Home   Links   Contact   Editorials

Location, Location, Location

Bob Moriarty
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 projects.

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 crash warning.

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 and Palmarejo.

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 years.

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 sulfates.

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 trend.

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 in.

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 stock.

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
Palmarejo website

Bob Moriarty
President: 321gold

321gold Ltd