THE BEST RETURNS ARE NO ACCIDENT!
(Adanac Molybdenum - Goldrea Resources - Rocher Deboule)
Mike Hoy
It's time to pound the Table! That's right folks and I mean with a sledge hammer!
For more than two years I have written about a man by the name of Larry Reaugh and two of his companies Adanac Molybdenum and Goldrea Resources.
In the past two years I have watched Larry develop both these companies to where Goldrea is about to become a producing gold company in China and Adanac is on the verge of receiving their permits soon to be followed by a major financing taking them to production. An American Stock Exchange listing is also close at hand opening to doors to money and exposure that the company has not experienced to this point in time.
Taking a junior mining company from the ranks of exploration to production is no small task. There are countless hurdles which stand in the way causing never ending delays. The most important point for investors to recognize about both AUA and GOR is the fact that these never ending delays are all but at the end of the line. The time required to get to where these companies are today is in the past. Without a doubt investors are about to see just what happens after permits and financing are in hand.
ADANAC MOLYBDENUM AUA CAN AND AUAYF AM; CURRENT MARKET PRICE $2.37 CAN
Moly stocks have been excellent investments in 2007. Some individual stocks have performed much better than the group as a whole. Investors need to recognize that eventually the moly industry is going to become "stock specific" in the approach to the companies they choose to own for the long term. At this point in time shareholders of AUA are going to be very happy as they see profits and attention flow from many of these other companies into AUA.
Several of these other companies whose stocks have outperformed AUA are about to find out just what happens when the time comes to "put up!" Most of these companies do not even have a completed feasibility study. I personally believe the surprises that a completed feasibility will bring public will clearly show investors that what they have been led to believe may be a just a little too optimistic.
Investors in these other companies are about to be introduced to the "real world." These investors are about to find out exactly what it takes to get to the stage that AUA has already achieved. I have written many times in the past about "material changes" that arise causing the fundamental development of a project to change in a negative way. For example; one very popular moly company is about to find out just exactly what the costs and time delays associated with the removal of 500 feet of overburden are to get to their higher grade ore body.
Do you think investors in this company have any idea of the challenges associated with this task? When investors in this company understand this and the fact that the total depth of AUA's pit is expected to be roughly 500 feet with the high grade ore within 30 feet of the surface I think there will be an absolute panic to roll from this company into AUA. Another very popular company has a project where they have to construct a 180 km pipeline to bring water to their project. All these details and so many others which in the end are an absolute necessity to take a body of ore into production, to this point in time, have been conveniently downplayed and buried in confusing news releases by the companies themselves. Unsuspecting investors in these companies are in for what I feel to be some very unpleasant surprises as they recognize the reality of the road they face ahead.
The time is coming where the importance and significance associated with these minor inconveniences are about to be made public. Feasibility studies have a tendency to bring all this stuff that so conveniently gets overlooked to the surface. Often feasibility studies are delayed as the management teams themselves attempt to figure out a way to soften the blow of the truth.
Many investors and analysts seem to think that the size of the ore body followed by the grades are the only factors necessary in making a decision as to which stocks should be owned. I got news for these people; in developing a major moly mine the cost per pound of production is most important to me as it tells me just what price I have to have to make money on everything coming out of the ground. Grades mean nothing if the cost per pound is not competitive.
In the case of AUA their feasibility study shows a grade of .084% for the first five years. The funny thing about these grades is the fact that they do not reflect a 10,000 ton bulk sample which showed actual production grades in excess of 20% to the grades quoted in the feasibility study. In addition to this is the fact that results from the angle drilling program performed last summer show grades in excess of 60% over those quoted in the feasibility study. The feasibility study reflects vertical drill results versus angle drill results. Lastly, this high grade ore lies near the surface which will make it very easy to get to.
The size of the ore body is important but in the case of AUA the ore body is open in three directions and has proven up well in excess of 20 years worth of production. At this point in time it is impossible to tell how many billions of dollars await AUA in the ground as future drilling programs are unquestionably going to prove up additional resources.
I have one last very important point to make from all this. I cannot put enough emphasis on how important it is for investors to know that the work that AUA has performed proves up exactly, and then lots more, what the company has been saying all along. The difference between AUA and their competition is the fact that I believe the competition will find that as they perform the same work programs that AUA has, their numbers and expectations will change dramatically. Investors in these other companies have been led to believe that they can comfortably predict the costs and timetables associated with them coming into production. I think the investment community is about to find out that these companies may have a few unpleasant surprises in store for their shareholders as they advance to the stage that AUA has already achieved. AUA has done its talking after they performed their work programs; not before and that in my opinion completely separates "the men from the boys!" Why is it that all these other companies have always compared themselves to AUA? Do you think it might be as a result of knowing the fact that AUA is the true leader in the developing moly sector and they are far behind?
For two years investors have heard people like me tell them that AUA has a minimum of an 18 month advantage over their nearest competition in being the first major moly stock to come into production. It is inevitable that AUA is about to be recognized for both their accomplishments and the fact they will be first to take large quantities of moly out of the ground at a very competitive cost. Seldom does the investment world offer those companies who are clearly behind in corporate development a premium price over others who lead the pack. Without a doubt the shareholders of AUA are about to be the beneficiaries of a market that finally recognizes fact from fiction.
With permits and financing on the table right now I believe the timing for AUA could not be more perfect! This is the time where shareholders can truly load up and then sit back and enjoy the ride.
This last point is so very important for investors to understand. In my 30 years of being in the investment industry I have repeatedly seen investors make the same mistake over and over again. That is the mistake of selling their stock after a small rise in the price only to miss the huge rewards of those who have the patience and understanding to know what their investment is worth.
This is all my own opinion but I personally believe that AUA is about to completely separate itself from the rest of the pack and shareholders who understand this have an opportunity to hit a big-time homerun. So please make sure that you understand this because I do not want to hear the crying that is going to be heard loud and clear from all those who make a little bit of money and sell their shares way too soon leaving their homerun on the table as another missed opportunity.
GOLDREA RESOURCES GOR CAN AND GORAF AM: CURRENT PRICE $.50 CAN
Goldrea Res. Has recently completed a major financing where they successfully raised $10,500,000 Can. I want to thank each of you who participated. GOR is now a very well funded company.
Sometime during the financing the first shaft reached total depth of roughly 800 feet. This shaft is now in the process of being completed. Once complete work will begin on the second shaft. After the shaft is totally complete work will then begin on driving an adit to the ore body. Eventually production of 500 ton/day will come from the shaft. If all goes well we should be taking gold out of the ground this fall. Whether it is this fall or this winter the fact remains that GOR will be in production and that is the beginning of a whole new world for the shareholders of GOR.
With production now on the table the next level of focus I have is the time frame it will take for GOR to complete the acquisition of the Daye Mines. Only time will tell when this acquisition will be complete. The management of GOR does not have the ability to move this along any quicker than the government of China allows. At this time I am not aware of any roadblocks or problems standing in the way of final approval.
It is expected that within the next few years GOR will be taking 75,000-100,000 oz/au/year out of the ground in China. I personally hope to achieve this level of production within 2-3 years of commencing initial production.
Investors must also recognize that the timeframe it has taken GOR to reach the stage it has in China is time that has already been put in. The relationships that GOR has established have set the stage for all future acquisitions we may want to do in China. Any company coming behind GOR will have to go through everything that GOR has gone through and they may find the road a little bit longer than the one traveled by GOR. The Chinese work off of a different schedule than the Western World and any company who does not recognize and respect the traditions of the Chinese will find nothing but frustration awaiting them at what they think is the "End of their Rainbow!"
I believe GOR has a distinct advantage over others companies who will want to do work in China. One of China's main concerns deals with companies who want to enter China and take what they can get with very little consideration given to the long term effects on employment and the environment.
Whether it is dealing with the natives at Ruby Creek for AUA or the Chinese on the Daye Mines; Larry Reaugh and his teams have treated all parties with the utmost of respect and consideration. Many times excellent work like this goes completely undetected as a result of no problems arising bringing light to the fact that something may have been done wrong.
By building shafts underground, GOR is taking the initiative to show those in power that GOR is the kind of company they want to welcome into their country for the benefit of all. By taking the time and spending the money to do things right GOR is proving to those in control that we are exactly the type of company they want to develop their natural resources.
Larry Reaugh does not cut corners. All work has been performed and completed on both projects by those with the best reputations. You can rest assured that with Larry at the helm you are going to get to where you want to go with a minimum of negative surprises.
I am very thankful to find that my "three" favorite companies all are associated with Larry Reaugh. That's right people; three!
SHAREHOLDERS in both Adanac Molybdenum and Goldrea Resources need to understand the value that is being built into the shares is in no way reflected in the market price of their stock.
Sophisticated investors know that it is only a matter of time before the whole world is going to understand what we already know.
Bottom Line: investors in both these companies can back the truck up and then sit back and enjoy the ride.
THE THIRD COMPANY
I have held off writing about this company up to this point in time for a number of reasons. One reason is this company has a thin float and it is hard to accumulate shares in. There are 32,000,000 shares fully diluted with 10,000,000 of these shares being warrants which will be exercised between now and the middle of September @$.15 Can/shares. Between now and then I do not know what this stock is going to do as it is anybodies guess. If it were not for the warrants coming due I would buy all I can get my hands on at these prices which are in the $.60-$.75 Can level. I am a buyer of this stock and I will be in the market with the rest of you.
I also think it is important for each of you to know that I have never sold a share of any of Larry Reaugh's companies that I have purchased in any of our portfolios. In fact I am still a buyer of each of the companies I have already mentioned.
Before I get into the story I believe investors should begin to establish a position in this company now so as not to miss out if it were to move straight up. I do believe the potential exists for this company to be another NovaGold NG. As most of you know I was on board NG at its very early stages of development and I still own quite a bit of NG today. I first came across NG when it was a little less than $1.00/sh. If I would have found NG 6 months earlier it would have been in the $.25/sh range.
I personally think each of you who decide to invest in this new company should start at these levels and hope you get a chance to load up on it at lower prices as the warrants come due. My hunch is you won't but do not hesitate if market conditions offer an opportunity to back the truck up on any weakness.
I personally believe the stock will shoot up to new highs and then after the dust settles I think the stock may then pull back and it is that pullback that will offer the opportunity to add to positions. I think the pullback will be to prices that are higher than the current market prices. With this being said here is the story.
ROCHER DEBOULE RD.H CAN. AND RDBHF AM. CURRENT MARKET PRICE $.63 CAN.
This is a company which personifies the genius of Larry Reaugh. There are two main properties in this company that each, as you will read, has the potential to be a "company maker."
THE ROCHER DEBOULE MINE
The first property is the Rocher Deboule property in BC. This property has, in the past, had 4-5 very small operations that can be classified as prior producing mines. The largest of these mines was the Rocher Deboule which is where the company's name originates. This mine produced 52,000 tons of ore. From this ore was mined.
4492oz/gold grading .085-oz/ton
84,000 oz/silver 1.5 oz/ton
6,203,000 lb copper 117 lb/ton almost 6%
7219 zinc .137 lb/ton
THE VICTORIA MINE
A second mine, called the Victoria Mine, produced only 90 tons of ore but the numbers are nothing short of outstanding.
326 oz gold grading 3.62 oz/ton
2100 lb moly 23.33 lb/ton 1%
4918 lb cobalt 54.5 lb/ton almost 3%
At current market prices the Rocher Deboule Mine had a yield of roughly $485/ton.
At current market prices the Victoria Mine had a yield of roughly $4875/ton.
The important point to take notice of here is not the fact that the yield was $485/ton and $4875/ton respectively but what the ore consisted of.
6% copper/ton
3.62 oz/gold/ton
1% moly/ton
3% cobalt/ton
These are very significant grades of each of these metals and minerals. These high grades could signify a very large body of ore.
It is very important to understand that this is a grass roots property and should be viewed as such when assessing the risk associated with pure exploration. Drilling should commence on the Rocher Deboule property between now and the sometime during the fall. I think it could be very interesting as I will be anxiously awaiting drill results.
artillery PEAK MANGANESE MINE IN ARIZONA
The second property is a prior producing manganese mine in Arizona which was in production in the 1950's.
The acquisition of this property is a classic Larry Reaugh accomplishment. With the Artillery Peak, Larry is taking a big step forward in the field of manganese.
Through Larry's work with the major mining companies showing an interest in the permanent financing of Adanac; Larry realized that there was a manganese shortage. Larry has the 18 month advantage over any major competitive moly project because he recognized the future of moly way before all the other "Johnny come latelies!"
Larry has now branched out into manganese just like moly way ahead of everyone else. The time will come when the supply constraints of manganese are recognized in the same manner as moly. At that point in time Larry will again be recognized as an industry leader. Larry can easily be classified as the "man" with the foresight to have recognized the future of molybdenum back in the decade of the 90's. This same foresight with manganese has now positioned the shareholders of Rocher Deboule to take full advantage of the future of manganese just like Adanac captured the leading edge in the molybdenum market.
Lots of people are doing a lot of research on manganese right now and one of the things they are finding is the fact that there is no manganese production in the US. At least they have not found any yet.
The current market price of manganese has been very volatile. In the past two months it has ranged from $3,000/ton - $6,000/ton. The current market price is roughly $3,500/ton. I am not an expert on manganese so I will keep any numbers to a minimum at this time. It is important to know that if the drilling proves up a resource that this should be an open pit operation just like the operation in the 1950's.
I think you can see the point I am trying to make on both these properties.
I believe that RD.H offers potential that very few juniors can even dream about.
In the past Larry has referred to the BC property as a bonafide shot at a home run. Now add in the acquisition of Artillery Peak and the fact that we know there is a body of ore there that is commercial at current market prices and you have a recipe for what dreams are made of.
In closing on Rocher Deboule I would like to say again that there is roughly 32,000,000 shares outstanding including 8,500,000-9,000,000 shares in warrants remaining to be exercised @$.15 in September. The float on RD.H is very small. It is difficult to acquire a position of size without moving the market. I do believe a block of shares can be put together from the exercise of these warrants. I believe this block can be put together between $.60-$.70 Can. Anyone with an interest can call me directly on this.
There will be a Private Placement down the road at higher prices. There is big time interest in this PP and I am afraid that the retail sector may not be allowed to participate. The "big boys" are already stepping up to the plate. I think the PP will probably come @ $1.00 or higher. Those of you, who would like to participate, if the possibility were to become available, should definitely give me a call so that I know what I have to work with assuming I get a chance.
I wish I could tell each of you exactly how to buy this stock right now in the market. Unfortunately I can't. I believe that an investor needs to begin to establish a position so as not to miss out if the "fireworks" do begin to go off. Once these warrants are out of the way I do not see anything holding RD.H back.
With the recent excitement surrounding RD.H and the acquisition of Artillery Peak in Arizona taking a little attention and money away from GOR and AUA it would be a big time mistake to overlook the opportunity as well as the timing associated with both Goldrea Resources and Adanac Molybdenum.
I plan on doing a lot more writing as I have much to say about a whole lot of what is going on in both the world and the companies I am involved with.
Any of you with any questions can call me anytime between 8:00AM-8:00PM Central Time.
These are very exciting times we have standing directly in front of us. I personally believe the world is about to wake up and recognize the value of what Larry Reaugh has been building.
Excuse my enthusiasm but when I recognize that these last two years have enabled me to build big positions in the companies I own I can't help but sit back and recognize that the time associated with cashing in big time profits on building successful companies is directly in front of us.
It is no accident that I have built the positions and have the percentage returns I have.
As always these are my opinions and it is up to each of you to do your own due diligence so that you have what you need to make your own investment decisions. I am a paid consultant working with the Reaugh Group of Companies. Anyone who would like to be removed from my e-mail list can request to be taken off at the e-mail link below.
Mike Hoy
mhoy@neb.rr.com
402-483-4484
24 July 2007
As always folks, everything I write, that I share with you, is my opinion and my opinion alone. It is up to each of you to do your own homework and due diligence as the possibility always exists that I can be wrong.
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