Learning from Failure
In another lifetime, a full eternity ago; Barbara and I used to be Macintosh gurus. We were gurus to the highest end users of Macintosh computers. Gurus to the gurus as it were.
We made a comfortable living and we had a lot of happy camper customers. All of them kept suggesting we start some kind of Internet business. Alas, we couldn’t figure out what we knew how to do well that could migrate to the World Wide Web. Then Apple came out with computers with removable and replaceable CPU cards.
It was a marriage made in heaven. At the time, the real limit on computers was memory and CPU speed. Computers did double in speed every 18-24 months as predicted by Moore’s Law. PC computers always had removable chips but you needed to be a techie to install them. Apple came out with a card that anyone could install.
We realized that Apple itself would never manufacture the CPU cards. They wanted to be selling big iron. But the World of Macintosh was made up of a dozen or more peripheral manufactures and there were more options for your computer than a 1957 Chevy.
It took about 18 months after the first computers with replaceable CPU cards for the 3rd party builders to come up with a variety of options for the few Apple computers to upgrade. We placed the first orders for CPU cards with the two companies making them.
In my opinion, the very best 3rd party manufacturer for Apple was Newer Technology. They began by selling memory chips. How many people remember paying $1299 for a 16 MB chip and you needed to install them in pairs? They branched into docking stations for 5-pound laptops and eventually into CPU cards.
Steve Jobs probably understood the limits of the web better than anyone else I know of. He made the comment early on that the Web was the great leveling field. Size meant nothing and anyone could compete. What Barbara and I didn’t realize was that our little two people company could compete with the giants of the Apple world such as MacConnection and MacMall and still beat them because we were far more agile.
The big Macintosh peripheral companies sold products by sending out millions of computer catalogs each month and having banks of salespeople taking orders over the phone. The Web was years away from companies selling computer crap over the net, we were truly early adopters.
We ordered 15 CPU cards from Newer Technology and hunkered down to see if we were ready for the web. Newer insisted on getting a $15,000 cashier’s check in advance before shipping. So I trudged down to the bank, cleaned out my checking account and Fedexed them the check.
Two days later the CPU cards arrived; COD Cashier’s check required. I called Newer and explained that we had already paid for the CPU cards once. They agreed and asked to speak to the Fedex driver. He wouldn’t budge. He couldn’t possibly know who was at the other end of the phone; it easily could be a scam on our part to get out of paying.
So he agreed to come back in an hour with the cards. I trudged down to the bank again, banged every credit card I had and got another Cashier’s Check for $15,000. Fedex arrived; I took the cards to my 15 best customers and sold every one in the first two days. We realized we were on to something.
We hired a local Mac guru to do the first page of our website. He charged $1000 for his work. It took two weeks and wasn’t very good. Barbara went to Computer City, bought a copy of Pagemill at full retail and we had a nice functioning website up three days later.
We didn’t understand it at the time but we had a giant competitive advantage over the giant catalog companies who had no web presence. (This was 1995.)
Their catalogs had to be prepared 3 months in advance. We only advertised the CPU cards that we had in stock. The giants had to advertise all 175 variations of cards for half a dozen different computer models. The biggest problem the industry had was getting your hands on a CPU card from the manufacturers. So the catalog companies took 50 times as many orders as we did but couldn’t fill them. For CPU cards they couldn’t deliver. Meanwhile we were selling CPU cards as fast as we could get them in.
I had many talks with the head of Newer Technology. Mainly about how they could stop screwing up as much as they did. We probably had a couple of thousand orders with them and I can’t remember an order they didn’t screw up. We had more shipping errors than orders. If we wanted it priority overnight, they sent it 2nd day. If we asked for 2nd day, they sent it standard. If we planned on a Saturday delivery, they got it to us on Tuesday. If we ordered 20 cards of one particular model and flavor, they shipped us 30.
The president of Newer Technology taught me something valuable about hiring people. His philosophy was that you should hire people who had failed in their previous job. They had no issue hiring a sales manager who came from another company he had helped blow up. Newer wanted guys who had failed in the theory that you learn more from your failures than from your success.
It was total nonsense of course. If you want to succeed at something, at anything, you ought to have at least one person on board who has succeeded at something so you at least recognize success when you stumble across it.
As can be easily predicted, Newer Technology went tits up, taking $38 million dollars in unfulfilled orders into the dumpster with them. An unfilled order is not a good thing, it’s a problem. While the catalog companies were commiserating with their hoards of pissed off customers, our customers loved us. We helped our customers. When I go through airports on my 150 legs a year, I often see the ex-Newer people staffing the Airport Nazi checkpoints. I wave them a single finger.
In the last 11 years, thanks to China, we have had the greatest mining boom in history. Thousands of companies have failed, there is always a new way to screw anything up. A few dozen have succeeded. One of the best 10 stories during this period was that of Northern Orion. Northern Orion went from pennies to many dollars.
In December I went to Colombia to visit a company named Waymar. The nice folks at Pinetree Capital had pointed out the project to me and wanted me to see it. The Anza Project and Waymar Resources (WYM-V) are the babies of Pablo Marcet. He came across the project, then belonging to Continental Gold and snapped it up. Continental Gold viewed the project as a base metals project and priced it that way. I think the terms were $3.8 million over three years, a $4 million dollar work commitment, 380,000 shares and a 2% NSR that can be bought down to 1% for $1 million. That’s for 100% ownership and it’s sweet.
Basically the market values silver and gold companies higher than base metals companies. The Anza project was a gypsum mine in Colombia where massive sulfides of lead and zinc were discovered in the mid-2000s. Continental Gold thought the project had the potential of being a VMS deposit and priced it that way. Pablo Marcet thought it might be something else. So far it looks like Continental Gold has found one more way to screw up. I think the Anza project is going to be one of the biggest gold discoveries in Colombia. Here’s why.
There are a whole bunch of factors that go into making an economic mineral deposit. I presume by now most of my readers at least understand the basics of geology. All minerals are found about everywhere. You need a concentration of a mineral to make an economic deposit. Most minerals are moved around in some sort of liquid form.
One thing that I have never mentioned and I don’t recall any other writer discussing in detail is the importance of ground preparation. If a mineralized liquid seeks lower pressure through faults or cracks in the ground, something has to create that fault or lower pressure area.
The presence of gypsum in a deposit is interesting because of the potential for an unusual form of ground preparation. You see, gypsum and anhydrite are the same mineral, calcium sulfate. Anhydrite is the solid; non-water bearing form of the mineral, gypsum is anhydrite that has been exposed to water.
When anhydrite comes into contact with water, making gypsum, it expands by 63%. When gypsum loses its water, it becomes anhydrite again and shrinks by 42%. So in a calcium sulfate rich system, you have a lot of opportunity for the anhydrite to swell, then shrink, then swell, then shrink. The expansion over geological time opens up the rocks and the shrinking creates up voids for fluids to move into.
We took a group of half a dozen people to the Anza project, Pablo briefing us all along. Thom Calandra was there along with the lovely Maria Paulina from Grupo de Bullet. I don’t know how many people understood the impact of the anhydrite/gypsum information but I did. And when we saw the core and looked at the assay results, it really hit home.
Pablo took over the company in March of 2010, Waymar picked up the Anza project in June of 2010. He did the normal ground geophysics and mapping as he raised money for drilling. In April of 2011 the company announced a 3000-meter Phase 1 drill program. To their very great pleasure the results of the drilling proved for certain they didn’t have a VMS deposit on their hands. Instead they were hitting good gold intercepts with results of up to 11 meters of 10.57-g/t gold and 2 meters of 40.25 g/t gold with nice zinc numbers.
By this time they realized what they were sitting on, they were well cashed up and had completed the basics of groundwork to get some idea of where to drill. Pablo and his team hit the ground running. In the next six months they completed an additional 14,000 meters of drilling. The most interesting thing is that the drill results are all over the map. They have 18 meters of 14 g/t gold, 22 meters of 10.4 g/t gold, 40 meters of 14 g/t gold and 14 meters of 40 gram gold.
This system has been juiced again and again and again. When you look at the core, it all looks different. You have high temperature rocks next to low temperature mineralization, high gold areas, high silver areas, and high zinc areas. None of the rock looks like any of the other rock. Pablo has identified a 2.5 km long strike length that appears to be mineralized that is some 200 meters wide and it’s still open to depth and to the north and the south. Let me work up some numbers in theory.
If you have 2500 meters strike that is 200 meters wide and 100 meters in depth and have an average of 1 g/t gold, you have 2500 times 200 times 100 times 2.5 divided by 31.1. That’s four million ounces. Maybe it’s only .5 g/t gold. That’s still 2 million ounces.
But it gets better and better. When they did the airborne geophysics, the area they were drilling lit up like a Xmas tree. If you go to page 27 of the presentation and look at the Charrascala project 1.5 km to the west it lights up like the 4th of July and hasn’t had a drill hole in it yet.
I’m going to climb way out on a limb and make a prediction based on the assay results they have already released and from looking at the core. This company is going to be a whole lot bigger than Continental Gold. I was really impressed with Pablo and his guys. For a company that is essentially about 18 months old, they have accomplished a lot.
Pablo’s background is one of success. I’m not nearly as impressed with the in-country management of Continental Gold. Management there is a whole lot more impressed with themselves than I am. They may have a $1.15 billion market cap but I’d like to remind them, all things change. Waymar has better management by far. Waymar is creating a mining company. Continental is creating an empire. Good luck with that.
Waymar appears to be well cashed up but the numbers are a little confusing. They have a final property payment due in the summer and that will consume most of their cash. They need to be drilling to beat the band and that will take more money. Pinetree is a shareholder and the majors are sniffing around. Those who understand it technically have a good clue as to the potential.
Continental Gold has over 5 million ounces of high grade gold but I think Waymar is going to be a lot higher and will surprise most people with the grade. I don’t mean to beat up Continental Gold but Waymar with a $16 million dollar market cap has CNL potential and a lot more.
I liked it enough to buy some shares when I got back so I’m a little biased. Waymar is not an advertiser but they should be. You can’t buy a stock until you know its name and I had never heard of the company or the story until Mat from Pinetree told me to look them up. As always, you are solely responsible for your own investment decisions but I really liked the management and staff at Anza and I think the company is going to be a big hit.