Thursday, April 18, 2013

Bad Management, Good projects.

I have written about Mahdia Gold Corp in the past and, anyone who has read the last write up I did, knows my feelings on the company; great project with horrible management.

I realize that talk is very cheap in this industry, sometimes intentionally and sometimes through unforeseen circumstances that cause good management, who really do care about increasing shareholder value, to go back on plans and miss timelines.

That being said, there is little excuse for management to use shareholder money for their personal bank account, which does happen far to often. A good example of this is Mahdia Gold and its management. When they closed a PP for 8 million a year and a bit ago, share holders really believed that it was time for the company to start developing this project which seems to have very high potential. But, one problem.... You can't just give 8 million to a group of guys who have spent the better part of the last 4 years closing PPs and never doing a thing. Go back and read my write up on Mahdia Gold, which begins with a brief history of Aztek mining; a company which Allan Zakir raised money in the millions and never did a single thing on the properties they owned, which they ended up transferring to Mahdia Gold. From the 8 million PP Al Zakir alone took a million and put it into his bank account, add other management salaries, and the fact that so little work was done on the property one begins to ask what happened to the other millions of dollers.

The next fiscal year, after giving himself his paycheck, Al released plans for a PP once again. Essentially, the company was broke again. After a small drill program and the re-evaluating of historical drill core. They were looking to raise money at 25 cents, of course, none of the guys who had become rich off of the shareholder money decided to put up any money themselves. Andre Duchane, the newest and only member of management to have any kind of credibility in the industry, put up some of his money.

So, out of the planned 4 million, they managed to raise a mere $350,000. Nothing more was heard from that PP. Yesterday, they raised $1,020,000 through unsecured subordinated debentures. 1 million will go straight to the Goverment of Guyana Geology and Mines Department, as per their Omai agreement, and that leaves 20k, plus the 350k they raised last month, which we haven't heard anything about.

Now....what, to me, is the most disappointing aspect of this whole Mahdia fiasco? It is that, for a long time, they have had a pile of low grade ore sitting around. Some reports say the grade is 0.85 g/t, but the official cut off grade for Cambior, when they were operating the mine, was 1.6 g/t. A cambior report form 1999 recorded 248,000 oz of gold in the stock pile. The mine continued to produce until 2006, and the stock pile grew over that time. Remember, gold was around $350/oz when this was happening. Now, with a higher gold price (a little less higher than it was last week) 0.85g/t projects are in development.

The trick in this industry is finding large mine-able deposits, then getting the money to explore them, permit them, and process them. These guys, at one point in time, had 8 million dollars and a pile of gold containing ore sitting on their property. I still cannot fathom why they did not go ahead and start processing it. The times where, and still are, tough for financing, and it would seem that processing a large amount of gold ounces, which you didn't invest any time in uncovering, they were more a bonus item to the property, would be one of the first items to take care of.

Lets say that the stockpile never grew, which doesn't make any sense, but lets just use the lowest possible figure we can. Hell, lets use 200,000 oz. At a price of $1100/oz that is $2.2 x 10^8. Now, lets say that half the money one makes off each ounce was used to process it, a very large number, but still that gives $1.1 x 10^8. Alot of money which can be used for further drilling/exploration on the project.

Of course, this team has little experience in actually developing projects, only in using share holder money for their own bank accounts, so I suppose it wasn't that surprising. When Andre Duchane came in as president and CEO, it was one of the first things he announced...go figure.

This post might sound a little bit vindictive, and perhaps it is, but it really is frustrating to see incompetent individuals in charge of very nice projects.When you add up the money raised, the figure is in the excess of $13,000,000, not counting the money made from selling regular shares on the market.

So, we are in for another round of financing, and perhaps any money that they will get from their placer operations, in an area where no geology information has been released, no reports, no nothing. just a couple of sentences outlining the plans.

On a bright note, Michael Wekerle put down the 1.02 million so I suppose that is a bright side. He participated in the 8 million PP, taking down at least half that number iirc, so hes been in this play with some money for a while. Hes made a lot of money, and is a smart man, so I take some solace in the fact that he is still willing to invest.

PS: This post, although focused on Mahdia Gold is really describing the problem with this industry as a whole. This industry had little credibility left and its decline, in my opinion, lies in the hands those who have been profiting the most off it. At no point has the industry sat down and said that it is not ok to set up shop on only old moose pasture, get financing without any belief that the project has any real potential, and start collecting decent to high salaries, only to abondon the project a year and a half later citing lack of funds, then blaming the market. All the while, sitting on the board of 4 other companies playing the exact same game.

Even the majors are guilty. They rarely announce all in costs, then when Q3 comes out and investors are asking "why didn't you meet the targets", and in some cases "why are we loosing money", the CEOs and presidents come up with a load of excuses, but never telling plain simple truth; "we just mislead you into thinking exactly how much it would cost to pull the gold out of the ground and process it".

With so much money slipping through the fingers and disappearing its a wonder why anyone has wondered why the financing has dried up.

Just like raccoons and the distemper virus, the juniors go in cycles. Right now, the juniors are in in a distemper cycle reaching epidemic levels. Soon many will die and financing will once again start flowing back into the sector as only those companies with quality management and projects will survive the break out.

Until then, we ride out junior death and a gold price under attack. I still believe that the day will come. When gold being to stabilize I will begin nibbling, there are many juniors on my watch list....I'm just not sure how low they will go...

Until next time...

Friday, April 12, 2013 old penny flipper

I used to flip pennies on Caza gold when it traded back and forth around the 11-14 cent range, and then again when it traded back and forth in the 7-10 cent range.

But eventually it sank lower, volume dried up, and the volatility dissipated. When this happened I left it.

I've noticed a bit of activity this last week and the price has jumped back up into the range where I was last trading it.

I'll see how it goes Monday and Tuesday and I may start trading it again. I initially traded CZY using various Fibonacci techniques but after a while I seemed to gain an intuitive understanding of the stock, and was correct damn near most of the time. It really is a special feeling.

Interesting enough, I wanted to buy into Caza back when it was trading at .35, for a number of reasons. But, I felt I had become attached to the stock, and decided not to buy it on that basis. I'm glad I did. Then, after flipping it for pennies, I grown another fondness for the stock.

Anyways, take a note of the volume.

Happy Birthday is my birthday. Nice birthday gift from the markets today as gold plummeted $86. Haven't seen that kind of drop for some time.

This comes only a few days after Goldman Sachs recommended to their "clients" that they should sell their gold. Everyone who has been through this once before, any even many who do not, know whats going on. Goldman says sell, then they buy the gold that their clients are selling.

These prices wont be happening for very long unless two things occur. One, humans stop valuing gold, or two, the all in costs of miners fall dramatically.

Although there are a few large high grade deposits around where costs would could be around 500-800/oz all in, this would be very rare. In this case, for gold to continue to go down, the demand of gold would have to be less than the amount of gold which could be mined from deposits which require very low all in costs. a good buying opportunity for a lot of the gold majors.