Jun 10, 2011
Back in the 1950s an Air Force fighter pilot named John Boyd came up with a theory that changed how the military viewed aircraft performance. Basically he believed that all aircraft performance should be viewed in terms of energy. That is airspeed, altitude, turning radius, thrust were all just different functions of energy. And if you compared the energy of one aircraft at any given altitude and airspeed against another, you could figure out who should be the winner in air-to-air combat.
As an F-4B pilot, it was something vital for me to know. Some Russian designed aircraft functioned poorly in a left turn, the pilot couldn’t see. Most Russian aircraft outperformed US aircraft below 450 knots and below 15,000 feet. So you wanted to keep your airspeed up and be at a high altitude.
You may be thinking that Moriarty has lost his mind, fighter performance has nothing to do with figuring out what mining stocks to invest in but you would be wrong.
Airspeed and altitude are nothing but variations of energy. Likewise, projects and people are nothing but variations of financial energy. We are all familiar with the concept that where a project is located is important and what the metal is, is important and most of all, the quality of the people involved in a project is most important. But I’ve never heard anyone discuss the value of teamwork.
I have to agree that the quality of the people involved in a mining deal is the most important factor. When all else is the same (which of course it never is) the company with the highest quality people will be more successful.
But none of the writers I am familiar with has ever discussed the value of teamwork. I can make one observation I’ve made after visiting hundreds of projects. All of the one-man-bands fail and the projects with smooth running teams where everyone contributes succeed. You not only have to have good management, you need good teamwork.
While most Americans were burning hot dogs and fighting off mosquitos and ants this last Memorial Day, I was wandering the hills of Idaho beating on rocks. I flew to Boise to visit with the team of Terraco Gold. (TEN-V)
Terraco Gold has an advanced stage project they call the Almaden Project located in Idaho near the Oregon border. Almaden has a 43-101 resource of about 950,000 ounces of gold based on almost 200,000 feet of shallow drilling. The gold is near surface and suitable for an open pit and probably heap leaching.
With a stock price of $.34 and only 112 million shares outstanding, Terraco is only getting $40 an ounce for gold. That’s pretty cheap; most companies at this stage would be getting $60 to $100 an ounce.
A large issue in the share price is a big overhang. They issued 45 million shares to do the deal on Almaden and those have come free trading. The stock was $.50 in January with much lower gold prices but investors in the other company have been dumping shares and have driven the share price down 30%. That’s not a bad deal, that’s a good deal for new investors. I think you can buy shares on sale.
The gold is lower grade, mostly .75 g/t to 1.4 g/t but there is some 1.4-gram plus material near surface that would work as a higher-grade starter pit.
I talked earlier about teamwork. On this tour led by TEN President and CEO Todd Hilditch we also had Charles Sulfrian VP Exploration and the world-famous Dr Ken Snyder who serves as a consulting geologist.
Charles Sulfrian and Ken Snyder are two of the most famous mine finders in Nevada. Ken Snyder, of course, discovered and lent his name to what is now named the Midas mine owned by Newmont. Charles Sulfrian worked for Barrick at GoldStrike for years and participated in two major discoveries there.
Todd Hilditch’s background is in resource company management. He was President and CEO of Salares Lithium before it merged with Talison Lithium.
I have visited a number of companies where top management was terrified of hiring people smarter than they were. In almost all cases, they had problems because when you are afraid of hiring people smarter than you, it’s pretty hard to find people dumber than you. Todd makes no bones about wanting to hire people smarter than he is. As a result, Terraco Gold has a bunch of very bright people at the top and Todd listens to them. I will say the teamwork and quality of general management and technical management is about as good as I have seen in a long time. These are some very bright guys.
Having almost a million ounces of gold valued at only $40 an ounce tends to put support under your share price. But Charles and Ken agree the real potential at Almaden is in finding the bonanza grade mineralization that should be deeper in the feeder zone to the system. Almaden has begun a two-drill rig core program of 6,000-8,000 meters. Look for results in 2-3 months. The potential is giant, they are in elephant country.
Before Terraco took over the Almaden project in a merger completed early this year their prime target was the Moonlight Project just north of Midway Gold’s Spring Valley project in Nevada. Spring Valley has a 43-101 resource of 4.1 million ounces already and it’s right next-door. Before TEN took over the Almaden project, they had a market cap of about $16-18 million. Post merger the value was only $39 million and valuing the near million ounces of gold at $40 an ounce means the Moonlight project, once valued at $18 million is not given any value.
Basically that means Moonlight is a free ride on a cheap gold lottery ticket. Moonlight is on the northern extension of the Black Ridge fault that controls the mineralization for the Relief Canyon Mine, the Nevada Packard Mine, the Rochester Mine and the Midway deposit. All those nearby mines means high probability of finding something nice at Moonlight. Drilling begins this summer.
Terraco is a cheap gold lottery ticket with great management and wonderful teamwork. They have the truth machine (drills) running at their primary target and will have more truth machines (drills) running in Nevada this summer. While I have great concern for the general market, gold and silver, there is a basement of sorts for TEN. The odds of hitting a nice big resource are good for ether project and great for both projects.
Terraco is an advertiser. We like the company and the management. As with any investment you make, you don’t share your profits with us so you have to be responsible for your own decisions. I found the company very easy to deal with and I know they would be happy to respond to any questions. I expect the shares to be higher down the road and they are on sale now.
TEN-V $.35 (Jun 09, 2011)
112.7 million shares