom.
There follows some brief review of the companies involved, a stock watchlist and maps etc.
Companies and their Projects
Osisko (OSK.TO)- Canada - in production (Acquired by Yamana & Agnico Eagle) Brett Resources- Acquired by Osisko - even lower grade. Terrane Metals- Canada BC , Mr Milligan, Copper Gold project acquired by Thompson Creek Metals. (TCM.TO). Current build seeing cost over-runs, part of the fear around these deposits. Projected production early 2014, success here could prove economics for these large low grade deposits. See Progress presentation here.
- Detour Gold (DGC.TO) - Canada - moving into production, large cash raised.
Richfield Venture (RVC.v)- Blackwater project. Company Sold to New Gold approx $500m April 2011, for 4m oz indicated and inferred but large potential. NGD also consolidated other junior's holdings at the same time. Takeover at fairly early stage after discovery. Trelawny (TRR.v)- Sold to Iamgold - approx $500m net of cash for ~ 7moz resources, mostly inferred ~ $75/oz total resources, large potential land package.
- Exeter (XRC.TO) - Chile - Capische - Otto not impressed. Within region of current mining of similar deposits but infrastructure requirements and water concerns. High Capex.
- Mickey Fulp joins Otto in identifying as uneconomic. Of course this depends on gold price. At much higher prices such a large volume of minerals may be of interest.
Andina Minerals (ADM.v)(Sold to Hochschild (HOC.L)
- Located in Chile in Major Mining area - high altitude
- Cash Dec-11 $20m
- Directors incl Patrick Downey. Management George Bee, Bob Rose
- Tgt ~300k oz pa
- Tgt Feasability Study Q2 2012
- PFS Study - Capital $600m (Note PFS standards are lower than DFS etc)
- NPV 5% on $1,000 Gold = $ 200m
- NPV 5% on $1,700 Gold = $1,700m
- Mkt CAP @ 20/4/12 - = $60m - Cash est $20m? = $40m EV
- Tgt 2015 production. Require permitting.Own water rights for $27m
- Own additional land package for exploration
- Insiders Management & Directors own only 5% - enough?
- Steve Saville promotes, Otto at Inca Kola has been more Critical
- Atacama Pacific (ATM.v)
- Presentation at Precious Metals Conference April 2012
- Chile bulk gold project at Cerro Maricunga. Plus other deposits
- Spanish Mountain (SPA.v) - Canada - Jim Slater / Ian Watson - Detailed John Kaiser Tracker
- Don Coxe, Jim Rogers on the board
- $1,100 gold NPV = $ 100m
- $1,700 gold NPV = $1,000m - Leveraged
- Insiders & Management hold 35%, institutions 25%
- Working capital $14m Feb-12
- Tgt 200k oz pa, cash costs <$600
- Sandspring Resources (SSP.v)
- Prefeasibility Study May 2013
- NPV 5% after tax $690m @ $1400 gold
- PFS showing initial 4m oz development for initial $500m capital
- Potential Streaming agreement for financing from Silver Wheaton
- Geologix (GIX.TO) - Mexico - Detailed Tracker John Kaiser
- Randy Smallwood (SLW) involved.
- Mexico, large copper component
- Chesapeake Gold (CKG.v) - Mexico Metates key project, plus others - Claude Cormier follows at SI. Detailed John Kaiser tracker
- Details of PEA - March-2011 (awaiting PFS)
- Capex Required $3.2bn
- Production 120,000 Tpd - >700k oz gold pa, >19m oz Silver pa.
- First 4 years 873k pa gold and 33m oz silver, plus zinc.
- At $900 gold / $18 Silver NPV 5% = $1,800m post tax - ($2.8bn pre-tax)
- At $1800 Gold / $42 Silver NPV 5% = ??? $10bn ??? = $15Bn PRE tax
- Novagold (NG.TO) - North America - Hedge fund manager followings - Barrick Stake
- Carpathian (CPN.TO) - Romania large deposit + Brazil towards production - Barrick stake 9%
- Permitting issues? Financial stability ?
- Pretium Resources (PVG.TO) - Bob Quartermain - Realistically has become a high grade story at Brucejack/Valley of the Kings but also have Snowfield low grade. Strong stock through 2011 correction. Potentially in production on high grade with leverage and ability to progress low grade. Quartermain built silver Standard, may develop exploration and growth company. Would Snowfield and Seabridge's KSM deposit be developed together?
- The excitement is being cased by the high grade Brucejack / Valley of the Kings discovery :
- 5m oz indicated @ 17g/t. Inferred 10m oz @25g/t
- There is Large low grade deposit at Snowfield. 35m oz M&I+inferred @ low grade.
- Silver Standard (SSO.TO) own 22% - @ 20-4-11 - PVG $1.3bn mkt cap, SSO Mkt Cap $1.1bn
- Seabridge (SEA.TO) - Canada - Large numbers of projects, including major low gade deposits near Pretium. Accessability and infrastructure issues.
- Northern Dynasty (NDM.TO) - Alaska - High environmental concern - but large miners involved. Gold plus base metals.
- Sunward (SWD.v) - Colombia exploration, well financed. Estimates of 10m oz ?
- St Augustine Gold & Copper - (SAU.TO) King Kong Deposit - Philippines. 10moz Gold 5bnT copper low mkt cap. Major miners e.g. Xstrata and other majors operate in the Philippines, certain areas see political unrest. Recent announcement on progress to feasability and permitting has moved the shareprice
- Crazy Horse (CZH.v) - Another Philippines Copper-Gold project. The "Gold Miner Pulse" site has a daily tracked "fair valuation" blog. Recent PEA study shows NPV $500m for an initial $500m capex, on $1000 gold / $3 copper. At $1400 gold and $4 copper NPV is $1.1-$1.7bn depending on scale. Chairman has moved onto be President of Sabina so credible people? ** Majority of production is from Copper.
- Probe (PRB.v) - March 2012 PEA? Metallurgy ? Step outs? Detailed John Kaiser Tracker
- Allied Nevada (ANV.TO) - Large 20m oz. Low grade roasters etc
- Batero (BAT.v)
- Questions over deposit quality
- Stock severely de-rated
- Gold Bullion Development (GBB.v) - Wide following but was it pumped ? Quebec
- Moss Lake (MOK.v) - Large stake held by Wesdome (WDO.TO) - Tracker / background by John Kaiser
- Northern Vertex (NEE.v) - Early stage, multiple projects, 2 looking to convert historical resource to compliant. Additional project looking for Blackwater continuation.
Andina - Chile (Also see comparable projects & Exeter)
SPANISH MOUNTAIN (SPA.v)
Chesapeake Gold (CKG.v) - Based on PEA April 2011 - Awaiting PFS
!!!!!!! NPV is PRE Tax - !!!!!!!