Fundamentals
June 7, 2010
Reported success rates in the field of mineral exploration vary all over the map, so I won’t cite hard numbers. Suffice to say that they’re not great. The task, then, is to identify the fundamental risks and to reduce these risks. In my view, Southern Arc has, at least in part, addressed these risks by:
- Operating in proven territory. Indonesia is one of the most highly mineralized countries in the world and is home to many success stories (see Grasberg and Batu Hijau as just two examples).
- Not placing all its chips on one property. I see at least four strong properties in play for SA, and continued search for new prospects to add to the portfolio. Diversification of risk in this way is just plain logical. Too many operators in this field throw it all at a single prospect. With such a poor rate of success, this is no better than going to Vegas, and in some ways, worse.
- Team play. SA consists of a small team of people with skills in exploration, production, and making deals. Any combination that excludes one of these key components leaves an imbalance in preparedness to move projects forward. Success in exploration is a given, but even if the Company never becomes a producer, having producer experience at the table will be an indispensable aid in future negotiations. As well, without the necessary financing skills, too many chefs have failed as restaurateurs. This noted, I remain concerned with the focus of personnel risk on just one person, John Proust, and have told him so. Several months ago, I suggested that he consider this risk and the potential to mitigate by way of key man insurance. I need to follow up on this one to see if anything’s been done.
Yet to be understood (by me, anyway) is how the Company intends to fund future operations. Every time I ask John Proust how he means to cover off on this need (and I’ve asked many times), he says, “Don’t worry about cash, Kevin. It’s covered.” I study his face as he repeatedly answers my question. He’s got some cards up his sleeve (updated June 8, 2010), but that’s where they’re staying… for now. The last time we met, he described Southern Arc as in a stronger position than it’s ever been, and this was in answer to my ‘cash’ question. My best guess is that OPM (other people’s money) is a partial answer to my question. As always, time alone will judge.