Golden Arrow Resources Corp. (GARWF)

[investor15]

John Kaiser's Strategies for Success in a Bloody Market

Source: JT Long of The Gold Report (7/8/13)

With so many junior mining companies going into hibernation, John Kaiser of Kaiser Research Online fears that the entire mining sector could fall dormant. In this interview with The Gold Report, he outlines approaches to discovery and development that smart, nimble companies are deploying to stay alive. Whether precious, base or critical metals, or in jurisdictions as exotic as Morocco and as familiar as Nevada, these are the basics required for survival in today's brutal market.

Section of article:

JK: Golden Arrow Resources Corp. (GRG:TSX.V; GAC:FSE; GARWF:OTCPK) just produced a resource estimate for a silver-zinc-lead deposit that has more than $3B worth of metals, the Chinchillas project. Its black mark right now is that it is in Argentina. Golden Arrow's exit strategy is that its project is near and similar to Silver Standard Resources Inc.'s (SSO:TSX; SSRI:NASDAQ) Pirquitas mine. The company will continue basic work and, hopefully, be bought out by Silver Standard.

Golden Arrow also has projects in Peru, $10M working capital, not a lot of shares outstanding and an experienced, well-rounded management group. It is the sort of company that I would expect to survive and possibly deliver a windfall sometime in the next few years.

TGR: In addition to silver, this is zinc-lead play. Is that a good thing?

JK: Yes. Zinc is one of the few base metals where, because mines are shutting down and new mines are slow to come onstream, zinc will be in deficit in the next three to five years. Today, there are mountains of zinc in warehouses, but zinc consumption is also much higher and increasing.

Zinc is one of the few metals I expect to rise over the next couple of years regardless of the macroeconomic trends. We could see stronger zinc prices in the next year or so. That would attract capital to zinc plays, of which there are very few.

TGR: Golden Arrow plans to release a PEA early next year. What do you hope to see from that?

JK: We hope to see a positive net present value (NPV) and reasonable capital and operating cost estimates.

The market does not trust many of the cost numbers used in PEAs. That is one reason that even though these companies show significant NPVs at trailing average metal prices lower than spot price, the market has been unwilling to assign anything near the value implied by the economic study. The recent bad press about the quality of cost assumptions in economic studies will hopefully make future economic studies more reliable.

TGR: What number do you use for the gold price when you look at feasibility studies?

JK: I use the whole range: the trailing average, lower and higher numbers.

I treat juniors as leveraged options on the future price of the metal. If you plug in $2,000/oz gold, some projects end up being 10 or 20 times more valuable than they are now. If gold continues at its current price, these companies may have an intrinsic value of zero. I like to see at what gold price the internal rate of return drops below 15%, and the net present value drops to zero. I prefer using a 10% discount rate rather than the 5% rate favored by many analysts.

Painful as this market has been to my picks and portfolio, it has a certain beauty. The valuations of the juniors are so cheap, that if we did get a positive outcome or if the economy started to grow again and metal prices rose for reasons that are perceived as sustainable over the longer term, these companies would see very rapid price increases. And there is an abundance of information available through the 400+ economic studies we have picked apart.

But you have to buy these stocks without knowing when the metal price will turn up. Once it turns, there is no stock available. If you want to bottom fish, you have to take the timing risk.

Continued...
http://www.theaureport.com/pub/na/15425