Rocky Mountain Riches

Outside the mine, it felt like any other midsummer’s day –
hot and muggy. But down here, 500 feet deep in the bowels
of a mountain they call Gold Hill, my fingers were slowly
turning numb from the cold.

"We’re finding rock samples down here no one’s seen since
the 1890s," said Kory, the mine’s resident mineral expert.
"See this black spot here? It’s a telluride deposit…40%
gold, 40% silver and 20% tellurium."

We focused our headlamps on the vein and moved closer to
the rock face. Gold speckles were clearly visible to the
naked eye…

I’m in the hills above Boulder, Colorado to learn about
gold mining. My hosts: Consolidated Global Minerals (TSXv:
CTG), a junior exploration and development company with
other properties in Tunisia, Canada and Nevada. They took
me up to the project yesterday morning to meet the crew and
tour the mine. Here’s what I learned…

Global’s Front Range Property is made up of 106
consolidated claims containing 18 past producing mines. Not
a single ounce of gold has been produced on the property
since 1987 as the owners waited for higher gold prices,
consolidated their ownership of the mountain and organized
the required federal, state and county mining permits.

Last year, the decision was made to reopen the mine for
production. This week, the property will produce its first
gold in 18 years. For the owners and workers on the hill,
this will be a moment of great significance.

Gold Hill is basically a big granite rock. At some point in
its history, the rock shattered and the fissures that
formed became infused with minerals. Miners call these
fissures veins. You’ll find dozens of different minerals in
these veins, including deposits of silver, lead, nickel,
copper and zinc. As the on-site geologist explained to me,
due to its high gold and silver content, the most valuable
mineral in these parts is called telluride.

The principal adit – an adit is a horizontal cut as opposed
to a shaft which is a vertical cut – extends about 850 feet
into the mountain. There are several branches off this main
shaft. They use dynamite to drive the shafts into the
mountain. Each time a tunnel is extended, the geologist
takes samples from the new rock face. He’s looking for
telluride veins… even better, the intersection of
telluride veins. When he finds veins, he marks them with
blue paint and moves on.

One single vein intersection could provide enough gold to
fund the entire project. Using hi-tech mining software,
they plot the veins’ paths and try to predict where they
might intersect.

This is the position Global currently find themselves in.
The deposit has been mapped, they have a good idea where
the veins intersect, and how much gold they hold, but the
major digging is yet to begin.

It’s rare for a junior gold mine to have their own multi-
million dollar gold recovery mill, but Global does. The
mill will be operational this week, the mill’s
superintendent told me. Once the ore is broken out of the
vein, they haul it up to the mill. This rock is run through
two different crushers, sized, and then ground in a ball
mill. Water is added and the solution is run through a
contraption called a Knelson Concentrator, which uses
centrifugal force to separate gold and telluride minerals
from the waste rock. A gemini table is used to clean the
concentrate. It’s another form of density separation using
running water and a shaking motion to rinse the rock from
the gold and silver.

I’m no expert in gold mining, geology, or even gold stock
investing, and junior gold exploration companies like
Global are risky investments. So I can only tell you what I
saw, I can’t make a recommendation. Besides, I’d never
invest in only one junior gold mine, I’d have to buy a
basket to spread the risk around. But for the record, I was
extremely impressed by Global’s operation.

1. Optimism exuded from everyone I spoke to. The confidence
was genuine yet conservative. I got the impression these
guys expect the mine to produce a great deal of gold… and
to produce it at a considerable profit.

2. The workers on the hill aren’t just wage monkeys, but
lifetime mining enthusiasts. These guys really know their
stuff… from the geologist who has a dedicated room in his
house just for rock samples to the mill superintendent who
knows the specific history of every piece of equipment
under his roof. I don’t think these guys would be working
on the project if they didn’t think it was viable.

3. Management pays attention to the environment. While I
was there, an excavator was busy reclaiming land and the
mine manager commented several times how important it is to
Global that the site be kept clean, tidy and safe.

If you’d like to tour the mine, and you don’t mind
traveling to Boulder, we have secured a personal invitation
from the mine’s manager specifically for readers of the
Rude Awakening. Contact Matt Collins at
bringit@direcway.com for an appointment.

Saudi King Fahd’s death is the unofficial signal to Wall
Street that summer vacation is over. Oil prices didn’t
react much to the news, perhaps because oil prices are
already reflecting pervasive concern about the ability of
tight global supply to meet growing global demand.

In the TV interviews I did in New York last week, I was
asked if it isn’t already too late to buy oil and energy
stocks. After all, when Exxon reports $88 billion in
revenues and over $7 billion in net income…for the second
quarter, how much better can it get? Who knows? In real
terms, oil still isn’t as expensive as it was at the peak
of the oil shock in the 1970s.

Neither do I buy the argument that speculative hedge fund
money accounts for oil’s extended stay at about $60.

The near-month light sweet crude contract has moved from
$47 to $60 without the support of speculative "hot money."
The only thing that can change this macroeconomic dynamic
is either the discovery of huge new oil supplies (unlikely)
or a radical drop in demand.

The drop in demand is the more probable of the two, yet it
remains highly unlikely. And aside from the supply/demand
dynamic, there are two other basic facts: First, increased
oil exploration spending won’t translate into new supply
for years, assuming that exploration is successful. Second,
the physical infrastructure of the oil transportation
network (refineries) is already maxed out. Even if we could
pump another 2 million barrels a day, we couldn’t refine
it.

Refineries take time to build, too. Thus, altogether, the
conditions for high oil prices are in place. Things can
change quickly, of course. But nearly any geopolitical
change, short of the second coming of Christ, looks oil and
energy bullish to me.