Investment Check-list for Precious Metals Miners: part II

In Part I, I introduced readers to the different categories of miners, and outlined some of the basic characteristics which these companies possess. In the second part, I will provide some guidance on what to look for in separating the “contenders” from the “pretenders”.

Naturally, the starting-point in looking at the quality of any mining company is the quality and quantity of ore in their property(s). The quality or “grade” of the ore will go a long way in telling us about the profitability of a miner (or the potential profitability of an exploration company).

For gold miners, the starting point would be to look at ore with 1 gram of gold per ton of ore. That’s right, ore with as little as 1 gram/ton is potentially rich enough to support commercial mining. Of course, with this low level of concentration of gold, it will generally require both vast tonnages and favorable geology for ore of such a low grade to support commercial mining operations. Generally speaking, what exploration companies are looking for is ore with several grams of gold per ton.

As stated, grade alone is never the sole determinant on whether a particular ore-body is commercially viable. What companies looking for gold (and mining gold) need to see is enough tons of such ore to justify all the preliminary drilling, the resource estimate, the feasibility study, and ultimately the construction (and operation) of a mine.

 

Even when looking at the quantity of gold in an ore-body, tonnages alone do not tell the whole story. Companies drilling for gold sometimes go down a mile or even further beneath the ground. What companies (and investors) want to see is for the quantities of gold in these ore-bodies to be compressed within a relatively narrow range of depth.

For example, let’s suppose that two companies have identical grades and tonnages of gold in their properties. The “veins” of gold for Company A start at 50 feet below the surface, but continue all the way down to 5,000 feet below the surface. With Company B, on the other hand, the gold doesn’t start until 200 feet beneath the surface, but the mineralization only goes down 1,000 feet.

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