Investors should always do their due diligence when looking at an investment opportunity. But, what many investors want to know is what kind of measurements do they use to decide whether or not a specific company has potential?

American Bonanza (TSX: BZA) is an emerging gold producer whose property, projections, and business plan look quite compelling for investors. Recently, we spoke with Brian Kirwin, President and CEO of American Bonanza to talk to him about the company’s future.

Jay Taylor states on November 5, 2010 in www.miningstocks.com “If the company (American Bonanza) can execute its business plan, I believe these shares can triple in value over their current price. The company expects to sell some non-core Canadian assets, which would take its current capital requirements to get into production from about $16 million to $12 or $13 million. The company’s feasibility study has given the project a 6.5 year mine life, but the ability to move resources into the reserve category could increase the mine life very considerably and/or increase annual production, in which event the shares could rise considerably higher than $1.

First, he gave us a brief overview of the property’s location: “American Bonanza is focused on the Copperstone Gold Mine in western Arizona, within six or seven miles of the California border – equidistant between Los Angeles, Las Vegas, and Phoenix. It’s a great central location in terms of personnel, equipment and consumables.” As for the mine itself, he said: “The project is a very simple deposit. It’s a mineralized fault that contains gold, iron oxides, and a little bit of copper. It’s a very simple, very clean material. It’s a six-and-a-half year mine life, as defined by the feasibility study using $960 gold. The first half [of the projected mine life], we’ll produce an average of about 46,000 ounces per year, and the second [of the projected mine life], we’ll produce about 32,000 ounces per year.”

Those figures, of course, are only if gold prices decline to $960. If they remain the same or go up, it could be an even brighter story. Mr. Kirwin said, “With the increased gold price, that obviously reduces our cut-off grades and increases the amount of gold that we can mine. Thus far, preliminary estimates suggest that it might add two years to the mine life.”

These numbers are already quite compelling but Mr. Kirwin adds even more: “We also have another 50% increase in ounces that is already in the inferred category in a 43-101 compliant resource. The deposit is open to depth and we made the decision to stop drilling because we wanted to go to production, not because the deposit stopped. There is potential to double within the first year or two of the mine’s life.”

Next, we asked them about how they have progressed. They have the property, but we wanted to know how the project itself was coming along. Mr. Kirwin gave us a detailed overview of the recent past and anticipated future: “We finished the feasibility study in February 2010 and have subsequently purchased the milling and flotation circuit, which is now being transported to the site for construction. We achieved our federal permits to mine in October 2010 and we anticipate the state permits – the final permits – in January or February 2011. Subsequent to the receipt of those permits, we have the green light to go ahead and build the mine.”

With the permits in place, the real work can begin. “We will then undertake two simultaneous projects,” said Mr. Kirwin. “One project will be construction of the plant, which will include digging holes, pouring concrete and assembling the mill we’ve purchased. The second project will be some significant underground predevelopment mining, which will allow us to develop the first stopes and establish a secondary escapeway for the miners and a ventilation system.”

Running the projects concurrently will help to accelerate their production timeline. In fact, Mr. Kirwin estimates that they will achieve production in the middle of 2011: “Those two projects will take place at the same time and should be completed within six months,” he said. “That will put us in the position to be producing by late summer of 2011. So, in just over half a year, we’ll be in production.”

Then we talked about the American Bonanza team. Although we didn’t have time to discuss every member, Mr. Kirwin highlighted a number of them. “Our team averages about 25 years of experiencing each in the mining business. This is all any of us have ever done. I’ve worked for large and small companies, all the way through from exploration to development to production. Our Vice President of Operations, Todd Fayram, has been the Process Manager, Construction Manager, or Mine Manager of six or seven mines through his career. Foster Wilson has been with us for quite a long time; he also has quite a bit of experience and a great deal of that has been in project development. This is a team that has done this before and can do it again and the evidence of our competency is indicated by the fact that we received our federal mining permit in less than one year.” The team is rounded out by skilled directors and a CFO with plenty of industry experience.

Finally, every good investor should spend some time looking at the company’s share structure and price to help them determine whether the company is overvalued or undervalued. Mr. Kirwin reviewed his company’s investor information using recent numbers, and interpreted what they mean for his company and its shareholders: “There are 129 million shares outstanding; and trading closed recently at thirty-nine cents, which produces a market capitalization of about $50 million. At today’s gold price, the feasibility stopes – which only represent a small amount of the potential of the project – would produce total cash flows of three times our current market cap.”

The company’s plan is to fund additional growth with the cash they will generate from the current mine. Mr. Kirwin explained: “It’s a high margin mine. Our cash costs in the feasibility study – to produce one ounce of gold – are $415. Recently, the gold price was $1415 per ounce. We have a production profile that will increase from the feasibility estimate of 46,000 ounces per year, and our margins on each ounce are a $1000 per ounce.”

On December 02, 2010 American Bonanza Announces $14 Million Private Placement “American Bonanza Gold Corp. (TSX: BZA) (“Bonanza” or the “Company”) is pleased to announce that it has entered into an agreement with Wellington West Capital Markets Inc. (the “Agent”) in connection with a best efforts private placement of 40,000,000 units (the "Units") at a price of $0.35 per Unit to raise aggregate gross proceeds of $14,000,000 (the "Offering").”

After this interview, the Alpers have purchased shares of American Bonanza Gold stock.

So, why should investors pay attention to this compelling story? There are a few reasons: The project has some impressive numbers and potential cash flow and will be up-and-running shortly. And, they have a strong (but well thought out) plan for growth: “We plan to use this mine as a foundation to grow a mid-tier gold producer and use this as an anchor mine to do that. Using our specific skillsets in permitting, developing, and operating mines, this company could easily grow to many times its current size.”

REFERENCE

http://www.americanbonanza.com

Suite 305 - 675 West Hastings St. Vancouver, British Columbia Canada, V6B 1N2

Telephone: 877-688-7523

Email: [email protected]

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American Bonanza Gold Corp. (TSX: BZA) just raised over $17,000,000.00, which the company will use to bring the Copperstone gold mine, in Arizona, into production, and for general working capital.
Bonanza now has 130 million shares outstanding and no debt.