The most meek analyst or newsletter writer I have come across has, at the very least, a big ego. Even those with the most dubious of records are firmly convinced only he or she has all the answers and everyone should be standing in line waiting to shower them with hundred dollar bills. And there are some pretty poor predictive records.
Me? Anyone who knows me well, knows I easily qualify in the ego category. Becoming a fighter pilot when you are 20 years old tends to do that. We all had big egos back then, you needed it to survive. But lots of guys with big egos didn't survive because they didn't have the skill to match the ego. I had the skill.
When I travel to a project and spend time with management trying to figure out a deposit, I feel like I am part of a birthing process. I am helping to plant seeds. And not all the plants thrive. Some never show much more than potential which never comes to fruition. But I take great pride in being one of the early adopters in really red-hot stocks such as NovaGold, Desert Sun and Southern Arc. Their success is my success.
I still go back now and again and reread parts of articles I wrote years ago. In December of 2005, almost two years ago, I wrote about a new junior focused in Mexico called Pediment Exploration. (PEZ) Here's what I said in my usual brilliant way, "I was quite impressed with Mel Herdrick. If he puts together the right team of exploration geologists and spends the money wisely, I think there is a high potential for a good return."
The stock was $.69 when I wrote that. Juniors take time to show progress and Pediment wasn't an overnight success, as they say in show business. But they made steady progress. The stock did get up to about $1.20 in the months after my piece before drifting down to as low as $.38 last October. But time has proven me right and as Pediment hits all time new highs day after day after day, all the shareholders have been rewarded.
Mel Herdrick, VP of Exploration, with the help of Alberto Orozco, has indeed put together both the potentially great targets and great team. And the return is there, with 150% annual gain for those who bought two years ago. I went down again in April of this year and wrote about them again. The stock was $1.01.
I said, "If you want a nice, low-risk, high-potential investment in gold located in one of the most mining friendly countries in the world, you need to put Pediment on your radar screen. It's a winner." And in hindsight I think it was a good call. They have the team and they have the projects.
So when Gary Freeman, President and CEO of Pediment called me recently and told me about their upcoming deal, I was all ears.
Pediment has moved into the big time with the purchase of the La Colorada gold mine and mill. Located some 40 km SE of Hermosillo, La Colorada was the largest gold mine in Sonora state until La Herradura opened up a few years ago.
Pediment insists that the La Colorada mine is an exploration project but there is unleached ore sitting on a leach pad and I just don't believe they will focus on nothing but exploration when they already have a mill and a leach pad ready to go to work. Pediment is paying $3 million US in three payments to acquire about 800,000 ounces of gold, a working mill and leach pads.
The area was one of the most productive gold areas in Mexico from 1880 until it shut down in 1914 as a result of the Mexican Revolution. Prior to the shutdown, reports show that early mining operations owned by American and British interests had produced over 3 million ounces of gold from a high-grade vein system averaging about one ounce per ton. During the 1860s, La Colorada bragged of the installation of a 48-stamp stamp mill, in 1888, the mine became one of the first mines in the world to use the newly developed cyanide processing for gold recovery.
Chester Millar brought the mine back into production in 1993 as an open pit mine operated by his company, Eldorado Gold Corporation. Producing gold and silver, the company averaged about 50,000 ounces per year of gold production. Due to low gold prices in 2000, Eldorado sold the mine to a local group who had been doing contract mining for the company.
The local contractor continued mining until 2002 when the mill and mine were shut down. I find it very significant that they stopped leaching at the same time they stopped loading ore on the pad.
The dilute cyanide solution used to dissolve gold from ore will dissolve the gold before the silver. So anytime you load a leach pad with an ore containing both gold and silver, you almost always leave a lot of of silver on the pad. In a way you can consider it a savings account of sorts. At the end of every gold/silver cycle, scores of companies are created to cash in on the silver left in leach pads all over the world. At some price of silver, it is worth dripping the cyanide solution on the pad to recover every bit of gold and/or silver.
When typical heap leach recoveries for gold should run in the 60-75% range, 30-50% is more typical for silver. Consider it a savings account of sorts. When you have a lot of silver on a pad, it can well be worth the cost of processing, all of the expensive mining and milling has already been done.
Based on the numbers provided to Pediment prior to the purchase of La Colorada, it looks as if Eldorado was producing about 50,000 ounces of gold a year and 150,000 ounces of silver. I visited the giant Mesquite mine, owned by Western Goldfields, a few years back. They had bought the Mesquite mine from Newmont and did nothing more than continue to leach the pads for three years more before selling out to a new investment group. Old leach pads have a lot of material that can be recovered cheaply.
One of the barriers to gold/silver recovery from leach pads is the tendency for the cyanide solution to follow natural channels through the layers of crushed ore. If the solution doesn't come into contact with the gold/silver in the rock, it won't dissolve it. One solution many mines use is to switch leach pads to allow the pad to settle or they will literally use heavy equipment to stir up the first 10 meters or so, anything to try to force the fluid to percolate through the entire pad.
I'd guess Pediment has half a year's production of gold/silver sitting on the pad, just waiting to be recovered in the first 12 months of operation. And that's based on not mining new ore. My very strong suggestion to Pediment was for them to fire up the pads. 25,000 ounces of gold and 75,000 ounces of silver wouldn't cost much to produce; the expensive work has been paid for. That would pay for a lot of exploration.
La Colorada has been operated as two entirely different mines, a high-grade underground vein system from 1880 until 1914 and a low-grade open pit, heap leach from 1993 until 2002. The underground ore ran about 1 ounce per ton and the open pit ore ran about 1 gram per ton.
I think that's exactly what they should do today, run two parallel operations. There is a clear high-grade vein system running through the property with about an ounce a ton of gold. That ore is so valuable that it would be worth putting through a CIL or CIP plant running maybe 500 TPD. The remaining ore should be heap leached.
The exploration potential at La Colorada is giant. The structures are obvious and most of the property has never been drilled. Pediment has been conducting a regional exploration and mapping program as part of their due diligence and results are highly encouraging.
I don't think you can do any better than buying ounces of gold in the $4-$5 range. For Pediment to do this deal with 27-year high prices for gold is nothing short of remarkable. They have accomplished something I would have not believed possible if I hadn't seen it for myself.
The issue two years ago was if Gary and Mel could put together an exploration team. Obviously in the mining industry with all commodities in shortage, there is a dearth of personnel. Mel did glue together a great team and now it's time to advance one stage further. Pediment needs to put together an operations unit to take advantage of what the exploration group has come up with. It's not going to be easy, people are in even greater shortage than two years ago but the projects are career making and I believe they will succeed wildly as they have for two years.
After we saw the La Colorada mine, Mel and I traveled down to La Paz in Baja, Sur to revisit Pediment's San Antonio project after an extremely successful spring/summer drill program. The company has done an excellent job of describing the property and mineralization on their website.
This was my third visit to the property and each time I am there it looks better. It's a megashear model deposit, very similar to Mesquite (2nd largest gold mine in California) and the La Herradura gold mine, largest in Sonora State, Mexico.
It was obvious to me that the property had great potential when I first saw it. Grades drilled by Echo Bay a decade ago and confirmed by Pediment ran in the 1 gram range but the shear zone continues for another 25 km, all the way out to an island named Isla Cerralvo in the Gulf of California, off La Paz. The mineralization is very similar to that of Mesquite.
Everyone at Pediment agrees that Echo Bay stopped drilling one hole short of victory 10 years ago. Their IP work showed clearly the location of the mineralized zone and while not barn-burning, the grades and dimensions of mineralization gave them a low-grade bulk-tonnage project. They ran out of money just as gold headed south.
Pediment, armed with the Echo Bay data, continued to expand the IP data and drilled where Echo Bay stopped. At the very least, the results have been exceptional with one intercept of 84 meters of 3.79 g/t gold and another of 40 meters of 2.22 g/t. The latest results, released on October 3rd, 2007 showed 6 meters of 15.14 g/t and 85 meters of 1.37 g/t, 12.19 meters of 20 g/t and 20 meter of 5.4 g/t.
When you are looking at a low-grade bulk-tonnage target, you want to hope for a high-grade starter zone. It's always necessary to pay for the plant and equipment, once those costs are paid, mining gets real cheap and bulk-tonnage mines are some of the lowest-cost and highest-profit mines in the world. We know Pediment has multi-million ounces of gold at San Antonio and now they are finding what probably is going to qualify as a high-grade starter pit with an oxide zone as far down as 100 meters. (hole number PLRC 20 @ 152 meters of 1.64 g/t).
It has been a great pleasure for me to follow Pediment for the past couple of years. I am thrilled that they have done so well. If you read the short piece I just wrote about Golden Tag, Pediment was there two years ago and had advanced a lot since then. Shareholders have been rewarded and I expect that to continue but the battle isn't over. Now Pediment needs to advance management forward into a more operational mode. Mel is a brilliant geo but he is so good at finding top-notch projects that it is a waste of his time to have him supervising drill programs. Likewise, Gary Freeman has done such a good job of overall management and financing that he should continue in that direction and find some hands-on guys who want to get into production. Soon.
We own a lot of shares, we are biased. The stock has advanced a lot over the last 10 days so be careful establishing a starter position. On any pullback at all, I would and will be throwing money at the company. You make your profit so do some of your own due diligence.