A Mine is a Terrible Thing to Waste
Jan 20, 2015
I was on the way to the field last week when the news came out about the surprise Swiss move to sever the tie with the price of the Euro. I suspect that move will be identified as the beginning of the end. In a matter of minutes, the value of the Swiss Franc rocketed higher by 30%. Other than perhaps Zimbabwe, I don’t think I have ever heard of any currency changing value by 30% in minutes. The Swiss Franc settled up some 15% for the day.
Many years ago I wrote a short piece when Enron collapsed I called “The End of the World. . . as we know it.” In it I bemoaned the danger inherent in having the incredible sum of $100 trillion in derivatives. Boy did I get it wrong. Derivatives made it as high as $710 trillion and now stand at a still incredible $691.492 trillion dollars. When that firecracker goes bang, it will rattle the windows in the houses on Orion’s Belt. We have a world economy of under $70 trillion, derivatives are a ticking time bomb and one went off last week.
According to the BIS, the derivatives on the Swiss Franc totaled $3.95 trillion in the last reporting period. A 30% loss would cost some poor sods $1.185 trillion, 15% loss would be a still hefty near $600 billion. Hedge funds are starting to pop like an overheated bag of popcorn. This could be the end.
It came to me that perhaps an investment in silver and gold might not be amiss according to Exter’s Triangle. I recognized as early as 2002 that governments would attempt to fiddle with the economy when derivatives blew up. I also understood they are powerless.
The project I was going to see used to be the 2nd largest silver mine in Arizona. From discovery in 1892 until WW II caused the mine to shutter in 1942, the Commonwealth Silver mine produced about 16 million ounces of silver and 138,000 ounces of gold. The silver mines around Tombstone produced more silver however; we will have a drill rig on the ground of the White House before anyone allows mining in Tombstone.
Management of the privately held Commonwealth Silver and Gold optioned the Commonwealth Mine in late 2010 from another private company. They completed the purchase in 2011 right as silver topped. Actually their timing couldn’t have been any better, they were able to raise $9.5 million at the top and have watched as their brethren silver companies cratered as silver dropped over 70%. They came close to going public several times but the market wasn’t right. Meanwhile they did put the money raised into the ground.
The company filed an updated 43-101 and PEA study in April of 2014. It shows 389,000 ounce of gold and 32 million ounces of silver in M&I and an additional 67,900 ounces of gold and 4 million ounces of silver in the inferred category with about 1.05 million ounces of gold equivalent in total. At $1350 gold and $25 silver the project showed a blistering 58% IRR at a 5% discount rate and NPV of over $101 million. Capex would require about $27 million to production.
The numbers in the PEA are a bit optimistic for today’s prices but given the crash in energy prices, actually the NPV and IRR would be a lot higher today.
A mine is a terrible thing to waste and this mine will be back in production. It’s gone through several owners since closing in 1942 and come close to production several times. With current management in place, it will go public with more favorable prices. The management team has expanded the footprint of the project and believes the mine has district potential. Since the existing mine is on patented ground, permitting could be done in as little as two years. With more time and more drilling, the resource could be expanded and more ground permitted for mining on the surrounding BLM ground.
Management holds 24.7% of the shares. Coeur is a big investor at 6.5%, Sprott owns 11.6%, Pinetree Resources has 9.1%. Therefore other insiders and management own 60% of total shares.
Obviously the shares can’t be purchased today but for investors looking for a mine in the US Commonwealth offers a great IRR and district scale blue sky potential. Management is strong and the project could be in production in two years.
I don’t own shares and the company obviously is not an advertiser but I think they are worth watching. At some price they will represent great value.
Commonwealth Silver and Gold
No Symbol, still private
61.6 million shares
9.3 million warrants and options
Commonwealth Silver website