Andina Minerals (ADM.v): Faut pas jouer les riches quand on n'a pas le sou

On September 16th Andina Minerals (ADM.v) came out with this NR, pushing its Volcan project up in the Maricunga as something to take seriously. And y'know, just for a minute there the market thought there might be a future in this thing.

But of course, reason prevailed. I'll leave it to Brel to explain why:

Alors pour un instant
Pour un instant seulement
Alors moi je la crois Monsieur
Pour un instant
Pour un instant seulement
Parce que chez ces gens-là
Monsieur on ne s'en va pas

DYODD, dude.

More lucky inside sales in Canadian mining companies

part one: Kinross (KGC) (K.to)

Question: If you're the CEO of a gold miner, when do you get to know about the quarter just finished? Perhaps as it finishes, right?

Kinross Gold Corporation (K)						As of November 4th, 2009
Filing Date	Transaction Date	Insider Name	Ownership Type	Securities	Nature of transaction	# or value acquired or disposed of	Unit Price
Oct 06/09	Sep 30/09	Burt, Tye Winston	Direct Ownership	Common Shares	10 - Disposition in the public market	-15,000	$23.500
Oct 06/09	Sep 29/09	Burt, Tye Winston	Direct Ownership	Common Shares	10 - Disposition in the public market	-10,000	$23.440
Oct 06/09	Sep 29/09	Burt, Tye Winston	Direct Ownership	Common Shares	10 - Disposition in the public market	-10,000	$23.000

Wow tye...that's....ONE.....MILLION...DOLLARS!!!


part two: Andina Minerals (ADM.v)
did George Bee have the same sort of colleagues at South Crofty? I kinda doubt it. On November 3rd a $25m bought deal financing, too.....darned lucky timing, guys.

Andina Minerals Inc. (ADM)						As of November 4th, 2009
Filing Date	Transaction Date	Insider Name	Ownership Type	Securities	Nature of transaction	# or value acquired or disposed of	Unit Price
Nov 04/09	Nov 03/09	Rosselot, Juan Eduardo	Direct Ownership	Common Shares	10 - Disposition in the public market	-5,000	$2.000
Oct 28/09	Oct 23/09	Rosselot, Juan Eduardo	Direct Ownership	Common Shares	10 - Disposition in the public market	-100	$2.000
Oct 28/09	Oct 22/09	Rosselot, Juan Eduardo	Direct Ownership	Common Shares	10 - Disposition in the public market	-5,000	$2.000
Oct 22/09	Oct 21/09	Harvey, T. Sean	Direct Ownership	Common Shares	10 - Disposition in the public market	-500	$2.060
Oct 22/09	Oct 21/09	Harvey, T. Sean	Direct Ownership	Common Shares	10 - Disposition in the public market	-2,900	$2.050
Oct 22/09	Oct 21/09	Harvey, T. Sean	Direct Ownership	Common Shares	10 - Disposition in the public market	-300	$2.020
Oct 22/09	Oct 21/09	Harvey, T. Sean	Direct Ownership	Common Shares	10 - Disposition in the public market	-40,000	$2.000
Oct 22/09	Oct 21/09	Harvey, T. Sean	Direct Ownership	Common Shares	10 - Disposition in the public market	-6,300	$1.960

Cerro Casale capex and those dubious neighbour plays

Any professional analysts at the Can'o'corn feeling stupid about pumping the Exeter Caspiche story yet? Cerro Casale is just down the road from Yale's dog of a project, remember. Same rocks, same grades, same lack of water, same altitude...same same same. (Hint to Mr Z; Next time you go on a site visit make sure you leave the comfort of the deluxe hotels and spend more than four hours at the mine site.

Oh, then there's that dubious Volcan under Andina Minerals (ADM.v). Same place. Then those utter criminals at Capella (KPS.v). Same place. As mentioned many times before not all gold ounces are the same, so check out below what Kinross and Barrick have suddenly discovered! My, doesn't it remind you of that Noront Ring of Fire thing from a couple of years ago.......

Via the Financial Post:

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

A key development project for mining giants Barrick Gold Corp. and Kinross Gold Corp. has run into massive capital cost escalation, raising more doubts from experts that it will get built any time soon.

The project in question is Cerro Casale, a huge, low-grade gold-copper deposit in northern Chile. Kinross filed a technical report this week that pegged the construction cost of the project at a whopping US$3.6-billion.

That is an increase of 86% over the last estimate of about US$2-billion, made in August, 2006.

"This number is obviously going to have pretty big implications," said Dundee Securities analyst Paul Burchell, who used to work at Cerro Casale.

"It suggests to me that a project difficult to justify five years ago is probably more [difficult] today."

Experts are also concerned with the aggressive pricing assumptions made in the Cerro Casale study. Kinross is using a gold price of US$725 an ounce and a copper price of US$2 a pound, which is actually higher than the current copper price.

"It's a tough project economically because of the capex and the prices required to make it work. In this market, it will probably be deferred," said David Whetham, a resource fund manager at Scotia Cassels.

CONTINUES HERE

Related Posts
All gold resource ounces are not the same (Cerro Casale)
Steve Saville, you're wrong about Andina Minerals (ADM.v)

Kinross (KGC), Andean Minerals (ADM.v) and gold in them Chilean hills

This is where

Yesterday's news that Kinross (KGC) was paying $250m (plus a royalty that RBC says is worth $30m) for the Lobo/El Marte goldmine in the hills of Chile got people talking about Andean Minerals (ADM.v) again. That's because ADM's Volcan property sits right next door to the land already owned by KGC up there and the main reason for holding ADM all this time has been the thought that KGC would buy them out (or some other miner, but KGC has always been the favourite).

I beg to differ.

Kinross is paying Teck and Anglo $250m for their interests in Lobo / El Marte and it's 5m+ ounces of inferred resource gold. Well that's fair enough. Personally I think KGC could have got the deal done cheaper, but CEO Tye Burt might well be taking into account the goodwill of doing a deal with two big miners; it never hurts to win brownie points with the big boys. All in all, it's probably a fair price considering the current market and all that jazz. So what about ADM at volcan?

Right now ADM.v is trading in the $0.50 to $0.60 range. With 85m shares out, I'm pretty sure Kinross could have snagged ADM for a buck a share (and that's being generous to ADM). So why did KGC pay $250m for one plot of land and not a maximum of $85m for another plot of land that's very close to the sold property and apparently contains roughly the same amount of gold?

The ADM.v five day chart (click to enlarge)

I think it has a lot to do with a point I made in this post on September 18th about the quality of the gold resource. I said back then that the gold is low grading and a lot of it is at depth (even ripped a cross section from one of the ADM presentations to illustrate). Since then I've had conversations with pro geologists who confirmed my suspicions. According to smarter people than Otto, the strip rate would be too high to make such low grades interesting.

At the time I thought ADM at a buck or so was a speculative flip play, but also cast doubts on the property ever becoming a mine. Since then of course we've had another very large leg down in this selloff and world financial sentiment is even worse. There's no flipping of marginal projects going on, not while other more promising projects have been beaten to death and are can be bought at extremely low prices. So ADM isn't on my shopping list. It doesn't look like it's on Tye Burt's either. So Otto sez avoid ADM.v. Don't buy it, don't short it, just avoid it. There are better junior golds out there imho. DYODD, dude.

Otto's freebies, get 'em while they're hot

At a loose end this weekend? Nothing meaty, useful and interesting to read? Well don't blame me. Choose from this list and get wise before Monday. Enjoy.

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Free bespoke report on Andina Minerals (ADM.v). Ditto, and real easy to get hold of, too.

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Steve Saville, you're wrong about Andina Minerals (ADM.v)

This morning a friend mailed me an extract from newsletter writer Steve Saville's report dated September 17th 2008 to ask my opinion. The company he was writing about was Andina Minerals (ADM.v). I considered reporting on his thoughts here, but although Saville clearly states his copyright principle in the newsletter I've decided to quote verbatim a single section of his more extensive section on ADM.v because it's necessary to see what he wrote. I stress that I do not take this kind of copypasting lightly (this is also why I decided not to write on the subject until after the bell today) and there is plenty more written by Saville on ADM.v in his report so it's necessary to see the whole context, but my particular issues are based around this section that says:

ADM has close to 10M ounces of in-ground gold in a single deposit in a politically secure location

( Chile ). And at its current share price this gold is being valued at only US$8/ounce. If we weren't seeing it with our own eyes we would not believe that it would be possible for such a large and high-quality gold deposit to achieve such a low valuation.

The reason I have issues with this is that it's a crock, and somebody like Saville has to be better than this. He has gathered a large following around him, he has skin in the game, and by the looks of the market action today those of his flock that waded in on his advice at the bell got well and truly stung. Here's the share price action from the last two days....

(click to enlarge)

..... and note the big volume spikes this morning. Those people are now 15% to 20% in the hole. So let's take a point-by-point look at what I believe is wrong with Saville's assessment of Andina Minerals.

1) Basic point. Right now, ADM does not have close to ten million ounces of in ground gold. It has a 6.6m oz measured and indicated (M+I) gold resource and 2.8 oz Au inferred. That's a zillion miles away from "having 10m oz". This is so basic it hurts, and anyone who read Mickey Fulp's article from a couple of weeks ago now knows that a "resource" is not the equivalent of "having gold". Especially when a large chunk of that is an inferred resource. This is just plain bad analysis from Saville...sorry, no way around that conclusion.

2) Point one means that even being generous with calculations and allowing the M+I to be used for valuations, we can only take 6.6m oz for our calculations. Period. No arguments. I clearly repeat; inferred resources are not things you can bank on, otherwise why spend all that cash on drilling?

3) Next point. Saville says ADM has X amount of "in ground gold". What he doesn't mention is that the metallurgy tests performed by the company indicate that at the 6.6moz cutoff grade they can only recover 67% of the gold from the rock (that's the 43-101 report for Volcan, not my guessing). That means the 6.6m oz of contained gold is really 4.42m oz of potentially (repeat potentially) economic gold.

4) Saville claims that the in situ gold is priced at a miserly $8/oz at present. This is not the case

• ADM.v has 79.3m shares outstanding (and around 8.5m extra in options and warrants).

• At last night's close, ADM.v was priced at $1.10.

• I will assume for convenience that C$1=U$1

• Therefore the 4.42m oz of M+I gold at Volcan (as outlined in point three) is valued at $19.73 using the shares out number (and $21.85 using the fully diluted number). You may consider that cheap for gold in situ, but all the same both sets of figures are a long way from Saville's $8 confection.
  

5) Next point. Saville calls it a "high quality gold deposit". High quality compared to what? It's a low grading deposit and a lot of the gold is at depth as this schematic of the deposit shows.

source: ADM Sept '08 presentation (click to enlarge)

As you can see it's "vertical" in shape which probably means a higher strip rate and therefore higher production costs than other open cast mines, such as Yanacocha in Peru (which is admittedly much larger, but the principle is the same).

6) As for those low grades, the 6.6m oz M+I figure is calculated at 0.85g/t gold with a 0.5g/t cutoff grade. That's open cast mining grades and not underground potential...not even close. As an example off the top of my head, at Fruta del Norte Aurelian averages grade of 7.23g/t and the lions share of the deposit is at 19g/t. That's a real "high quality deposit". This means that a lot of rock has to be processed to get a decent output of gold, and that means a big production facility has to be built there. That means serious capex would need to be spent to turn the Volcan project into a mine.

7) Talking of money, the company currently has around U$20m at bank ($22.27m as at 2q08 report dated 30th June). However, the next phase of exploration (phase V) is estimated to cost $17.5m and then the deposit will still be at M+I resource stage, nowhere near anything proven economic. This from company filings:

Andina is considering a budget of US$17.5 million for the Phase V exploration campaign at its Volcan Gold Project. The Phase V program would include approximately 35,000 meters of drilling to upgrade the quality of the resources, i.e. Inferred to Indicated and Measured Resource categories, and continue to outline and increase the gold resource in the Dorado Zones. Two thousand (2,000) meters of drilling is planned to delineate the extent of the sulphur resource in the area of the historical sulphur workings.

That will make quick work of the cash at bank, people. So once the 2008/2009 program is done, you can bet your tush there's a dilutive placement in the works.

8) With luck, after the 08/09 drill program ADM will be able to move that inferred resource into the M+I resource column, perhaps expand the deposit and therefore cancel out the negatives that will come from share dilution. Perhaps. But this thing no slam dunk...not at all.

Conclusion
At the $1.10 of yesterday and the $1.03 close today, ADM.v is probably cheap, yep. Even my twenty bucks an ounce in situ for its gold sure looks cheap, doesn't it? The thing is always ask is "why are these things cheap?" cos there tends to be good reasons for everything, even in this crazy market. For me, here, it's the low grades, the early stage of resource definition and the big, big capex that would be needed to get the big machine built on top if it ever gets to construction stage.

The geographical area is difficult, too. It's between 4,300masl and 5,200masl, with the average at 4,800masl. I know what 5,000masl feels like and it's not the kind of place you can expect to work witout interruption. Winds get life-threateningly high at that altitude in the Cordillera, and construction work will take a lot longer than something at, say, 2,500masl.

The bottom line is that Volcan will be expensive to turn into a mine. No doubts. That brings down the price at which the junior can sell its in situ ounces. No doubts. It also calls into question whether it will ever become a mine. So with lower selling price on the one hand, and a heavyweight newsletter writer with a big following and (probably) skin in the game like Saville massaging the numbers to get to $8/oz valuation on the other, I can't help but see red flags.

I'm not a subscriber to Saville, and this is one of the few times I've ever read the guy. However I do know that he has a good reputation in the newsletter world, and reputations like that tend to be deserved. But there no way round the conclusion that Saville is making ADM at Volcan out to be something that it isn't. I'd like to know why.