Blocking out ounces of gold equivalent. Courtesy of Dr D:
I just took a good question on the ounces Medinah blocked out in their past drilling campaigns i.e. 180 million pounds of copper, 722,000 ounces of gold and 6.5 million ounces of silver. When you do the math and factor in the relative prices of the metals this represents about 1.5 million ounces of “gold equivalent” which is how polymetallic deposits are often “calibrated” in.
The question was shouldn’t these “gold equivalent ounces” be scaled up because of the fact that these were calculated back when gold was trading at $287 at a time when the economic cutoff grades would have been much, much higher. The answer is no because “in situ” ounces don’t use a cut off grade. I asked that same question of Jim Sinclair a couple of years ago and he reamed me out pretty good.
In mining, there are these things called a bankable feasibility study. It includes a very thorough report listing the number of ounces in the 5- NI 43-101 categories that have been blocked out as well as tons of other data. This report is dropped on the banker’s desk and then the miner asks well, are you going to loan us the money or not to develop this deposit?
In Medinah’s case there already is a willing “banker”. In the contract everything is based on “in situ” values. The main factors are grade, tonnage and the price of gold and the other metals. Sr. Quijano was wise in allowing Medinah to profit off of any metal price appreciation during the timeframe in which the final purchase price is being calculated. I’m not sure if people appreciate the fact that in the junior exploration arena there are 4 very large hurdles to clear before claiming victory.
The first is gaining access to a large suite of properties to evaluate so that only the cream of the crop will be selected. Sr. Quijano gave Medinah 10 hard rock properties and 2 placer properties to evaluate. The second hurdle is to raise money to launch an exploration campaign. Medinah successfully raised about $12 million during the depths of a huge mining recession. The third is to make an economic discovery. This is where the often-quoted 1-in-1,000 odds come in. The fourth is to find a deep-pocketed partner/”banker” to agree to a stated portion of the pie in exchange for paying the bills.
At the recent shareholder meeting management kept saying everything is done, done, done except for one last “formal” signature and whatever pomp and circumstances that might involve. Upon the final “formal” signing the due diligence process becomes a lot easier. The first task would be to gain some idea on what 7.5% of the action on a “free carried interest/net smelter royalty” should be valued at. The second would be to gauge how many $90 million checks might Medinah get for blocking out $2 billion worth increments of “in situ” value.
The former task would be to judge what the size of 7.5% of the check handed by the smelter operator to the miners for every truckload of 10 tonnes of ore delivered. Then you multiply this by the number of truckloads per day times hopefully about 25 years.
The latter task would be to estimate the number of the “top of the Gordon Pipe equivalents” worth about $2.2 billion today are at the ADL property complex including the LDM skarns/mantos. The best way to do this would be to study the hypothecated cross sections in the valuation report and estimate how many “top of the Gordon Pipe equivalents” might be there. These drawings were made to scale. The typical homogeneity of porphyries helps beef up the statistical accuracy of this estimation.
might be a tremendous aid in estimating the relative size of porphyries versus the 80-meter wide Gordon Pipe. The density of granodiorite is about 2.65 tonnes per cubic meter. The radius of the Gordon Pipe is about 40 meters. Its cross section is therefore (pi times radius squared) about 5,000 square meters. The 400 or so meters explored to date represent about 2 million cubic meters in volume. This represents about 5.3 million tonnes.
Singer’s data suggests that the “average sized” copper-gold porphyry plus the average-sized copper-moly porphyry weigh in at about 500 million tonnes combined. The ratio of the “top of the Gordon Pipe’s” 5.3 million tonnes to an “average-sized” twin porphyry complex would be just short of 100 to 1.
Note that a study of 55 porphyry deposits by Mutschler, Ludington and Bookstrom reveals that the average “Copper-gold” porphyry has approximately 300 million tonnes (metric or long tons) of economic mineralization while the average “Copper-moly” porphyry “weighs in” at approximately 500 million tonnes of economic mineralization or “ore”. For the sake of conservatism we’ll work with Singer’s much smaller numbers. The satellite imagery report of C.S. Perez states that there are “at least hundreds of millions of tonnes of resources” at Lipangue.
Can we within a certain amount of statistical accuracy propose that the 2 porphyries might host about one hundred multiplied by $2.2 billion worth of ore? I WOULD SAY NO! Might Medinah be about to receive 100 times that $90 million per $2 billion worth of ore blocked out? NO, and you don’t even want to know the calculations if we use Mutschler’s numbers. One must recognize that there are a lot of assumptions involved in “back of the envelope” calculations like this but I do feel that from a scientific approach with the amount of information available today the approach is solid. Could the Alto de Lipangue represent a very large twin porphyry deposit? Yes, the potential is certainly there and it shouldn’t take very many drill holes to firm up the statistical certainty levels of similar estimations.
At Lipangue we have a plethora of information regarding the top of the Gordon Pipe from its 18 holes of diamond drilling. We also have a lot of information on the classical Sillitoe model for porphyry copper deposits. The satellite survey clearly revealed “about a dozen intrusives including 2 porphyry deposits”. The trouble in regards to doing due diligence on Medinah is relating the information acquired at the Gordon Pipe to the typical copper porphyry deposit. This is where Singer’s lifelong work can form a bridge albeit with a tough to estimate statistical certainty level.
DISCLAIMER: Do not treat this as a solicitation to buy or sell the securities of any issuer cited.
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