OcracokeDon't be too disheartened. I also gave you a thumbs...

Ocracoke

Don't be too disheartened.
I also gave you a thumbs up...LOL

I would have replied earlier but I was indisposed while returning from a trip up North.

Having thought long and hard about the current IGR situation, we really need to put matters into perspective before bemoaning a BFS that is perceived to under deliver.

For starters, we are by no means alone in our frustrations. It isn't easy anywhere for promising gold explorers to attempt to make the transition into mining. Gold mining at the moment is fraught with difficulty in the US, Canada and South Africa and I suspect pretty much in every other corner of the globe as well.

For instance:

http://www.lemetropolecafe.com/james_joyce_table.cfm?pid=7986

A knowledgeable industry observer said today that the drills aren't turning at many of the exploration and junior gold companies in Canada and the US. They are petrified of the current situation and where their next dollar might come from. We already know mine supply is steadily dropping as it is. The lack of exploration at the moment will surely exacerbate a growing supply/demand deficit in future years, especially with many central banks withdrawing from the sell side. It will take something like $1300 to $1500 gold to get the industry in good shape. It will take those kinds of prices to bring confidence back among explorers and investors.

AND

http://www.miningweekly.com/article/stronger-rand-to-hit-sa-gold-producers-profits-2009-07-29

The big South African gold miners are getting crushed by the big surge in the South African Rand versus the dollar, as their costs in local dollars are rising faster than the gold price, which continues to be suppressed by the gold cartel (this goes for Canadian miners as well, by the way). Until gold surges toward $1,500/oz, in my view, there is not a chance that this trend will be reversed, and mine production will continue to fall while demand continues to surge.

So, we are seeing the same frustrations in Australia that exist overseas. There is definitely a lack of exploration complicated by the fact that a strengthening US gold price is leading to a reduction in the gold price in local currencies because of exchange rate fluctuations. The current Aussie Dollar gold price is $1141 which is down from a brief high around $1500 earlier this year. It has mostly hovered between $1200 and $1300 this year.

Interestingly, the BFS uses a figure of $1250 which is more than $100 in excess of the current price. Is it any wonder some gold investors have the yips when assessing companies with promising gold prospects. The real problem we have is not so much IGR and its project, but the fact that Gold mining is not exactly a highly profitable enterprise for anyone anywhere at the moment.

If IGR can't get recognition in the market for an excellent new high grade discovery like Salt Creek, which has been demonstrated to be robust on so many levels, then what new producer can? - Maybe it is just too hard in the current circumstances?

The ASX is very definitely littered by gold mining failures over the last several years, a point mentioned in the June Quarterly yesterday, and previously on these threads.

Companies like Ballarat Gold, Bendigo Gold, Macmin Mining (silver not gold), Iberia Resources, and Batavia Mining, come to mind as either having projects that have failed miserably, or didn't have the 'wings' to get off the ground in the first place. Of course there are many other examples as well.

If the market requires stronger returns than what are on offer from a company that can actually demonstrate a strong IRR in its BFS, then gold investment in Australia will surely continue to struggle.

Effectively, what we have in Gold is a situation that parallels the looming crisis with Peak Oil, except Peak Gold has already arrived. The cheap ounces throughout the world have already been mined, and it is increasingly difficult or almost impossible to achieve profitable production within the pricing constraints now placed on the industry.

Something has to give as global production has been falling alarmingly, year in year out, and it still is. Of course, the something that gives, has to be the gold price. There must be an elevation in price to encourage existing mines to keep producing, to assist with the development of new mines, and to provide incentive to continue the search for new ounces.

The Russo article essentially advocates that it is better to be SMALL and PROFITABLE than BIG and LOSS making. It also sees little point in avoiding production while growing resources and making losses, while at the same time causing excessive dilution through constant fund raisings.

I don't have a problem with any of Russo's contentions.

However, most of what Russo has to say relates to historical precedent. ie The way things have been in the industry.

He doesn't acknowledge what potentially lies up ahead in gold.

In fact what lies up ahead could well be lurking just around the next corner. Essentially, there has to be a paradigm shift in the thinking applied to the gold mining industry. Conditions have to change to be more in favour of producers actually making decent profits – the key driver is the gold price and unfortunately the REAL problem is that gold suffers from artificial supply/demand fundamentals. Essentially, gold has been deliberately suppressed for far too long.

Much higher prices must follow, otherwise the entire industry will come to a grinding halt. We are approaching that stage NOW although in reality, a grinding halt will never be tolerated. Gold just happens to be the wealth protection asset of choice, and is rapidly being accepted as such by the nations that have strong economic growth and real savings. They have real wealth that needs to be protected at all costs and not allowed to be inflated away as is the US's intention. Our financial world is gradually spinning out of control, principally because of an accelerating loss of faith in the world's monetary system.

Unbacked paper currencies created by the flick of a switch, together with insane debt levels in the Western World has been the biggest con game this Century. Notions of "debt is good", and that it is "spending that propels growth not savings", has led the Western World completely down the proverbial garden path. Certainly it seemed to work for a while. Just ask Bernie Maddoff, Bear Sterns, GMH and the like, although they would now be the first to admit that the gig is up. Especially Bernie!

Yet our approach to the problems caused by prolifigate spending based on debt has simply been amplified in the wake of the GFC, and if it wasn't for a deliberately suppressed gold price, no doubt we would all be facing total financial mayhem right here and now. Gold is really the canary in the gold mine, and while the canary has been deliberately spaced out on valium, the traditional warning signals about our financial system have been able to be suppressed.

The trouble is, the world is gradually waking up to the game playing out in gold and it has become the Achilles heel of those who have rigged the system. All that is required is for the BIG Eastern buyers of gold to request physical delivery of their Comex purchases. Once the paper shuffling stops, the fact that there isn't much physical gold available will cause a rush for what's left and inevitably, much higher prices will result.

The Powers That Be would no doubt be critically aware of what is transpiring, and would have a contingency plan to allow gold to gradually increase, avoiding panic. That response may not be too far away.

Anyway, the choices now available to IGR are:

1. Opt for a smaller mining proposal while waiting for the gold price to justify a more profitable mine expansion

2. Defer production and explore some more until a sustainably much higher gold price emerges

3. Look at the toll treatment of ore from Salt Creek at a neighbouring mill

4. Forge ahead as planned, assuming/hoping/knowing that the gold price will eventually provide a turbo boost for the economics of the project.

The current intention of course is to forge ahead knowing that something has to give in the gold market and much higher prices will result. In any case there are value adding possibilities already associated with the BFS proposal that aren't necessarily reliant on the gold price including.

conversion of existing ounces to mining reserves to extend the mine life or to increase production

possible new regional discoveries to expand and/or extend mine life

possible mineralization at depth,

potential to form other JV’s from within the district

perhaps look at possible toll treatment options associated with neighbouring projects, to preserve Salt Creek's quality ounces for more buoyant conditions.

Since the publishing of the BFS there has been a lot of gnashing of teeth possibly catalyzed by the Euroz dummy spit, and possibly playing into the hands of those who would like to see a consolidation of interests in the region. After all, conspiracies run deep in gold.

The reaction to the IGR Bankable Feasibility Study has by any measure been grossly overdone. In any case, a quick comparison with existing producers hammers home the stupidity of the current market sentiment for IGR.

For example:

Dioro: Has earnings of 1.1 cents per share for the current quarter, after making losses for the previous 12 months.

Ramelius: Has earnings of less than half a cent per share for the last Quarter

Silver Lake Resources: Has earnings of 3 cents per share for the last Quarter.....Hmmmm!

Avoca Resources: Had a loss of 6.5 cents per share for the half year ending Dec 31, 2008, although it did have 13 cents per share earnings in 2008

Lihir Gold: Has earnings of 0.08 cents per share and enjoys a PE of 34.

IGR's predicted annual earnings of around 4 cents per share, from a bare bones BFS, (without add ons) when seen in the above light, all of a sudden don't look too shabby....LOL

The bottom line is that amassing 1.8 million quality ounces of gold, in a risk free location, with infrastructure readily available, and with a very accepatable BFS, is not to be sneezed at. In fact it is a great achievement. The reality is that the company is in possession of a highly valuable asset that is strangely going unrecognized by some 'players' in the current market.

Additional exploration success or a hike in the gold price is all that it will take to make IGR one of the go to gold stocks in the sector. It might take a little time on both counts, although Friday night's gold price hike is a very good start!

Personally, if I was CC, I would try and buy some time before lighting the fuse on production. Another 6 to 9 months is all I reckon it would take.

If one reviews how the sentiment in gold has slowly unfolded over the last 8 years, blind Freddy could tell you that the pace is now accelerating on a daily basis.

Something has to give and when it does, the current BFS will be universally seen as extremely attractive. There is definitely enough cash in kitty to provide some excitement for share holders through exploration, while biding our time for external conditions to move inexorably in our favour.

Anyway, that is my 2 cents worth.

Now Ocra old buddy, pour me a Bintang willya – writing this crap has made me thirsty!

Cheers
Nev

---

[email protected]