CEO and Director Thomas Klein and Robert Ian Director of Corporate Communications
CEO and Director Thomas Klein joined Golden Phoenix when it got into financial difficulties in the fall of 2008 due to the price of molybdenum crashing from $40 to below $10. The company has been running for around twelve years and had previously brought two mines into production for a period of time — the Ashdown Mine and the Mineral Ridge project, both in Nevada.
The crash caused a rethink and Thomas’s first tasks were to reorganize the company, sell off the Ashdown asset and find a joint venture partner for Mineral Ridge. He says: “We found a joint venture partner that put $7.5 million into Golden Phoenix’s coffers and we have a 20% retained interest in the project. Once we’d stabilized the company and we were able to conclude our transaction, we acquired five projects in Peru and we’re in the middle of closing a transaction in the Shining Tree district of Ontario.
There are also two other projects in the same area as Mineral Ridge — the Vanderbilt Silver project, an old mine that has returned good results from a phase one exploration program, and Coyote Fault Gold project, where phase one exploration results are due in December.
Royalty Mining
What Golden Phoenix is now doing is taking on a royalty mining model. “We are project generators,” explains Thomas. “What we did with Mineral Ridge was find the right operator for the mine. They will take the project into commercial production and allow us to receive our proportionate production share. That’s the model we’re going to be using for other projects. Most junior mining companies are not successful at bringing projects into production. Our job is to get projects permitted, drilled, and ready for production. Then we will find operators to take those projects into production and we will maintain up to a 30% interest.”
Thomas believes the big advantage of the royalty mining model is that it spreads the risk: “A lot of companies are one project focused; we’re multiple project focused. From a business and financial standpoint, you can have 100% exposure to one property and one operator or you can have 100% exposure divided over five properties each with a 20% interest. Our model is to have five projects and five different operators. Then we’re diversified from operator risk, project risk and country risk. Our business model is to grow to that level. Even if we get bought out of certain projects, our goal is to develop and maintain a portfolio of approximately half a dozen projects in production. We’re running this as a business to make money rather than a one-hit wonder exploration opportunity.”
Five Stage Process
Golden Phoenix’s Director of Corporate Communications, Robert Ian, describes the royalty mining model as a five stage process, with each of the company’s projects being in one of those stages at any given point in time: “First, we acquire a property on terms that are acceptable to the company. We look for advance stage projects that require financial or geological expertise. We are interested in projects that can potentially be brought into production in two to four years. Second, we improve the property by providing permitting, bonding, drilling and/or financial support. Third, we reach out, as we have done with the Mineral Ridge project, and secure a mine operator in that political jurisdiction who has the experience to take the project into commercial production. Fourth, we expect to retain up to a 30% interest in each project and ultimately convert some of those interests into royalty agreements. And fifth, we intend to redeploy some of the cash we receive from selling 70-80% of that project, and then repeat the process with other acquisitions.”
The operator on the Mineral Ridge project is Scorpio Gold. Jag Sandhu, who handles Corporate Development for the company, reckons it’s a good deal for both partners. He says: “The current arrangement with Golden Phoenix is that we own 70% of the project and they own 30%. It’s a fantastic project; there’s a drilling resource from when Golden Phoenix originally had the project. All the permits are in place and we’ve spent a lot of money on the rehabilitation. We’ll have the first gold, probably January or February of 2011, and commercial production is expected in June.”
Probably the biggest challenge that Golden Phoenix faces is managing projects in three different jurisdictions — Canada, the US and Peru. It handles this by having specific technical teams to operate in each region and having experienced people to manage them. Thomas believes that Peru is one of the best South American countries in which to do business: “It has very strong GDP growth so it’s a solid country. Politically, it’s very stable. And I think the opportunity is that mining is expanding there and a company with the right business plan will do very well in Peru.”
An added advantage of operating in Peru is that it fits in with the company’s aim to make each project self-financing. An existing molybdenum stockpile means that production can start almost immediately. Despite Golden Phoenix’s previous problems with molybdenum, it has retained an interest in it. “Ever since China started making noises about making molybdenum a strategic national metal, we’ve continued to have interest in it,” remarks Thomas.
A 43-101 report for Mineral Ridge currently shows 221,000 ounces of gold measured and indicated and 136,000 ounces inferred. A bankable feasibility study is currently being produced and should be complete in around nine months. Its other two main properties are at pre-resource calculation stage and it plans to begin drilling at both of these properties in 2011 with results coming out on a quarterly basis.
News Flow
The steady flow of news is likely to be an incentive for investors and Thomas believes that, as a junior mining company, it is currently under-valued. He says: “We will participate in production at Mineral Ridge and we have two very strong development properties in the Shining Tree district, a new discovery zone, which is always exciting for a junior mining company. And in Peru, we’re building a very strong business model and are going to make a long-term commitment to that country. Our story is that we’re a junior mining company with exploration upside coupled with the backing of production.”
The message that’s going out is good and is likely to get better. Thomas concludes: “As we’ve rolled out this model and included our deal with Mineral Ridge, the stock has gone from roughly a $3 million market cap to a $34 million market cap. I believe, as these recent acquisitions prove out and Mineral Ridge transitions from gold in the ground to gold coming out of the ground, we’re going to get a much higher multiple on this.”
“Typically, the market is assigning a $10-40 valuation for gold in the ground and $100-400 on gold coming out of the ground. With production starting in the first quarter of 2011, I think that’s a really good potential catalyst for our stock.”
For more information:
http://www.golden-phoenix.com
Golden Phoenix Minerals Inc.
1675 E. Prater Way, Suite 102
Sparks, NV 89434 USA
Robert Ian, Director of Corporate Communications
Tel: (775) 453-4741
Email: robertian@golden-phoenix.com