Mining is an extremely capital intensive business for two reasons. Firstly
mining has a large, up front layout of construction capital called Capex -
the costs associated with the development and construction of open-pit and
underground mines. There are often other company built infrastructure assets
like roads, railways, bridges, power generating stations and seaports to
facilitate extraction and shipping of ore and concentrate.
Capex costs are escalating because:
- Declining ore grades means a much larger relative scale
of required mining and milling operations
- A growing proportion of mining projects are in remote
areas of developing economies where there’s little to no existing
infrastructure
There is also continuously rising Opex, or operational expenditures, to
consider. These are the day to day costs of operation; rubber tires, wages,
fuel, camp costs for employees etc.
The bottom line? It is becoming increasingly expensive to bring new mines
on line and run them.
The reasons behind flat-lining gold production, and record cash and all-in
costs, are numerous:
- Production declines in mature mining areas
- Slower than expected ramp-ups of output
- Development time up
- The entire resource extraction industry suffers from a
lack of skilled people
- Extreme weather
- Labor strikes
- Protests
- Increasingly more remote and lacking in infrastructure
projects
- Higher capex costs
- Increased resource nationalism
- Increased environmental regulation
- More complex metallurgy
- Lower cutoff grades
In 1998 the world’s top two highest grade mines were SMM’s Hishikari Mine
in Japan @ 50g/t and Barrick’s Meikle mine in the U.S. @ 32g/t. In 2011 the
world’s top two highest grade mines were Newcrest’s Gosowong in Indonesia @
25g/t and goldcorp’s Red Lake mine in Canada @ 24g/t.
In 2014 Klondex Mines Fire Creek Mine in the U.S. was the world’s highest
grade mine @ 44g/t and coming in second place was Kirkland Lakes Macassa Mine
in Canada @ 22g/t. Declining mined and mineable gold grade is a direct result
of the industry’s inability to discover new high grade/high margin deposits.
Goldman Sachs Eugene King published a report earlier this year (2015)
warning of Peak gold. Since gold production lags discoveries by around 20
years the following chart suggests he may be right.
Here’s some excellent insight from Brent Cook, explorationinsights.com.
“Major gold mining companies are facing a big problem. They are unable
to find and develop enough ounces to keep up with demand, for the simple fact
that economic gold deposits are extremely rare.”
There are three main reasons why gold production increased up to 2000
despite declining gold prices.
- The first is the advent of new mining and processing
technologies that made previously uneconomic low grade deposits
economic. This was mostly a result of heap leach technology and bulk
mining methods. Meaning, mining companies could now scrape up large
areas of low grade mineralization and sprinkle a cheap solution of
cyanide on the rock to recover the gold. This primarily worked on near
surface oxidized deposits in relatively dry climates.
- The second is that vast regions of the world that
had previously been closed for various reasons were opened up to
exploration. These new areas include much of Latin America, Africa, and
the former Soviet Union.
- The third is that geologists had a whole slew of new
exploration tools with which to scan the earth. These include satellite
imagery, geophysics, and more sensitive chemical tools.
The net result was that new technologies kept old deposits going
longer and made previously uneconomic ones viable, thereby ramping up
production into the early 90’s. New deposits in previously unexplored and
off-limits areas kept that production going until about 2000. All well and
good but the industry is not finding as many new deposits as they need to in
order to maintain current production levels. And, although we can expect
incremental technological improvements in processing, mining, and
exploration, there is nothing revolutionary on the horizon.
This is a worrisome slide for major gold producers—they are unable to
sustain themselves. For the most part they are surviving via old deposits
that are running out of ore and newer deposits that are quickly headed into
the “old” deposit category. Reserves from these aging deposits are not being
replaced by new discoveries. Producers’ problems are further exacerbated by
rising exploration and development costs, plus the significant time it now
takes to permit and finance a new deposit.”
Here’s Paul van Eeden (paulvaneeden.com) on reserve replacement,this was
written in 2001:
“Worldwide gold production from mining is approximately 80 million
ounces per year. A few years ago, a world-class gold discovery, which rarely
occurs, would have been anything over a million ounces. Perhaps a few such
deposits are discovered in a decade yet we mine the equivalent of 80 such
deposits a year…
This from Natural Resource Holdings, 2013 Global Gold Mine & Deposit
Rankings; “The gold mining industry needs to discover 80 million ounces
of gold every year just to prevent it from shrinking and it is highly
unlikely that we will ever discover 80 million ounces in any given year,
never mind do so on a continuous basis.”
“There are only 580 mines and deposits on earth with over 1 million
troy ounces of in-situ gold with less than 200 in North America… we are
nearing peak gold production as the total in-situ ounces when adjusted for
metallurgical recoveries and average mine life are about 50% less than what
is required to maintain the current production trends.
The average grade of all producing mines is 1.18 g/t Au, which is
32.6% higher than the average of all projects still in the development phase
(0.89 g/t Au). This has significant implications on future gold production.
In the near term, with significant volatility and the gold price at a
three-year low, many of these projects are simply not economically feasible.”
Natural Resource Holdings, 2013 Global Gold Mine & Deposit Rankings
In their 2013 report Natural Resource Holdings identifies 3.72 billion
below ground ounces of gold. You have to ask; what’s actually recoverable?
“Goldcorp estimates that global production will drop six per cent in
the next three years, and almost 18 per cent in the next nine years. This may
seem mind-boggling to the casual investor who watched hundreds of gold
companies pop out of the woodwork during the bull market from 2000 to 2011. But
it speaks to the numerous challenges facing the sector. There has been a
shortage of new discoveries in the past decade, leaving the industry’s
pipeline relatively bare. At the same time, companies have been deferring or
canceling projects because the execution risk is just too high. That is due
to soaring construction and operating costs, political risk, permitting
challenges and numerous other factors.
And of course, gold prices have plunged almost 40 per cent in the past
three years. That accelerated the move to the production cliff because miners
have been forced to shelve many big projects. They have also focused on
higher-grade ores at their mines, which means their reserves and mine lives
are shrinking fast.
The production cliff puts the senior gold miners in a precarious
position. The not-so-secret problem with these firms is that their current
production rates are not sustainable for very long. They have a couple of
uncomfortable options: let production decline, or go on an acquisition frenzy
to fill up their project pipelines. And those options are complicated by the
excessive debts that many of them are carrying.” For
many miners, there’s no avoiding the gold ‘production cliff’ now,
Peter Koven, Financial Post
“Over the past 24 years, mining companies discovered 1.66 billion
ounces of gold in 217 major gold discoveries, SNL Metals & Mining's 2014
edition of Strategies for Gold Reserves Replacement shows.
While that sounds like a significant amount of gold, it falls short of
the 1.84 billion ounces produced over the same period. In addition, the
amount of gold discovered and the number of major discoveries (defined as any
deposit with a minimum of 2 million ounces of contained gold) have been
trending downward over time, from 1.1 billion ounces in 124 deposits
discovered during the 1990s to only 605 million ounces in 93 deposits
discovered since 2000.
The amount of potential production from these major discoveries is
particularly concerning when looking at the discoveries made in the past 15
years. Assuming a 75% rate for converting resources to economic reserves and
a 90% recovery rate during ore processing, the 674 million ounces of gold
discovered since 1999 could eventually replace just 50% of the gold produced
during the same period.
However, considering that only a third of the discovered gold has been
upgraded to reserves or has already been produced, and that many of these
deposits face significant political, environmental or economic hurdles, the
amount of gold becoming available for production in the near term is
certainly much less.” Kevin Murphy, Fewer discoveries, slower
development weigh on gold industry, Mining.com
Better than Gold
Gold’s price has risen because of the abuse and mismanagement of our
monetary and currency systems - throughout history, gold has always shone the
brightest when trust breaks down, confidence falls and fear climbs. Which
sounds exactly like today, wars, plague, economic collapse, central banks
money printing out of control and the bad news rolls on an on.
Gold is up about four times from its lows more than a decade and a half
ago. What’s the upside from here?
If gold hits $5000.00 an ounce it's more than a quadruple from here.
You’ve got a nice return and it’s this authors belief that gold and silver
bullion and coins should be part of every investors portfolio.
But…
History shows us, time and again, the greatest leverage to gold’s rising
price is owning gold exploration/development junior mining stocks.
Will mainstream investors eventually catch on to the fact they need to own
both gold and gold shares? The buying of shares in companies involved in the
search for and development of gold projects is an imperative to garner the
coming golden rewards.
“I am amazed by how nervous more and more Investors or shall I say
Gold traders are becoming. Every Bull Market must always climb a wall of
worry and this market will be no different. Since so many of you seem to be
wavering between whether you should become short term traders or stay as long
term investors, perhaps a refresher course in making money and a little bit
of hand holding may be the order of the day.
While a few succeeded by trading commodity futures; stock options, day
trading or short selling. Jesse Livermore, the most famous of the short
sellers who caught the top in 1929, nevertheless died broke. After a great
deal of study and research it finally sunk in that most of them that achieved
their ultimate goals were those individuals who identified a major Bull
Market or an individual stock and RODE it for all it was worth. They bought
and held during both the pleasurable upswings as well as through the sharp,
terrifying down drafts, during which times they all took advantage of the
down drafts to accumulate more stock. Then, when the Bull Market appeared to
be in its final, frothy stage, they gradually sold their holdings to the late
comers (who Joe Granville named the Bag Holders), who’s blind greed had them
clamoring to get in at the top.” Aubie Baltin
Gold juniors are going to be the most rewarding, the most lucrative way to
garner the huge rewards from the coming freight train rush to gold. Those
golden tracks are being laid today using the world’s fiat currencies as
ballast - when your cash is trash your gold is shining.
There will be fierce merger and acquisition (M&A) competition for the
juniors with stable safe gold ounces in the ground by producers having to
replace their reserves in an extremely competitive environment. As we’ve seen
there aren’t very many decent sized deposits, ones over one million ounces,
left in politically stable countries.
Junior resource companies, not majors, own the worlds future mines and
juniors are the ones most adept at finding these future mines. They already
own, and find more of, what the world’s larger mining companies need to
replace reserves and grow their asset base.
If I was looking for superior investment vehicles to take advantage
of what I think I know regarding precious metals I’d be assembling a
portfolio of juniors with sizeable deposits in the post discovery
resource definition stage with the occasional green field exploration play
thrown into the mix.
New Carolin Gold Corp. TSX.V - LAD
When I first started investing in the junior resource space I was given
some good advice by many people. One pearl of wisdom was this;
They do not come along very often but many times the best investment is a
good project screwed up by poor management. The best return on your money comes
from a change of management coming in, taking over a great but screwed up
project.
This is exactly the opportunity I believe is being presented by New
Carolin.
The Carolin Mine, a former underground gold producer from 1982 – 1984, is
located on the west fork of Ladner Creek, approximately 18 kilometers
northeast of Hope.
The 1,360 tpd mill at the mine was commissioned in early 1982 and produced
over 43,500 ounces of gold during 27 months of operation.
Construction of the New Carolin Mine started in 1980 when gold’s price was
US$600.00 an ounce. When the first gold was poured gold was down to US$300.00
oz. With poor gold recoveries (just 60%) and mined grades lower than forecast
due to country rock dilution the mine had to close in 1982.
The original resource estimate was finalized in 1997. The gold resources
reported in the table below are based on exploration and development work
undertaken by Athabaska Gold Resources in 1995 and 1996 using a database of
595 diamond drill holes (approximately 40,000 meters of diamond drilling).
The historic resource grade of plus 4 gpt was very close to the average
grade that was originally mined from the Idaho Zone (New Carolin Mine).
The Carolin Mine mineralized zone is open in all directions.
A mine development map from 1981 shows the 800 level being extended north
for 1.2 km to the McMaster Zone. The proposed cross cuts for drilling
indicate to this author that previous operators had high confidence that gold
mineralization runs beyond the Carolin Mine and that the area between the
Carolin Mine and the McMaster zone could yield additional gold resources as
development continues.
There are no shafts at the Carolin Mine and the underground workings are
dry and fully accessible.
The future mine model for the Carolin Mine envisions open pit and
underground components.
McMaster Zone
The McMaster Zone is approximately 1.3 km north of the Carolin Mine.
A New Carolin May 2012 technical report established an inferred resource
on the McMaster zone of 3.6 million tonnes grading 0.69 gram gold for 79,540
oz. gold using a 0.5 gram gold cut-off. Note that over half of this existing
resource is at 2 gpt and near surface.
Highlights
- The McMaster Zone occurs within the current mine permit
area and is open in all directions.
- The McMaster Zone resource takes into account only gold.
The silver accompanying the gold mineralization was not included in the
historical database.
- The current resource estimate doesn’t take into account
a gold oxide zone. If it continues to depth it could be significant.
The Emancipation Mine was an intermittent gold producer from 1916 to 1941.
The Aurum, Pipestem and Ward adits all produced gold intermittently from
1935 to 1937.
There’s also ‘Jewelry Box’ type gold showings present:
- The Montana - 30 oz’s gold from two tons of material.
- Georgia No. 2 prospect - 33 oz’s of gold from one ton of
material.
Tailings Pond
Athabaska Gold Resources drilled 60 holes into the tailings and New
Carolin drilled another nine. These 69 holes were drilled into just 60% of
the tailings pond’s surface area. They were used to establish a National
Instrument 43-101 resource of 404,000 indicated tonnes grading 1.83 grams
gold per tonne for 24,000 contained oz., plus 84,400 inferred tonnes grading
1.85 grams gold for a further 5,000 oz gold.
Since the Carolin Mine shut down the fully permitted tailings impoundment
has been monitored and inspected by independent consulting engineers. After
the Imperial Metals Mt. Polley tailings dam breach BC’s Ministry of Mines
mandated that all of the Provinces tailings impoundments be inspected and
reports filed by December 1, 2014. New Carolin completed its inspection in
September 2014. Remaining tailings capacity is 1,327,723 metric tonnes.
Metallurgy
Core from the McMaster Zone (DDH 32-09; 3.96 g/t gold over 27.6 meters,
from 32.4 to 60.0 meters) was provided to SGS Canada Ltd. for gold recovery
testing.
Pressure-oxidation and carbon-in-leach has shown recoveries of 96.3% on
flotation concentrate from the McMaster Zone. Using flotation, pressure
oxidation and cyanidation - combined with cyanidation of the flotation
tailings - returned overall recoveries of 94.5%.
Mineralization of the McMaster Zone is similar to that of the Carolin Mine
(no core is available for testing).
Some 1,200 junior resource exploration and development companies are
located in Vancouver, British Columbia. Vancouver is well known as a hub for
mining expertise and is one of the greatest mining centers in the world.
Not many of those 1200 companies can claim to have a mine, let alone one
with:
- A stable, just inspected permitted tailings impound with
room to grow
- Only a 6 km drive down an all weather gravel road from
the Coquihalla Highway to the mine site
- Power lines only six km away
- Old mill equipment and foundations still in place
- Extensive mine workings
- Inferred gold resource of 750,000 ozs of gold grading 4.5g/t
- Water and mining permit already in place
- Politically mining friendly jurisdiction
- Positive response from local community
New Carolin can claim all that, and a whole lot more -
it’s fully permitted mineproject sits just 160 km east of Vancouver British
Columbia, Canada, just 30 minutes from the town of Hope. Workers can complete
their shifts and sleep in their own beds in their own homes. Supplies can be
easily sourced and transported to the mine site.
New Carolin Gold Corp. TSX.V-LAD has just acquired an additional 30%
ownership in the Ladner gold project. Previously LAD had a 10% undivided
interest in the property that holds the core asset plus 100% of the lower
property that while on strike does not as yet have a proven asset. The
ownership of the property has been problematic for New Carolin for almost 3
years since Century mining went into bankruptcy. The market has punished LAD
for a lack of clarity on ownership and specifically for the lack of a direct
path to 100% ownership.
The transfer of this additional 30% interest is very significant for LAD
shareholders, not just for the significant upgrade in their percentage
ownership of the assets on the property (roughly an inferred resource of
750,000 oz at 4.5 g/t gold plus 28,000 inferred oz minimum in the tailings))
but also because LAD now has a direct path to delivering on 100% ownership of
the property.
LAD has an agreement in place with the receiver to acquire the 100%
interest by raising $2 million towards developing the project. A key component
of that agreement was the transfer of the 30% interest from Tamarlane to LAD
as the receiver did not directly control that 30%. Now, with the monies
raised to date, plus the $200,000 loan facilitating the 30% transfer, and the
just raised $225,000.00, LAD has $1,250,000 left of the $2 mil raise required
to transact the further 60%, but I predict the deal will close with another
$750,000 raised.
Once LAD can claim 100% ownership they will own the roughly 750,000 oz of
inferred gold underground plus the 28,000 + oz in the tailings pond (drilled
out on only 60% of the ponds surface). Management of New Carolin
believes that their next drill program will have
very meaningful targets that could further enhance the current
resource.
Will these new developments be enough to put them in play as an
acquisition target or perhaps to be of sufficient interest to financiers
willing to put the property back in production? We don't know but both
prospects certainly exist and make this a very compelling story
going forward.
There’s also considerable discovery upside left on the property.
‘The Coquihalla serpentine belt is an elongate, north - northwest
trending, steeply dipping ultramafic unit. The belt lies within a major
crustal fracture, the Hozameen fault and exceeds 50 kilometers in
discontinuous strike length. The serpentine belt reaches its maximum
development in the Carolin mine-Coquihalla River area, where it is greater
than two kilometers in width. It gradually narrows to the south (Manning Park
area) and north (Boston Bar).’ Exploration in B.C. 1989, Ministry of
Energy and Mines
New Carolin’s Ladner Gold Property follows the Hozameen fault structure
for approximately 28 km and exceeds 144 square kilometers covering
substantially all of the accessible, yet still very underexplored
Coquihalla Gold Belt(CGB).
The Ladner Gold Project contains several former underground producing gold
mines and numerous gold prospects – more than 30 have been discovered so far.
Approximately 11 gold showings have been found within a 2 km stretch north
of the Carolin Mine.
A recently completed airborne geophysical survey indicated a major
magnetic linear structure that can be traced for over 18 km within the
company's claims. All the aforementioned gold prospects occur along this
major magnetic anomaly and there’s several kilometers of untested ground left
along the structure to explore.
New Carolin is not only shaping up as a very low risk shot at a
prospective near term producer but also as a company with excellent potential
for further discovery.
Let’s get Jim Mustard, mining analyst and vice president of investment,
mining and banking at Vancouver-based PI Financial, to bring this into
perspective for us.
“The majority of M&A activity is focused on gold and copper projects.
Grade is king now. Anything that can be sold as shovel-ready, and that is in
a jurisdiction with clear permitting protocols, that is not subject to being
derailed, and that has low to modest capital expenditures, will be sold.”
Earlier in the article I listed a whole slew of ongoing negatives for
the gold mining industry as a whole and individual deposits as a whole.
Perhaps we should see which, if any applies to New Carolin. Here’s the
negative or con list:
- Production declines in mature mining areas
- Slower than expected ramp-ups of output
- Development time up
- The entire resource extraction industry suffers from a
lack of skilled people
- Extreme weather
- Labor strikes
- Protests
- Increasingly more remote and lacking in infrastructure
projects
- Higher capex costs
- Increased resource nationalism
- Increased environmental regulation
- More complex metallurgy
- Lower cutoff grades
As we read above this list, except global changing weather patterns, does
not apply to LAD. We’re close to the town of Hope, the people of Hope and the
surrounding area, including First Nations people, want this mine to go ahead
and are very supportive of New Carolin’s efforts.
British Columbia is an excellent place to work in the resource extraction
industry and the Provincial Liberal government under leader Christy Clark is
very supportive of mining.
Metallurgy studies have been done indicating high recoveries, there’s
nothing complicated about the mining or extraction process and grades are
high.
Having infrastructure close means a lower capex, situated just outside the
town of Hope, and within 160km of Vancouver, means skilled workers and lower
opex.
And of course being that the resource is in Canada is just slapping icing
on our cake, getting paid for Canadian dug gold in U.S. dollars tacks on
roughly 32% to gold’s spot price, currently US$1145.20, making your gold
worth Cdn$1511.66.
Valuation
I’ve always used my 10% rule when evaluating whether or not a stock has
share price appreciation potential. Here’s how I do it…
750,000ozs gold x US$1150.00 = US$862,500,000.00/10 = US$86,250,000.00
divided by outstanding shares fully diluted as of Sept 30th 2015 of
113,494,997
10% good times = $0.75
5% bad times = $0.37
2.5% harsh times = $0.18
New Carolin shares last traded @ .05, using 2.5% to 5% of in-situ value
shows me there is upside not yet assigned to LAD’s share price, likely
because, even though the path is clear to 100% ownership we are not there
yet.
This author believes LAD’s current share price is going to go through an
upwards revision when we own 100% of the project. I also believe we are going
to find more gold, a lot more gold. Something big must be causing all those
gold showings/deposits strung out along pretty much the entire 28km length of
the property.
The bottom line is this project is real and we have tremendous
discovery potential on not only the north property but the contiguous
southern property as well - we have to spend money here.
New Carolin is a value proposition. Value will be added by:
- A bad market about to turn in gold’s, and gold deposit
owners favor.
- Securing 100% ownership.
- Finding much more gold.
Conclusion
Gold, and gold mining stocks, are not currently getting a lot of love from
investors. Perhaps it’s time for you to color outside the lines a bit, give
group think a huge doubt and take some advice from the Baron?
Baron Nathan Rothschild became a legend during the financial crisis right
after the Franco-Prussian War. As the story goes, a panic-stricken investor
came screaming into his office yelling, "You advise me to buy
securities now? Now? The streets of Paris run with blood!"
Rothschild replied, "My dear friend, if the streets of Paris were
not running with blood, do you think you would be able to buy at the present
prices? Buy when there's blood in the streets, even if the blood is your
own."
Is coloring outside the lines, New Carolin Gold Corp. TSX.V – LAD and
getting ahead of the herd on your radar screen?
If they aren’t, they should be.
Richard lives with his family on a 160 acre ranch in northern British Columbia.
He invests in the resource and biotechnology/pharmaceutical sectors and is
the owner of Aheadoftheherd.com. His articles have been published on over 400
websites, including:
WallStreetJournal, USAToday, NationalPost, Lewrockwell, MontrealGazette, VancouverSun,
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Analysts.
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Legal Notice / Disclaimer
This document is not and should not be construed as an offer to sell or
the solicitation of an offer to purchase or subscribe for any investment.
Richard Mills has based this document on information obtained from sources
he believes to be reliable but which has not been independently verified.
Richard Mills makes no guarantee, representation or warranty and accepts
no responsibility or liability as to its accuracy or completeness.
Expressions of opinion are those of Richard Mills only and are subject to
change without notice. Richard Mills assumes no warranty, liability or
guarantee for the current relevance, correctness or completeness of any
information provided within this Report and will not be held liable for the
consequence of reliance upon any opinion or statement contained herein or any
omission.
Furthermore, I, Richard Mills, assume no liability for any direct or
indirect loss or damage or, in particular, for lost profit, which you may
incur as a result of the use and existence of the information provided within
this Report.
Richard owns shares of New Carolin Gold Corp TSX.V – LAD and LAD is a paid
sponsor of his site aheadoftheherd.com
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