don't lose heart, page-6

These are the few more positives for San Anton
Perhaps the most important thing to a junior is the management. As Beast and Bolkin has posted earlier, they believe that we have got a bunch of very good managers here. I am in agreement to that. I have meet Dudley twice during the presentations and I could see that he is a person of integrity and sincerity. You will have to meet him to judge for yourself. For those who haven’t seen them you can look at their past achievement in running mines and bringing them up from exploration to mining.
Of all the things going on for any company it is my belief that management is of paramount importance especially for juniors. Remember management owns a large parcel of the shares in KMN and it is in their interest that the shares do well. (Those two guys Norman Seakold and Dudley Leitch have not sold any snares even though the share price of KMN has been hit so very severely). In fact this is very important as you do not want the main income of the directors to come from salaries but from the successful running of the company; this is because in most cases juniors are out to mine shareholders pockets rather that looking for a mine. Remember that mines are not found mines are made (quote from Sean Boyd of Agnico Eagle) hence you need to have very good managers for a mine to happen.

If we consider the amount of money spent in San Anton (which is of the order of 20 plus million dollars) and compare to the amount of resource they delineate (about 8 billion dollars worth in San Anton ) we can say that they are indeed darn good explorers. Also consider the fact that this bunch of people has been mining before in Georgia as Bolnisi gold. Considering the political climate in Georgia they have done extremely well. Not to mention their success in Palmerajo.

The next thing to consider is the country risk. Mexico is ranked among the top 5 in the world in terms of country risk. (From www.dolbear.com) This is extremely important as you do not want a mine in Russia or Venezuela or Ecuador or any of the African countries as the rule of Law is not strong in this countries. In fact most apart from Australia, Canada America and Mexico most of the mineral deposits are found in countries where the rule of law is not strong or none existent. In the past couple of years you have seen countries like Venezuela and Russia which sort of nationalise the projects when it is near completion. In this sense Mexico and of course Australia and Canada is perhaps the best place to be for any miners. Going forward more and more countries will become more rapacious and demand a much larger share of the minerals pie as the commodities bull marked continues.
Another thing to consider in relation to country risk is environmental risk. The country needs a good environmental Law to protect its people but not be overly zealous as in the case of America where it is extremely difficult to get environmental permit of any kind. Mexico has a reasonable environment Law and strong Laws to protect mining investors. If you were to compare the length of time for permitting a mine; Mexico will win hands down compare to most other countries.
Couple with this is the fact that Mexico has a very highly skilled labour in the mining industry because of her mining heritage.
Wages is in Mexican peso hence compare to any country in the world mining cost in Mexico is one of the lowest. This is very important especially if you have a low grade mine which may not be economical to mine in Australia or Canada but can be rather lucrative in Mexico. Also the fact that the Mexicans are general favourable toward miners as the mines generally pays the workers a higher wage compare to other jobs.
However there are down side in Mexico. It is not really the safest country in the world as bandidos or Mexican rebels still exist in Mexico The drug trade is very strong in Mexico. Also the fact that Mexico relies on crude oil export for up to 30% of its GDP. This will present in the not too far away future as their main oil producing field Canterell is matured and production from this field is dropping by more than 10 percent a year. There are analysts who forecast that Mexico will become an oil importing nation in a couple of years time. The problem with this is of course the fact that Mexico would lose a large revenue stream and if not replaced then there will be political and economic consequences. Let’s hope that by then other minerals export will be able to generate enough economic activity to replace that.

Then the geological location of the mine is important. In other words the mine needs to be near power station, water, skilled labour and infrastructure access. San Anton does not have any problem with all these issues. Climate issues are important too as the cost of mining increases in locations where climate is bad as in the arctic and the deserts.

Of course the greatest risk at the moment for KMN is the risk of finance. However that can also be a blessing, this is because KMN cannot borrow money since it is only an explorer hence it does not face foreclosure unlike those development companies where they may be forced to close down because of their debt. Also the company can go in to mothball mode if the climate so requires it because it has no debt. Remember that the directors have the most to lose if the company ever goes under unlike many other juniors. They have been good at raising money in the past and I believe they may have some way aground the financing problem.

Finally there are very few million ounces gold deposits discovered in the world over the last few years, even though there has been tremendous amount of exploration. Remember that companies like Barrick and Anglo gold produces over 5 million ozs of gold a year. Where are they going to find the gold deposits to replace production? Have you heard of any new discovery over 5 million ozs. Most of the finds are only in the 1 to 3 million ozs and they are considered very large finds. That’s why gold production has been falling over the past few years even though the price of gold has been rising. Sooner or later the majors and the mid tiers will start to look at juniors to take over in order to replace their production and when that happens; juniors will fly. When will this happen? I don’t know but I believe this will most likely happen when the gold and silver bull run resumes which may be sooner than we think.
San Anton has about 4 million ozs of gold 200 mil ozs of silver and 650kt of copper in its resource and I am very confident that there are mid tier miners who will be talking to KMN. The only problem is price. Remember the resource has advanced to the measured and indicated category which implies that it has a very good chance of being converted to reserve. By the way there is one advantage of a low grade porphyry system as compared to a high grade vein system. That advantage is certainty. That is to say that the grade is usually much more consistent as compare to the vein system which can vary considerably. Also the fact that veins system continuity is much harder to gauge compare to a porphyry system. The only problem is the capital cost is usually higher because of the fact that large tonnage has to be processed to recover the same amount of metal as compare to a high grade system. And of course usually the cash cost is higher because of the low grade. That’s why with this mine it is highly significant that it is situated in Mexico which makes the production cost competitive compare to other high grade mines. By the way somewhere in May 2007 KMN has done a scoping studies on the project which indicate a capital cost of 265 million dollars and cash cost of $312 per oz of equivalent gold with a throughput of 15 Mt per year producing 180,000 ozs gold, 6.2 million ozs silver and 14,000 tonnes copper.
Of course this is only a rough company estimate but as one can see the capital cost is not by any means exorbitant and the cash cost is not high either. We will have to wait for the preliminary feasibility studies to confirm this cost. By the way the average cash cost of gold miners nowadays goes beyond $400 per ozs. Hence with a very large deposit located in a favourable location I am very confident that San Anton will be a mine one day.
That’s the reason why I am holding. Perhaps the only way it can be derailed is the secular bull market in commodities turned into a secular bear market but that is a story for another day.

Cheers