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Pancho Villa rides again

Bob Moriarty
Mar 19, 2009

The most important financial meeting in history is scheduled for April 2, 2009 in London when the G20 (and a few) get together for a summit. This is more important than the 1944 Bretton Woods meeting in New Hampshire between 44 of the world's free nations that set up the post war financial system that worked for 25 years.

I hear a lot of mumbling on the web about a "New World Order" but that's one of those terms such as manipulation that everyone uses in different ways. Lots of people somehow believe that governments can get more power than they now have. I don't think so, I think the days of big government and the attached big spending are through. Governments aren't nearly as powerful or as important as they think.

I mean, in the United States we had a dictatorship in all but name under Bush with the Vice President's office taking charge of the illegal assassination squads. I find it interesting as well as hypocritical that a jerk that wasn't even in the military chain of command whose service in uniform consisted of a record of 6 student deferments ("I had better things to do") thinks he has the background to order our highly trained special forces to murder people. He wasn't the most qualified guy in government, he was the least. We had laws against the use of assassinations and they were ignored along with the rest of the Constitution.

Big government is through. The US is probably through. Depending on the outcome of the G20 meeting, we may be a related group of fiefdoms in a year or so. I've long predicted the US dollar will default soon.

There seem to be two clear choices. We form a new rational international monetary system that involves all the main global players or we allow the United States to continue the dollar standard until we go into hyperinflation.

Face it; the financial system is a train going down a 60-degree slope at 90 miles an hour and the throttle is stuck open. We are going to crash. The only issue is how much damage is done and what we do to recover.

How many people other than Jim Sinclair and me do you hear talking about the $683 trillion derivatives market? It's a giant casino where no one knows who owns what or who owes what. Until it's down below $50 trillion and falling we can't even begin to heal. No one with any cents is going to invest in anything until we kill the derivatives dragon.

Banks and hedge funds are still making Credit Default Swap deals just as if they haven't learned anything from the last 21 months of chaos. Our representatives have just figured out that AIG stealing $165 million in bonuses is fraud, even after ignoring Merrill Lynch executives stealing 20 times as much without a murmer.

It will be interesting to see how the Propaganda Media present the April 2 meeting. It is the Gunfight at the OK Corral and what happens or doesn't happen will determine if the economy recovers or we go through a decade of disaster.

Pancho Villa rides again but this time he's running the banking system and owns a hedge fund.

You can still buy an insurance policy.

Castle Gold Corp.

In my 8 days in Mexico recently, I visited three companies. Two I was familiar with from before. One was a new company even if I did know management.

Beauty is in the eye of the beholder. I happen to like management more than anything else. I've seen good management make silk purses out of sow's ears and I've seen bad management screw up a wet dream.

I like management that does what it says it will do and bites off pieces easy to digest. Far too many juniors actually believe they are going to be the Next Big Thing with 40 acres of moose pasture and a printing press for share certs.

My idea of the Next Big Thing is management that matches their skill set with money and a real project. Given that paper money is about to evaporate, the single best commodity to invest in has to be gold.

When I wrote about Pediment recently, I talked about a fellow with a lot of experience in Mexico in getting projects into production named Chris Babcock. As it turns out, Chris was President of Castle Gold and was the person responsible for getting it into production. While all companies are a product of all of management, he deserves kudos for doing an excellent job while at Castle Gold. It's a clean and lean project and that reflects well on both current and slightly past management. I would have a lot of confidence in Babcock's experience in getting a project into production.

Castle Gold's flagship property is the El Castillo project an hour and a half north of Durango, Mexico. It's a mere 20 minutes from San Juan del Rio, birthplace of Pancho Villa.

It's not a giant project. With a cutoff grade of .15 gram, the deposit shows an average grade of .39 grams of gold per ton and 1.17 million ounces total. There is good potential for increasing the number of ounces but no one should confuse this with Round Mountain or the Carlin Trend.

Castle Gold is in production today using contract mining and working hard to lower costs. It's an open pit heap leach mine with cash costs of about $370 per ounce. The company is highly leveraged to the price of gold. That's a good thing, the higher their costs, the greater the increase in profits as the price of gold goes up.

The company is using ultra conservative figures but wants to increase production in the 2nd half of 2009 to between 50,000-60,000 ounces from the present 30,000 ounces of gold.

It doesn't make any sense in mining to be a one trick pony. All mining companies have 2nd tier projects to work on as the primary project goes into production. Many companies collect projects like beanie babies with far more property under their control than they can ever advance. Castle Gold was an interesting alternative. They have two secondary projects and each of them has a lot of appeal.

Castle has a little tiny mine and mill in Guatemala named the El Sastre project. It's held as a 50-50 joint venture with two local businessmen in Guatemala. The plant was constructed in 2006 at a capital cost of about $2 million with an M&I resource of only 49,000 ounces of gold. There is an additional 102,000 ounces of interfered resource.

To date, the mine has produced about 40,000 ounces of gold from the main zone. Production costs are less than $200 an ounce. Castle and their partners expect to have mined out the main zone by the end of 2009 after having taken out a total of about 60,000 to 65,000 ounces.

At $800 gold, Castle expects to make $5 million in free cash flow from the mine in 2009. It may be a small mine but it's a cash cow.

The property is 271 hectares. The project does have other areas of known mineralization.

50-50 deals are bad deals. No one has the ability to make a decision and all decisions are compromises. It's better to have a clear 49% and know who is responsible than to have a 50-50 deal. Castle has realized it's a bad deal and is negotiating with their partners to change the arrangement. In my view, they should try to convert their partners to a suitable NSR. With the numbers they know from present production and costs, it's easy enough to figure out what a fair NSW would be. That way Castle could feel free to invest more money, knowing their upside is unlimited.

And Castle Gold has a really excellent project called La Fortuna with over 320,000 ounces of gold in an inferred resource. The project is located in Sinaloa State about 100 km from Culiacan. The area was mined as early as 1884 from oxidized gold outcrops. Some of the outcrops grade up to 20-g/t gold. The project was abandoned in 1996 as a result of falling gold prices.

With all gold projects, you need great grade or great tonnage or some combination of both. La Fortuna has over 20 prior areas that had been mined between 1884 and 1996. It's a big project with giant upside potential.

In short, Castle Gold is in the sweet spot. They are in production in two mines, each has expansion and profit increase potential at a steady price of gold but an increasing price of gold makes it even better. Management is excellent, both past and present. They have a core production project with two more in the wings.

Castle Gold is an advertiser and we are biased. Castle hit a low of $.15 during the carnage of October and has since gained over 200%. It's not cheap now like it was cheap then but with a market cap of under $40 million it can be compared to neighbor Capital Gold recently plucked at $150 million by Gammon Gold. Please take some responsibility for your own due diligence.

Castle Gold Corporation
CSG-V $.53 (Mar 17)
75.3 million shares
Castle Gold website

Bob Moriarty
President: 321gold

321gold Ltd