Animas Resources: A Junior Gold Explorer Pulls Off a Coup?
Source: David Banister (1/11/08)
Imagine if an exploration team could re-consolidate from various ownership parties an entire “gold district” for the proverbial pennies on the dollar? What if that land base had prior gold production averaging 2.1 to 2.8 grams per tonne of mined gold? Better yet, what if that historical gold district happens to be in mining friendly Mexico? Let’s get a bit more greedy. Why not throw in 1,200 historic drill holes to comb through along with a commissioned study on the property indicating the extremely high potential for high grade gold at lower depths than previously drilled?
Even with the amazing strength of gold prices and the demand thereof, once in a rare while a Junior Exploration company will manage to pull off a land package and exploration project opportunity at bargain basement pricing. However, it is not enough to find some property and drop some drills in the ground. An exploration project must have a very strong geology team, management team, and an assortment of required experts on the advisory board to have a chance at greatness. Animas Resources in my opinion has managed to do just that, and will soon stand to benefit as this “Gold Bull” rages onward.
Imagine if an exploration team could re-consolidate from various ownership parties an entire “gold district” for the proverbial pennies on the dollar? What if that land base had prior gold production averaging 2.1 to 2.8 grams per tonne of mined gold? Better yet, what if that historical gold district happens to be in mining friendly Mexico? Let’s get a bit more greedy. Why not throw in 1,200 historic drill holes to comb through along with a commissioned study on the property indicating the extremely high potential for high grade gold at lower depths than previously drilled? Jeff Phillips, Managing Member of the Advisory Board and his team at Animas Resources not only imagined the above, they managed to pull it all off. The phrase “the sum of the whole is greater than its parts” never fit better.
Prior to the shutdown of mining operations in 2001 due to low gold pricing, the San Gertrudis district that Animas now controls was producing 60,000 ounces per year of gold over a ten year period using heap leach mining methods. The prior operators were drilling only to the shallower Oxide mineralization levels, and never bothered with the deeper sulphide based mineral due to lower gold prices and higher cost heap leach methods they were employing. With gold trading in 2008 at $850 per ounce as opposed to $300 per ounce in the 1990’s, it is clearly economic to drill deeper holes and pull potentially higher grade gold out, even if at a higher cost. Animas has a planned 10,000 meter drill program in place now, and will begin drilling in the first quarter of 2008. Six drill zones have been identified by one of the most well qualified geology teams in the world. These holes will be drilled as deep as 400 meters, and any exciting intercepts that come out of that length hole will surely drive investor interest.
How do I value thee? Let me count the ways. Investors today are absolutely starving for a junior explorer to discover a large and mine-able gold deposit or trend. This can be seen clearly by the constant excitement over ten meter intercepts of high grade gold. As one of my good friends likes to say “Yes, that is a nice charm bracelet… but it’s not a mine”. I can name one explorer down in Mexico that recently drilled off six 150-180 meter holes and saw their market cap go from $15,000,000 to $180,000,000 in six short weeks. The grades they drilled were impressive, but lower than the historic grades Animas controls on their properties. Animas’ market cap is currently only $40,000,000 as of the time of this writing (24,000,000 shares at $1.60 a share). There are several junior explorers doing very well in Mexico, including Pediment, Geologix, and Canplats with market caps ranging from $110,000,000 to $160,000,000.
Animas is also working on a compliant 43-101 resource estimate based on the roughly 800,000 plus ounces of historic gold sitting on the properties they now control, including recent land they acquired that abutted the SG district properties. The gross value of 800,000 ounces today is $680 million dollars. Taking 5% of that number is $34 million alone. The value of the 1,200 historic drill holes is hard to estimate. If a new junior was to begin drilling 1,200 drill holes today it would take multiple years and tens of millions just to get that far. Animas has another $7 million in the bank to boot, and we haven’t even added up the value of all the land they amalgamated from various owners to create this new district. With a $40 million market cap, I could argue Animas is trading at a discount to the very base value of its prior gold, money in the bank, and historic drill holes alone. Investors are giving Animas no value at all for any future drilling upside.
Animas Resources has attracted a very respectable list of executives, consultants, and advisors. They include the past head of Phelps Dodge exploration South America, past head of Phelps Dodge exploration North America, past head geologist for Newmont Mining, past president of Cominco Resources, past Mining Man of the year (who sold her exploration company to Barrick for 1.1 billion dollars), past head Echo Bay geologist, the past VP of acquisitions for Cominco, the Mexican lawyer who co-drafted the current mining law of Mexico, and the past Senior VP for business development at Phelps Dodge. To review the complete list of executives, consultants, and advisors, please visit Animas's web site at http://www.animasresources.com/s/Management.asp.
As just one example of the quality of the team involved, look no further than one Odin Christensen. Odin was very involved with the early discovery of the “Carlin Trend” in Nevada in the 1980’s that went from 300,000 ounces to 20,000,000 ounces during his stewardship. That discovery helped to put Barrick Gold on the map, and landed Odin a job as the Chief Geologist at Newmont Mining.
A prior commissioned report called the Behre Dolbear report had the following to say about the SG property that Animas now controls:
"The property contains potential for a deep, Carlin-type target from an examination of the property and the presently available data for the project. The geology, structure, geochemistry, geophysics and mineralization are indicative of this type of system and the similarities to the Post-Betze deposit are very striking. Santa Gertrudis is at the same position the Carlin Trend was at the point in time Barrick bought the Gold Strike property from Western States Minerals and started their deep exploration program. The deep exploration potential at SG is very positive and the chance for deep mineralization is very good. The surface potential, as you know, is without question."
One of the most exciting times to invest in a junior gold exploration firm is before they begin deep drilling. Southern Arc minerals had a similar story last year in that they had acquired the rights to drill off a piece of property in Indonesia that had historic drill results from Newmont Mining. SA dropped some 600 meter drills into the ground and the fireworks began when the assay results came out. SA went from a $20 million market cap to as high as $150 million as results poured out. Animas is at a great stage in their early life with historic strong drill results, a huge re-consolidated gold district, some of the world’s foremost geologists and a tight share structure. In the early part of a new calendar year, often a strong stock will sell off a bit as investors with gains “recognize” those gains in the new year. This allows them to defer paying taxes on those gains for sixteen months. Often, this represents opportunity to establish a new position or add to one. Animas is experiencing some selling now and I don’t expect it to last.
I own shares in Animas and I am biased as a shareholder. All junior explorers have potential for great reward, but can also carry great risk and have extremely volatile stock prices. Please perform further due diligence and consult an Investment Advisor before investing.
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ABOUT THE AUTHOR
David Banister has written for CBS Marketwatch.com in the past, has been on national radio, and has written articles for local newspapers on the topics of investing and economics. Thom Calandra, the co-founder of CBS Marketwatch.com, called David, “The best market technician I have ever seen” in 2003. David is a contrarian at heart, with a bent for small cap stocks. David owns shares in Animas Resources. You may reach him at [email protected]