San Francisco Hard Assets 2006 - Transcription
Audio Interview, December 2, 2006
Introduction by Jim Puplava Complete Transcript
Marek Kreczmer, President & CEO
Michael Curlook, Investor Relations
Richard Buzbuzian, Vice President
Trevor Bremner, P.Geo
PART 1: SAN FRANCISCO HARD ASSETS '06
- Marc Faber, Editor, Gloom, Boom & Doom Report
- David Webb, President & CEO, Tyhee Development Corp.
- Marek Kreczmer, President & CEO, Northwestern Mineral Ventures, Inc.
- Allen Ambrose, President, Minera Andes, Inc.
JIM: Hello everyone, I'm Jim Puplava. Welcome to this year's San Francisco Hard Assets show. They're calling it Hard Assets because, unlike previous shows which focused mainly on gold and silver stocks, this year you're seeing a number of exhibits - actually it's happened over the last couple of years - you're seeing base metals companies, uranium companies, along with your traditional gold and silver companies. And so that's why the name of the show has changed - it's Hard Assets, and we're going to get sort of a sampling of the companies that are here in the 3 hours that we have going forward.
Now, what I promised earlier, is I said this year we were going to focus more on juniors, and that's exactly what we're going to do. We only have 3 of the experts this year: joining me in the first part of the program will be Marc Faber of Gloom, Boom and Doom fame; and then in the second hour, James Turk; and then finally, John Doody in the third hour. But we're going to be talking to different companies, some producing, some getting ready to go into production; some uranium companies, some base metals companies, gold companies and silver companies - so it'll give you a wide background; I think we have about 12 or 15 companies we are going to be interviewing.
Now, let met get this disclaimer up front. Some of these companies we own, a good majority of them we don't own. And as any good investor, we advise you to do your due diligence. And what I've done with every company I've interviewed is ask them to give out their ticker symbol, their primary exchange in which they're traded, and then from there to give their website. And that is what I'd encourage you to do: go to the company's website if you're interested in learning more about that company - read their financial reports, read their press releases, look at their presentation. But do your own due diligence and form your own opinion. And as always: caveat emptor. Remember, you need to do your homework. But hopefully this year we'll give you a wide variety of companies to look at, as certainly at this year's show there were 200 companies exhibiting here. One of the problems we did have at the San Francisco Gold Show is we did have some technical difficulties on day 2. These interviews are being done over a 2 day period and what we did have to do - it's kind of funny, it felt like Star Trek - we were sitting there in a booth and we were talking on our cell phones, my guests and myself facing each other, and then of course John Loeffler in the studio picking up those phone calls. So if you hear a little bit of difference in the tonality of some of the conversations, we did run into some difficulty, and actually had to do some of those interviews by cell phone. So here's the show. [2:56]
Marc Faber, Editor The Gloom, Boom & Doom Report
JIM:Will the dollar go up or will it go down? Are commodities in a bubble, are monetary markets tight or loose? Joining me right now is one of our keynote speakers this year - Dr. Marc Faber. Marc, good to see you.
DR. MARC FABER: Nice to see you. Thank you for having me.
JIM: Let's talk about a couple of issues that are being bandied about in the market right now. There are two I want to address. One is tight liquidity - I don't see it when the spigots are running full blast at all the central banks around the world. Yes, some are raising interest rates, but in terms of money and credit it's plentiful.
MARC: Yes, I think you're absolutely right. The absolute level of interest rates will never tell you whether the monetary policies are expansionary or tight. In Zimbabwe you have interest rates at 600%, and monetary policy is expansionary because inflation is at 1200%. So what has happened is since June 2004, the Fed has increased the Fed Funds rate in baby steps from 1% to now 5-% - but the point is tight money should be reflected in a slowdown of credit growth - a meaningful slowdown. And the fact is, that since the June quarter of 2004 when they started increasing interest rates, at that time the credit growth in the US was running annually at 7%, and now it's running at annually 11%. So actually, you had an expansionary monetary policy, and it doesn't take a rocket scientist to see that if money was tight the Dow wouldn't make a new high, and the dollar wouldn't be weak. If money is tight, the dollar would be strong and asset prices would go down substantially. [4:42]
JIM: That's one thing we've seen in this monetary tightening cycle which reflects that, because we've seen long term interest rates as reflected by the 10 year Treasury note not move very much in the last couple of years; we've seen a rising stock market almost every single year; and you contrast that to the last time the Fed was on a rate raising cycle in 99 to 2000 and we had a stock market correction - this has played out differently this time hasn't it?
MARC: Precisely, because monetary policies are still expansionary. And I wouldn't say that monetary policies were tight in 1990-2000. The last time US monetary policies were really tight was actually in 79-1980 when Volcker pushed up interest rates, and that led to a meaningful slowdown in the rate of inflation and credit growth, and the 81-82 recession. But since then we've had actually expansionary monetary policies that led to the very strong debt growth whereby total credit market debt as a percentage of the economy has increased from 130% in 1980, to now 330%. And if you look at last year, total credit market debt increased by $3.3 trillion and nominal GDP by $751 billion - again then, you have much higher debt growth than GDP, and that doesn't indicate that money is tight. And also, if you look at international liquidity, you have to beware that as a result of the loss of competitiveness of the US - the growing trade and current account deficit - we have these reserve accumulations in the hands of Asian central banks that are then lent back to the US; and we call these reserves (if they're dollar reserves) 'foreign official dollar reserves' - and if they're international reserves that would include other reserves - and these reserves are growing at a very rapid pace: dollar reserves at 15% per annum; and international reserves at 18% per annum. No sign whatsoever of any tightening there. [6:53]
JIM: And not surprising as a result we're seeing new records here in the United States in the Dow and the markets - even the S&P looks like it's making a run towards its former high.
MARC: Yes, but we have to qualify this statement. If you look at say this year's performance, which is a continuation of the performance since 2002 when we embarked really on this easy monetary policy, then what we have are rising US asset prices - the stock market going up and until recently the housing market going up - but in euro terms, actually the stock market hasn't done well. This year the S&P is up more than 12%, but in euro terms (if you measure it in euros) then it is up just 1 �%. The bond market in euro terms is down, and in gold terms since Mr. Bernanke was appointed in November 2005 we have had the Dow up something like 15%; in euro terms it's up 3%. And over the same period of time, gold, which has not performed as well as other commodities, is up 36%. So against gold, the dollar has been weak and the Dow has been weak - has declined. And I can tell you how weak the US dollar is, that is evident against the price of lead, the dollar is falling. So it's very, very heavy on the downside. [8:25]
JIM: So what you're saying is that you're seeing nominal increases in the value of the indexes, but in real terms if you're looking at another currency or another ultimate commodity like gold we're seeing a declining trend.
MARC: This is correct. And I'd like to add to this one point - we have basically in the United States a conspiracy between the money shufflers (the well-to-do people, the 400 people that are on the Forbes' list of the richest Americans) and the government, against the middle class of America. Because if you print money what you get is this asset inflation. That shifts wealth from the middle classes to the typical household to Wall Street. This year the 5 major brokerage firms on Wall Street - Goldman Sachs, Merrill, Morgan Stanley, Lehman, and Bear Stearns - will pay out $36 billion in bonuses, including the compensation for this year. These 5 brokerage firms' 173,000 people will earn more than the entire GDP of Vietnam with 84 million people. Something doesn't add up in the long run. But this money supply bulge and this money printing shifts wealth from typical households to the elite. And this is of course [in the] long term very unhealthy. [9:50]
JIM: That's one thing I think most voters don't see, which is the taxing effects of inflation. If you're John Q. Public and you're working at a company and you've seen your gasoline costs go up, your food costs go up, your service costs are going up - you can't walk into your boss and say, "I need a 12% raise to have 8% after tax to keep up with these costs." But on the other hand, if you have a large amount of wealth, if you have assets which you can invest, you can profit from this inflation.
MARC: Yes, of course, that's why we have this proliferation of rising wealth and income inequity in the United States. The economy of the super rich that shops in luxury stores, that stays at Four Seasons hotels, that goes to luxury resorts - is doing very well; but the economy of the typical household is not doing well, because their cost of living increases has been much higher than income gains. And I mean it's obvious Mr. Bernanke doesn't understand anything about economics when he looks at core inflation: no household in the whole United States lives by core inflation - you have to drive around, you pay insurance premiums, you have energy costs, transportation costs and so forth. I'd just like to mention that in the US, health care costs are 21% of personal disposable income; and since 2001, health care insurance premiums, that reflect essentially the increase in health care, have increased by 68%. So the typical household is actually suffering and the rich people in their world of luxury, super rich ghettoes they are thriving. And I'm not saying that out of bitterness because I'm also in the financial field - I have also benefited from this nonsense - but of course, for a society it is very unhealthy, and it leads to a country becoming a banana republic. [11:52]
JIM: I want to move on to another topic that you hear debated on Wall Street - a commodity bubble, an energy bubble. And there are some that believe that we have reached bubble type prices - oil has gone from 20 to 80 and back down to 60; you've seen copper prices go from 60 cents to over $3. But Marc, in my opinion there are two things that are lacking here. One, where are the large stockpiles you normally see when you have the big bubble - the large stockpiles of energy, lead, zinc, copper? And secondly, we're at a gold show here and most of the gold investors here are gold bugs or familiar with it, but where is the public in on this? I just don't see John Q. trading sugar futures or buying lead and zinc or things like that. I'd like to get your thoughts on this.
MARC: Basically, it is true we have a bubble. The bubble is a money supply bubble leading to a huge credit bubble, and this credit bubble leads then to at the present time asset bubbles, and at other times excessive money supply growth which in the 60s led to rapidly rising wages, in the 70s to commodity price increases, and now lately in the last 5 or 6 years everything has been going on - stocks up in developed countries, in emerging markets, real estate, commodities, art prices, and also of course equities in emerging markets and of course raw materials (commodities). Now, everything is inflated, the question of course is what is relatively less inflated than other things. In the case of commodities, there are two factors that are in favor of commodities. First of all, the Chinese economy today is much larger than is generally perceived, and increasingly India is becoming a very large economy, and the emerging economies are growing very rapidly. For the first time in history, emerging economies have a higher oil consumption than the G7 countries, which shows that emerging economies are no longer your poor little cousins, they are economically very important.
And secondly, the increase demand from these emerging economies because of the very low per capita consumption for raw materials in China, and even more so in India - in, say China, you have a per capita consumption annually of oil of 1.7 barrels, compared to the US of 27 barrels, and Mexico of 7 barrels, and in India you have just 0.8 barrels of consumption. So this demand will not go away. It may not increase in one or other years, but it is not going to disappear overnight. So essentially, China and other emerging economies - notably increasingly India - they have shifted the demand curve for commodities to the right, leading to a higher equilibrium price.
And then you have another factor and this is a gift of God to hard asset investors: they sent the messiah - Ben Bernanke. Mr. Ben Bernanke will make sure that he prints money like there is no tomorrow, because if you look at his monetary philosophy it is the following: you target inflation. For Mr. Bernanke who lives on government compensation and drives around in limousines and so forth, for him core inflation is inflation; but that is not the inflation of the ordinary man in the United States or anywhere in the world. So he targets core inflation, and he disregards basically so-called asset bubbles. But he stated that publicly - when you have asset prices going up you don't do anything about it; but should asset prices one day decline - the real estate market, or the stock market go down - then it is the duty of the central bank to intervene with extraordinary measures to support asset prices so as to avoid a deflationary depression as we had in 29-32. This is important to understand: Mr. Bernanke was invited to the birthday of the just deceased Milton Friedman last June, and he made a speech and he said, "yes, we the Fed, we caused the depression of 29-32. We are sorry. But thanks to you, Milton Friedman, and Ana Friedman, we won't make the same mistake again." In other words, Milton Friedman in his history of the monetary history of the US he blamed the Fed for having caused the Depression, for having been too tight. Mr. Bernanke says now clearly, if ever asset prices go down, like there was the threat after 2000 when the NASDAQ broke down, "then we would come in and provide every kind of liquidity." That is a very highly inflationary monetary policy. That's why I'm reluctant to be short the S&P, because if the S&P drops 10% you can be sure that Mr. Bernanke will cut interest rates - not in baby steps but 1% at a time. You flood the system with liquidity and then what you get is a rising S&P, rising stock prices in the US but a collapse in the dollar. If you look at the pattern - recently stocks have been going up and the dollar has been going down. The only way you will get the dollar to strengthen is to tighten money and then the dollar will strengthen but stocks will go down. But that is not a policy the US will pursue. Mr. Paulson, Secretary of the Treasury, and Mr. Ben Bernanke, do you think they will defend the interest of the ordinary worker in the United States, or that of their buddies on Wall Street? [17:48]
JIM: It's going to be Wall Street - the financial markets.
MARC: For sure. Plus the Bush family and all these gangs that benefit from easy money.
JIM: Marc, let's talk about something that was written in your newsletter, a piece by a gentleman by the name of Fred Sheehan [ph.], and he talked about if you were looking at a long term theme to invest in over the next decade, he really hammered home the idea of infrastructure from ports to bridges. And infrastructure is something that we have not invested in. The civil engineers did a rating on America's infrastructure and they gave us D+, because we've ignored it.
MARC: Well, you don't have to tell me. I travel a lot in the US, and the airport infrastructure, the aircraft infrastructure is a catastrophe - nothing works. Every flight I've been on in the US in the last two years has been delayed between 4 hours and 12 hours - every one. And infrastructure is a theme, but you have to also understand what the consequences are of infrastructure investments. As you know, a lot of States are now selling there bridges, their toll roads, their airports and so forth to leverage buyout firms and to infrastructure companies. All these companies that acquire these assets, the first thing that they will do is to increase prices. The increased prices of airports, toll roads and so forth - what does it do? It increases the rate of inflation - so more money printing will be required. And so I think that infrastructure expenditure, yes, but I wouldn't do them in the US, I'd do them in Asia where actually you have in Asia two factors working for strong economic growth. You have a) the urbanization, with people moving from the countryside to the cities - in India urbanization is just 30%, 700 million Indians live in the countryside. So when they move to the cities they need infrastructure, and so the infrastructure in Asia will grow dramatically. In Asia, we will also have very strong growth in travel - in tourism - as a result especially now of low cost budget airlines - and so the infrastructure in Asia will do very, very well. In the US, I see rather darkly for infrastructure simply because the money is not there, and if the money should be coming it will be because you have an increase in rates for infrastructure that will be inflationary, leading to higher interest rates and will dampen the returns. [20:33]
JIM: When you look out, let's say this is January, you're in New York for the Barron's roundtable, if you were looking out for a theme for 2007 what theme comes to mind?
MARC: Well, very difficult to tell. I mean I think as a contrarian we are now in a euphoria - the markets are going up, commodities are going up, stocks are going up, even bond prices have rallied. The dollar has been weak. I would say, looking at the economy you would say the Wal-Marts of this world won't do well because the Wal-Marts of this world depend on the Middle Class, and the Tiffanys and Nordstroms of this world will do better. But I think something will happen and hit the Wall Street crowd quite badly - in other words, something will give and that asset prices could for a change decline in concert. They all went up at the same time and so they could all go down at the same time. All markets are very stretched. And whereas I think you should invest for the next 10 years more in commodities and more in emerging economies than in the US, near term - maybe starting January or so - you could have quite a big correction in markets. And so as a contrarian, maybe today is not a bad time to actually sell stocks and sell assets. [21:56]
JIM: So maybe build some cash and just watch how it unfolds?
MARC: Yes. Of course, the dollar is a very vulnerable currency, but maybe not so against the euro because in the eurozone money supply is also increasing rapidly. So it doesn't mean that the dollar will collapse against the euro, the price level in the eurozone is about the same or sometimes higher than in the United States. So, there, I'm not so convinced that the dollar will collapse against the euro. But I think in the last two or three months we have had an important development - I mean we've had several important developments. One of them was that the appreciation of the Chinese currency accelerated, and this I think will lead to stronger Asian currencies against the US dollar. Secondly, I think that as has been the case since 2001, the US dollar will weaken against gold and silver. And the third important development has been that over the last 3 months grain prices have been very strong. According to the Federal Reserve Bank of St. Louis, grain prices are one of the most reliable indicators of future inflation. So if grain prices have been strong - and they could explode on the upside if you hit a bad crop (if you have a freeze or a drought, and so forth). If they are a leading indicator and we get into higher inflation rates then the theme would definitely be to avoid long term US government bonds. And I think that is the major theme I would do - at all costs, avoid long term US government bonds. [23:37]
JIM: This is surprising, I'm glad to hear you say that, because one of the assumptions that is being made right now is the US economy is weakening, therefore if the US economy is weakening, the Fed is going to be cutting interest rates. But if you had a situation where the dollar was falling wouldn't that not be difficult for the Fed to cut, and what would happen to long term interest rates if the dollar had a precipitous decline?
MARC: Well, I think that Mr. Bernanke and Mr. Paulson will not care much for the US dollar decline, initially. And so they will look at the stock market, they will look at the property market and if the property market and real estate market and stocks go down, they'll cut interest rates very aggressively and disregard the position of the US dollar. It is only in a second instance, when the dollar is very weak and you get rising import prices that put pressure on inflation and you may get as a result of the dollar weakness also weakening bond prices - it's only at that stage that the Fed will kind of become concerned about the value of the dollar. But since the Fed has been introduced since 1913, the Fed has never been concerned about the purchasing power of the dollar - it's already depreciated by 92%. So I think, looking at the shape of things, it is most unlikely that the Fed will suddenly become very concerned about the value of the dollar vis a vis foreign currencies - especially given the rhetoric they have been using, namely saying all the time that the Asian currencies (notably the Chinese currency) are undervalued vis a vis the US dollar. They actually want a weak dollar. [25:28]
JIM: You spend a good part of your year traveling - you go around the globe. What is the perception that you're hearing from people that you talk to about the dollar. We hear more and more in the press about this central bank, or that central bank, is going to start reducing its dollar reserves. I would have thought the dollar would have been much lower by now, and I've been surprised it's remained as strong as it has, given the intention of so many central banks.
MARC: Yes, but we have to see very clearly it is unlikely that the Asian central banks will really sell dollars and buy euros. What they will do is deaccumulate reserves going forward; they will diversify more and more in other currencies. But if you have a current account deficit, the way the US has it, someone will always finance it - that you have to see. Now, it may be financed at a lower dollar level but someone will always come in and buy your assets - in the last few years: funds. So I think that, yes, the dollar will be weak and it may surprise you that the dollar didn't weaken more against other currencies, but because the price level in Europe is not that much higher, and frequently is the same as in the US, there is no reason for the US dollar to collapse against the euro. But what has happened is the US dollar has collapsed - and this you have to acknowledge - against hard assets: gold, silver, all the industrial commodities, a total collapse against the price of oil. And as was the case in the Mississippi scheme of Mr. John Law, they printed money and eventually this paper money totally collapsed against commodities and real estate. [27:17]
JIM: You wrote a piece two or three years ago, and it was about long term investing. And it was about if you could catch a trend and rise that trend at its inception throughout its rise, an investor could make very few decisions in their lifetime. For example, US stocks in the '50s to the mid-'60s; commodities; then Japan in the '80s; and then technology and US stocks in the '90s. Do you think that still holds true in this kind of environment today, and are commodities - given the global liquidity glut that we're having - do you think that is a long term trend that investors could ride?
MARC: Yes, I think you have some factors that will work in favor of commodities. First of all, we economists have business-cycle theories and historians have war-cycle theories. I believe that tensions in the world are increasing, and that as a result of that eventually war will break out somewhere in the world - and during wartime, commodity prices go ballistic. We also have to acknowledge the fact that in the 80s and 1990s, the balance of power shifted to the industrialized countries because the poor countries that produced commodities had lower and lower commodity prices and lost all their power. And the Soviet Union collapsed essentially after the oil price collapsed between '85 and '86. But now, in the environment of rising commodity prices, the balance of power has shifted to people like Mr. Putin and Mr. Ahmadinejad, and Mr. Evo Morales and Mr. Hugo Chavez - they have become very powerful people. And maybe Mr. Bush thinks he is the most powerful man in the world, but the fact is Mr. Putin is the most powerful man because he controls 10 million barrels of oil production a day and he can afford to cut it in half any day - he doesn't need 10 million barrels of oil. If he was actually a hedge fund manager, he could cut production of all commodities by 50%, he'd still have the commodities in the ground, and prices would go up by between 30 and 100% - so it would be a very good trade. And so these tensions are increasing in the world and I think eventually you'll get war.
Now, the question is as an investor what do you do? Do you own the mines or do you own the physical? In the case of the mines, say Freeport McMoran - there's a strike at Grassburg - what happens? The stock goes down and copper price goes up. Or you have flooding at Cameco? The stock goes down, uranium prices go up. I have a preference for the physical but I think that investors gradually have to consider that diversification is not just having assets in real estate stocks and bonds and commodities. Diversification is also having your assets held by different custodians in different sovereign states. I think it would be a grave mistake to hold all your assets in the US, because if one day the US dollar becomes very weak, and if things go wrong in this country you can be sure that one day they will introduce foreign exchange controls - of course, after all the rich Wall Street guys and money-shufflers and people on the list of the 400 richest Americans have their assets overseas; that they'll make sure they have first. [30:48]
JIM: That comes in first. It would be hard for a lot of Americans when you hear stories recently about Argentina to understand that could happen here. But when you look at a country that is now working its way to a trillion dollar trade deficit, we have budget deficits that are much bigger than what is widely reported - eventually you can't have that amount of money and paper without something happening to the currency.
MARC: Yes, but you have to see, the US - unlike Argentina and Indonesia and Thailand and so forth - has of course a huge advantage, which is of course also a dangerous point for the US. In the case of Argentina, Indonesia and all these countries, when they have a trade and current account deficit they usually have to finance this deficit in a foreign currency. In other words, you have the Argentine peso, you have the income in pesos - the GDP; and you have the debts in dollars or in yen or in foreign currencies. When the current account deficit balloons the currency collapses. What then happens is an automatic stabilizer - the foreign debts stay at the same level but because your currency collapses your GDP collapses, and therefore imports are cut down and eventually it frequently comes to default. The US will never default, they can just print more dollars, because the US has this great advantage so far - and they may lose it one day - that the US can borrow US dollars and they have their assets in US dollars. No matter how many dollars they own, the income is in dollars and the payments are in dollars, and Mr. Bernanke is there with the money printing press of Mr. Paulson and he can print as much money as he likes. [32:36]
JIM: In your talk that you gave here at the show you talked about 5 major currencies. I wonder if you might just go over that. Do you think it's just going to become a multi-currency system where the dollar will still be there, but it'll have less of a percentage ownership by other foreign entities?
MARC: What I think basically is we have lots of currencies in the world but we have 5 major currencies, one is obviously the US dollar and then we have the yen, the euro, the Chinese RMB or Chinese yuan, and then gold (and as gold I would take as a proxy for other say hard or precious metals). And the US dollar is obviously the currency where the supply is the largest in the world through the current account deficit. Through the current account deficit the world is the recipient every year of something like, as you said, close to a trillion dollars that is floating around the world. So any other currency where the supply is less than the US dollar will eventually in the long run appreciate relative to the US dollar. So all I can say is it's very clear that the supply of gold is not close to a trillion dollars annually - the mining supply of gold in the world is worth something like 40-45 billion dollars. So you get more and more paper money on one ounce of gold, meaning the dollar will go down against the price of gold as it has already done so. People say, "well, the price of gold has gone up from $255 to $630," but I can turn around and say, "no, no, no - the price of gold is the same. It's the dollar that has gone down against gold." [34:20]
JIM: Marc, if you were to give advice to investors now, if there was one thought that you have learned in your travels and working in the investment markets over the last 2 or 3 decades, what would that point be?
MARC: Politicians are inherently dishonest and they will print money. And the second point is you have to look around the world and you have to see countries that are - in terms of prestige and economic might - kind of peaking out; not that they go down, but others are coming up at a faster rate. And the fact is simply that the emerging economies have developed at a faster rate than Europe and the United States. And if you look at the US in the '50s, they were much ahead of the rest of the world, and today many countries have reached almost the level of the United States. And I think that as an investor I would be reluctant to have a significant portion of my assets in the US. I would go and look at so-called frontier markets, whether they are in Africa or in Central Asia or in Asia. For instance Vietnam is a perfect example of a country with a huge potential. You have a GDP that is only about $60 billion, and a population of 84 million people who are very determined, hardworking, disciplined. They have a very high literacy rate compared to say India; and they are a homogeneous race - they don't have the ethnic problems that India has. I think India has a huge potential - don't take me wrongly - but in India already the stock market is up more than 4 times since 2003, and you have a huge country with a billion people, but you also have a lot of problems. In Vietnam, you have the equal potential but with less problems. [36:23]
JIM: Marc, finally as we close, why don't you tell people about your newsletter? I would have to say I would put it in my top 5.
MARC: Well, that's very kind of you - that's very complimentary. Basically, I have a website www.gloomboomdoom.com. On the website we put up a commentary monthly, and then there's the written material which is more for high net worth individuals and financial institutions, and that is called the Gloom, Boom & Doom Report. And both have some contrarian bias and look at unusual investment opportunities wherever they may arise around the world. [37:09]
JIM: And once again the website?
JIM: Ok, thank you, Marc, for joining us.
MARC: Thank you very much for having me. [37:20]
David Webb, President & CEO, Tyhee Development Corp.
JIM: Joining me this year at San Francisco's Hard Asset Show is Dave Webb, he's President and CEO of Tyhee mining. Dave, why don't you for listeners that may not be familiar with the program and the project, tell us about the program, the company and what you're doing?
DAVID WEBB: Thanks, Jim. It's nice to be here. San Francisco is a great place to show what you have. We spend a lot of time telling people that our project is in the Northwest Territories of Canada, and the immediate thought is, "we're remote." But the point is that the Yellowknife-Greenstone belt has been mining since the 1930s, there's been over 14 million ounces of gold produced, and we've picked up two terrific assets at the North end of the belt. It's anchored by the old Discovery mine which has produced a million ounces of gold at one ounce per tonne back in the 50s to 60s. [38:08]
JIM: So describe the project scope, the size, how big of a property, what kind of work has been done, and talk about resources.
DAVID: We picked up the property in 2001. We bought it for a � million dollars, it had a � million ounces of gold on it. What we have done since then is we attached another property that also had another � million ounces of gold, and we paid � million dollars for that. And we've been expanding that � million ounce resource to where we are now: we've got a million ounces of measured and indicated gold; and 300,000 ounces of inferred gold to add on to that. And all of this was done with the drill bit. We're actually operating a little bit over a mile South of the old mine site, and we've got a long stretch of land about 14,000 acres that we're expanding by drilling - expanding our resource into it. [38:59]
JIM: You've been drilling this for 2 to 3 years now. You've got close to a million ounces in measured and indicated, you have your inferred resources - what about exploration potential out on this project? Is there anything else that you're doing here?
DAVID: This is fantastic - the easiest exploration that we do is we step outside of our proposed open pit and put a hole down there. So we're still open a long strike and we're just simply and easily building up the resource - adding on to that million ounces of measured and indicated by drilling to the South and to the North. It's kind of closed off to the East and West, but it's a long, linear strip and we still have a mile to go before we hit the old discovery mine where they got a million ounces of gold out in the past. [39:43]
JIM: Now, your main project so far is the Ormsby. Describe that and then what else you're doing around the project.
DAVID: The Ormsby zone is a little bit different from Yellowknife, but I've been working up in Yellowknife since 1980 - I did my Master's thesis on the big mines in Yellowknife and I did my PhD on the entire belt - and I've found that there's an extremely, highly mineralized segment of rock that extends through the Ormsby zone, through the Discovery mine zone and along to - 5 miles away - our Nicholas Lake project. That's the other one I told you that we paid a � million dollars for for � million ounces of gold. The really exciting thing there is we were just looking at the old drill information and we found out when we assayed the entire drill hole there's all kinds of 1 to 5 gram per ton material that was never sampled in the past. When we assayed it we get segments that are - ultimately I guess the best number that we reported this year is we tested 4 drill holes and we ended up with 112 meters of 3.39 grams of gold per ton. So this is brand new discovery right in the middle of one of our deposits that we've been working on for 5 years. [40:53]
JIM: Now recently I've noticed that you've been staking some other properties, there's Big Sky and there's Typhoon. Tell us about those two properties.
DAVID: Typhoon is really the extension of the Ormsby zone Discovery mine area. It's a highly anomalous belt of rocks. It's about 800 meters long, so it's got some great potential. We actually haven't even got a drill hole in it yet - we're waiting for the swamps to freeze so we can drag the drills over there without gouging the land too much. So that will be drilled this winter.
Big Sky is a very exciting property. It basically ties on to a hydroelectric power plant and the other property margin is tied on to the old Giant mine. So we're really well located. What we found there was a 10 km diameter intrusion that was mineralized, and this is a rock that people in the past would not have sampled - we never sampled granites in the past. This is part of the Nicholas Lake phenomena - that was the very first significant gold deposit in granite found in Yellow Knife - this is perhaps the second. [42:01]
JIM: Where is the company going? You have the Ormsby which is coming along in terms of its development - what are the plans there?
DAVID: We want to make Ormsby bigger. We thought when we hit that million ounce mark that, there, we now have a mine of merit and we can start developing this and going ahead. And perhaps in hindsight that was a mistake. A million ounces is a very interesting gold deposit - two million is more interesting. And why we stopped at a million - it was really just an arbitrary number. So what we did is we did enough development that we think we can demonstrate that it's economic, and now we're adding to that as quickly as possible. So we hope to take our million ounces to 1.2 to 1.3 million this year, continue drilling and hopefully with contributions from Nicholas Lake get our entire resource comfortably over 2 million ounces before we turn on a mine. [42:52]
JIM: In this area now, you have the Nicholas Lake, you have the Ormsby, the old Discovery - that's sort of like one contiguous.this is looking like more like a district play than a single mine.
DAVID: Yes, I've always been impressed with mines that you'll put down one processing plant, one set of infrastructure and then you'll extract gold ore from many deposits. And this is characteristic of for example Nevada - there's a number of projects there that are similar. You could do this in Timmons, Ontario where the Panwar [ph.] mill took ore from all the mines around them. I think that by consolidating the North end of the belt, and we are the largest property owner up there, that we can draw from many different operations and have one central infrastructure. It will very much reduce the capital costs, and hence the economics are that much more favorable. [43:48]
JIM: Let me talk about a problem that a lot of companies are having today - as we all know, the environmental controls and restrictions today are much, much tougher than let's say where they were 30 years ago. What about permitting and bringing this to mine production? Where does the company stand and what is your relationship with the Indian tribes and the government there, because I think that would be important to know?
DAVID: Absolutely. And permitting is one of the biggest issues that we have anywhere in the world. There are some jurisdictions where you can operate on a shoestring and go in there and put a mine in without actually knowing what you had there, but companies I think are a little bit more intelligent, we're a little bit more careful. So we started two years ago looking at the animal life, the plant life, the fisheries and we started measuring it and documenting it. We want to know what is the arsenic or mercury content of the fish before we start mining it. I think any sane person - certainly any director with any assets - would want to know what is the baseline, what do you start out with? So we're about $2 million and 2 years into our permitting. We have all the background studies, and we're very fortunate we do not have any rare plant life or any rare fish or birds or animals in our area. The rock that we're dealing with is free-milling, which means that we don't have to roast it or autoclave it - it keeps our production very cheap. It's a basic rock, which means it doesn't generate an acid. So we seem to have the most perfect world in this one ore body - I shouldn't say ore body - in this one deposit at Ormsby. And we think that Nicholas Lake will be similar. [45:17]
JIM: In terms of looking out, if I'm an investor where's the company going in the next 2 years? What are some of the milestones you've set for yourself and what could investors expect?
DAVID: I think first off you'll see a new resource study coming out. We're going to be constantly spitting out drill holes, and these drill hole results which are open and we're trying to make sure everyone knows what they mean, they're being incorporated into ore reserves or resource estimates, and we'll build on our 1 million ounce M&I and make that perhaps 1.2 or 1.3, and just build it as quickly as we can - that adds value to the shareholder. Currently, we're valued at about 50 to $55 per ounce in the ground - measured and indicated - it would be about $40 an ounce if you include the inferred ounces. That compares to our peer group average of $75 per ounce in the ground. So we're a little bit undervalued there. We could probably double and still be valued within our peer group close enough to the mean. By adding the ounces, we're going to be adding value. The second thing is a measured and indicated ounce is worth one thing - perhaps $75 per ounce - if we can get a prefeasibility study completed on this project and demonstrate the economic potential, those ounces become worth $100 to $200 in today's market. So shortly after our revised resource estimate you'll see us come out with a preliminary economic evaluation and we'll demonstrate the economics of this deposit - or at least, that's my belief. [46:49]
JIM: So you have close to 1 million ounces right now - M&I. You've got 300,000 ounces in inferred - so a new resource estimate coming out here shortly, is that what you're saying?
DAVID: That's what I'm saying and I'm hoping for a 15 to 20% boost in that, and that will come out before the end of this year - sometime in December. And then all this work on Nicholas Lake which is extremely exciting to me with our ability to turn that into a large open pit could potentially add another � million ounces, and that could happen by July of 07. [47:23]
JIM: If you were to stand in front of a group of investors today, give me 3 reasons how you plan to make money for shareholders. Why should I buy your stock right now?
DAVID: First of all, we're undervalued today by all the common metrics. So on a per ounce basis we're almost half the price of our peer group. Secondly, we're going to move out of our peer group, and move towards an economic study on it which will push us into the guys that have completed their feasibility studies or prefeasibility studies. That will add perhaps double the value again on what we're worth. And thirdly, by keeping the drills turning, and adding ounces by the drill bit we're adding instantly value to the company. [48:12]
JIM: A lot of times companies will get involved, they're taking their mine into production and they're drilling out their ounces and they're taking them from the inferred to the M&I category, but as you know, Dave, the market likes excitement, it likes blue sky, it likes exploration. What does Tyhee have to offer in that regard?
DAVID: I think as you're aware with our other properties they're really grass roots right now, and the best bang for the buck - the most explosive part of any junior company is that discovery stage. I think we have 3 discoveries that we're working on. As I said, the Nicholas Lake bulk mineable potential, that's a drill hole right in the middle of our deposit that we looked at and said, "holy cow, we're over 100 meters of 3 � grams on average." That is pretty decent and that's a brand new discovery - that's a bang for the buck you don't get anywhere else. But Big Sky - Big Sky is an exciting property because of the size. The grades we have off that today are broad areas running 0.1 grams gold per tonne - now nobody's going to make a mine on 0.1 grams gold per tonne, but when you start looking at the size of it and realize that within that we have 1, 2, 3, 4 grams of gold per tonne, we're 7 kilometers away from a road and we're tying on to a hydroelectric power plant. And down here on our booth you can see a photograph of my partner sitting there talking to his honey on his lunch time with the head frames in the background - that's a very appealing photograph to sell that project. It's close, it's big and it's accessible by power and by road. [49:46]
JIM: Hence, Big Sky.
DAVID: Hence the big sky. And I'm telling you when you're tying on to 14 million ounces of past production that's a good neighborhood to be in.
JIM: Alright, Dave, why don't you give out your stock symbol if our listeners would like to find out and your website.
DAVID: It's Tyhee Development Corp and we're trading on the TSX Venture exchange under the symbol TDC. We're accessible on the web at www.tyhee.com.
JIM: Alright, Dave Webb, thanks for joining us on the program.
DAVID: Thanks for having me here, Jim. [50:21]
JIM: And you're listening to the Financial Sense Newshour where we're broadcasting from the Marriott hotel in downtown San Francisco at this year's San Francisco Hard Assets show.
Marek Kreczmer, President & CEO, Northwestern Mineral Ventures, Inc.
One of the things that has happened to the San Francisco Gold Show this year is it's changed, and it's now a natural resource show, instead of just gold. And joining me right now is Marek Kreczmer, he's President & CEO of Northwestern Mineral Ventures. And Marek, tell us about your company, what it is you're doing and talk about your project.
MAREK KRECZMER: Northwestern company has about C$16 � million in its treasury, and we have 3 projects: one is in Niger which is a West African country - number four uranium producer in the world; the second project is North Rae in Northern Quebec; and the third project is land position immediately West and Northwest of Cigar Lake, Saskatchewan.
Niger is a country which has been known for its uranium production since 1957 when the first mine was built by Cogema, the French government agency. And all of the uranium consumed by the nuclear reactors in France actually comes from Niger. We acquired 4,000 sq. km in March of this year. The other companies active in the area is the Chinese Nuclear Corporation which is immediately West of our properties. The first exploration that we did consisted of airborne radiometric surveys which outlined 17 targets. We prospected 4 out of 17 and we found very high radioactivity due to uranium on two of these licenses - two of these anomalies. And actually the uranium content is so high based on the radiometric surveys using hand held scintillometers that we hired Wardrop Engineering - a Canadian consulting firm - to sample all of our water wells in anticipation of maybe some future problems with NGOs, because we expected the uranium content in drinking water in these wells is going to be very high. [inaudible] consulting company is actually providing services to us - we have some local geologists working representing Northwest and we will have drills on the property in the Spring of 2007. [52:50]
JIM: Tell us about your projects in Canada.
MAREK: The Quebec property is actually a very pleasant surprise. We acquired it in July of this year and almost simultaneously Cogema again acquired a very large land position around us. As a first line of business we did a lake sediment survey and it surprised us because the lake sediments actually contained as much as 3 pounds of U3O8 in the bottoms. We then followed it up with airborne radiometric surveys which outlined 13 different anomalies and towards the end of a fuel program we sampled one of these areas which is about 6km long and about 3km in width, and finally a number of graph samples which are up to 0.6% U3O8. Now that is extremely high because we're looking at the Rossing style of mineralization - Rossing is one of the largest uranium mines in the world that's based in Namibia. We're looking at a uranium content which is much higher than that mine. We are only 20 km from the sea and the style of mineralization that we are looking at will be open-pittable. And what is extremely interesting is that the uranium is due to urananite which is a primary mineral and that tells us we're not looking at some surface enrichment, we're actually looking at a magmatic source of uranium. So the potential for having a very large total uranium contained deposit is extremely high - and this is only 1 out of 13 anomalies that we have the opportunity to test. So we'll be going back early next year as soon as the snow disappears and we will be drilling by mid 2007.
And the third property is judged to be very similar to Cigar Lake. It's under Waterbury Lake, which is the large lake immediately North of Cigar Lake. And I began my career in 1977 in Uranium City and back in the late '70s, the early '80s, we didn't believe you could mine uranium under lakes, so there was very little exploration done. So consequently, we have a property which is so close to a big deposit but it has not been tested in the past, and we only have 200 meters of sandstone so we can drill a number of targets. We were going to drill in the Spring of last year but the ice conditions were very poor, so we're going back this year [when] we'll be drilling. [55:19]
JIM: What ultimately is the objective of the company?
MAREK: Ultimately, we will probably be taken over by one of the large uranium producers, and that's the reason why we chose our ground very carefully: one in Niger where we have the largest uranium producers on one side, and a Chinese nuclear corporation on the other side; in Quebec we have positions immediately adjacent to Cogema who came after us; and we're next door to a Cogema-Cameco joint venture in Saskatchewan. [55:47]
JIM: So ultimately it would be to prove out these different properties and then eventually become attractive enough that somebody would want to buy you?
MAREK: That's correct, yes. And because of our land position we're not looking for joint venture partners, we can add value with the money we have in the treasury. [56:03]
JIM: If you were speaking to a group of investors today, give me 3 reasons why somebody should buy your stock.
MAREK: We have very good cash position so there will be no additional dilution associated with bringing our projects. The projects have [inaudible] indications of being very good, we're in a position of being able to spend a million dollars a month on drilling; and we have very large land positions with very good focus on a potentially very high uranium content of the deposit. [56:34]
JIM: So if investors would like to learn more about your company why don't you give them your trading symbol, where you trade and then if you have a website if you would spell that out.
MAREK: We trade on TSX Venture, over the counter in the US, and the Frankfurt Stock Exchange, the .trading symbol is NWT. And we have a website, www.northwestmineral.com.
JIM: Marek, I want to thank you for joining us on the Financial Sense Newshour - all the best to you, Sir.
MAREK: Thank you, Jim. [57:05]
Allen Ambrose, President, Minera Andes, Inc.
JIM: And you're listening to the Financial Sense Newshour where we're broadcasting from the Marriott Hotel in downtown San Francisco at this year's San Francisco Hard Assets show. Well, certainly in the markets today -- where ounces are getting harder to find -- the real name of this gold bull market is exploration. Joining me on the program is Allen Ambrose, he's President of a company called Minera Andes. Allen, why don't you tell us the company's story? When was it founded, where are you located, and your principal project?
ALLEN AMBROSE: We took Minera public back in 95, and we've really focused on Argentina and the exploration potential down there. We saw a country that was really underexplored, underdeveloped. We have all of the deposits on the Chilean side; geology very similar in Argentina. We saw it as a great land of opportunity - they were changing their mining laws, and we got in there fairly early and started exploring and met with some very good success by 1997. We took the company public in 95 in Canada and then also we trade on the bulletin boards. [58:16]
JIM: When you think of South America, I think of Brazil, Chile - we've seen Ecuador and other areas of South America. Argentina from a mining perspective - give us a little bit of history. There hasn't been as much done there until recently as I understand it.
ALLEN: Correct. You went through various government regimes - the mining laws weren't really conducive to foreign investment and they recognized this in the early 90s. So then by 93 they put in new mining laws that really kind of rolled out the red carpet for foreign investment, and made it really conducive to get foreign investment in. So you had a wave of companies starting in about 92, 93 that went in through Argentina. And then there were several discoveries made - which we've now got two discoveries within Argentina: one a fairly sizeable gold and silver project; and we've also got a new copper discovery that we made earlier this year. So the whole development of Argentina, you've got one fairly good sized copper mine that Xstrata owns called Alumbrera, and then a couple of other gold-silver projects that are in production - but that's it. You know the country's mining potential is kind of coming into its own now. It takes several years to develop and mine these things and move the projects ahead. [59:40]
JIM: We've seen companies like Silver Standard, we've seen Pan American Silver start to move into this area. What has changed with the mining laws that makes it more attractive now? Is the country finally starting to say, you know, outside of agriculture here's a great industry that can help the economy grow?
ALLEN: Right. I think the country has recognized that the potential to create wealth and jobs and industry there - a very understated industry typically within the country. The President of Argentina, he was the former governor of Santa Cruz province where we're located. Santa Cruz province has a very good history of mining and also in oil and gas exploration. So the government realizes the value of the royalties and the job creation of the mining industry, so they're really rolling out the carpet. We just got our permits for our project which is going to be in production by about June of next year, and it took six months to get the permits - and these are all to World Bank standards - full feasibility. But where in North America it might take up to 7 to 10 years to get a mine into production based on the bureaucratic red tape, they've shortened that process dramatically so that just shows how they're rolling out the carpet to induce foreign investment in the country. [1:01:07]
JIM: What about the infrastructure in Argentina for mining - roads, power etc? How does the infrastructure look?
ALLEN: It's more primitive from that perspective. It doesn't have a well-defined mining industry and that was one of the reasons we brought in our joint venture partner, Mauricio Hochschild - Hochschild is a large Peruvian miner, they've brought in their Peruvian miners into the country and then trained Argentinean workers to be miners. So we've got an Argentinean labor force that's well-trained by this Peruvian group - that was a big reason that we selected them as a partner down there, because we're looking at a high-grade operation that's underground, and it's a very specialized type of mining. So the industry down there is in its infancy but it's growing nicely. Barrick just made a $600 million investment in Argentina to develop 2 gold mines in the Northern part of the country, and they should be in production - I think their date now is - January. [1:02:12]
JIM: You mentioned that you hoped to be in to production next year. What are you hoping to produce at that time?
ALLEN: Our project is going to start out at 750 tonnes a day - we'll be producing 3.4 million ounces of silver a year, and about 160,000 ounces of gold. So it's a gold-silver project which is about 50% by value of each metal. So we talk about it as a silver project or a gold project. [1:02:43]
JIM: Do you hope to expand on that in the future with adding exploration to it, to build on those numbers?
ALLEN: Yes, our joint venture partner Hochschild just went public on the London Stock Exchange. We announced last week that we were going to do an in house financing with Hochschild. They raised 520 million over in London. They're doing the financing for our project. And doing it in-house like this we have no hedging, so that's one important event. And then Hochschild's other plan as the project is developed and in production, and they're already talking about increasing the size of the production within the first 12 months of operation. So instead of 750 tons their target is to up that to 1500 tons a day - so all of those numbers I just gave you would double. And that shows some of the robust nature of the project. It's very high grade. Our internal rate of return at today's numbers is over 70%, so these very high grade projects are very robust - of course, at these metals prices. They've also made the plant and equipment that's being installed - the construction is about 65% complete - that is being built to be scaled up, in other words the processing facility is designed to handle extra capacity. [1:04:06]
JIM: And finally, Allen, if you were talking to a group of investors right now, give me 3 reasons why they should buy your stock?
ALLEN: Well, I think first off you're looking at a company that's transitioning from exploration to production, so we have a strong exploration side with a lot of exploration potential in the company. This project that I've been talking about - these vein systems - we're going into production on about 2 to 3 kilometers of vein; they have another 30 km of vein identified. So they've only drilled 10% of the system, so you have huge exploration upside. Then you have the production side of the story, which going into production I think you're going to get recognition and revalued in the market. Being a producer you'll limit any further dilution because you'll have revenue. And then thirdly, we're repeating that process and we've already made a new discovery on the copper side - the copper project has very large potential, and we're getting no credit that I can see in the market for the copper project. So you've got those 3 facets to the company. It's very liquid stock. And I think we're starting to get our recognition coming into our own. [1:05:26]
JIM: As we close why don't you give out your ticker symbol, the primary exchange where your shares are traded and your website if you would?
ALLEN: The ticker symbol in Canada is MAI.V - it's on the Venture exchange, and in the US we trade on the bulletin board under the symbol MNEAF. And our US volumes I would say are probably double - we're trading about 500,000 shares a day in the US, and 200,000 shares in Canada. And you can get updated information on our website at www.minandes.com. [1:06:11]
JIM: I want to thank you for joining us on the program and all the best to you, Sir.
ALLEN: Thank you.
PART 2: SAN FRANCISCO HARD ASSETS '06
- James Turk, Editor, GoldMoney.com
- Cathy Fong, President, Silvercorp Metals, Inc.
- Ralph Shearing, President & CEO, Soho Resources Corp.
- Michael Curlook, Investor Relations, Farallon Resources, Ltd.
- Richard Buzbuzian, Vice President, ECU Silver Mining, Inc.
James Turk, Editor, GoldMoney.com
JIM PUPLAVA: On the day that we're sitting here talking - the last day of the resource investors show - the dollar is down, the stock market is down triple digits. I'm joined by James Turk of GoldMoney. Jim, what's your take on what's going on here.
JAMES TURK: I think we're sort of seeing the markets releasing the pressures that had built up prior to the election. I think prior to the election some of the markets had been contained. Gold was in a very orderly and tight trading range under $600 for a long time; the dollar was in a very tight and orderly trading range; interest rates had come down very nicely. Now we're starting to see economic realities reassert themselves. [00:52]
JIM: One thing that we have seen and there's a lot of talk about monetary policy being tight, but everywhere that I look around the globe, if you look at the money supply even though they no longer report it - that's an amusing story in itself - but the last time they were reporting it, it was growing at close to 8%; some people that have reconstructed it are saying it is closer to 10% today. But it's not just us, the Europeans are inflating, the Asians are inflating and everywhere you look around the globe today there's nothing to anchor anybody's currency. And we're seeing the consequences of that in a rising core rate of all things.
JAMES TURK: Yes, and even more so we're seeing rising commodity prices, because what we're seeing in fact is a flight out of national currencies into tangible assets like commodities, like gold, and even to a certain extent the stock market although it's down 100 points today - we just did make a new high. People would rather own a million dollars of zinc than have a million dollars in the bank account; and similarly, people would rather own a million dollars of Exxon than have a million dollars in the bank account. [1:57]
JIM: There's talk we've seen oil go from $20 a barrel to $60 a barrel - at one time it was close to 80; we've seen copper go from 60 cents to over $3. And there's a lot of talk in the financial circles that this is a bubble but I don't see any large stockpiles of commodities anywhere around the globe. And if you look at day's use, there's a very disturbing trend, whether you're looking at oil, copper etc; and I don't think the public is buying into commodities the same way that they were doing tech stocks in 1999.
JAMES TURK: Yes, I agree. The fundamentals on commodities across the board are still very attractive and on a relative basis a lot of these commodities are still very cheap. In 1980 dollar terms, gold is only $250, which is less than a third of the $800 plus price it reached that year. So we're still very cheap in commodities, and there is a bubble out there but it's not commodities, it's the dollar. The dollar is in a bubble and I think starting to pop. People are recognizing that there's no value there and the demand for the dollar is dropping. [3:03]
JIM: As we see this movement in commodity prices that we've seen since 2001 - certainly we've seen other assets rise as well: the stock markets up, the bond market's done well - but it seems to me that those that can look at monetary conditions around the globe are starting to sense this monetary inflation that we're seeing around the globe. And it looks to me like the smart money has been moving in, and is continuing to move in to the commodities sector or tangible assets.
JAMES TURK: I agree. And in fact, one of the things that I've been doing is studying the early 1920s in Weimar Germany, and there are an awful lot of similarities between what is happening here and what happened back then that ultimately led to the hyperinflation - even the way Mr. Bernanke speaks, he talks about liquidity but that was basically what the German central banker was saying at that time - they added more liquidity into the markets to keep the economy going and keep putting purchasing power into people's hands. I'm afraid that we're going to go to the same type of situation as Germany: that the currency is just going to be in a crisis and lose purchasing power, which is the basic theme in my book The Coming Collapse of the Dollar. [4:16]
JIM: This is something that I think people don't realize: there's a lot of people that have been bearish on the stock market over the last couple of years. And much to their chagrin, they have seen the stock market head higher as we've seen this year with new records in the Dow. But when you're printing a lot of money that money is going to go find a place. And I remember reading a piece in one of your newsletters where you talked about for somebody trying to hold on to value that holding on to for example shares of Exxon that may own tangible assets around the globe is probably a lot safer play than just having pure vapor in a CD or a government bond.
JAMES TURK: And if you're aware where monetary crises have occurred in the past that's exactly the way people would act to protect themselves. It happened in Germany in the 20s, it happened in Argentina just a few years ago, and I think we're seeing that now. That's why we're seeing some of these unusual moves in the market. The stock market is not going up because of good economic conditions, the stock market is going up because of bad conditions with the dollar. [5:17]
JIM: You've been in the investment business, you've followed the markets globally for decades now, if you were speaking to a group of investors - which you will be doing later on this afternoon - what would you be telling them to do right now with their money?
JAMES TURK: In terms of general trends you have to be moving wealth out of financial assets, out of dollar denominated assets, out of bank accounts, outside of insurance policies - out of those types of things. Out of annuities. Stay away from anything dollar denominated - no T-bills, no bonds. And move into preferably tangible assets, or at least other currencies that have better prospects than the dollar. The problem with other currencies is that most of them hold the dollar as reserves, even though some central banks have been diversifying. So if the dollar goes over the edge of a cliff the other currencies are going to be adversely affected as well. So the safest place is basically gold and silver, and that's going to be the theme of my presentation this afternoon. My expectation is we're going to see a 4 digit gold price within the next 18 months and I'm going to lay out the basic reasons why trends that have been underway for the past several years are going to continue for a few more years and taking gold much higher. [6:22]
JIM: You see gold crossing the $1000 mark? What about silver?
JAMES TURK: I'm very bullish on silver, even more so than gold, and I recommend following the ratio between the two. We've been in a very long bull market in silver in the sense that we've come from 100 ounces of silver to buy an ounce of gold 15 years ago, to the present where it only takes 48 ounces of silver to buy an ounce of gold. My guess is we're going down below 20. So let's say that within the next 18 months if we see a 4 digit gold price - for the sake of argument, $1200 - and we get down to 20, we're talking about $60 silver. Longer term, I think silver is going a lot higher than that. We could talk about a 3 digit silver price, just like we could talk about a 4 digit gold price. [7:03]
JIM: If you were to tell somebody that today they would say, "well, that's just sounds crazy," as it would have been if we were to go back to 2001 and you were to tell people that oil prices would go to $80, or gold would be over $600 - they would have looked at you with that kind of glossy look in their eyes: "oh, you're one of those people!"
JAMES TURK: You can go further back to 1971 when gold was $35 and if you had said you had perfect knowledge and gold was going to 850 in 8 or 9 years, everyone would have just said there's no way, but in fact that's exactly what happened. And what we're seeing today is essentially a replay of what we saw then: monetary problems drove people out of financial assets into commodities; we had a huge big bull move in tangible assets of all sorts. And we're seeing the same thing today: monetary problems, particularly those with the dollar are driving people out of dollar denominated assets like T-bonds, T-bills and what not, in to real tangible things as a way to protecting their wealth - and gold and silver are the easiest way to do that. [7:59]
JIM: And speaking of gold and silver, let's talk about GoldMoney, because you have a unique program which offers a lot of safety for investors. Why don't you talk about that for a moment?
JAMES TURK: We're growing very well. We have over $160 million of gold and silver stored in GoldMoney now. We have customers in over a hundred different countries around the world. The advantages are it is very convenient and economical and most importantly very safe way to buy gold and silver online. And you have the additional advantage that you're diversifying your gold and silver by storing it in the UK. The UK does not have a history, for example, of confiscating assets which of course is different from the states where gold has already been confiscated once before. [8:41]
JIM: And Jim, if our listeners would like to find out more about GoldMoney, tell them how they could do so.
JAMES TURK: The best thing to do is just go online to www.Goldmoney.com, we have a lot of disclosure on the website. We also have a very active customer support so if there are any questions just go to the customer support link at goldmoney.com and mail in your questions and we'll be able to help you any way we can. [9:01]
JIM: Well, Jim, I want to thank you for joining us here on the Financial Sense Newshour we had a little bit of a technical difficulty. Jim and I are sitting in a booth talking on our cell phones.
JAMES TURK: A pleasure to be interviewed by you.
JIM: Thank you very much.
JAMES TURK: Thank you.
Cathy Fong, President, Silvercorp Metals, Inc.
JIM: And you're listening to the Financial Sense Newshour where we're broadcasting from the Marriott Hotel in downtown San Francisco at this year's San Francisco Hard Assets show. Silver has had one heck of a run up this year, we saw it from a low of $9.20 in the futures market beginning in January, to the day we're talking at the show at $14.16. My next guest runs a silver company: Cathy Fong of Silvercorp. Cathy, as we begin, tell us about the Silvercorp story. What is it that you're doing, where are you mining? - and let's begin with that.
CATHY FONG: Silvercorp is a very young company - three years in the making. We are an operator now, today, in China, mining silver, lead and zinc. 3 years ago Silvercorp had less than 5 people working for the company; this Spring, March 2006, we had 450 people; today, we have more than 800 people. And we are now mining our first operation. In the heart of central China, in the province of Henan 500 km South of Beijing. For Silvercorp, these are some of the monumental advances in these 3 years.
For the first 2 years we were an exploration company, even as an exploration company we generated money. In the first year, it was 2.8 million, in the second year it was 5 million. We're now into our third year, in the 1st quarter of the third year as a mining operator, we made a nickel a share in net earnings representing - more than 50% margin on a corporate level.
In the 2nd quarter that we have just completed, we more than doubled our net earnings at 11 cents a share, representing once again more than 50% margin on a corporate level.
At the mine level, it's been interesting to see how we have been advancing quite consistently. In the 2nd quarter a revenue of $10.07 million. However, our earnings at the mine site was $8.2 million. 8.2 divided into 10.07, we're looking at a margin of 77.3% - this margin we have shown is sustainable from the results of the first and the second quarter, and furthermore it is scalable.
Now, this kind of money is being generated from the Ying mine because of the super high grade silver lead and zinc, in conjunction with the low labor costs. When I talk about super high grade this is what I'm talking about: I'm talking about silver that is in excess of 45 ounces per ton; I'm talking about lead which is more than 25%; and I'm talking about zinc that's more than 8%. Today, we have 198 million ounces of silver equivalent in accordance with the national instruments 43-101 compliant report. Therefore, moving forward, Silvercorp is looking to potentially 3 operating mines in a 5 year window. In our first year of operating, we're looking at the Ying silver mine; perhaps in year 3 we're looking at HPG coming on board; and year 5, MZ. Therefore we're looking at a company that's ramping up to full production, not just on one mine but a multitude of silver mines to come. [13:01]
JIM: I had noticed that the custom mills have also achieved a very high recovery rate, you've got almost 94% recovery rates for silver, almost 98 for lead, and almost 74% for zinc - with a total production cost, adjusted for lead and zinc credits, at negative $6.76 an ounce. That's pretty profitable.
CATHY: Yes, not to mention it's scalable - as in the first quarter we had exceptionally high recovery for our middle grades, and the negative cash costs to produce one ounce of silver have been very consistent in the negative $6.00 range. Instead of costing us any money to produce one ounce of silver, we actually make $6 for every ounce of silver that we produce. [13:47]
JIM: Cathy, how has it been dealing with the Chinese government? Have you found them very cooperative, how are the property rights in China? Please address those.
CATHY: I think it was important that in that company there are 3 levels of distinct interest, of which every level has been addressed. The first stakeholders of our company are the direct shareholders - we have successfully ensured that we have very solid earnings.
The next level of stakeholder is the government. With the government, there are 4 revenue streams: the first revenue stream is a value added tax or a sales tax which they net roughly 9%; the next level of taxation is a 2% natural resource tax based on gross revenue; in addition to that, they have an income tax. Silvercorp, a foreign company operating in China has a 2 year tax holiday, 15% from year 3 to year 5, in year 6 onward it is 30%. Beyond that, a crown corporation of the provincial government owes 22 1/2% of the project. In return for these 4 different methods of taxation on our project, we have been given a 30 year business license to do our mining work at the Ying property.
And just so we satisfy all stakeholders, the third level of stakeholder is the community itself. It was important for us to provide those 800 jobs - understanding how it would ripple through the whole community (the number of second level or second wave of jobs that it would provide). Therefore, this is a case of win, win and win for the shareholders, the government and all individuals involved in this project. [15:74]
JIM: How has it been getting permits and going through the environmental regulations? Has it been easy for a company such as yourself operating in China?
CATHY: What we decided to do was to seek the advice of the government. At the onset, we found out exactly what the requirements are in order to achieve a mining permit. They gave us a list of 5 engineering consulting firms that have the technical depth that the government has reviewed that resulted in a mining permit. Consequently, we completed a 7 volume Chinese feasibility study, and that included the land utilization plan, the mine plan, the mine schedule, limitation of mining, environmental assessment plan, fuel hazard plan, health and safety plan, overall general arrangement, and mill design. Now all these various components were vetted by different expert teams that at the end provided us the mining permit. An environmental permitting is a vital part of our business and using it every day it is respected. We have 3 full time environmental health and safety officers. Now, today, we have 5 mining contractors that work at the Ying mine. Each mining contractor meets a 10 member environmental and health safety team that participates in the sustainability of the surroundings, and to maintain a health and safety standard that is acceptable to the Chinese government. [17:34]
JIM: As we look at Silvercorp going forward, you've got the Ying mine which is operating quite profitably now, you have two other projects which you hope to bring on board in the next 3 to 5 years - ultimately, if you were looking 3 to 5 years out, where do you see the company operating, its size, its tonnage, the type of thing you think you'll be able to achieve?
CATHY: Because of compliance, we like to specify very clearly what has been proven out. Today, we have just completed - the 2nd quarter - which reflected a 11 cents per quarter in net earnings. Now, in accordance with our National Instruments 43-101 compliance report, based on the $10 silver, it is possible in a two year window that we could achieve 40 cents net earnings per share per quarter. And this is a very realistic goal moving forward - one which is backed up by technical compliant report. [18:39]
JIM: As you look at silver going out, I know for a number of years, silver was stuck in a very narrow trading range, 4 to $5 an ounce, then it began an assault and moved towards 7 and 8, and certainly now you've seen silver prices remain above $10, so you even have companies such as Silver Standard that are thinking of going into production. Your views on silver long term?
CATHY: The way we see it is very simple. For us we have a negative cash cost to produce our silver, therefore we're not at all concerned about the silver price. Now in our modeling we've used a $10 baseline, and the reason why is because we went to a number of investment houses and a number of financial institutions, and we went and solicited from them actually where they state the price of silver should be, and what we did is we set a lower boundary - below both numbers - so that when we actually used $10 as a baseline we feel that that $10 is a level of comfort that we are comfortable with. So we're looking at $10 per ounce internally for our own valuation. [19:55]
JIM: Finally, Cathy, if you were standing in front of a group of investors, give me 3 reasons why someone would want to own Silvercorp.
CATHY: Firstly, we already know we're clearly looking at very strong earnings. We've gone from a nickel share to 11 cents and perhaps 40 cents in a two year window. We're looking to start our dividend program towards the second half of 2007. So paying back to the shareholder is important to us. Thirdly, today we have 198 million ounces of silver. According to a $10 silver valuation, we're looking at $2 billion in ground growth metal value. If you were to look at silver today over $13, that in ground growth metal value is $2.7 billion. However, this is based on less than 10% of our land holdings, and where we are there are 3 mines in our neighborhood. Therefore, it's possible that in a 3 to 5 year window we may prove up 400 million equivalent ounces of silver. So we're looking at cash flow, we're looking at dividend, and we're looking at a dramatically growing resource in ground growth metal value today of over $2 billion. [21:59]
JIM: And finally, as we close, why don't you give out your stock symbol, the principal exchange on which you trade on, and then finally your website if people wanted to get more information about you?
CATHY: We trade on the Toronto Stock full board, the symbol is SVM. Now, in the US some people are able to look up SVMFF, and we would be very pleased if you want to call in or email in and ask for information. Our phone number is 1 604 669 9397. Our website is www.silvercorp.ca. You're also welcome to email us: firstname.lastname@example.org. We would be more than pleased to send out investor packages. [22:18]
JIM: Well, Cathy Fong, I want to thank you for joining us here at the Financial Sense Newshour, all the best to you, and much luck for the future.
CATHY: Jim, it's been a major pleasure for us to have this opportunity to speak with you. We're grateful for this time.
JIM: Well, thank you. [22:34]
Ralph Shearing, President & CEO, Soho Resources Corp.
JIM: One of the more prolific gold belts in the world is the Sierra Madre gold belt in Mexico. And it's also considered to be one of the safer regions in the world to be mining. Joining me is Ralph Shearing, he's President and CEO of Soho Resources.
And Ralph, for our listeners, why don't you tell us a little bit about who Soho is, what you're doing, and the projects and the things you're working on?
RALPH SHEARING: Thanks, Jim. Soho Resources is a junior exploration company listed in the TSX Venture Exchange. I'm the President and CEO of the company. The company has been around for about 20 years, various exploration projects, but we've really settled in on the Sierra Madre mountain range in Mexico on a particular project called the Tahuehueto project. It's located Northwest of Durango. It's a very large epithermal system. We control about 8500 hectares. It's had a number of operators before us, it drove a lot of underground workings, tunnels etc. We came into the project in 1997, did a bit of work and had very good results but our industry tended to fall apart on us through 1997 to early 2000. And we reactivated the exploration of the project in 2004. We've had exceptionally good results on a number of the different structures on the project. And as I say it is a large epithermal system - we compare it similarly to operating mines in the Sierra Madre mountain range as the Cienega, or the San Dimas district of Goldcorp's Luismin mines. It's a very large district as well. So ours compares favorably with the mineralized systems of these projects, in particular the Cienega which is the oldest mine that's been operating over 10 years - a very prolific mine; polymetallic - similar to ours; large structures and the majority of the structures as you explore them and work them tend to prove up ore bodies over 20 to 40% of the structures. So our project has structures in excess of 6 km long, the width of the belt of, the mineralized cap, is probably on the order of 8 km. We control the majority of the ground in that epithermal camp - it's actually a mineralized camp is a good way to describe it. [24:55]
JIM: So is there 100% ownership of this project by Soho.
Ralph: We own 90% of the outstanding shares of a Mexican corporation that owns 100% of the project. So we have a very good lockup on the project, we control it thoroughly, and as we move forward our 10% partners will be allowed to participate, or they will be moved down as we move forward. [25:16]
JIM: Tell us about what you've accomplished so far? Have you had a resource estimate yet, are you working on one? Take us through the project and what you've accomplished.
RALPH: In 2004, we reactivated exploration, we did surface work, geophysical program and sampling. We started drilling the project in 2005 - with initially a reverse circulation rig - we drilled 34 holes reverse circ, and then we moved into a diamond drilling operation with one rig on one shift throughout the rest of 2005. That work brought up a number of very interesting ore chutes and gave the property some really good legs, enough to attract very high profile investors which helped fund us. Recently we did a $5.5 million funding based on the results we've had of some very large groups that took participation in the private placement. So with that money we have designed an 18,000 meter drill program. We're going to be drilling 5 zones. The program kicked off in August, however, we ran into a few snags with the drilling contractor, he broke down, so we're a little bit behind schedule. I actually returned from the project the other day, the four of us at the conference here, and we're up to speed running 2 rigs 24 hours a day drilling results now. So we anticipate this program to last the next 3 months, 4 months at the outside. All going well, we'll have enough information to do our initial resource calculation, and that will be coming to the market shortly thereafter - probably within 2 months of completing the program we would be anticipating coming to the market with a 43-101 compliant initial resource on the project. [27:02]
JIM: So that would be late Spring next year?
RALPH: That's probably a good guess. I think we'll have finished the program late February to March, and then within 2 months of that we would hope to have our 43-101 report coming out.
JIM: Why Mexico? Do you see Mexico like so many other companies as a region of the world that is rich in geology and also mining friendly?
RALPH: Absolutely. What attracted me to Mexico initially around 1995 was the underexplored nature of it, and the fact that they had a number of very good mines for gold and base metals. And it was really an area that wasn't looked at by a lot of operators. They felt it might even be risky due to the political nature of it. That changed quite a bit in the government getting out of the foreign ownership controls on - that all changed in the past 10 years, and now foreign owners can own 100% of projects. So people become very interested in it, and I was particularly interested in the Sierra Madre because of the various mines in that area. I looked around about 1995, through -6, -7, and started the project in 1997. And it is underexplored, it's very rugged terrain - and that's probably one of the reasons it is underexplored. By Mexican standards it's considered it's considered remote, but as a Canadian any time we can drive to a project in a day we don't consider it that remote. It's an extremely well mineralized camp - Sierra Madre off of [inaudible], the large belt of rocks that runs from the US border down to Mexico City. There are numerous mines throughout that whole belt of rocks, and there's going to be a lot more mines coming into production over the foreseeable future. [28:44]
JIM: One of the concerns that people have had about Mexico, it's had in the 30s and 40s when they were nationalizing the oil companies and the mines, it sort of had a checkered past and then all of a sudden mining was sort of ignored in Mexico, and then in 1992 they changed the permitting process, and allowed foreign companies to come in and own land. There was a lot of concern last year in the election about Obrador who basically is echoing things very similar to Hugo Chavez. So what about some of the political risks in Mexico. I wonder if you would comment about that.
RALPH: My feeling is that political risk in Mexico is that there is a limited amount of risk. I don't feel, as an industry participant in Mexico any concern whatsoever. Mexico has a long history of mining, they've been mining in Mexico for years and years. They're one of the world's top silver producers - it's ranked as probably one of the top 5 places to be exploring right now. So the political risk is in my opinion manageable. I don't see that the opposition party will get legs to actually form a government in the near future from my perspective, knowing Mexico as well as I think I do, and knowing the long history of mining in the area. And even if some unforeseen thing happened and that party formed a government, I don't see a lot of risk to the mining industry. Mexico is a member of the Free Trade agreement, they highly promote mining - that's one of their major industries - and the thought of them nationalizing them is beyond my belief. They have to be smarter than that. They know the value mining brings to them, they know the input of capital into their country because of mining over the past 4 or 5 years. It's been phenomenal the number of US and Canadian mining companies exploring. The story of Mexico is huge. So I see it as a very limited risk. [30:40]
JIM: What about in terms of getting permits and other aspects of mining? Contrast that to let's say where we know outside of Nevada in the United States it's very difficult. In fact, there have been major companies in California that have been trying to get a mine going for 10 years, and have been blocked by environmental constraints. How does all of that function in Mexico?
RALPH: In my experience in Mexico, the permitting of projects is relatively easy. When I say relative I'll qualify that in that all companies have to follow world standards in their exploration and their development and their environmental assessment. If you do that competently in Mexico you can permit projects relatively easily because you have government that is favorable towards the industry. So it's not like you can go out and build a mine that's going to do damage to the environment. You have to follow world standards but the process is laid out in a clear way, and you can follow it, and you can get it done in a reasonable amount of time. [31:43]
JIM: What kind of ore grades have you been finding in that area, and is this an open pit operation in your mine, or is this going to be a deep mine?
RALPH: Ours would be an underground situation, and I wouldn't call it a deep mine because all of our mining would be on the level, so we would be driving into the mountain side. Our topography hampers us in our exploration side of things - makes it challenging, but we'll accomplish it- but it will be very helpful for underground mining because we will not lift anything, we will be using gravity to pull out the material from the underground mine when we get to that stage.
Our grades - what we tend to find in these mineralized systems is large structures - 30 to 40% of those structures produce ore grade material, and what we find in the ore grade material are generally in ore chutes. So when we get into the ore chutes our grades have been spectacular, we have had bonanza grade material in ore chutes up to an ounce, 2 ounces per tonne of gold, plus the base metals. On average, we're probably looking in the neighborhood of 5 to 7 grams gold, 70-100 grams silver, and ores of up to 5 to 6% zinc, and on average probably 3 to 5% lead. Spectacular grades. We'll get much, much higher. We tend to find that in the center of these ore chutes [inaudible]. [33:01]
JIM: You mention that you've got a very aggressive drill program going, and then following that will be your first resource estimate. What are the plans for Soho, give us a vision of where you're taking the company?
RALPH: At this point our hopes are to come out with our 43-101 compliant resource, go to the market to raise a good sum of money in the 15 to $20 million, so we can start some underground development. When we do that we would get in and open up underground some of our main ore chutes, and start drilling those and bring those into a drill indicated category to work towards a prefeasibility study on the project. At the same time we would be doing that, we'd be continuing all our surface exploration as well. I can envision mid to late next year having maybe 3, 4 surface rigs, 1 or 2 underground rigs working to bring our resources into an indicated level so we can do a feasibility study, and work the project towards a production decision over the next 1 � to 2 years. [34:00]
JIM: Ralph, if I'm an investor and you're in a room of people, give me 3 reasons why I should buy Soho.
RALPH: Three reasons: the potential of the project is in the size and length of its structure. We've had very good support from very well known consultants in the industry for example Art Frieze [ph.], chief consulting geologist at Goldcorp has ranked our project to be probably one of the top 3 projects - let me clarify that, Art works for Goldcorp, he did all the due diligence for Luismin when it was taken over by Wheaton River, he looked at all the projects that Luismin had, recommended the transaction to Wheaton River and Wheaton River concluded the transaction. Art visited our project in November last year and stated to us, helped us, in fact he stated publicly that he believes it was one of the better projects for the next gold and has the potential to make a mine in the near future. He has also said privately to us that this project that if it hadn't been the Luismin suite of assets when he did the due diligence he would have ranked it as one of the top 3 projects. And obviously it was our project and he was unaware of it at that time. That's one reason.
The size of it, is large scale potential, long structures. I would say another reason for Soho, we're trading at about 40 cents right now, we're a very solid base at 40 cents Canadian, we've had as high as a dollar Canadian last year when the market was really flying. The market cooled down over the Summer, we kind of regrouped and put our infrastructure into this project and had a little bit of lack of news over the Summer, we are getting up to full speed and will continue to bring news to the market fairly regularly in the next 3 or 4 months. So I believe we are undervalued at 40 cents. We've got a lot of room to expand that. The capitalization of the company by bringing resources in and proving them up, and we have a multiple structure project. We're concentrating our exploration on one main structure but we know there are at least 9 or 10 other structures that we know of, and there are probably a lot more as we continue to explore. [36:08]
JIM: Why don't you give out your ticker symbol, where you trade, and then also your website if you could?
RALPH: We trade on the TSX Venture under the symbol SOH and our website address is www.sohoresources.ca.
JIM: Alright Ralph, thanks for joining us on the Financial News Hour.
RALPH: A pleasure, Jim. Thank you very much for the opportunity to tell our story. [36:33]
Michael Curlook, Investor Relations, Farallon Resources, Ltd.
Farallon Resources, Ltd.(TSX:FAN)
JIM: We've been talking about gold production here at this year's San Francisco Gold show, actually it's not even called the Gold Show any more, it's natural resources and that's our next topic. Joining me is Michael Curlook, he's with Farallon Resources. And Michael, everybody focuses on gold and silver at these shows but also the base metals have also been on fire. Let's talk about what Farallon Resources is doing.
MICHAEL CURLOOK: It's very interesting that you ask because at Farallon we've been around for a long, long time. And a lot of people have originally associated us with gold and silver, but really what our focus is is zinc. And zinc, it just so happens, that today's marketplace there's a huge supply-demand curve that is diverging as far as the demand and supply of zinc today. Zinc's inventory is at its lowest right now with its price hitting some of its highest. And with Farallon, we have an incredible situation where our lead metal at Farallon is zinc. [37:50]
JIM: And tell us a little bit for our listeners who may not be familiar with what zinc is used for, give us some ideas in terms of its product applications.
MICHAEL: Zinc is a base metal as we all know, and base metals are used for infrastructure. So in very, very similar terms zinc is used for galvanizing steel - galvanizing sheet metal which is used for cars, and also for washing machines and the like. In addition to that, zinc is also used in steel galvanizing steel for buildings. Now one of the more interesting applications that's recently come into focus is also galvanizing rebar, which is used in all kinds of infrastructure - not only in China, which needless to say everyone talks about today, but also in the United States and Canada or North America - because what it does as you know, zinc lengthens the life of metal when it's used in corrosive or even regular environments. So really, when you galvanize rebar you will be able to increase the [life] of bridges in the United States, of buildings in the United States because everything is put together with cement and rebar. [39:00]
JIM: Tell us about where your project's located, and outside zinc what else does Farallon mine?
MICHAEL: Farallon is a company that is located in Southern Mexico in the State of Guerrero, and what Farallon is it's a volcanic mass of sulfide that is actually a polymetallic resource. What I mean by that is simply a polymetallic - meaning many different metals. As I was saying earlier our lead metal is zinc but we also have copper, lead, gold and silver in the deposit. When we produce in July of 2008 - that's our targeted date of production - we'll be producing 3 concentrates: a zinc concentrate, a lead concentrate, and a copper concentrate. Now the interesting thing is the lead concentrate is the final step in the process and that has the highest concentrations of the gold and the silver. So that's very exciting and we're looking forward to projecting that, or targeting, the values of the lead, gold and silver equating with our annual production costs. [40:05]
JIM: So you've done your exploratory work and so now it's getting everything ready to go into production, is that the focus of the company at this time?
MICHAEL: Very much so. Farallon has been on the property for a number of years, and we've done a lot of work with the communities on the environment, with the metallurgy of the company, Farallon. And what we're able to do now is actually move forward on the project. We have a deposit that's economic and we'll be moving forward to July 2008, going into production, and targeting some very significant volumes. [Our] targets for production annual production of volume is 100 million pounds of zinc per annum, 10 million pounds of copper, and in addition as I mentioned earlier the lead concentrate which will house both gold and silver. [40:57]
JIM: In the gold and silver are you going to use that to offset cash costs of production, since you'll be primarily base metals?
MICHAEL: That's basically our plan, yes. We're looking forward to that and we just can't wait to get at it. [41:10]
JIM: There's a lot of discussion today, that some people feel that the base metals is a commodity bubble, but my feeling is that to be a commodity bubble you have to have large stock piles as we had at the end of the 70s, you have to have the public that's come into it at the latter stages as they did in the tech stocks. As I look at the base metals today - I don't care if it's copper, lead, zinc, if you want to look at energy, or gold and silver - I don't see where the large stockpiles are that would indicate this is a bubble and there's all this surplus. Your opinion on that?
MICHAEL: I think that's very true actually. And specifically, right now with zinc as well, zinc has traditionally been associated with copper, or tied to copper, and it's actually identifying itself on its own, mainly because the zinc inventories now at the London Metal Exchange are at their lowest levels that they've ever been - they're actually below 100,000 tonnes. And that is reflecting obviously in the price of zinc which is hitting its all time highs - on Friday of $2.09, but definitely staying in the $2.00 range at this point. So there's no question right now that zinc is a base metal that is very much in demand in the world for infrastructure, and at the same time there aren't any other specific mines that are going to come on line. So not only is it a current situation, but it's a situation that is going to continue for years to come as far as the zinc industry is concerned. [42:44]
JIM: This is another thing too, because when you talk about supply we just talked about where there aren't large stockpiles, the stockpiles in London are at their lowest levels - but the other side of that is you look at the supply side, and I can't think of a lot of projects that are going to be coming on board the next 3 to 5 years that are going to be producing these base metals.
MICHAEL: Very much so, and that's exactly what we mean. And that's why Farallon is positioned so well right now in that we're going into production - our targeted date is July 2008 - and we want to meet that demand as a company. There's a worldwide shortfall of zinc metal out there, and the sooner we can get to market, the sooner as a company we'll be able to start generating the significant revenues that we're targeting to generate; and that will then be a stepping stone to develop the company into a mid-tier mining company which is ultimately our goal in the long run. [43:39]
JIM: And the mining operations that you anticipate: open pit, deep mine, you've got them both?
MICHAEL: That's a good question. You know there's all different types of mining but there were 3 different types that we were looking at: there's open pit which we're not going to do; there's a mine shaft which we're not going to do; we're doing an underground decline. So as we penetrate the mountain, which we've already started our underground decline, we will then be able to then use that tunnel, or underground decline, to explore further, and also use that as the road that the ore is hauled out of. [44:14]
JIM: If you were sitting in front of a group of investors right now, give me 3 reasons why I as an investor would want to buy your stock.
MICHAEL: First of all, Farallon has been on the property for a long time. So what that does for the shareholder as an advantage is it presents them with the opportunity that the company has done a lot of work on the property. So you have a scenario where things like socioeconomic issues, and environmental issues, permitting, have all been addressed, have had the time to be addressed, and have been addressed. Second of all, the stock is trading at a very low point right now, so we're at the beginning of our story so far as something actually happening right now. And then of course, we are going into production. So we are taking a company from the exploration stage into the production stage. And that usually in most cases presents a situation where there's a considerable reevaluation going from the exploration into the producing stage. And those are the 3 reasons why I say right now Farallon is really something that shareholders might want to look at. [45:24]
JIM: Why don't you tell our listeners your stock symbol, where you're traded and also if you have a website if you could?
MICHAEL: Farallon is traded on the Toronto Stock Exchange under the symbol of FAN, and our website is www.farallonresources.com. So that would be www.farallonresources.com. We're a Canadian based company, and we're located in Mexico and we're a polymetallic deposit that is focused on zinc, and will also be producing copper. [46:02]
JIM: Michael Curlook, thanks for joining us on the program.
MICHAEL: Thanks very much, Jim, I really appreciate it.
Richard Buzbuzian, Vice President, ECU Silver Mining, Inc.
ECU Silver Mining, Inc. (TSX-V:ECU)
JIM: One of the more promising areas to mine in the world is Mexico, so we're going to talk to another explorer and producer in that area - joining me is Richard Buzbuzian, he is with ECU Silver Mining. And Richard, take us through the project, what it is that you are doing.
RICHARD BUZBUZIAN: Thank you very much, Jim. ECU is a Canadian based mid-tier producing company listed on the Venture Exchange with projects in Velarde�a in the Durango State of Mexico. We have a 612 hectare property which currently hosts 7 past producing mines. One of which - the Sta. Juana mine which we have been actively exploring since May of 2005 with much success. [46:51]
JIM: And you say you're a producer, what kind of production are you producing right now?
RICHARD: We are a primary producer of silver, but with that comes gold lead and zinc. Currently we're producing a lead concentrate, as well as a zinc concentrate which is averaging around 5 to 7 grams per tonne gold; between 120-240 silver; 1% lead; 1% zinc. We started production back in 2005 with an average of about 250 tonnes per day. Since that time we've made some significant mill modifications which has really taking us up to about 320 tonnes per day; and just recently made another small acquisition of an 80 tonne mill which takes our capacity to about 400 tonnes a day at present. [47:35]
JIM: Translate into annual production of silver if you would.
RICHARD: Currently when we're at full production, we should have roughly about 250,000 ounces of silver produced per quarter, in addition to about 15,000 ounces of gold.
JIM: So annualized about a million ounces of silver?
JIM: And are you going to expand the project, have you got other properties that you're exploring on? Tell us about that.
RICHARD: Right now the Velarde�a project is showing us some tremendous, tremendous exploration success. We had just completed a National Instrument 43-101 report that showed 100 million ounces silver equivalent. Since that time we have made 5 major discoveries. Those major discoveries are going to incorporate the next 43-101, which is expected in the first quarter of 07. ECU was typically mining narrow veins with high grade - the veins ranging in width between a 1/3 meter to a meter. What we found though as our exploration program continued was that as we drilled deeper, the veins were coming closer and closer together. As the veins came closer together we were having higher concentrations and higher grades. At level 15 � we've made a major, major discovery where we've found that the veins coming together have formed a stockwork zone ranging about 30 meters. [48:59]
JIM: This is a prolific gold and silver belt. Who are some of your neighbors in terms of producers?
RICHARD: We're actually a little bit of a distance away from some of our neighbors but we are in a similar district of Excellon, Avino, Oroco [ph.] and Great Panther. [49:15]
JIM: And how long has the company been around, and what has your history been up to this point?
RICHARD: The company has had a very interesting history in the very difficult times it went through some very difficult times. The stock had fallen on hard times - with the perseverance and the guidance and direction of a very determined CEO, Michel Roy, the company survived, it raised capital and it began to firm up its exploration. And those results of exploration have turned into production which has made ECU the success it is today. [49:47]
JIM: And is the plan to take that production and use the cash flow from that production to expand the exploration base and pay for that?
RICHARD: That is one of the processes which we're looking at, but as our exploration has resulted in some seriously good success, what we're doing now is employing Micon International to not only look at the updated 43-101, but also look at a major mill expansion. We're currently approaching a scoping study if you will - that scoping study is based on the findings of level 15 which have been running down to level 18 �. And that's the stockwork zone. The stockwork zone - we have just begun to do some trial testing in terms of bulk mining them and sending that feed to the mill. So ultimately we want to make the shift from mining narrow veins into a bulk mining producer. [50:39]
JIM: If you were looking at this company 3 to 5 years out, take us if you would what is the goal and objective of the company? What are your future plans?
RICHARD: The future plans right now are quite simple. We want to move the resource estimate and define what it is exactly that we have. We're starting from 100 million ounces of silver equivalent with 5 major discoveries - those 5 major discoveries are going to be incorporated into the next 43-101, which will give us a good indication of what our resource estimate is at that point. We have been bulk mining level 15 �, and using our 320 tonne per day mill as a giant metallurgical test facility for a major mill expansion. The goal of the company is to prove up its resources to a materially significant amount, and look at a scoping study which is going to employ bulk mining methods to that deposit. [51:30]
JIM: Are you profitable at what you produce today?
RICHARD: The mine and the operations are currently profitable. However, when you take into consideration mine development, ramp development, and a very aggressive exploration program - no, we would not be. If we wanted to be, we would. We're developing the resource base.
JIM: Ok, so you're building the resource. And is it the idea you want to remain independent and become a larger producer.
RICHARD: We would like to become a larger producer. We have the financial strength, the partners, the people to do it on our own. We look to do it on our own. However, if the opportunity comes to the benefit of the shareholders and a larger group looks to acquire us, we would do what's in the best interests of our shareholders. [52:12]
JIM: Who are your largest investors?
RICHARD: We would have some large investors that are both in France, the US, as well as the Middle East.
JIM: And if people would like to find out more about you, do you have a website that they could go to and find? Why don't you tell people your trading symbol?
RICHARD: The company is traded on the TSX Venture exchange under the symbol ECU. You can learn more about the company visiting our website at www.ecu.ca. [52:40]
JIM: Richard, thanks for joining us on the program.
RICHARD: Thank you very much for having me.
- John Doody, Editor, Gold Stock Analyst
- Dan MacInnis, President & CEO, Mag Silver Corp.
- David Miller, President & COO, Strathmore Minerals, Corp.
- Robert Archer, President & CEO, Great Panther Resources, Ltd.
- Trevor Bremner, P.Geo, Kodiak Exploration, Ltd.
- Keith Neumeyer, President & CEO, First Majestic Silver Corp.
John Doody, Editor, Gold Stock Analyst
JIM PUPLAVA: And you're listening to the Financial Sense Newshour, where we're broadcasting from the Marriott Hotel in downtown San Francisco at this year's San Francisco Hard Assets show. Well, this has been a rather interesting year: we've seen a number of companies taken out - some on the junior side, some on the bigger side. To comment on that, joining me is John Doody, he's Editor of The Gold Stock Analyst. John, is this just a preview of what's coming ahead, or where are we going with this?
JOHN DOODY: Companies have not spent a lot of money on exploration during the gold market downturn, and I think we're seeing deposits that were known to exist are coming to the fore. If you're a company like Newmont or Barrick you've got to replace reserves, and it's very difficult to do that with a drill bit, and it's cheaper to buy than to find in many cases. [1:00]
JIM: The other thing that surprised me - Ralph Bullis did a study a number of years ago - the number of deposits out there either in the exploration, prefeasibility phase or under development, and the amounts of deposits of 5 million ounces or more - I think it's been around 17 or 20 is the figure I've seen. Then you duck down below that to the 2 and 3 million ounce deposits and it's surprising, you know, maybe 30 or 40, so you take all the number of gold companies that are out there right now - there isn't a lot to look for unless you go out and try to discover it yourself.
JOHN: Look at the companies here - most of the companies here at the show are explorers - and really companies I don't cover because they haven't got to their feasibility or production stage. But they'll find things and get taken out like Western Silver did earlier this year - actually Western Silver got taken out twice, because Glamis owned it and then they got taken out by Goldcorp. So good deposits will get found so there are new opportunities but some of these opportunities are in areas that are not so great, with political risk. You've got to go where the gold is, you can't necessarily pick and choose among the countries you'd like to operate in. [2:11]
JIM: You've been following the gold market for a long time, what would you say are the characteristics that make this gold bull market different from let's say in the late 60s or 70s? Certainly the companies are bigger, it takes longer to take a deposit from discovery into production. Are there any other characteristics that you see that would distinguish this market?
JOHN: I think there's a general shortage of management, and the schools aren't turning out people. There's a lack of geologists. There's a tremendous shortage across the whole industry - not only in materials but in people to do the work. You can have bull markets that are driven just because you can make money at whatever the constant gold price is. In the mid-90s we had a pretty constant gold price in the high 300s, and companies were able to make money at that because their cash costs were roughly half that. And now we've got a market that's more driven - in my opinion - by expectations about what the dollar is going to do; and there's greater acceptance of gold as an investment, and part of it is due to people like you or the World Gold Council. And in a sense it makes gold a legitimate holding - just listen to CNBC, right? They don't make jokes about gold anymore. And gold has definitely got a legitimate place in any person's fund's portfolio, and I think in a sense this market is driven by companies trying to fill that need for gold investments. So we have a lot more explorers that have come back - and a lot of them are working deposits are already known about 10 years ago. They picked them up when they made sense at these prices when they didn't before. And even companies like Vista Gold, or Seabridge Gold which has just been really warehouses for deposits have proven that some of these deposits are well worth another look. [4:02]
JIM: You also have a situation today where the price is high enough where you have companies like Silver Standard that are finally saying, "you know, we've been warehousing this stuff, it's time to take it into production."
JOHN: Yes, I'm not so sure that's a good move because producing is very nasty and dirty and full of surprises. It's a lot nicer just to be a clean warehouse and operating without their production headaches. But we'll see if it's successful or not. There's no question that Silver Standard is a great success story, whether it really makes sense for them to change their spots or not, I don't know. [4:34]
JIM: Let's talk about the cost structure - that is certainly different today. I mean if you take a look at the oil industry where they've been experiencing 35% cost inflation, and if you look at all of the money that's been put into oil exploration, factor out inflation, and I think the IEA said it's only been a real input of about 5%. Let's talk about cost structures on the mining side, because even though we've seen the price of gold now at 600, we've also seen correspondingly a large increase in costs.
JOHN: Well, the rule of thumb in mining is that energy use is about 25% of your cash cost to produce. So if you're operating at $300 cash cost an ounce, that's roughly $75 an ounce just in energy cost. And we've seen companies doing all kinds of things to try to mitigate that -Barrick and Newmont have both built big power plants in Nevada to cut their operating cash cost; and companies are really struggling with this. But it's also coming through in labor costs because there aren't a lot of skilled miners around and miners can travel, they can go to where the better jobs are; and the schools are not turning out enough good people. I understand that a starting geo can get - somebody with a graduate degree in geology, Masters degree - can basically name his own price and 60 to $70,000 a year to start. And that's evidence of a shortage. [6:05]
JIM: And that's something that's unlikely to go away any time soon, because it takes four years to get a degree and we don't have as many mining schools today as we did say two decades ago.
JOHN: Right, and nobody thinks about wanting to be a miner the way they used to, even at places that are historically mining oriented - Canada, for example, much more mining oriented that the States. Well, maybe they are now, but they haven't been generating enough students to come out and work in the industry. Yeah, it's going to be a long term shortage but it'll get filled. You know, people want to go where the jobs are and when they get educated they're going to want to get a job when they get out. What was the quote that Jack Welch former head of GE that said that there were more sports medicine graduates in the United States than there are electrical engineers in one of the recent years. Well, that will change. [7:03]
JIM: Let's talk about Gold Stock Analyst, what it is that you do and the type of companies that you put in and your top 10 news list - talk about that for a moment.
JOHN: As you know, Jim, my background is as a former economics professor and I'm not a geologist. And the way that I look at the industry is that I want companies to analyze that can prove that they have what they've got. So I look for companies that have at least a feasibility study which is an independent assessment which is sort of like the way an independent accounting firm approves a company's accounting statements. I look for a company with at least an independent feasibility study which shows at least the drilling that they've done is verified and that the ounces that they can mine there can be done profitably - economically. And so that means I'm sort of in the larger group of companies - although some of them are not producers, they're near production. And then I go on all the way up to the very top - to the biggest guys like the Barricks, the Newmonts and Anglo Golds and so forth.
And what interested me about this industry is that it's unique in the sense that everybody makes the same thing. There's no difference between a Barrick gold ounce and a Newmont gold ounce, but yet their stock prices sell all over the place, they have different amounts of production, different amounts of reserves. And who is a good buy and who isn't a good buy; who's overvalued and who's undervalued? And when you have 60 companies to look at as I do you can find that there are basic parameters that establish value in the industry. There may be reasons why a company's ounces are worth more than somebody else's. There may be a reason why a company's should be worth less, but you can make a subjective decision. And in my opinion, if you're trying to find out who is undervalued you have to understand how the industry itself is valued. So we do a lot of work with this concept of market capitalization per ounce of reserves, per ounce of production - where you take the ounces, you take the stock price times the number of shares, and you divide that by the number of ounces a company produces, or the number of ounces it has in reserve. And that gives you a number that you can compare to other companies and the industry in general. [9:08]
JIM: If you were doing this newsletter, let's say, the last bull market - you know, the type of companies that were around back then, if you were a producer producing around � million ounces that was considered a major company. If you look at the yardsticks and the benchmarks today where you have the Barricks, you have the Newmonts, you have the Gold Fields - I mean those yard sticks have moved considerably. And yet, if you're a Newmont, if you're a Barrick, other than buying somebody else, how do you replace those?
JOHN: Well, you spend a lot of money on drilling and exploration. And both of those companies are spending over $100 million a year on exploration. But you can't predictably find ounces every year, you don't know that that 100 million you spent is going to pay off with what you need. And you need to not only replace the ounces that you've used up but because you get losses in recovery you've actually got to find more ounces. So if Barrick is going to produce 6 million ounces next year they've probably going to find 7 � million ounces due to processing waste. So that's a huge thing - that's basically almost an impossibility to replace those kind of ounces on an ongoing, consistent basis just from drilling. You've got to do acquisitions. [10:26]
JIM: You know this reminds me of the tech market, if you were to look at the technology stocks in 91 and 92, if you invested money in an IBM you made money in that decade - certainly beating the market. But the real money was made in buying a Cisco or a Dell or somebody that could grow their sales aggressively - and it seems like in this market, if we take the market: the IBMs are your Newmonts, and your Barricks; but your Dells and your Ciscos are going to be more of like your Goldcorp, your Yamanas, or companies that can sit there and start out at 100 to 200,000 and build up to a million ounce production profile.
JOHN: I agree - that's really where the upside is - we don't have Barrick or Newmont on our top 10; and we do have Goldcorp and Yamana, and other companies too. It's hard to find companies though that have the real potential to grow from 100,000 ounces to on up there - Goldcorp has been on our top 10 list three different times. First it went on there at 4 or 5 bucks when it was just the Red Lake mine; it went off when we thought it was overvalued, and it comes back on but it's a new Goldcorp - it's not the same one as it was before. And now with Glamis it's back on - we put it on at $23, and I think it's a $40 or $50 stock long term. It's a unique new major that's in the mix here now that's going to be producing by the time 2010 comes along which isn't that far away, and it's Penasquito deposit in Mexico comes on which is a gold deposit but also a big silver producer and base metals - the byproducts there are going to allow it to deliver 4 or 500,000 ounces a year gold at a negative cash cost. And that plays right into the whole theme in this market in my opinion: if you can get your cash cost reporting down around zero you're going to get a premium valuation for your company. And that's basically what Goldcorp has done and Agnico-Eagle has done it, Meridian has done it, Yamana is going to be the next one in that group to do it when it's Chapada mine is fully online at the beginning of next year. And that's part of the theme, it's not only production growth but production growth at low cost. And that's what makes some of these combination producers attractive that have a gold production and a by-product - whether it's silver, whether it's copper or whatever. If you can lower your cash costs the market rewards that. And they don't really care how you lower them, or they don't really care that it's a base metal - they're willing to pay extra valuation for the fact that you get your cash costs down so low. [13:08]
JIM: Finally, John, let's talk about your newsletter, I'm a paid up subscriber, or at least I think I am.
JOHN: I think you are. I appreciate it, thank you.
JIM: So you cover 60 different companies, you feature almost like a Value Line report - you take these companies and you do a nice analysis of them. Tell our listeners a little bit more about your newsletter. And I might point out, it is subscriber supported only - you don't take money from companies or anything like that, that would color your judgment.
JOHN: And that makes us expensive. We're $395 a year, but it's purely supported by subscribers - companies don't pay (some subscribe, some don't, it doesn't matter). There's no warrants; there's no payment for reprints. If a company has said they want to reprint we don't charge them, we just let them do it - there's no subscription form attached to that if you just want to send it out kind of thing (as I just saw somebody do recently). So it lets us be pure and I tell it like it is, and since we're not involved with investment banking I can say things that the brokerage analysts can't say, and I can piss people off - can I say that?
JIM: Go ahead.
JOHN: And you know, there are stocks I don't like, and I don't like the management and people know that. But in any case, what we try to do is this kind of comparative evaluation - we look for stocks that are undervalued versus there peers. And sometimes there's a good reason for that in which case we don't want to recommend it, but sometimes the market is wrong - the market is not efficient, everybody isn't valued properly all the time. And our track record shows the top 10 is up 80% so far this year. And over the 12 years now that we've been writing if you take the gain over that 12 years, the average gain was 28% a year, which is a pretty good track record. And we run it like a mutual fund. And I think one mistake investors make - particularly in gold stocks - is they fall in love with stories: they come to these conventions; they meet top management; they think these guys are brilliant; they already own 15 gold stocks, so they say they're going to buy one more because I like this story. What happens is you own so many stocks that you simply are the market. Your return becomes the market return. What you want to do is beat the average return. So one way that we do that is we focus on 10 stocks. If we want to add another stock we've got to kick somebody out - so is company 11 better than the 1 through 10 we already have? With that said we're only actually the top 9 now because we took off Kinross from the top 10 list because we didn't like the Bema in it, so with that possibility we're looking around the show here just like you are for another stock to buy. [15:52]
JIM: John, if our listeners would like to find out more about your newsletter tell us how they can do so.
JOHN: Well, that's easy. We have a website - www.goldstockanalyst.com - there's a sample issue, a very nice endorsement from Bill Fleckenstein. You can print off lots of stuff to read: a user's guide to GSA which is 24 pages which is there free; and our track record, we also publish that.
JIM: Alright, well, John, thanks for joining us.
JOHN: My pleasure, Jim. Thanks for having me. [16:26]
Dan MacInnis, President & CEO, Mag Silver Corp.
JIM: Well, silver has been on a tear this year with silver prices over $13 a share a nice run up. Joining me is Dan MacInnis, he's President of Mag Silver. Dan, tell us about the program, what's Mag doing and goals and objectives for the company over the next year?
DAN MacINNIS: We've had a lot of success over the last 12 months - probably since the last time I was in your offices in San Diego. We've seen Pe�oles come in on our joint venture at our Fresnillo Juanicipio joint venture, and late last year as part of their earn in they made a significant new discovery of a new vein in the prolific Fresnillo district and intersected over 7 meters of 1.7 kilos of silver, which again, is 3 times the average grade and 3 times the width of the average vein in Fresnillo - which again is a world class district, Pe�oles produced almost 34 million ounces there last year. So that is our flagship project right now. We're quite excited about the fact that Pe�oles now has 3 drills on the property. They've already purchased the surface rights back in August and they're on a - I believe it's an - 18 hole 18,000 meter definition drill program, right now. 3 different drills are operating on 3 different sections. The first hole of the program hit an 8 m section of 1.3 kilo silver - and again the grades are holding up; the width - it's in a large structure so it has great promise of horizontal and lateral continuity.
We've been working steadily on our Batopilas project where we also had a discovery late last year - 1.7 meters of 1.2 kilo silver. The grades are just phenomenal on all of these projects. We've been following up all Summer on Batopilas and hopefully back in drilling again probably in January. We're presently flying a large scale Mag and EM survey over several of our properties including Batopilas. We're also drilling right now at our Cinco De Mayo which is a carbonate replacement type target very similar to Excellon's Platosa property where they've had some great success on surface, and we're currently carrying out a 6 to 8 hole drill program - 3,000 meters. And we should have some results coming out from that before the end of the year. Like everybody else in the business we're at the mercy of the labs which are overtaxed right now, and getting results in a timely fashion has really been a hindrance to our news flow, if you like.
But all in all, Mag has had an exceptionally good year. We've seen our share price go from a dollar. Our last financing was about a year ago December 21st. We raised 6 � million at a $1. This morning we were trading at 4.32, and a lot of that has to do with the results of our Juanicipio and Batopilas programs. So we're quite excited about the future, where we're going.
We have a lot of other projects. Like I said earlier, we're flying airborne surveys on 4 of our projects, and from that we expect to get a lot of very valuable information and directorial targets, and that sort of thing, so we'll be going forward in a very active way. Obviously, Pe�oles is still spending up there nickel on our Juanicipio project. We expect them to have spent their $5 million earn-in by the end of the first quarter of next year. From that point on, we'll go forward as a true joint venture. [19:52]
JIM: Dan, what about the economics of silver now? For the longest period of time we saw silver prices stuck in a very narrow range - $4 to $5 - and they made a jump to the $7 and $8 level, they pulled back, and then they went over $10. What are the economics looking like when you have silver prices at $13?
DAN: I guess the Silver Institute, and the Gold Fields group have been predicting silver prices in the $15 to $20 range. Everybody - even CIBC and RBC Bank analysts are upping their predictions as to where they feel the price is going to go. A lot of it is driven I think by manufacturing increasing about 4%. We've been in a supply deficit for the last I believe about 10 years, and they're predicting a 50 - depending on who you talk to - 50 to 75 million ounce deficit this year that's not being made up by new production. There's a lot of interest in Europe I believe on silver - I think that's what's driving the price here. The Europeans have historically been buying gold. I've just come back from a two week trip in Europe and I see a lot of retail investor interest in the metal. I had one comment - a little anecdote about talking to a German fellow about actual metal, and the different leverage you get in buying shares versus the metal, and he said, "but we Germans, we really like our metals." And you're starting to see a lot more usage of silver in all of the electronics: plasma TVs and a lot of biomedical use and water filtration. So there's a lot of new uses for silver taking advantage of its light reflectivity, for example, which will be used in building glass for reflecting heat and sunlight, keeping building at a constant temperature. You're seeing biomedical uses, it being a natural biocide - bugs have a very hard time building up a resistance to it so it has a use which you're starting to see in band aids and in salves and creams and what not. And a big movement in - I forget what they're actually called - but it's on the bar codes for.You're going to see a lot of silver usage coming in on that. So the prices are being caused by basic fundamentals of supply and demand. There's an increasing demand and a shortage of supply right now. [22:27]
JIM: The other thing too, when you look at silver production, a lot of it is a byproduct. For example, BHP and some of the other companies - copper companies - but when you look at pure silver producers and silver companies there's obviously a few more today than there was 2 or 3 years ago, but you're not talking about a wide universe of companies.
DAN: Absolutely not. And then you're not talking about a wide use of companies that have a grade as well. Some people - some companies - are taking advantage of the increase in the price of silver. The type of projects that Mag has been focusing on are high grade projects with historical production in excess of � kilo per tonne, or 17 to 20 ounces a ton. Those types of deposits are economic at any price of silver. So the primary silver producers - the guys that have been in production for about 10 years - are doing real well right now because they've survived 4 or $5 silver. To me, those are good quality assets and projects. Our company's object is to focus on projects of size and grade and I think the market recognizes that you can have different market caps of the different silver companies, and those that have in excess of 100 million ounces of reserves and they're producing greater than 10 million ounces a year get much higher market recognition than those that are producing 2 to 3 million ounces per year. And I think that if you want to be in the silver business, and be a big player in the silver business, you've got to attain those kinds of lofty goals. And in doing so one of the things that gets you there a lot faster are high grade projects. [24:15]
JIM: What's the ultimate goal with Mag Silver? Is it to go into production?
DAN: We're an exploration company. The expertise that we have is exploration focused. I think we've shown we have the capabilities of finding new deposits particularly of grade and size; and the idea would be to attract companies that have expertise in mining such as say a Pe�oles. [24:44]
JIM: Finally, Dan, if you were speaking to a group of investors, give me 3 reasons why somebody would want to own your stock.
DAN: The 3 main reasons I think I've touched a little bit on them - I think that management is important. With our board of directors and with the experience that I bring to the table, and Peter Megaw who's well known in Mexico who is a good explorationist and a solid individual, we have a good solid board. The other two items I talked on were grade - we have projects where you're looking at kilo plus grades at our discovery at Juanicipio; you're looking at kilo plus grades at Batopilas where we've had some success. And the Platosa discovery of Excellon - using that as a comparison to our carbonate replacement targets such as Cinco de Mayo - well, again we will be looking at grade and significant base metal contribution as well to these projects. The third reason is again looking at size - these are district scale plays. If we're successful as we have been we will control the whole district. If you're looking out into the future where we would be looking at projects that wouldn't be landlocked or needing participation by multiple partners. We would be 100% ownership of what could be an entirely new district where our reserve base would be in the hundreds of millions of ounces. As I said earlier, 10 million ounces of overall production on an annual basis, along with 100 plus million ounces in resource, and the market has given you fair recognition for that - at least that's my take on it. [26:25]
JIM: Dan, if investors would like to get more information about your company why don't you give out your ticker symbol, tell them where you trade and your website if you would.
DAN: Mag trades under the symbol MAG on the Toronto Stock Exchange Venture, and we have about 37 million shares outstanding right now, fully diluted we're 43 � million shares. We have a very tight share structure: 17% of the company is owned by management and Cascabel which is Peter's consulting group; and 65% is held by institutions. So it's a very solid company right now. [27:08]
JIM: Your website please?
DAN: Our website is www.magsilver.com.
JIM: Alright, Dan, all the best to you and thanks for joining us on the program.
DAN: Well thanks for taking the time to talk to us.
David Miller, President & COO, Strathmore Minerals, Corp.
JIM: Certainly with higher energy prices, people are starting to think about alternative forms of energy, and one that comes to mind is uranium, especially with nuclear power. Joining me on the program is David Miller, he's President of Strathmore Minerals. David, good to have you back on the program.
DAVID MILLER: Thanks Jim for having me again.
JIM: Tell us a little bit more about Strathmore Minerals for people who may not be familiar with what it is that you're doing. So give us the Strathmore story and then let's move forward after that to talk about where the company is going.
DAVID: The Strathmore story is pretty simple. We've been around since 1996, 97. We went through that first little bump up in uranium, and then really got heavy into it starting in 2003 when uranium prices started to turn up. At that time uranium was $10 and $11 a pound - that's when we acquired the majority of our properties. This week uranium hit $64 a pound. The base of our assets are the old Kerr McGee nuclear corporation which was the number one private sector uranium company in the world back in the 1970s. We bought their two virgin properties in New Mexico. We bought their uranium databases with two semi-loads of data. With that, that formed our core in New Mexico, from there we expanded with other properties in New Mexico and Wyoming. New Mexico is the number one uranium producing State in the US; Wyoming is number two. We stuck to elephant country, and we've got some elephant projects. [28:44]
JIM: Tell us about in the last couple of years where are you in terms of stage of development, and how close are you getting to that magical date when production starts to flow
DAVID: We're a permit away from production. If we got our permits today we could actually break ground tomorrow. We started permitting in New Mexico on two projects last year in 2005. We opened an office up in Santa Fe, New Mexico that's staffed by two industry veterans both with 30 years experience. The office is in Santa Fe which is the State capital where the governor, the legislators and all the regulators are located. So we're doing the game of you know you've got to get in with these folks, you've got to play by the rules, you've got to dot your i's and cross your t's, and we're doing all that - so we've got that permitting office in Santa Fe. From day one, we said it would take 6 years to get permits, we're standing by that. So we think we're about 4 years away by now as we've been at it for 2 years. We're not going to sit here and tell anyone we can get a permit in two years and then two years out not be in production. We would rather overperform than underperform, and maybe right now that sets us apart in the market place. [29:54]
JIM: Do you think there might be any move within government as the price of energy goes up, and we really have to start taking our energy security more seriously that there might be a movement to maybe expedite this process?
DAVID: Boy, that's a great thought, and it's a commonsense thought and it's for the good of America - exactly what you're saying there. And I would love to think that. But I know the process too well, and entrenched anti people are so powerful, and frankly that's their job - they get paid to fight things like this. So I don't see laws changing in a timely fashion to speed things up, but you're exactly right - how much sense does it make to send a billion dollars a day to people that hate us in the world when we have our own energy right here at home. We don't need their energy, what we need is access to our own energy here in this country. And I'm very bullish on the future of energy because in the past it has been forever going down in cost. Now we're in this artificial bump up period, and frankly, it's because of the environmental movement. They've made energy more expensive. And when people start realizing energy shouldn't be expensive then I think things will change. [31:06]
JIM: If you go to for example France, in the last energy crisis in the 70s they made a concerted effort, they built their rail lines; I think 70 to 75% of France is powered by nuclear power plants - they haven't had an accident. If you take a look at China, they plan on building 20 to 30 plants; India, Japan. What is it about the United States compared to everybody else that we just seem to have not gotten along the wagon here?
DAVID: Well, frankly, I guess it's maybe a wealth issue. We're just way too wealthy as a country - both in a monetary sense, but also in an energy endowment and a mineral endowment. We're a tremendously rich country in energy. And again, this extra money that people have in their pockets, there's a certain segment of society, you know, the anti-war movement, for example, from the Vietnam war - they didn't disappear, that is the foundation of the anti-nuclear movement back in the 1970s. And it's real easy to explain -the anti-nuclear movement started up right after the Vietnam war ended, Ok. So it's the same set of people. They needed another cause so they picked on nuclear power.
What did that cause for the health of Americans? Instead of being 60 to 70% nuclear right now, which we would be because in the 70s 250 nuclear power plants were ordered - we built 109 of them, we're operating 103 right now. If we had built all 250 of them we'd be 60% nuclear right now. France is nearly 80% nuclear. But instead of building nuclear power plants, we went from burning 500 million tons of coal a year in 1970, to burning 1.1 billion tons of coal right now - 600 million tons of coal extra per year that should be nuclear power plant instead of coal-fired plant.
What does that do to the environment? It is thousands of times more damning to the environment what the anti-nukes did by making us consume 600 million more tons of coal per year. You can actually count the deaths - the emphysema deaths, you know, miners' deaths, there are several dozen miners killed each year in coal mining accidents, let alone the transportation of the coal. These unit trains that leave Wyoming - Wyoming is the number one coal producing State - go to every State in the Union; I bet there are hundreds of people killed each year because of those train accidents in moving coal around. Coal is the fuel of the 19th Century, oil is the fuel of the 20th Century and by the end of the 21st Century I think nuclear will be the largest fuel source in the world. Whether the US is participating in that or not, I kind of question now, because we don't have a strong policy, we don't have strong leadership advocating it. [33:57]
JIM: Yes, it's amazing on the plane flight up here I was reading a Council of Foreign Relations policy study they just put out The Danger of America's Energy Dependence, and they talked about forget about finding enough oil to where we're going to power this country on oil again - that's not going to happen. So it seems to me that environmentally safe fuel - nuclear power - it works in France, it's working in China, it's working elsewhere, so hopefully.
DAVID: We're on the same track here. To me it's such a no-brainer, energy has to be plentiful, it has to be inexpensive. We've remained competitive in the world because we've had lower energy costs for our industries for our people, for everything in this country. Frankly, it's my opinion that prices are being artificially driven up. You look at the mainstream media, they're saying we've got to switch to renewables, we've got to build these solar panels, we've got to build these wind turbines - that's nonsense, absolute nonsense. Wind turbines and solar panels - the energy source is way too dilute. Out in Wyoming where I'm from I have some land up on South Path, it's 15 miles from power line, a wind turbine makes sense there. Across the street here in San Francisco, solar panels on top of the Moscone Center make no sense whatsoever. Only government can afford to do nonsensical things, and they do, and they're wasting our money. They're not letting us have access to our energy resources in this country - we have plenty of energy. And frankly, I think the environmental movement is a false.government people that just always want to play to the politics and not what's good for the country. You can see I'm upset about it. I'm mad about it, and every American should be mad about it. [35:45]
JIM: So let's talk about - given the rules and constraints you're talking about 6 years to permit, you're two years into that cycle - as you continue to develop your property, ultimately you get your permit, what do you hope to be producing at that time?
DAVID: We're actually permitting 4 projects right now. We started one in New Mexico a year and a half ago. This January of this year we started with our second project in New Mexico, it's called the Roca Honda Project. About 2 or 3 weeks ago we had a press release on some ground we purchased in New Mexico to construct a mill, and so we're starting the environmental studies on that land. We're just doing everything you have to do to get going. In Wyoming we have two projects that we started the bugs and bunnies and archaeology work on, we're starting the permitting process up there, and I think we'll actually have those ones in Wyoming actually going faster because Wyoming produces uranium right now - it's the number one uranium producing state right now, the government agencies are used to uranium mining and are encouraging more uranium mining in the future. So Wyoming is going to be a little bit easier than New Mexico, but New Mexico was such a huge uranium producer historically I think they'll ultimately be back as the number one uranium producer in the US. We'll probably be the number one US producer maybe 8 to 10 years out. [37:10]
JIM: David, if we were sitting around here with a group of investors, I want you to imagine a room with these investors, if you're talking to them as CEO of this company, give me 3 reasons why investors should own Strathmore.
DAVID: One, we were in early. The companies that were there first, did they get the good projects or did they get the so-so projects? When we first elected to lease this for auction in New Mexico, we were the only person at the auction, so we got every lease we wanted. At later auctions, you started having competition and frankly, all those leases were far lesser leases that were available. We were there before this herd of uranium companies got going. So timing and the knowledge of the industry is one of the reasons.
Number two is the personnel involved. Myself, Dev Randhawa, the CEO of the company has a very successful track record of putting companies together. He was the gentleman that raised the money in Strathmore. I'm the guy that brought the assets and knowledge into Strathmore of the uranium industry. We've hired other uranium experts: Don Dejoia, Juan Velasquez, Hans von Michaelis, Ray Larson - these are all people that have backgrounds in uranium. We've over 200 years of cumulative uranium experience. I've worked in all uranium mining environments - open pit, underground, and in-situ recovery, where we use Perrier water to recover the uranium.
We're well capitalized, we have $35 million in the bank, we have zero debt; every one of our top quality projects is 100% owned by Strathmore - we have no partners in anything at this point. The only companies that have a more diversified portfolio of properties are only the Camecos and Cogemas of the world. Also we've avoided the risky environments of the world. We've haven't gone to the 'stans, we haven't gone to Mongolia; parts of Australia don't allow uranium mining; parts of the US. Virginia for example does not allow uranium mining. There's a great uranium deposit there. I went and talked to legislators in Richmond, Virginia to see if we could change the law, and they said, "yes, we could change the law - $5 million and 5 years minimum." And so we avoided projects like that. We don't need any laws changed like they do in parts of Australia before we can start mining our uranium.
We've started the permitting process, we're dotting our i's and dotting our t's and we're moving down that track. You can't permit in two years. Can you permit in 3 years or 4 years, 5 years? I hope we can do it faster than 6 years, but we're well on the way and I think people are going to be pleasantly surprised at our success compared to other possible companies out there that you could spend your money on. [39:41]
JIM: As we close, tell them your ticker symbol, your principal exchange and also your website if they want to get more information about you.
DAVID: Yes, thanks Jim. Our ticker symbol - we're on the tier 1 Toronto Stock Exchange at SVM.V, in the US the pink sheet symbol is STHJF. Our website is www.strathmoreminerals.com, and we have a toll-free number to talk to our investment people 1-800 647-3303. And we also participated in this uranium book you have sitting on your desk there, and you can turn it over there and I'm shown as pretty much the senior contributing editor to the book. It's from StockInterview.com, and I'd encourage people to try to get this book if they're new to the uranium sector - the first 200 pages are just generally on uranium, nuclear power and energy as a whole. I didn't write the book but I had a lot of input into the book. [40:42]
JIM: Alright, the name of the book is called Investing in the Great Uranium Bull Market and it's from the editors of Stock Interview. David, I want to thank you as always for joining us here on the Financial Sense Newshour, hope to be talking to you again next year.
DAVID: Well, thanks for the invitation, Jim.
Robert Archer, President & CEO, Great Panther Resources, Ltd.
JIM: And you're listening to the Financial Sense Newshour where we're here at Marriott Hotel in San Francisco for this year's 2006 Hard Assets show. Continuing our story here with dealing and talking with juniors - because I believe this bull market is all about juniors, they're the ones going out, finding the properties, and have been raising the money and been doing the exploration. Joining me at this time is Robert Archer, he's President and CEO of Great Panther Resources. Robert, tell us a little bit about Great Panther: your beginnings, where you're operating, company plans etc.
ROBERT ARCHER: Ok, Jim, I'd be happy to. Great Panther is a primary silver producer focused in Mexico. We have 2 mines in production right now, both of those just came on stream this year, so this is our first producing year I guess you could say. The company itself really got going as a public entity in early 2004, so it's only been 2 � years in terms of what we've done - putting the projects together and putting the mines into production.
Going forward, we're looking at targeting 3 � to 4 million ounces of silver equivalent production next year; and then growing the 2 mines through to 5 and 7 million ounces in subsequent years. We've got a third development project in Mexico right now that has a 22 million ounce resource on it that's 43-101 compliant, and that's an open pit target. We're just going to be starting drilling on that and increasing the size of the resource. Hopefully we'll be able to bring that to production in a few years and potentially we think we could bring in about 5 million ounces a year from that operation, which would bring our production profile up to about 12 million ounces by about 2010 and 2011. And a 12 million ounce level that puts us right up there with the current top primary producer which are Pan American and Coeur D'Alene - and they've got market caps right now on the order of US$1.7 billion, whereas we're sitting at US$175 million right now. So they're 10 times our market cap, and that's where we plan to be in about 4 to 5 years time. So there's still tremendous upside left as we grow the operations and we expand our production. And you know, the stock's been performing well, we just hit another new high today at C$2.79. We trade on the Toronto Stock Exchange, and we're hoping to get listed on Amex in the first quarter of next year. [43:35]
JIM: Did you acquire these properties originally as producing properties, or did you go out, do a little bit of discovery and then take it into production? Tell us how all that began.
ROBERT: The business model from the get-go was to acquire one producer or past producer essentially, which was Atopia, which was a silver-lead-zinc mine, high grade, mining about 23-25 ounces per tonne silver equivalent. And the idea there was to get that back into production because it had been shut down in 1999. We acquired it in 2003, essentially put it back into production and did some exploration - drilled off some continuity of the veins and refurbished the plant and started up again right at the end of last year.
And then the second mine we only just acquired last year that's in Guanajuato in Central Mexico. We bought that from a mining cooperative which had it for about 65 years, and they were basically facing bankruptcy last year - they were just way too far in debt - and being a cooperative they always ran it as bit of a social experiment, always running it at a marginal basis and allowed us to step in and acquire the whole thing. And so we have 100% of both mines, no royalties, and both are paid for essentially - a few more payments to come out of cash flows, but that's really how we came about buying those.
In terms of history of Guanajuato, it is one of the oldest mines in Mexico in the sense that it went into production in the year 1600. It's been in almost continuous production for about 400 years, and it's already produced about 1 billion ounces of silver. So it's a very significant complex of mines. We've got 3 large shafts on the property and there's a 1200 tonne per day plant; we're currently operating at 700 tonnes per day and increasing production all the time. So that one has a tremendous history but it's only been mined down to about 400 meters, and we know from some of the previous deep drilling that was done that the mineralization continues to at least 650 - so there's at least 50% more that we know of over and on top of the billion ounces that's already been produced there. Historically, it's the third largest silver producer in Mexico, and probably one of the largest primary silver deposits in the world. [45:52]
JIM: In terms of the operating environment in Mexico, how are you finding it? I have a lot of companies telling me that the government's very cooperative, it's very easy to get permits following that you dot your i's and cross your t's, do all the environmental things you're supposed to do, but in comparison?
ROBERT: That's right, Jim. We've found that Mexico is a terrific place to work. We don't have any problems at all. The government is supportive at all levels and the permitting process is pretty smooth and efficient. And our VP of Operations in Mexico, as my business partner and co-founder of the company, is a Mexican mining engineer so he is very familiar with the working environment in Mexico. And he's put a terrific team of people together - so we have 2 excellent mine managers, all of our people on the operations side on Mexico are all Mexican. We have a little over 400 people working there now. And so they know the culture, they know the business and we haven't experienced any problems whatsoever. [46:49]
JIM: If we take a look at this silver market, silver seemed so constrained for such a long time period of time: 4 to $5, it broke out to $7.50-$8.00 level, then it pulled back, and then it moved eventually over to $10 - and it seems to want to stay over there. At $13 silver, you guys have got to be pretty happy at those kind of prices?
ROBERT: Absolutely. Once things stabilize at the two mines, you know, just starting up this year, of course, our starting costs are a little higher, but our costs are coming down month by month as our throughput is increasing, but we are expecting somewhere in the neighborhood of $4/oz production cost - the two mines combined - and for next year. So with $13 silver price.
JIM: So that's a tremendous return on investment then.
ROBERT: Absolutely, yes. And as it stands right now, we've got 16 million in working capital, we've got another 20 that can come in through the exercise of warrants, all of which are in the money now, and revenues coming in from both operations. So we don't anticipate having to refinance at all unless we're faced with a major acquisition opportunity. [47:59]
JIM: What's your share structure right now?
ROBERT: We have 68 million shares on issue right now, 88 fully dilute.
JIM: And so the plans for the company are to eventually get this up to over 10 million ounces as you add other projects to your existing production levels. If you were to sit before a group of investors, give me 3 reasons why they should own Great Panther stock.
ROBERT: One is the fact that we do have production, we should have positive cash flow by the first quarter of next year, and so in terms of the risk, you know, the stability is there - it's not just pure exploration. We shouldn't have to refinance and so there shouldn't be any further dilution to the shareholders, so basically what you see is what you get in terms of the shares on issue. And as far as the upside goes, you know, we look at where we're going with this - anticipating 10-12 million ounces on an annual basis. And when we look at some of the producers right now at that level - like Pan American and Coeur D'Alene - they've got market caps that are about 10 times what ours currently is. I still think there is huge upside there for us. [49:08]
JIM: Alright. Why don't you give out, as we close, your ticker symbol, your primary exchange where you trade and your website so investors can get information if they would like.
ROBERT: Sure thing. We trade on the Toronto Stock Exchange main board. Our ticker symbol is GPR, and our website is www.greatpanther.com.
JIM: Well, I want to thank you Robert for joining us on the Financial Sense Newshour, all the best to you, Sir.
ROBERT: Thank you very much. It's been a real privilege talking to you. [49:34]
Trevor Bremner, P.Geo, Kodiak Exploration, Ltd.
Kodiak Exploration, Ltd. (TSX-V:KXL)
JIM: Continuing our story with exploration companies here at the San Francisco Resource show, joining me at this time is Trevor Bremner, he's a consulting geologist with Kodiak Exploration. Trevor, tell us a little bit about your company, what you're doing, where your projects are located, and we'll take it from there.
TREVOR BREMNER: Jim, we've got two projects in Canada we're currently very excited about. Kodiak's an exploration company. We've just about to undertake our second round of drilling on both properties. In fact, at the Hercules gold property in Ontario we've just started our second round of drilling, and we're scheduled to start up at Caribou Lake in the Northwest Territories in January. At Hercules, we're located midway between Timmons and Red Lake and the center of an area that has produced 200 million ounces of gold to date. The Beardmore-Johnson gold camp is underexplored and remains underexplored because it's heavily covered by forest and glacial overburden, and we've had to dig through that in order to explore this property. We have 30,000 acres and on that 30,000 acres we have uncovered a shear zone that is currently 10 miles long by approximately 1500 feet wide. And along that shear zone we have exposed in trenches a really nice looking quartz vein, and stock work system almost continuously over a site length of � mile.
Our initial drill holes have given us a really spectacular intersections with some visible gold, and length of up to 55 feet grading 4.54 of an ounce gold. We've hit significant grades and thicknesses in 3 drill holes and a channel surface and channel samples between them across this very well developed vein system are giving us comparable results. So we're basically on to a high grade mineralized chute. We're currently testing at depth and we're drilling step out holes along the site - it's a very interesting system. These shear zones are big, we think this thing has huge upside potential, and we're optimistic the second round of drilling is going to show people how significant a discovery this is. The project came about through Kodiak own in-house research and development. It's an original project. There's been some initial work done on small showings in the area but almost everything we've uncovered is new.
The other project in the Northwest Territories is on the shore of Great Slave lake. Surprisingly, for an area in Northwest Territories it's only 600 miles from the nearest smelter near Edmonton; and just across the lake from us there's a railhead. So the infrastructure is all in place. We have a layered intrusion that's at least 6 miles long and a couple of miles wide, and it basically extends under a granite cover - we don't know how far to the East. We've drilled 50 shallow holes along this intrusion and we've established there the presence of a very, very large amount of disseminated sulfide - 33 of our first 50 drill holes have hit intersections of disseminated sulfide with, to give you an example, our longest intersection was 69 meters of disseminated sulfite grading about 0.2 to 0.3% copper and nickel combined. We've had grades of up to about 1% copper and 1% nickel in these surface rocks, but basically in order to get where we think the best accumulations of nickel, cobalt and copper are we're going to have to drill the base of this thing.
All of the nickel geologists have been telling us you've got to use magnetic imagining to find out where the base of this intrusion is and you've got to drill down to it. Walter Purderry [ph.] who's managing this project for us was with Inco for 31 years, he was their chief research scientist and he's worked in Thompson, Manitoba and he's worked all around the Sudberry Basin, he's worked in Northern Quebec - he says this intrusion is most unusual. He says he has never seen a layered intrusion with so much sulfide in the upper layers, so he's very optimistic that at depth we're going to find significant accumulation. And he's identified Pentlandite in these surface rocks 15 out of 95 samples - and basically he's pretty excited about this, as we are. We say the second round of drilling we're going to be drilling depths of something like 300 to 700 meters - in that range we can see the large structural traps in the base of the intrusion where we think these sulfides have accumulated. At the bottom we have magnesium rich rock, we have good platinum numbers coming out of these sulfides as well as good grades of nickel and copper and cobalt. And really we think on our next round of drilling has some good chance of some spectacular intersections. [54:19]
JIM: What's the ultimate goal for the company? Where do you see yourselves one year, two years, three years from now?
TREVOR: The company's position is it's going to do the best for its shareholders. We're looking at Bema which is basically the Kinross takeover, it was not what Bema was looking for but they said well it was clearly in the best interests of the shareholders if they entertained positively the idea of a takeover. In Kodiak's case I see the company has a growth strategy - at least the Chairman of the Board of Directors Mike Phelps took West Coast Energy from basically a small company to basically a super giant company and sold it out to Duke Energy. He's got a good track record of company building and I think that would be his vision for Kodiak to be quite honest. But we'll see, it depends on opportunities, it depends how things pan out. The company is still in the process it's got its own R&D department, there's a geologist working full time to develop new prospects and I really think right now there's more of a growth strategy than anything else. [55:19]
JIM: If you're standing before a group of investors, give me 3 reasons why they should own your stock.
TREVOR: First of all, the company's corporate structure is very strong, we've got very strong institutional support - 85% of the shares are currently owned by institutions. To give you an example, the largest shareholder is the Richardson family, who are also the largest shareholders in the Royal Bank of Canada and they've supported the company from its inception 13 years ago. I think the second reason is that the management is very, very focused on discovery. Their single goal is really to discover a mine and get it into production - they see that as their first and foremost goal. And thirdly I think their projects have very sound technical merit like on both properties we're seeing one line of evidence after the other that just line up telling us that everything we've found so far is consistent with these two exploration models. And both projects have huge upside potential. [56:19]
JIM: As we close, why don't you tell people your ticker symbol, the primary exchange on which your shares trade and your website.
TREVOR: The stock symbol is KXL, and it's on the Toronto Stock Exchange (TSX-V Venture Exchange), and the website is www.kodiakexp.com.
JIM: Alright, Trevor Bremner, thank you for joining us on the Financial Sense Newshour. All the best.
TREVOR: Thank you very much, it's been a real privilege talking to you. [56:49]
Keith Neumeyer, President & CEO, First Majestic Silver Corp.
JIM: And you're listening to the Financial Sense Newshour, where we're broadcasting from the Marriott Hotel in downtown San Francisco at this year's San Francisco Hard Assets show. We're going to continue our discussion on the topic of silver. Silver is certainly on a roll this year. Joining me is Keith Neumeyer, he's President and CEO of First Majestic. Keith, tell us a little bit about your company, what you do, where you're working and where your projects are?
KEITH NEUMEYER: Thank you Jim for this opportunity to speak about First Majestic today. We have 3 producing silver mines in Mexico. This year we produced 2 � million ounces of silver, and next year we'll produce 5 million ounces after spending approximately $40 million this year on development. [57:37]
JIM: And how long have you been in Mexico and developing these projects?
KEITH: I started putting the management team together at the end of 2003. We acquired our first mine in January of 2004.
JIM: And so right now, you're producing silver - 2 � to 3 million ounces - where is the ultimate goal for you?
KEITH: The management has an objective to produce over 10 million ounces by the end of 2008. Now, I don't think we have the assets to do that. As I said earlier we expect to produce 5 million ounces in 2007, and 7 million ounces in 2008. In order to get up to the numbers that we expect we anticipate we need to acquire other assets, and we are aggressively looking at a few additional mines as we speak. [58:19]
JIM: What are the economics for a silver company in Mexico now that you have silver prices over $13.
KEITH: It costs virtually every mining the same to take a tonne of rock out of the ground, it costs approximately $40 to $50 a ton to extract a ton of material from an underground mine. That translates - depending on the grades, the material - to 5 or $6 an ounce. [58:45]
JIM: So at $13 plus change silver, you guys should be pretty happy.
KEITH: We're about profitable on operations right now. Next year we should throw off about 30 cents in cash on an operating basis which is obviously a substantial amount of money. Most of that - well, all of that money - will be reinvested in development of our existing operations.
JIM: And when you say to get up to your ultimate goal of getting up to 10 million ounces of production is that going to involve buying other assets in the same area or would you move elsewhere?
KEITH: No, we're going to stay focused on Mexico. Myself and Ramon Davila - my Chief Operating Officer - who built Pan American Silver with Ross Beatty over the last 6 years, who joined forces with me at the end of 2003, we set on a very aggressive acquisition campaign to acquire producing assets. And with my background and his background we've some pretty lofty goals, and we need to continue to be aggressive out there in order for us to achieve those goals. But our expertise is in Mexico with 850 employees right now, and in order to keep focus we need to stay focused in Mexico, and Mexico silver - just silver. [59:53]
JIM: And Keith, if you were sitting in front of a group of investors right now give me 3 reasons why somebody should consider investing in your stock.
KEITH: I think for any investor I think that the first thing they have to look at is management. Has management had successes in the past? What companies have they built in the past? Are they from large companies that they have had great successes with? That's the case with First Majestic - you can look at our management team and have those questions answered quite easily. Secondly, you have to look at the projects. Many companies have 1 project - they rely just on the one project. We have 3 operating mines and I think by having 3 operating mines that reduces the risk for investors in case there was something that would go wrong in a particular mine which could happen as we've seen in many situations like Cigar Lake, for example, for Cameco - these things do happen. So for us, having 3 operating mines, obviously not only does that give substantial upside to investors but also gives investors a lot of protection. And I think thirdly you have to look at the structure of the company: we're about 35% institutionally held and 45 million shares outstanding; we have about 4,000 shareholders throughout the world, and about 2,000 shareholders in the United States; and the stock is fairly liquid - it trades between 100,000 and 200,000 shares a day. It trades around 4.50, it was up around $7.00 in March.
JIM: That concludes this year's San Francisco Hard Assets Show. We've been broadcasting here from the Marriott Hotel here in San Francisco. We'll return to our regular program format next week, we've got a couple of guest experts coming up; and then also we're going to do something different towards the end of the year. We're going to have the year in review as we take a look at some of the key stories - the key events of the year - along with some key interviews that we've done since January. We've had some great interviews, and we hope to piece that together for you by the end of the year.
In the meantime, on behalf of John Loeffler and myself, we'd like to thank you for joining us here on the Financial Sense Newshour. We hope you enjoyed this year's Hard Assets show from San Francisco. I'm Jim Puplava, until we talk again I hope you have a pleasant weekend.
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