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Vangold, old company, new opportunity

Bob Moriarty
September 4, 2003

When you run a financial website, you are constantly searching for the next big thing. Anyone who writes about the small gold stocks wants to be the first person to discover the next NovaGold or Sterling Mining. A few weeks ago, someone with the same last name contacted me as a result of a mix up on the part of Walt Raby. Walt is also a financial writer who has discovered more than his fair share of new and exciting mining companies.

Robin Moriarty, who does the IR work for a new-old junior, got in touch and said Walt told him to contact me. Robin asked me to look over his projects. I get five of these a day. And naturally IR guys are paid to convince people that moose pasture is really a great place to drill for gold. Most of the email I get on these "good deals" goes straight in the trash. But since we shared a last name, I figured I should at least read it over.

I'm neurotic. I suppose, as we get older, we all get a little goofy. Some of us start out goofy and merely get goofier. But since I've started several small businesses, I have my priority list of what I want to see in a soon-to-be-successful junior. First of all, I want management and that's the hardest thing in the world to judge. I think if you could spend five minutes talking to Warren Buffet, he would tell you that that's what makes him successful. It's an art and I don't know how I could teach it. And it isn't taught in books.

You can't figure out much about management from a website. You can get some feel for where they are coming from and where they are headed but you can't get into their heads. But I did see something I really liked. But first, let me digress for a few lines.

When all is said and done, Bre-X may well turn out to be a good thing for the mining industry. The least it accomplished was to clean out the industry. The smartest guy I know in the mining business is Frank Giustra of Endeavour Mining Capital and he jumped ship entirely and went off to found a motion picture studio. I suppose about the second smartest thing you could have done with a mining company is to go into hibernation.

That's the approach taken by what was then Pacific Vangold, and after a name change, Paccom, and as of last Friday, Vangold Resources Ltd. (VAN-V)

Vangold went into hibernation essentially for four years and only began to come out two years ago. Overnight success in the gold business inevitably takes years. President and CEO Dal Brynelsen has spent the last couple of years preparing Vangold for the upturn in the mining cycle. And he's done a hell of a job.

Back on track, let's talk about what I really like to see in a small mining company. My first requirement is management. Good management will find good projects and make money with them. Bad management can destroy good projects. Management is the hardest thing for a new investor to measure but the most critical element.

But the element that brings tears of joy to my eyes is cash flow. Face it, 80% of small mining companies mine investors, not gold or silver. And it's the hardest thing for many of them to convert from a mindset where cash was something to be spent to a mindset where cash is something to be earned (and hopefully to be returned to the original investors).

For the last 5,000 years of recorded history, promoters have used gold mines to shuck unsuspecting investors. Mark Twain made his bones writing for a newspaper in Virginia City during the booming days of the Comstock Lode. Again and again he sunk his cash into a new promising venture only to find they took his money and threw it down a shaft. Literally, he wrote only to make some money to invest in another deal, "too good to be true." But at the end of the day, miners had better figure out how to take better care of their investors. Mining is a capital-intensive business and investors are the lifeblood of the industry.

So I was surprised, no, make that shocked, to find that Vangold actually had invested money in a gas venture in California that actually generated a cash flow. Actually, they did better than generate cash flow; they own a piece of 10 wells after their drill program drilled 10 producing wells in a row. That's unheard of, even in a developed field. And this wasn't. But they were using a proprietary 3-d program that seems to work. It told them where to drill, they did and they struck natural gas (good timing, guys) and now have a cash flow of about $50,000 a month. (All figures are Canadian).

That has a value and in my eyes, cash flow of that nature is probably worth a market cap of about $10 million. Keep that figure in mind because when I came across the company, they had a market cap of about $2.5 million. They are undervalued and the primary problem I had was understanding just how undervalued they were.

After I got over the shock of finding a junior with positive cash flow and profit, I began to go through their portfolio and it's easy to see how Vangold could end up with two or three major projects. The one I really like is the Feni project in Papua New Guinea. It's a blue sky project with a lot of work already done on it and home run potential. The island of Feni is SE of the World Class Lihr mine with 42 million ounces of resources and on the same trend.

Prior work at Feni shows all the precursors of a major gold project with drill results of up to 188 meters of 1.2 g/t. But the most exciting prospect is a totally untested major IP anomaly, which wasn't even discovered until after the last drill program was finished. Naturally it will be the first target of Vangold's next drill program. More information can be found here.

But Vangold isn't a one trick pony or even a two trick pony. They compare the Feni project to Lihir since they share so many similarities. If they can develop a major gold find at Feni, it has world class potential which would rocket the stock 10 times higher or more.

At Rossland, Vangold is returning to their roots. They maintained a claim position even during the dark years. They should. Dal Brynelsen's uncle was one of the most famous mining men of the 20th century in Canada and did much to develop the Rossland District.

Vangold holds a dominant land position within the Rossland Camp of about 1,480 hectares and just added an additional 20 mineral claims as the result of a recent sealed bid auction conducted by the Ministry of Energy and Mines.

The credit for discovering Vangold should rightly belong to David and Eric Coffin of the wonderful Hard Rock Analyst. I'm in the process of getting permission to repost his piece which goes into far more detail on Vangold. As soon as I have it, I will post it.

I like this company and I like their approach. They have generated a regular source of cash which will put them in a far stronger position when negotiating funding in the future. Feni has "out of the park potential" and they have incredible targets to drill. Rossland is more average but the best place to find gold is under the shadow of a headframe and Vangold knows the region.

The biggest danger in buying the stock will be trying to chase it. The stock has moved from the $.20 area to $.70 in three weeks. Don't chase it and don't put in market orders to buy. I see a market setback in gold stocks soon and anything with the home run potential of Vangold will be on my buying list.

Vangold is soon to be an advertiser, we own shares and have participated in a private placement. I bought shares because I like the company so obviously I'm biased. I like home runs and Vangold has homerun potential.

This is neither a buy nor sell recommendation. (That's a stupid thing to say but we have to say it).

Bob Moriarty
President: 321gold

321gold Inc

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