OCTOBER 13, 2009 - AN EXCLUSIVE GOLD REPORT INTERVIEW WITH PETER SPINA
Peter Spina: Then there's a new company, Canada Gold. They're just getting going, actually, and I'm not an investor in the company yet. They have a unique business plan, to build a toll mill facility in Northern Peru and work with several thousand plus local small and independent gold miners that don't currently have an ideal place to have their gold ore milled. The Peruvian government estimates that around 3,000 tons per day of high grade gold is currently being extracted. I would expect this number to swell along with the gold price. These miners have been either loading their pickup trucks with ore and driving roughly 1,400 kilometers for processing at a cost of up to $100 per ton, or using mercury for on-site gold recovery, which is health risk to the artesian miners and a potential environmental biohazard. Inevitably these miners only get a fraction of what they could and should.
So within a year, Canada Gold is looking to open its first toll mill and to cater to these small miners, giving them a higher payout and milling the gold for them so they will no longer need to involve themselves in using mercury for extraction. Starting at 300 tons a day with grades pushing ¾ to 1 ounce a ton average, there is significant cash flow potential. Add mill number two, three and more, Canada Gold could grow into a significant gold operation and they can do this without having to deal with the mining and exploration risks.
That's definitely an interesting and new story. They have a $4 or $5 million dollar market cap and the several million dollars required to get the first mill going has already been financed, so additional capital needs are minimal. Definitely, it's a good win-win situation, which I think will find good backing from some non-traditional sources, including environmental groups and NGOs.
I try to look for stories like that, unique business models and win-win situations.
The Gold Report: It sounds good, but the value of a mill depends on the ounces it can process, so this one will depend on what these small miners can produce. Where's the guarantee their production will continue in some meaningful fashion through the life of the mill?
Peter Spina: With the price of gold where it is and the fact that these miners bring in on average about three-quarters of an ounce a ton of gold with no mill capacity nearby, the payback period could be within a year. Thus, there shouldn't be much fear that this won't progress for some years down the road. Because Canada Gold doesn't have to spend all kinds of money and time trying to find a deposit and mine it, this puts them in a much lower capex situation to get cash flow going. And at the same time these miners who are spending a day mining and two days extracting gold now will be able to focus strictly on mining.
The Gold Report: So the payback period is a year. Why didn't someone jump on this earlier?
Peter Spina: I've been asking myself the same thing. I wish I had an answer. I know one or two private firms that do work like this, but no other public company has gone this route that I am aware of. I believe the business model is going to be quite successful, and from everything I've looked at initially, it strikes me as a really good story. They want to build this thing up quite aggressively, to the point where they could be producing half a million ounces annually within two, three or so years down the road. The gold's there. It's being processed. I believe their advantage will be in making higher payouts to the locals for their gold and being in a strategic location where a lot of this mining is going on along with all the necessary circuits to process various ore types
The Gold Report: Is the Peruvian government likely to facilitate things for Canada Gold, given the ecological question?
Peter Spina: They already have government support and see continued support coming in for these environmental reasons as well as general economic ones.
The Gold Report: So there's another win in this win-win scenario for Canada Gold.
View the entire Gold Report interview with Peter Spina.
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