The Tiny Gold Exploration Stock That Could
Since its humble beginnings, Pediment Exploration now holds nine 100%-owned properties throughout Mexico and has become what many (including yours truly) now consider to be the most exciting junior mineral explorer working south of the border.
From the company’s runaway success at its San Antonio gold project–where recent drilling returned 3.79 g/t Au over 84 meters and 2.44 g/t Au over 88 meters–to the strategic joint venture on the Caborca copper/gold porphyry project with Inmet Mining Corp. ($4.3 billion market cap), Pediment Exploration uses its five-star management team and unparalleled geologic expertise to continue adding to shareholder value. Just look at this one-year Pediment stock chart . . .
And despite the stock’s already impressive run, I believe that it still has plenty of room to grow. And here’s why . . .
First of all, for my money Mexico is the best place in the world for mineral exploration and development . The economy is strengthening, mineral development has very strong federal support, there are knowledgeable geological institutions in place, and (best of all) the country is teeming with undiscovered precious metals. And speaking of the strengthening Mexican economy . . . consider the Mexican peso. Check out the chart below of the Mexican peso’s wild ride up . . .
I showed this chart while giving a speech on mineral exploration in Mexico during the 2007 Profit from the Peak Summit in Philadelphia. Many people don’t believe it, but the fact is the Mexican peso has nearly doubled in value over the past decade. Compare that to the reeling US dollar, which has shed about a third of its value against the euro in the past five years alone.
So I can say with 100% certainty that Pediment’s focus in Mexico is absolutely well-grounded.
Pediment Exploration itself also has everything a junior mineral exploration firm needs to become a mega-success: a tight share structure, top-notch management, superb technical team, plenty of cash in the bank, and extreme untapped potential, especially at the San Antonio and newly acquired La Colorada properties.
Gold Exploration at San Antonio
Pediment’s San Antonio project is located near the southernmost tip of the Baja Peninsula, Mexico, about 40 kilometers southeast from the port city of La Paz. The project consists of three concessions, Cirio, Emily and Trini, that collectively cover an impressive 40,200 hectares of favorable geology.Fact is, Pediment has the largest holding of mineral concessions in the area. But here’s where things start to get interesting.
The San Antonio project contains the Las Colinas deposit, which has a historical resource of 348,000 ounces of gold. This resource was defined by Echo Bay Mines (now a part of Kinross Gold) in the mid-1990s. But let me make one thing very clear about this resource estimate . . .
I promise you that Pediment’s San Antonio project contains much more gold than this. I’d bet my mother’s house on it–with my mother in it.
Now, as you can imagine, I generally don’t make promises like this, or bet my mother, for that matter. But the evidence that I’ve seen from studying the overall region–and now from the company’s ongoing drill program–creates an overwhelming case for many more gold ounces.
First, let’s look at the obvious. We have to consider that the Las Colinas deposit makes up just a tiny part of the San Antonio project as a whole.
The term "tip of the iceberg" comes to mind.
We also have to consider the gold resource that’s sitting right next door to San Antonio. You see, this district is also home to Vista Gold’s Paredones Amarillos deposit, which boasts a measured, indicated, and inferred resource of about 2.02 million ounces of gold. And as you can clearly see in the map below, Pediment’s property dwarfs the land held by Vista. So, regionally speaking, Vista Gold has taken much of the guesswork out of it for us.
In 2005 Vista Gold completed a preliminary feasibility study that showed proven and probable reserves of 1.6 million gold ounces based on a gold price of $400 per ounce. The study projected a capital cost of $98 million (cheap in comparison to many other projects) to bring the project to production at an operating cost of $292 an ounce. Based on a long-term gold price of $550 an ounce, Vista anticipates a 24% return on investment with a net cash flow of $249 million. The proposed project is expected to last 13 years, producing 1.4 million ounces of gold.
If Pediment can create similar value at San Antonio–and based on the work that’s been done so far, it looks like they’ll be able to do that with one hand tied behind their back–the project is destined to become a "company maker" type deposit.
As part of the planned 10,000-meter reverse circulation drill program at Pediment’s San Antonio project, the company has released four sets of drill results so far, covering 23 drill holes. The first came on July 30 when Pediment reported the initial sample assays from three drill holes recovered at the Los Planes zone of the San Antonio property. The results were simply brilliant.
- Hole PLRC-07 returned a mind-blowing 3.79 grams per ton (g/t) of gold (Au) over 84.12 meters, which included 12.19 meters of very high-grade rock that assayed a whopping 19.87 g/t Au.
- Hole PLRC-05 recovered an average of 1.60 g/t Au over a deep 100.58 meters and included gold grades of 4.87 g/t, 7.27 g/t, and 7.68 g/t.
- Hole PLRC-01 assayed an average of 1.47 g/t Au over 83.82 meters and included gold grades of 3.08 g/t and 3.14 g/t.
These results were the biggest news of the day from the Canadian mining sector. And of course, Pediment’s stock traded like crazy–1.34 million shares–even though the stock had been halted until 11 A.M.
Hole PLRC-07 was, of course, the superstar of the group. But there was, and still is, a problem with hole 7. See, when the market first saw the results of hole 7, they automatically assumed that San Antonio had a chance to develop into a high-grade deposit. But the fact is, the San Antonio project is not a high-grade target. It never was. The San Antonio project is and always has been ideal for a large-scale, low-grade open-pit mining operation.
It’s true that high-grade deposits (and results) look really good in press releases and can move stock really easily. But when you ask the guys who are in the know (geologists, engineers, etc.), they’ll almost always tell you that it’s the large-scale, low-grade open-pit deposits that are the most successful in the long run. And these are the types of deposits you want as a major producer. The retail market doesn’t understand this. They’re always looking for the high-grade results. So when the company reported further drill results that recovered lower grade material, the stock sold off a bit.
The next batch of drill results, released late in September, included:
- 30 meters of 1.7 g/t Au in hole 2
- 35 meters of 2.2 g/t Au in hole 3
- 41 meters of 2.3 g/t Au in hole 4
- 81 meters of 2.0 g/t Au in hole 9
- 66 meters of 0.7 g/t Au in hole 11
- 34 meters of 2.7 g/t Au in hole 12
- 41 meters of 0.9 g/t Au in hole 13
- 90 meters of 1.0 g/t Au in hole 18
These are exactly the kinds of results that you want to see when targeting an open-pit low-grade deposit.
Most recently–November 1 to be exact–Pediment released another batch of 12 drill results.
The retail market again pushed share prices higher after the company reported hole PLRC-25 recovered 88.2 meters of 2.44 g/t Au. Overall, this set of results extended the main mineralized zone that the company is exploring right now by a full 100 meters to the south.
It’s also extremely important to notice the average grades. From the results reported thus far, I calculate that the average gold grade recovered from sample thicknesses over 20 meters is about 1.63 g/t.
When calculating the resource from the Las Colinas deposit, Echo Bay Mines had an average gold grade of only 1.02 g/t. Moreover, the average gold grade at Vista Gold’s Paredones Amarillos deposit is only 0.82 g/t. So even though the results put out so far by Pediment aren’t what we consider "high-grade," the average grade is much higher than anything else ever found in the region.
By the way, the largest gold mine in Mexico is La Herradura open-pit gold mine, which is owned in a joint venture between Newmont Mining (44%) and Industriales Peñoles of Mexico (56%). The average gold grade here is 0.85 g/t.
Aside from the raw numbers, it’s also very important to recognize that the material recovered in many of the holes is oxidized. This is meaningful to the development of this project because oxidized rock is much cheaper to process than sulfuric rock. And when you get down to the nitty-gritty of what the San Antonio project is developing into–a large-scale, open-pit deposit–it’s all about the cost of gold production. Think about it like this . . .
A 1.0 million ounce gold deposit with a production cost of $225 per ounce would generate 11.1% more capital than a 1.5 million ounce gold deposit with a production cost of $375 an ounce. So seeing that oxidized rock was a terrific sign of the good things to come.
Next year, Pediment expect to drill another 10,000-15,000 meters into the project. The company will focus exploration on the Los Planes Zone as well as three other zones: La Coipa, La Virgen, and Fandango. So drilling results will be streaming in throughout all of 2008. When it’s all said and done, I expect Pediment to have drilled nearly 200 holes into the San Antonio project by the end of 2008, more than enough for an NI 43-101 resource estimate to be calculated.
The New High-Grade La Colorada Gold-Silver Mine Project
Pediment Exploration has just negotiated an exclusive option to purchase the famous past-producing La Colorada gold-silver mine property, which is everything but certain to pay off in spades. Get a load of this . . .
La Colorada was the single largest gold mine in Sonora, Mexico for well over 100 years! High-grade underground gold production at La Colorada dates all the way back to the mid 19th century. And it wasn’t until 1999, when La Herradura began production, that La Colorada took second place in the world of Sonoran gold mines.
During the main historic mining period from 1876-1914, American and British interests produced over 3 million ounces of gold from a high-grade vein system that averaged between 30 and 50 grams per ton (g/t) gold (Au). In 1888, La Colorada became one of the first mines in the world to use cyanide for gold recovery, now an industry standard for most of the world’s gold processing facilities.
Like all other precious and base metal mines producing in Mexico during the time, La Colorada was forced to shut down in 1914 as a result of the Mexican Revolution. Nearly 7% of Mexico’s population died during the eleven-year conflict and the mining industry was brought to a screeching halt.
La Colorada eventually began producing again, and in 1990, the Mexican Geological Service measured 1.5 million tons of tailings that were used at the start of the open-pit production by Eldorado Gold in 1993.
In February 2000, Eldorado Gold published an estimated bulk tonnage open-pit reserve of 4,115,200 tons averaging 1.18 g/t Au, or 155,900 ounces, within an open pit resource of 21,534,300 tons at 0.87 g/t Au, or 599,300 ounces.
Production records that were provided to Pediment by the current owner show that 3,617,340 tons of ore grading about 0.9 g/t Au were mined following that estimate. So we can assume that there are at least 15,800 to 20,700 ounces of gold reserves still left in the ground. And that doesn’t count the 600,000 ounces of gold in the resource category!
The real value of La Colorada for investors, however, is in further exploration. Pediment said in a recent press release that the primary goal for now is to test the project’s high-grade vein potential, using exploration parameters for epithermal gold/silver systems. They said that this exploration will include evaluating both the bulk tonnage and high-grade potential of structures for which there is limited indication of past exploration testing.
In early 1998, Eldorado Gold reported an intersection of 31.27 g/t Au over 9.4 meters, which included 80.14 g/t Au over 3 meters.
Under the terms of the agreement, Pediment has an option to acquire 100% of 18 concessions held by private owners and is also working with Industrias Peñoles for acquisition of an additional five concessions in the area.
In order to acquire the 18 concessions plus 1,130 hectares of surface holdings that include the old production plant and offices, Pediment must make an initial payment of USD$1.1 million, followed by additional payments totaling USD$1.8 million over a two-year period.
A mere USD$2.9 million for the whole deal! Believe me, it’s a steal.
The property includes the old leach pads. And I think it’s safe to assume that these pads still have at least a few months of gold-silver production left in them. But it is difficult to tell exactly how much gold and silver these pads will be able to produce in their current state.
However, we do know that Eldorado was producing about 50,000 ounces of gold and 150,000 ounces of silver per year from La Colorada prior to shutting down. In other words, they were producing an average of over 4,000 ounces of gold and 12,500 ounces of silver per month.
What that means is this: If there are still six months of production left in these pads, they could yield as much as 25,000 ounces of gold and 75,000 ounces of silver. This, of course, is a very rough estimate and there’s no real way of determining just how much metal is left in the pads until it comes out. But if you work with the estimate that the pads still contain 25,000 ounces of gold, the gross value of those ounces is USD$20 million with gold at $800 an ounce. Like I said, USD$2.9 million is a steal.
Pediment says that it initially plans to "conduct studies of the engineering and environmental parameters for dealing with the existing resource and workings while completing database and geological studies to outline new targets for testing as possible high-grade ore sources."
And for investors right now, the big upside with La Colorada is exploration. Most of the property has never been drilled and is ripe for modern exploration.
For now, Pediment will be working with Peñoles to secure those five additional concessions. After that, the company will likely release a drill plan. With $25 million in the bank after a recent financing, Pediment is flush with cash and has the resources to drill as much as they’d like. I wouldn’t be surprised to see another 10,000-meter program at La Colorada once company geologists select drill targets.
Next year, Pediment will drill roughly 25 core over 4000 meters at La Colorada. The company already has drill targets selected and will begin drilling the main La Colorada pit shortly.
I recently visited La Colorada and brought back this short video clip. The quality of this video is poor because it was shot with a regular digital camera. But it does the trick. You’ll see two pits with the town of La Colorada behind the pit on the right hand side. At the end you also get a quick look at the processing facility which is well to the right. Both of these pits were dug by Eldorado Gold. The pit on the left was named, appropriately, the La Colorada pit while the one on the right is Grand Central.
Other Gold Exploration and Business Development
Pediment will also put about 35 holes over 6,000 meters into it’s 2,350 hectare Daniel project, which is located in northwest Sonora State, 40 kilometers northwest of Caborca. Drill targets for this program have also already been selected.
Overall, the company expects to spend $8 to $10 million on exploration next year. Pediment just complete a sizable financing which left them with over $26 million in the bank. So that means they should have another $15 million still in the kitty, which is in itself very interesting.
See, because gold has ran up so much over the past few months, there’s likely to be some consolidation . And with that $15 million in the bank, Pediment will be able to take advantage of this pullback. Here’s what I mean…
Fact is, there is only so much money to go around the market…there are only so many betters at the track. And a consolidation in gold will inevitably cause a pullback of gold exploration companies. During this consolidation, Pediment will have an opportunity to cherry pick new properties or even whole companies. Now $15 million isn’t going to be enough cash to buyout most companies. However, with so much drilling going on, all the company will need is one more significant discovery and they’ll easily be able to raise as much money as they need.
With the perfect balance of technical, geological, financial, and promotional expertise, Pediment Exploration’s (TSX-V: PEZ) unrelenting focus on its ambitious business plan is about to pay off big time. Even trading over $3 a share, I believe that there’s still a lot of upside potential here.
I believe that as the company matures and further explores the San Antonio and La Colorada projects, we could eventually be looking at a CDN$4 or CDN$5 stock.
For more information on the company, please check out its website at www.pedimentexploration.com.
Or you can call Gary Freeman, President and CEO, or Michael Rapsch, Pediment’s in-house IR guy, at 604-682-4418. I have a good relationship with both of these gentlemen and I can tell you firsthand that they are very approachable guys who love to talk about Pediment. So if you have the time, give them a call.
I also urge you to become a member to Secret Stock Files, because with gold trading above $800 an once, there are plenty of Pediment-type opportunities for investors. You can sign up to Secret Stock Files here: http://www.secretstockfiles.com/order/order1.php?id=3216
Until next time,