why the chart postings, page-3

Hi Beast,
I usually don’t post much as I am still working, have a family and hence short of time. However a good question need be answered.
To answer your question I must first explain my concept of risk which may be rather different from most of you.
First there is really no such thing as no risk. In other words there are risk even if you put money in the bank; tell that to the Zimbabweans. There may be low risk and high risk but they are all perceived differently by different peoples. And when we say something is risky we may not know it but we are really comparing it to something else. Hence when you say this is risky you have to ask compare to what?

Take for example most people would say as solid as banks before this crisis but now most of us would be weary of that statement. There is a lot of difference between banks and mines, one of them is there are certain things like what does the bank own or who are the borrowers from the banks that is really unknowable. Compare this to say gold there is really no such risk because there is an intrinsic value in gold. That’s the reason why I like miners because they are leverage to gold or silver or commodities. However like banks large miners like Bhp and Rio have risk which are hard to know or unknowable. Take for example how many of Bhp shareholders know where are all the mines or the depletion rate or the amount of resource they have in the ground? However for small miners it is much easier to gather facts on the company because most of them have only one or two projects. Not only that if you are an active shareholder there is a good chance that you can get in touch with the CEO of the company.
This is unlike large miners where you probably know the executive who sits in the ivory towers only by name. However this is really not the most important reason for my investing in juniors. The most important reason is the fact that you can value the juniors even though it is a rough valuation and with that you can determine if the company is really undervalued. In other words I can know my risk and rewards as compare to a large company. And this makes it possible for me to say something is low risk when most people perceive as high risk!

Having said all this lets us now have a look at why I am invested in this company.

The greatest risk is not really financing but the price of gold and silver. If I believe that the long term price of gold is down then there is no way I will be involve with Kmn and for that matter any other miners! So you readers will have to do your own research and convince yourself that precious metals and commodities is the place to be long term.

The next greatest risk at the moment is that the company needs to raise money soon. While this is correct there are certain unknowns; and that is the timing of the raising. Bear in mind that you really cannot project their spending from the past and say for example they have 1million dollars now and they have burned a million dollars a month lat year hence this one million dollars will only last them one month. This is not the case because management can change their budget during times like this; like stop drilling which they have. And this can prolong their cash burn.
Also the fact that some may think that this will be very diluting to the shareholders when they do raise money but remember that they have been raising money in many stages. They can easily raise less money during these times hence issuing fewer shares just to tie them over this difficult times. Moreover remember they do have many other options apart from raising money from shareholders. This ranges from farming out their operations to joint venture with another cash rich company to selling one project to finance the other to working with another producer by forward selling some gold or silver to them etc. And I am very sure management will be looking into every available option. I cannot say what will be the outcome except that I have faith in these guys because they have the experience in this area.

The next risk is country risk which i have discussed in my earlier posting. Hence I am not repeating it except to say that the two projects that Kmn has which is in Mexico and Australia are in the top 5 category in terms of country risk.


It is important to note that the Mexican project is consist of over 4 million ozs of gold and 200 million ozs of silver and 650 kilo tonnes of copper The reason is there is hardly any new finds of this size over the last few years even though there were intense efforts to search for new deposits. This size is important because they attract the big miners who is always on the look out to increase or replace their resource. In other words Snn is a prime takeover target.

The thing that is not going for Snn is the low grade.
Again we have to look at this in greater detain to gain a better perspective of the risk.
Bear in mind that most miners have an increase in their cost of production over the past several years and part of the reason is the fact that most rich and easy pickings are already mined out. The miners have to mine deeper or lower grade deposits in order to produce the gold .Hence what’s low grade a few years ago is not necessarily low grade now. Also as I have posted earlier there is a huge difference between mining a porphyry system and a vein system. Most vein system have to be very high grade before it is economical to mine simply because it is an underground mine and the miners have to be continually chasing the elusive vein which also vary in grade and size all the time. Whereas with porphyry system as in San Anton what they need to do is strip out the dirt to the low grade ore then drill holes for explosive to bomb out the rocks and after that load then into crushers for processing. Sound simple but of cost it is more complicated than that; however it does not change the fact that it is much simpler than an underground vein system. Not to mention it is much safer too to mine a porphyry system too. However the problem lies in the fact that because it is low grade you will to process much more ore to produce the same amount of gold compare to a high grade mine; hence this mines are usually large in order to have economy of scale which means higher capital cost as well as cash cost. Even then there is a value to this risk. What we need to know is how much is the cash cost and development cost. I have mentioned before that there was a scoping studies done before which put cash cost at about $320 and construction cost at about $265 million. I don’t think that they can do it today at that price but even so you can see the value in the company. Compare a capital cost of say 300 million to a resource of about 4 billion I am certain that this mine will be developed.

Now this is the reason I am invested in Kmn. Looking at Snn alone we can see that after striping off mining cost and capital cost and administration cost we can easily still have 1 billion worth of dollars spare compare to Kmn’s market capitalisation of about 50 million. And I have not taken Mt Isa into consideration yet. Nor have I taken into consideration the upside in the price of Gold and Silver even though for now it is hope rather than reality. In other words there are risk no doubt about it but the upside is what I have my eyes fixed on. Tell me if I am wrong but support it with facts and I will thank you.
Cherrs
Goodoh