Fire River IPO’d in May 2009, and its flagship Nixon Fork gold mine could very well be brought back into production. The company is confirming historic, high grade (greater than 1oz per tonne) drill intercepts to be used in formulating an underground resource, and is also evaluating the potential of recovering gold from the tailings pond (estimated to contain about 40,000 ounces). According to the company the mine is a fully permitted, turn key operation. It is hardly ever this simple, but even assuming there are no major additional capital costs or permitting hurdles, there is still cause for concern.

Namely, why was the project sold sold cheaply first by St. Andrews Goldfields Ltd. (TSX: SAS) to Pacific North West Capital Corp. (TSX: PFN) in December 2008 and then to Fire River Gold in June 2009. The financial crisis might have had a lot to do with St. Andrew’s fire sale in 2008, accepting a purchase price of just $500,000 after expending approx. $54 million during 2004-2008. And perhaps PFN was able to justify its $3 million sale since it would be able participate in some of the project’s upside through its ownership interest in Fire Gold. But considering that prior to the sale they were in the middle of $1.25 million program with the objective of re-evaluating the resource and mine plan, we’re skeptical.

Fire River isn’t particularly expensive, but it isn’t cheap either. We would prefer to wait for more concrete evidence that the project truly is “turn key” before seriously considering an investment in this gold junior. Because even if everything goes smoothly, there is still the difficulty of generating enough cash flow from these small mine operations to cover overhead, let alone ongoing exploration/development expenses.