Charters Towers
Gold Mining
Buying "World"
Gold Stocks
Bob Moriarty
October 14, 2002
 I don't think I
have recently read anything about the effects of currency changes
on the value of a stock so maybe it's time I threw in my two
cents. The issue arose when a new advertiser, Charters Towers
Gold, from Downunder, contacted us and we began posting a banner
for them.
There are hundreds and hundreds
of gold mining companies around the world. No one can keep track
of all of them or intelligently follow them. So when we seem
to write a lot about companies who advertise on our site, it's
not a payoff on our part, it's far more due to the fact we look
into each company who advertises with us and many times we find
things which just haven't been well covered elsewhere. I personally
believe diversification in gold stocks is mandatory so we keep
between 25-30 gold stocks in various accounts of ours at any
given time.
Barb looked closely at the Australian stock
Charters Towers Gold Mining and liked it enough to want to buy
some shares. (That's largely because, for reasons we won't go
into now, Barb would far rather buy 50,000 4¢ stocks than
500 $4.00 stocks). What
we went through made us realize we needed to show you how a North
American investor can invest in foreign shares and what the pitfalls
might be.
It's all too easy to forget
that when you buy a foreign stock, you must buy two things. First
and foremost, since the stock is quoted in the foreign currency,
you have to 'buy' the currency as you buy the stock. This presents
both risk and opportunity not present with U.S. traded stocks.
There is the risk of the stock going down and the currency going
down. Alternatively there is the opportunity that the stock will
go up, and the currency will also go up.
Charters Towers Gold Mining (ASX code CTO) is our first Australian gold
advertiser. Unlike all of our Canadian advertisers, there is
no OTCBB (Over The Counter Bulletin Board) listing for Charters
Towers Gold. If you want to buy some, you have to buy the real
thing, the Australian-listed shares.
Located in north Queensland,
Charters Towers -- one of the largest goldfields in Australia
-- produced over 6.6 million ounces of gold between its discovery
in 1872 and 1917, averaging just over one ounce per ton of gold
(34 g/t). (A century ago Charters Towers was Queensland's second
largest township and known to everybody as "The World.")
Charters Towers Gold believe
they have a gold resource POTENTIAL of 15 million ounces and
have come up with a mining plan to produce 250, 000 ounces per
year at a cash cost of US $115.
I want to explain gold resource
POTENTIAL in the words of Charters Towers Gold because it's where
the sticking point would be.
"Resource Potential
is CTGM's estimate of the contained ounces of gold which it believes,
on the basis of a technical evaluation of available data and
geological extrapolation, should occur within its tenements.
It is emphasized that this term is not covered by the JORC Code
and is not equivalent to a Mineral Resource or Ore Reserve estimate."
It is a potential of 15 million
ounces, not a resource or reserve.
It's an interesting plan, they
have an existing mill and could begin production in as little
as 6 months but will need 5 years to gear up to full production
of 250,000 ounces. Charters Towers Gold would enter into up to
5 separate joint ventures within their 100%-owned mining district
of Charters Towers and produce gold ore from five different mines.
Based on their figures, using
the 15 million ounce POTENTIAL, Charters Towers Gold has a market
cap of $13 million US making the gold about $.80 an ounce which
makes it cheaper than any gold stock I know of. Using a discount
rate of 12%, the project has a net present value of US $241 million
which makes it an interesting and potentially very profitable
investment.
But don't forget, you are also
making a currency investment. And given the dismal future of
the US dollar, you could have a double payoff, one in the stock
and the other in the Australian Dollar.
Naturally there are other factors.
First of all and I hope I have highlighted it sufficiently, the
15 million ounces is a guess. It may be a very educated guess
based on past production but it's a guess. And second of all,
the whole plan hinges on attracting sufficient capital to execute
the plan. Based on their foresight of at least dipping their
toes in foreign internet sites by contacting us -- off their
own bat -- about advertising on 321Gold
they have indicated they realize they need to promote their company
on distant shores. But we have seen a sea change in gold investment
psychology in the past four months and my belief is that they
will find success in attracting foreign capital.
It's no secret
I believe those very vocal proponents of the gold conspiracy
theory have done a world of damage to the image of those wise
few investors who invest in precious metals and precious metals
stocks. Owning gold in today's world is the act of a prudent
man, not a wild-haired screaming lunatic.
Gold is a currency.
Perhaps the ultimate currency since an ounce of gold is the only
currency without conflicting claims. As a currency, gold competes
against all other currencies. All you have to do to understand
gold is look at a chart of gold in all other currencies than
the US dollar since 1999 and you will immediately realize that
rather than being at the heart of some sinister conspiracy, the
value of gold is pretty much set as the inverse of the value
of the dollar. Since governments believe it is their divine right
to manipulate currencies, it's perfectly valid to say gold is
manipulated since governments brag about manipulation of the
dollar. And when you manipulate the dollar, you manipulate the
inverse of the dollar as well. It's all perfectly true. And perfectly
meaningless.
So the easy
answer as to the direction of gold is to predict the value of
the dollar. And since the United States has to convince foreigners
to invest $1.5 billion dollars a day in the US in the form of
stocks, bonds and other investments just to maintain the current
value of the dollar it gets real easy to determine our currency
is way overvalued. And as such, the price of gold is way undervalued.
But the value
of other currencies is also undervalued in relationship to the
dollar and since you have to invest in the currency of your intended
stock purchase, it presents additional opportunity. Or risk.
We have an
order in to buy a small number of the Charters Towers Gold shares
with PennTrade at US $.04. Certainly I would find it attractive
at that price but by writing this piece, I have also probably
screwed up any potential
of actually getting an execution. If you like the Charters Towers
Gold story -- certainly I suggest you always do your own due
dilligence -- and cannot buy Australian shares through your own
broker, drop Tom Wobker a
line at Penntrade. We have an account with them. They are
wonderful to deal with, experts in mining shares on almost any
exchange, and are reasonable in their commissions.
Good brokers are few and far
between. Good brokers who actually know the mining business can
be counted on one hand. Penntrade,
founded by Alex Pennaluna in 1926, is one of our favorite companies
and we think you will find them your favorite as well.
-Bob Moriarty
October 14, 2002
Nothing we write is
intended to be anything more than our opinion about the merits
of a stock. Before buying or selling any stock, the investor
should do his own due diligence.
We are investors
for our own benefit. At any one time we may own 25-30 different
mining stocks. It follows that often we will own stocks which
we have written about.
_______________
 321gold Inc Miami USA
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