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The Barron is Back

Bob Moriarty
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Mar 7, 2017

In 2001 you could count the number of people in the world who believed we were starting a gold bull market on one hand even if you were missing fingers. Everyone hated gold, you couldn’t give it away. I on the other hand believed a major bull market was in the making. I wrote that piece while Barb and I were still running a Macintosh computer upgrade site. We didn’t start our 321gold website until two months later.

One other guy I remember got it, named Dr. Keith Barron. He was just another over educated geologist looking for a good project who had a bunch of grandiose ideas floating around in his head about finding the mother lode.

He was nice enough to share his thoughts on the markets in general and gold in particular on Kitco, Gold Eagle and eventually us. On 911 he started his own website named Straight Talk on Mining. He continued to write articles educating those interested in gold and the mining industry until 2006 when his day job demanded he stop writing.

In hindsight rereading the articles makes the viewer realize that Dr. Barron understood it. Right from the gitgo, he got it. A year ago I got permission from him to format some of his STOM pieces in an eBook format and posted it on Amazon. They make for interesting reading a decade and more after he wrote them.

I think every geologist wants to believe he can find the mother lode. Actually in Vancouver and Toronto, if you are a taxi driver or have operated a drill rig it seems you are fully qualified to run a mining company extracting tens of millions of dollars from the punters willing to believe any bullshit story. Few actually deliver.

Lots of guys talked big back in 2001-2006 as the bull market picked up speed. One guy I know in particular delivered, that would be the aforementioned Keith Barron. He went public with his own company named Aurelian in June of 2003.

Aurelian raised $3 million at $.50 a share when they went public. The shares briefly dropped as low as $.46 a share. He took the money and his grandiose ideas to Ecuador where Aurelian drilled a home run hole in late 2003 of 51.06 g/t Au over 9.6 meters. On the strength of that hole he raised another $12 million in November of 2003.

The company continued to drill. Eventually the world-class gold discovery named Fruta del Norte showed a resource of almost 10 million ounces of gold and 14 million ounces of silver. It’s the largest gold discovery in the history of Ecuador. How Keith found the area and staked it is a story in itself.

The shares climbed from $.50 when they first traded to a high of $43 a share. In a moment of abject stupidity the Ecuador government changed the mining law when Aurelian had a market cap of $1.5 billion. As a result, the company stopped exploration in Ecuador in April of 2008 along with every other mining company in the world. Kinross saw an opportunity to pick up gold cheap and paid the equivalent of $60 an ounce taking the company over for $1.2 billion or $32.80 a share on a non-split basis.

I know of few companies who did so well for their shareholders. Keith Barron made a lot of people rich.

After decimating their mining industry with the incredibly stupid changes to the mining laws in 2008, the government of Ecuador woke up and looked around. And no matter where they looked or how hard they looked, they couldn’t find any mining companies willing to even consider investing a single dime in the country.

Wiser heads eventually prevailed and they began a process of making the mining law saner. Finally in March of 2016 they lifted restrictions on new mining concessions. After years of funding all the expenses of his private company, Keith vended the concessions into Aurania last week. Keith Barron put Ecuador on the mining map. They owe him a giant debt of gratitude.

The Barron is back.

In Keith’s back pocket he has been keeping a project he learned about years before even Aurelian but wasn’t in a position to go after.

But first a little history lesson. The Spanish lusted for gold from their first sight of the precious metal when they landed on the island of Hispaniola. The Spanish were going to take the gold by hook or by crook. Mostly by crook in hindsight.

The Spanish were both greedy and blood thirsty. Since the natives didn’t believe in the same God as the Spanish, the conquistadors raped, looted, and plundered their way through Central and South America in search of the elusive mother lode all in the name of Jesus. They found great riches of gold in Colombia and Ecuador.

Mining started in Mexico about 1520 and spread through all of New Spain throughout the 16th Century. In many cases, the Spanish literally worked the natives to death. That pissed the natives off. In some cases, the natives returned the savage behavior.

Two of the richest gold districts in Ecuador were named Logroño de los Caballeros and Sevilla del Oro. The natives rose up and murdered all of their Spanish overlords in the late 16th Century. The Spanish somehow managed to lose the gold mines.

Fifty years ago when I was a skinny young spark wearing Marine Corps green, we had a pet phrase that essentially said that in 190 years of Marines guarding gates, they had never had a gate to a military base stolen. How do you steal a gate?

Maybe you could try getting people to forget all about it. That’s what happened to the Lost Cities. Due to mismanagement and cruelty the Indians revolted in Logroño and Sevilla del Oro. The Spanish left for safer areas to work. The locals went back to small-scale agriculture. When they felt the need for a pretty gewgaw, they went and panned a local river. Not being burdened by a massive warfare state they felt no need for the massive amounts of gold required by the Spanish throne. Despite there existing volumes of information about the two Lost Cities of Gold, the exact location pretty much remained a mystery as years passed and memories failed.

Aided by a university professor friend in Ecuador named Octavio Latorre, Keith has been on the track of the two districts for almost twenty years. He believes he has found them. If he believes it, I believe it.

Keith first took Aurania public in 2013. I was an early shareholder on the basis of an interesting uranium/gold project in Switzerland near Keith’s home. I didn’t pay much attention to the shares, after all the gold market was in the process of dying. But I had great faith in Dr. Barron.

Keith came to visit us six years back and began to talk about the Lost Cities of Gold. Had it been anyone else, I would have been tossing salt over my left shoulder and holding a silver cross dripping in garlic in front of me. Keith actually made the insane seem quite sane. After all, he had done over a decade and a half of research into the subject.

Aurania’s website does a marvelous job of explaining the story of the "Lost Cities of Gold" and I suspect novice investors are in for a treat. Keith’s experiences with Aurelian taught him a lot about social media and communication. His website is nothing short of brilliant. He tells the story well. There are videos in progress that will maintain the interest of investors as the saga progresses.

The deal seems lopsided at first glance.

Keith kept the project in a private company and funded every cent needed out of his own pocket. Prior to doing the deal with Aurania to vend in The Lost Cities of Gold, Keith owned 64% of Aurania. The agreement calls for Aurania to pay Keith an additional 1 million shares of ARU and cash of $500,000.

Since Keith has to advance $2 million USD to his private company to make the property payments, the accord states that Aurania will need to raise $6 million at a minimum of $1 a share. Of the proceeds, $1 million will go to Keith’s private company at closing and the remaining $1 million will pay an annual interest rate of 2% and is due one year after closing.

Funds in Canada considering investing in juniors hate it when one person totally controls the shares. Basically when investing in small companies, you don’t ever want to be a minority shareholder unless you are prepared to have one person running everything. However when Keith founded Aurelian he was quite generous and brought in people who got carried away with their own self-importance. When the sale finally took place most of the shareholders and Keith especially felt the sale was botched. There had been an offer on the table for more money that the management he put into place in the first place refused.

I wouldn’t touch a deal like this with a ten-foot pole given this share structure with anyone other than Keith Barron. First of all he isn’t doing it for the money. He’s already rich. If he turns this into a $100 stock it can’t make him rich; it can only make him richer. But he’s absolutely adamant that he is not going to let the hired help run this project into problems. For better or worse he’s going to run the show.

Now for the interesting part. What is the project worth today? This does get interesting. As of last Friday, the company had a market cap of $28 million CAD. For a company that just did a deal on a giant property with little exploration that may seem excessive.

When you consider that it had a market cap of about $15 million when it didn’t have anything but a couple of so-so projects in Switzerland a week ago that would need a lot of money to move forward it doesn’t seem so high. But is it cheap at $28 million or expensive?

I think you have to look at it as if you are rolling dice. What are the odds of Keith hitting one or both of the Lost Cities of Gold? Let’s say the odds of hitting either one of the Lost Cities are 10-1 and the odds of hitting both are 25-1.

Just for argument’s sake, I’m going to assume he does the $6 million placement at $2 with a half warrant at $4. That takes the company up to about 30 million shares on a fully diluted basis. It also would bring in an additional $6 million without further dilution if and when the warrants get exercised. If he can’t find something in Ecuador after twenty years of research with $12 million, he can just hand his Oscar back and retire to grow beetroot in Switzerland.

And for those in the crowd who like to use projection to accuse others of doing what they would do if they only had the power, I have no inside information. For all I know, Keith may intend to do 15 million shares at $5 or 6 million at $1 and no warrant. I have no idea of what his thoughts on the matter are. But with $12 million to play with, he can do some serious exploration.

Today a discovery such as FND in a mining friendly environment would be worth $2 billion. I’m not saying Ecuador is mining friendly yet but they are not as stupid as they used to be. With the incredible discoveries by juniors such as SolGold, someone in that country ought to be thinking of how they could become the leading mining country in the world. Peru and Chile are both having water issues. Take my word; there is lots of water in Ecuador. If they smarten up, mining could dramatically improve life for the citizens of Ecuador.

With 30 million shares outstanding an offer of $2 billion would be worth $66.66 a share. But let’s discount that by a giant 50% due to the Ecuador factor. That’s still $33.33 a share. If you invest $2 on a horse with 10-1 odds and can return $33, you need to belly up to the bar and toss your money down. It’s a good bet and a $2 stock with those odds and that payoff is a good deal at 10-1 odds and 16-1 payoff.

The biggest problem with picking up shares is going to be trying to convince existing shareholders to fork over shares. There is little liquidity. It will take a healthy bid to drag shares out of the hands of hands as strong as the present shareholders.

Aurania is not an advertiser. I have participated in the private placement in 2012 and have continued to buy shares in the open market. Do your own due diligence.

Aurania Resources
ARU-V $1.25 (Mar 3, 2017)
22.7 million shares

Aurania Resources website

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Bob Moriarty
President: 321gold
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321gold Ltd


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