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In
China patience is considered one of the Seven Heavenly Virtues, and lord knows
being involved in every aspect of the mining game requires a lot of it
whether you be of Asian, Western or any other descent. From 2005 when I first
penned an editorial on Gold Mining in China http://www.321gold.com/editorials/reser/reser040805.html, I
mentioned that Goldfields C.E.O. Ian Cockerill had in 2003 called China the
World's next major gold mining province. He also believed in the potential of
major gold finds in the deep complex geological mineral structures of
Shandong province and had consummated a JV with Sino Gold of Australia in
that area. Since then thru time, patience, hard work, Gold production and a
series of acquisitions and deal making, Sino Gold became a great investment
being subsequently bought out in /09 for over $7.00 p/sh.
*Note:
Sino Gold listed on the ASX in /02 with it’s share price escalating
from $1.00 (A), to approx $8.00 (A) in /09, so what they were doing for the
prior seven years is unknown to myself, but it shows the span of time the
whole undertaking went thru. Obviously they had substantial shareholder
support over the last seven years of being public.
When
did they first enter the Chinese Gold mining arena looking to begin the
journey? In 1995 said the CEO/Pres of Sino Gold, Jake Klein.
http://www.chinamining.org:80/News/2009-04-01/1238572480d23184.html
(Excerpt
from Apr/09 Article) President and chief executive Jake Klein told the
Paydirt Gold Conference in Perth on Wednesday that Sino Gold, which was the
first foreign entrant to China's gold sector in 1995, was benefiting from the
Asian superpower's ready access to capital.
"Here's
a bold prediction: Chinese gold companies and the Chinese gold industry is
undergoing a revolutionary rate of change and what is going to be a major
catalyst for change is access to capital," Mr. Klein said. (End)
And
today? Well yes, they have achieved great successes and borrowed a lot of
money from banks to get there, somewhere around $175 M (Australian$) to fund
Sino’s various mine projects and kudos to them as borrowed money is
often a dangerous scenario for Jr Miners at the best of times, but more on
that later.
Shandong
Province’s Gold production for over 30 years has been the largest of
any province in China and in /08 it reached an output of just over 47 T which
equaled 21% of China’s total output. The Chinese officials
expect yearly growth in the realm of 12% year on year in terms of Gold output
in Shandong Province alone.
Two
other large Gold Miners operating in China are also making expansion plans
for higher Gold output which is a further confirmation of forward thinking
intent in China. Shandong Gold and Zhaojin Mining both state they plan
to increase Gold output substantially. Shandong Gold produced 17 T in /08,
and will have produced 20 T in /09 (est) and plans for 30 T of Gold output by
2011.
Zhaojin
Mining state they produced 10 T in /08 and will have produced 13 T (est) in
/09, with expectations of also producing 30 T p/yr by 2014.
In
order for the Major Gold miners in China to expand Gold reserves and thus
Gold output they need to make acquisitions obviously and outside of a very
few small private consortium mines and some illegal mine operations to target
there isn’t a lot for them to choose from in their expansion plans.
One
junior miner that could and should be a future target that I have written
about in past years is a small junior with a very strong foothold in China
(Shandong Province, near Rushan City, specifically) by the name of Goldrea
Resources on the TSX Venture Exchange. (V-GOR) http://www.goldrea.com
Goldrea
Resources has been slowly and quietly forging ahead with some (as yet un-noticed
by most of the investment community) very substantial
advancements stemming from a $10 M financing done in 2007. Keeping in mind
what the last two years has been like for junior miners I find their
advancements to be very noteworthy. (some of the achievements below are from
Nov /09 News Release)
Expenditures
to date: $7.5 million on Goldrea Rushan JV directly.
Achievements/Next
Steps:
- 57,122
Meters of Diamond Drilling completed (187,360 ft)
- 235.5
Meter cement walled shaft completed (772.6 ft) with five compartments
- NI-43-101
Indicated Resource of 174,000 oz Gold
- 4750 M
of underground drifts and development work = 3 Miles (plus stoping work)
- 22,000
T bulk sample test completed w/ 329 0z Gold recovered
- Current
daily production of 50 T p/day
- Negotiations
w/ 5 separate Chinese Gold companies ongoing currently for possible JV
funding
- Goal
of 100 to 200 T p/day from Golden Rose shaft (initial shaft already
completed)
- Two
more shafts in planning stages
- Reassessment
of Gold reserves from drilling and 3 Miles of drifts already completed to
come in 2010
- Continued
exploration and development of Ludi Properties JV, adjacent to the
Goldrea/Rushan claim blocks
- Continued
development of Golden Rose orebody drifts and stopes already well underway
As I
understand it, one of the key points in working in China is the fact that it
costs approximately 80% less to do the same amount of work as it would cost
in NA. Goldrea’s bulk test with a certain percentage of
inevitable waste material at this early stage yielded approximately $350,000
US in Gold. Now specific stopes (sections of tunnels) are being developed for
higher grade material. It is easily foreseeable that 200 T p/day (and
more) is achievable from the first shaft already in production. Quite
possibly even before more shafts are completed and the over-all Gold Resource
is recalculated, Goldrea could be a prime target for a takeover. I
believe the reserve estimates will climb very substantially in due course and
with a paltry market cap of roughly $6 M and some ore zones assaying in as
high as (grams per ton as follows):
6
grams over 48 ft,
5.98 grams over 52 ft,
29.25 grams over 6.6 ft,
5.67 grams over 45.9 ft,
4.12 grams over 4.12 ft,
14 grams over 6.6 ft,
6.46 grams over 32 ft,
18.25 grams over 5.9 ft.
There
seems to be much to gain here for GOR shareholders in the foreseeable
future. Assay reports from previous GOR news releases show multiple ore
zones with substantially much higher Gold grades than what was achieved from
the bulk test thus far. As I mentioned before, there is waste material in the
bulk sample as the ore milled was taken as the drifts were developed to block
out ore reserves, so the 22,000 T bulk sample does not actually reflect true
values of actual ore zones to be mined in future. I can only imagine
what the costs would be in NA to complete 3 miles of drifts and cross-cuts,
and then factor in the shaft cost coupled with over 187,000 feet of diamond
drilling. I would say shareholder money invested to date has gone a
long ways already.
With
Goldrea’s 90% ownership of this JV project and the Rushan City’s
(10%) also owning the Daye Gold mine, being adjacent to all of
Goldrea’s claim blocks there is no need for any expensive Capex to
construct a mine facility. With contracts in place for mining and
milling of ore by the partner Rushan City owning the Daye Mine and
Goldrea’s costs p/T based on actual costs by the Daye Mine for their
own open pit ore over many years, it would appear that GOR is in a win, win
situation in many ways. Toll milling by their partner will be at a much
lower cost as per oz of Gold relative to that of any western based
operation. Rushan City’s Daye Mine has been operational for over
20 years and has a capability of 1750 T milled per day with an Assay lab and
other extensive facilities on site.
As GOR
management have already openly stated, they are currently in discussions with
five Gold companies in China.
These
talks could well lead to a funding partner for expansion of operations w/o
extensive share dilution. With two more shafts they could possibly
achieve 700 to 1000 T p/day. It would appear readily apparent that
Goldrea could quite easily be another China success story over the next year
or two. Remember earlier I spoke of junior miners taking on debt and
how it can backfire? Well they have NO outstanding debt-load, so all of
the extensive work that has been done is already paid for and the stock is
trading at 9 to 10 cents p/sh. Sounds like an awful cheap entry point
into what is already (albeit small scale) an operational mine, with some
substantial milestones already achieved and in place.
It
seems self evident to me that with Goldrea Resources long and well
established focus, land position, work already completed, strong relationship
w/ Daye Mine (owned and operated by Rushan City Municipal Gov’t, their
Chinese counterpart and partner) and a bit of the aforementioned supply of
“Patience” coupled with a few shares of Goldrea Resources an
investor could well see substantial gains over time. Check the 5 year
chart and you will see (when the market was hot) Goldrea traded at 6 to 7
times the current value and that was when they were just in the early stages
of this project in 2006, 2007. Food for thought when one considers
where they are now in terms of achievements and where they seem to be
headed! It has been known for some time now that China wants to
privatize Mines and expand their national Gold production with the
implementation of western mining methods, expertise and mine safety
measures.
This
appears to be one western junior miner with a lot more than a foot inside the
door to China’s wealth of Gold as yet untouched by modern mining
methods. A bright future? You be the judge, I just relate the
facts as I see them.
Best
Wishes to all of us for a “Prosperous New Year”…
Note:
In Chinese Astrology, 2010 is “The Year of The Metal Tiger”
Ken
Reser
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