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Wednesday, August 17, 2016

San Diego - a whole lota crap

Wow, San Diego you cured a king, had a US city named after you, what a guy....

Sorry, I apologize, I got confused with my google search. I should have been looking for the silver-base metal project in Mexico owned by Golden Tag resources.

oh, wow, maybe I'm biased, look at all that silver:
115.4 million ounces 
or

>$2 billion contained silver
must be crap as it doesn't have any chromite....

This project has everything
  • gold, silver, lead and zinc
  • high grade veins
  • bulk tonnage deposit
So Golden Tag now own 100% of a project that has more silver in it than MAG's interest in Juanacipio (115.4 Moz Ag compared to 99.4 Moz Ag).

And if we compare market cap?
  • GOG = ~$10M
  • MAG = ~ $1.8B
Why, well that is easy to answer when we look at the grades of the 2 deposits:
  • San Diego = 61.2 g/t Ag or 112.3 g/t AgEq (all zones)
  • Juanacipio = 574 g/t Ag or 923 g/t AgEq
So Golden Tag has more silver at a much lower grade, but as its market cap is only 0.55% of MAG's, is this the deal of the century?

No, No, NO


Summary

  • Not all resources are equal - look beyond the total number of ounces
  • Grade is king - San Diego = very low grade (including the AgEq BS grades)
    • High grade oxide veins are interesting but small, and probably have high As which was a problem in the adjacent Velardena mine.
  • Small (90 Ha) project = low exploration potential. Basically, everything has been drilled
  • Bulk tonnage zone is deep - ask BHP and Rio at Resolution how much it costs to sink a 1000m shaft.
  • No work has been done on the project for several years = low interest, low potential
The share price for Golden Tag will rise and fall with the silver price, but that is all. Looking at the PRs they raised $900K recently - $500K to buy the 50% of the project they did not own and the rest will basically cover costs for a bit of time.



Sometimes I love my job, you get to look at some project that are so obviously awful and some resource calculations (thank you SGS) that are so bad that you have got to have some fun with them.

Lets look at those resources:
oh dear..
Do you like the metal prices they used? I mentioned earlier when looking at Southern Silver's project - Cerro Las Minitas that grade is king. You can have a massive mathematical resource, you can BS people with equivalence grades that use a 100% recovery, but all you are doing is papering over crap.

So lets look at the property:
Wow that's small, basically 1km by 1km
and the drilling
They have pretty much drilled everything, so no real upside, no expansion potential.

So we have a small project, minimal expansion potential and low grades. Not a winner.

But, I hear you yell, they have a bulk tonnage deposit:
oh look, a dingleberry





Oh, it is starts at 450m depth and runs a massive 51 g/t Ag, 0.65% Pb, and 1.17 % Zn. Let's start sinking a shaft and mine that bad boy....

Those grades are about 5 times lower than most underground base metal mines (that work). Lets compare that with Otto's fav - Tinka Resources:

higher grade and close to surface
They get bonus points for this:
yum
I suppose I should look a bit more at the data, just for chuckles to see really how bad it really is, and oh boy, SGS have really done a bad job. I assume that it was done very quickly as it is very shoddy - not as bad as the historical resources done by Micon (I keep these as examples of some of the worse I've ever seen).

These figure come form the SGS Technical report, by highly qualified, professional geologists. I recommend that you download the report (link) and have a look yourself.

 
Look at the top figure, you see these weird circular features - the bottom drill-hole is the best. Basically, you have a series of circles centered on each drill-hole and they produce these weird shapes where the circles overlap.
Why is this a problem? For me it shows that:
  1. The person doesn't really know what they are doing
  2. They don't know how to use the program they are using to calculate the resource correctly
  3. They are doing a quick and dirty calculation and aren't spending any time on it.
I feel that it is number 3, this is a small project for SGS and they just simply did a quick calculation, which led to this PR - 28th of May 2015. 

A very good indication that there is something not quite right, but lets look at some sections.I've zoomed in to the grade map to point out some 'features' that show the lack of quality in the resource calculation.

Grade on the top, resource categories below
oh so pretty
I've zoomed into the top figure - the Ag grade distribution, I've highlight the drill-holes so you can see them easier. Notice that where there is no drilling SGS have been kindly used a default grade of >125 g/t Ag. This is because in Spanish, the work for vein is "veta" and is female, and we all know that they look better in pink! However, if you look to the left, where there is lots of drilling, the grades are a lot lower. Damn that truth machine....

I've marked out some features for you:

A = we have 2 drill-holes very close together. One hole has no grade and the other a few meters away has good grades. SGS have carefully restricted the low grade zone to just ~25m around the hole filled in the rest with high grades for 200+ meters.
B =  what's that weird red banana below the drill-hole? Again, the holes was slightly lower grade (~100 g/t = red), but we'll ignore that (ok, we'll have a 10m zone around the DH) and use >125 g/t Ag, because it looks prettier
C = Same again, we have an intercept between 80-100 g/t (orange), but look how the high grade mineralisation bows up into that nasty low grade zone.


SGS are repeatedly reducing the importance of the low grade intercepts, and therefore their impact on the overall grade of the resources. You see it on section after section after section. Each drill-hole needs to be treated equally. This is either:
  • A Peter George (TM) - SGS trying to 'create' a big a resource as possible as bigger is always better.
    • Consultants may do this to get a reputation of being 'good' to create business for themselves either:
      • Directly - more resource calculations, overseeing exploration programs etc.
      • Indirectly - We do great resource calculations, why don't you use some of out other great services.
  • Golden Tag putting pressure on SGS to maximize the resources to make their project as good as possible as this is all that they have got and no-one want to have spent a bucket-load of cash on a crap project.
    • often the hardest thing to do in exploration is walk away and write off your expenses, especially when it is the only project you have.

So it is important not just to look at the total contained metal, these are often inflated using a variety of tricks but check:
  • Grade
    • overall average of the deposit - compare it against other deposits and even better - operating mines.
    • How much of the resource is low, medium and high grade (a good resource report should include a summary table).
      • having lots of low grade doesn't mean you have a lot of high grade ore.
    • are they reporting an equivalent grade resource?
  •  Metal price
    • Are they much higher than today's prices - a health discount is nice.
I'll be expanding on the things you need to look for in a 43-101 to make sure that you are being misled.

I haven't brought the San Diego data into 3D as this project obviously isn't very good. If you would like me to do so, send me a message and I'll spend a couple of days on it.