Summer Update & Commentary
August 26, 2006As we've witnessed over the last 3-4 months the markets have not been kind to most of the Jr. Mining shares, with the hardest correction yet in this metals super-cycle now seemingly near the end of this not so unexpected downturn. Yes we all know about the perpetual market "Summer Doldrums" as they occur every year w/o fail. Herein lies the reason for my absence from the keyboard since my last writing of Apr 09/06. (noted by many emails I've rec'd) Well, all I can say in my defense is why research and write editorials if few are reading them. Many lights are still on, but there are few at home to read or respond to even the most widely read newsletter or editorial scribes (a group of which I'm not among) during this period of the season. So onward with this update & precursor to my future writings resuming again in mid Sept.
First on the list is Adanac Moly Corp:
TSX; AUA-V / Frfurt; A9N.
Adanac Ruby Creek PowerPoint Presentation:
The markets have been hard on Adanac shareholders over the last while, ($2.90 high to $1.45 current) which is hard for some to understand even tho Adanac now has their Section 11, coupled w/ the Bankable Final Feasibility completed and Federal Mine permit applications in the works (expected in late Jan. /07 when the 180 day review process ends) and also when you consider that Adanac is still well in the lead for the permitting of the next 'World Class' 20,000 t/p/d "Primary" Molybdenum mine in NA. Yes, I know a couple of other Jr's have test/bulk sample or small scale mine permits for small scale production, and a couple are "claiming" to be into small scale production in /07, but one of these doesn't even yet have a Final Feasibility study, a Section 11, nor the Fed permits under application. (Adanac has all 3) Another Moly play S of 49 is making mine construction and production cost claims mostly from internal studies, neglecting the fact any U.S. BLM mine permits can take years to obtain, not to mention the tree huggers hamstringing so many mine projects in the US. Now to the more current aspects of AUA's Ruby Creek project. As I write this, the BC Dept of Highways contractor is nearing completion of a $900,000.00 bridge and road upgrade on the Pine Creek haul road to the Ruby Creek mine. A cement/steel span of 32 M with a 3 M raising of the road grade approach to the bridge for 200 M. This is no small undertaking in scope or costs and as Ruby Creek is the only project of any size other than a few small scale Placer Gold Miners on various creeks across Pine Creek, (no residents or residences etc) personally I would venture to say the BC Gov't knows this project is a go. A new bridge across Pine Creek has been in the works for a couple of years, but the size and scope of what they are building now strongly suggests it was upsized to deal with the RC mine before the need arises. (completion date is Sept 15th /06) In all my years of placer mining and traveling the mine roads of northern BC & Yukon I've NEVER seen any bridges of this scope or cost that go nowhere. We get wooden bridges or old Army Bailey bridges and do road upgrades ourselves. As always we can all draw our own conclusions here.
Next up is the fact Adanac is now completing a - 45 degree, 8,000 to 10,000 M drill hole program to re-affirm the bulk sample results achieved by Kerr Addison in their +9000 T underground drift/crosscuts & raises (3000 ft) in the 1970's. Their work showed the vertical 500 ft drill holes (all previous +165,000 ft, including Adanac's + 50,000 ft of drilling over last two years on RC were vertical) did not intersect the known vertical fracturing of the ore body. Kerr Addison reported a 15 to 25% increase in Ore grade (over previous drill results) from their bulk sample and Adanac expects this new minus 45 degree drill program to match those previous results. This average of 20% expected and previously proven expansion of grades and reserves will substantially lower the cost p/lb of Mo production, expand mine life and greatly increase revenue. (not to mention, off-setting CAPEX costs) The back of napkin figuring indicates an end cost (all in) of $4.70 p/lb Mo. The payback period would drop to approximately 18 - 20 months. It would increase production by 2.5 to 3 M lbs p/y. (this increase alone amounts to as much or more recovered Moly than the other 2-3 proposed small scale new Mo mines currently on the drawing board will produce in total p/yr each)
Photo's of the current drill core being pulled:
This, in a NI 43-101 revision would amount to the average grade of Ruby Creek becoming in the vicinity of + 0.1% Mo as opposed to the previous .084% Mo in the 1st 5 year portion of the pit. (not MoS2 which is higher yet) Adanac will also twin one deep hole drilled by Climax in 1974 that returned .10% Mo over 37 M (hole # 146) below a depth of 300 M and another deep hole below 300 M that AUA drilled in 2004 (hole # 310) that graded .11 % over 113 M, both of which bottomed in mineralization. Both deep holes were up to 1000 M from the proven orebody. *Note: Endako's British Columbia 'Primary' Molybdenum Mine with a plus 40 year lifespan thus far, has constantly operated quite profitably w/ grades of 0.08 to 0.05 % Mo and they have a 25 / 75 % Joint Venture. AUA is 100% owned.
One VERY pertinent aspect of Adanac's share value decline at this stage (this also applies to Goldrea Resources Chinese Daye Mine project) is very well summarized in the revealing Apr. /05 editorial by Albert J. Matter entitled "The Second Best Time to Buy Mining Stocks"
Here Albert describes the various stages a stock encounters thru the process from discovery until production. My own sense is when you insert Adanac @ the yr high of $2.90 in stage # 3 & Adanac is now anguishing in stage # 5 prior to the stage # 6 Development & Construction phase, his theory works well. To my thinking this is, as Mr. Matter describes the 2nd best time to buy a mining stock.
I'll leave the numbers crunching for others as to where this stock value is headed & what dividends would be paid with 12 - 15 M lbs of Moly coming out of the ground each year. Mo is currently $28.50 p/lb. Remember those analysts who said Moly was a flash in the pan 2 yrs ago? Well they were wrong then and other analysts still have it wrong. Myself and many others fully expect Mo to hit the mid $30.00 range before years end, & most likely higher in /07 and the years out. It will take a lot of Moly and a few mines to quell the rising demand.
Model of Classic Mining Company Share Price Cycle
Another VERY relevant editorial published on Gold-Eagle.com & 321Gold.com is by Dr Richard Appel and is in my opinion a "Must Read" (I guess because I totally agree with his take on the markets)
It can be found here.
"Resource Stocks Prepare to Rise"
Richard has an extremely good grasp of the overall Market picture in my opinion and one should definitely read this editorial also. I've now written far more than initially intended on Adanac, so let the skeptics beware, their DD is flawed if they think Adanac's Ruby Creek won't come into production for "whatever" unfounded reasons they can dream up next.
Goldrea Resources: China Project:
TSX: GOR-V, Frfurt; GOJ, Pink Shts: GORAF
Subsequent to my last editorial dealing solely with Goldrea titled "Gold Coup in Shandong China" in Jan. /06, (Link) www.goldrea.com/Gold%20Coup.pdf I've noted that much work has taken place. Goldrea is currently down approximately 100 M in the production shaft (300 M total) into the down-dip strike zone from the Daye open pit that GOR intends to begin producing ore from initially. See cross sectional drawing of zone & first 2 drill holes etc. (Link) http://www.goldrea.com/fig3.pdf This 5 compartment cemented shaft will have all the needed infrastructure (cages, air, water & electricity) to allow active mining, ore extraction and further explorational drill work underground. This strike zone is known to run for 4.5 Km and one end was being mined by the Daye mine before they reached the boundary of their open pit claim block (as shown in last link) which on average yielded +/- 65,000 oz/p/y for approximately 7 years. GOR holds a 76% interest & China Rushan the JV partner 24% in all the worthwhile surrounding claims to depth. The previously mentioned LOI (Letter of Intent) between the Daye Mine and Goldrea regarding the purchase acquisition of the Daye mine is to be signed by the end of Sept. /06. The agreement having then been signed leaves GOR until Oct. 28 /06 to finalize by way of the first payment. One other salient point for GOR is the exceptionally low cost of mining in China. One example is the new shafts total costs are less than it would cost just to collar and sink 50 ft of production shaft here in Canada. The latest agreement (NR of Aug 23/06) w/ Tortuga and GOR runs much deeper than I can allude to here and we'll be hearing a lot more on that front over the wks/months ahead.
Picture of one Part of the Daye Mine; Courtesy of 321Gold.com
The current drilling on Goldrea & China Rushan Jv'd claim blocks is still underway by the 3rd Brigade and they are now out about 1000 M from the Daye Pit.
Here is a brief excerpt from the July 6/06 news release regarding the Daye Explorationů.
Daye Joint Venture
Drill results over the past two years have extended the known mineralization to depth. This mineralization follows the contact between the basin sediments and the basement rocks along a broad front some 4.5 kilometers wide. This contact zone is shallow dipping and is characterized by a sulphide bearing breccia contiguous along the zone. Within the breccia are bodies of gold mineralization. This gold mineralization is the ore which has been mined in the Daye Open Pit and is the target of development down dip. The "Golden Rose Shaft", presently at a depth of 40 meters, is being driven toward the downward extension of the Daye ore zone. This gold bearing mineral zone is referred to as the South Shijia Zone and is indicated by drilling late last year.
Surface mapping and shallow drilling has indicated seven of these gold and sulphide bearing bodies of undetermined size along the 4.5 km strike of the contact. The sulphide breccia contact is truncated by faults on both ends but the remainder of the contact between the basin rocks and the basement rocks remains prospective and untested. Geological interpretation of the mineralization along the contact indicates that the breccia, with the accompanying sulphides and gold, will continue to depth. Because of the shallow dip the contact extends off the Daye J.V. Exploration Licenses to the south. The new Joint Venture agreement with the 3rd Brigade (The Weihai Agreement) will cover the prospective areas within the basin to the south, for a distance of 6.5 kilometers.
On another Goldrea front, GOR and it's sister company, Molycor Gold Corp, (MOR-V) I believe now have drill permits for their 50%-50% Tadpole Lake (Dobbin #1 claim-block) Platinum/Palladium project in central BC. This project alone could catapult both MOR and GOR if the size of the orebody becomes what the Geologists expect thru step out drilling in Sept. This is the first of 3-4 drill programs for MOR between the BC Joint venture w/ Goldrea and their own Nevada Silver/Copper/Gold projects. (Nevada is 100% MOR) More on Molycor in September but the place for some DD is linked here below for those so inclined, and I can be contacted for further details regarding Molycor Gold Corp. or Adanac & Goldrea by ph or email. www.molycor.com/dobbin1.htm
I mentioned in a previous editorial awhile back (Miners Tri-Fecta) that there would be a fourth horse in the Larry Reaugh stable of mining companies and will soon be writing about it and their exciting project in a subsequent September editorial also.
As always thanks for reading and responding w/ your phone calls and emails. The numbers of those whom have asked to be kept on my email list is getting very extensive and I will keep you all posted as events unfold & time permits. Please reply by email if you wish to receive further periodic editorials and are not yet on this list.
**Disclaimer: As a paid Consultant for Research, Development and Public Relations to all three of the aforementioned companies, I may at times own shares or hold Options in these companies. As I am not an accredited financial advisor, this editorial cannot be construed as advice to buy or sell shares in these or any other public companies. I strongly advise any and all prospective shareholders to do their own extensive due diligence and research as I have personally done before I came to work for these companies. (KR).
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