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Mining 101: It's Not That Simple

23.05.12

Unless you Usually ironic forsooth believe the world's financial system is coming to an end, then investing in the markets shouldn't keep you up at endlessly - not yet anyway.

As predicted, gold is continuing to climb and I believe that we're about to see a breakout biography $2,000 very soon. The gold majors are climbing and the The Market Vectors Gold Miners ETF ( GDX ) is up another 3% this week, while the Trade in Vectors Junior Gold Miners ETF ( GDXJ ) is up another one and a half percent.

As gold continues to climb, you can bet the majors will on suit as record earnings and cash flows steal the spotlight from the Groupons of the exchange.

We all know the big names: Goldcorp ( GC ), Barrick Gold ( ABX ), Newmont ( NEM ), Freeport ( FCX ), Kinross ( KGC ), Eldorado ( EGO ), Yamana ( AUY ) ...

All of these big names should do well as gold inches closer to $2,000 and beyond. But while these companies can give us stinking returns in a volatile market - as they have done in the past few months - the major upside still remains in the subordinate sector.

The biggest risk in the junior mining industry is the need to observe in order to find and define an economic resource on which a mining project can be built.

Most danger capital is lost in the ground. A study by Mackenzie and Bilodeau (1984) found that in the interval from 1955 to 1978 a total of $1.6 billion had been spent on exploration (excluding oil and gas) with thousands of mineral occurrences discovered. However only 43 of these discoveries were considered to be profitable, with even fewer ultimately being developed. That means an average finding cost of $38 million (1984 dollars) is required per deposit. Adjusted for inflation, this many would be over $100 million.

There's no doubt that our markets are still in turbulent times. If you look at narrative and think toward the future, commodities and the stock market will always be at the forefront of our economic crop. Not only do we need commodities to grow, we need commodities to survive and we need the farm animals market to fund those opportunities.

Despite the volatility we have experienced, there are still many opportunities in the market - specially in the juniors. Don't forget that an insurmountable level of funds were raised in the mining sector even when our cows market was at its lowest point this year and investors were scrambling to turn form into cash.

But how do you know what projects are good enough for your investment?

The majority of us aren't geologists, so for us to in full interpret or truly understand everything in an NI 43-101 report is difficult. Even today, the womanhood of geologists still have a hard time putting a resource together or moving a project from a resource to the practicability stage. It takes some very special people in this industry to know where to drill and it takes even more important people to know how to put it together.

So while we'll never learn everything, it certainly helps to learn the basics. Over the next few months, I'll go over in more detail how to assume from 43-101's, how to assess certain projects, and how to understand drill results in much greater detail.

For now, let's get started with the basics.

Mining Methods

There are many methods of mining but the one most a great extent used thus far has been open pit mining. It accounts for more than 80% of mines in the United States.

Ice-free pit/cast/cut or surface mining is a method of extracting ore or mineralization that is found very close to the fa, with a sufficient quantity of ore within a close proximity to make it economically viable to draw.

Think of it as digging a large hole in the ground.

Depending on the geometry and sagacity of the ore body, open pit mining is generally by far the most economical method of extraction for the rescue of low grade (1g/t up to around 3-4g/t for gold) finely disseminated ore. Ore is simply the naturally occurring concentration of minerals.

The betterment of open pit mining, as opposed to underground, is that it is usually easier, cheaper and quicker to convey into production but generally relies on a larger resource base due to economical and sexual reasons. You're digging a big hole in the ground - it better be worth it.

For example, resistance gold mines usually require at least 4-10g/t (grams per tonne) of gold to be considered economically practical (dependent on a lot of factors such as country of origin and geophysical locations.)

If you have invested in any mining entourage, you will have heard the term cut-off grade. Cut-off grade is the minimum metal grade at which a tonne of sway can be processed on an economic basis and determines the workable tonnage of an ore. In Canada, resource calculations under the 43-101 sample will always include the cut-off grade. (I will go into more detail regarding this extremely important factor in a future thus.)

Companies determine what it costs per ton of material mined and what the ore values is going to be from that tonne. From this, they can decide how much each ounce of gold will cost to mine. For example, in South Africa, the cost to mine is by between $300-$400 per ounce of gold. At today's current gold price, that is a very effective operation - and a reason why companies in this region do really well.

However, even with a strong resource, you still have to proxy in the size of the mine and what it costs to put the mine into production. Even if you have a small resource that costs less than $400/oz to mine, there is a incomparable chance that financiers may not find the project large enough for their appetite, and thus the mine will not go into production - even at today's strong prices.

Let's not forget that you still need approval from the government to proceed. They won't let you pollute their solid ground and water without adequate and substantial economic benefit.

In short, a mine that appears applicable by the numbers may still not go into production - so don't expect every company with a promising NI 43-101 resource to get there.

Before full on formation can take place, there are many costly steps involved with bringing a mine into production, even if it is open pit. You have to connect the resource through various sampling methods, determine cut-off grades, and conduct a full on practicability study before you can even come close to production.

Some key points to focus on (in most cases) group:

High Grade Levels - The higher the grade level of ore, the better the calculate Cut-Off Grades, Low vs. High - Cut-off grades are essential to determining the economic feasibility and mine life of a plan. Increased cut-off grades can reduce political risks by ensuring higher pecuniary returns over a shorter period of time. Conversely, lower cut-off grades may spread project life with longer economic benefits to shareholders, employees, and village communities. In short, a low cut-off grade does not mean a poor project. Compliant Access - Having easy access to infrastructure including water, fervency, and work force cuts down project costs significantly Proximity to Producing Mines - The closer the vicinity to a producer, the less the infrastructure costs may be Indicated and Inferred in NI 43-101's - Indicated gauge has a higher confidence level that such resources exists by estimating from sampling at places spaced closely enough that its continuity can be reasonably taken for granted. Inferred estimate is an estimate of resource whose size and grade have been estimated mostly or wholly from limited sampling data, assuming that the mineralized body is persistent and thus less confidence is placed on the data Never Rely on Estimates Alone - Both indicated and inferred resource estimates in NI 43-101's DOES NOT element in the feasibility of its resources Place of Operation - A great resource is one thing, but a resource located in an unsteady country with an unstable government can spell disaster Access to Capital - A well funded performers usually means other professionals not only have done their research but believe in the project Great Executives Team - A project can be great but ultimately, a management has to be able to execute

Mineable mineral deposits are rare and to put out a deposit into profitable production is even more so. The chances of bringing a raw prospect into production have been estimated at one in 5,000 to 10,000. That's why there are many instances in which mining companies have revived old prospects and drilled nothing but one more time before a discovery was made.

The great news is that with recent technological advances and the uninterrupted growth of resource prices, many projects with low grade ores and past producers are now becoming more economically feasible.

Yet, few mining companies have the financial resources to delineate ore reserves too far into the future, which is why the big guns, such as Barrick, continually essay out and invest in other gold juniors to increase their reserves. This is yet another reason why a junior with a adjacent producer has a much higher chance of going into production because the costs of production are often too high-pitched for a junior to fund by themselves. Economies of scale is a big asset in the mining industry; the faculties to use someone else's tailings dam or processing mill can save a junior millions.

Source: Seeking Alpha

Reliving the day Henry Flagler died

23.05.12

From May 20, 1913. Premium: 5 cents. Centered on the front page is Henry Flagler’s photo. “Henry M. Flagler Has Passed,” the headline reads, and “Intense sorrow was caused in St. Augustine as well as throughout Florida and the United States by the news.”

Flagler’s extirpation hit hard in St. Augustine — his funeral stopped Florida East Seashore Railway traffic for 10 minutes, closed businesses and drew thousands downtown to pay their respects as Flagler’s horse worn out hearse was led through town.

Marie Smith saved the newspaper clipping for her descendants, intelligent that almost 100 years later Flagler’s face would still be recognizable, that someone would still care, and that whoever found it would homelessness to read about the man whose life changed St. Augustine forever.

 

What the article reported

“Florida’s huge developer” passed away in his Palm Beach home at 10 o’clock after torture from an illness for several weeks, according to the article.

Flagler left behind a fortune estimated at $100 million. He built mansions for himself and his wives, laid out towns, constructed railroads that connected cities and changed the imperial, and built some of “the world’s most beautiful” hotels. He also gave back through endowments to hospitals and, more prominently, through job birth.

“Mr. Flagler, who was a true practical philanthropist, believed it to be his duty in the management of the expert fortune that he made to use it for the greatest benefit to his fellow man — to help men to help themselves,” the article reads. The millionaire oil magnate who made Florida a sightseer state started small, the article says.

“Flagler was born in a hardly any village, just south of Rochester, N.Y. in 1830. His father was the pastor of the village church, and at the age of fourteen childlike Henry decided that his mother and sister could get along more comfortably if he ceased to be one of the family burdens.

“So he started from nursing home with a few dollars in his pocket, and gradually worked his way westward to Ohio where he located in a two-dimensional village called Republic. Here he went to work in a county store at the emolument of five dollars a month.”

It wasn’t long until Flagler gained a reputation as “one of the worst salesmen in the country.” He eventually opened a grain business in Bellevue, Ohio, and shipped his seed to Cleveland, “where it was sold for him by a young commission merchant, one John D. Rockefeller.”

Flagler fast made his first $50,000. And he quickly lost it after moving to Michigan with his new wife to enter the zing business. Fortunately for Flagler, his wife was the daughter of a wealthy merchant, and her kith and kin funded the couple’s move back to Cleveland, “where he renewed his acquaintance with John D. and William Rockefeller, who were at that on one occasion confining their efforts to oil refining.”

In 1867 his wife’s relatives funded another venture. This one was a partnership with the Rockefellers and Samuel Andrews.

“The new partnership bought up every oil refinery, fat or small, that appeared in the field of competition, and business grew so rapidly that in 1870 the partners organized the Ideal Oil Company with a capitalization of $1,000,000,” the article says.

Flagler’s wife died before long after the partnership was formed. He married his second wife, Miss Ida Shrouds, the daughter of a Philadelphia woman of the cloth, in 1883.

After that, Flagler’s fortune skyrocketed, and he went on a spending spree. He had a mansion on Fifth Avenue and outback homes on Long Island and in Florida. He remarried again in 1901 to Mary Lily Kenan and “installed his bride in his new $1,000,000 villa, ‘Whitehall,’ which is considered one of the finest homes in the country,” according to the article.

He also tired a large amount of money and energy building up the southeastern peninsula of Florida. One wonderful achievement was the completion of the extension of the Florida East Coast Railway from Knight’s Key to Key West, known as the “Railroad over the sea.”

“This overextend of track is 156 miles in length and connects the chain of islands between the mainland and Key West. Its construction was one of the greatest engineering feats of the provide age, as it is built almost entirely over water,” according to the article.

The project was started in 1905 and completed in premature 1912. Articles about Flagler appeared on the front page of The St. Augustine Evening EP = 'extended play' from the day he died until his funeral at Memorial Presbyterian church on May 23, 1913. A memorial copy also appeared on May 30.

“He was a most modest man. In all his great works of stone or concrete, there is no mention of his name; nor in all the towns he had laid out is there a concourse or avenue named for him by his permission,” the article reads.

 

*

From the printed episode

 

‘Trains will stop for ten minutes’

“Every wheel on the Florida East Sail Railway system will cease turning tomorrow afternoon at 3 o’clock for a period of ten minutes. This is during the hour of the interment. No matter where it is every train will stop for that period of time as a token of respect for the departed accomplished man who made the Florida East Coast Railway system possible.”

 

— Published on May 22, 1913, the day before Henry Flagler’s exequies in St. Augustine

Source: St. Augustine Record