February
21, 2008
Interview
with Harp Sangha
CEO/President
Douglas Lake Minerals |
Price:
$0.20
52-week price range: $0.37 - 0.08
Debt: 0
The
company is one of the larger gold exploration companies
in Tanzania,
which is the third largest gold producer in Africa.
Gold in Tanzania
|
Tanzania has become one of the fastest-emerging
gold producers in Africa, and is now the continent's
third largest gold-producing country after South Africa
and Ghana. Annual production of gold has increased from
around 43.2 t in 2002 to about 48.0 t in 2003. Based on
ongoing projects and developing mines, Tanzania's
estimated gold reserves have been calculated at a conservative
total of Tanzania now has proven gold reserves in excess
of 36 Moz. (1000 t). In 2003 Tanzania reported a 20% increase
in gold exports from US$414 million to US$504 million
and accounted for more than 62% of total export revenues,
compared with 49% in 2002. There was a tremendous increase
in gold exports which resulted in the signing of another
gold-mining contract, this time between the Government
of Tanzania and Pangea Minerals Ltd. The contract will
pave the way for mining at Tulawaka in the Biharamulo
District, Kagera Region, in the Lake Victoria goldfields.
The Tulawaka mine is expected to come on stream in early
2005. it will be the sixth large-scale gold mine to come
into production in Tanzania within six years.
Each year since 1998, a new gold mine
has been opened in Tanzania. The mines are owned by Resolute
Ltd; Ashanti Goldfields in joint venture with AngloGold;
Barrick Gold Corp; PlacerDome Inc; Meremeta Ltd; and Pangea
Goldfields Inc. in joint venture with Miniern du Nord.
AngloGold Ashanti owns 50% of the Geita
mine in Tanzania. The mine which started production in
August 2000 produced a record 661,045 oz. at a cash operating
cost of US$170/oz. in 2003, compared with 579,043 oz.
at US$163/oz. in 2002. The upgrade of the crushing and
leach tank sections of the processing plant was successfully
commissioned in the first quarter of 2003 and the capacity
of the plant was increased from 4 Mt/y to 5.6 Mt/y.
RACZ: Now,
the interview with Mr. Harp Sangha, President and CEO
of Douglas Lake Minerals, Inc. Harp, your company is bringing
home to the United States an issue which frankly we should
have heard much earlier, and that is called Gold in Tanzania.
When did you first enter Tanzania and
why?
SANGHA: The
first time I was in Tanzania, it was in the fall of 2004.
The country was introduced to me by a contact of mine,
in the United States ironically, who suggested that I
go over to Tanzania and look at some of the prospects
of some of the properties there. Tanzania has a great
geological setting.
RACZ: Now,
Tanzania is actually one of the fastest growing gold-producing
countries in Africa. And in fact, according to some statistics
behind South Africa and Ghana.
SANGHA:
Your numbers are correct. However, there has been a slight
change that it was number three. Keep in mind that in
the ‘90s there was not one single commercial mine.
There were small artisanal mining operations, but nothing
significant that was operated by one of the majors, for
example, one of these types of companies. But since then
it became number three and in 2007 overtook energy, shortages
of energy.
RACZ: The
figures are extremely impressive. The production has increased
43.2 tons in 2002, and it has almost tripled now.
SANGHA:
That's correct. I think the projections for 2008
are probably in the 60-ton range.
RACZ: The
numbers are staggering. Sixty-ton production is meaningful
in the whole world because, first of all, 61 tons is 32,500
ounces. An ounce is about $1,000. So if you multiply this
up, we are coming out with a very big number for Tanzania,
but even meaningful as far as the international gold market
is concerned. The United States has gold production of
around 400 tons a year, and gold reserves of 8,000 tons
altogether. The monetary reserves of the major nations
is about 32,500 tons, so we are talking about a little
country that is delivering almost 6% to 7% of the production
of the United States or South Africa.
SANGHA:
Absolutely. I would also add, you know, that in the mid
‘90s, there were zero proven reserves in the ground.
And I'm not talking about inferred or indicated.
I'm talking proven. From zero to 53 million ounces
today. And all these discoveries were surface discoveries,
local prospectors making discoveries on the ground, what
I would call outcrops.
RACZ: May
I ask you, in your view, how much does it cost to get
one ounce of gold out of the ground in Tanzania?
SANGHA:
The costs are significantly cheap, cheaper than say North
America. Number one, there is a labor issue. Labor isn't—I
wouldn't—I'd hesitate to call it cheap,
but it is less expensive and just as qualified as North
America. I think it's probably about 25% to 30%
less in operations. And one of the problems…
RACZ: Surface
gold?
SANGHA:
Surface gold as well as hard-rock mining. I mean what
really impresses me is obviously the surface discovery,
but surrounding and in those areas of the surface discovery
is the potential for big commercial operations, big commercial
hard-rock operations.
RACZ: Now,
according, to public records, some of the major gold companies
are there. Ashanti Gold, AngloGold, Barrick, and Resolute
Limited. These are all in Tanzania looking for or mining
gold.
SANGHA:
That's correct. PlacerDome, I'm not sure whether
you're aware or not, was taken over by Barrick.
RACZ: By
Barrick.
SANGHA:
So Barrick is there, they're very active. Anglo
took over Ashanti. It's AngloGold Ashanti now. They're
there as is Resolute. Iamgold is there, and I suspect
Umont used to have a presence there, but when gold prices
were quite depressed, they closed their operation there
and I suspect they'll be trying to make some sort
of presence felt there as well.
RACZ: Now,
we are mentioning major companies, but it indicates that
they believe that there is something there, something
meaningful. Now let's look at some of the exploration
companies like you. How do you get in? What do you need?
And where are you going?
SANGHA:
Well, we got in because we took the initiative back in
2004 when the gold price was in the low four hundreds.
I think it was around $410 or $420 when we went there.
There wasn't as much enthusiasm at the time for
commodities as there is now, you know. We talking four
years ago. And we had a significant first mover advantage
relative to other exploration companies, and relative
to other major companies. We were aggressive and there
was a lot of virgin land that was available because nobody
had taken the initiative to go to Tanzania and we did,
and we were well rewarded for it in that we're one
of the largest concession holders in the country.
RACZ: Now,
at the moment the company is simply looking for gold,
your exploration activities.
SANGHA:
That's correct. Gold-based metals. We've got
a significant diamond property that surrounds the Williamson
Mine which has produced over 20 million carats. As a matter
of fact, Queen Elizabeth's engagement ring came
from that property. And we own a significant chunk of
land surrounding that mine. That's in a joint venture
agreement with another junior…
RACZ: Tanzania
was a British dominion.
SANGHA:
Yes, it was.
RACZ: And I think
in the early ‘60s they broke from England and then
everything has followed. But let me ask you a question.
How many shares does your company have?
SANGHA:
The company has 40,365,000 shares outstanding.
RACZ: Okay.
At $0.20, it represents $8 million market cap.
SANGHA:
Yes.
RACZ: Now,
if one ounce of gold is $1,000, then the company is represented
by a potential free acquisition of 80 ounces of gold.
SANGHA:
That's correct, yes.
RACZ: Which
is a very small number.
SANGHA:
It's a very…it's an insanely small number
because I always try to pitch our company as similar—owning
our company shares is similar to buying a call option
with an expiration date. The upside post-discovery is
so big from the $0.20 mark that it's like buying
a lottery.
RACZ: Okay.
Let's say go from 80—let's say you find
320 ounces of gold and the cost is half, so you're
talking about 1,600 free ounces of gold which would represent
$16 million, so exactly twice the market cap of the company.
Now, may I ask you, if you find gold, is 32 ounces a totally
ridiculous number? Has anybody ever found a smaller amount
of gold than 32 ounces?
SANGHA:
No. I mean, the numbers are interesting with what's
being discovered in Tanzania. I could give you a couple
of examples.
RACZ: Yes,
please.
SANGHA:
There were local gold rushes on that property. A Western
company from Canada came in and started doing explorations
similar to what we're doing now, and they were bought
out for $350 million. And now that same property has 14
million proven ounces.
RACZ: We
may mention another property, Golden Ridge. What do you
know about it?
SANGHA: Golden Ridge, similar story but
I'll tell you a better story than Golden Ridge is
the Geita property which is one of the largest gold deposits
in the world that's in Tanzania. Geita is spelled
G-E-I-T-A. It's owned by Anglo, and that property
wanted the production, commercial large-scale production
in the ‘90s from zero. It now has 30 million proven
ounces.
RACZ: Now,
the whole list, if I may read and then I come back: Bullion,
Book Reef, Geita, Golden Ridge, and Katanga. Any of them
you recognize?
SANGHA:
Oh, yes. A lot of them are—the geological setting
in those properties are similar to our properties. Those
were easy discoveries. They were surface discovery, local
prospectors, no crop. They started mining it and some
of the exploration companies used the local prospectors
as guides for them. We've got a little bit more
work but at these prices, it certainly makes a lot of
sense.
RACZ: Now,
you mean your discovery would be more difficult that let's
say Geita, or what is the difference between Geita and
you in terms of starting?
SANGHA:
There's a difference except for—you know,
the era that we're in is probably going to require—we've
had the same sort of surface discoveries and now we need
to make a discovery that's of a commercial value
that's commercially economic.
RACZ: What
do you call a commercial value?
SANGHA:
Commercial value, we've gotta look for something
in excess of half a million ounces.
RACZ: Okay.
Now, half a million ounces at $1,000 is a meaningful number.
SANGHA:
It's a very meaningful number and then that's
what we're looking for. We're out there hunting
for elephants. We've got to find something big,
and this is a bold goal that we set for ourselves, but
I think it's certainly attainable.
RACZ: Now,
let's go a bit further. Your business costs money.
How are you getting funded?
SANGHA:
Well, we're looking to do a raise right now to continue
our exploration and for drilling purposes. We'd
like to drill two properties probably around the third
quarter of this year, I'm talking more realistically
about August. One of the properties is in Mazoka, and
the other one is Ashanti Southwest and Ashanti Southwest
is like bookend on one of AngloGold Ashanti properties,
and Mazoka is a new area that we discovered. So we'll
need additional funding to do some detailed mapping as
well as drillings.
RACZ: Now,
what would be the first sign that you are in the right
territory for gold?
SANGHA:
The first thing that we discovered in both these areas
was the artisanal activities, local miners mining gold.
The second thing was our own examination of some of these—the
soil samples that we took and the rock chip samples that
we took. They were quite encouraging.
RACZ: So
in other words what you're saying is that the coal
option, as you called your company, has certain signs
to be much more than a coal option.
SANGHA:
Absolutely.
RACZ: And
it's much more than the coal option. If you have
a gold rush which I see on the stock market, and if we
have an African which I think we have, and if there is
a Tanzanian rush, then the combination of the three elements
may get some stimuli to Douglas Lake, and it becomes the
biggest gold option. And if you raise money and you discover
something, the valuation gets bigger.
SANGHA:
Valuation absolutely gets bigger and I think one of the
things that's really relevant is the political stability
of the country. You know there's political risk
everywhere in the world but I think Tanzania has proven
itself to be very mining-friendly, very business-friendly,
as evidenced by President Bush's visit over the
weekend and granting Tanzania almost $700 million in U.S.
aid for infrastructure. And Tanzania is one of the few
countries that the World Bank, the European, and the United
States, when they provide aid money to the country, it
goes directly to the country, as opposed to being administered
by an administrative body.
