Take physic, pomp

Miners are best when they mine rock, not shareholders


Say whaaaat? Well that title is really a line borrowed (ok..I admit it…stolen) from Mickey Fulp, the Mercenary Geologist (and while you’re over there at his site, sign up for his 100% free subscription newsletter..it’s required reading). Go have a looksee for yourself, but here’s an example from today:

Great Panther Resources (GPR.to) published this PR, and it was impossible for a dude such as I not to click on a link with……

Great Panther Samples 95 Metres Of 1,867G/T Silver, 1.00G/T Gold, 2.67% Lead, And 4.58% Zinc At The Topia Mine

….as its title. “Wowsers!”, thought Otto “they hit 95m of sixty ounce per tonne silver on a drill hole??? Wowsers and more wowsers!!” The true and veritable mother lode…El Dorado eat yer heart out…el Plateado has arrived!!” and all that nonsense.

So on reading the PR, what do we find? Yeah, disappointment. It turns out that those “95m” were a strike length of an undeveloped vein at the mine site. It also turns out that it might be 95m long but it’s only an average of 31cm wide (and that doesn’t light my fire, folks). But finally, it turns out that GPR.to is more talk than action, as “It is expected that production stopes will be prepared in this new area early in 2009…” Or to translate, you might get the first rock from the vein into the machine some time in April….or May.

Now all this comes on the back of another press release from GPR.to that went under that optimistic title “Great Panther Lowers Operating Cost To Keep Mines Profitable”, a press release that could only fool those with zero knowledge of how a mine works. Have a look at the PR yourself, but basically the company is cutting cash operating costs from around $10/oz Ag to around $7.40/oz Ag (and don’t confuse “cash operating cost” with total pre-tax deductions, my fair reader). Well that’s fair enough, but the way they plan to do all that, namely concentrating on the high grade rock on site, severely limiting operating costs and deferring all capital costs, puts medium-term production in jeopardy.

I mean, what’s the point in going through a whole feasibility study cycle to arrive at a sustainable plan for a mine at $X per ounce or per pound or per tonne costs, then suddenly throw out the plan and cut things way past the core just because the company is running out of cash? (hint…none at all) Because that’s the bottom line here; despite what you might have heard on BNN from paid pundits pumping what they’ve been told to pump, GPR.to is woefully short of cash. So it resorts to whatever BS press release spin tactic it can to muster up a bit of interest from the retail mob. And that reminds me about why it is running out of cash. Because although that title implies that GPR.to is a profitable company, here’s a chart of the quarterly net results since 1q07

Like I said, there’s a big difference between covering cash costs and running a profitable miner. And all this reminds me why I like site sponsor Fortuna Silver (FVI.v), dudettes and dudes. Two simple points coming up:

1. Read this PR from Fortuna dated September 23rd, because it talks about the high grade silver vein they’ve just uncovered at their Caylloma mine in Peru. And then more importantly read this PR dated November 5th, because just six weeks after hitting serious grades of silver the ore is already being processed. No pussyfooting around…no big fanfare to the retail crowd and then a few months later do something about it. Just plain, boring good mining.

2. Fortuna has C$48m in cash and receivables, according to the latest quarterly. These people don’t have to scrimp, save and put the future of their mine in jeopardy because they are not begging for money. There’s no need to BS the market. They’re sitting on a very tasty lump of cash and will see out this lean spell in metals prices even if it carries on through 2010. If the metal bear continues until then (greater powers forbid), stocks like GPR.to will either be a 1/10th of their current PPS or quite simply a distant memory. As well as all that cash FVI.v also has a much lower cash cost mining operation, but that’s another story.

Because we’re sticking to just one story today, and the moral of that story is: Don’t believe the hype, be cynical, be sceptical. Read the filings. Look at the company numbers (and if you don’t understand all of them you can even ask a pro to help) That way you avoid the retail traps and every now and again hit that undervalued pearl. Or in other words…

DYODD, dude

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