Size vs. Grade - Grade Wins Every Time...Nope. But It Should
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One of the things that baffles me when I talk to most institutional investors is their dismissive attitudes toward gold deposits of less than a million ounces. Actually, in the past few years, that mystical number has risen to two million ounces. They never seem too worried about things like, huge capital expenditures, massive environmental footprints (a.k.a., lengthy and expensive permitting) and, most importantly, profit margins. Just make it BIG and they're all over it. Here's my take.
Gold industry statistics have a lot to do with the prevailing institutional mindset and it seems to be more about "fees" than profitable projects. On average, from discovery to commercial production, it takes 15 years to make a mine....and that's if all goes well with permitting. (I've seen several good projects get held up, sometimes for decades, due to environmental opposition.) Next, come the financing hurdles. Much depends on where the mine is located and the grade of the reserves, (this is can be highly variable) but generally, the lower the grade, the more drilling is required to establish the reserve AND, the more dirt you have to move in the production process....which equates to more and bigger mining equipment and large multi-million dollar processing facilities. Last time I looked, industry average "all-in" costs for the typical project were north of $50 million and climbing rapidly. This means that boat loads of shares get issued (shareholder dilution) and large amounts of debt are incurred before the first gold bar gets poured. In fact, these projects are so expensive that most of the industry has little to no profit margins...even at $1,200 gold prices.
By contrast, our Golden Wonder mine provides LKA shareholders with some very distinct advantages. With exploratory ore grades of 1.4 ounces (39.7 grams) gold per ton (over thirteen times the industry average grades of 3 grams per ton) and our previous production grade of 16 ounces (454 grams) which is over one hundred fifty times the industry average, we don't need to employ an army of miners and move mountains of material everyday to make money. In fact, with our exceptionally high grades, we don't even require one of those multimillion dollar processing facilities. We simply mine, crush, and ship the ore to one of the majors...who are generally happy to offset the excess processing capacity of their big mills and smelters.
For now, following the rich veins and stringers of the Golden Wonder vein system is paying the exploration bills, which is an extraordinary feat unto itself, BUT, when we locate another ore chute that is anywhere near the size and grade of the previous one, or simply find additional veins like the one we're pursuing now, the margins are fat enough to choke a horse, or in this case....an elephant.
As always, you’re welcome to email me with your questions and comments at: email@example.com