A Golden Lottery Ticket
The last three years have been tough on investors in Canadian juniors. A glance at the chart of the XAU over gold shows that prices for shares plummeted in October of 2008 and have never recovered to even what the average ratio used to be. With both gold and silver near record highs, the shares have languished with the exception of from last August until December.
Part of the reason is the proliferation of ETFs. It is now possible to go long or short either gold or silver via an ETF and that has taken a lot of money off the table. Part of the reason is also that there are simply too many juniors. They are sprouting up like mushrooms in a pile of manure. It is more difficult all the time to find good alternatives. I’ll do my best to try to steer my readers onto good deals.
At some magical point in the next 5 to 10 years, Colombia is going to become, once again, the largest gold producer in the world. For most of the time from 1550 to 1850 they were the largest gold producer until discovery of the Witwatersrand in South Africa.
A large part of the credit will belong to two people. The first, Bob Allen, owner and Chairman of The Bullet Group, spent 30 years putting together the largest land position in Colombia. Many of those properties have been spun off or entered into JVs with Canadian Junior mining companies.
The second is the famous mining writer from San Francisco, Thom Calandra. Thom was willing to risk traveling to Colombia when no other letter writers would touch it with a ten-foot pole. He said the country was perfectly safe with few exceptions and had a lot of gold. He was right on both counts.
I just got back from a two-week trip to Colombia where I saw some giant gold projects. My first tour was to the Titiribi project 100% owned by Sunward Resources. (SWD-V) Titiribi doesn’t exactly roll off your tongue so those in the know call it TTB.
Sunward purchased the project a year ago in an all shares deal. They own 100% of the project. It’s gold rich porphyry with some copper credits. So far they have a 3.7 million ounces gold 43-101 resource but there will be a new resource out soon and I expect it to be a barnburner. With over $66 million in cash, buying Sunward today means you are paying a tiny $38 an ounce for gold in the ground. At the stage they are today, that’s 40% of what they should be selling for.
A couple of months back my niece wrote me to ask if I was traveling to a Spanish speaking country for a tour. She had a week’s vacation and wanted to tag along. As luck would have it, I had just had a meeting with Phil O’Neill at the Miami Airport talking about Sunward’s project. Since I have a couple of other companies in Colombia who wanted to have me come down, I set it up.
My lovely [fluent Spanish-speaking] niece doesn’t understand just how lucky she was. We spent two days at TTB getting briefed by Dr Amit Tripathi, VP of Exploration for Sunward and his staff.
I’ve been to a lot of mining companies that are run by what I call “One Man Bands.” There will be one person making all the decisions and everything has to revolve around them. It is like watching a movie where there is one famous star and lots of no-talent extras trying to fill the gaps. I hate those sorts of movies and I hate those sorts of mining companies, they never work.
Sunward has the most balanced and talented group of people in a junior mining company I have ever visited. Everyone knew their job and everyone was doing their job. I was very impressed
The project itself was wonderful. It’s an easy drive from Medellin on paved roads. The company has rented a couple of houses for their staff that would be the sort you want to stay in for a vacation. As of right now, they have five drills turning and have identified 7 distinct targets. The 3.7 million ounce resource is from one target only.
At present they have a 230 million ton resource of about .5 g/t with about .2% copper. Based on what shows up in the IP results, I wouldn’t have any problem saying they have billion-ton potential. At .5 g/t, that would be $5.5 billion dollars of gold in the ground if you ignore the copper.
Some of their drill results are nothing short of incredible. Hole CV-19 had 756 meters of .47-g/t gold and .19% copper. That’s $41 rock. Hole CV-27 had .58-g/t au and .20% copper. That’s $48 rock.
The key to operating a bulk tonnage mine is to have an open pit and be able to heap leach your ore. Neither is going to be possible with TTB. There is always the issue of a mine being unsightly and Colombians don’t want a giant open pit in their back yards any more than you or I do.
Sunward hasn’t done a good job of communicating what they have and this is where you literally have to see a deposit to understand it. I had talked to some friends of mine in the mining business and asked them what they thought of the deposit. While Sunward has a big 2-g/t-starter pit zone, it’s 300 meters deep. My first thought was, that’s going to take a long time to dig that deep. But Sunward never showed pictures of the deposit.
The deposit is literally a steep mountain. While it’s true the 2-gram material is 300 meters deep, it’s only 50 meters from the surface. It’s entirely possible to drive in a horizontal adit from lower down the mountain and mine the material from below. There is a method of underground mining called Block Caving. It’s underground but lets gravity work for you. You mine from underneath.
Sunward is still a young company with lots to learn. They have done a wonderful job of attracting institutions. John Paulson is an investor through Paulson & Co. Tocqueville Asset Management is a big investor as is Electrum Group. They are very strong with institutions, which is a giant plus and are only now starting to publicize what they have to the retail investors.
The management team is savvy enough to understand that you have to be a good neighbor. They have an in house team just for community relations and have opened an office it the town of TTB so locals will be comfortable with the company. I’d like to see them add some senior management from Colombia. There are subtle nuances in every culture that demands local experience.
So far Sunward has done a lot of things right. They have a wonderful team in management; they are really well cashed up and are drilling to beat the band. Their plan calls for a revised 43-101 to be released in this quarter. I’d expect a couple of million more ounces.
In my view, this is going to be a mine. I think they need to start picking up the surface rights now. If they come up with a 10-15 million ounce resource, if they don’t grab the land now, they are going to make a lot of local landowners rich.
Sunward is the best lottery ticket on gold that I know of. The resource could easily grow by hundreds of percent. It’s low grade, true, but that means you get the benefit of giant leverage. It probably wouldn’t be economic at $700 gold but is wildly economic at $1500 gold. Management is first class across the board. There will be a new and bigger resource soon and there will be a constant flow of information from the project.
Sunward is an advertiser. I was not smart enough to buy it when it was cheap. It’s still among the lowest priced companies for gold that I know of with $38 an ounce gold. I’m hoping they can come up with a price for adding ounces, we talked about it when I was there. We were guessing it would cost maybe $2 an ounce to add ounces. If you can add ounces for $2 and can get $38 an ounce in the marketplace, you have your hands on one hell of a deal.
As always, you are solely responsible for your own investment decisions. The company has an excellent IR function and they are easy to talk to. Please do your own due diligence before making any investment decision.