By Doug Hadfield, Managing Editor, www.resourceintelligence.net
In the resource investment world, there's a lot to consider before buying. Doug Casey calls it the “8 Ps”: People, Paper, Property, Phinancing, Politics, Promotion & Push, Price
This is a good approach to assessing potential resource investments. Maybe even a great approach. It is limited only in that it's so broad as to say, “You need to know everything before you can know anything,” which isn't necessarily a bad thing. After all, if you want to put a lot of money into a long-shot junior resource investment you want to know as much as possible about all aspects of the company.
Only one of the above “P”s is worth all the rest, however, and that is “People”. A solid CEO will hire a smart team. In a junior, the team will consist of a CFO, a COO or someone who knows geology, mining and engineering, a brilliant people person to run corporate development and some directors to steer the company through the phases of mine building. He'll hire someone to answer phones that will make you feel like you're calling home for Thanksgiving. Behind every mine is a team of intelligent, dedicated professionals.
At resourceINTELLIGENCE, we have a variation on Casey's approach that we call the 4 M Theory. It's short and straightforward:
Management, Money, Minerals, Mines.
In a sentence, the theory goes like this: Management attracts money; money finds minerals; minerals build mines.
Sure, you can argue that geologists, not money, find minerals. But if I had a dime for every good geologist who couldn't drill into a handsome outcrop because of lack of funding... you get the point.
We start unabashedly with Management because, regardless of the merits of the project, without the right team in place there's simply no prospect for mine building. They won't have the know how. They'll manage people poorly. They won't have the chops to raise the bucks. And the bucks they do have will be wasted on IR programs that don't work.
Back in March of this year, Palladon Ventures (TSXV: PLL) had a project of substantial merit and a poor management team. On paper, the company's iron ore project in south-western Utah showed great promise. When the company when into production in 2008, it had a market cap of $144 million. Then, with iron prices ratcheted up to cyclical highs, Palladon's last CEO opted to leverage the company hugely, accumulating $65 million in debt to acquire 100% of its Iron Mountain project.
We all know what came next. With diminishing iron prices the company's run-of-mine business model suddenly became unattractive. It was too expensive to ship ore to Asia that was as much as 50% waste. Likely unable to make the principal payments on its debt, the company next ran afoul of the exchange and was eventually handed a Cease Trade Order. That CTO continues to this day.
Fortunately for Palladon's shareholders, two directors stepped up to take over on an interim basis, John Cutler as CEO and Jeffrey Clark as CFO. Over the ensuing months the duo cleaned up the books, refiled several quarters, hired SRK consulting to help determine the viability of the project and reassess the business plan.
“The problem was that there was a bad business plan in place,” Cutler told resourceINTELLIGENCE TV. “We confirmed with SRK that the project was good, and now with the new resource estimate and a scoping study 45 days away, we're even more confident.”
Mr. Cutler, who does not have a mining background, and Mr. Clark have done surprisingly well in their interim roles. They have met all the exchange's requirements for resumption of trading on the TSX Venture Exchange, renegotiated a payment extension with their creditors and have completed a 43-101 resource statement on the Comstock/Mountain Lion and stockpiles deposit.
“We'll have a Preliminary Economic Assessment (Scoping Study) out within 45 days, but we know the indicated mineral resource estimate totals 40.35 million short tons, at a grade of 46.09% iron. We're also working on the Rex deposit, which neighbors the Comstock/Mountain Lion deposit, where we expect another 136 million tons at about 41.7% iron, based on historic data.”
With its next payment due on October 15 this year, Palladon is hopeful that the BCSC will expedite resumption of trading for the company. Following that the company will have to raise $5 million to satisfy its Extension Agreement with Luxor Capital.
Resource investors should know that this company ceased trading at $0.09 per share. Go to www.shareknow.net to calculate the current insitu (in the ground, with no extraction costs associated) value of the company's resources.
Disclosure: No positions