Hi Albireo,
I’d guess it’s the markings showing the location of a “panel sample” (a form of a “channel sample”) at the adit depth marked by the pink marker for easy reference. Here are some thoughts re: what we all might need right now.
IN SEARCH OF AN EASY TO DIGEST “AT A GLANCE” REPRESENTATION FOR MEDINAH’S FUTURE
What “the market” might be lacking in any attempt to gain a perception for Medinah’s future as the 25% equity stake holder for the 75% of the ADL mining district that AMC owns outright and the 36.25% equity stakeholder of the remaining 25% (“the Nuoco mining concessions”) might be a simplified “at a glance” image of where the ADL developments appear to be headed based on the information released to date by Masglas/AMC and their various geoscientific predecessors. “The market” prefers readily digestible information even when the component parts of the salient information is technically very complicated.
Similar to how the petrographic analysis of the Gorden breccia cores revealed that the ADL hydrothermal mineralizing events came in many different overprinting pulses/phases i.e. “polyphasal intrusions” so too appears to be the approach being adopted by AMC in developing this mining district in “phases”. The production phase will begin with the exploitation of the high grade already accessible “low hanging fruit” at the Caren Mine.
In mining, there’s a concept involving the producer building out a typically wedge-shaped “production profile”. The corporate goal is to rapidly get a typically high grade near surface already permitted asset into production in order to access the synergies available from the associated cash flow and its ability to catalyze further development efforts. It’s analogous to getting some runs on the scoreboard quickly in a baseball game.
THE CAREN MINE
If you chart out AMC’s projected Caren Mine production in a baseball inning by inning scoreboard fashion we know that the projections are that AMC will produce about 5,000 ounces of gold equivalent in the last 4 months of 2016 starting towards the end of August. For future analytical purposes related to whether or not AMC management tends to be a little ultra-conservative on their prognostications you might want to pencil in an estimated breakdown of perhaps 1,000 ounces of gold equivalent production for each of September and October and perhaps 1,500 ounces for each of November and December of 2016. For example, if AMC produces perhaps 2,000 or 2,500 ounces of gold in either September or October of 2016 then we might want to revisit their earlier prognostications and make adjustments if they appear to be overly conservative.
For 2017, AMC has projected a minimum production of about 25,000 ounces of gold equivalent just from the Caren Mine’s exploitation of the Merlin 1 Vein. Note that this is 10,000 ounces higher than the 15,000 ounces one might expect if AMC continued at the pace of producing 5,000 ounces in the last one third (4 months) of 2016. It is normal to expect a “ramping up” of ounces produced per unit of time throughout time at this stage of development as the logistical kinks get worked out. This ramping up process might also be attributed to increases in permitted tonnage allowances or the later addition of on site crushing circuits in place feeding on site gravimetric concentration apparatuses.
You might want to pencil in perhaps 1.5 thousand ounces of gold production for the first 4 months of 2017, perhaps 2 thousand ounces for the next 5 months and then 3 thousand ounces for the last 3 months totaling 25 million ounces for 2017. We now have a rough representation of projected production for the first 16 months in a baseball scoreboard fashion but the question arises as to how many “innings” this Caren Mine “game” might be scheduled for. I would guess that the mine life for the Caren Mine which is exploiting the 1.8 Km long Merlin #1 Vein in an underground fashion to be somewhere in the neighborhood of 10 to perhaps 12 years.
Hopefully we’ll get more insight as to the projected mine life of the Caren and other producing sites at the upcoming shareholder meeting in Las Vegas. In my opinion, this “Caren Mine” baseball game is thus scheduled for somewhere around 120 to 144 “innings” or months of production starting in a couple of weeks. The mine life of the various upcoming production sites at the ADL are critical because the NPV of these individual assets is highly dependent upon “discounted cash flow” (DCF) analyses which are in turn highly dependent upon not only how much cash will be flowing per month but also how long that cash is projected to be flowing. A “discount factor” needs to be used because money received perhaps a dozen years from now is not equal in value to money received today.
Studying the early Caren Mine production and cash flow numbers should give us a solid first peek at the overall potential of the ADL mining district even though this asset might represent less than 5% of the ADL mining district’s total assets. The key here is that the Caren permit was already in place and a portion of the grades are in the “bonanza” category. Three adits had already been drifted into the area where the Merlin 1 Vein exited the mountain on the northern downslope off of the ADL plateau. Artisanal miners no doubt simply recognized the outline of the 1 meter or so wide vein as it descended down the northern downslope off of the plateau and sampled it and found promising results. Nature providing a cross-sectional vertical view like this of an enormous sheet of plywood like structure that a vein represents is very helpful. Trenching across the plateau in a southerly direction confirmed that this particular sheet of plywood is over 1.8 Km long. IP/CSAMT studies suggest a depth of perhaps 300 to 400 meters.
THE FORTUNA OPEN PIT EARLY PRODUCTION OPPORTUNITY
The 400 hectare Fortuna Vein area (Fortuna Oeste, Merlin 3 and Fortuna Centro Veins and associated subparallel veins) is scheduled to commence production in 2017 but no production projections have been made yet by AMC and none of the 25,000 projected ounces of production for 2017 has been attributed to the Fortuna area. I sense a certain amount of conservatism on the part of AMC as they were willing to project commencement of production here in 2017 but no projected number of ounces produced. This makes me anxious to see how conservative my 1,000 ounces of production projected for September and October of 2016 at the Caren Mine end up being in order to see if “under promising and over delivering” might be AMC’s mantra.
What I would suggest is starting a new “scoreboard” and a new row of “innings” for the Fortuna open pit project immediately underneath the Caren Mine scoreboard in order to start envisioning the overall mining district’s estimated “production profile” that starts to take shape. Month #1 of production at the Fortuna area might be in perhaps September of 2017 or so as a total guess. You might pencil in “X” amount of production per month for the first 6 months at the Fortuna and perhaps 1.5 “X” per month for the next 6 months and perhaps block out space for another 144 or so “innings”/months of mine life (a very rough estimate meant to be ultra-conservative for an open pit operation).
We can substitute accurate production numbers for “X” when the numbers come in. Open pit operations for epithermal veins like these are often indicated when the density of the veins is high and the stripping ratio can remain favorable. Costs are usually less on a per ounce produced basis but lead times are usually longer. Preliminary drill programs are typically done to allow the engineers to do their “pit design optimization” studies. The projected timing suggests to me that the permitting is either in hand now or expected soon and the drill program is not too far away. This “the open pit operation will be producing in 2017” statement caught me off guard a little bit as this seems a bit ambitious.
On this Fortuna row of the overall mining district production profile scoreboard there are no corresponding entries underneath the Caren scoreboard for the first 12 months of Caren production dating from September 1 of 2016 to September 1 of 2017. We need to also keep in mind that the typical junior explorer fortunate enough to make it into production on any given month usually has somewhere around 200 “scoreless innings” (no monthly production) prior to the first inning that they post a “run”. You can see why many mining analysts designate going into production as being the investment “sweet spot” in the junior exploration/development sector. It’s pretty tough to fake going into production and a mining firm is not likely to go into production unless a “positive production decision” has already been made after careful scrutiny of all pertinent data. Why? It’s because of the amount of money it costs to go into production and therefore the FINANCIAL RISK involved.
Production site #3 (perhaps the surface aspects of the Pegaso Nero tourmaline breccia and “intrusive breccia” or the LDM stratabound deposit or perhaps the Gordon breccia area) might commence production perhaps 24 months after the first month/“inning” of production at the Caren Mine (again a total guess). Thus the overall production profile scoreboard for the entire mining district is starting to take on a “wedge” or right triangle shape with the hypotenuse angling from the upper left to the lower right connecting the dates for the commencement of production at the various producing sites.
What shouldn’t be lost on anybody is the amount of “innings/mine life” these games last in a mining district like this one once the initial hurdle of going into production is cleared and a cash flow catalyst to facilitate further production is established. Recall that AMC’s aggressive trenching program increased the known length of epithermal veins making it all of the way to the surface from 400 lineal meters to over 5,000 lineal meters. The IP/CSAMT studies also revealed plenty of subparallel veins/conductivity-resistivity anomalies that didn’t make it to surface especially in the area to be open pitted near the Fortuna Mine.
In this “scoreboard” format, the total annual production for month #12 would be the arithmetic sum of that produced at the Caren Mine plus that produced at the Fortuna open pit in the vertical column representing month #12. Similarly, in this model the production for month #24 would be the sum of that produced at the Caren plus that at the Fortuna plus that produced at production site #3 in the vertical column for month #24.
Zooming out and looking at this hypothetical “production wedge” you can get an “at a glance” picture of how mining companies can parlay early production opportunities like those at the Caren Mine into the build out of the wedge-shaped “production profile”. Early profits from the Caren Mine can enhance the prognosis for the success of putting other sites into production due to the decrease in the “cost of capital” (often debt servicing) for those other sites. THESE HORIZONTALLY CHARTED PRODUCTION NUMBERS/RUNS ARE LIKELY TO INCREASE THROUGH TIME FOR A VARIETY OF REASONS I’LL DISCUSS LATER. THIS MEANS THAT THE VERTICAL TOTAL PRODUCTION NUMBERS CAN GO UP IN AN ALMOST PARABOLIC FASHION WITH A LITTLE LUCK THROUGHOUT TIME.
The initial production at the Caren Mine might put a relatively unknown mining firm like Masglas/AMC “on the map” from an industry standpoint because so few junior explorers ever make it into production. The producing firm becomes a “fraternity brother” as it were of a fairly exclusive fraternity and therefore deserving of the attention of the industry. A similar “wedge” could be constructed plotting out the mineral reserves/mineral resources (MR/MR) being blocked out through time at the various mining district sites. It is not clear how high of a priority blocking out MR/MR is for a private entity like AMC. Over the last 8 or 9 years, the mining industry has punished its members that spent inordinate amounts of money in blocking out MR/MR for the sake of blocking out MR/MR while not generating many profits. The new paradigm is to locate deposits with early production opportunities and get some “runs” onto the scoreboard quickly. Maurizio Cordova has mentioned in several media interviews that he wants “deposits that make sense NOW”.
Valuing companies primarily on MR/MR might be a little shortsighted especially when spending inordinate amounts of money on blocking out MR/MR that might not be monetized for many years might be contraindicated. This is especially true when high grade near surface early production opportunities abound and “the market” is only ascribing perhaps $5 to $15 per ounce of in situ gold mineral reserves. Creating positive cash flow and banking profits is a much more reliable route to guaranteeing that shareholder rewards will be realized especially in less than ideal markets like the OTC markets featuring the games that are played there.
SOME CONTEXT
Up until now we’re just talking about the high grade near surface early production opportunities consisting of the low (Caren)and intermediate sulphidation epithermal vein systems. These near surface early production opportunities are the “bonus” that some porphyry/skarn deposits feature but many don’t since often these areas are eroded away. One of the striking features of this deposit is how well preserved this epithermal vein system remains at 91 million years of age. Many geoscientists speak of the 4 levels to (noneroded) epithermal vein systems progressing from the surface downwards as the banded chalcedonic vein level, the carbonate base metal gold level, the polymetallic gold/silver level and ending at the quartz sulphide gold/copper level typically sitting atop the associated porphyry (relict magma chamber) from which the associated hydrothermal fluids exuded. One of the beneficial aspects of deposits of this nature are the enormous amounts of “vectors” present that point to the location of the porphyritic structures that gave rise to the overlying epithermal systems that “telescoped” out of them.
From the ADL mining district point of view these “bonus” features might represent just a sliver of the mine life associated with the deeper porphyritic structures, the skarns, stratabound copper/gold mantos, stockworks, breccias, etc. The polymetallic nature of the deposit (gold, copper, moly and silver) provides opportunities to focus expenditures on the metals performing the best at any point in the metals cycle.
FACTORS AFFECTING THE PROFITABILITY OF THE “PRODUCTION WEDGE”
At each production site, the amount of ore permitted to be shipped is going to increase through time as AMC proves to the Chilean mining authorities that they are acting in an environmentally responsible fashion. Thus the number of runs scored/ounces produced will naturally increase horizontally across the scoreboard throughout the mine life OF EACH PRODUCING SITE. There is a very powerful phenomenon at play when both the number of sites permitted to go into production increases at the same time that the number of tonnes allowed to be shipped from each permitted site goes up. THIS IS PARTLY WHY IT IS SUCH A BIG DEAL FOR A MINING FIRM TO FINALLY GET INTO PRODUCTION. It’s important to get those permitted production sites and permitted production tonnage “clocks” started.
There is an equally powerful phenomenon that occurs when Masglas/AMC has their own on site crushers and gravimetric concentrating system in place. This is because the production allowances are in terms of tonnes allowed to be shipped on a monthly basis. Each tonne of ore pre-concentrated on site contains that many more ounces of gold per tonne being shipped. Thus these three phenomena acting in concert can enhance profitability throughout time because many of the milling/extraction costs per tonne processed will be somewhat fixed.
Thus once one of these “production profile wedges” is established, the runs scored/ounces produced will tend to increase throughout time via a variety of mechanisms. If you can time all of this with a strong gold market then that would obviously add to the explosivity as most of the enhanced price of gold in a bull market tends to fall to the bottom line. The key is to get the first production project up and running ASAP and hopefully at a time when the metals being produced are in demand. At this point in the macro-cycle early copper production opportunities just do not have the sex appeal as early gold production opportunities do.
One has to keep in mind that very few junior explorers will ever go into any form of production let alone be in a position to set up a “production wedge” and milk the synergies contained therein.
SO WHAT’S NEXT FROM A DUE DILIGENCE POINT OF VIEW?
The near future appears to have plenty of educational opportunities for the Medinah “market” in the form of the Chilean Mining Congress that both Masglas and Auryn are co-sponsoring and providing speakers for as well as the planned shareholder meeting in early October. I think that all investors both current and prospective will be able to advance quite a bit on their own individual learning curves for all things Medinah during this time frame. My own prediction is that Bocanegra is going to hit it out of the ballpark in his dissertation on the ADL deposit. This might represent AMC’s most sincere effort to date on “audience development”.
Does the market “get it” in regards to the prognosis for success for Medinah? Absolutely not, in this sector the market rarely “gets it” because the technical material needed to digest in order to properly evaluate the appropriateness for a company’s market cap is extremely complex. That’s why mining analysts with backgrounds in the geosciences are so critical to lean on in order to decipher which geo-garble is salient and which isn’t. I’m constantly going back to the article written by Masuch when he chastised his followers for not jumping all over Aurelian’s shares when they made the Fruta del Norte deposit. His message was that “you guys are a bunch of morons because the pertinent data was right in front of your own noses on Aurelian’s website the entire time”.
The FDN deposit was a “bowling alley” type of deposits that was tightly “structurally controlled” i.e. the goodies were found in a “structure” a crack in the earth (fault) that “controlled” the location where the metal bearing hydrothermal fluids would deposit their contained metals. It’s a pretty easy concept. Now look at the geo-maps of AMC. Can you see that the Pegaso Nero deposit (quartz monzodiorite porphyry with potassic altertion and moly found right at the SURFACE) runs northwards where it smacks directly into the eastern and western “Gordon” breccias which in turn smacks directly into the 1.8 Km long Merlin 1 Vein which hosts bonanza grades and is about to be exploited by AMC.
Now overlay upon this Perez’s hyper-spectral imaging survey results revealing a SW to NE trending 7 Km long fault system featuring “about a dozen” separate intrusives. This is at right angles to the Pn-Gordon bx-Merlin 1 Vein axis forming a “+” sign. In areas with a tremendous amount of hydrothermal activity, the LINEAR faults have a tendency to provide a wonderful “plumbing system” for these metal bearing hydrothermal fluids to not only make it to the surface but also they provide a reservoir for the fluids to cool and precipitate out of solution the metals they carry.
The magma chambers from which these fluids exuded and the area near the roof of the relict magma chamber that ruptured become “porphyry deposits”. These magma chambers provided the hydrothermal fluids/volatile gases that allowed 5,000 plus meters of epithermal veins to make it all of the way to surface on the eastern aspects of the ADL plateau. At the Pegaso Nero think relict magma chamber/porphyry. At the Gordon breccia complex think hydrothermal fluids emanating from the PN porphyry running into ground water and crash-boom-bang the explosivity was so severe (phreatomagmatism) that once solid rock got converted into metal bearing gravel pieces cemented together by a fine grained groundmass. At the Merlin 1 think of a northerly extension of about a 1 meter wide crack/fault that got filled up by metal bearing hydrothermal fluids coming out of the same or a nearby magma chamber.
To me, the brecciated areas are nice but not the focus. The eastern Gordon breccias have about 1.5 million ounces of gold equivalent. The western breccias might add perhaps another 1 million ounces (a total guess). This, to me, insignificant but interesting anomaly puts us at about half of the 5 million ounces usually ascribed to a “world class discovery”. The quick money will be made at the 5,000 meters of epithermal veins that made it to surface. The big (long term)money will be made at the porphyries, skarns, stratabound deposits, stockworks, breccias, etc. Is the mining district going to feature perhaps 8 million ounces or 18 million ounces or whatever figure you choose? At this particular point in time, who cares? Any moron can tell that it’s going to be a significant number within a range but the exact number is not critical to delineate today.
“The market” for Medinah shares may experience a bit of a “funnel effect” as investors interested in the ADL mining district or AMC or Masglas for that matter might recognize that the Medinah “share” appears to be the primary gateway for the time being for acquiring a piece of the action in any of these endeavors.
Again, what I think we and “the market” need is a readily digestible “at a glance” vision of Medinah’s probable future starting from a “production profile” point of view. Through time it will be possible to fill in accurate numbers where “X” is the most accurate figure we can currently use. Independent of the technical merits of the deposit, time should also allow the black clouds of uncertainty to dissipate.
