RE-POST for perspective:

Remember the seventies, investing in juniors could have made you millionaires by investing a mere $1000 into the best performing juniors. The thing is like today that the junior sector didn’t wake up until the final years of the gold bull market. The first 6 years of the seventies bull market didn’t affect the juniors that much but things started to heat up dramatically from 1976 onwards. Any company with a name ‘gold’ in it saw its share price appreciating upon exploding gold prices. Juniors priced at pennies in 1975 went ballistic going into 1980. A good example concerns Lion Mines which went up from 7 cents in 1975 to $380 in 1980, or what about Warf Resources which went up from 40 cents to $560, or Steep Rock from 93 cents to $440. These are no misprints, a $50 investment in Lion Mines would have yielded a profit of $380.000, not bad I guess…

Now you may wonder how come such astronomical returns are possible? The reason is quite simple, the junior market is so small that even a tiny inflow of money would have tremendous consequences for the average junior share prices.. Today, of all invested money less than 1% is invested gold and its shares and even a much smaller share in junior mining companies. Once the juniors start rising by multiples of 100% on a year to year base (as happened since December 2008) in the face of gold prices heading into new record high territories then people want to be part of that action and money starts flowing en masse into the junior sector. Even if a tiny percentage of all investment capital decides to chase the junior stocks all heck will break loose. It would be like trying guiding the Niagara waterfalls through a garden hose, needless to say some tightness will be encountered here and there…

Does it mean to go out now and buy all companies which have a name ‘Gold’ in it? No, of course not, there will be big winners in the end but unfortunately many juniors won’t be going anywhere as well. The thing is that discovery of economic viable gold deposits is the key which will really launch a junior company. Now despite the fact over 2000 juniors are trying to convince investors they will be successful, only one out of every 2000 projects will ever make it to a mine. To make things even worse, during last decade only a very few world class gold discoveries have been made so by just randomly throwing money at juniors you will most likely end up going nowhere..

Eric Hommelberg

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UPDATED “Potential” calculations:

We know the risks. Takeover, inability to get “shareholder friendly” financing, Canada nationalizes mines, no permits, etc.

ASSUMPTIONS:

No take over, Tyhee GETS FINANCING, gets permits, and the Canadian Government behaves.

Production rate of 108,000 oz/year, shares outstanding @ time of production of ONE BILLION (Woodstock’s assumption), total debt @ start of production of $150 M @ 8% APR and 8 year amortization which is monthly debt. service of $2.12 M or $25.44 M annually, operating cost $900/ounce, Gold @ $2,500 in 2014.

Yearly Gross: 108,000 X $2,500 = $270,000,000

Yearly Net: $270 M - (108K X $900) - (25.44 M) = 147.36 M

Earnings per share: $147.36 M / 1B shares = 0.15

Assume PE ratio = 15

Therefore price per share = $2.25

At $5,000 Gold its $6.30 (And due to QE infinity+, I am now confident $5K is low!)

If production rate increases it's higher.

If there is a "blow-off" phase in the gold bull its higher.

SM