Santa Fe Gold Corporation Wall Street Analyst Forum Transcript

| About: Santa Fe (SFEG)

Santa Fe Gold Corporation (OTCPK:SFEG)

Wall Street Analyst Forum

March 27, 2008 2:00 pm ET


Pierce Carson - President and CEO


Good afternoon ladies and gentleman. In our ongoing attempt to adhere to the public schedule, I would like to introduce the next company in this afternoon's conferences. Many of the physical attendees know -- the actual analysts and portfolio managers who attended at New York, represent only a very small fraction of these whole attendance. Investors attend the conference in four ways. In person is only one of the four. The other three are the webcast that is live and retrievable. Both the audio of the presentation, which is being recorded right here and the PowerPoint presentation.

But in addition to that, a firm called, increasingly prominent on Wall Street, is doing transcripts of every presentation and question-and answer session and they have their web searchable on Yahoo! Finance as a web searchable item under the company's ticker symbol six hours after the conference. And the third vehicle is the video that's conducted here, which is a 30-minute video, edited down to 3 minutes and Wall Street Media puts that up on AOL Finance, MSN Money, Investopedia, and their website, Wall Street Media. So investors on AOL, Yahoo!, MSN, and the rest in addition to the webcast.

So there are three different ways you can attend the conference beyond physically attending. So we do more multimedia new media distribution than any other analyst conference out there, but you don’t know we see it - it doesn’t mean it’s not accessible.

So in any case, I would like to introduce the next company. We're pleased that this next company -- we had a complete pull out earlier in the day and so Santa Fe Gold presented this morning, but they are still going to present in their original time slot in the afternoon as well.

They are a U.S. based mining and exploration enterprise focused on acquiring and developing gold, silver, copper and industrial mineral properties. The company owns the Summit Silver-Gold property in a mill site and processing equipment in southwestern New Mexico; mineral lease rights for the Ortiz Gold property in north-central New Mexico, believed to contain 2 million ounces of gold; the Black Canyon mica mine and processing facility near Phoenix, Arizona; and a large resource of micaceous iron oxide in western Arizona.

Santa Fe Gold intends to build a portfolio of high quality, diversified mineral assets with an emphasis on precious metals. So, without any further introduction, I would like to introduce Dr. Pierce Carson, President and Chief Executive Officer.

Pierce Carson

Gerry, thank you for that introduction. It's a pleasure to be here today and introduce everyone to Santa Fe Gold Corporation. Of course, everything that I say today is qualified by our Safe Harbor Statement. Santa Fe Gold is in a transition from an exploration company to a production company. It’s very exciting times for us, and it will be here for the next year or two at least and I am pleased to be able to try to point out some of the important investments highlights for the company.

First of all, management. We are a small team, but we are very highly experienced with an outstanding track record of success in exploration, development and mining. All of us at Santa Fe Gold have done it before all the way from exploration through production quite successfully and we are very confident we can do it again.

Our assets. We've quality, advanced precious metals projects with substantial in-ground values, excellent operating margins and favorable location in the southwestern U.S. Very briefly and we'll be talking about these projects in more detail, at least the precious metals projects.

Our projects are the Summit Silver-Gold Project in New Mexico, the Ortiz Gold Project also in New Mexico, and the Black Canyon Mica and Planet micaceous iron oxide deposits in Arizona. We are headed for near-term cash flow. The Summit Silver-Gold mine is financed through to production and is currently under development.

Earnings potential. The Summit and Ortiz properties form a solid base for long-term earnings growth. The operating earnings at $650 gold for Summit are projected to be $10 million a year and for Ortiz $35 million a year.

At the current metal prices, which of course are much higher than the $650 gold, I think gold now is around $950, those operating earnings go up quite substantially. And we'll have a look at that as well.

I do also want to make another point about these assets, the Ortiz and the Summit assets. Both of them are quality assets in the sense that when they go into production, they will be in the lower quartile of operating costs worldwide for gold production and that's a very important thing for us.

Our strategy is rapid growth through a profile of increased production, explorations, acquisition and/or merger. At the current time, we believe our stock price is undervalued with respect to our peers, but we think that will change as we move closer to production and we believe that we will get a market reevaluation over the next 12 months as the Summit project comes online and we go from an exploration company to a production company.

Santa Fe Gold is traded on Over-The-Counter Bulletin Board. The symbol is SFEG. Our corporate headquarters are in Albuquerque, New Mexico, although we are a Delaware company. Our stock price is trading right now around $0.72 a share. It's varied all the way from about $0.22 to $1.40 over the last year or let's say, a year to 18 months. Currently we have 74.8 million shares outstanding, giving us a market capitalization of about $55 million. Our average daily trading volume over the last 90 days is about 160,000 shares a day.

At the end of February, we had cash of $1.2 million, management ownership of the company 25% and institutional ownership is quite low, around 5%.

I would like to just very quickly go through some of the key management people. Larry Olson is our Chairman. He has 42 years of diversified minerals experience with private and public companies. Larry has got a degree in Civil Engineering from the University of Southern California.

My background has always been in the mining side of things I have got 38 years of worldwide mining and public company experience with Exxon Minerals, Kennecott Copper and Nord Pacific. Previously I have been present on companies listed on New York, NASDAQ, Toronto and Australian stock exchanges. I have been responsible for the discovery, successful commercial development, and operation of gold and copper deposits in Australia and in the United States. I have got a Bachelors degree in Geology from Princeton University and a PhD in economic geology from Stanford University.

John Frost who is the Director, he calls himself Jack for us, joined about the middle of last year. Jack has 50 years of international mining experience. He has been credited with the discovery of over 40 commercial mineral deposits. He established Exxon minerals domestic and international exploration programs and he for many years was the president of Exxon Minerals International. So, he is a very esteemed person in our industry, and we are very proud to have him as a member of our board.

Pat Freeman is our Manager of our Summit Project. He just came on with the company in January of this year. He has got close to 40 years of experience in development and operation of underground and open pit mines. Pat just retired in 2007 from a company by the name of St. Cloud Mining Company, which focused its efforts in New Mexico and he was responsible for exploration, permitting, financing, compliance, construction, marketing and operation of several underground mines. Previously to his work with St. Cloud, Pat worked with Texasgulf in their worldwide mine evaluation program and also for a company called Golden Cycle in deep underground mines in Colorado. Pat has a Bachelor's degree in Geology from Monmouth College.

Steve Antol is our Acting CFO. He is very experienced person in public and private accounting. He's got about 40 years of experience. His degree is in accounting from Michigan State and he is also a CPA.

Michael Martinez who joined us just recently is a Manager of Accounting. He's got fifteen years of experience in public and private accounting and financial management. His Bachelor's degree in Business Administration is from University of Arizona and he is an active CPA.

Ryan Carson is my oldest son. He is our Manager of Legal Affairs. He's been working with us now for about two and a half years. He has a degree in Biology from the University of New Mexico and a JD Degree from Southern Methodist University and he is a member of the bar in Texas and also in New Mexico.

We also have used very extensively a number of consulting groups on the technical side. I won't go through all these people individually, but I just want to mention a couple of the important groups. First of all, Chapman, Wood and Griswold based in Albuquerque is a very experienced mining in geological engineering firm. They did the engineering work on the Summit property. Doug Irving is the President and has 40 years experience in underground and open pit engineering and mining. We have also used the group for our Ortiz project, or pre-feasibility study out of Tucson called Minerals Advisory Group. They have a number of very experienced people. They specialize in gold deposits.

Their senior principle is Peter Crescenzo who is the ex-Vice President of Engineering for Newmont Gold and we are very pleased to been able to have being involved in Ortiz gold project.

Turning now to our prestigious metal resources, the Ortiz and the Summit projects in New Mexico. This is just a summary that gives you an idea of what the total gold resources look like for those projects. Ortiz here in the measured and indicated category have a total of a little over million ounces. The Carache deposit close to 11 million tons at 0.058 ounces per ton and the Lucas deposit 12.6 million tons at 0.033 ounces per ton.

In addition to that, there is inferred mineralization for these two deposits and giving us a total resource there of 1.7 million ounces in those two deposits. There are number of other prospects that have been drilled within the ground we hold there at Ortiz and they would add about another 250,000 ounces to that number.

For the Summit Silver-Gold project, this is a smaller project. It’s got in total gold equivalent ounces here of 264,000 but the grades are quite nice. The silver grade 10.28 ounces per ton and the gold grade 0.143 ounces per ton. The total tonnage here is 758,000 and this is a project we'll be starting our first mine on.

Talking about the projects, first of all the Summit Silver-Gold project in southwestern New Mexico. We completed the financing in December of 2007 for $13.5 million, which is what's required to take the project all the way through to production, so development is in progress. We started construction earlier this year and we project initial production to be targeted for later in 2008, probably towards the end of the year.

The assets of the project include the Summit mine itself; the Lordsburg mill site, which is about 55 miles south of the mine; and then processing equipment, which includes the ball mill and a flotation plant. We also have the main operating permits for the mine as well as for the processing facility.

Historically about $8.5 million was spent on the Summit project in the mid 1980s and 1990s by Inspiration Copper, Nova Gold and Biron Bay. There was over 1,500 feet of underground work including 78,000 feet of drilling in 88 drill holes.

Geologically, we're dealing with an epithermal silver and gold deposit in vein structure up to about 100 feet wide and then the footwall portion of that vein structure is our ore zone, which is 10 to 15 feet wide, extends along with surface about 1,500 feet and it goes down to a depth of 1,000 feet.

In addition to the resources that have already been drilled, there is excellent upside to expand those resources both within the Summit structure itself and on other properties in the Steeple Rock District. The Summit structure right actually goes for several miles.

Our development plan at Summit is this would be an underground mine. It will be using rubber tired equipment and decline access. In another words, we will be driving trucks underground. Then we'll truck the ore 57 miles to the Lordsburg mill site where it would be processed by crushing, milling and flotation to produce a high-grade gold-silver concentrate for sale to the area copper smelters.

This will give you an idea of the mining parameter. The minable reserve is 758,000 tons. The silver grade is 10.28 ounces per ton. The gold rate is 0.143 ounces per ton. That gives a gold equivalent grade if you translate the silver values into gold values of 0.35 ounces per ton. It will be a mine underground at a mining rate of 400 ton a day or a 120,000 ton a year. The contained silver is just 8 million ounces and contained gold a little over a 100,000 ounces. So we've a contained gold equivalent of 264,000 ounces of gold.

Metallurgical recovery 80% to 85% and that would give us a mine life of about 7 years. Now with these higher metal prices, we would expect that the mine life to be closer to maybe 10 years, but we haven't actually done those detailed calculations.

The economic parameters of the Summit project we have looked at $13 silver and then again at $17 silver. Silver of course now as I think are up around $18. Gold, we have looked at the economics at $650 gold and at $850 gold and right now I believe gold is up around $950.

You can see that the economics are quite sensitive to the metal prices. But just running down through the parameters, the capital costs $13.4. The average life of mine operating cost to produce an ounce of gold equivalent is $280 per ounce. The average life of mine operating cost per ton to mine in process to ton of ore is $75.65 a ton and the revenue derived from that ton at the two metal prices would be $175 at the lower metal prices and $229 per ton at the higher metal prices.

So you can see there is a good margin if you can make it for $76 and sell it between $175 and $229, that's in terms of the per ton value, that's a very good margin to have and in the mining business or I guess in any business.

The revenue over 7 years at the lower metal prices is $132 million and over at the higher metal prices is projected to be $174 million and the operating earnings over 7 years at the lower prices $70 million and at the higher price is $111 million. The payback of the $13.5 million would be very quick 1 to 1.5 years and the internal rate of return at the lower prices will be 71% and at the higher prices 114%.

So you can see even though this is not a really large project by mining standards, it's actually relatively a small project if you look at the mining rates. It does have very good margins, which tends to insulate it from metal prices variations as well as variations in mining costs, and does have a very good payback. And for a company of our size, it produces very significant cash flow that we can use to build a larger company.

This may not show up too well but I thought it was probably worth including it anyway. This is a longitudinal section parallel to the vein, the vein is steeply dipping about 85 degrees and this is a section parallel to the vein that shows the drill holes, all of these little dots here are the intersections of where the drill holes went through the vein. The development work shown in red is where we will start ore tunnels, our declines going in. There will be one on this location and another one over here and those will meet down here and then the deeper development which is shown in blue goes on down to about 1,000 feet. The scale here -- well, this is 500 feet so you could see that the mineralization goes on down to about 1,000 feet.

The oil deposits, the ore bodies are shown in these red encircled areas. Although the size of the economic deposits will probably increase now because of the higher metal prices. These were defined, I think, at $450 or $500 gold and so the tonnage will now increase but you can see, the tops of some of these good grade zones are right near where we will be starting our underground work and that's important because both on this side as well as this side, this is an area of good mineralization right here. Because within about two months from the time we start the underground mining, we'll be into good grade ore and we could start stock piling that ore.

So, we'll have two parallel developments going on; first of all the mining and secondly, the construction of the mill. The critical path item at this point is the construction of the mill. Because at the time that the mill is ready to go later this year, we will have already done some initial mining and stockpile some ore that the mill can take.

This is a map of New Mexico showing the location of the mine, the Summit mine here, the Lordsburg mill site to the south, and also our mining equipment in another location in New Mexico. We've got to move the equipment from this location down here to the mill site.

This is a picture of the Summit vein itself. This is the vein, essentially holding up this ridge and the underground opening, there is one here, and there is another one over in this location. It goes in and hits the vein and then goes along it.

And this is a picture of the Lordsburg mill site. It's the site of an old mill, these old buildings here relate to the older mill since this picture was taken, we have cleared those out and we have a large level area there. Our tailings will go on top of these old tailings here. We will be putting in a wind tailings pond in a dam on top of the old tailings, there is powering here, there is water here. That's one of the reasons that we chose this area to be the mill site, and of course, as I mentioned before, we have got some important permits.

Turning to the Ortiz Gold Project, Ortiz gold project is the real large upside in our company right now. Our plan is to get the Summit project into production which should be in production later this year. And then to really focus on taking the Ortiz project into production. So, it's a larger project than the Summit. We have a very large area about 90 square miles under lease with exclusive rights for mineral development. We recently have such a large area, this is one of the old Mexican Land Grants that we have the mineral rights to.

Historically, there was about $40 million spent on drilling and underground work, and feasibility studies in the 1980s and early 1990s by Conoco, Lac Minerals and Pegasus. And then a lot of that work was focused on these two deposits the Carache and Lucas deposits there was about 386,000 feet of drilling, we have identified 2 million ounces of gold in the Ortiz Grant and most of that gold is in these two deposits.

We acquired the land position there in September of 2004.

Geology, there is a big belt to mineralize the rock that goes up through and crosses the large part of our Grant. It's a mineralized igneous environment. The Carache deposit occurs in volcanic sills and around the margins of a collapsed breccia pipe, some of the mineralization is in the breccia pipe. The Lucas deposit is developed in a garnet skarn.

There is excellent upside exploration potential for the discovery of additional gold and/or copper deposits on the large area that we have under lease.

Our development plan is open pit mining of Carache and Lucas at a rate of 3 million tons per year, then the processing would be by crushing, milling and gravity recovery of the gold avoiding the use of chemicals, it's very important that we don't have to use chemicals because it should help with the permitting. And it's also important in terms of the economics because we get very good recovery, over 90% recovery, simply by crushing and then using water to recover the gold.

The next steps here in terms of what we need to do is we need to get the project through the permitting stage. First, we need to complete some technical work, then we have to carry out our environmental studies including an environmental impact statement and all of those are in preparation and will be in preparation for obtaining the operating permits. We think it will take at least two years time to achieve that.

The pre-feasibility report was, as I mentioned before, on archives conducted by Minerals Advisory Group, from Tucson. And the numbers I will be showing here relate to work that they did.

The minable reserve there is around 29 million tons. The average gold grade 0.035 ounces per ton. The mining method would be open pit. And the Stripping Ratio, the amount of waste to the amount of ore would be 2.6 to 1. Contained gold is little over 1 million ounces. Metallurgical recovery 90%. So the total gold produced would be 925,000 ounces over a period of 10 years. And that gives you an annual average rate of about 92,500 ounces per year of gold production. What does that mean in terms of economics?

Well, the capital cost is only $38 million, that number may go up, most of the cost in the mining business have gone up quite substantially for other projects -- for other companies. So I'd expect the $38 million to go up, but the reason that it's as low as it is, is because most of the recovery process deals with this gravity gold, and that's fundamentally cheaper to build that sort of a facility.

The average life of mine operating cost is $230 an ounce. I mentioned before, this is a very low cost number even if it goes up a little bit, it's still in the lower quartile of gold production around the world.

Net revenue, and once again, we have done these economics at 650 gold and 850 gold, net revenue over 10 years at $650 gold price is projected to be $566 million and at 850 gold price, it's projected to be $741 million.

Operating earnings over 10 years, is projected at the lower gold price to be $353 million and at the higher gold price at 850 gold to be $527 million, those numbers given internal rate of return after tax of 49% at 650 gold and 69% at 850 gold, and an net present value of using a 10% discount rate of $87 million at 650 gold and $145 million at 850 gold.

So these are very attractive revenues. At $850 gold here you would have roughly $53 million a year in operating cash flow on a capital investment of probably less than $50 million. So, and an initial mine life of 10 years that probably could be expanded. So, really exciting project for our company.

So, map that shows the location of the project. This is Albuquerque here, this little inset in the project, it is only about 30 miles northeast of Albuquerque. The 90 square miles the Ortiz Mine Grant. This is the Lucas Canyon Deposit, the Carache Canyon Deposit. And this is Cunningham Hill; Cunningham Hill is a gold deposit that was mined by gold fields back in the 1980s, and they produced several 100,000 ounces of gold there with open cut and heap leach cyanide leaching. So, I haven't shown a slide of the favorable geology here, but there are a lot of other prospects, some of which have been drilled or partially drilled and some of which have not been drilled. So, there is a lot of exploration upside here.

Well, finally, what's going to drive our company here over the next few years. And I tried to summarize some of the important things that we are working on and some of the things that we are planning to do.

First of all, we are in the process of beginning production at the Summit Silver-Gold Mine, and we expect to achieve that later in 2008.

Secondly, we want to advance the Ortiz gold project through the permitting stage, in preparation for mining within the next two to three years.

Thirdly, we want to carry out aggressive exploration programs at Summit and Ortiz, we want to acquire additional gold, silver and copper properties with potential for near-term production. And we have actually identified a couple of dozen potential acquisitions. And Jack Frost our Director and myself have sat down and we have put together quite a list of things that we think would be interesting, and that have the kind of upside potential that we think that really add to our resource base here at Santa Fe Gold. We will be starting to look at some of these things more seriously.

We want to explore all opportunities for growth including mergers. We also want to enhance our management team, we need to hire an exploration manager and also mill and mine superintendents. We've actually identified a mill superintendent and potentially a mine superintendent and we're talking to a couple of people about the exploration manager position.

We want to further strengthen our Board through appointments of quality Directors and later this year, we hope to look seriously at listing the company on the Toronto Stock Exchange which we believe will help get us the recognition and the stock prices and so forth. At this point, the company is not very widely known. It is not followed very extensively by analysts and we need to get additional exposure. We like to get the company listed certainly on the Toronto Stock Exchange, and possibly also on the American Stock Exchange.

So that's the center face story. I appreciate your listening to it today and I'll be happy to try to answer any questions that the audience may have.

Question-and-Answer Session

Unidentified Audience Member

(Question Inaudible)

Pierce Carson

Well, people or management of companies always feel that their stock should be trading higher. Having said that, I will agree with you completely; the question is, on the basis of your study of other companies, it appears to you that our company appears to be under valued if you consider our large resource base. And you are wondering why that is. Why isn't the stock trading at a higher value and I think there are probably two or three reasons for that.

I think first of all, going back a few years, the company had some difficult times financially and they have just been able to recovery from that over the last year or so.

Secondly, I think we are trading on the Bulletin Board. We are really under radar of a lot of analysts. We don't have much following. We are not very well known. We do have a very loyal shareholder group, but really the company is not really well known and I think it is really up to us to try to more effectively tell our story, by getting out to conferences like this one.

But in addition to that, I believe that if we can list the company on the Toronto Stock Exchange, we will get a lot more exposure to the investment community.

And secondly, I think as we transition from an exploration company to real production, we will get better recognition for that as well. And that typically happens to junior companies, when you go from exploration to production, I hope that helps answer your question.

Unidentified Audience Member

(Question Inaudible)

Pierce Carson

The question is, with the higher metal prices, what's the upside potential at Summit, and what can we say about what the potential mine life might be and so forth? And the answer is yes, these higher metal prices, what we've actually already have there in a resource category that's already been drilled will probably increase. We need to recalculate what the reserves are at these higher prices. So we do expect to increase the mine life just on that basis.

But in addition to that there are some other very good intersections that we have in other parts of the Summit structure that are not currently in our reserve or a resource base and we're quite confident that when we start mining underground certain areas will be identified that will add to what we already have. As well as that, there is the Steeple Rock District which is an old mining district with lots of old mines and vein systems typically and we, we are looking at some of those as well as areas outside of the Steeple Rock District for additional fee to the mill.

That part of you know that part of New Mexico, once we put our mill in there, we'll have a custom mill that would be able to take ore from different other mining districts within trucking distance of the mill. And as far as we know there is nothing like, like that in that part of the state and so we are very confident that will be able to source ores from other districts. As a matter of fact we are getting calls every day from people that would like to ship ore to our mills, and we are telling them well it's not built yet. It is still under construction phase. But we are pretty confident that after both at Summit as well as some of the other surrounding districts that we will be able to have a mining operation or a series of mining operations there with the ore being processed to that mill for many years to come.

Unidentified Audience Member

One more question if you don't mind.

Pierce Carson

Go right ahead.

Unidentified Audience Member

(Question Inaudible)

Unidentified Company Representative

Yes, micaceous iron oxide, the question relates to our micaceous iron oxide property in Western Arizona. We call it the Planet Property and I guess the question is, can we make some comments about the potential use of the material and the quality of the project. And it turns out that micaceous iron oxide is a niche type industrial mineral. It's not widely known and it's not widely used here in the US. But it is commonly used in Europe and in Asia. And what it is, it's an additive to paint that is put on structural steel work to keep the paint from corroding. It's an anti corrosive agent. Here in this country, really, partly I think because of the fact that there haven't been any good resources of this material, the paint manufacturers have used Zinc to be their anti corrosive coating. Whereas in Europe, they've tended to use micaceous iron oxide commonly, and fundamentally micaceous iron oxide has a big advantage in the sense that it's environmentally friendly. It doesn't do anything bad to the environment.

What we have is a very high quality project. We really have enough material here to supply the whole world with this stuff for quite a few years. The world market is not very large, I will have to say that, it's only 20,000-30,000 tons a year and a lot of it is currently being sourced out of Austria and Morocco and other places that are fairly high cost. So, our projected open cut mine would be able to produce this pretty cheaply. But like a lot of other industrial minerals, the challenge here is going to be the marketing. We are going to have to put a lot of effort and it's going to take time to build up the market and to increase the sales of this material. And right now our focus is on the precious metal. So even though we have got this in our inventory, we recognize its value and in the future we intend to attempt to commercialize the deposit. Currently our focus is on the precious metals.

Any other questions?

Not, well then thank you very much and pleased to have the opportunity to tell you about Santa Fe Gold Corporation.

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