Remember though. I’m just an English major.
May 15, 2011
Since Southern Arc’s news release on Thursday, I’ve received a good number of calls and emails, asking for my interpretation of the Pelangan drilling results. I’ve been on the West Coast on business since Tuesday and am now enjoying a three-day dance competition in Toronto (fortunately for the unreinforced stage, I’m not a competitor), so I haven’t had much time before today to review the results and formulate an answer. In the end, I suspect I will not add great value to your consideration of the topic, as the numbers pretty much speak for themselves. In any event, let’s look at the results before we go any further. This is a straight copy/paste from the NR. I’ve highlighted my key takeaways in yellow.
Drillhole PLD003 returned:
PLD003 16.55 m @ 5.5 g/t Au & 3.7 g/t Ag from 232.95 m
(including 7.70 m @ 10.9 g/t Au & 6.1 g/t Ag from 237.5 m)
(including 4.50 m @ 17.6 g/t Au & 8.0 g/t Ag from 240.7 m)
PLD003 intersected high-grade mineralisation over 250 m vertically below surface and 100 m below the high-grade intersection of PLD002 thus confirming the depth potential at Pelangan. The mineralisation in this area is exposed at the surface and remains open at depths exceeding 250 m. PLD003 was drilled in the same cross-section as previously reported drill holes RGD01 (10.70 m @ 2.93 g/t Au & 20 g/t Ag, including 4.7 m @ 5.8 g/t Au & 27 g/t Ag), PLD001 (4.85 m @ 7.11 g/t Au & 18.5 g/t Ag) and PLD002 (17.25 m @ 5.73 g/t Au & 11.7 g/t Ag).
Drillhole PLD008 intersected MSB mineralisation 50 m southeast of drill holes PLD001, PLD002 and PLD003, approximately 90 m below surface and returned two broad mineralised intervals:
PLD008 11.55 m @ 9.80 g/t Au & 31.1 g/t Ag from 70.35 m
(including 3.50 m @ 26.1 g/t Au & 96.5 g/t Ag)
and 11.80 m @ 1.40 g/t Au & 9.2 g/t Ag from 93.7 m
(including 2.00 m @ 3.70 g/t Au & 22.6 g/t Ag)
Drillholes PLD004 and PLD006 have been completed on a section 150 m southeast of PLD003 down dip from the Phase 1 drill hole RDG04 (9.5 m @ 6.2 g/t Au & 41 g/t Ag). These holes intersected MSB's at 75 m and 115 m below surface respectively and returned mineralised intervals grading:
PLD004 10.95 m @ 2.0 g/t Au & 34.0 g/t Ag from 79.25 m
(including 1.50 m @ 5.6 g/t Au & 166 g/t Ag)
PLD006 16.15 m @ 1.4 g/t Au & 12.0 g/t Ag from 110.05 m
(including 2.45 m @ 4.7 g/t Au & 34.0 g/t Ag)
Drillhole PLD005 intersected two narrow zones of mineralisation approximately 200 m northwest of PLD003 these have returned:
PLD005 1.75 m @ 1.15 g/t Au &4.9 g/t Ag from 72.20 m
and 1.95 m @ 1.16 g/t Au & 13.7 g/t Ag from 92.90 m
From President and COO Mike Andrews, "It goes without saying that we are very excited with these results. These first few holes have already demonstrated down dip continuity of both grade and width. It's important to remember that this Central Raja zone represents less than 10% of strike length established to date for Pelangan alone. Drilling will continue to step out on 50 m spaced sections at Raja to identify further high-grade shoots for aggressive infill drilling. Drilling at the 600 metre long South Raja Zone will commence shortly."
Let me begin by saying that I am not qualified to interpret these results. Much in the same way, I was not qualified to assess what I saw in East Asia’s Miwah prospect in north Sumatra back in February. A friend had challenged me, not long before then, suggesting that perhaps I had backed the wrong horse and should have invested in EAS.V, rather than SA.V. Here’s what I wrote in response, but did not publish (this is what I wrote, word for word – I promise) on February 23rd of this year:
As appealing as Miwah’s drilling results are to date, this prospect is, in my view, the lone face of EAS. Where Miwah goes, so goes EAS. Based on what they’ve drilled so far, my rather amateurish back-of-envelope calculations see the potential of this deposit at somewhere in the range of 2.1-2.5 million ounces. It’s not a simple rectangular prism, as some lazy and/or inept analysts would have us believe. Easily plotted on Google Earth, it’s an extremely steep hill, presenting significant internal and lateral variability in mineralization along with substantial erosion. Remember, though. I’m just an English major with a calculator. What do I know? Don’t take it from me. Do your own due diligence.
Well, the Miwah resource estimate came out last week, not at 11-15 million ounces as suggested by people far more qualified than I, but (with a 0.6 g/t cutoff) at 2.57 million ounces. Hmmm… The news release cites 103.9 million tonnes at 0.94 g/t on average, showing 3.14 million ounces at a cutoff of 0.2 g/t. For a site accessible only by helicopter, wanting in infrastructure, a 0.2 gram cutoff seems to this English major a bit on the low side. Here’s the thing, though. Last week, I remembered having read something on the EAS website and wondered if it might still be there. Checked and, much to my surprise, found it intact. Here it is:
The previous explorer suggested potential for 100 Mt at 1.1 to 1.2 g/t gold, however a review of the historical data indicates that early drilling was parallel to higher grade (greater than 5 g/t gold) structures at surface. Hence, in addition to greater mineralized tonnage, significantly higher overall grades are anticipated from better geological understanding, results of the Company's detailed sampling, and properly oriented drill holes.
Fourteen years later, the compliant resource estimate (acknowledging that this is only an initial report, open to enhancement) comes up shy of what the previous explorer saw. At a cutoff of 0.6 grams, just 61.1 million tonnes at 1.31 g/t. If my fingers and toes are accurate, this means that more than 40% of the headline tonnage (103.9 mt) yields between 0.2 and 0.6 g/t. Ouch!
So, what’s the lesson in this? That I know what I’m talking about? Nope. That people should look to me for a qualified interpretation of drilling results? Nope. People… this is just a hobby for me but here’s the lesson. If I can figure this out, so can you. It’s not rocket science, folks. Look at my Home page. From Day 1, it’s been my hope to encourage others to do their own homework. Turn off the TV, pick up a book, take a course, research the Internet, learn something about matters that impact significantly on your investment prospects. It takes time, but you don’t have to be a Mensa candidate.
For me, this highlights the need to do my own homework. It also underscores the need to ask and answer important questions in all matters dealing with people whose words impact on my investment decisions. Does s/he appear to know what s/he is talking about? By what method did s/he reach the conclusions presented? Can I trust his/her judgement and calculations? What does this person stand to gain if I believe what s/he is telling me? Newsletter writers, geologists, financial advisors alike. All need to pass the ‘sniff’ test before we accept what they say. Financial advisors, in particular, occupy a special place in my book. There are good ones, to be sure, but for the most part, I dismiss them with one wave of: “If s/he knew what s/he was doing, why would s/he be doing it for me?” When someone speaks or writes about investment opportunities, the first question to be asked is: “How is this person compensated?” Then you must decide whether such compensation places the person in a position of conflict with presenting a fair and balanced review. Of course, this also applies to considering what I have to say about Southern Arc. Though not compensated by the Company, I do own shares and have an interest in rising value for those shares. You must take everything I say about the Company with this in mind.
There’s so much more than drilling results to consider when doing your homework on a prospective investment. I once read a newsletter writer’s 700-word piece recommending a junior explorer. Gee… it sometimes takes me 700 words to clear my throat (my bad, I know – I’m already 1400 words in and still haven’t said anything about Southern Arc’s drilling results). Of course, it’s not length but rather content that tells the story, but to my way of thinking, neglecting to mention that there’s a civil war going on in the immediate neighbourhood fails the sniff test.
So, along with my seemingly conservative estimates of the Miwah prospect, I looked around a bit at the neighbourhood. Here’s more of what I didn’t publish back in February:
Recent civil war, corruption, and continued political instability (This one’s a must read from beginning to end!) make Aceh a risky place to set up shop, in my view. According to the linked article, the economy of this province shrunk by more than 8% in 2008, in stark contrast to a growth rate of more than 6% nationally in Indonesia. Why? According to the World Bank, “The most binding constraint to investment and growth in Aceh are illegal extortion and security concerns of potential investors.”
While I’m sure there are no lily-white jurisdictions in Indonesia (nor anywhere else, for that matter), the prospects for a successful outcome in Aceh strike me as dubious, at best.
Religious extremism expressed in the form of Sharia law is applied in Aceh, as part of a 1999 peace agreement autonomy concession by Jakarta to the former rebels who now rule that province. Aceh is the only Indonesian province completely governed by Sharia law. I wish for EAS and its investors nothing but the best. At the same time, I say, thanks, but no thanks. I’ll invest my money elsewhere. It’s nothing personal. Just a nagging hollow feeling in the pit of my stomach.
Paramount in consideration of any investment is insider trading. As I’ve said before, I don’t care if you’re sitting on Fort Knox (which by some accounts is empty). If you don’t have much skin in the game, why should I? On this, I wrote to my friend (remembering that these numbers date to February):
Since you’ve drawn a dotted line down the middle of the page between Southern Arc and East Asia Minerals, I would be remiss not to mention that John Proust, as the CEO at Southern Arc, holds 7,020,934 shares or 8.97% of outstanding shares (pre-financing). This is what’s known as a vested interest. His CEO counterpart at East Asia holds just 133,200 shares, or 0.17% of outstanding shares. That’s a percentage-interest-ratio of more than 50:1.
In the past two calendar years:
Proust bought 190,000 shares on the open market. None sold.
Source: sedi.ca
In the past two calendar years:
East Asia’s CEO sold 1,301,800 shares on the open market. None bought.
Source: sedi.ca
I have a friend who now holds over one-and-a-half million shares of Southern Arc Minerals. When he bought his first batch of 100,000 shares in the second half of 2007, I asked him why. His answer was very simple and to the point. “C’mon, Kevin. The CEO is buying in quantity on the open market. There’s no better vote of confidence in the Company.” I couldn’t agree more.
Asked many times for my exit strategy on Southern Arc, my answer has always been that I keep my eyes on John Proust, the Company’s single largest shareholder. When he makes a move for the door, I will race him to it. I’m reminded of the line from the Morgan Freeman/Ben Affleck movie, The Sum of All Fears. On the t-shirt of a Russian nuclear lab worker it reads, “I’m a bomb technician. If you see me run, try to catch up.”
See John run. See Kevin run faster.
My point in all this is that, while drilling results are important, I cannot look at them in isolation. They must always be viewed in the larger context of a more complete picture. To fail to do this is a recipe for disaster.
On the recent Pelangan drilling, I say again – I am not qualified to interpret these results… but like you, I must. Nobody can give you satisfaction on this account better than yourself. This said, I call back to my earlier piece on Pelangan/Mencanggah, linked below. In particular, I look to the description of the Andean deposit and of Way Linggo, Mike Andrews’ project:
http://www.grahamanalytics.com/CompanyFiles/SA/SA_book/risk_assessment/AequalsB.html
My hope has been for one-in-four good holes as early exploration ensues on these prospects. These five reported holes following on the first two strong holes reported in January (PLD001 and PLD002) all hit mineralization. Two of the five offer excellent results and serve to confirm continuity of grade and width at depth and along strike. I could not ask for more, but of course, I will… more of the same. I’m tickled to see these results, all coming from a 400 metre section of one vein (among five), all located in one small prospect (gee, there’s only 5 km of strike length in Pelangan, so far… hmmm…), a prospect with less than one-third of the measured strike length for its sister prospect to the southeast. Look at the grades and intercept lengths again, then look at the depth. Mineralization starts at the surface, has been intersected to 250 metres below the surface, and remains open at depth below that. Now look back at my earlier piece again to see the Andean and Way Linggo figures. Forget about my interpretation. What’s yours?
It’s far too early to say what will be found in Pelangan. They’ve only just begun (I hear an angelic Karen Carpenter singing in the background).
Definitive? Not yet. Potential? Huge. Encouraging? You betcha!
With respect,
Kevin