Research Report: Golden Goliath Resources Ltd. - written by Mike Kachanovsky  

Monday, October 25, 2004.

Golden Goliath Resources is a junior explorer active in Mexico in search of silver and gold deposits.  The attractiveness of an investment in this company is derived from their property holdings and the strong management team at the helm.  Golden Goliath has managed to secure a 100% interest in an entire district with a rich history of high-grade silver and gold production dating back over 200 years.  Founding directors of the management team have been active in Mexico for over a decade, and were advancing the exploration of the properties for many years at their own expense before taking the company public in 2000. As a result, the company affords investors an opportunity to participate in the potential discovery of a significant new precious metals resource while the market capitalization of Golden Goliath is more reflective of a grass-roots exploration venture. I have not received compensation for this report, and I do not own shares in the company at the time of publication.  -  Mike Kachanovsky

Overview

Head Office:  711 – 675 W. Hastings St., Vancouver, Canada, V6B 1N2

Telephone:  (604) 682-2950

Exchange listing symbol  (TSX-V):  GNG

Website:   www.goldengoliath.com

Share Structure:             Issued and outstanding:            37,235,200

                                    Warrants:                     2,580,000

            Options:                        2,359,594

                                    Fully diluted:              42,199,794

Market Capitalization:            $ 12.7 million CDN

While Mexico has a rich history of mining activity dating back over 500 years, many of the most productive mining regions of the country had only seen limited exploration using modern technology.  The mining laws of the country were revised in 1992 to allow foreigners full  ownership of mining claims and this provided the struggling industry with access to new sources of investment capital.  The reversal in 2002 of a twenty-year bear market for precious metals has generated a resumption of mining activity in the country from dozens of newly capitalized junior companies in search of new discoveries.      

Through a wholly owned subsidiary Minera Delta S.A. de C.V., Golden Goliath was able to stake a huge package of properties spanning over 31,000 acres.  These represent the most promising property interests in the Uruachic District, located in Chihuahua State.  Among the first companies to establish a presence in the region, Golden Goliath Resources has the advantage of a head start in exploration activity, already completing extensive mapping, sampling, and geophysical surveying across the large land holding.  As an illustration of the potential for this project, consider that there is evidence from the analysis of samples that the silver grades recovered in historic mining activity exceeded 2,000 ounces per ton.  Sampling from a tailings dump on the property has yielded ore grading in excess of 10 ounces per ton, which was considered “waste rock” by the standards of the original miners that worked the property.  Management believes there are many deposits across their property holdings, waiting to be discovered, that will yield similar grades.

The completion of a large IPO in October 2000, subsequent financing through equity placements, and the conversion of outstanding warrants, has provided the company with adequate funding to meet the requirements of a comprehensive exploration project.  As of September 2004, the company had available cash resources of $1,942,879.24 in the treasury, and no outstanding long-term debt.  Approximately 972,000 warrants priced at $0.25 are scheduled to expire on December 4, 2004, and given the fact the stock is trading above that level they will probably be exercised, adding a further $243,000.00 to the treasury.  Management has been able to keep the burn rate within a reasonable expenditure for a junior resource exploration company active in a foreign country.  The cash resources are thus considered adequate to fund an aggressive exploration program well into 2005 before another funding will be necessary to continue operations.

Management is distinguished by the commitment they have demonstrated to Mexico dating back to the revision of Mexican mining laws to allow direct foreign investment in operating companies within the country.  The president of the company, Mr. J. Paul Sorbara, has worked much of his career as a geologist within Mexico, has a thorough knowledge of the cultural and economic considerations there, and is well connected with a network of associates to successfully navigate the challenges of doing business in a foreign country.  But the strength does not end there.  Mineral exploration is a business characterized by a high percentage of failed endeavors, and it is enormously important that the leadership of such a venture has the experience, dedication, and vision to create a viable plan and see it through to fruition.  Board of Directors member Dr. Andrew MacGregor Robertson has an extensive technical background in exploration: a co-founder of the geotechnical consulting firm SRK International, subsequently establishing and serving as president of Robertson Geoconsultants Inc., and a contributor to Gemcom Software International.  Sean Boyd contributes his knowledge and experience in the operations of a producing gold mining company from serving as President of Agnico Eagle Mines Ltd.  Each of the directors of the company have a proven track record of achievement in related companies within the mining industry, and collectively they contribute the skills and experience necessary for the advancement of Golden Goliath.

Projects

Golden Golliath holds a 100% interest from their staking activities to acquire several property blocks that collectively comprise the Uruachic Project, located in Chihuahua State in the heart of the Sierra Madre mineral belt.  Although in close proximity to each other, many of these properties host varying geologic structures and a number of distinct targets have been identified for thorough exploration.  Several years of mapping and surveying have uncovered extensive historic mining activity, some with intact underground workings that have allowed sampling to provide further evidence of the resource potential of the property, and increase the understanding of the structurally controlled mineralization.  The project is underlain by a collapsed caldera structure, and pervasive volcanic alteration resulted in hydrothermal deposits across a wide area.  Ongoing trenching programs have yielded positive assay results in several distinct zones where veins outcrop at surface.   From a geological perspective, the entire district is a robust, highly prospective area in which to explore for large mineral deposits.

Of the various land parcels, the Las Bolas / Los Hilos properties are part a large block centrally located that may provide the best chance for a new discovery.  This area hosts many former producing mine workings and was considered to be the largest gold and silver producer in the region.  As part of the early exploration process, historic mining tunnels were opened, including several that had collapsed and remained inaccessible for over 100 years.  Of interest during this phase were the workings of the Las Bolas, the Los Hilos, and the El Manto mines.  Sampling completed underground within historic mine workings revealed some very high-grade gold and silver values averaging 439 g/t Ag and 0.49 g/t Au.  These results were recently confirmed through a 3000m reverse circulation drilling program, and reported assays included a 50 foot drill section bearing 326.6 g/t Ag, and a separate interval of 115 feet that yielded 315 g/t Au and 0.14 g/t Au.  Another section was assayed at 3.22 g/t Au and 154 g/t Ag over a 40-foot interval.  The recoveries from this program were less than ideal (less than 60%) so it is likely the reported grades understate the true potential.  Nonetheless it is very encouraging to log such gold and silver values across wide intervals at the early stage of drilling, and a testament to the probability that a new discovery may be uncovered at this site.

Further to south lies the Oteros Property.  A diamond drill program was completed in 2003 again encountered difficulties arising from low recovery rates of core material, but the results were promising with significant silver values encountered.  This program tested shallow targets and the system remains open at depth.

At the extreme Western edge of the property cluster lies the Corona Properties.  A wide zone of mineralization has been discovered through reverse circulation drilling completed in 2003, delineating a deposit approximately 200m wide and 400m across.  The zone is estimated to be 40m deep and remains open laterally.  The lower grade nature of the material uncovered to date suggests a bulk tonnage target and further exploration will be directed to extending the limits of the deposit.

At the Northeast corner of the area lies another cluster of properties designated the La Nueva Union.  High-grade gold and silver ore is concentrated in quartz breccia zones.  A tailings dump from past mining activity on the property is estimated to contain 60,000 tons of waste rock that is still considered ore grade, with assay values averaging 1.42 g/t Au and 469 g/t Ag, and high percentage content of lead and zinc.  This property has never been tested in a drilling program and several targets have been selected for future exploration drilling.  Adjacent to this block are the San Timento and Oro Leon properties.  Preliminary drilling has been completed targeting high-grade structures that revealed multiple horizons of mineralized material with grades as high as 132 g/t Ag and 1.09 g/t Au over 4.55 m.  It is believed these deposits were the result of hydrothermal activity across fault zones and additional drilling is planned to further test the potential.

Several other properties controlled by Golden Golliath in the Uruachic district have seen only minimal exploration activity.  The shear size of the land claims in the area, totaling over 31,000 acres, accounts for both the challenge and the high potential of exploration there.  Some of the difficulty derives from the topography of the properties, with limited road access to allow for drilling activity.

The Company also owns the Chamizal property, which is outside of the Sierra Madre mountains. Located about 1.5 hours south of Chihuahua city, Chamizal is a Pb-Zn-Ag target that has old mine workings and has never been drilled.  The geologic setting and alteration are the same as the nearby Santa Eulalia and Naica mines, which together have produced 60 million tones of 15% Pb-Zn and an average of 150 gms silver per tonne.

It can be expected that as management advances exploration programs and reviews new data, the process to outline the most promising areas will increase the odds that a major new deposit can be discovered.  It is likely that significant resources remain in the district given the prolific nature of past production and the lack of sophisticated technology employed  until recently.

Outlook

Having actively explored this district for 8 years, the geologists of Golden Goliath have identified the Las Bolas property as the as the area most likely to yield a large new discovery.  Current exploration activity includes a program of grid preparation, mapping, and rock sampling.  The target areas are a zone about 5 km east of the last drilling on the property near the old Flor del Trigo mine, and at the Cobrizo showing, about 8 km to the south west.  An IP survey is also planned for the east Las Bolas grid.  As detailed above, previous drilling activity on this property has uncovered wide intervals of high-grade gold-silver mineralization, and it is hoped the results of the current program will identify new drilling targets to follow up and enlarge the area with potential to host a deposit.  The drilling will extend to a deeper level than previous efforts, and will be concentrated in the area of past mining activity at the Arbolito shaft.  It is believed that a surface sample retrieved from a nearby mine dump, which assayed at 71,817 g/t Ag may have come from a vein system in this area.  The importance of this program can be summarized in the understanding that any success in the drilling program to locate this exceptionally high-grade structure would represent a giant leap towards securing Golden Goliath’s future in advancing this project to a development decision.  A budget of $600,000.00 is under consideration for this round of exploration.

It should be noted that the company has demonstrated a commitment towards thorough, methodical analysis at each stage of the exploration process.  Working efficiently on such a large and complex system demands that extensive preparation work must be completed to collect a variety of data in order to increase the odds that a new discovery can be located.  The increase in activity from junior exploration companies in Mexico this year has resulted in a shortage of experienced contract drilling teams, and an increase in the cost structure to complete a drilling program.  It then makes great sense that a careful approach is employed to maximize the potential for success before advancing to test the properties through the drill bit.  Investors typically expect a rapid pace of news and results, and reward drill program data, with little interest for the preparation and development work that must be carried out first.  As such it is no surprise that Golden Goliath has traded in range on the market that is well below the implied potential that the company offers to investors.  This represents an opportunity to acquire an interest at a favorable entry level immediately before the drilling activity is scheduled to begin, in anticipation of successful results that would justify a substantially higher market value.

It should also be noted that mineral exploration is a capital intensive business in which failure to discover anything of economic value is the norm, and that the viability of a company in this business depends on the willingness of the market to participate in equity offerings that provide additional funding.  Thus the sector is inherently risky and the future outcome is uncertain.  Investors seeking participation in this sector should attempt to identify companies that demonstrate effective management of capital resources, working from a strong cash position, that are priced in the market below their implied value and within a tightly held share capital structure.  Golden Goliath Resources meets the selection criteria to limit the risks present in the sector while remaining fully leveraged to the upside appreciation that would result in the event they successfully advance their exploration program.

Disclaimer:  I have made my research and opinions available to the public as a resource to provide investors and the public with basic information.  My comments and opinions should not be interpreted as a recommendation or investment advice, which I am not qualified to provide.   While I have made every effort to maintain accuracy in the information I provide, it is possible that there are some errors or omissions in my coverage and the accuracy cannot be guaranteed.  It remains the responsibility of each individual investor to confirm if the subject of my analysis is appropriate for their investment objectives, and to conduct their own research and due diligence, and retain the services of a qualified advisor on to provide this service on their behalf.  I accept no responsibility for the performance of the companies that I feature in my coverage.  Junior mining and exploration companies are a risky market sector and investment in these companies can result in loss of capital.  Past performance is no guarantee of future success.  From time to time I may purchase stocks in the companies I feature in my reports, and I may sell some or all of my holdings.  I will disclose personal ownership in those companies that I refer to at the time of my first coverage, or after follow up reports.  I do not accept compensation from companies as payment to provide positive coverage or opinions.