Exploration, Analysism, Tips & Tricks with Brent Cook
Published on August 25, 2017
00:00:08 Thank you all for coming. This is going to be a bit different. There are a lot of speakers here, so what I want to do is quickly go through - 'Fact or Fiction, It's Your Choice.'
00:00:23 I said this earlier but basically the idea that Kellyanne Conway and Trump have invented these alternate facts scenario, in fact the mining industry was way ahead of them on that. And so, we are going to go into this fact, fiction.
00:00:42 A quick thought on the state of the mining market and how that plays out over time and some tricks and things, real life examples of how Jo and I, some of the things we do to evaluate mineral projects that I'm hoping will help you as well.
00:00:59 That's what we in our newsletter, it is as much about education as it is about picking stocks.
00:01:05 Let's get this out of the way. This is from the 1960's Rod Serling Twilight Zone and with this Moron in charge, I'm going to be honest with you all here, I'm an American.
00:01:24 We've had economic and political uncertainty, inexperience. Fact and fiction is blurred. We've got radical ignorance. Regardless of what someone thinks and how he is running things, the fact is this is what has been happening and in my view that is probably the underlying strength that we're seeing in gold given everything that is going on.
00:01:49 Another 1960 show, Dragnet, Sergeant Friday he was always about, 'Just the facts ma'am' and so that's what we're going to get into is - just the facts.
00:02:02 Over the past, the mining boom, the economy boom, the majors brought a lot of low grade, marginal deposits. What we have seen happen over that period is they have written off, the gold companies have written off 77 billion in low grade assets and it is not just restricted to the gold companies, base metal companies have written off 130 billion just basically down the drain and there is a list of the companies and what they have done.
00:02:37 What that means is they don't need more marginal ounces. I think that's a really important concept. What they need is high margin deposits to replace what they are mining and this is a slide that shows new months, reserves, at different gold prices and what you can see is with a two hundred increase in the gold price with Newmont doing nothing they add 11 million ounces to their reserves.
00:03:07 The point being they've got those low-grade reserves. They don't need more of them they need high margin deposits.
00:03:16 Fact: Marginal/Too Hard Deposits Don't Cut It. Same thing. What I have listed here are eight companies with a total of 227 million ounces of gold and 79 billion pounds of copper. These are unlikely in my opinion to develop at least over the horizon that I can see. NovaGold, Northern Dynasty, Seabridge; these are all big deposits but they just don't work for a variety of reasons.
00:03:46 The idea that one of the ploys, tricks if you will that some of the companies, not necessarily these, that companies in general will play if they've got reserves or resources is they'll price them on how much are you paying in market cap per ounce.
00:04:02 You want to ask, why is it so cheap. So here is a slide from International Tower Hill and it shows the number of companies and basically what you are paying per ounce in the ground. You can see, Chesapeake at seven, Tower Hill at nine, Seabridge at fifteen, so you are paying fifteen dollars an ounce for that and NovaGold is up to 70 dollars an ounce in the ground, in market cap.
00:04:26 But why? Why are they so cheap? Here is Chesapeake Gold. What's the problem? Eighteen million ounces of Gold, etc, you can see that.
00:04:37 Their problem is - there are many - but mainly it's metallurgy, this thing is double refracturing meaning the gold is tied up inside pyrite and it's carbonaceous. So, breaking the gold free of that requires oxidation, which is a big energy input and it requires getting it away from the carbon.
00:05:01 The grey tonic point four or five grams was silver and zinc. The process this is a process to get the gold out of the ore and you can't see the details but just notice how complex that is. In and out.
00:05:21 By the numbers and this is a study they need and I think it's a pretty optimistic study. At 1250 gold. Initial Capex: $1.9 billion, sustaining $1.6 billion. IRR: 7.7%. Payback: 10 years. Summary: Metallurgy and low grade with difficult access mean this never gets built by a major.
00:05:44 Fact: Deposits are getting deeper and lower grade. This shows that overtime, that time frame, where the deposits are being discovered. You can see back in the 80's most of them are at surface. The 90's we are starting to look underground and under cover and now we are finding most of our deposits blind. These are blind deposits
00:06:09 That has a lot of implications as to how much it costs to find these things. How much it is going to cost to build them and that kind of thing. On the other side that’s copper grade and you can see copper grade has gone down over that time frame as well.
00:06:25 And I've got the same for gold, from 2000 to 2015 you can see the reserve grade and head grade, up deposits are going down. So not only are we finding fewer deposits they are deeper and the grade is going down.
00:06:44 Why is it so hard to find an economic deposit? This is a whole topic in itself but let's just consider. For everyone gram per tonne deposit that is at the surface, that Mother Nature forms. I've got this, I always do this backwards sorry.
00:07:08 For everyone 2.5 deposit that Mother Nature forms she forms another ten deposits more or less at one gram.
00:07:17 One gram works at surface but when you start going underground, getting depth, you need to find a 2.5-gram deposit to be economic. So, your odds of finding that are much more difficult.
00:07:30 You are still going to find those one gram deposits but that's going to cost you a lot of money to drill out to make the decision that - darn that's only one gram deposit I've got to move on.
00:07:39 so it is much more expensive and your drilling costs are higher. Usually deeper deposits are more metallurgical complex. Certainly, you've got a much bigger footprint to deal with so your capex, permitting, etc, is going to be a much bigger process.
00:07:55 Often you'll dealing with water so you have to deal with the water issues and disturbing a bigger area then you've got the environmental and social issues to deal with too.
00:08:05 So that is why our discovery rate is going down and it's not going to increase which is positive for us here in this room because all we have to do is own the very few companies that successfully find an economic deposit. And that's what we are going to talk about.
00:08:25 This means killing an idea, a project as quickly as possible. Find the fatal flaw and move on.
00:08:36 Know the funding requirements of the company you are investing in, what is it going to take to get them to the go/no go decision. Know the economic parameters of this deposit meaning what is the capex going to be to build a mill in the Ucon for instance versus in Nevada. Those sorts of things can all factor in to what sort of grade and tonnes you are going to need.
00:09:02 Geology - know the geologic parameters, what do you need to see geologically in terms of drilling, results, to make the decisions that yes they're on to a legitimate cornfee or no this thing is dying out.
00:09:14 Social environment hurdles, is successful meaningful. This is something that I see a lot is where a group or company, their target what they are looking for, even if they are successful it's not impactful to the share price. It doesn’t really matter. We're taking big risks, really long odds. We want something big.
00:09:39 Quick screen, you start seeing this sort of stuff on a website, gold bars, statue of liberty - that sort of thing? It's generally a bad sign. If it is OT listed, it is the worst sign. Head Office - Los Vegas, Coral Gables or Dallas? It's a bad sign.
00:10:06 Here's one I like. Where is the information coming and how are they getting paid? Here is a hard asset alert investor watch, buy this company. Look at the fine print.
00:10:21 'We most often receive monetary consideration; however, we may receive securities or compensation and buy and sell these securities at the same security we are disseminating information. That's easy.'
00:10:34 'We only present positive information regarding an issuer therefore, you should conduct an in-depth investigation of your own.' What can I say? Share structure this is a big one. It costs a lot of money to discover and find a deposit. It is an expensive business, there is no money coming, so they continually bring in more money.
00:11:01 Here is an example of Skeena Resources. You can see a little over two years ago they had about two hundred million shares out. Sixty million market cap and six cents a share. Today they've got more than double the shares out. Market caps 27 million so it is doubled as well. Stock still at six cents. So, you see the tree time’s increase in shares out, two times the marekt cap, zero share price and bingo! They need more money. This is a quick way to lose money. Realities at surface may not reflect what you are shown in these flip books.
00:11:40 Here is a company that put out some nice trench results, 40m at 5 grams, 26 at 1.3, but look where that thing sits. You can't build a mine there. That's a big river, it floods, it's in Mexico. It floods in the wet season, there's no place to put a mill, it's impractical. Nice results, though right?
00:12:00 Alright, let's get into some real geology here is a vein. I can looking at the roof, looking down the vein like that. It's about half a meter wide and I pointed out where the Quartz Veins in, sit. That's what it looks like again. We are walking down there, these are the quartz veins. This is where the gold is.
00:12:21 But, you can't just mine those little veins you've got to take at least a mining width. So, we've taken our one metre width but to mine it we've got to mine another one and a half metres so that gives us a three metre wide vein we're mining.
00:12:45 What we've done is taken our ten gram deposit down to five grams just by the delusion. Is that making sense? So, what that does, here I say it, 1.5 m at 10 grams and the mine width is 3m you dilute it down to five grams a tonne or basically you've taken a 420 dollar rock and turned it into 210 dollar rock. Big difference.
00:13:13 We did this in the letter and this is kind of what happens. Given what the PEA suggested and what we figured they were going to happen and you can see that the bottom line the IRR almost drops by half and the NPV as well just by doing that. Strip ratios; again, a big thing. A narrow structure is much more expensive to go to depth than a big one. So here you've got a 4.4 to 1 strip and a 2 to 1 strip.
00:13:52 Real life example; so here is the resource pit in grey when they did the resource estimate that's what it came out as, so great.
00:14:08 When they actually went in and did the prefeasibility pit shell that's what it looks like, the same gold prices. So, what's happened here is to start off with, all of that material there has to be mined but didn't show up on the resource report. So, your strip is higher. And down here all this material that was in the resource is no longer in it because the pit can't take it that deep. Makes sense?
00:14:46 Here is another real life example, since we've gone through that. Let's look at this. This is about a half gram cut off, these are the longer intervals, here are the proposed pit shell. You tell me, is that going to make money?
00:15:06 Those bars and I should say these bars are their gold grade, so we get some high grade hits, you get some hits, hits. But look at all this low grade. Look at all that low grade. Zero grade. Ore makes money, waste lose money. Where is my Engineer Michael? Anyway, that's the mining engineer's definition.
00:15:35 Alternative facts, smearing high grade across no assays. This is a good example, real life again. WCB in New Guinea put this out. Headline news 48 m of 4g gold etc. That's an impressive hit, right? But it included within that long interval they pulled out a little bit 4m of 47 grams, so what happens when you pull that 4 metre section out of that big 48 m section of rock?
00:16:06 And this is the tool that myself and Corbox developed. It is on the internet, you can go to it, you can plug any numbers you want into this. And that is what I need. I put 48 metres at 4 grams and including 4 at 47. Look what happens.
00:16:23 The residual grade, meaning the remaining grade is .13 grams a tonne gold. That's not ore. So, your whole idea if you will of what this deposit might be is suddenly changed and you don't have a big 44 m zone you've got a four metre zone that makes a big, big, difference in everything. Visually that's what they're doing.
00:16:51 Technical success does not equal economic success. This is Max Silver a project they were drilling down in Mexico, looking for mantels and scarrings and such and here they hit 10m of 139 g they are getting some interesting hits down here at about eight hundred to nine hundred metres depth. Those are expensive holes.
00:17:19 Deep target, here is the concept. That's where they're drilling, that where they seem to hit it now they're saying the idea is okay over here, we're getting close, we are getting warmer. That's the target.
00:17:35 They've sunk 47 million dollars getting to that stage and my question is even if they are successful, what is it going to take to prove this this to be economic. Can your company afford this kind of thing?
00:17:52 That's thirteen hundred metres down where the target is now. Those are expensive drill holes and it being a scar and you've got to do it at pretty regular intervals to get a sense of what the grades going to be.
00:18:07 Metallurgy. This is an open pit deposit in Mexico that was mined previously. You can see, you've heard this before. Oxide versus Sulphide ore.
00:18:19 Oxide is just basically the pyrite has been turned to rust and when it's turns to rust the gold that's in the pyrite becomes free and it’s very cheap to leach.
00:18:29 Sulphide you've got to do that process yourself. So here is the oxide sulphide boundary basically and you can see that. Here's sulphide in the rock, sulphide, oxide this is what we would call a transition zone.
00:18:44 So the recovery in the oxide was 75%. Sulphide was 40%. When you mine that transition ore you get about 57% recovery. That makes a big difference if your grade only starts off at 8.8 grams. It doesn't work.
00:19:00 This is a good one - core, core sampling. Look right here we've got a vein a quartz vein running through here, there is gold in that, lots of gold in that, there is no gold in the rest of it.
00:19:13 Notice how the vein runs down the core, even though it's that thick when you sample it you can sample a metre that's you know the metre's going to show that you've got a metre at ten grams when you've really got 10 cm at 10 grams. So, you want to watch the core angle.
00:19:30 Here is an example of what that kind of happens here. Visible gold noted in the log but not observed in the remaining core. This is on a due diligence thing.
00:19:40 At core BG appears to be hosted at .5 cm quartz vein and the rest of it wasn't impaired. So, you go from a 3 gram to a 0.4 gram assay.
00:19:53 That's important so you've got to know the angle the core is. I've got a good example coming up, another example of what to watch for.
00:20:03 This is what they found this is what is was. Indicate shape here, sort of the same thing. This is what though the ore looked like this is what it actually looked like. What that means is 60% more tonnes and 25% less grade when they mine it.
00:20:19 Here's another example, this is the Eleanor, Gold Corp did this, it didn't work out quite so well. That's what they thought the ore pod looked like when in fact it looked at it. You can see the drill holes going through here.
00:20:32 So geology is very important you've got to know what you've got.
00:20:35 Mariana this is the success story we had. First ore came out, 103 m at 9 grams. Nice, but? The question we had was did they drill right down in structure
00:20:49 They drilled across it number five. That gave us that result, it gave us the confidence to go ahead and buy it because we knew we weren't drilling down a structure. That's what it looks like on the ground. So here is the scissor hole.
00:21:05 When we saw this we knew we had side, we were not drilling not a thing. We did the geology, the continuity this is really important, look how continuous those grades are, that's what you want to see and it was brought out.
00:21:27 Due diligence check list this is available on my website so I suggest, I invite you all to come to the website these are some of the articles we've got available for free. You can email us that's what Joe and I do and we've got to jump on to the next. I'm going to be up here as well with John of Riverside resources and we're going to talk about how he'd used the minerals expiration and how he makes his business work. So that's basically it for me. Thank you for coming I hope that was useful.