A recent reader of my Global Mining Investing book asked me whether an investment in A1 Consolidated Gold Ltd (AYC:ASX) made sense as an investment. He was 'on the fence'. In this instance, I was a negative for a number of reasons:
Given the name, I knew this project was going to be in the Victorian goldfields, and to be fair, there are some risk avoidance considerations built into this points, but fundamentally, this is not the first place to invest, even if you were to make money. We don't just want to make a profit. If there is a gold boom, we need optimised exposure, or the most upside, so if our gold price forecast is wrong, we still make money.
The problem I see with this company is that they offer:
1. Marginal grades of 5-6g/t for underground mining
2. Risk of under-capitalisation - an upset could cripple them, with a lot of share capital dilution. This project might have a roof collapse which sends them bankrupt, or just results in a great deal of delay and dilution. The boom could pass you by whilst you wait for them to raise capital and commission a mine.
3. Messy small scale 'selective' mining - so they will unlikely get many ounces of gold without a lot of development. Basically you have to mess with a lot of waste to get ore, even if its higher grade.
4. Small companies like this tend to attract less capable geologists who can't get work elsewhere. In fairness, Victoria is a better 'lifestyle' place to work than WA, so this criteria is offered for guidance only. These companies tend to use outside consultants who can be hard to procure in 'booms', which is not currently a problem, and not likely to be so.
5. Seems to be low resource - There is not the type of upside offered as say a mineral explorer in WA.
6. Risk of discontinuous, unrealiable, pinch & swell ore zones
7. Risk of nuggetty gold - This distribution of gold is notoriously hard to predict grade, which means the project will not be trusted by banks, and investors until bulk mining performed, by which time, the investor can only waste for the 'tragic news'. Too risky.
8. UG - better to be surface - I don't know how deep the mining is, but why bother with UG when there are plenty of cheaper gold resources in Africa under-loved. Now, GRY has just struck 4m @ 35-45g/t, and has $62mil in cash and 4Moz of gold besides. So this type of company sitting on a small resource does not make sense.
9. Better to be in Africa with large tracts of land where you find a resource then, like GRY, you find ore 45g/t, then you prioritise that. GRY has probably 100km of prospective strike length to explore...plenty of scope for gold discovery. In Victoria, they might have large tracts, but is it all prospective? Even so, there has already been a great deal of exploration, so less prospective.
10. They are too early stage. They only have a few hundred thousand ounces. Gold is under-loved, so there are even miners like Millenium (MOY.ASX) which are better buying, since its producing. GRY is even better, even though it is not yet mining.
I suggest lookin for companies pursuing projects hosting more favourable geology like Archean type greenstones which are under-explored (Africa, outback Aust & Canada), or porphyry copper-gold projects (Central Asia, Latin-Sth America, PNG, Ring of Fire cordilleras), or skarns, as they are the best propositions.
Vein type deposits won't give you leverage for your money. I like North West Resources (NWR.ASX) - antimony/gold, but still its too small scale, and again its under-capitalised. You might invest them when everything else has moved. These types of companies are left behind....last ones to go in the boom.
Anywhere in African greenstone beltsAlso PNG, Latin-Sth America, Central Asia cordilleras is good too
Investing is strategic. Too many geologists get caught up in 'interesting geology'..much to the annoyance of executives. Mining is about making money...not looking at fascinating rocks. Academic universities like Macquarie University tend to instil these non-commercial values. Fortunately I learned how to make money before I went there.
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