Take physic, pomp

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.

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