Friday, May 08, 2009

Gold and Silver in Argentina: Gigantic Pascua Lama gold-silver project is finally officially underway. ABX, MAI.to, TNR.v, CGH.to


CS, Junior Mining economics, bullish case for Hard Assets, Gold and Silver.
Just few short months ago we all have been worrying that Argentina will default. If you consider the Junior mining companies share prices like MAi.to, CGH.to and TNR.v involved in Argentina - even today discounts show that Mr Market is still awaiting some kind of tsunami to cover all the goods in the ground by miles of water.
We know that there is a battle against that huge mine, but we will leave environment responsibility with Barrick Gold ABX and connect here a few important points in our Value Web.
Mining business is a very close and interconnected. Juniors are taking the risk to fund, find and develop resources, Majors are buying these resources and are ready to pay a top buck to buy the time.
Here we would like to remind you about Junior Mining Economics and why this system works so well for Majors. Majors are living from Qn to Qn+1, whatever they say to you. CEO is getting paid when he delivers results today or better yesterday, his vested interest is not always the same as shareholders: and it is understandable - normally he is not controlling the company by stake, he controls it by his power of persuasion and he has just a few years to make his Big game. He needs to feed his production pipeline and always, ideally, to increase production, so the company gets bigger compare to its competitors - otherwise he will be bought out and sit in corner office after 1 year with adviser label.
He can not afford to spend money and years on Exploration and development, he does not have best GEO people on the salary and he is happy to pay the top price to buy resources which will add to the bottom line in two years time or even sooner. All this game is spiced by the natural law of diminishing returns: mother nature is not making any more Gold, Silver and Copper. You have to move to lower grades and higher risk places.

Why the best of Geos are not with him any more? They all dream about their Veladero and Los Azules, once they have received field experience and CV reference, the brightest and fearless (about this below) will move to Juniors like Minera Andes MAI.v, Canada Gold Hunters CGH.to and TNR Gold TNR.v. Here is economics all over again. If you make a discovery in Barrick Gold ABX you will get a nice bonus 50% of your salary and if you own shares and options you will enjoy the ride of 20% in the share price: company is so big already. It will hardly be called "all his dreams come true together".
In junior mining such a discovery will make the share price explode - company which was selling dreams to shareholders transforms overnight to a tangible play with goods in the ground, where you can put a valuation for the potential proposition to Major.
Before you all get too excited we will put an ocean of water on your burning desire to be rich tomorrow after reading this Blog. We always remind you, SEC and FSA: there is no investment advise here! No insider information is used and we do not know any tips. Why would we post it otherwise? This Blog is only the Diary of our journey - you never know where we are actually going to and where we will come to until we publish this book. Question everything and everywhere and go on your own journey. We will provide only some maps and travel experience.
But back to the ocean of water: it is estimated that from one thousand drilled holes only 10 will return economic mineralisation. From this ten only 5 after further exploration will be confirmed as an economically viable, meaning grades and size and cost of development. From this five only 3 will become the actual mine. We hope that we err on a cautious side here. So, do not take it as an offence, but if you were ever going to bet your lunch money against the FED in our junior field: keep it - and save a few bucks for our book. We promise a good fun and proper English there.
By now, all day traders and hedge fund managers will be gone from our Blog and you will be on one page with us with understanding how it is important to increase our odds of success in this brutal high leveraged play. First, read a couple of books of Nassim Taleb about chances and then read "Lost on Bay Street" by Alex Doulis to get the idea about friendly environment. Articles from Jim Puplava "Crime of the century" will add some more perspective. Then stay for a while on this Blog: it will be purely stupid not to take an advantage - why make the same mistakes? You are in a better position: when it is written - it is only our observations and attempt to extrapolate how our long term trend will be affected. You can see in a diary a historical chain: what worked and what went wrong.
First of all, look for a Team: it is when years of training become a luck. Barrick Gold ABX operates now Veladero, deposit discovered by Patricio Jones and developed by Lukas Lundin - both now building Global Exploration play Canadian Gold Hunters CGH.to .
Barrick Gold is holding a stake in TNR Gold TNR.v and Gary Schellenberg has his own story of successful buyouts:
"Gary Schellenberg, B.Sc Geo - President
Mr. Schellenberg started his career in 1981 after graduating from University of British Columbia with a Geology degree and has since then been involved with geological consulting firms and publicly traded exploration firms. With experience worldwide and successes including an early 90's buyout of Winspear Resources by diamond giant De Beers and another Venture company he founded, Golden Coast Energy which is now Provident Energy Trust, Coast Mountain is Gary's privately owned company which has showcased his team's talents and provided since 1987
."
TNR Gold holds properties in San Juan, Argentina: El Salto, El Tapau and 25% back in rights in Los Azules discovery with adjacent Escorpio IV. Los Azules now is under development by Minera Andes MAI.to which effectively was recently taken under control by legendary Chairman of GoldCorp Robert McEwen. Los Azules has its own long story.
And to finish our web: Lukas Lundin has an investment into Minera Andes and his Canadian Gold Hunters has a number of properties in J/V with TNR Gold.
All these companies will benefit from this move of Barrick Gold into development of Pascua Lama in San Juan, Argentina.
Management credentials and connections to tell your story, get access to the capital and develop it - is the first of our secrets to improve the chances.
Next secret is not ours and is given to us from time to time by God as opportunity: recent collapse in CDNX Canadian Venture is an example: CGH.to was trading above 2.5CAD before acquiring Suramina Resources and now, after rising from the ashes, is still at 0.4CAD. TNR Gold was raising money last April at 0.35CAD and now, after Lithium charge and tripling from the low, is still at 0.12CAD. You can buy Minera Andes still cheaper then Robert McEwen paid two months ago.
Another advantage in this game against the odds, which helps a lot in a bet on Blue Sky Potential even if it with Green Energy spice is a value of hard assets. Discount them always until they sold for "hard cash" in the market, but by how much? All properties of CGH.to are developing further, MAI.to announces increasing of production and further Los Azules development. Shotgun J/V with Nova Gold with 1 Moz of historical gold could give some downside protection, do not bank on its along, but add Los Azules with its case - maybe to find a good lawyer in the end is easier then to find another 11 billion pounds of copper? Do not take us wrong again here: nothing is for certain - Risk is in its pure sense, the only hope is that this thing is in its own Bull Market Stage One.
What kind of Reward can we expect in our successful Junior mining economics for all such uncertainly and risks? Let's check portfolio of today's headline hero - Barrick Gold. According to Lundin Group Veladero was sold first to Homestake for 300 million and math is the following: investment was 16.2 million and proceeds from the sale of that stake was 192.9 million.
We can add that one day we will write not a book, but poem about Lukas Lundin's Tenke Mining and opportunity to buy it at the right time.
What are the chances of another success? We have no idea: talk to Nassim Taleb with details above - they must be considered very slim if we do not have much competition at these levels. But picture is changing fast in fundamentals and now on the ground in Argentina, which helps us a lot with our dreams. "Access to debt and capital markets is excellent" - according to Barrick Gold and our dream with Los Azules in the blue sky of Argentina can be closer then thought before with rising copper prices and stakes.

Presentation Pascua Lama.

"18M OZS GOLD, 718M OZS SILVER
Gigantic Pascua Lama gold-silver project is finally officially underway
It took years of negotiations, battles over such diverse issues as cross-border taxation or the relocation of glaciers, and meeting logistics concerns in two nations to finally get Pascua Lama on the fast track of Barrick's project pipeline. Author: Dorothy KosichPosted: Friday , 08 May 2009
RENO, NV -
The resolution of cross-border taxation issues to help Barrick avoid double taxation gave the impetus to the Barrick Board of Directors to grant the long-awaited approval of the massive Pascua Lama gold-silver project with a 2,600-square kilometer land position which sprawls over two nations.
Barrick officials announced Thursday that the $2.8 billion to $3 billion project is proceeding toward construction, which is planned to have an initial ramp-up of 450,000 tpd, compared to the 300,000 tpd originally proposed.
The genuinely "world-class" deposit boasts gold reserves of 18 million ounces and contained silver in reserves of 718 million ounces over a 25-year mine life. It is expected to average 750,000 to 800,000 ounces of gold production and 35 million ounces of silver production annually during its first five years of operation.
The logistics of operating a mine covering Argentina and Chile are mind boggling. For instance, crushing will take place in Chile with processing in Argentina. Water supplies for the operation will come mainly from Argentina.
In a statement, Argentine President Cristina Fernandez said, "The development of this bi-national project shall undoubtedly constitute tangible proof of the effectiveness and concrete application of the Mining Integration Treatment as a result of the cooperation and joint efforts of both countries."
Chilean President Michelle Bachelet said, "When this project begins, it will generate over 5,000 jobs and can make a significant contribution to the job crisis in Chile." It also helps that 75% of the Pascua Lama orebody is located in Chile.
However, Barrick officials told analysts during a conference call Thursday that the lessons the company has learned from its Veladero mine has resulted in an improved talent pool to draw from, good transportation logistics, and good experience in helping miners deal with high altitude fatigue and sleep disorders.
In a statement, Barrick President and CEO Aaron Regent said, "Our focus over the last few months has been on resolving cross border permitting and tax matters, improving the capital and operating costs and project economics and advancing discussions with global financial institutions to provide project financing. We have made considerable progress on all these fronts which has culminated in our go-ahead decision today."
"The combination of the project's attractive economics, significant production at low cash costs, and support by the governments of Chile and Argentina for this environmentally responsible project will generate enduring and substantial benefits for all concerned-including employment opportunities, economic and social development for the people of Atacama, Chile and San Juan province in Argentina," he added.
Regent said 75% of the project engineering has been completed, and pricing has been confirmed for $500 million of mills and mining equipment.
Barrick Executive Vice President and CFO Jamie Sokalsky told analysts Thursday that "access to debt and capital markets is excellent." Barrick is meeting with export credit agencies and global financial institutions, targeting $1 billion in project financing.
"The company will immediately begin to award contracts, mobilize for infrastructure such as roads, power lines, camps, and basic services, hiring of a workforce, etc., and ramp-up construction by September or earlier, weather conditions permitting," Barrick said in a news release. The Mining Integration Treaty is aimed at ensuring operational flexibility during both construction and operations phases. Its protocols define procedures for customs, immigration, labor, health and security matters.
Barrick's Kelvin Dushnisky, executive vice president of corporate affairs, told the analysts of Barrick's 40 community projects now underway including telecommunications, education, medical and cultural heritage programs. However, environmental special interest groups denounced the project as illegal and lacking the social license to operation.
Project opponents claim the project will harm indigenous peoples and indigenous communities. In Argentina, some project opponents are now demanding a mandatory referendum on the territories impacted by Pascua Lama.
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