321 Gold

Giant Alaska Gold

August 9th, 2007

By Bob Moriarty

"Are you ready for your photoshoot with the 'traveling' hammer, Ted?"

"Forget the travelling hammer, GrandPa Bob, Show Me The Gold!"

In the junior mining business, failure is the norm. Most companies are never going to find a project that will go into production. The standard business model is drill and print shares, drill and print shares. Eventually the company has so many shares outstanding that they could drill into 400 ounce .999 bars at Fort Knox and the shares still wouldn't go up. So they do a roll back and start over. Drill and print shares.

No other industry would support a business model such as that so commonly found in mining. Eventually one in a hundred companies makes a real find and rockets to the moon. And everyone else points to them and says, "See, that's what we are going to do someday." Yeah, right.

I believe in the garimpeiro school of mining. In Brazil, home of the garimpeiro miners, they all make money. No garimpeiro would dream of mining at a loss. As a matter of fact, I'm certain they would think a person daft to consider such a thing. When economic conditions prevent them from making a profit, they stop mining. If you think about that, the garimpeiro model makes a world of sense.

If Ted wasn't a bear, I think he would be a garimpeiro miner. His motto probably would be, "Show me the gold."

I like that, "Show me the gold." It works. I've been gone for two weeks visiting some exciting companies with great projects. My favorite buy signal is flashing again and both of these wonderful companies are cheap by any measure.

The first company I visited has two interesting projects, one in North Carolina, the other in Belize. And indeed they did show me the gold. Ted was actually up to his little butt in gold.

Erin Ventures (EV-V) has a most interesting background. Formed in 1996 the company developed a boron project in Serbia as a joint venture with Elektroprevreda-Serbia (the Serbian government's wholly owned national power company). The company actually advanced the project to the drill indicated resource stage and had invested over $8 million and intended to be in production by 2002 in a joint venture with a NYSE-listed partner.

But in 1999 a cigar at the White House told Bill Clinton he needed attention focused elsewhere. President Clinton tossed a dart at a board and the next thing that happened was that Mark-84, 2000-pound bombs were hitting Serbia. Erin Ventures President Tim Daniels put the project into hibernation until 2001 when a new government took over in Serbia.

After years of meetings and evasions, the current Serbian government gave the highly-advanced project to a third-party. Erin has entered the project into arbitration by the Serbian International Arbitration Court contending they either deserve the project or compensation for the millions of dollars they spent in development.

In simple terms, Erin had a great boron (used in fiberglass) project in Serbia, Clinton bombed the crap out of the place and the new Serbian government handed the project to someone better-connected. Erin wants the money they spent back. It may take another six months to have the case settled one way or another.

Stuff happens to the best of us. Erin Ventures was a well-managed company with about 20 million shares outstanding, a market capitalization of $100 million and a project on the verge of production. Then along came Bill. At then end of the bombing, Erin was in debt, and the shares were down to $.04 giving the company a market cap of $1.6 million.

Erin Ventures and Tim Daniels have done an incredible job of recovering. Tim and I went to see his gold porphyry in North Carolina. The project is called the Deep River Gold Project and is located about 100 km SW of Raleigh. It has many characteristics of the Ridgeway Gold Mine just across the border in South Carolina. Readers should know that the Ridgeway Mine averaged about 1 g/t of Au.

Erin entered into a joint venture with Triangle Minerals in 2006 requiring an expenditure of $450,000 by Erin in return for a 100% interest in the property with a 0.8% production royalty. They completed a 12-hole 1800-meter drill program recently and drill results should be out soon.

The Deep River project is a large gold/copper porphyry. Soil samples indicate the potential for an 8 km by 5 km area of alteration. The key here is going to be grade. Production today would require 1 gram per ton average grade for gold.

Tim and I visited the property with the former manager of the Ridgeway Mine, Pete Evans and Ron McDaniel, owners of Triangle Minerals. The alteration is obvious and Erin intends to continue with an exploration program on the project designed to increase the resource.

From North Carolina Tim and I made our way down to Belize City. We faced an incredible seven-hour trek through an incredible jungle. The first three hours were on nice roads, then another two on some pretty bad roads and then two hours of hell on a primitive 4-wheel-drive beast.

For ten months of the year, the Erin Ventures crew can get to the project right on the western border with Guatemala. But for 2-3 months of the year, the roads through the jungle are virtually impassible. Erin has had to buy this incredible tracked vehicle for the pretty bad times called a Nodwell.

But the saga was worth it. Tim and Jim Wallis did literally show me the gold and Ted was soon standing in high cotton. Or more literally sitting on 165-ounce pile of gold. He and I both wish we had remembered to bring the double-sided tape to stick on his backside.

Getting burned in Serbia turned Tim Daniels into a tight wad. Having his major project yanked out from underneath him dumped the stock down to $.04. He was forced to issue tens of millions of shares literally for cents. Where he once had a nice tight share structure, it took him an additional 50 million shares to even get his feet on the ground. But he understands cash flow as well as anyone I know of in the Canadian Junior sector.

Cash flow is more important than profit and if mining is to be a business, profit is mandatory. If a company can't figure out how to make money in this market with these prices, well, they just need to find something else to do. Tim wanted a project with early cash flow so he could issue the smallest number of shares while returning the company to sound condition.

Tim was approached by Jim Wallis about a placer/lode gold project in Belize. Jim is 68 and has been mining since Christ was a Corporal. He lives in Atlin, BC that is about as close to heaven as you can be and still stand on Terra. Jim has been working in Belize on and off for 15 years.

The project seems perfect for Erin Ventures and Tim snapped it up. Before I go any further, I need to point out that placer gold is the kind of gold that brokers love to hate. If you need to install the gag instinct in any broker, just mention "PLACER GOLD" and you will get your gagging action. Brokers hate placer operations. It might just have something to do with the fact that companies claiming placer operations are usually as close to scams as you can get and still list a stock.

I only know of two still operating, Golden Eagle (MYNG) claiming to soon be mining in Bolivia and Silverado (SLGLF) claiming to be mining in Alaska. Go to the pink sheets and look at MYNG. "Gold production started 9/02 and produced 302,324 Gm or 9,720 Toz of gold as of 5/04." I make that out to be about 500 ounces per month. But the management of MYNG has been printing paper faster than the treasury and is now up to a blistering 790 million shares. Even so, the company has an $11.2 million market cap.

Silverado spent over $5 million a couple of years ago mining 500 ounces for the season so I stopped following them. If they are the specialists in mining placer, no wonder it has such a bad reputation. SLGLF has a remarkable 672 million shares outstanding. But a market cap of $55 million.

In any case, Erin Ventures has a project right on the border with Guatemala and intends to search for the lode source of a known placer deposit. Meanwhile, quietly and way under the radar screen, Jim designed and had an $89,000 dredge built. They aren't saying a word about what they intend to do but they are producing gold today and at nice profit margins.

Ted and I saw the gold. Jim and his crew have produced 165 ounces just in the testing phase of their operation. The gold is fairly low grade, maybe a fineness of 82/100 or so, that's what gives it the dull color. But they are maintaining a production rate of 60 cubic meters an hour and are mining a .5 gram/meter deposit. They are doing between 1 and 1.2 ounces per hour. That doesn't sound like much but labor costs are cheap in Belize and they only have $89,000 invested in the dredge.

Here's how the numbers work out. They can work a 9-hour shift right now. Figure 9 ounces at $670 but throw in a .75 Jesus factor. They can gross about $4,500 per shift. I think they figured their costs were $150 an hour for operating costs and labor. That works out to about $3,150 profit per day.

And Tim intends to hire and train another shift as soon as they get all the kinks worked out and the camp finished. Now you start talking about $6,300 in profit a day for 300 days a year. That's $1.89 million in cash flow for a company with a $7.8 million dollar market cap. I don't think it will have a market cap that low for very long.

Tim, Jim and I journeyed up the creek to look at the source of the gold and we found some arsenic stained quartz veins that are probably where the gold came from. The area is highly folded, there is a lot of overburden and quite frankly, if they are taking out gold today at those margins, I think they would be wasting their time to try and develop a hard rock source. They are doing far better already than most companies ever will.

The answer is probably for the shoemaker to stick to his last. They are brilliant at placer mining; it looks as if they have a ten-year mining potential where they already are. They should build more and bigger dredges and fund everything else they want to do out of cash flow. Back of the envelope calculations show me that four dredges working similar grade material should produce 86.4 ounces of gold a day and net profit of over $30,000 daily.

I have placer claims in Chile and I know of lots of good placer ground for someone who actually knows placer and understands how to run a mining company. If Tim Daniels has made any mistakes, it's only been not screaming from the mountaintops, "I run a placer mining company." Jim has shown they can pay for a dredge in a month and for a dredge & excavator in three months. Few companies can finance themselves four times a year. They need to get moving.

***

Acadian Mining

My next visit was to another Canadian Junior aiming to move up the scale quickly and my visit showed me they probably will. I am putting both companies in the same article because their business models are virtually identical.

I got back to Miami and spent one day recovering from being bitten to beat the band by tiny black flies in Belize. I took insect spray but since I didn't see any mozzies, I neglected to put it on. I paid the price for the next week. But my next adventure took me to another wonderful area in Canada, Nova Scotia.

If you wanted to locate a mine near a major shipping port in a safe and sane part of the world that was so nice the people you want to work with pay you to work there, you need to be thinking about finding minerals in Nova Scotia.

I'm getting nervous. Barbara and I left the United States on a permanent basis because George Bush and his gang of fools have brought fear to my country. Where a US President once said, "You have nothing to fear but fear itself," now we have a self elected president telling us, "You have nothing to fear but the government."

I fear the government and if you live within 12,500 miles of Washington, you either need to fear the US or read more.

In any case, it's a genuine pleasure to travel to airports not staffed by airport Nazis and to deal with customs and immigration officials who don't look at you as if you have Osama bin Forgotten in your back pocket. I love going into Canadian airports and the terminal at Halifax is just as beautiful as the one at Vancouver.

I was in Halifax to visit Acadian Mining. (ADA-V) I had met with Will Felderhof CEO and President along with Terry Coughlan, Vice President, at the New York gold show a few months ago. I liked the story and made sure I visited them as soon as possible.

Basically they want to advance some interesting gold projects in Nova Scotia. They are going to do it out of the cash flow from a lead/zinc mine they have just now put into production called the Scotia Zinc Project. Other than the most incredible timing I have ever seen, I think it's a brilliant strategy.

While I was visiting the mine and mill with Terry Coughlan, lead was hitting a record high of $1.58 a pound. As Napoleon used to say, it's better to have lucky generals than skillful generals. You can always beat skill but you can never beat luck.

Acadian Mining completed the purchase of the Scotia Mine for $7.5 million from HudBay Minerals in July of 2006. That's not far off buying Manhattan from the Indians for $24 worth of glass beads. Their timing was both lucky and skillful.

Acadian hired the first employee for the mill on August 8 of last year and had the mill back in production in late May of this year. That's nothing short of incredible.

Hiring people to work in Nova Scotia isn't hard; they stand in line to get there. But getting a mothballed mill up and running and having 100,000 tons of ore stockpiled in 9 months is brilliant work.

Acadian Mining has so many irons in the fire it's almost impossible for me to cover the whole story. I'm going to hit the high points and I want the reader to go to the Acadian website and spend some time reading all the things they are doing. It's a good site, well- written and clear.

I visited the Scotia Mine with Terry Coughlan. Doug Keating, Mill Superintendent, had it up and running in about 9 months. Granted, they are still working out the kinks but they have a goal of 2500 TPD and I think they will be there within 12 months. If you notice, all of their numbers will be smaller than mine but they are conservative almost to a fault. Still, I think my numbers will be closer to what they accomplish.

They expect to produce about 30,000 tonnes of a 60% zinc con a year. If you go to the wonderful Kitco Charts, scroll down the zinc page and see if you would like to own a zinc producer.

They also expect to produce 10,000 tonnes of a 75% lead con yearly and each ton of con comes with about 6 grams of gold they hadn't anticipated. I think it comes from surface till and the reason it was unexpected was that no one ever sampled the till. I'll bet that if they did, they could run it through a dredge and recover gold. Look here and figure out if lead might be desirable to own. The gold kicker for the first year or two probably will be about 2,000 ounces or over $1 million in found money.

Their figures, using $1.65 zinc and $1.25 lead call for a revenue flow of $68-72 million and $45-50 million in cash flow. I think you could increase those numbers by 20%. They have a habit of under-promising and over-delivering. Which beats hell out of the alternative.

Think about it. This is a company with a market cap of just over $150 million. They have $10 million in the bank. On a fully diluted basis, they will bring in another $23.3 million in cash. They expect a cash flow of about $50 million and I think $60 million will be closer to the mark if zinc and lead prices stay the same.

That's a giant if. Our global financial system with $460 trillion dollars in derivatives is in a melt down. The good news is that probably Bush and the rest of the Gang of Fools will have their hands so full trying to plaster band-aids on a sinking financial system and dollar that they won't go nuking Iran. The bad news is that at the end of the day the US will be well on the way to becoming a 3rd world economy run by a Fascist government. That's not going to be fun for Americans.

But if Americans have to stop serving as consumers to the world, I'm certain the Chinese or Indians will step up to the plate and try to keep up. The world economy will recover once we assume a real currency, one backed by gold. The US economy won't.

Speaking of which, Acadian has over 1.5 million ounces of gold in various 43-101 categories. At $100 an ounce, which companies are getting in market cap, today's share price fully values the gold and you get $50 million in cash flow for free. That's a good deal.

The gold formations in Nova Scotia are interesting. Company Chief Geologist Rick Horne drove me around for a day while we visited their various gold projects. He's a catch for a mining company if I have ever seen one. Rick worked for the provincial government as the Chief Geologist for Nova Scotia for 20 years. He literally knows where all the rocks are hidden.

I think Acadian has a surprise for the market with their various gold projects. Most of the gold in Nova Scotia is found in a very unusual kind of deposit. Rick Horne taught me everything I know about saddle reef deposits. Not everything he knew, just everything I know.

Saddle reef deposits are formed when sedimentary beds are deformed into anticlines. An anticline looks like a bell curve. When you have layers of sediment, the shale is the weakest so when the sediment is folded into a bell shaped anticline or saddle reel and a fluid mineralizing event takes place, you often get gold-bearing silica or quartz in the shale. Since the terrain in Nova Scotia was then scoured by glaciers, the saddle reefs were scraped off and some gold deposited in the glacial till. (like that over the open pit ore body at the Scotia zinc/lead mine) Miners found the legs of the saddle reef and mined them, not realizing the biggest gold deposits would be found in the cap or top of the anticline.

No one has ever drilled any of the anticlines for saddle reef caps in Nova Scotia but in Australian gold fields in Victoria much of the gold came from saddle reef deposits. So while Acadian has some gold projects such as Beaver Dam with 950,000 ounces in 43-101 categories, others, which appear to be much smaller, may have similar or even greater potential.

I'm not even going to go into the Lake Ainslie Barite-Fluorite mine they picked up on Cape Breton Island for $300 that contains a 4.25 million ton resource of 34% barite and 17.3% fluorite. It's a historic resource, not 43-101. They don't even mention it on their website, it's too new and they are so busy.

I don't think you can find a greater opportunity. It's a producing zinc/lead mine when those minerals have become precious, with a free perpetual call on gold or it's a near term production gold story with a free perpetual call on both lead and zinc and if oil ever is in demand again, a free perpetual call on both barite used in drilling fluids and fluorite, used for flux in steel making or for glass or in the production of hydrofluoric acid.

I see no difference at all between the business model used by Tim Daniels at Erin Ventures or by Will Felderhof at Acadian Mining. Each company has a number of interesting projects all of which require sustaining capital. Rather than finance exploration via the printing press, they have chosen to finance internally. I don't see any more shares being issued by either company in the near future other than options - well-deserved options.

I expect both companies to be profitable. I expect both companies to expand their other projects and I expect to see far bigger and far more valuable companies a year from now.

If Erin Ventures has a weak spot, it would be putting such a giant load on the shoulder of Jim. He needs to be passing on his vast store of experience as soon as possible. Erin could use 2-3 new, young geologists eager to learn how to do placer mining. Most of the gold ever produced has been via placer mining and the fact that the Toronto and Vancouver brokers don't have a clue as to how it should be done has far more to do with the fact that Vancouver and Toronto brokers often don't have a clue rather than there being any real flaw to placer mining.

The North Carolina gold/copper porphyry is an issue of grade. It will take 2/3 of a gram to be viable at today's prices. Soon-to-be-released drill results will show the present potential. If the grade is under 2/3 g/t, the worst you can say is that it is highly leveraged to the price of gold and is still worth advancing.

I didn't discover Acadian. I think Greg McCoach of The Mining Speculator found and wrote about them first. He has a really excellent service, charging only $199 a year. He has found and supported a number of great juniors that rocketed higher. He's done it again.

I just really like Acadian. I like the management and I love the model. I really appreciate Rick Horne taking me around and teaching me about a whole new type of gold deposit and I'm just dazzled by how well Doug Keating has done getting the Scotia Mine into production.

I'm convinced we are in the melt-down phase of the derivatives time bomb and I can almost promise few understand the dimensions of change which are going to happen between now and October. But I think you could invest in both of these companies and sleep soundly no matter how many financial houses are collapsing on Wall Street.

We have positions in each company. Acadian is an advertiser at 321gold, and Erin is soon to be an advertiser. I am biased, I happen to really like the model and I really like management of each company. Do your own due diligence, both web sites are excellent and filled with information.

By the time you read this I will be in the boondocks of Alaska. So, as always, please hold back on sending email for a couple of weeks.

Erin Ventures Inc
EV-V $0.13 Canadian (Aug 8, 2007)
ERVFF.PK
71.3 million shares
Erin Ventures website

Acadian Mining Corporation
ADA-V $1.11 Canadian (Aug 8, 2007)
ADAIF.PK
135.7 million shares
Acadian Mining website

***

321 Gold
http://www.321gold.com/

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