Derrick Lilly's  Instablog

Open-pit heap leach mining is a process that goes back hundreds of years, but with higher metals prices supporting the case for processing previously economically unfeasible deposits, heap leaching is seeing resurgence thanks to its ability to capitalize on low-grade ores.

Despite its historically poor image, updated heap leaching processes offer modern mining companies several advantages. It takes relatively low capital costs to bring a mine on-line quickly, it often allows for a smaller mining facility footprint that reduces energy and transportation costs, the various chemicals used throughout the process are increasingly being recycled, leaving less waste and reducing consumption costs, and better pad designs and liners are reducing costly leakages and ground contamination issues.

To little surprise then, mining companies are using heap leaching as a vital processing component at some of the most profitable mines, particularly in the mining-friendly country of Mexico. Goldcorp's (GG)[CA: G] Los Filos mine and Agnico-Eagle Mines Limited's (AEM)[CA: AEM] Pinos Altos mine are cash machines, and smaller companies like Argonaut (ARNGF.PK)[CA: AR], Esperanza Resources Corp. (ESPZF.PK)[CA: EPZ], Timmins Gold Corp. (TGD)[CA: TMM], and McEwen Mining (MUX)[CA: MUX] are finding success with low-cost open-pit heap leach mines.

I've personally been following McEwen Mining for a while, and admittedly the articles I recently began contributing about the company have been prematurely bullish, but it's important to point out that their targeted low-cost growth strategy includes substantial use of open-pit heap leach facilities now and in the future.

Phase 1 of McEwen Mining's El Gallo Complex in Sinaloa, Mexico recently achieved commercial production and is expected to produce ~27,310 oz. gold in 2013 and is forecast to produce ~30,000 oz. gold annually at a cash cost of $800/oz. McEwen Mining constructed the Phase 1 facility below their budget of $15M. Their Gold Bar project (Nevada, USA) currently in development is forecast to produce 55,000 oz. gold annually at a cash cost of $700/oz.

A new micro-cap name promising low costs that's also targeting Mexico with a new open-pit heap leach mine is Marlin Gold Mining Ltd. (MLNGF.PK)[TSX.V: MLN]. On the surface, this looks like another penny-pinched junior that will over-promise and under-deliver as the sector continues to trade at depressed valuations, and inept management teams mostly squander profits and working capital. But if you look beneath the surface, there's more to Marlin Gold's story that I find particularly compelling.

Marlin Gold spawned from the aggressive takeover of Oro Mining Ltd. by Wexford Capital LP, a Greenwich, Conn.-based private equity and hedge fund manager with $4.7 billion under management. Highlighting Wexford's track record is a number of successful oil companies that they've built, restructured, sold, or taken public. Diamondback Energy Inc. (FANG) and EPL Oil & Gas Inc. (EPL) are two examples of their recent successes. Diamondback recently touched a 52-week high of $22.95 after the firm took it public late last year, and EPL was a restructuring play the firm led which soared ~51% in 2012. Now Wexford is looking to repeat its past successes in the precious metals mining sector.

Seeing an opportunity to wrangle its first gold nugget, Wexford acquired 52.7% of Oro Mining's outstanding common shares through a private placement, open market purchases, and a tender offer to take up any and all common shares at $0.11 per share. Emerging as the majority shareholder, Wexford proceeded to take over the reins by appointing a new Board and renaming the company to mark its new beginning.

With a highly experienced management team in place (see pg. 5 of the Corporate Presentation), Marlin Gold's first priority is advancing its La Trinidad Gold Project towards production in the mining-friendly State of Sinaloa, Mexico.

As I pointed out in "McEwen Mining: A Gold Growth Play," Sinaloa is a great place to be for low-cost, government-encouraged and supported precious metals mining.

Marlin Gold is currently focusing its efforts on its property's gold-rich Taunus deposit. With mining permits already in hand, the next steps towards production are additional exploration drilling, funding the mine build out, and ramping up operations to commercial production levels.

The Taunus deposit's Preliminary Economic Assessment [PEA] forecasts production of ~196,900 ounces of gold over a 5-year mine life at a cash cost of $753/oz. At a gold price of $1,500/oz., Marlin Gold is projecting a 2.5-year payback period followed by accelerating free cash flow in years 3, 4 and 5 helped by increasing gold grades at depth.

That sounds like a short mine life, but Marlin Gold's management team is optimistic that the modeled pit shell can be expanded with more exploration drilling this year on and around its 118,509 contiguous hectares of exploration property in Sinaloa.

As with any start-up, there are costs and risks. Initial capital needed for the La Trinidad Gold Project is estimated at ~$28M. Although Marlin Gold only had $6M in cash on hand as of November 2012, proceeds from a proposed $15M Rights Offering (official date TBD) backstopped by Wexford will be "used to commence construction at the La Trinidad project in Mexico, for exploration and development of its mineral properties and for working capital and general corporate purposes."

Following the Rights Offering, Marlin Gold says it will still need an additional ~$10.5M to fully fund the project, working capital, overhead and a small, but targeted, exploration budget, but the Board is exploring all financing alternatives and the project/company should be able to support debt on reasonable terms.

That said, estimates show that the Taunus deposit could yield cash flow to the tune of ~$147M before accounting for any resource expansion or even today's appreciated gold price. According to the company, mine construction will take 10 months and commercial production should commence in early 2014.

If you the time and taste for up-and-coming junior gold producers, Marlin Gold may be a good catch to slowly nibble on following their funding initiatives. Right now you can invest alongside Wexford at a share price slightly below the tender offer price. But, typically one of the better times to build a position is just before production begins, so this may be a better candidate for your speculative watch list until more news is out.

On a side, Marlin Gold also 100% owns 2,845 hectares of exploration property in Zacatecas, Mexico showing intriguing gold and silver veins. I suspect Marlin Gold will release more information following the PEA currently underway, but any good news should lend support to the share price.

If you're looking for a miner more advanced in development but still in its early growth stages, I still think McEwen Mining is an attractive candidate to explore. Stifel Nicolaus recently initiated coverage of McEwen Mining, rating it a "Buy" with a price target of $3.75 based on accelerating production growth.

Of course, I can't blame you if you want to avoid the sector all together. Comparing the PHLX Gold/Silver Index (XUA) and NYSE Arca Gold BUGS Index (HUI) to spot gold, you can see the last year or so has been especially brutal for miners as they have severally lagged the price performance of bullion. It's anyone's guess how long it will be before this disconnect corrects itself, but I believe investing in promising miners will yield returns over the long run. Plus, all of the volatility make mining stocks exciting to actively trade long/short if you have the time and discipline to do so.

Please, I encourage you to do your own due diligence before making any trades and to invest based on your personal risk tolerance and financial situation.

Disclosure: I am long MUX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

I've been a writer for the Illinois CPA Society's INSIGHT Magazine for several years now, and in that time I've written about a broad variety of topics relating to personal finance, investing, the economy, professional development and more. It seems this experience has led many of my family, friends, neighbors and others to ask for some insight into how to handle their own financial futures. Last summer, I wrote an article geared towards young professionals for INSIGHT called "Five Ways to Save", but really, the same tips can be expanded to apply to individuals of all ages looking to establish a financial plan.

Whether the economy actually is or isn't improving, bulletproofing your budget and solidifying your savings is going to be increasingly important for a successful future. Here's how to get started.

Maximize Your Earnings

If you're lucky enough to be employed by an organization that offers employee benefits, making the most of them is a must. Perks like insurance, employer-sponsored retirement plans and pre-tax payroll deductions can seriously trim out-of-pocket expenses and free up more cash to save and invest.

In most cases, a 401(k) is your best benefit when it comes to your financial future. Aside from the up-front tax savings, it's also one of the easiest ways to save for retirement. The key to 401(k)s is to take note of your employer's match. I strongly encourage you to contribute at least the minimum amount to receive the maximum match -- and more if you're able. Otherwise, you're leaving free money on the table.

If you feel savvy enough, take your 401(k) planning a step further by looking closely at the investment offerings. Many employer-sponsored retirement plans have a limited pool of mutual funds for you to invest in. Since this pool typically contains similarly performing funds, my suggestion is to invest in part based on the lowest expenses (always keep your goals and risk tolerance in mind, too). In my case, this is a Dryden S&P index fund with a net expense ratio of 0.62% -- about 0.5% less than the next similar fund available and more than 1% below the most expensive fund. You'll be surprised, but oftentimes low-cost index funds outperform more expensive managed funds.

Of course, it may be many years -- even decades -- before you can use your 401(k) funds without penalty, but other pre-tax payroll deductions can put more money in your pocket now. For example, having a portion of your salary deducted before payroll taxes for the purchase of transit fares, health club memberships, or a health savings account immediately reduces your taxable income, cuts down out-of-pocket expenses and simplifies your budget by eliminating the need to allocate the funds yourself.

And, when it comes to payroll taxes, if you're receiving a sizable tax return from Uncle Sam, try adjusting your withholdings. A big tax return may seem like a nice bonus, but realistically you just lent the government all of that money for free!

Look at the Long-Term

Even after maxing out your 401(k), you will likely need to build a bigger retirement nest egg. This is where a Roth IRA comes in handy. While a 401(k) offers a nice up-front tax deduction, the contributions and any earnings are taxed at redemption. Since your paycheck (i.e., take home pay) is already taxed, you need to be tax-conscious when saving and investing what's left. By utilizing a Roth IRA, your contributions and any earnings grow tax-free. A Roth IRA also grants you much greater flexibility in investment choices: stocks, ETFs, mutual funds, bonds, bullion, etc.

Personally, I like to invest my Roth IRA funds in dividend-paying stocks (I reinvest the dividends) and others that I think offer very high growth potential so I won't have to deal with the tax consequences later on. I also try to invest in diversified areas that I see as offering long-term value and growth based on global trends, my risk tolerance and investing timeline. Just to illustrate, my Roth IRA portfolio contains some of the following stocks as core positions: Universal Health Realty Income Trust (UHT), Guangshen Railway (GSH), Altria (MO), McEwen Mining (MUX), Phillips 66 (PSX), Raytheon (RTN), Seadrill Limited (SDRL), Seaspan (SSW), Global X Uranium ETF (URA), Verizon (VZ), and ExxonMobil (XOM).

Stay Safe in the Short-Term

While planning for retirement is crucial, addressing near-term needs is just as important. Funds for the likes of buying a house or paying for an education within the next few years should never be in risky savings or investment vehicles.

With interest rates so low it's hard to recommend doing this, but building a ladder of FDIC-insured Certificates of Deposit (CD) with this money is one option. With a CD you can secure funds over variable timeframes to guarantee income for your future needs. CD interest rates are commonly higher than standard savings accounts because you are securing it for an extended period and Bankrate is a nice resource for locating competitive interest rates on a variety of CDs and other savings accounts.

Another option that I personally favor over CDs are government-issued I Savings Bonds. I like I Bonds because their interest rate is based on inflation, you can buy them at face value and the minimum term of ownership is only one year. Yes, if you redeem them before five years is up you must forfeit the three most recent months of interest, but that is a small penalty to pay for a secure investment that will out earn (at least currently) any CD or standard savings account. What's more, if you like their performance, you can hold them for 30 years and there are some additional tax-saving benefits.

Save for Rainy Days

Another way to ensure your financial future is to avoid substantial setbacks. I've learned the hard way that setting aside a portion of your paycheck for emergency reserves is tough, but trying to cover unexpected expenses without is a lot worse. Typically, six months worth of expenses is the recommended amount to set aside, but I'd try to build up one year's worth of expenses if you can.

I think it's best to stash your emergency reserves somewhere accessible in case you need it quickly, but keep it out of sight so you're less tempted to dip into it. I personally keep my emergency funds in an online savings account through my credit union. The account is linked to a debit card and my checking account in case it's needed immediately, but it earns a higher rate of interest being online and at a credit union-historically credit unions pay higher interest rates than local brick-and-mortar banks. You can also check out other online banks like Ally and ING Direct (my parents use and like Ally).

Put a Dent in Debt

No matter how much you earn or save, ignoring your debts will lead to a financial nightmare. Carrying a balance on high-interest credit cards or failing to pay down high-interest loans will quickly erase your savings and devour your paycheck. As a matter of practice, always pay the minimum amount to avoid incurring fees, added finance charges or other penalties. If you can pay more than the balance due, or the entire balance, do it! If you have long-term loans like a mortgage, auto or student loan, focus your efforts on paying down the highest interest rate debts first. You should also look into refinancing options considering interest rates are so low right now.

Being debt-free or at least minimizing it to a manageable amount will work wonders for you. It's very easy to overextend yourself which is why another important point is to establish an honest budget. Living within your means will help you avoid financial strains and help you stay on track with your financial goals. Simply put, buy what you need but spend less than you earn. And, if you happen to get a raise, save it; bump up your 401(k) contribution or boost up that rainy day fund.

This is by no means a complete guide to all of the investment and personal financial planning options or out there, but I hope it helps you get started or at least think about doing so.

Interested in adding precious metals to your investment list? Check out my other Seeking Alpha articles, including,"Beginners' Guide To Buying Metals."

Disclosure: I am long ETFC, LYG, KOOL, UHT, GSH, MO, MUX, PSX, RTN, SDRL, SSW, URA, VZ, XOM.