YeOldGoldNugget's Blog Spot: Goldcorp

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Friday, December 11, 2009

2 Developing Gold and Silver Stocks

By 79Atoms on Friday, December 11, 2009

And a Look at the Life of a Gold Company

By Greg McCoach
Friday, December 11th, 2009

It's arguably one of the most profitable secrets to investing in gold stocks...

A pattern of rapid growth found repeated in the early lives of today's most successful gold companies can be the key to guaranteed gains.

And it all starts to become clear when you take a closer look at the...

Life of a Successful Gold Company

The early lives of successful gold stocks correspond to the three general stages of any growing natural resource company: Discovery, Development, and Production.

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In today's market, a new gold company will normally start off quite small when it first goes public. It will typically have a handful of unexplored gold prospects with a focus on one or two.

During this discovery stage, a gold company will conduct extensive field exploration on prospective mineral projects to identify and prove the existence of a significant gold resource.

If a gold company makes a sizable discovery on one of its properties, speculation can send share prices soaring by hundreds — or sometimes even thousands — of percent in short order.

But as the initial excitement is quieted, the stock tends to pull back and stabilizes as the company develops the discovery into a producing gold mine.

This development stage can be a long and difficult — and sometimes boring — process. But it can also one of the most profitable times to be an investor.

The best time to buy gold stocks has historically been in the mid- to late development stage. At this point, the exploration risk has been essentially eliminated, while upside potential is maximized from near-term production earnings and future growth.

A successful gold company will eventually achieve positive cash flow and use it to expand operations and increase production for continued future growth. This growth creates new earnings that continue to propel share prices sharply higher.

A great example of this model is GoldCorp (NYSE: GG, TSX: G). Take a look at shares of GoldCorp as the company made their first big gold discovery:

In 1994, GoldCorp acquired the Red Lake historic gold camp. After several months of exploration, the company reported a significant gold discovery from drilling nine holes that averaged 311 grams of gold per tonne across two meters. Investors quickly found themselves 250% wealthier when share prices breached $5.

But the initial excitement wore off; the stock pulled back below $2 as the company went into the long and difficult development stage.

After a few years of development, GoldCorp finally began production and share prices took off. The Red Lake Gold Mine has grown to now include two operating complexes: the Red Lake Complex and the Campbell Complex. Red Lake is Canada's largest gold mine and is expected to produce over 600,000 ounces of gold this year.

The company has expanded worldwide operations to now include 11 gold-producing assets that are expected to yield 2.4 million ounces this year. Today, GoldCorp is a $30 billion company with a $40 stock. Shares of the company have yielded a 1,900% since the company began producing gold from Red Lake.

The home run gains to be made from GoldCorp may be over. But there are many other public gold companies that can be expected to follow a similar model as they take their projects through discovery into production.

The three-stage model of the life of a gold stock also generally applies to all companies involved in natural resources, including other precious metals like silver. With that in mind, I'd like to very briefly tell you about...

Two Developing Gold and Silver Stocks

Both of these companies have already made significant discoveries, which rapidly lifted their share prices. Today, both firms are working to develop their projects into economically feasible assets. Take a look:

Pediment Gold (TSX: PEZ)

Pediment Gold began drilling exploration of its 100%-owned San Antonio gold project in late 2006. Six months later, the company made a significant gold discovery when it drilled 32.93 meters grading 1.23 g/t gold and 25.1 meters grading 1.09 g/t gold. The subsequent drilling of over 200 more holes (totaling over 40,000 meters in depth), gave Pediment enough data to delineate a 1.5 million ounce gold resource.

Share prices increased as much as 600% from $0.50 to $3.50 between the time of original discovery and resource estimate. After that, share prices tapered off as the buzz from the big San Antonio gold find faded.

Pediment is currently developing the project and has recently reached a new 30-year agreement with the local government (called the Ejido) that allows Pediment to continue to freely explore the property and propose development and operation a future San Antonio gold mine.

Orko Silver (TSX-V: OK)

In March 2005, Orko Silver began drilling exploration on its La Preciosa silver project. A few months later, the company made a significant silver discovery when it drilled into high-grade silver grading 200 to 300 grams per tonne. After three years of extensive exploration, the company reached its goal of 100 million ounces of silver resources in March 2008.

Early investors walked away with a 700% as share prices increased $0.25 to $2.00 before falling.

In April, Orko and Pan American Silver (NASDAQ: PAAS) announced that the two companies would create a joint venture to develop the La Preciosa project. The companies are currently working together to upgrade the category of the current silver resources. This is a necessary step in completely a feasibility study to prove an economic resource.

Conclusion

My colleague, Luke Burgess, is investing in gold and silver stocks in the same way. He recently recommend a small American silver company that just started production and is expected to ramp up output by nearly 20,000% over the next 12 months.

But he's not the only one. Many of my gold and silver analyst peers are quickly moving into mid- to late development stage stocks. This is typically the period when financial institutions and major investors will begin buying a gold stock. It's when the loose money rolls out and the more steady-handed investors establish positions and volatility is decreased in share prices.

In the mid-1990s, GoldCorp proved its ability to take the Red Lake gold project all the way through the development stage into production. Early investors have been rewarded with gains of almost 2,000% since that time.

Today, companies like Pediment Gold and Orko Silver are vying to prove their ability as well. As investors, we can leverage the development of gold and silver projects by owning shares of the companies that have advanced-stage development projects.

Good Investing,

Greg McCoach
Editor, Wealth Daily
Investment Director,
The Mining Speculator
Greg McCoach's Insider Alert

YeOldGoldNugget's links of interest

Trend Analysis
Get the most recent Trend Analysis on Pediment Gold Corp. by following this link :
Marketclub - Pediment Gold Corp. Trend Analysis

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Get the most recent Trend Analysis on Orko Silver Corp. by following this link :
Marketclub - Orko Silver Corp. Trend Analysis

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Saturday, January 1, 2005

Santa Monica

By 79Atoms on Saturday, January 01, 2005

April 01, 2008.

Summary

click to download in pdf.
Santa Monica is adjacent to the La Preciosa project optioned by Orko from GoldCorp Inc. The Santa Monica Property covers over 17,285 hectares and is located approximately one hour and a half away by paved road from the City of Durango, in Durango State, Mexico. Currently, interpretation of recently completed field programs is underway.

Objective

To Locate a vein system like San Sebastian Mine (Hecla Au-Ag mine)

Strategy

First Step: Regional quartz float sampling survey (Completed)

Second Step: Local grid Geological Mapping, geochemical sampling (Completed)

Third Step: Diamond drill program of initial target areas (Planned)

Available Data: Geophysical survey (I.P.); soil sample results, geological maps

A drilling program is expected to commence in the near future to test anomalous areas developed from the geophysical surveys, geochemical sample and geological mapping.

San Sebastian Mine
Discovery Method:

Regional quartz float sampling survey

Local grid each 25 meters sampling trenches

Diamond drill program of initial target areas (70 ddh)

Annual Production: 80,000 oz Au Eq.
Cut-off: 4 gr.
Recovery: Ag 90%, Au 96%
Average Grade: 17 gr Au Eq.
Staff: 150 people (included 12 geologists)

YeOldGoldNugget's links of interest

La Preciosa

By 79Atoms on Saturday, January 01, 2005

Feb 26, 2009

Summary

Orko Silver controls 100% of its La Preciosa project.
click to download in pdf.

Orko Silver Corp. (under previous name "Orko Gold Corporation") entered into an option agreement in late 2003 with two companies under the direction of Luismin S.A. de C.V., now a part of Goldcorp Inc., to acquire an interest in the La Preciosa silver-gold prospect. A news release, dated 4 March 2006, states that Orko has reached an earn-in position and by agreement has 100% of La Preciosa, with Goldcorp holding an equity interest in Orko.

La Preciosa property is located in Durango State, 47 km northeast of the city of Durango. It consists of a block of mineral exploitation concessions covering 1,134 hectares located southeast of the village of Francisco Javier Mina, northwest of the village of Francisco I. Madero and east of the village of Ricardo Flores Magon. The larger adjacent properties of Santa Monica (17,285 hectares) and San Juan (24,580 hectares) are also under option agreements with Goldcorp and Silver Standard respectively.

La Preciosa property covers Tertiary aged gold and silver bearing epithermal quartz veins, with barite and lesser quantities of base metals, primarily zinc and lead. There are three major vein and vein-breccia systems exposed on a series of hills and ridges, separated by flat floored valleys roughly 800 m wide. The main vein system consists of northward striking and westward dipping veins, plus east striking south dipping cross-cutting veins. The eastern vein-breccia system (Zona Oriente) strikes northwest. Two systems may intersect to the north beneath younger basalt. To the west of these is a third sub-parallel vein system, with north and northwest trending veins, dipping to the west.

La Preciosa veins are composed of poly-phase veins of quartz, often banded, smoky, chalcedonic and amathystine, with a substantial amount of barite laths. Sulphide mineralization is scarce on surface and in the shallow underground workings. Drill core contains disseminated sphalerite, galena, pyrite and acanthite, plus iron and manganese oxides. Wall rocks adjacent to the veins are silicified, particularly between the prominent veins La Gloria and Abundancia. Kaolinite and hematite alteration is common, as well as more distal propylitic chlorite, epidote and pyrite.

The oldest rocks, found only in deeper drill core, consist of Jurassic-Cretaceous graphitic schist, chlorite schist and layers of quartzite. Above the metamorphic units is a thick package of Cretaceous polymictic conglomerate, with lenses of arkosic sandstone. This sedimentary package is topped by Tertiary andesite tuff and andesite agglomerate of the regional Lower Volcanic Sequence. No rhyolites of the Upper Volcanic Sequence are found in the immediate study area, but can be seen on cliffs further to the west. The conglomerates and andesitic rocks are the main host rocks for the veins, but mineralization also extends into the metamorphic rocks. There are a few dioritic dykes in deeper core, but intrusive rocks are generally rare. The youngest unit comes from several Quaternary volcanic vents which erupted basalt flows, filling the lower valleys.

Multiple veins in the main structural zone of La Preciosa ridge have been traced on surface for over 5 kilometres and drilling has revealed that the veins continue to the north beneath the basaltic cover. The veins are also interpreted to extend further south of known exposures. Individual veins have been traced for up to 1.6 km. Of the entire structural zone, the Abundancia and La Gloria veins, plus more recently the Martha vein, have been explored in the greatest detail. The Abundancia and La Gloria veins coalesce at depth, the merged vein is known as the Abundancia vein. There are 2.5 km of underground drifts, following the Abundancia and La Gloria veins, as well as a small portion of the Transversal vein. The original workings are over 100 years old, however, about 60% of the drifts were enlarged and resampled 26 years ago by Luismin. There is a winze that leads down to workings 50 metres below the main 2065 level in Abundancia vein. There are also several raises and small stopes which break through to surface on the Abundancia and La Gloria veins above the 2065 level. At the farthest south exposures, El Orito vein was drifted upon for several hundred metres over a century ago, but has had no modern exploration.

Seven diamond drill holes, totaling 1,319 metres, were drilled by Luismin in a 1981-1982 program. The group of holes were mainly collared west of the Abundancia and La Gloria veins to test a 400 metre strike length of the veins roughly 50 to 75 metres below the 2065 level. The best intercept was from BP-1, which hit a true width of 13.6 metres at 232.0 g/t Ag and 0.10 g/t Au. Hole BP-7 was a longer hole which tested Abundancia and La Gloria veins and also intercepted the sub-parallel Luz Elena vein at greater depth. The 1981-1982 drill program was terminated due to falling metal prices at that time. Core from Luismin's program was split and the remaining half is intact and stored on site.

A single 313 metre hole was drilled by Luismin in the eastern vein-breccia system in 1994. The hole intersected a series of variable silicified zones and veinlet stockwork anomalous in Ag, Au, Pb, Zn and Hg, but did not pass through the complete structure.

In the 1980s, Luismin staff prepared several preliminary resource estimates, which were in-house and do not meet the current NI 43-101 reporting requirements for disclosure of Reserves and Resources. The studies showed a general "Resource" in all categories of approximately 320,000 tonnes in the Abundancia and La Gloria veins grading 238 g/t Ag, 0.70 g/t Au and 0.17 % Pb. The "Proven and Probable Reserves" stood at 30,000 tonnes grading 319 g/t Ag, 1.0 g/t Au, with 0.55 % Pb and Zn combined. These estimates do not follow the requirements for reserves and resources outlined in NI 43-101 as they were estimated prior to the enactment of NI 43-101, however, they have been obtained from sources believed reliable. The resource estimates are considered to be historic, are relevant, but have been replaced by recent estimates utilizing much more drilling data and using current CIM terminology.

In June of 2004, Orko commenced a geological mapping and sampling program on La Preciosa. This was followed by a 40 line-km geophysical survey of Induced Polarization in the northern part of the property in January 2005, performed by SJ Geophysics under Orko's guidance. Orko commenced diamond drilling in March 2005 by Major Drilling International on La Preciosa Ridge, targeting Abundancia and La Gloria, but also extending to Luz Elena vein. The first 24 drill holes were completed by late October 2005 totaling 10,259 metres of diamond drill core.

Favourable results from drilling and interpretation of distinct mineral-shoots within the Abundancia and La Gloria veins gave reason for Orko to make a first resource estimate for the property. Using a cut-off grade of 150 g/t silver-equivalent, Inferred Resource Estimate I totaled 2.72 million tonnes grading 227.2 g/t Ag and 0.462 g/t Au for a silver-equivalent grade of 255.0 g/t. Resource Estimate I was released on 19 January 2006 (Gunning and Whiting, 2006).

Drilling continued and Inferred Resource Estimate II was released on 7 September 2006. This estimate was up to hole BP06-38 for a total of 16,334 metres in La Preciosa Ridge area, including Abundancia, La Gloria and Abundancia Zona Sur veins. Using a cut-off grade of 100 g/t silver-equivalent, Inferred Resource Estimate II totalled 4.05 million tonnes grading 207.4 g/t Ag and 0.384 g/t Au for a silver-equivalent grade of 230.4 g/t. Alternatively, at a 150 g/t cut-off, Inferred Resource Estimate II totalled 3.42 million tonnes grading 235.0 g/t Ag and 0.435 g/t Au for a silver-equivalent grade of 261.1 g/t.

Drilling continued and Inferred Resource Estimate III was released on 13 March 2007. Inferred Resource Estimate III -- At 100 g/t Ag-Eq cut-off the estimate is 5.72 million tonnes grading 192.9 g/t Ag and 0.345 g/t Au, for a silver-equivalent of 213.6 g/t. At 150 g/t Ag-Eq cut-off the estimate is 4.39 million tonnes grading 229.9 g/t Ag and 0.396 g/t Au, for a silver-equivalent of 253.7 g/t.

Drilling continued and Inferred Resource Estimate IV was released on 1 October 2007. Inferred Resource Estimate IV -- At 100 g/t Ag-Eq cut-off the estimate is 10.36 million tonnes grading 199.7 g/t Ag and 0.328 g/t Au, for a silver-equivalent of 219.4 g/t. At 150 g/t Ag-Eq cut-off the estimate is 6.88 million tonnes grading 256.6 g/t Ag and 0.387 g/t Au, for a silver-equivalent of 279.8 g/t.

Drilling continued and Inferred Resource Estimate V was released on 31 March 2008. Inferred Resource Estimate V -- At 100 g/t Ag-Eq cut-off the estimate is 15.35 million tonnes grading 190.0 g/t Ag and 0.321 g/t Au, for a silver-equivalent of 209.2 g/t. At 150 g/t Ag-Eq cut-off the estimate is 6.88 million tonnes grading 256.6 g/t Ag and 0.387 g/t Au, for a silver-equivalent of 279.8 g/t.

The Company's Resource Estimate VI was released Feb 18, 2009 is based the results all the holes drilled to date including the 2008 drilling of an additional 205 holes (79,021m) that was completed after the date of the last resource estimate. The La Preciosa deposit now comprises 47% Indicated Resources and 53% Inferred Resources. Current Indicated Resources are 10.64 million tonnes grading 0.27 g/t Au and 185 g/t Ag for a Silver-Equivalent grade of 201 g/t. at a cut off grade of 100 g/t. The contained metal equals 63.2 million ounces of Silver and 94,000 ounces of Gold for a Silver Equivalent of 68.9 Million Ounces. Current Inferred Resources are 12.0 million tonnes grading 0.25 g/t Au and 185 g/t Ag for a Silver-Equivalent grade of 200 g/t. at a cut off grade of 100 g/t. The contained metal equals 71.8 million ounces of Silver and 97,000 ounces of Gold for a Silver Equivalent of 77.6 Million Ounces.*

In total, eight veins were modeled for the new estimate including the Martha Vein, which dominates the resource. In the process of modeling, lithological units were differentiated which helped in establishing the orientation and continuity of the individual veins. Using geological data along with the metal grades, it was possible to establish continuity of mineralized zones of stockwork, breccia, veins, and veinlets. The high-grade veins within these zones were segregated and modeled. All zones and veins were modeled into a three dimensional solid. Once defined, statistics of each domain and each vein were evaluated separately, and capping was carried-out individually for each vein and domain. The sample data was then composited to three-metre intervals. Grade continuity was evaluated separately for each vein and domain. Inverse distance squared estimation was used. A cut-off grade of 100 g/t was selected by MDA. Classification into Indicated and Inferred was dependent upon the vein continuity, geological continuity and proximity to the closest drill hole, as well as the number of samples and the number of drill holes used in the individual blocks.
All reported resources lie within the modeled veins. The QA/QC work demonstrates reliability of the analytical data and the auditing of the database has shown it is accurate.

* The six resource estimates are all undiluted using a 60:1 gold to silver ratio with no metallurgical extractive factors applied.
Average drill hole spacing is approximately 100 metres for all the holes drilled from 2005-2008. For the 1981-82 program, analytical testing was performed in the Luismin Labs in Durango, Mexico. All 2005-2008 analytical testing has been done by SGS or Inspectorate laboratories, North American based labs both containing ISO certification.

The Martha vein, first identified in hole BP06-77, represents the most significant new target. It is relatively flat lying, dipping an average of 20 degrees to the west. It has a known lateral extent of over four kilometres and varies in widths between 200m to 1.7 kilometres. The Martha vein varies in thickness from one meter to sixty meters and averages about 15. Within that are one or more veins or vein breccias which contain the resource grade material and which average about five meters.

Orko has conducted geological mapping, geophysical testing and has systematically drilled a portion of the known strike length of epithermal silver-gold veins on the property. Two of the veins, La Gloria and Abundancia, were drill tested each along 1.2 km strike length to establish veins on "La Preciosa" which have been traced for five kilometres north-south, as well as multiple east-west veins. Some of the veins include Abundancia, La Gloria, Luz Elena, Carmen, Esperancita, Transversal, Incognita, Nueva, Sur, Ramal Sur, El Orito, Nancy, etc. The Martha Vein has been the focus of drill testing since its discovery in 2007.

The resource estimate results are considered highly favourable by Orko's management. In-fill drilling will be completed by the Company to further increase the confidence in the La Preciosa deposit and to move more of the inferred and Indicated resources into higher resource categories. Expanding Martha vein along strike and at depth, as well as drill testing additional north-south and east-west veins located in the immediate vicinity of the Martha vein, are the main targets.