It's now a three cent stock, down 93% on that chart. His "largest position" is probably not that any longer, not in cash terms at least.
It was the right way to play the odds at the time, but given subsequent price action, it's a pity we got stopped out of our latest GLD "gold insurance" recommendation. I won't dwell on this too much, other than to remind readers that such volatility is normal in our sector, and it's providing some excellent buying opportunities on picks we missed earlier, such as our most recent pick, Roxgold. More on this next week.
Meanwhile, I've been out kicking rocks again, and I'm writing to you from British Columbia, where I just had a follow-up visit with the subject of many questions lately: the Yellow Giant gold mine recently built by Banks Island Gold (BOZ.V, C$0.44, 42.9M SO, 55.9M FD, C$18.9M MCap, www.banksislandgold.com).
I'll have more details in the forthcoming issue of the International Speculator, but want to go ahead and share the gist of it with Casey Investment Alert subscribers now: I'm convinced Banks Island Gold (affectionately known to its 60 or so employees as BIG) is a cash cow in the making and is deeply undervalued.
First, however, I want to remind readers that both Doug Casey and I own shares in Banks. Personally, it remains my largest position. If you believe this may bias me, or my perceptions of the project, please feel free to discount what I'm about to say or, indeed, to stop reading now. I will not be offended. (But I'll also remind readers that as per Casey policy, I'm not allowed to sell any of my shares until giving readers a chance to do so first.)
Now, if a picture is worth a thousand words, let me save us all a few thousand and show you why I'm so optimistic about Banks.
The aerial shot above shows the main mine site, where there was nothing but moose moss last time I was on Banks Island. The whole camp was a cargo pair of containers—now, there are roads, buildings, and a floating residential facility to house the 30-odd people working where not so long ago, there was naught but wolves and wind.
Above is the nondescript villain of the day: the barren garnet "contamination" that just happens to weigh the same as Yellow Giant's gold-bearing pyrite. This little surprise resulted in a large amount of garnet being included in the initial batches of gold concentrate from Yellow Giant, reducing their grade—and causing all the other problems we've reported on.
Next, the solution:
This shot of Yellow Giant's dense media separation (DMS) plant, the heart of the operation, shows a red and yellow spiral separator on the upper-left deck. What was not clear to me before my visit, but is now, is that this new component to the circuit already addresses the garnet problem, even though we're still a few weeks away from the installation of the flotation cells that will improve recoveries and concentrate grades even more.
You see, Banks' contract requires it to produce a concentrate roughly grading two ounces per tonne (2.0 opt), but the garnets were diluting the concentrate down to a bit over 1.0 opt. The spiral circuit recovers fine material that would have been lost as waste, and it grades about 3.0 opt. This is critical, because lab tests had predicted that about 15% of the gold-bearing sulfides would be crushed to this fine size, but the reality is closer to 50%. So, if you add the concentrate from the spiral to the DMS concentrate contaminated with garnet, you end up with an average above the 2.0 opt required—even without the flotation circuit. Voilà.
Note the second set of spirals to the lower-left. Banks plans to run its previous tailings through that set to recover the gold from fine material produced before the garnet problem was identified. In other words, gold already "lost" to waste will be recovered.
This long-hole drill rig is used to blast large amounts of ore at once, greatly reducing the mining cost per tonne. This is one of the keys to profitability at Yellow Giant; not only does the Bob zone currently being mined grade over an ounce per tonne, it does so in areas over 10 meters thick in places. Currently, this can result in rock with $1 million worth of gold being broken in a single round at Bob. And while in many vein deposits, you can only use long-hole stoping here and there, at Yellow Giant, it's the primary method of mining.
Another key advantage that may not be immediately evident from the photos above is that all the plant equipment is modular, brought in on trucks, and simply parked or planted on the ground. This required minimal surface disturbance, minimal civil engineering, no actual plant building to be constructed, and gives the company the flexibility to add to the circuits, and even move them around, as needed.
This is why the whole thing cost only about $10 million to build.
Note that we do not have cash cost figures yet; the company's accountants are working on those, and with Banks' fiscal year ended on February 28 (conveniently after the start-up teething pains), this first full quarter of production only started this month. That said, the math is not too difficult to sketch out; the mine cost $10 million, the Bob zone can produce $1 million of ore with a single blast… and that two-tonne fine material concentrate bag in the third picture above was mounted as I arrived on-site, and was half full by the time I toured the plant. When Banks starts reporting financial results from regular commercial production, I think the market will be greatly surprised by just how much money a little mine can crank out.
As for making this little rich mine into a BIG cash cow (sorry, pun intended), consider that the single boulder under my elbow in this picture has about $20,000 worth of gold in it at today's spot price. There were several of these being hauled out of Bob while I was there, and much more in smaller broken rock. More to the point: material like this has been discovered by the company's exploration drilling below the current 43-101-compliant resources at the Bob and Tell zones. The Kim zone has also been significantly expanded, and new zones will be tested this year. With Banks' new, larger mining permit in hand, a little more exploration success could easily scale Yellow Giant up to a level that could attract the interest of a larger mining company.
Banks is not, however, looking for a takeover; management wants to generate millions in net earnings, keep expanding Yellow Giant, and go shopping for more high-margin projects. I believe Banks will succeed. Consider this last photo, showing about $250,000 worth of gold in concentrates ready for shipment—not bad for a few days' work.
I did not have access to nonpublic data, so I can't give you any financial figures I'd care to defend. Based on what I saw, however, I can say that Yellow Giant is already bigger and better than anticipated, and it was built at an extremely low cost and is operating at what has to be one of the lowest costs per ounce I've seen. While other companies are reporting losses and write-downs, I now expect Banks to report net income in its first quarter of commercial production and growth soon thereafter.
Yellow Giant's profitability may not become fully apparent (or may not be believed) until the company's audited financials come out, but I expect the reality to become increasingly apparent with each press release throughout this year—perhaps starting with the next one.
I can't guarantee what gold will be doing in the nearest term, but Banks Island shares are selling cheaper than they have been since right after IPO, and back then, the company had only an idea, while now it has cash flow. This undervaluation won't last, and I see very near-term Push in this story.
So I'm reiterating my renewed Buy recommendation. Whatever happens in the near term, these shares are a great buy, whether for a first tranche or a second.
I intend to buy more myself—after giving you a chance to do so first.
Senior Metals Investment Strategist