I wrote a piece about Novo Resources recently and mentioned Millennium Minerals Ltd. (MOY-ASX), an Australian company that has a mill nearby to Beaton Creek. I made a comment in the piece that Millennium was running out of ore and it might make sense for them to do some kind of deal with Novo; either toll milling or a purchase of Beaton's Creek.
One of their shareholders wrote me a rather snotty email informing me that Millennium was doing just great and adding high-grade ounces like crazy. Well, actually their share price has been doing just great but they do have a giant problem with future feed. Their latest press release about drilling and news reserves concealed a lot more than it revealed.
I went back and looked at a report that came out just over a year ago. The company was on the verge of collapse. Their shares had been as low as $0.023 in August of 2015 before climbing to $0.034 at the time of the report. This was a company with a mill that cost about $100 million to build four years ago claiming over a 1 million ounce resource and only a market cap of $26 million Aussie.
The company did well, climbing to a high of $0.415 on the back of the increased price in gold and more interest in Australian gold producers. After a major management change in 2015, someone obviously put the word out that they needed to find more gold if they wanted to keep their jobs. They now have a market cap of $230 million Aussie.
They did find gold but at a cost of all of their free cash and I suspect more. They had said they were going to commence a major 110,000-meter drill program across their tenements. And boy did they. The drill program turned into a 200,000-meter program and naturally management claimed it was a total success. I am not so sure.
I've visited hundreds of projects and know the management of hundreds more companies. I have to follow the industry on a constant basis. When I saw the press release of February 15th this year, my jaw dropped to the floor.
If you are not Barrick or Newmont running giant mines, you don't do 200,000-meter drill programs. That is not a measure of how successful you are; it's a measure of desperation. Millennium only produces about 85,000 ounces of gold a year at their 1.5 MTPA mine and mill.
As a comparison, one of my favorite junior exploration companies, Gold Standard Ventures just announced a $15.5 million drill program at Railroad consisting of only 48,000 meters of drilling. Gold Standard has millions of ounces of oxide gold at surface and even for them a 48,000-meter program is giant.
Another Australian company that has met with great success this last year is SolGold (SOLG-AIM) climbing from under £0.03 to £0.42 in the last year. Their two-year drill program is only 95,000 meters.
But the February 15th press release said a lot more. As far as I can determine, they added about 60,000 ounces to reserves and 170,000 ounces to their resources. Now I know from other previous news releases, that figure they use of 1.28 million ounces in a resource is nonsense. Most of the ore is in one pod. The Golden Eagle deposit is almost half the resource and it's refractory rock. In other words they are going to have giant problems with recovery in a CIL plant. Not all resources are the same.
But when I looked at where their resources were, my eyes jumped out of my head. Those 1.2 million ounces of low grade and often-refractory ore is smeared across some 28 different deposits extending as far as 40 km from the plant.
As first used in the movie Apollo 13 with my own slight variation, Millennium we have a problem.
The company used up its entire free cash flow to add a little bit of low grade transitional ore that will require a plant upgrade costing millions of dollars. To put it into perspective for the reader, I asked the president of one major junior what the range would be for 200,000 meters of drilling.
What would be a disaster and what would be a home run? He told me that adding 300,000 ounces would be a disaster and 3 million ounces would be a home run. Novo Resources found 552,000 ounces of oxide gold at Beaton's Creek for 20,000 meters of drilling. Millennium added a lot less than the ounces required to qualify as a disaster.
Mining is the art and science of extracting minerals from the ground at a profit.
Readers, please notice that I said, "at a profit." Millennium is not mining; they are running an employment agency keeping a bunch of people off the welfare rolls. To produce 85,000 ounces of gold a year and not make a cent is not just a sin, it's an abomination. Maybe it's time for some more management changes.
MOY-ASX $0.29 (Feb. 28, 2017)
780.9 million shares
Bob and Barb Moriarty brought 321gold.com to the Internet almost 16 years ago. They later added 321energy.com to cover oil, natural gas, gasoline, coal, solar, wind and nuclear energy. Both sites feature articles, editorial opinions, pricing figures and updates on current events affecting both sectors. Previously, Moriarty was a Marine F-4B and O-1 pilot with more than 832 missions in Vietnam. He holds 14 international aviation records.
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1) Bob Moriarty: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Novo Resources. Novo Resources and Gold Standard Ventures are advertisers on 321 Gold. I determined which companies would be included in this article based on my research and understanding of the sector.
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