You may know a chihuahua is the smallest dog breed. Well, this little dog is named after the largest of Mexico’s 32 states.
Bordering Texas and New Mexico, the state of Chihuahua is steeped in history … and silver. I know because I just visited a company there that has a brand-new way of getting silver riches out of old mine leftovers.
Here is a photo of the only chihuahua I saw in the city of Chihuahua, Chihuahua. It’s the New York, New York of Northeastern Mexico.
While there are some dogs around, I never saw a live chihuahua. That doesn’t mean they don’t exist in Chihuahua. It just means I didn’t see them.
Now, stick with me as I draw a parallel …
For hundreds of years, Spanish conquerors mined silver with the sweat of native slaves and their own primitive refining techniques. When they finished with the rock they mined and processed, they didn’t see it as being worth anything. They’d gotten all the silver out, right?
Wrong. They just couldn’t see the remaining silver.
In fact, there was plenty of silver left in those rocks. Because the refining techniques of the old Spanish were … well … terrible. If they didn’t have the “free” labor of all those slaves, it would hardly have been worth coming to the New World.
Once you mine and process ore, the leftovers are piled in “tailings.” (Because it’s at the tail-end of the mine process.)
The Spanish left many, many tailings all over Mexico. And these tailings piles are hazardous eyesores.
No one would want those tailings piles, right? Wrong.
In fact, someone has figured out a way to get rich off those tailings. And I’ll prove it to you …
Let’s leave the town of Chihuahua. Drive with me (it’s a 2½- to 3½-hour journey, depending on your driver and road) to Parral, Mexico.
Parral still in the state of Chihuahua. But far to the south. This little town was once a place where the U.S. 13th Cavalry, chasing after Pancho Villa, engaged in a bloody battle in 1916.
The U.S. cavalry was losing that battle until Buffalo Soldiers from the 10th Cavalry showed up to save the day. By the time it was over, everyone agreed the U.S. should get the hell out of Mexico. Pancho be damned.
Actually, Parral is more famous for mining. The story goes that a man named Juan Rangel de Biezma came to Parral in 1629, picked up a rock, and licked it.
As one does, right?
Anyway, Biezma then proclaimed, “There is a mineral deposit here.”
That deposit produced silver for 340 years.
And that was only one deposit in Parral.
After what I suspect was a furious flurry of rock-licking, Parral became THE center of silver mining during the glory days of the Spanish Empire. King Philip IV declared Parral the “Capital of the World of Silver.”
So, you can imagine there are some massive tailings piles all around the district. One is right in the middle of the town of Parral, which grew up around a mine. And the people there hate the fact that tailings dust blows over their otherwise lovely town from time to time.
Enter GoGold Resources (TSX: GGD).
Its wholly owned Mexican subsidiary, Grupo Coanzamex, has constructed a heap-leach processing facility. That’s when ore is piled up, in a heap, on a liner. The heap is then drenched with cyanide. This loosens ore from the rock, and the resulting liquid is sent through a processing plant to recover the silver and gold.
Heap-leaching is a common method of processing mine ore. But GoGold is specifically after the silver and gold in those old tailings.
And no wonder. The first tailings site GoGold is going to process — the Parral Tailings site, right in the middle of town — grades 38.4 grams of silver per ton and 0.31 grams of gold.
That works out to 53.9 grams of silver equivalent per ton, if you use the standard 50-to-1 gold-to-silver conversion.
It will take years to process all that ore in the tailings. Then GoGold will move on to the Esmeralda Tailings pile. That has a grade of 68 grams of silver equivalent per ton.
These are nearly as good as the grades of some traditional mining projects in Mexico. I’m thinking of the El Castillo Mine in particular; there are others.
But GoGold doesn’t have to go through the effort of digging its silver and gold out of the ground. It doesn’t have to crush the ore into the right size for processing. Its ore is already sitting there, mined and pre-crushed, in a big pile waiting to be processed.
Reprocessing old tailings is common in South Africa. GoGold’s management, led by President and CEO Brad Langille, saw the opportunity to do the same thing in Mexico.
It took them a while to get the process right. And during that time, the market grew disappointed with GoGold.
Then GoGold sold a property, Santa Gertrudis, for $80 million. (Agnico Eagle Mines bought it late last year.)
GoGold had bought the property for $11 million just three years earlier. That’s a nice 627.3% return on its purchase price. And it used that cash to pay off debt and gear up for the next stage of its heap-leach project.
So, it was a smart move. But the sale of Santa Gertrudis disappointed investors who had something else in mind.
All this means that GoGold is cheap. It trades at just 40% of book value.
Meanwhile, its silver-equivalent production has increased 10% per quarter for the past five quarters.
The company is processing 5,200 tons per day of tailings in February. It plans to crank that up to 10,000 tons per day, perhaps by year-end. Recoveries of silver and gold run about 65%.
What do you think that will do to production? I’d say it will increase production a lot.
And costs? Costs are going to plummet!
The company has figured out how to cut down the time of the heap-leaching process quite a bit. That will raise final production and cut costs, too.
When I was there, GoGold was reprocessing the last of old ore it had previously processed (because they hadn’t quite figured it out the first time). So, I don’t expect a lot this quarter.
But the company is just about to start processing “new” tailings from the Parral site. I expect production will rise going forward.
And there’s something new. The company has installed a SART circuit. SART stands for sulfidization, acidification, recycling and thickening. It allows the project to:
A) Recycle cyanide, which is the most expensive ingredient in the process, and
B) Produce a copper concentrate. GoGold can sell that copper concentrate for more money.
Here’s a video I put together of my recent trip to Parral.
Direct video link: https://youtu.be/FCK_60vusKk
I’ll have a second video, an interview with CEO Brad Langille, on Saturday. So, stay tuned for that.
Mr. Langille says that any tailings pile within 50 kilometers could be trucked to this heap-leach facility. That gives the company a lot of potential targets.
Meanwhile, the cash flow generated from Grupo Coanzamex will give GoGold the opportunity to find, buy and develop new, traditional mining projects. If it wants to.
Finally, the company has cash. It expects to end September with between $21 million and $36 million in the bank. And cash flow should crank up from heap-leaching the tailings.
You can see why I like this company. In fact, I’m buying shares for my personal portfolio.
If you’re considering doing the same, do your own due diligence. Just keep the following facts in mind:
1. GoGold has a market cap of just $51 million U.S. That’s tiny.
2. Its main Toronto Stock Exchange (TSX) listing is quite liquid. TSX: GGD averages 297,700 shares per day. But in the U.S., it is listed on the OTC Grey, (OTC Grey: GLGDF). That averages just 24,581 shares per day in trading volume.
I don’t recommend OTC Grey listings to subscribers, because bids can disappear. It’s probably less risky, if you buy it, to do so on the TSX in Canada.
3. Finally, there is drug cartel activity in Chihuahua. It’s not the most violent Mexican state. It’s No. 5. Cartel violence shouldn’t be a problem for GoGold and Coanzamex. But you should be aware.
As I said, I’m buying this stock myself. Do your own due diligence if you like it as well. Remember that the stock price action will probably be influenced by the gold price more than anything.
But GoGold has put its growing pains behind it. It is poised for potentially BIG production growth. And it’s a low-cost operator.
I think it could do very well indeed.
All the best,