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Next week is the Bottom

Bob Moriarty

Dec 23, 2011

When I am at home or even on the road if I have the time, I may read 50-60 different articles a day trying to figure out what pieces to post. It does get boring to read the same thing again and again and again. There is so little original thinking out there from anyone.

On occasion I read something truly exceptional, an actual original piece well buttressed by facts and logic rather than rehashed plagerism. I came across such a piece today and just had to post it, notwithstanding the fact that I happen to totally agree with it. The piece is so well backed up with facts, logic and even charts that I think every reader owes it to themselves to consider it. And I think he’s got it exactly right.

This has been a fairly good year for my predictions and shares. I’m only down about 50% and that’s damned good considering that John Paulson is down some 52% and was personally responsible for gold crashing $105 in a single day in September due to a margin call.

Gene Arnsberg has written a piece he titled, “Why We Remain Bullish on Small Mining Shares.” He has posted the piece on his website with charts explaining why he feels that way. The article is brilliant and certainly worth a must read. And I think he’s exactly right.

So regardless of the Euro crashing, and I think it will, and regardless of the banking system being on the point of a total collapse, and I think it will, gold shares are cheaper than they have ever been. That won’t last long. Tax loss selling ends next week and gold shares are going a lot higher than anyone but Gene and I anticipate.

I’m going to get real lazy here but I think my readers will appreciate it. I have visited a whole bunch of great projects lately and I must get around to writing about them. I intend to fully cover them in the future, but I want to mention them while investors can still pick them up at the bargain basement.

I own some and some are advertisers. They are absurdly cheap in my view. I am biased. Take some responsibility for your own decisions.

I went to Mexico three weeks ago and saw three projects. Each was impressive, two were being drilled, and what I think will be the best will be drilled in February.

Mexigold (MAU-V) has done a JV with Riverside Resources on three drill-ready projects in Durango State in Mexico. I visited two of the projects: Catrina and Pedernal. Core from five of the Catrina holes is in for assay. Pedernal will be drilled in February. Either project could be a company-making project. Management likes the third project, Escondida, the most. I didn’t see it; I really liked Pedernal the most. It had 13.5 km of wide silica veins at the surface with some gold. According to their boffins, the highest grade gold should be at 250 meters depth. The truth machine will tell the tale. Drill results from Catrina are expected in January. With a $6 million market cap, any hit would be a market mover. I like the projects and the management.

Mexigold can earn up to 75% of these projects through cash, shares and work on the projects. It’s a good deal and quite fair to both Mexigold and Riverside.

While we were on the visit to the Mexigold/Riverside projects, we drove across a project also owned by Riverside but in a JV with Sierra Madre Developments. (SMG-V) I visited the project a couple of years ago with John-Mark Staude, President and CEO of Riverside. The Penoles project actually is next to the town where Penoles the mining company got its name.

I like the project and results to date show good potential for Sierra Madre. Their deal with Riverside allows them to get up to 70% of the project. With a $3 million dollar market cap, it wouldn’t take much news to move them a lot higher. Selling of the shares has been way overdone.

I talked to management but haven’t had a chance to visit El Arco, also located in Durango but Larry Kornze, VP of Exploration for Goldex Resources (GDX-V) calls the project, “The best undrilled property in the Americas.” He should know. He used to be the regional manager for Barrick for Mexico and Central America.

Goldex planned on drilling the project this summer but ran into permitting delays and had to go into a holding mode until the permits came through. They plan a 50 hole, 15,000-meter drill program. It’s not going to be undrilled for long. While they were awaiting these permits they were working on a backup project in Guatemala called El Pato with excellent results. With a $5 million dollar market cap, any good results or any retail buying in the metals share markets would drive the shares a lot higher.

My next set of tours was to Nevada in the world-famous Carlin trend where two Canadian junior mining companies are hoping to show the majors how to explore. The first visit was to the Railroad gold project owned by Gold Standard Ventures. (GVI-V) Dave Mathewson is VP of Exploration for GVI and came up with the model for the Rain Deposit, located barely a stone’s throw north of Railroad. Dave found the Rain Deposit, some 3.3 million ounces of gold.

Before investing in any company, junior or major, drilling in the Carlin Trend, it’s vital that investors understand that the Carlin deposits are deep, ground conditions are terrible and drilling is very difficult and expensive. Gold Standard was drilling up to 2400-foot holes in their 16-hole program. Hole can cost $500,000 and assays can take 3-4 months to get back. It’s vital that investors have a long-term view and patience.

Excellent drill results have been released from the first 8 holes and results are pending for the next 4 holes. Dave is looking for the feeder structures to the disseminated gold deposits they are already finding. The rock looks like nothing, you can’t tell 1 ounce per ton rock from ordinary Carlin altered barren rock. I’ve been talking to Dave for three years now. This is my third visit and I believe they are one hole away from hitting a major control structure. They may have already hit it and won't know it until assays come back.

I also managed to squeeze in a visit to Evolving Gold while I was in Elko. By chance, I wrote a piece on them about this time three years ago when gold shares were getting hammered. Their stock was $.14 when I visited and they had $.24 in cash. Six months later they were $1.95.

The stock has gotten no love lately, falling from $1.22 in January to $.275 today. The decline is pretty irrational. Agnico-Eagle did a deal with EVG in May on their flagship Rattlesnake Project where Agnico-Eagle must spend $76 million to earn 70% of the project. Presuming spending that much money actually advances the giant alkaline gold project forward, EVG could kick back on their chairs smoking Cuban cigars and sipping fine Tennessee whiskey and their 30% would likely be worth more than the entire company today. This is a pretty stupid market and that isn’t going to last long.

Evolving Gold is pretty much in the same camp as Gold Standard. They have drilled 13 holes in four years, gold grade and thickness continues to increase and I suspect they too are but one drill hole away from a major gold discovery.

Quinton Hennigh was President of Evolving Gold and hated every minute. He’s a field guy and disliked the politics and paperwork associated with being a honcho. He wants to find gold and move on to the next big deposit. He resigned from EVG in November but left the company with both excellent people and another excellent project. I didn’t get to visit that project, called the Jake Creek deposit, but results show potential of another Ken Snyder type mineralization.

If I was to assign value to a company, in my view, Rattlesnake as a standalone project is worth more than the entire market cap of EVG today. Their drill program at Carlin continues to get closer and closer to the feeder structures responsible for the gold mineralization. Their work at the Jake Creek deposit shows great potential for another Ken Snyder type mine. Yet the market is giving them next to no valuation for Nevada. I don’t think it’s a situation that will last long.

From Nevada I drove my rental car back to Salt Lake City for a flight on to Phoenix for what has to be one of the most interesting deposits I have ever seen.

Any American of my age will be quite familiar with the story of the Lone Ranger and his faithful Indian companion, Tonto, and how the Lone Ranger always shoots to wound his adversaries rather than kill them and uses silver bullets that come from his own silver mine.

Actually, silver bullets were used in the old West. But it was the Indians who used them, not white guy invaders intent on stealing their gold and silver. Now I have seen a lot of gold projects and occasionally seen gold nuggets but I have never seen or heard of silver nuggets. Because silver is far more reactive than gold, it is rarely found in native form except on occasion in silver wire form.

Around Globe, Arizona there was a silver deposit so rich that silver nuggets littered the ground. When white settlers started traveling through their area during the 1840s, the Apaches would attack them and try to drive them out of their land. The Apaches would go to this silver deposit and find nice bullet sized silver nuggets and fire them at the invaders.

As bad ideas go, that was a really bad idea. Many of the settlers wanted to find riches in the form of gold and silver. Firing bullets at them made of silver did little more than convince the settlers and prospective miners that silver was so common you could use it instead of lead for bullets.

The company that now controls those deposits is named Trueclaim Exploration (TRM-V). With two highly prospective project areas, one in Canada, the other in Arizona, and a market cap of about $8 million, the company is a real sleeper.

Trueclaim controls about 52,000 acres, (19,000 hectares) in the Sudbury, Ontario area. The project is called the Scadding gold project and contains a number of old, rich gold mines. Results to date have been excellent.

The project I went to see was called the Black Diamond silver project with samples up to thousands of grams per ton and dozens of former mines and workings. The deposit has never been drilled. The company, led by John Carter as President, has applied to the Forest Service for a drill permit and expects to be drilling in the spring.

Having two highly prospective projects can be a problem at times. When the market conditions are as unfavorable as they have been over the past year, you end up dividing your financial forces. I’d like to see the company focus on the Black Diamond silver project. They could clean up the adit to the richest of the mines and go into production on even a very small scale. In my view, in the future, investors will give a substantial premium for production stories.

I’d love to see them get a metal detector and find a few silver nuggets. The promotional value of a few silver bullets would be giant.

Probably the biggest sleeper I have seen this year is a company now called Orocan. (OR-V) It sorta rolls off your tongue, doesn’t it? Actually I hated it, too, and the company is changing their name to Standard Graphite in late January. The company controls 12 large flake, high-grade graphite projects in Quebec and Ontario. The website is not complete but they have a good corporate presentation here.

If you believe in peak oil, you have to believe in the future of graphite. It’s one of those minerals forgotten in the mining boom of the last 10 years but thanks to the brilliant work on graphite by Mike Berry the investor market is waking up to the giant potential of graphite.

If you believe in lithium-ion batteries, you would do far better by investing in a good graphite company than a good lithium company because the batteries need 20-30 times as much graphite by weight as they do lithium.

The future of nuclear power may be in Pebble Bed Reactors. These reactors use uranium fuel imbedded in graphite balls. With demand for graphite growing at a 50% per year rate and prices reaching $2500-$3000 a ton, the future for graphite companies with actual projects is excellent.

CBM Asia (TCF-V) has a giant CBM position in Indonesia. They do a rotten job of communicating. The IR guy keeps setting up investors to sell on good news so every time they announce anything, the shares drop. That seems pretty dumb to me but that’s the way it works for now.

The company has a giant land position in Indonesia but has only done work on about 10%. They announced a 51-101 resource in November that would have been a barnburner had it been released in a more timely manner and their IR efforts not been aimed at convincing investors to sell the shares. There were three figures given for the entire block, the low number was 319 BCF and the high number was 2056 BCF. The results were skewed by a poorly drilled hole so are a small fraction of what they should and could have been.

But at 319 BCF based on 24% ownership, CMB Asia controls a MINIMUM of 76.5 BCF. I told management several times that those numbers meant nothing to an average investor, that they had to give them some sort of reference point. Even though Texas is a poor measure of value because of the low price of gas in Texas, a BCF of gas in the ground is worth $2 million. That values CMB Asia at $153 million if they were compared to Texas. At today’s depressed prices, CBM Asia is only worth about $15 million.

The company needs to work on their communication. They need to get cranking and start generating real results but given that the 76.5 BCF represents only 10% of their total holdings and it’s understated because of the poor hole and it’s a mere 1/10th of what the same gas would be worth in Texas, CBM Asia still represents my biggest investment. I just wish management would get their act together.

Mexigold Corporation
MAU-V $.20 (Dec 22, 2011)
30.1 million shares
Mexigold website

Riverside Resources
RRI-V $.68 (Dec 22, 2011)
RVSDF-PK 35.0 million shares
Riverside Resources website

Sierra Madre Developments
SMG-V $.10 (Dec 22, 2011)
30.4 million shares
Sierra Madre website

Goldex Resources
GDX-V $.055 (Dec 22, 2011)
GDXRF-PK 97.4 million shares
Goldex Resources website

Gold Standard Ventures
GV-V $.72 (Dec 22, 2011)
GDVXF-PK 60.6 million shares
Gold Standard Ventures website

Evolving Gold
EVG-T $.275 (Dec 22, 2011)
EVOGF-PK 138.9 million shares
Evolving Gold website

Trueclaim Exploration
TRM-T $.09 (Dec 22, 2011)
TRMNF-PK 78.6 million shares
Trueclaim website

Orocan Resource
OR-V $.25 (Dec 22, 2011)
16.6 million shares
Orocan website

CBM Asia Development
TCF-V $.19 (Dec 22, 2011)
CBMDF-PK 78.7 million shares
CBM Asia website


Bob Moriarty
President: 321gold

321gold Ltd

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