What does it take to become a successful junior today and how does SFMI compare to that process? Why are producers so rare? Here is a very quick summary for those new to the JPM markets.

Producers are valued by their measured reserves, their assets-in-the-ground/inventory of gold which today are finite and depleting. Many large producers have taken the richest ore and are now in a race to replenish supply and continually add to their reserves in order to maintain their life span and their profitability for their shareholders…otherwise their mining life will decrease along with their share price. Since many large producers have long since reduced both their exploration activities and terminated the employ of professional geologists and engineers, they do not have the capability of finding new resource by way of exploration so they must turn to increasing reserves by way of joint ventures and acquisitions…gobble up the juniors with mineable reserves or promising deposits or with good potential to become mineable reserves. For those juniors, it has been a tedious and very expensive process.

So, the juniors that have invested in risk, put forth the time and capital … and toiled to find resources are the most direct conduit for the starving producers. It starts with land surveys, purchase/lease land, record mining claims (often near or on past producing mines), adhere to mining laws and respect environmental regulations. Trenching, sampling, assaying, drilling, assaying, drilling, assaying, continual capital requirements, mineral resource estimates and feasibility studies are carried out over many months or years.

Then more money is needed. Once resources are estimated, mineable reserves must be measured and indicated by way of potential future bankability of ore reserves. Then more money is needed. This requires hiring a third party group of highly specialized geologists and mining engineers. The reserves have to be economically viable to recover and pay for the capital investments….plus make a profit for shareholders going forward. What type of mine should be built and at what costs, what are the infrastructure costs, what about hydro, water and road access, environmental costs, skilled labor availability, geopolitical risk and so on? How much will each ounce of gold/silver cost to bring it out of the ground. What will it cost to build a mill or ship the ore to a mill?

It is a long and daunting task indeed and that is why so few succeed. Imagine the upfront investment to fund all this over many years before even one ounce of gold is wrenched from the ground…often in the tens to hundreds of millions. Often, projects fail because it will be just too expensive to wrench the gold from the ground…or financing fails. Stock dilution over several years can become over burdensome. Every step of the process is expensive so it takes a serious, long term commitment of financial resources.

Most JPMs never become producers or miners as most all of them are explorers, but they are essential since gold is hard to find. For some, the goal is to discover gold/silver deposits and sell then off to a miner (acquisition) or establish a joint venture with a mining co. For this junior, funding and share dilution are not usually too big a problem. Other juniors want to explore, discover and become a miner/producer. It will need serious financing and often takes on a 50/50 partner plus putting it’s principle’s personal capital on the line to develop the mine. Kinross went from an explorer to a junior miner to a major producer over many, many years and swallowing huge gobs of investment capital. (Maybe that’s why they defaulted on the loan that held the War Eagle (SFMI) property in 2000 when gold was only $250/oz. They were simply caught short at an inopportune time and had to focus on their core holdings.) There is a third kind of junior commonly referred to as a scam. They spend more money on marketing than drilling. In a gold bull some can make a few people rich, leaving the rest holding the bag. These are called “pump-and-dump”. They have property with potential, lease a drill or two…and often have fabulous websites. Oddly, some actually stumble on to a good discovery once in a while. Talk about luck!

As we can see from the above, SFMI is indeed in a very unique situation as it has raced to the front of the line right to production without going through a tortuous, expensive and tedious process. It has qualified historical mining and resource estimate data from credible government sources indicating 4 million ounces of high grade, in-the-ground-resource. It has above-ground resource of 300,000 tons ready-to-process mine excavations (at 1 ounce/ton?). It has infrastructure, permitting, environmental, labor source, geopolitical safety, financing, Oct. 15th/09 OTCBB listing, with all mill components ready to be installed in a new structure…with cash flow commencing within the next several weeks…and a mining construction contractor and contracted geologists on the ground. It has enough ore to process anywhere from $60 million (@ 7gms/T), to $300 million (@1 oz/T) to $600 million (@ 2 oz/T).

How rare is that????