ARSD - 10Q is VERY Interesting, Big Surprise
I read the 10Q and all of the posts made on this board for ARSD. I agree that the company is real, got to the pinks because the energy spike killed them. Now they are healthy and making a come back! I have taken a good size position and see it as low risk with potential for big move when listed on the OTC.
HERE IS THE SURPRISE: Nobody makes any mention of the mining deal they may develop. With the price of metals this just might happen. You must read this entire excerpt from the 10Q to get the whole story: (There is a table that I can't get to print right but if you go to the link for the entire 10Q you can see it.)
"MINING SEGMENT. This segment is in the development stage. Its most
significant asset is the Al Masane mining project in Saudi Arabia, which is
a net user of the Company's available cash and capital resources.
Implementation of the project has been delayed over the last five years
because open market prices for metals were insufficient to attract
additional investment required to achieve production. As world economy and
metal prices have improved over the last year, investment viability has
improved and steps are being taken to take advantage of the improved
investment climate.
On February 23, 2004, the Company's President received a letter from the
Deputy Minister of Petroleum and Mineral Resources of the Kingdom of Saudi
Arabia stating that the Council of Ministers had issued a resolution, dated
November 17, 2003, which directed the Minister, or whomever he may
designate, to discuss with the President of the Company the implementation
of a work program, similar to that which is attached to the Company's
mining lease, to start during a period not to exceed two years and also the
payment of the past due surface rentals. If agreeable, a document is to be
signed to that effect. The resolution stated further that, if no agreement
is reached, the Ministry of Finance will give the Council of Ministers its
recommendation regarding the $11 million loan granted to the Company.
After discussions with the Deputy Minister, the Company President responded
in a letter to the Minister dated, March 23, 2004, that the Company will
agree to abide by the resolution and will start implementing the work
program to build the mine, treatment plant and infrastructure within two
years from the date of the signed agreement. The work program was prepared
by the Company's technical consultants and attached to the letter. The
Company also agreed to pay past due surface rentals, which totaled
approximately $586,000, in two equal installments, the first on December
31, 2004 and the second on December 31, 2005, and to continue to pay
surface rentals as specified in the Mining Lease Agreement. On May 15,
2004, an agreement was signed with the Ministry covering these provisions.
If the Company does not implement the program during the two-year period,
the matter will be referred to the Ministry to seek direction in accordance
with the Mining Code and other concerned codes. The Company is currently in
the preliminary stages of negotiations with a viable joint venture partner
and feels that sufficient progress will be made by the May deadline to
justify an extension of time, if necessary, on agreement with the Ministry.
The Company paid $266,000 of the back lease payments on January 3, 2005,
and is scheduled to pay the remaining $320,000 on December 31, 2005.
The Company is making preparations to implement the work program. After
initialization, the program will take approximately twenty-two months to
complete, after which commercial production would begin. The Company, on
April 20, 2005, signed an agreement with SNC-Lavalin Engineering and
Construction Company of Toronto, Canada ("SNC-Lavalin"), to update the
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<PAGE>
feasibility study. The updated study will allow the Company to pursue
potential joint venture partners to manage the project and to obtain
acceptable financing to commercially develop the program. The prices of
zinc, copper, gold and silver have increased significantly over the last
two years. The updated study was completed in August of 2005. The study by
SNC-Lavalin updated the estimated capital cost and operating expenses of
the project. The firm concluded that capital expenditure of approximately
$115 million is needed to bring the mine into production with an additional
$6.7 million for a cyanide leach process for gold recovery. The study was
then turned over to a separate and independent consultant for further
analysis and to allow the economic feasibility to be reviewed. The
consultant, Molinari and Associates, Inc. of Toronto, Canada, ("Molinari")
concluded that the study by SNC-Lavalin was conservative and there were
many opportunities for cost savings and improvements in the projections as
presented. Based on average pricing for gold, silver, zinc and copper
during the last three years, Molinari determined the project's Internal
Rate of Return to be negative 1.68%. However, if current metals prices are
used, Molinari concluded that the project should produce an Internal Rate
of Return of 7.28% for the conservative case, and 13.0% if operating and
capital cost reductions are achieved. Molinari also believes that
increasing demand for zinc and copper from China and India will support
metal prices in the foreseeable future. The following chart illustrates the
change from the low prices of 2003 and 2004 to current levels:
<TABLE>
<CAPTION>
AVERAGE PRICE SPOT PRICE AS OF
FOR 2003-2005 09/2005 INCREASE
----------------- ----------------- ----------------
<S> <C> <C> <C>
GOLD $404.00 per ounce $453.00 per ounce $49.00 per ounce
SILVER $6.21 per ounce $7.15 per ounce $0.94 per ounce
COPPER $1.25 per pound $1.75 per pound $0.50 per pound
ZINC $0.50 per pound $0.63 per pound $0.13 per pound
</TABLE>
There is no assurance that even with favorable economic reports, a joint
venture partner can be located, a joint venture formed or, if it is formed,
that the joint venture would be able to obtain acceptable financing for the
project. Without a joint venture, the work program cannot be accomplished
as planned. Financing for the updated feasibility study was provided by an
advance from a major shareholder.
The Minister of Petroleum and Mineral Resources announced on April 2, 2002
that a new revised Saudi Arabian Mining Code would be issued, which would
expedite the issuance of licenses and has new incentives to encourage
investment by the private Sector, both Saudi and foreign, in the
development of mineral resources in Saudi Arabia. The mining code was
revised, approved by the Council of Ministers, and issued by Royal Decree
prior to the end of 2004.
The Company has communicated to the Minister of Petroleum and Mineral
Resources that the unreasonable delay in granting of the mining lease from
1983 to 1993 and the unreasonable threat of cancellation during 2000 to
2003, which was lifted in 2004, were the underlying reasons for the
Company's losses while maintaining its legal position in Saudi Arabia, and
which further caused the severe drop in the share price of its stock. A
request for fair compensation was made by the Company and denied by the
Ministry, as was a request for arbitration. The Company is consulting with
counsel on further steps which might be taken; however, any such action
will not affect the Company's right to implement the Al Masane project.
On June 22, 1999, the Company submitted a formal application for a
five-year exclusive mineral exploration license for the Greater Al Masane
Area of approximately 2,850 square kilometers, which surrounds the Al
Masane mining lease area and includes the Wadi Qatan and Jebel Harr areas.
The Company previously worked in the Greater Al Masane Area after obtaining
written authorization from the Saudi Ministry of Petroleum and Mineral
Resources, and has expended over $3 million in exploration work.
Geophysical, geochemical and geological work and diamond core drilling on
the Greater Al Masane area has revealed mineralization similar to that
discovered at Al Masane. The application for the new exploration license is
still pending and may be acted upon now that the new Saudi Arabian Mining
Code is issued; however, as is frequently the case when making such
applications with the Ministry, there is no timetable for action on our
application.
Management is also addressing two other significant financing issues within
this segment. These issues are the $11 million note payable to the Saudi
Arabian government and accrued salaries and termination benefits of
approximately $947,000 due employees working in Saudi Arabia (this amount
does not include any amounts due the Company's President and Chief
Executive Officer who also primarily works in Saudi Arabia and is owed
approximately $1,241,000).
