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The Acorn Falls Close to the Tall Oak Tree

Bob Moriarty
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May 30, 2013

Almaden Minerals is one of those companies that everyone in Canada claims to be like and never will be. Duane Poliquin formed the company in 1986. He finds projects, advances them and turns them into mines that he then sells at a profit. Profit is one of those words that most junior mining executives get that “deer in a headlight look” when it comes up. They have heard the word but aren’t real sure how and when it is used.

Duane Poliquin got his degree in Geological Engineering in 1962. When I read that I knew that I was going to hate him. I was a sophomore in high school in 1962 with a face full of pimples. Now I’m over the hill and barely able to crawl up and down mountains in search of that elusive gold deposit. He’s still turning dirt into gold mines. I hate him.

Almaden follows a model called “prospect generating.” The company finds good projects, does some basic exploration work and JVs the projects out to juniors looking for a potential project. The juniors spend their money on the project. Almaden keeps enough of the project, they get to share when a mine is found and they hoard their own cash. By doing this Almaden has managed to stay in business for 27 years and has never had a roll back and still have a share structure under control at 60 million shares.

Some words in the mining industry are rarely used. Profit is one of them. Respect is another. Mentioning the word “profit” gathers you a quizzical look of wonder. Junior mining executives rarely hear the word “respect” because they can’t hear over the sound of their printing presses creating more and more shares.

I’ve wanted to visit Almaden for years. They are the one company in the business that people actually respect. They create mines and real value for their shareholders. They are the most respected junior mining company in the space. Because of Duane Poliquin. And his son.

Morgan Poliquin is Duane’s son. He popped out of the womb waving a rock hammer. Mining and exploration is in his blood. What do you do when your dad is one of the most experienced and talented guys in the mining business? You set out to be better, to prove you are just as good as your dad. And that’s a high bar.

Morgan got a degree in Geological Engineering from UBC in 1994. Ho, hum. They give dozens of those away every year. Then he went to the University of Auckland in New Zealand for a Master’s in Geology studying epithermal deposits. Ho, hum, they probably give a few of them away each year. Then he went to the Camborne School of Mines in Cornwall for a PhD in Geology specializing in the geology and mineral deposits of Eastern Mexico. Hmmm, that’s interesting. I haven’t met many people in the industry with that particular list of credentials.

Morgan joined his father at Almaden in 1996. He’s now President and CEO of Almaden. Duane is Chairman. Now one way of proving just how good you really are is to actually find a deposit or two. Morgan’s discoveries led to the deposit at Caballo Blanco sold to Goldgroup Mining in 2011. In 2008, many of their JV partners dropped projects due to money being tight. So Morgan made the decision to advance the Ixtaca gold project near Puebla Mexico.

Morgan had the advantage of growing up in a household where discussions of geology were as common as discussions of football or basketball or ice hockey are in most households. Naturally the subject of deposits of Eastern Mexico came up and was talked about at length. Morgan wanted to become an expert on Eastern Mexico because he believes there are dozens or more unfound major discoveries covered by volcanic ash or volcanic tuffs, as they are known.

Morgan picked up the Tuligtic project with the Ixtaca zone in 2001. After the GFC in 2008, Morgan made the decision to advance the project for Almaden. This is where it really gets nuts. Morgan spies an exposed rock formation in a gully showing quartz stockworks in two different orientations and to him it said, “Drill Me.” So they did and on hole number one hit 302 meters of 1.01-gram gold and 48 g/t silver.

I’m not sure that was a good thing for Morgan or a bad thing. Most geologists would be thrilled to drill one hole of 302 meters of mineralization in their career. That 302 meters is almost 1000 feet for the Americans reading this. It not only was a giant hole, it was the very first hole they drilled on the project.

I’m reminded of Captain Sully Sullenberger of US Airways Flight 1549 fame where he dead stick landed an Airbus A320 in the Hudson River in the dead of winter and nobody died. As a pilot I can tell you that if I made a landing like that once in my life, I’d turn in my wings. Every landing you make after that can only be worse than the one before.

As a geologist, Morgan has set the bar so high for him to jump over next time that he’s going to need a rocket ship to get to it.

In any case, Morgan did make a great call and the Tuligtic/Ixtaca project is growing wings. Almaden released a 43-101 resource on the project this last March. Depending on the cutoff grade, the project could be 2.3 million ounce gold equivalent at a 1 gram cutoff to 4.5 million ounce gold equivalent at a .25 g/t cutoff. That means the project is really leveraged to the price of gold. They spent about $3.50 per discovery ounce. That’s flipping cheap.

Almaden is doing a lot of things right that I would like to see other companies doing. They have their own drill rigs and crews and have figured out how to compensate them so they get the drilling and core recovery done without costing a fortune. And none of the village virgins has come up pregnant. That’s always a good sign when drillers are around. Almaden figures they can drill and assay for about $65 a meter. Most Canadian juniors are spending two to three times that for outside drilling companies and all of the village virgins are pregnant.

What Almaden does best is find solid projects and JV them out without giving away the keys to the candy store. In the case of the Tuligtic/Ixtaca project, they changed the model and thanks to the brilliance Morgan Poliquin, have hit a giant home run. The project is big enough to support a mine today and I am certain majors are sniffing around. In my view, they should spin out the project into a separate company to their shareholders. They have a stable of 39 other projects all over Mexico and Canada that they aren’t getting a dime’s worth of value for.

Morgan has proven he has the magic touch and he needs to be bringing another project in Mexico up to 4.5 million ounces if that’s what he does best. Anyone can do infill drilling and permitting. Only giants of mining can hit 302-meter holes. (By the way, the hole bottomed in mineralization. They don’t really know just how much mineralization the hole could have contained, they stopped in mineralization.)

I’ve visited a lot of projects and talked to a lot of people running junior resource companies. I was as impressed with the depth of management of Almaden Minerals as any company I have visited in a dozen years. I’m not going to say it’s going up faster and higher than any company I have seen but if you like sleeping at night knowing real professionals are looking out for your interests, I know of no better single stock for you to own than Almaden. They are going to do just fine no matter how silly the market gets.

The company is well cashed up with about $16 million in cash and another $10 million or so in real tangible assets. The market is giving them nothing for their spare 39 projects and maybe $20 a gold equivalent ounce. That’s pretty cheap.

Almaden is not an advertiser and I do not own shares. I am biased because I have seen just how good they really are. They come with my highest recommendation.

Almaden Minerals
AMM-T $1.67 (May 29, 2013)
AAU-Amex $1.62 60 million shares
Almaden Minerals website

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Bob Moriarty
President: 321gold
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