Gold mining is a long process from Discovery to production. Some Gold Mining companies will spend up to 10 years or more searching for Gold in one claim. Companies spend millions of dollars drilling areas to find Gold in the ground, and once they have found enough areas that have a high enough grade of Gold they can then begin to start looking at what options they have to get the Gold out of the ground. These options could be an Open pit mining operation or underground mining. Some examples of these two would be Teranga Gold (TGZ) Open Pit mine in Senegal West Africa or Great Panther Silver (GPR) Underground Mine in Mexico: the Guanajuato Mine Complex, which includes the San Ignacio Mine, and the Topia Mine in Durango.
Getting a mine built takes years of discovery and millions of dollars. Companies can spend anywhere from $50 million dollars to Billions of dollars to actually get a mined built and reach actual production. Many companies will spend years drilling and planning to reach production but never do. Reaching the crucial stage of development is often faced with market conditions. When metal prices (Gold & Silver are low mining companies struggle to be able to show investors good economics to be able to get the metal out of the ground and sustain a profit. Many already established mines will run into deficits when metal prices are low and even shut down operations until the prices recover. Over the past few years we have seen this and finally now with metals prices rising we are beginning to see lots of investors entering the Gold and Mining sector and mines that once were at a standstill are beginning to start exploration again and are finding financing to get into production.
Getting the financing to build a mine doesn’t always mean you are going to be successful. In most cases, if a mine has gone through all the preliminary steps to produce a (PEA) Preliminary Economic Assessment, has received all necessary permits and have received financing to build you would think that it is a sure thing. But many times we have seen scenarios where the best analyst and experts thought a project's economics and numbers were so great and a mine actually was built and once production started it was realized that there was not as much gold in the ground as expected and the mine is shut down. An example for this would be the most recent case of Rubicon Minerals. Rubicon Minerals recently in Early 2016 announced commercial production at its Red Lake Ontario, Phoenix Gold Project. An estimated $750 million dollars was spent on development and construction of this underground mine and once they went into production and poured their first Gold Bar they realized that the grades of Gold retrieved were not matching what they're PEA showed, and with lower gold prices the economics didn’t make sense to continue operations. Today in July 2016 the mine is shut down pending further drilling to confirm gold mineralization. But with no more financing available they are at a standstill. The point to this story is even the best drill results and efforts can sometimes fail. Gold mining and mining, in general, is a very risky business and often does not produce any results. Although shareholders along the way to production might see lots of gains as the momentum builds to construction and that very important first Gold Pour many companies never actually reach this goal.
One company we are following along this path is Red Eagle Mining which is currently building its San Ramon Gold Mine in Colombia and is expected to begin production in September 2016. We look forward to seeing positive results and wish them the best of luck in their operations.
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