My visit to ATW, Downunder
If you are doing business with someone in China and he says that he hopes you live in interesting times, he hasn't wished you good fortune. It's a Chinese curse. We live in interesting times. As much as I despise the Dumb and Dumber tag team routine of Bush and Cheney they can hardly be held solely responsible for the decline and fall of the American Empire. As we have learned since the last election, the Democrats are just as venial and capable of looting the treasury and destroying our republic. Bush/Cheney are merely the steel I-Beam that broke the camel's back.
I've been warning readers for six months of disaster on the horizon. We've had gold rocket to levels not seen since 1980, the dollar plunged, the stock market is next. Everyone tiptoes around pretending the banking system isn't really bankrupt as the massive fraud in $460 trillion dollars worth of derivatives comes home to roost.
You want to own gold both as an insurance policy and a preservation of wealth. If you read what is really going on as opposed to the crap filling the Boob-Tube, you still have the opportunity to buy an insurance policy on your home after mobsters have set it ablaze. That's unique in world history. There have been lots of interesting times but rarely did the public get warned in advance. The main difference between 1929 and today is that no one can say this time they weren't warned.
I do not suggest that the Internet is the be-all and end-all of truth. There is lots of disinformation here. But there's a lot of really good and really timely information.
The dollar is dead. Other currencies aren't much better. When banks start closing we are going to realize that while the US Peso is worthless, the Euro Peso isn't any better. There will be a panic out of all currencies.
Gold is about to regain the function its held for 5,000 years; a financial safe haven in dangerous times. We live in both interesting and dangerous times. If you are prepared, you will make it through. If you are not prepared, the out of control spending by both political parties is about to destroy America's middle class. Remember, gold is the only reserve asset with no corresponding liability.
At times like this, I think you want to be in producing assets. I'm not dead set against junior exploration, not at all. But you want production stories. At $800 gold, it's either a production story or moose pasture, take your pick.
When I go on a site visit, I do a lot of unpaid consulting. One of the primary benefits of site visits is to get new minds thinking about the problems with every project and company. There is a lot of stuff I say and do which never makes its way into print. My function is to try to help companies succeed and when they are going down what I consider the wrong path, I let them know.
About six months ago, just at the start of winter in Argentina, I flew down to Mendoza to visit a new porphyry copper/gold project of ATW Venture. (ATW-V) The project is called the Amarillo project.
ATW had come up with encouraging chip samples up to 261 G/t gold and had planned a 2600-meter drill program.
Barbara and I participated in a private placement at $.64 a year or so ago because we know the management of the company. I had a vested interest in going down to Argentina to see the progress. I went at the end of May, just as winter began in the Southern Hemisphere at high altitudes. ATW had completed two holes and had eight more planned. I was too late. The project is above 14,500 feet. By the time I got there the roads were closing and it was a battle to get the drill down the hill before they were entirely snowed in.
Visual indications from the completed two drill holes were encouraging. The tightly held company with only 20 million shares outstanding had climbed as high as $1.46 in anticipation of the results.
In the junior market, no news is bad news. As we sat around the hotel in Mendoza, I told ATW Venture President and CEO Brent Butler the bad news. ATW was in deep trouble, with no possibily of news for 6-9 months because of the season, impatient shareholders would drive the price down to $.30 if he didn't come up with something PDQ. Preferably a production story.
This scenario is repeated all the time in junior markets. Management puts their focus on a region where you can't do anything half the year. It's just as true of the Yukon as it is of the higher reaches in the Andes. All it takes is an early winter or months of delay at the assay labs and the shares get whacked.
The Powers-That-Be behind ATW listened and told Brent it was time to shape up or ship out. Find a project. Now.
Sometimes I feel like I fly a lot. For the last year or so, I've been gone 50-75% of the time on site visits. But Brent beat me hands down. In the next few months he reviewed some 80 projects. In the end, he found one, a winner, in his own back yard of Western Australia.
I was a fighter pilot when I was young and our training had little to do with learning to fly airplanes. Actually we were put under the most incredible pressure to perform under dreadful conditions. Anyone can fly an airplane but only survivors can fly under pressure. Brent Butler was under lots of pressure and he came through.
As a matter of fact, he found a deal for ATW that happens to be one of the best deals I've seen in the last few years. It ranks with discovering NovaGold at $.55, Pediment at $.75 and Southern Arc at $.35. It's unbelievable but to understand it, you need to understand how Australia works.
The English settlement of Australia consisted of two groups, prisoners and guards. Guards naturally worked for the government and came up with thousands of rules to keep the convicts in line. Many of the rules made no sense at all but were designed to have a rule for all occasions.
The tradition continues. Members of our party were chastised for having tourist visas when they were conducting business. (The travel agent did the visas and nowhere on the visa did it say what sort of visa it was.) My customs agent had a fit because I had a few pieces of candy with me.
"Do you have any toffees with you?" she demanded as she rummaged through my backpack.
"Huh?" I responded, ass dragging after a 41-hour journey from Miami. I don't even know what toffees are. "No," I responded.
"Then what are these?" she asked, holding up three or four caramels.
"Those are kar-mels," I said.
"You mean care-a-mels," she said.
"No, I mean kar-mels," I said.
"Well," she sniffed, "You haven't declared them. You said you have no food and these are food."
"Huh? Those are a couple of pieces of candy. I didn't see anywhere on the form where you ask if we are carrying a couple of pieces of candy." I said.
"They are food and you said you have no food." She shoved the customs declaration under my nose while stabbing at it with a blood colored fingernail. "I could confiscate them and fine you."
I'm standing there wondering if she'd been smoking something. I've never seen anyone get so carried away over a couple of pieces of candy.
"OK, whatever. You want them, you can have them." I responded.
"I'm going to let you off but a customs declaration is a very serious document and it's important that you fill out every box correctly. If I catch you again, I will fine you." She fired as her final shot.
I nodded my head as if I actually cared.
We were sitting down at breakfast a few days later and everyone in the party had a similar story to tell. The Australian government had never forgotten their heritage as prison guards and they continue to make thousands of silly rules everyone manages to violate.
As a result, the national pastime in Australia, second only to horseracing, is beating the system. That attitude had made it over into the mining arena. I've seen a number of Australian mining companies and they are far more interested in beating the system than in making a profit for their shareholders.
Which creates a lot of opportunity if you understand it. Brent Butler did and, boy, has he come up smelling of roses.
The 80th project Brent found was a 42,000-ounce a year gold producer right in his back yard. It's called the Burnakura mine and consists of an almost 400,000 ounce JORC gold resource, a 440 TPD mill which cost $28 million only two years ago and blue-sky potential all the way to the moon. All for $4 million Australian, (at about a 10% discount to the Canadian Dollar) 5 million shares of ATW and 5 million ATW warrants exercisable at $.79.
Burnakura is in the Meekatharra mining district some 760 km North of Perth in Western Australia. Gold was first discovered at Meekatharra in 1897 and gold mining has taken place on and off over 110 years. Half a dozen of us flew up to see the mine and mill in a chartered Beechcraft. I got to ride in the co-pilot's seat and for 100 km all I saw was one small pit after another. I want to emphasize, there is a lot of exploration potential to the area; it's barely been scratched.
Two Australian companies entered into a 50-50 joint venture to develop the project. It had been mined as a series of small open pits with oxide ores running up to 20 g/t before the JV built a 440 tpd mill which entered production in November of 2005. Depending on which side of the partnership you talk to, either expenses were too high or the contribution of capital too low but the partnership ended up in a rapid divorce with each side blaming the other. In any case the two companies made their minds up to divest themselves of the property and mill. Along came Brent Butler looking for a project.
Burnakura is the best deal I've seen since the Indians got $24 worth of beads for Manhattan. There is nothing wrong with the project that good management can't resolve. The gold is an oxide ore of about 8 g/t. It can be mined either as an open pit or an underground mine. Over $28 million Australian was put into it in the last two years. There never was anything wrong with the project, only management and capital issues.
With any deal such as this, it may look great on paper and certainly, picking up $28 million dollars of mill for $4 million is a hell of a deal, even if you ignore nearly 400,000 ounces of gold in the ground as a resource but you have to have the management talent to run the place. On one of his due diligence trips to the deposit, Brent met a contractor named Ron Huston and they struck up a conversation. It turns out that Ron's company had been brought in to help turn the operation around but no one would listen to him. Ron had big plans for operating Burnakura the way it should be run but no one wanted to know.
His plans landed on fertile ground when he spoke to Brent Butler. Brent had a wonderful deposit and no one to run it. Ron had wonderful ideas but no one to fund and support them. It's a marriage made in heaven. It's all well and good to pick up a great project for pennies on the dollar but without the personnel to operate it, you have nothing.
I really liked Ron and I liked his ideas. He's a rough, tough redneck from the true outback and he's exactly what ATW needs right now. And management knows it and knows how valuable he is to them. Without someone of Ron's skills, ATW would own a pig in a poke.
I think Ron has been burned out by the "beat the system" so common in Australia. To me, the 2+2=5 approach I've seen work so well with the good Canadian juniors makes a lot more sense. Ron loved the idea of someone actually supporting his ideas and funding them. The numbers ATW was given indicated they had a 42,000-ounce a year production rate. Ron has ideas for bringing that up to 80,000 to 100,000 in the next 24 months and they made a lot of sense. I think he can and will do it.
Canadian juniors are great as cross-fertilization. Even though Brent Butler is from Perth and lives there with his family, his experience was all over the world with Kinross and he knows how juniors and mid-tier Canadian companies work. I spoke at length with Ron about how he envisaged expanding the mine. The rock is a mesothermal deposit. Those tend to go deep and often the grade increases with depth. There has been virtually no drilling below 100 meters. There is a giant opportunity to increase both the grade and the size of the resource. Flying along a north trending structure dotted with dozens of small open pits, the richest grade gold appears to fall in a series of east-west running cross structures. Again, none of this has been tested with drilling.
ATW expects to close on the deal in the next couple of weeks and has already set up a drilling crew to begin a 5,000-meter drill program in January. Ron has plans to begin a major refurbishment of the mill as soon as the deal is signed. He expects to be pouring gold in March or April. It's a very aggressive program but with $800 gold it pays to be aggressive. I believe the production is going way up and the cash cost is going way down very soon.
One of the things than occurred to me was that the project has vast tonnage of low grade, sub-1 gram gold material. I talked to Ron about the possibility of setting up a heap leach for the low-grade material while continuing to run the high-grade material through the mill. To my very great surprise, Ron didn't know very much about heap leaching.
It's barely been used in Australia and while every Nevada miner is familiar with leach pads, Australians aren't. It's an open area with a lot of potential. I think the Canadian junior's expertise in raising money and the Australian contract miner's range of experience can be very profitable for everyone. In this case, the Canadian can bring some interesting potential to the mix.
The only deal I've seen recently as good as this is when Pediment took over a 50,000-ounce producer at La Colorada. But even Pediment intends to do a lot of exploration before getting the mine back into production. ATW is striking while the iron is hot and their shareholders are going to be greatly rewarded.
The news about the acquisition has been out for weeks but the website isn't very clear about the takeover and doesn't go into much detail. The stock is absurdly cheap. I think there are about 51 million shares fully diluted after you add in the 10 million shares and warrants to the vendors and the 21 million shares and warrants in the financing. The goal of 42,000 ounces of gold production in 12 months is easy and 60,000-100,000 ounces of gold in 18-24 months certainly possible. I am very impressed with Ron Huston and given Brent Butler's wisdom in picking up this deal, I see ATW moving a lot higher very soon.
I think the float is pretty small for the stock and I'm going to suggest to interested shareholders that if you want shares, buy them now. This is a hell of a deal. We own shares, we have participated in both recent placements, ATW is an advertiser and we are biased.
I intend to be back over in Australia for a gold pour in March/April or I will be beating on Ron Huston's head with my Didgeridoo.