The 7-year itch
For once, the antics of O J Simpson have been overshadowed by the collapse of the American financial system. News commentators of all sizes and shapes have been covering financial news since the sudden crash of Lehman Brothers last week. Now, on the weekend we are told that it's all under control, a mere $700 billion dollars of taxpayer money will have it soon sorted.
It ain't over. Actually, it's barely started. The interesting bits are ahead. The fools who caused the problem tell us that all we need to do is hand them a blank check and they will have it working smoothly in nothing flat.
Let me see if I fully understand this. The Gang of Fools who created the problem think they should be in charge of solving it. Ho, ho, ho. The government has a better chance of building a winning football team for the U of Miami than they have of fixing our financial system.
Think of a train doing 100 MPH down a 60% slope. How do you stop it?
You don't, you just jump out of the way as fast as you can so you don't get creamed when the inevitable crash comes. It's coming soon, the problem ain't over.
I've tried to make it clear that I believe the only safe haven is in production and near term production gold and silver stories. I went to see another one this week, this time in Costa Rica. It's called Infinito Gold. (IG-V) It used to be named Vannessa Ventures.
I wrote about them 7 years ago in July of 2001. It was the first piece we posted by me on 321gold. They had 48 million shares outstanding and were selling for $.47. They now have 121 million shares outstanding and sell for $.45. I guess that's a sort of buy and hold.
Their primary focus then was Las Cristinas in Venezuela and that's been a witch's cauldron from the gitgo. Placer Dome had it for years and Crystallex tried to steal it for years. Vannessa got it from Placer and Crystallex did steal it from them and then the government stole it from Crystallex. I think the project is doomed. It has the misfortune to be located in a country run by an idiot and thief. I wouldn't touch a project located in Venezuela with a 10-foot pole.
But Infinito had a good back up project and it has finely come to fruition and hopefully soon into production.
The Crucitas story is simple. Placer Dome acquired the project in the 1980s as a result of a regional stream survey. At the time it was their 2nd most strategic gold project. They spent about $35 million dollars drilling 35,000 meters of core drilling. The price of gold went to $252 and they turned the project over to Lyon Lake Mines. Lyon Lake ran out of money in 2000 and sold 100% of the project to Infinito Gold.
Placer's drilling outlined a 2.45 million ounce resource split evenly between inferred and indicated. The gold is actually above surface; the starter pit is a hill that will be quarried. The strip ratio is about .6 to 1 over the life of the mine and is zero for the first few years of production.
Infinito released a feasibility study in July of 2008 showing cash cost of $342 per ounce of gold with a capital cost of $66.2 million and an internal rate of return of 35% at a gold price of $750. They believe it will take 12-18 months to finish project construction after financing is in place.
Vannessa actually wanted to get this mine into production back in 2002 but were prevented by an act of the President of Costa Rica to stop open pit mining in the country. It took years of legal wrangling but Infinito won their case and Costa Rica now uses them as a poster child as to how to plan an open pit mine in the country. Environmental approval was received in February of 2008.
Infinito owns the project 100% subject to a 2% NSR to Placer Dome, a 1% NSR to the original prospector who found the project and a 2% NSR in the form of a government tax. That 2% actually goes to the province so the province officials are eager to see the project in production. During the 6 non-productive years while Infinito tried to get the ban on open pit mining changed, they took the opportunity to build a local school and to cement strong community relations. My opinion is hardly objective but I've been to a lot of foreign projects and Infinito seems to have done it right. They have strong community support.
Crucitas is right on the border with Nicaragua and as a result, the local area is part of the 2% of Costa Rica without electrical power. The cost of diesel gensets would be absurd so part of the $66 million in construction is to put in a 75 KM line to the mine. Part of the agreement with the power company provided for Infinito to also put a cable wire (as in cable tv/internet) along with the power lines. Infinito agreed but demanded and got an agreement that all of the schools and police stations along the 75 KM get free Internet access. It's very much a win-win situation.
Times are tough and for the last 6 months, money has been almost impossible to raise for juniors. Our financial system is on the verge of total failure. Part of the cure is going to be a revaluation of the merits of gold and silver mines. I think the $66 million in debt financing will be a slam-dunk and I believe in about 15-18 months I'm going to be invited to an Infinito gold pour in Costa Rica.
This is a simple story and a simple investment decision. The company has 121 million shares and a price of $.45 giving a market cap of $55 million. With 2.45 million ounces of gold, that gives a price per ounce of about $22. That's absurd. This is a production story. They have released a feasibility study. The price should be in the $80-$100 range per ounce. It's cheap at this price and it won't be long before the market wakes up to the very real appeal of gold and producing gold companies.
I'm as biased as I can be. The dollar is on the verge of total collapse as the result of a 75-year experiment with a financial system based on credit and spending. The solution - the only solution - is going to be a gold and silver based financial system. Infinito is going to be an advertiser. We don't own any shares but I'm going to look very closely at buying some shortly. You are responsible for your own due diligence.