Rats and Bats!!

Question : What is wrong with Cassidy Gold?

Answer : NOTHING !! except the stock price really sucks!!

I quote Resource World Magazine’s "How to profit with Mining Stocks" 2007 Summer Edition. "When the Company recovers many drill cores indicating good metal values over long intercepts, the share price usually reflects the value of the discovery – but not always. This is where promotion comes in. The investing public has to be aware of the discovery in order for investors to bid up the share price. It is important for the mining company to get its story out there to investors. When you don’t promote a terrible thing happens -- NOTHING". (The capitals are mine).

Announcements lack "embroidery" normally used to create wide awareness of potentials. Information releases are infrequent. Press releases are detailed, but entirely without "editorial comment". Failure to express even the most fundamental and logical anticipations affects shareholder appreciation of results. Popularity, liquidity and share price show no reaction to good news. Such news seems not understood to indicate CDY’s truly unusual success.

What’s next? Cassidy Shareholder’s anticipations are now focussed on an independent third party report. This will "officially" describe the situation following the latest exploration and delineation program. Based on questions asked of me by the "average" shareholder" I realize that many shareholders are unaware of the rules that govern the reports on which their anticipations are now hung. I will try to put these in perspective.

How come? : The disappointing share performance is somewhat related to Cassidy management’s self-imposed constraints. Results are reported in a way that undoubtedly enhances "professional esteem" from "peer engineers". But professional accolades do not serve the Company’s Shareholders. Failures of verbal communication are made worse by a lack of graphic content on the website. The Company has not made a publicity-oriented appearance for at least two years. Cassidy’s management and its independent consultants, RSG Global, release information that is very conservatively worded. It is very far within the limits proscribed by securities regulators and professional associations. They both appear cowed by Canada’s NI 43-101 mineral property reporting standards.

Those regulatory standards were imposed after the scandal and collapse of a company known as Bre-X Mining. Suffice it to say that all of the information released to date by Cassidy is complete, detailed and certified accurate. The only scandal is that the resource potential is so under-communicated.

Understanding the Reports: The content and format of reports released by Canadian public companies must comply with NI 43-101. The "official" definition of the descriptive terms is contained by reference with linkages below. The fundamental aspect is that these are essentially "pigeon holed" but do allow wide discretionary application of commonsense by the qualified person i.e. Geologist/Engineer preparing the report.

The next milestone: Cassidy engaged consultants, RSG Global, to once again prepare a NI 43-101 compliant Resource Report. The summary of the report is expected in October 2007. The full report is to be provided to regulators within 60 days thereafter. That is when I will be looking for key details. Many of today’s comments are based on the two reports previously submitted to Cassidy by RSG. As well, I looked at reports filed describing results for another company working in the same region as Cassidy.

And after that: Cassidy’s management announced it considers starting a "scoping" or Preliminary Assessments study. Scoping is the first step leading towards determinations of actual economic potentials for resources. To the mining community the scooping result starts to make things "really real". Shareholder enthusiasts long have considered the project as "real". But to the mining engineer, scoping starts processes of consideration for investment. There is anticipation of specific mining results. It narrows the focus and permits calculation and timing of possible future profits. This action should be reason for a positive share price reaction.

My expectation: I look for a major boost in reported, total, combined, indicated and inferred, resources. This expectation is based on the new drilling. More areas are confirmed mineralized. See the maps and comments I put on for my last blog. My hope is that the "hard marking" of last year’s report will be eased now that added drilling is done. Logic demands that the consistency of results implied by data from the several thousands of holes for which there are results should "loosen the tight-assed report writer’s attitude". The amounts of data are far more than my modest modelling program can employ and I rely on ‘informed by analogy’ analysis to make my judgement.

RSG Global’s Inconsistency ?: RSG Global reported NI consistent results from the first drilling program. It decided that high grades reported in cores should be capped and considered non representative. The calculations assumed that the mineralization could not be considered as continuous between holes. RSG calculated and reported resource in July 2007 of about 430,000 ounces of gold. It said that if the capping constraints had not been applied, the resource would total about 600,000 ounces of gold.

Thousands more feet of drilling was done. This confirmed that the mineralization appeared to be consistently continuous between most holes on a trend. The number of areas of known gold occurrence increased. The two first-found trends were significantly (I thought) increased in length and extended to greater depths. A dozen "new pockets" of gold bearing rock were confirmed by the drills. In April, 2006 I calculated averages for gold content and thickness of penetrated zone. The numbers generated times the dimensions of the reported trends showed a probability that the resources count would easily reach a total of more than two million ounces. My assumption was that the consistency of results would be considered statistically significant given the number of data points. Instead, the richest and longest trends were "marked down". RSG reported total resources at only about 750,000 ounces, combined. Even in "Gold Mining for Dummies" this is hard to explain considering the reports of extension and finding. There were no explanations given for the seeming subtractive interpretation

Too big a reputation consultancy? Cassidy’s geological consultants, RSG Global, enjoy worldwide recognition of excellence in mining geology. RSG manages day-to-day operations for Cassidy. RSG’s field geologists demonstrate excellent ability in interpreting the geology. They direct Cassidy’s project and their efforts seemingly result in improvement of grade, new finds and successful extension of known mineralized areas.

RSG is also employed to interpret, calculate and report on the results of the drilling. EXAMINATION OF RSG’S PAST EFFORTS IN THIS RAISES THIS QUESTION? Is protection of the reputation of RSG with "Banks and Buyers" resulting in RSG making "too safe" a calculation? Constraints applied in RSG’s calculations in its two past efforts seem excessively cautious. These are "very safely correct" calculations. Is this safety policy with an eye to better guarantee fees from Banks or major Companies? Is Cassidy a "small fish" not worth risking RSG’s hard won reputation?

Based on RSG’s past bent in doing its sums, I fear that the new report will be miserly. Despite thousands feet more of successful drilling in 2006/07 will the interpretation follow past practice? Will it calculate a very small increase in total resource? Will the increase be only in shifting results to a "more certain" category? Will RSG report its rationales for classification and consideration?

Geologist's Choice : Re-reading of the guidelines attendant in 43-101 Standards for Reporting on Resource Properties reveals this: The "Qualified Person" has great latitude in deciding on the decision to assign the classification of, and amounts of, resource. My curiosity about changes in the evaluator’s confidence level for the 2007 calculations is piqued. The matter appears to hinge on the evaluator’s confidence. I would ask this. If as an evaluator, you see a "fence" of drill holes spaced, say, 40 meters apart on a trend that persists for hundreds of meters, when are you willing to include the mineralization as a resource? Is it geologically and statistically logical:

1. To assume that the same condition prevails for 20? 40? More? Less? meters laterally to the fence? Both ways?

2. If there is a 60 meter gap in coverage followed by another series of holes 40 meters apart showing the same physical pattern and approximate grade, is there continuity of trend between the fences or not? Is there any gold between?

3. Whenever a hole encounters high grade mineralization is that random encounter always a total anomaly? Do you arbitrarily cap the reported result, or, does it mean you have "jewelry shop" areas that you "just missed" in your other drilling? Isn’t it possible for the high grade to extend for even a little? If you find several on the trend?

Causes Affected: Cassidy intends to have a scoping study done using RSG’s resource evaluation report. The assumptions and models created by RSG will strongly effect that report and therefore the appetite of investors and potential partners in the project. My cause in this is not to discredit RSG. But I do believe that the shareholders are entitled to know the actual parameters that RSG employs to include, project, exclude or discount reported results. Qualifiied Person, Please do not assume from our patience that all shareholders are qualified dummies!

NI 43-101 and the Post Bre-X phenomenon. The existence of more than 700 junior resource companies in Canada means that a company must do a lot of "squeaking" in order to get attention and its share of the "grease". Shares of a particularly well-greased junior, a public company named Bre-X share price rose more than a hundredfold and then collapsed. The Company’s reports were found to be false.

A get tough approach about "what may be said and who can say it" regulatory regime to get the heat off the regulators, was initiated. Reporting was to provide a consistent "level playing field." The protocol adopted was decided by geologists and engineers at large mining companies and market regulating bureaucrats.

The reporting standards are officially referred to as being in National Instrument 43-101 (sometimes NI 43-101 or NP 43-101). The vagaries in NI required creation of "Companion Policy 43-101CP to National Instrument 43-101, a guide to reporting under Standards of Disclosure for Mineral Projects. What it seems mostly about is the making sure that there is something in all the blanks. Understanding NI 43-101 and 43-101CP affects CDY by inhibiting management discussion and disclosures of "hopeful" activities.

Why do I call the NI Nefarious Idiocy?: The concept of a universal hard and fast formula to substitute for real knowledge and common sense benefits only the regulator. Zeal in seeing that smaller companies adhere to the NI 43-101 rules has some companies, like Cassidy, fearful of communicating opinions, hopes and ideas. The same zeal is not applied to the big companies. Pigeonholing the infinitely variable combinations of geologic and economics conditions is impossible. Some of the "rules" are benign, others are ludicrous. Bureaucratalk prevails in the documents.

Persons ask me, how close do the holes have to be to have so-and-so classification? The answer is, "Ask the Geologist Engineer - the competent person". It might depend on the consulting firm’s policy, the Engineer’s familiarity with the data, the region, the geology, the company, or even whether the Engineer had hi-test or decaff coffee that day. See for yourself.
The actual NI definitions are at the internet site linkages indicated.

Companion Policy 43-101CP to National Instrument 43-101;
Standards of Disclosure for Mineral Projects
15 pages

NI 43-101, together with its Companion Policy 43-101CP and Form 43-101F1 Technical Report can be downloaded from the Canadian Council of Professional Geoscientists website.

The definitions of resources and reserves approved by the Canadian Institute of Mining, Metallurgy and Petroleum and adopted by NI 43-101 are available from the Standards and Guidelines section of the CIM website