Here is some more information from Dr DeCosta as it relates

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Aug 12, 2012 at 4:59 PM

Here is some more information from Dr DeCosta as it relates to MDMN (or any other junior miner actually).

I sense a lot of anxiety over the last few days associated with the role of the bashers on a different forum. The best anti-anxiety agent in battles like this is superior due diligence not in regards to ancillary issues with no effect on an investment but in the issues that directly impact the prognosis for the success of an investment. Here is a compilation of some notes from a recent series of seminars and some related thoughts.

Mining costs are going up at an annual rate of about 15% right now. Barrick is going to decrease gold production by about 12% year over year. Despite high gold prices the majors aren’t making much money as they are going after lower and lower grades at deeper and deeper depths in more and more geopolitically unstable countries. The “supply” of potentially world class new discoveries right now is anemic at best. In these days of increased mining expenses it is wiser to focus in on the “supply” of LOW COST potentially world class discoveries (open pitable preferably polymetallic deposits with a long mine life) which are next to nonexistent but are highly sought after. Another concept to focus in on is the ability of a junior with a low cost potentially world class discovery to “hedge” itself against increased mining costs by entering into either JVs or purchase agreements featuring “free carried interests” (FCIs) and/or “net smelter royalties” (NSRs). These place the burden of any increased costs on the shoulders of others.

Although new discoveries will always gather a lot of attention right now new discoveries with the potential to be low cost producers would really command a premium. The majors are actually moth-balling their higher cost projects right now. If the grades come in nice at LDM and with its low elevation, good access to water, electricity and a skilled work force as well as the deposit being open pitable I would think it would definitely be in the “LOW COST PRODUCER” category.

A lot of the gold gurus think we’re at “peak gold” production right now. With production costs accelerating at least the price of gold (“POG”) should get a boost due to diminished production profiles. In an environment like this with accelerating costs a “free carried interest” with no exposure to increasing costs will be worth a fortune. So too will NSRs for similar reasons as well as the fact that TCs and RCs (treatment costs and refining costs charged by smelters) should be kept in check by excess available smelting capacity. This enhanced value of FCI and NSR related “hedges” in this environment of ballooning costs is especially important in mega projects in which the CAPEX will probably be measured in the billions of dollars. Not having to pay your pro rata share in development costs in the billions of dollars because of an FCI has “value”. Mining professional can assign an estimated dollar amount to that “value”.

RISK VERSUS REWARD

Any investment in the junior mineral exploration sector has always been characterized by investors assuming ultra-high risks while seeking ultra-high rewards. As developments are rolled out in a “Medinah” type of scenario it is critical to analyze what effect any given development has on especially the “ultra-high risk” variable. The “ultra-high reward” variable is fairly constant in this business.

So what are the signs to look for that might mitigate that “ultra-high risk” variable? First and foremost is the commitment by very smart mining professionals to enter into a contract to spend very large amounts of money on the project in exchange for a percentage ownership. Mining is very technical and it is a sector that has had its share of unethical opportunists hoodwinking investors (Bre-X for example). This reality is part of the “ultra-high risk” variable. This reality also provides a tremendous amount of traction to naysayers with a financial interest in the junior mineral explorer failing.

The second most important risk mitigating factor might be the ability of the junior explorer to create positive cash flow. It’s pretty tough to argue with economic success. Other risk mitigating factors from an investment point of view might include positive drill results, the ability to get your story in front of the mining community, the ability to “hedge” against increasing mining costs via the use of FCIs and NSRs, etc. At all times you must keep in mind what investment “neighborhood” you’re operating in. This is the “ultra-” neighborhood and the ability to constantly assess the current level of the “risk” variable is critical.

(DISCLAIMER: Do not treat this as a solicitation to buy or sell the securities of any issuer cited or referred to.)

_________________
“Abusive naked short selling is analogous to allowing unregistered voters with no economic interest whatsoever in a U.S. corporation to stuff the “price discovery” ballot box with negative votes in order to access the investment funds of shareholders”.

Medinah Minerals Inc (MDMN) Stock Research Links

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