FEBRUARY 12, 2009 - AN EXCLUSIVE GOLD REPORT INTERVIEW WITH SIDDHARTH RAJEEV
The Gold Report: Since our last interview, have you added any interesting companies to those that you follow that you like in this economic environment?
Siddharth Rajeev: Canada Gold has a unique business model. They are also one of our top picks. Basically, they focus on establishing ore processing centers for artisanal and small scale mining (ASM) in developing countries. For those who don't know ASM, it's a very common practice in developing countries. One of the main problems is that small scale miners rarely have modern processing facilities close by. Also, these small scale miners use mercury in amalgamation techniques, which is very bad for the health of the miners and also the community.
Canada Gold's first project is to establish an ore processing facility in Northern Peru. Transportation cost is very high for the current miners, because ore from Northern Peru is being shipped to processing facilities located 1,400 kilometers away in Southern Peru. Canada Gold's plan is to build a 300-ton-per-day plant with minimal capex of $9 million. The best part is that they are already financed because one of their subsidiaries, in which Canada Gold has a 50% interest, holds more than $10 million of marketable assets. Those assets can be sold in the future to fund the capex for this project.
The Gold Report: So this is a pure processing play in Peru?
Siddharth Rajeev: Yes, it is a pure processing play, but will not be confined to Peru. After establishing the first facility in Northern Peru, Canada Gold plans to move to other countries where ASM is prevalent, countries such as Colombia and Ecuador.
The Gold Report: With a $9 million cap ex cost to build the facility in Northern Peru, will there be enough gold or processing demand to produce a sizable profit?
Siddharth Rajeev: The main risk in the model, of course, is consistent long-term supplies of ore. In the case of Northern Peru, we believe, the risk of long-term ore supplies is not high. ASM miners in Northern Peru are currently producing 3,000 tons per day of high grade ore. At 300-600 tons per day, we believe Canada Gold should have sufficient access to ore, at least for the next five to ten years.
Although the ASM industry tends to depend on gold prices, Canada Gold's revenues are not directly correlated to gold prices, as the company generates its revenues from processing fees, and the spread between what is paid to the miners and what is recovered in the plant and sold.
The Gold Report: But it sounds as if they have the built-in demand needed to make this first project profitable.
Siddharth Rajeev: Yes, we believe there is a demand for such a facility in Northern Peru. Moreover, the low CAPEX makes the economics of such a project even more attractive.
View the entire Gold Report interview with Siddharth Rajeev.
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