This week a couple of forum participants quoted some often cited mining statistics that got me thinking. We’ve all heard that there is somewhere in between a 1-in-1,000 and perhaps 1-in-10,000 chance of a junior explorer ever making a significant mining discovery that made it all of the way into production.
We’ve also heard that for that lucky junior explorer the average time it takes from the commencement of exploration to that first day of production is somewhere in between 15 years (according to Newleaf’s source) and 27 years according to the World Gold Council as cited by Pierre Lassonde at one of the Grant’s Interest Rate Monitor meetings in NYC.
If you project these stats onto a baseball scoreboard, wherein a run is equal to 1,000 ounces of gold production and an inning represents one month, even that lucky junior explorer that was the 1-in perhaps 5,000 or junior explorers to get a discovery into production posted goose eggs (zero production) for the first 200 or so innings/months. Once a junior explorer with a deposit like that present at the ADL posts its first “run” (1,000 ounces of gold production) it’s probably going to have about ( a guess) 360 straight innings (30 years) of production and no more goose eggs. This gold production/run production will typically ramp up nicely at first and then plateau out.
So the overall scoreboard for the lucky explorers has a couple of hundred goose eggs followed by a very long period (proportionate to mine life) of “run” production. Wouldn’t the optimal investment paradigm from a risk/reward point of view involve WAITING until a junior explorer scored that first “run” (went into production) and therefore IRREFUTABLY PROVED that it belongs in the 1-in-5,000 club before pulling the trigger on an investment? (20-20 hindsight) It seems to me that once the hoops and hurdles needed to clear in order to score that first run are cleared and that first run is scored further run production is fairly low risk.
As far as the ADL deposit’s scoreboard, we’re being told that 2016 should involve the production of 5,000 gold ounces over about the last 4 months in the year. Let’s estimate 1,000 ounces in Sept. and Oct. and 1,500 ounces in November and December. In 2017, we’re being told to expect at least 25,000 ounces of gold production or an average of about 2,000 ounces per month. If we’re producing 1,500 ounces per month at 2016 year end then let’s say we’ll be producing about 2,500 ounces in December of 2017. If we assume we’ll be producing 1,500 ounces per month in the first 6 months of 2017 and 2,500 per month in the last 6 months then you’ll get your “about 25,000 ounces”.
Back to the scoreboard analogy, that’s a pretty “busy” scoreboard after 200 goose eggs in a row. As the sites permitted for production increase over time and the number of ounces allowable AT EACH SITE go up over time that scoreboard could be looking pretty interesting. If AMC is intentionally “sandbagging” their production estimates in order to “underpromise and overdeliver” then the scoreboard could look even more impressive. I’d keep an eye on the first several months of production tdo see if they are indeed near 1,000 to 1,500 ounces per month.
I’m wondering if this current lack of interest in our stock is basically the market saying “hay Medinah, PROVE that you belong in the 1-in-5,000 club”. Those of us that have been following AMC and how they operate have a strong feeling as to what they’re going to do but others not so familiar with them have obviously chosen to take a wait and see approach actually which makes sense. I’d be curious as to how many mining analysts and mining investors follow this investment paradigm because it seems to be kind of a no-brainer.