Location, Location, Location
Apr 23, 2007
According to real estate
agents, there are three primary factors, which contribute to
the price of any piece of real estate. They are (1) Location,
(2) Location and finally (3) Location. Mining is much the same.
My favorite location for mining is probably Mexico, they are
the best miners in the world and the country is home to dozens
of world-class mines and potentially hundreds of world-class
In February I went down to the Sierra Madres in Mexico to visit
the projects of a company which defines itself as a
location specialist, and I think you will agree.
My very favorite
chart in the world is once again back in a wonderful buy
point with minimum risk and maximum gain. It's the 2nd best time
to be buying gold and gold shares in the last three years. But
there is a monster overhanging the market: the Dow and S&P
look as if they are in a crash mode.
If you remember all the way back to March of 2001, the S&P
went up some 19 days in a row. I'd love to meet the fool who
was buying on that 19th day. What did he think was going to happen?
That it was going to go up 38 days in a row and he had lots of
time to bail out? It's the greater fool theory in action: it's
finally safe for me to enter a position, it's gone up 19 days
in a row.
And I don't track either the Dow or the S&P closely but it
seems to me they have been up about 14 out of the last 15 days
and that's a sign of a top, not a bottom. It's normal for a market
to retest both highs and lows about 6 weeks after a major move.
That would make about now a good test of the February 26 crash.
So wear your helmet for the next week or so. As February 26th
proved, when the general market crashes, it takes gold and the
metals shares with it as investors dump everything in order to
meet margin calls. And by the way, margin debt hit a new record
recently, about 10% above March of 2001. This is your official
But there is opportunity in overlooked stocks and this piece
is about another winner I had a chance to visit recently. Garibaldi
Resources (GGI-V) is using an entirely new technique for
locating big gold deposits. And I think it's going to work.
We are in a bull market and
in any bull market, there are a thousand good ways to succeed
and various companies will use different techniques. One of my
favorites is the full speed ahead approach used by companies
such as NovaGold
Another is that of acquiring properties for pennies on the dollar
during slack times such as was used so successfully by Silver
Standard Resources. NovaGold is up about 20000% over five
years while SSRI is up a mere 1900%. And PJO went from nothing
in three years to mining a 3.1 million ounce gold deposit in
the Sierra Madres defined for a tiny $2 an ounce.
Palmarejo was formed in the summer of 2003 to explore a deposit
near the tiny city of Palmarejo in Chihuahua State in the Sierra
Madres Mountains of Mexico. They started a drill program in November
of 2003. In one short year, they defined a resource of 1.176
million ounces of gold and 128 million ounces of silver.
PJO expects to commence open pit development by mid-summer of
2007 and production is expected by 4th quarter of 2007 or 1st
quarter of 2008. The stock market has responded by giving PJO
shareholders a 400% return in two years.
Mining began in the hinterlands of the Sierra Madres about 1800.
It's some of the roughest terrain in Mexico. Mining pretty much
stopped around 1910 with the advent of the Mexican revolution
and exploration and development only restarted in the past few
There are a number of world-class projects and mines either in
development or just having started production in the Sierra Madres.
But let me explain why first.
A couple of years back, I spent a few days driving around Mexico
with Dr Peter Megaw who is "Mister Mining" in Mexico
and on the Advisory Board of Garibaldi. Peter is associated with
many mineral finds in Mexico and works with Mag Silver, Excellon
and many other mining companies focused on Mexico. A day or so
listening to Peter speak is the equalivent of a Master's Degree.
Here's how he explained it to me. Millions of years ago, what
is now Mexico was first squeezed like an accordion and then released.
It's easy to see from the air in many areas of Mexico with clear-cut
structures running NW-SE.
In these NW running structures, the rock was first compressed
and crushed. When the plates moved apart, it created long and
deep fractures in the rock. When hot, mineral-bearing fluids
came up from deeper in the crust, the fractures were perfect
hosts for the mineralization to settle as the temperature and
pressure dropped. That's basically all any epithermal system
is, hot fluids depositing minerals in suitable host rock.
So basically the entire area has the potential for finding gold-rich
and silver-rich systems. As the Spanish moved into the area,
they did their primary exploration with the Mark 1, eyeball.
Once they found a rich deposit, they looked around to find other
areas that looked the same.
Today Garibaldi is doing exactly the same thing but with far
more advanced technology-using satellites and advanced imagery
software. Technically it's called ASTER imaging for Advanced
Spaceborne Thermal Emission and Reflection Radiometer. Sorta
makes you wonder if any of the Government Wonks who come up with
names like that actually speak English as a native language.
ASTER Imaging consists of three different subsystems, Visible
and Near Infrared (VNIR). Shortwave Infrared (SWIR) and Thermal
Infrared (TIR). ASTER is used to obtain detailed maps showing
a wide range of individual minerals associated with hydrothermal
(hot-water) alteration including clays, silica, iron oxide and
Here's how GGI uses the information. Company President Steve
Regoci bought the imagery covering the Glamis Gold 2 million-ounce
El Sauzal deposit. The ASTER imagery clearly showed the alteration
halo surrounding the deposit. Steve and his people located a
cluster of similar targets along the NW-SE trending structure
some 25 km to the SE. They optioned 36,000 hectares and called
it the Morelos Project.
Follow-up ground exploration verified alteration identical to
that of El Sauzal. The company has honed in on five major areas
of mineralization and is in the process of doing ground mapping
and trenching in anticipation of drilling later this year.
Likewise, their Iris Project was optioned after conducting an
ASTER imaging project of Gammon Lake's 7.5 million ounce gold-equivalent
Ocampo Gold-Silver project just put into production in 2006.
The system showed a highly gold-prospective hydrothermal silicification
similar to that of Ocampo just to the northwest of Ocampo, on
So GGI optioned 5600 hectares and now call it the Iris property.
The Iris project adjoins Ocampo and is very close to Agnico-Eagle's
Pinos Altos gold/silver deposit containing 2.1 million ounces
of gold and 51 million ounces of silver.
And when Garibaldi conducted an imagery project over Palmarejo's
gold mine, much to their very great surprise, they found identical
mineralization on the ground surrounding Palmarejo's property
and GGI optioned 54,000
hectares and called it their Temoris Project.
Relative to Garibaldi's peers, the company appears quite undervalued.
With a $20 million dollar market cap but a whole herd of highly
potential targets in elephant country in the Sierra Madres, I
have no problem saying the company has the same potential, as
did Palmarejo three years ago. Steve Regoci has assembled and
talented and forward looking technical team who appear to have
found a way to take a short cut through the long and antagonizing
early exploration stage.
I visited Mexico in February and we over flew several of the
properties, I haven't listed all of them because there are simply
too many to cover. But we landed and tested rocks that had been
mined by the Spanish in the 19th Century and they were loaded
with gold and silver. The satellite imagery shows the mineralization
halo the best but the Mark 1 eyeball still works and I could
see that Garibaldi's properties looked just as good from the
air as the properties already in production by other companies.
There is more than just one path to success and everything I
saw at GGI I liked. Peter Megaw is a magician and it's just plain
fun listening and learning from him. Garibaldi's concept is simple
and brilliant and I think at the end of the day, they will have
several multi-million ounce deposits on their hands.
But in early stage exploration, news is sparse and it takes the
market a long time to accept new technology. I think Garibaldi
is a stock that should be slowly accumulated. It's not going
to double in the next month but over the next year or so, it
could easily be a 10-bagger. It has the depth of management and
technical expertise that I like to see in the companies I invest
I have participated in a Private Placement (above market by the
way, that's how I feel about them) and I have bought shares in
the open market. They are advertisers and I am biased. You, and
only you, profit from your investments (and of course King George
II) so you need to do your own due diligence before buying any
I don't own any Palmarejo and I've been kicking myself in the
butt for the last two years for not having bought any when the
company was at the stage Garibaldi is today. Developing ounces
in the ground for $2 is plumb amazing. I'd love to see GGI do
the same. I own them.
Garibaldi Resources Corp
GGI-V $.66 Canadian (Apr 20, 2007)
34.9 million shares
Garibaldi Resources website
Palmarejo Silver and Gold Corp
PJO-V $9.05 Canadian
(Apr 20, 2007)
90.9 million shares