Alejandro Alarcon Garza, General Director of Mine Promotion and the Minister of Economy, John Brownlie, President and COO of Capital Gold, Maria Jimena Valverde Valdes, General Coordinator of Mining
The word "junior" in "junior mining company" tends to indicate that the business is so young it's still learning to walk. Maybe it's not profitable yet. Maybe it's still in the research stage. Maybe there is talk of pulling gold out of the ground but it just hasn't happened yet. Maybe the company is still bottle-fed and toothless.
But just as a small child will grow to adulthood, so too will a junior mining company. Recently, I had an opportunity to talk to John Brownlie, President and COO of Capital Gold Corp (CGC on the Toronto Stock Exchange). His company is well beyond the "taking its first few steps" stage and is now into full gold production and gaining some well-deserved attention.
Capital Gold, according to Brownlie, "is undervalued. We sit in a fairly niche position. We trade as a junior exploration company and not as a producing company so that in itself has given us valuations of about .6 times Net Asset Value. More recently, we've climbed the ladder to .85 times. But a producing company with a pipeline and a low cost of production should be trading north of 1 times Net Asset Value. As some of our initiatives become better known to shareholders and the street, I think you'll see Capital Gold getting valuations more in line with where we are today."
Capital Gold owns and operates an open-pit mine in Sonora Mexico, called El Chanate, where it currently produces 50,000 - 60,000 ounces of gold per year. In spite of its seemingly "junior" status on the stock market, its outlook on operational best practices is decidedly mature. While other mining companies feel the need to bring in outside help, potentially running afoul of local laborers, Brownlie says, "we run the operation exclusively with Mexican staff.” He admits, "That’s pretty rare for a company to hand over the reigns of their operation to local staff but we feel confident after operating for a couple of years that this method works not only for efficiency but it's also cost effective."
This relationship has helped pave the way to greater acceptance, particularly among local support. "We don't incur any problems. We're not a remote mine… we're actually on one of the main routes that run east-west through Mexico. Just like any country, you really have to know the culture that you're operating in and work within that culture." Social challenges, he says, have been blown out of proportion by the media.
Efficiency and profitability aren't always the benchmarks of a junior mining company, either, but Capital Gold achieved profitability within six months of operation, due in no small part to being a low cost producer… not something that you necessarily see until a company grows bigger and faces shareholder pressure to cut costs. "Our all-in costs are typically lower than $350 an ounce and our cash costs just north of $300 [an ounce] including a $40 royalty". In fact, all of their finances are quite mature for their "young" situation: "We are unhedged and we have a small note with Standard Bank that we anticipate paying off by December2011."
El Chanate mine
Another advanced characteristic, compared to its peers, is their laboratory. "It's a fairly straightforward flow sheet but we have a very sophisticated laboratory whereby we not only do grade control but we can also conduct metallurgical testing," says Brownlie.
Brownlie has been influential in seeing the company grow. After all, he didn't join the company as an inexperienced "newbie". "I've been in this business for a long time. I operated in South Africa for 18 years until around 1988-1989 when I moved to Venezuela and developed a couple of mines there" as Chief Engineer and General Manager for Monarch Resources. Later, he moved to Uzbekistan and worked as the General Manager for the Zarafshan-Newmont Joint Venture, where the operation he oversaw produced over 400,000 ounces of gold per year. "I joined Capital Gold […] around 2006 when there was really nothing there. And then between 2006 and 2007, I engineered and constructed the mine and put it into production. Since mid-2007, we've been operating profitably."
He's not afraid to make changes to ensure that Capital Gold is successful. Under Brownlie's guidance, the already successful company has recently "streamlined management, restructured the board of directors, and put a lot of emphasis on shareholder value and investor relations," says Brownlie, and the improvements have been noticed by shareholders.
Experience is key to Capital Gold's success. In fact, Brownlie boasts about his US-based and Mexico-based teams: "They’re probably the most experienced teams you could put together. That sets us apart." This experience helps Capital Gold as they operate. "We [can] make decisions quickly, after taking necessary precautions, but we don't deliberate too long. If something is a good idea, we try to implement it quickly."
Their outlook for the future isn't typical of a junior company, either. While other juniors are still finding their footing and hoping to strike gold soon, Capital Gold is looking to expand its Mexican operations and become the next mid-tier Latin American producer.
According to Brownlie, a recent report showed "that the El Chanate mine was host to 1.5 million ounces of proven and probable reserves. At the current time our reserves are drill limited… all of the drilling we have within the pit has been converted to proven and probable reserves. The plan in 2010, with the aid of our consultants, is to pinpoint some areas that would increase this resource. And more recently, on some concessions we own [about 60 miles north of the El Chanate mine] we have recently conducted a drill campaign… they have shown merit in the early stage exploration."
With their flagship mine located in Mexico, they are looking to fill their pipeline of projects wisely, by looking in Mexico where they've had previous success with their local labor business model, and, "we're looking in the US as well," says Brownlie.
Junior, it seems, has learned to walk and is now starting to run.
Contact Information
CAPITAL GOLD CORP
76 Beaver St - 14th floor New York, NY 10005 USA
Phone: (212) 344-2785 Fax: (212) 344-4537