Category Archives: Articles

Special Report: Bargain-hunting in the Yukon

This special report on Yukon mining plays was sent to Resource Opportunities subscribers on January 5. Share prices have been updated but market capitalizations reflect the timing of the dispatch. The last Resource Opportunities special offer was very well-received, so I’m offering a January special for those who missed out. New subscribers can get a 1-year discounted subscription for just $99 — a savings of $200 off the regular price — by entering coupon code JANUARY at this link. The year is young, but early portfolio company gains show why savvy speculators are choosing Resource Opportunities. Erdene Resource Development (ERD-T), a Resource Opportunities pick at 37.5 cents on Sept. 30, has surged to 86 cents on drilling success at the company’s high-grade, near-surface gold discoveries in Mongolia. NexGen Energy (NXE-T), a Resource Opportunities pick at 30 cents, is approaching 10-bagger territory as excitement builds ahead of a resource update at its uber-high-grade Arrow uranium deposit in northern Saskatchewan. Join Resource Opportunities today and prosper!

January 5, 2017
By James Kwantes

Good morning and Happy New Year subscribers,
I trust you enjoyed the holidays. In the (SW) corner of Canada where I live, we experienced the novelty of a white Christmas — something most Canadians live through annually. Snow or not, the pace of life slows at this time of year, and so do the markets. While many junior mining stocks have rallied of late, it’s a quiet time in the markets and volume is typically low.

It’s also a quiet period in the Yukon, the focus of this dispatch. At the time of writing it was -19 Celsius (-2 Fahrenheit) in Whitehorse, the Yukon’s capital, and even colder in the northern mining hub of Dawson: -22. The days are dark, and needless to say, mining projects in the Territory are buried under snow. News flow is frozen too.

Quite a contrast from July, when I toured several exploration and development projects that were buzzing with activity. Drills were turning, gold was riding high and M&A talk was in the air. One of our stops was Goldcorp’s Coffee project, acquired from Kaminak Gold just two months earlier for $520 million. Agnico Eagle — one of the companies that was interested in Coffee — is the latest major to enter the Yukon, paying $14.5 million to acquire 19.9% of White Gold Corp. White Gold has the option to acquire more than 12,000 claims staked by legendary Yukon prospector Shawn Ryan, who will be a major shareholder of the new company.

So it’s frozen, but signs of life are stirring beneath the snow cover. And parkas are required clothing for Yukon winters, but you don’t buy one now. The best time to get bargain pricing on a winter coat is when you don’t need it, after winter is over. Better yet, when the sun is blasting every day and the grass has died.

And the best time to pick up high-quality junior mining stocks with Northern projects for low prices is right now. This year the bargains are even better because of gold’s decline from summer highs of US$1,365/oz to the current (still rather chilly) $1,1164/oz.

In alphabetical order, here are summaries of several Yukon plays whose share prices are likely to warm up along with the weather, as exploration and drilling programs get underway and results come in. The Yukon has long been recognized as one of the world’s most prospective mineral jurisdictions — a contention validated by investments from Kinross (Underworld’s White Gold project), Goldcorp and Agnico Eagle.

Things are buzzing again in the Yukon after a period of relative stagnation. Several of the Yukon plays have moved hard last week with gold’s rise, but this isn’t the big move. Just remember to take some profits when it’s shorts and T-shirt weather, because all these stocks are cyclical. Please see important disclosures at the bottom. Good luck with your bargain hunting!

Arcus Development Group (ADG-V)
danmanArcus remains under the radar, but its properties are among the best in the prolific White Gold district. Chief among them is Dan Man north of Goldcorp’s Coffee project, between Coffee and the Yukon River. Significantly, many of the 5 million ounces of gold at Coffee are located along north-south trending hydrothermal structures on the northern boundary, very near Dan Man. In October, Goldcorp took a 19.9% stake in Arcus after securing a similar foothold in Independence Gold, and Goldcorp will help design Arcus’s 2017 exploration program. Arcus is run by Ian Talbot, a lawyer and exploration geologist who was in-house counsel for BHP Billiton in Vancouver. Presumably he knows a thing or two about dealing with majors. Talbot is also chief operating officer of Strategic Metals. With any kind of exploration success by Arcus at Dan Man, snapping up the rest of the company would be a no-brainer for Goldcorp. Agnico’s recent investment in White Gold Corp. values the latter company at more than $70 million, many multiples of Arcus’s market capitalization. The stock hasn’t moved much, despite a likely drill program this year. For more on the company, see the special alert sent to Resource Opportunities subscribers on Oct. 24.

Price: 0.10
Shares outstanding: 72.8 million (88.5M fully diluted)
Market capitalization: $7.3 million
Current price: 0.115

Alexco Resource Corp. (AXR-T)
Alexco’s latest assays from the high-grade Bermingham discovery can be measured in kilograms, not grams. The best intercepts (true width) included 7.16 metres of 4,375 g/t silver and 3.98 metres grading 6,477 g/t. On Tuesday Alexco updated its silver resource at Bermingham — indicated ounces grew from 5.2 to 17.3 million, inferred from 700,000 to 5.5 million ounces. Bermingham is one of two new deposits being explored by Alexco, which shut down operations at its Bellekeno mine in 2013 because of low silver prices. The other deposit is Flame & Moth, located near a processing plant that is ready to go at the flick of a switch — when silver prices cooperate. Indicated ounces in the entire Keno Hill district now sit at 67.5 million, up 22% from the previous tally. There are two major headwinds for Alexco: the silver price and a 25% silver stream that Silver Wheaton has on Alexco’s entire district. The stream was the price Alexco paid to finance in October 2008 during the height of the financial crisis. The terms have been amended but are still very punitive, and renegotiating the stream is a top priority. Perspective: Alexco shares are not trading much higher now than they were when the company announced the Silver Wheaton financing. Alexco stock, which also trades on the NYSE MKT as AXU, offers tremendous leverage to the price of silver, currently US$16.50/oz.

Price: $1.97
Shares outstanding: 92.9 million (105M f-d)
Market capitalization: $183 million
Current price: $2.27

ATAC Resources (ATC-V)
ATAC is developing the Rackla project, Canada’s only Carlin-type gold district in the mountains of the Yukon. The rocks are comparable in lithology, mineralization and age to the Nevada trend that has produced more than 50 million ounces of gold. Rackla is a vast 1,700-square-kilometre property but the 30-kilometre Nadaleen Trend in the east is where much of the high-grade gold has been found in recent years. The latest intercepts included 61.29 metres of 2.75 g/t Au in the Orion zone at Nadaleen. ATAC also has the PEA-stage Tiger deposit in the Rau trend on the western part of the property. ATAC has consistently returned intercepts that are off-the-charts rich for the Yukon, including 38.8 metres of 17.11 g/t Au (2010) and 30.79 metres of 9.5 g/t (2014). The gold is rich but the exploration is expensive — some of the sites with the most gold are on mountaintops and require helicopters to visit and drill. ATAC shares have powerful leverage to gold and reached $10 a share in the summer of 2011 — a fact that puts the 26% move since Dec. 21 into perspective. Also in 2016, ATAC released an updated PEA for Tiger with better economics, including significant boosts in NPV, recovered gold and mine life. The stock has made a round trip from 30 cents at the start of the year, to almost a dollar at the end of July, to the current 43.5 cents. The Yukon’s White Gold district gets much of the attention these days. But Strategic Metals CEO Doug Eaton (Strategic owns 8.3% of ATC shares) reckons that in 100 years, the Nadaleen trend where ATAC has a dominant land position will have produced more gold than the Klondike trend that hosts the White Gold district. And Eaton probably knows as much about Yukon geology as anybody.

Price: 0.435
Shares outstanding: 122.8 million (131.35M f-d)
Market capitalization: $53.4 million
Current price: 0.40

Banyan Gold (BYN-V)
Banyan is a relatively new play in the southeastern corner of the Yukon that is exploring the Hyland project. The company has an almost 400,000-oz gold-equivalent resource at a grade of about a gram per tonne AuEq, with a goal of adding ounces. Banyan had some drilling success in the fall, announcing assays including 30.7 metres of 1.3 g/t Au and 8.0 g/t Ag. The company says its Hyland project has similar Carlin-type mineralization to ATAC’s Rackla. There are also strong ties to Victoria Gold (VIT-V) — Victoria owns 8% of Banyan’s stock and the company’s chairman is Mark Ayranto, Victoria’s executive vice-president. In August geological engineer Tara Christie was appointed Banyan’s president — she comes from a powerful Yukon placer mining family and is married to Victoria Gold CEO John McConnell. Christie and Ayranto together own more than 8% of outstanding shares and the tight share structure ensures the stock will move on drilling success. I recently purchased some as a speculation.

Price: 0.05
Shares outstanding: 46.9 million (63M f-d)
Market capitalization: $2.4 million
Current price: 0.055

Golden Predator (GPY-V)
During my visit to Golden Predator’s Three Aces project in July, I chipped rocks beside CEO Bill Sherriff as several of us searched for elusive visible gold (VG) at the site of a bulk sample. And we found some — it was Greg Hayes, then CFO and now a director, who identified some VG. Three Aces is Golden Predator’s exploration project north of Watson Lake in southeastern Yukon and home to two of the highest-grade surface outcrops ever discovered in the Yukon. Assays from a 4,300-metre 2016 drill program that went late are expected to be released in early 2017, which could be a catalyst for the stock. This year the company plans to drill up to 25,000 metres, so plenty of news flow is likely. Golden Predator also owns the Brewery Creek mine, a past-producing heap-leach operation located east of Dawson. Golden Predator is well-funded, with backers including Eric Sprott, McEwen Mining and Pat DiCapo. CEO Sherriff is a savvy operator with a promising exploration project near infrastructure and a development project that is economic at a higher gold price.

Price: 0.75
Shares outstanding: 76.7 million (123.1M f-d)
Market capitalization: $57.5 million
Current price: 0.72

Independence Gold (IGO-V)
Independence Gold is exploring for high-grade gold on the property adjacent to Coffee’s western boundary. Independence CEO Randy Turner is a closeology expert whose exploration chops have been honed by both skill and luck. Turner sold his Winspear Diamonds and its Snap Lake diamond project to De Beers for $305 million in 2000 and followed that up by selling Silver Quest and its 25% of the Blackwater gold project to New Gold (NGD-T) for $131 million in 2011. Luck: Turner happened to be holidaying in the Yukon with his wife when Kaminak announced its discovery hole at Coffee. He quickly staked virtually all the property on Coffee’s western boundary and has been running small exploration programs ever since. Intercepts have included 7.23 g/t gold over 12.2 metres (Sunrise) and 4.56 g/t over 10 metres at Denali, the latter from surface. Goldcorp acquired 19.9% of Independence in June. IGO surged to 50 cents in the summer but is now trading at about the same valuation as when Goldcorp bought in. Unique to Independence is the bulging treasury: IGO has more than $6 million in the kitty and a market capitalization of just under $11 million. The stock was a Resource Opportunities pick at 8 cents (August 2015) and has risen 30% since Dec. 21. But there’s plenty more upside here.

Price: 0.195
Shares outstanding: 55.5 million (59.3M f-d)
Market capitalization: $10.8 million
Current price: 0.185

Klondike Gold (KG-V)
2016 was a disappointing year for Klondike Gold shareholders. The stock ran from 11 cents to highs of 45 cents before plunging in August when the company announced several dusters at Violet Ridge, one of its Dawson-area projects. However, Klondike also consolidated an already dominant land position and announced some very good assays, particularly in the Nugget Zone and at Lone Star. 2017 has the possibility of starting out with a bang, too — Klondike has yet to release assays from its final holes at Lone Star, which were delayed by lab problems. With the larger land package, CEO Peter Tallman plans property-wide surveying to narrow down the best targets. Klondike’s drilling costs are among the cheapest in the Yukon and Tallman is playing the long game. Major shareholders include billionaire financier Frank Giustra and Roberto Aquilini of the Vancouver-based billionaire family that owns a vast array of assets, including the Vancouver Canucks hockey team. Tallman is searching for the motherlode that has deposited 20 million ounces of gold into area creeks over the past 120 years. But the discovery of an economic deposit would make Klondike’s stock worth many multiples of the current price. The journey between here and there will likely be bumpy but this is a low valuation considering the upside speculative potential.

Price: 0.195
Shares outstanding: 54 million (80M f-d)
Market capitalization: $10.5 million
Current price: 0.185

Rockhaven Resource Corp. (RK-V)
Rockhaven’s Klaza is a high-grade polymetallic gold project with excellent infrastructure — you can drive a Honda Civic to the property, as CEO Matt Turner will tell you. But it also has a size problem: the deposit needs more ounces to improve economics. A PEA announced in March outlined a 14-year mine life that would start with an open pit and move underground, utilizing three (expensive) declines. Life-of-mine, the operation would produce 630,000 oz gold, 11.364 million oz silver, 51.2 million lbs lead, and 52.5 million lbs zinc. But total capex was $358 million and payback was 7 years, for a project with a pre-tax NPV (5% discount) of $150 million and IRR of 20% and after-tax NPV of $86 million and IRR of 14%. I published a sell recommendation in April at these levels, although still have exposure to Rockhaven through Strategic Metals, which owns 46.5% of Rockhaven shares (on Tuesday, Rockhaven announced it was settling a $2-million debt by issuing Strategic another 11,346,712 shares). Market reaction to the PEA last spring was tepid and Rockhaven shifted to drilling out and expanding the deposit. 2016 was a success on that front — drilling targeted near-surface veins that are close to the open pit but not included in the existing resource. In September, for example, Rockhaven hit 17.01 g/t gold over 4.32 metres in a stepout hole.

Price: 0.20
Shares outstanding: 118.4 million
Market capitalization: $23.7 million
Current price: 0.19

Strategic Metals (SMD-V)
Strategic Metals is a project generator with the largest claims position in the Yukon and a long list of assets, as well as a very healthy cash position. Strategic had dipped below 40 cents and was trading at working capital levels before bouncing in the last couple of weeks. The company has been busy recently with these moves aimed at creating shareholder value:
– spinning out Trifecta Gold, a new exploreco that will list on the TSXV and hold the Eureka, Triple Crown (formerly called OOO) and Treble (LLL) properties. The properties are located in the prolific White Gold district, which is heating up again. Most of the Trifecta shares will be distributed to SMD shareholders, with Strategic also retaining a stake;
– optioning the Keno Summit and Gram properties in the Yukon’s Keno Hill silver district to Metallic Minerals (MMG-V), a new exploreco helmed by former Wellgreen Platinum CEO Greg Johnson;
– spinning out wholly owned subsidiary Terra CO2 Technologies. Terra CO2 is a green-tech company working on a technology that treats acid rock drainage by reacting it with discharged CO2 to produce a stable metal carbonate compound and saleable sulphur byproducts. Terra CO2 has reached the semifinals of the international Carbon XPRIZE competition, where first prize is US$7.5 million.
Strategic has almost half of its market cap ($20 million) in cash and stakes in dozens of explorecos, including:
– 8.3% of ATAC shares
– 46.5% of Rockhaven shares
– 32.5% of Precipitate Gold (PRG-V) shares
– 16.5% of Silver Range (SNG-V) shares
Perspective: Metallic Minerals, the new company that acquired Strategic’s two Keno Hill properties, has a market cap of $14 million. That’s about a third of the market cap of Strategic, which has a host of valuable assets, significant stakes in several explorecos and a large cash pile.

Price: 0.475
Shares outstanding: 89.1 million (93.5M f-d)
Market capitalization: $42.3 million
Current price: 0.53

Victoria Gold (VIT-V)
Victoria’s Eagle gold project is shovel-ready, with all permits in hand and an agreement with the local First Nations. Victoria has a mineral reserve of 2.7 million ounces and the potential to produce 200,000 ounces annually at low costs. It’s a lower-grade operation (.73 g/t Au), but a low strip ratio and the addition of richer satellite deposits sweeten the economics. At a US$1,250/oz gold price and a 78-cent dollar, Eagle has a post-tax NPV of $508 million and IRR of 29.5%. Last year, speculation that Victoria Gold could be the next company to sell to a major took shares above 75 cents. The stock drifted down to the low-.40s last month and has since rebounded.

Price: 0.57
Shares outstanding: 503 million
Market cap: $286.7 million
Current price: 0.54

Western Copper and Gold (WRN-T)
There are vast stores of gold and copper at Western’s Casino project, located near Goldcorp’s Coffee deposit. Casino’s proven and probable reserves measure 8.9 million ounces of gold and 4.5 billion pounds of copper, with a further 9 million gold ounces and 5.4 billion pounds of copper in the Inferred category. It would be the biggest mine in Yukon history and a major economic driver, with a 22-year mine life and capex of almost $2.5 billion. An LNG plant would power the whole operation. But Casino is also a dice roll because the project has been stuck in the laborious permitting process. That’s in large part due to a massive tailings dam, which was the subject of an independent review panel that suggested a few design changes. One of the changes will result in significantly less water — 80% less — than the prior iteration. Memories of the August 2014 tailings dam failure at Imperial Metals’ Mount Polley mine in British Columbia and the more serious Samarco disaster, which killed 19 people, loom in the background here. Western has an airstrip and currently transports materials by barge to the site, but a 120-kilometre unpaved road is planned. Because of the project’s size and footprint, Western is dealing with three separate First Nations. Permitting progress is never too headline-grabbing. But the stock has moved hard from the 30-cent level less than a year ago and Western is taking steps to derisk the project as it moves through permitting.

Price: $1.87
Shares outstanding: 94.5 million (100.5M f-d)
Market capitalization: $176.7 million
Current price: $1.85

Disclosure: I own shares of Arcus Development Group, Alexco Resource Corp., Banyan Gold, Independence Gold, Klondike Gold and Strategic Metals. Strategic Metals is a Resource Opportunities sponsor.

Contact: Email james.kwantes@gmail.com with any comments, questions or concerns, and info@resourceopportunities.com for subscription-related inquiries. www.ResourceOpportunities.com

Editorial Policy: Companies are selected for presentation in this publication strictly on their merits, and Resource Opportunities sponsors are selected on their merits as well. No fee is charged to companies for inclusion, and a small number of sponsor companies help financially support the subscriber-funded newsletter by keeping subscription prices low. Dollar and $ refer to Canadian dollars, unless stated otherwise or obvious from the context (for example, a share price on a Canadian exchange).

Disclaimer: Readers are advised that the material contained herein is solely for information purposes. Readers are encouraged to conduct their own research and due diligence, and/or obtain professional advice. Nothing contained herein constitutes a representation by the publisher, nor a solicitation for the purchase or sale of securities. The information contained herein is based on sources which the publisher believes to be reliable, but is not guaranteed to be accurate, and does not purport to be a complete statement or summary of the available data. Any opinions expressed are subject to change without notice. The author and their associates are not responsible for errors or omissions. They may from time to time have a position in the securities of the companies mentioned herein, and may change their positions without notice. (Any positions will be disclosed explicitly.)

Copyright: This publication may not be reproduced in whole or in part, in any form, without the express permission of the publisher. Permission is given to extract parts of the report for inclusion or review in other publications only if credit is given, including the name and address of the publisher.

A tax-loss-selling opportunity and undervalued gold

by James Kwantes
Editor, Resource Opportunities

Gold in Nevada.

It’s been a company maker for several of the world’s most successful mining companies, notably Barrick Gold (ABX-T) and Franco-Nevada (FNV-T). Barrick’s purchase of Goldstrike and subsequent discoveries turned the property into a 50-million-ounce monster and Barrick into the world’s No. 1 gold miner. Franco-Nevada’s 4% royalty on Goldstrike laid the foundation for what has become a $13-billion market cap royalty juggernaut.

Key to the Nevada gold story is Cordex, the exploration firm founded by legendary geologist John Livermore. Livermore found the Carlin mine and discovered a new type of gold mineralization known as Carlin-type. Under the leadership of Livermore and later Andy Wallace, Cordex is credited with 9 significant gold discoveries in Nevada, including the multi-million-ounce Carlin and Marigold mines.

In the space of 50 years, Nevada has become the world’s best gold mining jurisdiction. The state’s largest export partner is Switzerland, a testament to the amount of gold that starts under the Nevada desert and ends up in bank vaults in the wealthy European banking centre.

Nevada gold is also, increasingly, the focus of Columbus Gold (CGT-T), which earlier this week released a maiden resource estimate for its Eastside gold deposit in the state. At a .15 g/t cutoff and US$1,300/oz gold, Eastside hosts an Inferred resource of 654,000 ounces of gold at average grades of .57 g/t and 3.999 million ounces of silver at grades of 3.5 g/t. It works out to 721,000 ounces of gold equivalent.

The first pass at a resource estimate is literally scratching the surface at Eastside, notes Columbus Gold Chairman and CEO Robert Giustra. Only about 50% of mineralized material was included in the pit-constrained resource estimate, and the deposit is open at depth and to the south and west. Metallurgy tests have demonstrated the gold and silver is amenable to cyanide leaching, whether oxide or sulfide.

“Considering that only about one square kilometer of the large 58-square-kilometer property has been drilled so far, and only 136 holes drilled, a maiden resource of 721,000 ounces constrained in a pit, is an excellent start,” Giustra said.

And Columbus is busy planning its next steps, most recently consolidating its land package and planning the next drill campaign. The architect of value creation in Nevada is none other than geologist Andy Wallace of Cordex, Columbus’s exclusive exploration partner in Nevada. In a nutshell, Columbus has a Nevada discovery pioneer running their exploration programs in one of the world’s best gold mining jurisdictions. It bodes well as 2017 comes into focus.

cgtandywallace

Andy Wallace, President – Columbus Gold Nevada

While the maiden resource estimate was being prepared, Columbus turned its attention to grassroots exploration. Company geologists used mapping and geochemical sampling — including 3,400 surface samples — to identify 41 rhyolite domes. The domes are important geological features associated with gold mineralization at the Original Target, where most of the resource drilling at Eastside took place.

The domes range in diameter from 100 to 1,000 metres and are located along dozens of faults on Columbus’s claim block, mostly trending north or northeast. At one of its highest-priority targets, Target 5 (eight kilometres south of the Original Target), Columbus recently received a permit to construct a road and drill pads and drill 12 holes.

The company also recently concluded two deals at its 100% owned Bolo gold property, northeast of Eastside, that expanded the land package and eliminated a royalty. Bolo is a secondary Nevada exploration property, but Columbus is considering a small drill program after the land consolidation. Mineralization is Carlin-type and occurs in pods along two parallel faults, each of them more than 2.2 kilometres along strike. That makes it higher-risk exploration.

However, several of the 2013 holes hit impressive high-grade, near-surface intercepts at the South Zone of the Mine Fault, including:

  • 133 meters of 1.28 g/t gold from surface (including 30.5 m of 3.24 g/t gold) in BL-38;
    89.9 meters of 1.0 g/t gold (including 40.9 m of 2.05 g/t gold) from surface in BL-39; and
    51.8 meters of 1.27 g/t gold from surface in BL-41.

As for the land agreements, they’re a testament to the benefit and cost savings that can be achieved by having an experienced hand on the ground in Nevada. In the first, Columbus opportunistically picked up the “Uncle Sam” patented claim after the claim holder stopped paying taxes on the land. Columbus petitioned the county to secure the claims, then patiently and quietly went through a multi-step legal process that ended with them securing the land. Uncle Sam is a key claim on the southern end of the South Mine Fault Zone — near some of the best drill holes — and it was picked up for a relative song, CEO Giustra says. Surface sampling at Uncle Sam is underway.

cgtbolo

In the other deal, Columbus eliminated an underlying 1-3% NSR royalty on Bolo by swapping its Weepah property to the royalty holder. Weepah was a non-core property located south of Eastside.

2017 is also shaping up to be a big year at Montagne d’Or, Columbus’s multi-million-ounce gold deposit in French Guiana. Montagne d’Or hosts an in-pit gold resource of 3.9 million ounces Indicated at average grades of 1.45 g/t and an additional 1.1 million Inferred ounces at a grade of 1.55 g/t, at a 0.4 g/t cut-off.

A bankable feasibility study for Montagne d’Or is expected to land in the first quarter. Gold miner Nordgold can secure a 55.01% interest in the project by funding a minimum of US$30 million in exploration expenditures and completing the FS. Montagne d’Or has excellent infrastructure and would be one of the highest-grade open pit gold projects in the Americas. At a US$1,200 gold price, a PEA for Montagne d’Or modelled an NPV of US$450 million (5% discount rate), after-tax IRR of 23% and annual gold production of 273,000 ounces in the first 10 years at all-in sustaining costs of US$711/oz. Capex would be US$366 million, with a 3-year payback.

JV partner Nordgold is the natural acquirer for Columbus’s 44.99% stake in Montagne d’Or. Nordgold is a fast-growing and acquisitive Russian-based producer listed on the London Stock Exchange. The company operates 9 mines in Russia, Kazakhstan, Burkina Faso and Guinea and produced 950,000 ounces of gold in 2015. Its newest operation is the Bouly gold mine in Burkina Faso, which went into production in September after a 13-month build that came in under budget.

Nordgold’s latest financials paint a picture of a thriving mining company generating healthy cash flow. In the third quarter of 2016, Nordgold generated EBITDA of US$131.8 million and operating cash flow of US$109 million on revenue of US$278 million.. The company’s Gross mine in Russia is expected to go into production in the first quarter of 2018, after which Montagne d’Or will be the only major gold deposit in Nordgold’s pipeline.

But rather than sit back and wait for a takeover offer, Columbus is working to add value to an already strong project. The company is mobilizing for a 41-hole, 6,750-metre drill program testing targets both within and outside the deposit envelope. Columbus will test the west and east extensions of Montagne d’Or, including a geochemical anomaly 750 metres east of the deposit where a historical hole hit 31.94 g/t gold over 3.5 metres. In addition, two holes will test the depth of mineralization — little drilling has been done below 250 metres at Montagne d’Or. Drill permits are in hand and Columbus is building roads and drill pads and mobilizing drills this month. Columbus is fully financing the exploration program.

cgtmontagneexpl

Columbus shares have outperformed the S&P/TSX Venture Composite Index this year. But the stock has drifted down along with the entire junior sector since the summer, when gold peaked at US$1,350 an ounce. After hitting a 52-week high of 93 cents in August, Columbus shares have fallen to 54 cents on the Toronto Stock Exchange, giving the company a market capitalization of about $77.2 million.

But in intensifying the downward pressure on Columbus shares, tax-loss selling creates opportunity for investors. Columbus is a catalyst-rich gold play with active drill programs at both the Montagne d’Or development project in French Guiana and the Eastside exploration project in Nevada.

In Nordgold, Columbus is partnering with an acquisitive, world-class gold producer to develop a five-million-ounce gold deposit in the Americas. In Nevada, one of the world’s best gold mining jurisdictions, Columbus is advancing exploration both at and beyond its Eastside project. A follow-up drill program is being planned at Eastside, where a just-published maiden resource estimate shows an Inferred resource of 721,000 ounces of gold equivalent at .63 g/t AuEq at a cut-off grade of 0.15 g/t and a gold price of US$1,300/oz.

Columbus Gold (CGT-T)
Price: .54
Shares outstanding: 142.9 million
Market capitalization: $77.2 million
Treasury: $5.2 million (as of Aug. 31)

Disclosure: Author is long Columbus Gold shares and the company is a Resource Opportunities sponsor. This article is presented for informational purposes only and should not be considered investment advice. Junior mining investments are speculative and not suitable for many investors. Always do your own due diligence. Nothing contained herein constitutes a representation by the publisher, nor a solicitation for the purchase or sale of securities. The information contained herein is based on sources which the publisher believes to be reliable, but is not guaranteed to be accurate, and does not purport to be a complete statement or summary of the available data. Any opinions expressed are subject to change without notice. The author and their associates are not responsible for errors or omissions.

Building a miner in the Golden Triangle

Originally published Sept. 16 for Resource Opportunities subscribers. Join us as we uncover the best investment ideas in the junior mining universe! Only $299 for 1 year and $449 for 2 years.

IDM Mining (IDM-V) site visit
By James Kwantes

Editor, Resource Opportunities

Getting to IDM Mining’s Red Mountain gold project in northwestern British Columbia wasn’t quite “planes, trains and automobiles,” but it was close. First I flew from Vancouver into Smithers. There’s some family history in the neighbourhood — down the road is Houston, where my grandfather settled with his family after emigrating from the Netherlands. There’s some family history for IDM CEO Rob McLeod, as well.

From Smithers it was into a rental car for the 330-kilometre trek to Stewart, nestled beside the Alaska panhandle. Jagged mountain peaks and tall waterfalls make the final approach beautiful.

A helicopter picked me up for the last leg to Red Mountain, 15 kilometres northeast of Stewart. It was a cloudy day, so the pilot had to take the “long way,” threading his machine through the Bitter Creek Valley to the site. It’s the same route the road will take from Stewart — in the helicopter, it was still only about 10 minutes.

The Bitter Creek Valley

Red Mountain mine workers would have an easier commute — a 45-minute trip by road to the mine site. IDM is working on a feasibility study as it plans a small, scalable high-grade gold mine at Red Mountain. Previous owners have sunk more than $45 million into the project, including construction of a portal and ramp into the mountain to access mineralized zones.

IDM Mining is named for Rob’s father Ian and his uncle Don McLeod, underground miners who explored and mined some of the most well-known deposits in northwestern British Columbia and beyond — including Pretium’s Brucejack. Stewart, Rob’s hometown, was a mining hub for much of the 1900s. Now, its decline is reflected in abandoned storefronts and empty houses.

But “the times, they are a-changin.” IDM’s Red Mountain is part of a mining revival backed by the pro-mining provincial government. One of the visible indicators of the shift is the 287-kilovolt Northwest Transmission Line, parts of which hug Highway 37 as it snakes its way north.

The $500-million power line was built by the B.C. government to open up the remote northwest of the province to mining and industrial development. The first operation to tap into it is Imperial Metals’ Red Chris open-pit copper mine, which began mining in early 2015. IDM’s operation won’t tie directly into the line. But the implications of the power boost are far-reaching for all of the juniors and development companies operating in the heavily mineralized region.

And if you pay attention on the drive to Stewart, there are also signposts — literally — highlighting IDM Mining’s advantage. Those are the signs advertising the King Edward Hotel in Stewart, which Rob’s father Ian owned and operated for many years. The family sold the hotel a few years back, but it speaks to McLeod family roots in Stewart.

For McLeod, Red Mountain is personal. As he put it to me in a conversation some time ago, “This is our turf.” An operating mine near Stewart would mean work close to home for friends in the industry who have been navigating the bear market by flying wherever there is work. It’s an intangible that doesn’t factor into financial or economic models, but I believe it’s significant.

It takes a team to build a mine, and another key component is IDM’s executive chairman, Michael McPhie. He’s a veteran operator who has served as CEO of the Mining Association of B.C. and chairman of industry group AME BC. He’s currently managing director of JDS Gold. They say a photo is worth 1,000 words. The one on IDM Mining’s home page features McLeod, McPhie and Jeff Stibbard, who runs JDS Energy & Mining (currently working on IDM’s Red Mountain FS).

As I approached Stewart in the rental truck, the bugs arrived, and their pitter-patter on the window almost sounded like drizzle. Soon enough the rains came, and then the mountains — towering giants casting off waterfalls and glaciers. Just outside the port of Stewart, another sign of changing times. The highway closed temporarily to northbound travellers to allow through a convoy of trucks transporting giant wind turbine parts to a large wind farm project outside of Tumbler Ridge, in northeastern B.C.

It was near nightfall when the helicopter pilot and I arrived at the Red Mountain camp. I stayed in one of the comfortable pods, complete with heater.

 

My visit wasn’t long but we covered a lot of ground, after a geological briefing at the camp’s nerve centre. The first foray was up the mountain (in a helicopter) and underground, into the access ramp. Haul trucks will transport ore between the underground workings and the mill, located below the camp in an area called Bromley Humps.

The tunnel was in good shape, with little evidence of rock fall, despite being largely abandoned for most of the 20 years since it was blasted out by LAC Minerals. In addition to the portal and underground workings, IDM inherited mining equipment including some of the haul trucks that will go underground.

During the visit, IDM was dewatering in the two kilometres of existing underground workings. The company was also drilling underground — a step-out from the Marc Zone that was outside the resource envelope. The geo in charge of that hole was so enthusiastic about the rocks she stayed up the mountain late that night to collect more core. Subsequent assays, reported Sept. 6, backed up her optimism.

Hole U16-1185 intercepted 14.19 metres (true width) of 5.78 g/t gold and 24.15 g/t silver. Another Marc Zone step-out hit 13.77 metres (true width) of 5.72 g/t Au and 34.89 g/t Ag. There was also a discovery hole of 6 metres grading 7.43 g/t Au and 12.51 g/t Ag. The latter was a step-out hole below the Marc Zone and 70 metres outside the resource as currently defined. The area has been dubbed the NK Zone (after assistant project manager Natalie King).

Underground drilling at Red Mountain

It was gusty and raining atop Red Mountain before we descended into the darkness of the access ramp, offering a glimpse at what winter must look like when the white stuff is blowing. It’s why IDM plans to mine for 8 months and shut down during the worst 4 months of the year, stockpiling the rest of the ore at a mill further down the mountain that will operate year-round (The initial plan called for the entire operation to be shut down for 4 months). The mill is several kilometres closer to Stewart than the main ore body.

In July IDM released an updated PEA with better economics than the 2014 iteration as well as a new tailings location. IDM now plans to process 1,000 tonnes per day year-round based on underground mining rate of 1,500 tpd for 8 months annually. That change increases the amount of gold produced over the 5-year mine life — from 277,000 Au oz to 348,000 oz and 852,000 Ag oz to 965,000 oz.

But it also increases capital costs both at the mill and the underground workings, where the company will be accessing more remote mineable resources. Pre-production capex is pegged at C$111.2 million, compared to $76.1 million in the previous study. After-tax IRR remains above 30%, helped in part by the weaker Canadian dollar (80-cent exchange rate, compared to 95 cents in 2014).

The past five years have been a grim time for mining companies, which may allow IDM to further reduce capex through the purchase of mothballed equipment. Victoria Gold (VIT-V) in the Yukon illustrated the potential earlier this year when it purchased a 100-person all-season mining camp for $275,000, saving millions of dollars. Victoria’s feasibility study was completed by JDS, the same company doing IDM’s (the FS is slated to land in the first quarter of 2017).

Lost and Found

Glacial retreat left boulders atop cliffs at Lost Valley

Glacial retreat is an important part of the IDM story. And a helicopter trip into nearby Lost Valley, IDM’s recent high-grade discovery, shed some light on why McLeod believes the 5-year mine life could be just the start for Red Mountain, a 17,000-hectare property.

IDM had announced the new Lost Valley discovery a few days before my visit. Through surface mapping and sampling, geologists discovered a zone of veining and shearing hosting high-grade gold-silver-molybdenum mineralization. Of 66 samples, 22 assayed above 3 g/t gold, averaging 30.45 g/t Au. High grades of silver and molybdenum were also assayed, as well as rhenium.

Mineralization in Lost Valley has been exposed by the rapid melt of the Cambria icefield, which left behind boulders atop cliffs and strewn across the valley bed when it retreated. The glacier covered the area just 20 years ago when McLeod was a junior geologist on the project. It’s about 4 kilometres southwest of the main Red Mountain mineralization and 800 metres lower.

The pilot dropped off the two of us and McLeod’s Vizsla companion, Petal, on the rugged terrain and we hiked up to some outcrops. The mineralization was impressive, with the dull shine of pyrite (“fool’s gold”) and the blue hues of molybdenite hinting at the geological potential (there’s a major moly deposit, Kitsault, 55 kilometres to the south).

News has flowed fast and furious since my site visit, for both Lost Valley and the main Red Mountain ore body.

Aug. 24 – IDM released assays from surface trenching at Lost Valley that revealed a high-grade structure, confirming earlier grab sample results. The new high-grade zone was dubbed Anda’adala’a Lo’op zone, Nisga’a for “money rock.” Seven channel samples taken along a 33-metre trench averaged 18.7 g/t gold and 61.2 g/t silver over an average width of 0.84 metres. Mineralization in Lost Valley has been traced over a 1-kilometre by 1.2-kilometre area.

Sept. 6 – Assays from 13 Red Mountain underground core holes mentioned above, including 14.19 metres of 5.78 g/t Au and 24.15 g/t Ag.

Pyrite and molybdenite mineralization at Lost Valley

Sept. 12 – IDM announced the discovery of another zone 100 metres south of the Anda’adala’a Lo’op zone. This one was dubbed the Randell Zone after geologist Andy Randell, who had just arrived to prospect at Lost Valley as I was leaving. A 9.35-metre channel sample returned an average of 22.2 g/t Au and 81.3 g/t Ag, including .85 metres of 133.25 g/t Au and 378 g/t Ag. Very impressive grades, even after removing the .85-metre intercept.

Sept. 29 – On the regulatory front, the public consultation period for environmental assessment of the Red Mountain underground project will run from Oct. 5 to Nov. 4. IDM plans to file a project application report with both the B.C. Environmental Assessment Office and the Canadian Environmental Assessment Agency in early 2017. Feasibility-level engineering work is also underway at the site, led by JDS Energy and Mining Ltd.

Oct. 4 – IDM closes an upsized private-placement financing for $8,994,707, consisting of 17-cent hard-dollar units and 21-cent flow-through shares. Proceeds will be used for additional resource expansion drilling, exploration and permitting at Red Mountain, including feasibility study work.

Drilling, dewatering, development, permitting and a feasibility study expected in the first quarter of 2017 — it all requires money, and that means more dilution. IDM has shown there is demand for their shares — the recent private placement started at “up to $5 million” and finished at almost $9 million. Those shares take IDM’s already high share count to about 270 million. But crucially, the financing also allows IDM to pay for permitting and development as well as exploration at Lost Valley.

In its latest NR, IDM announced that drills will be turning at Lost Valley within the month. If the company can drill high-grade there in a rising gold price environment, the share price should take care of itself despite the amount of paper out. Longer-term, Lost Valley is shaping up to be a potentially significant source of ounces for a mine at Red Mountain. A final investment decision is slated for the end of 2017, with commercial production targeted for the end of 2018.

The next key step is the feasibility study, and a producing gold mine is the goal. If IDM can execute on exploration while navigating the development path to a gold mine, the company will capture the two sweet spots of the “Lassonde curve” — the life cycle of a junior mining share (pictured). Shareholders make the most money during discovery and, beyond the development stage, production.

IDM currently trades at a market capitalization just over $50 million. Despite recent gold price weakness, we’re into the kind of market where those types of valuations are being assigned to promising drill plays. Red Mountain is delivering both with the drill bit and on the development front. I like the company’s odds of delivering a small, high-grade gold mining operation with a five-year mine life that is extended as more ounces are discovered elsewhere on the property.

McLeod and McPhie launched the company during the depths of the bear market and the upturn has given them the leverage to build a near-term production story. There aren’t many of those in the gold sector. At these levels, the stock is an attractive call option on IDM growing a gold business and making additional discoveries.

Price: .19
Shares outstanding: 270 million (380M fully diluted)
Market cap: $51.3 million
Treasury: $15 million

IDM Mining CEO Rob McLeod will speak more about plans for Red Mountain and Lost Valley at the free Subscriber Investment Summit today at the Pan Pacific Hotel in Vancouver. If you’re attending, stop by and say hello!

Disclosure: Author is long IDM Mining shares and the company became a Resource Opportunities sponsor subsequent to this site visit. This article is presented for informational purposes only and should not be considered investment advice. Junior mining investments are speculative and not suitable for many investors. Always do your own due diligence. Nothing contained herein constitutes a representation by the publisher, nor a solicitation for the purchase or sale of securities. The information contained herein is based on sources which the publisher believes to be reliable, but is not guaranteed to be accurate, and does not purport to be a complete statement or summary of the available data. Any opinions expressed are subject to change without notice. The author and their associates are not responsible for errors or omissions.

Executing on gold development, exploration in the Americas

Columbus Gold advances Montagne d’Or towards bankable feasibility study

Fall resource estimate planned at Eastside gold project in Nevada

By James Kwantes
Resource Opportunities
As befits its location about 500 kilometres north of the equator, French Guiana is hot and humid, with average temperatures of 25-30 Celsius year-round. The namesake Cayenne pepper, named for the capital city, spices up cuisine and hints at the Creole roots of the territory, a region of France.

But it’s the heat being generated by a rising gold price that could help revitalize the economy of French Guiana. It’s a prosperous corner of South America, but GDP remains heavily reliant on the Guiana Space Centre. Selected in 1964 to be France’s space centre, the facility expanded to become Europe’s Spaceport in 1975 and is used by other countries launching satellites into space, including Russia.

The Guiana Space Centre. Photo: www.satellitetoday.com

The Guiana Space Centre. Photo: www.satellitetoday.com

Once you step off the space centre, however, incomes fall back to earth. French Guiana is heavily reliant on mainland France for subsidies, trade and goods. Traditionally, the region’s main industries have been fishing, logging and small-scale gold mining.

It’s gold that Vancouver entrepreneur Robert Giustra is eyeing. Specifically, the mountain of gold — Montagne d’Or — contained in the deposit that his Columbus Gold is advancing in the jungle 180 kilometres west of the capital city Cayenne. Gold miner Nordgold is earning in to a 50.01% interest in the project by spending at least US$30-million on exploration and delivering a bankable feasibility study by March 2017. In January Columbus sold an additional 5% interest in the project to Nordgold, so their interest would be 55.01% upon completion of the earn-in.

A mine like the one Columbus Gold is proposing would employ about 1,000 people during construction, 800 full-time during operations, and produce an average 270,000 ounces a year. With average mined grades of about 2 g/t in the first 10 years, it would be among the highest grade open-pit gold mines in the Americas.

A WIN FOR FRENCH GOVERNMENT, CGT SHAREHOLDERS

For French Guiana, a large-scale commercial mine would be a game changer, diversifying the economy and boosting the French government’s tax take. It could even help the long-running battle against illegal gold miners in French Guiana. The mostly Brazilian “garimpeiros” use mercury to process the gold and cut a toxic path through the jungle, devastating the environment. The miners then vacate the country with their heavy equipment and the gold, leaving France to clean up the mess.

It’s a problem French authorities have grappled with for a long time, through regular sweeps and arrests. But the illegal miners have the edge through strength of numbers and an intimate knowledge of the jungle. All too often, crackdowns resemble a law enforcement version of arcade game Whac-A-Mole.

The path towards a gold mine at Montagne d’Or could well be a road to riches for shareholders of Columbus Gold, which is also drilling the Eastside gold exploration project in Nevada. Columbus has aggressively developed Montagne d’Or since picking up the project in 2011 when it had a 1.9-million-ounce resource (Inferred). Columbus has delineated 3.9 million ounces in the Indicated category and another 1.1 million ounces Inferred at grades well above global averages.

Last year the company published a preliminary economic assessment for Montagne d’Or showing positive economics at a gold price of US$1,200/oz:
– After-tax NPV of US$324 million (8% discount rate)
– After-tax IRR of 23%
– Initial capex of US$366 million, including US$44 million contingency
– All-in sustaining costs of US$711/oz
– Average annual production of 273,000 ounces at average grades of 2 g/t in Years 1-10

Gold’s rise of more than 27% in 2016 should further improve economics in the Feasibility Study, and it’s not the only factor that will help. The PEA envisioned diesel power being generated on-site at a cost of about US.20/kWh. Columbus is now looking at connecting to the French Guiana grid, which would lower costs to .11-.12/kWh. It’s a substantial savings, since power is one of the mine’s largest operating costs.

In addition to improving economics at the flagship project, gold’s ascent to US$1,350 an ounce has increased the interest level in Columbus Gold shares. The company uplisted from the TSX Venture to the Toronto Stock Exchange on January 26, an accomplishment achieved by only one other company in the previous two years, and shares recently hit 93 cents, a 52-week high.

Robert Giustra, Columbus Gold Chairman & CEO

Robert Giustra, Columbus Gold Chairman & CEO

Sentiment has shifted dramatically from the bear market that took gold down from US$1,900 an ounce to below $1,100/oz, notes Giustra, Columbus’s Chairman and CEO. The resulting flight of capital over the past four years led to liquidity drying up, wreaking havoc on the ability of junior mining firms to raise money and depressing share prices — even for companies with fundamental value. In order to initiate a position, funds would have to sell an existing holding, and there was nobody to sell to. It had the effect of putting the brakes on shares of all mining sector companies, including Columbus Gold. “People would love the story, but couldn’t buy the stock,” Giustra commented.

Capital and interest has returned to the sector, he says, and Columbus Gold shares should continue to benefit. The company has about $4 million in the treasury and two major catalysts on the horizon:
– The bankable feasibility study at Montagne d’Or;
– A planned maiden resource estimate at Eastside, the Nevada project.

EXPLORATION UPSIDE AT MONTAGNE D’OR

Exploration upside around the defined deposit has the potential of turning Montagne d’Or into something even bigger. The aggressive three-year timeline that Nordgold agreed to when it took on the project in March 2014 means little exploration work has been done. That’s despite indications the mineralization at Montagne d’Or remains open along strike to both the east and west, in parallel zones and untested nearby surface anomalies, as well as at depth.

The most recent exploration permits, granted in July by the French Minister of Economy, cover gold-soil anomalies two kilometres to the west and 2.7 kilometres to the east of the deposit. Only two holes have ever been drilled in these areas. One of them, punched in 750 metres east of the deposit, intercepted 31.94 g/t gold over 3.5 metres. Montagne d’Or is also open at depth below the 250 metres modelled by the pit.

Exploration permits on strike of the east and west extensions of Montagne d'Or

Exploration permits on strike of the east and west extensions of Montagne d’Or

The Phase 1 exploration program kicks off this month with prospecting and soil sampling west of Montagne d’Or. For the second phase, Columbus may fly IP (induced polarization) to enhance drill targets. In the 1990s, such geophysical surveying helped trace the gold-sulphide mineralized horizons at Montagne d’Or.

The French geological survey identified the initial gold anomaly that defines Montagne d’Or in the 1990s. But the agency was subsequently privatized and began selling assets including Montagne d’Or, which saw very limited drilling in the late 1990s. Columbus Gold built the resource with drilling campaigns, but the aggressive three-year path to a bankable FS agreed to by Nordgold in March 2014 effectively put a cap on exploration drilling.

As a result, the highly prospective properties that surround Montagne d’Or are virtually virgin territory.

“French Guiana is extremely under-explored, particularly compared to its geological twin in the West African Birimian Shield,” Giustra explains. “That gold region has seen over a century of exploration.”

Geological continuity between Guiana Shield and Birimian Shield

Geological continuity between Guiana Shield and Birimian Shield

Having a deep-pocketed major pay the bills on flagship development project Montagne d’Or also helped Columbus Gold weather the bear market storms. Nordgold is the world’s 15th largest gold miner and operates 9 mines in 4 countries. In 2015, the Russia-based producer mined about 950,000 ounces at all-in sustaining costs of US$793 an ounce, making it one of the world’s lowest-cost producers. At 270,000 ounces a year, Montagne d’Or would be the largest mine Nordgold has an interest in.

Nordgold also has a reputation as an efficient and smart operator. The Russia-based miner built its newest mine, the 200,000-oz/yr Bissa gold mine in Burkina Faso, in just 15 months, Giustra points out. The company is also familiar with the geological neighbourhood because it operates three mines in the West African Birimian Shield — two in Burkina Faso, one in Guinea.

Nordgold was founded in 2007 as a division of Russian steel giant Severstal and went public on the London Stock Exchange in January 2012. The company is among the world’s fastest-growing gold miners, a feat accomplished mostly through acquisitions.

“People have said to me ‘Watch out for the Russians,’ ” Giustra says, “but they’ve been great partners. We come to agreements on a handshake and they follow through.”

DRILLING SUCCESS AT EASTSIDE IN NEVADA

Columbus Gold also has a growing Nevada exploration project to go with its Montagne d’Or development project in French Guiana. And the company’s foundation for growth lies under the desert sand at its Eastside project.

Nevada’s gold endowment is well-documented. The state produces about three-quarters of U.S. gold production and more than 6% of the world’s gold. Gold mines in the “Silver State” have been company makers for the world’s largest gold producers, including Barrick Gold and Newmont Mining — not to mention royalty giant Franco-Nevada.

Much of that production has come out of the Carlin Trend, one of the world’s richest gold endowments and home to Barrick and Newmont’s most prolific mines. The Carlin was discovered by legendary geologist John Livermore, who sparked a modern-day gold rush when he discovered a new kind of “invisible gold” mineralization in the early 1960s while working for Newmont. He founded Cordex Exploration in 1970 and went on to discover several Nevada gold mines. Livermore died in 2013.

Geologist Andy Wallace, Livermore’s longtime business partner, is now principal of Cordex Exploration as well as president of Columbus Gold Nevada. Wallace joined Cordex in 1974 at the height of the Nevada gold rush and became Cordex’s Manager of Exploration in 1985. He also has a few mine finds under his belt — under his leadership, Cordex discovered the 5-million-ounce Marigold deposit and the 12-million-ounce Stonehouse/Lone Tree deposits. Silver Standard purchased Marigold from Goldcorp and Barrick in 2014 and Lone Tree is still being mined by Newmont.

Columbus Gold Nevada President Andy Wallace is credited with discovering Marigold, now a Silver Standard mine.

Columbus Gold Nevada President Andy Wallace is credited with discovering Marigold, now a Silver Standard mine.

Nevada is elephant country for gold. In Cordex, Columbus has an elephant hunter on its team. Columbus has an exclusive exploration arrangement with Cordex, giving the company one of the largest databases in Nevada. Cordex also runs Columbus’s exploration programs in Nevada.

Exploration is now focused on the Eastside project, composed of 725 mining claims making up 57.7 square kilometres about 32 kilometres west of Tonopah, Nevada. The nearby Round Mountain gold mine, which has produced more than 12 million ounces and is now 100% owned by Kinross, is about 32 km away. It’s the world’s largest heap-leach operation.

Columbus recently wrapped up its 2016 drill program at Eastside, completing 17,500 metres of drilling– 12,663 metres of reverse circulation and 4,837 metres of diamond drilling. The company has now drilled more than 37,000 metres at Eastside, mostly confined to a one-square-km parcel dubbed the “Original Target.” Columbus is aiming to complete a maiden resource estimate this fall. Results year-to-date have been positive, with recent intercepts of 97.5 metres of 0.68 g/t gold and 13 metres of 1.12 g/t. Previous hits included 35.1 metres of 4.1 g/t and 152.4 metres of 0.71 g/t.

Gold and silver mineralization at the Original Target occurs in two broad, northerly trending zones called the East Zone and West Zone. The zones coincide with rhyolite flow dome complexes that host the bulk of the mineralization. Drilling to date has determined that strike extends at least 450 metres on the East Zone and 850 metres on the West Zone. Both zones are open at depth and to the south, and the West Zone is open to the north as well.

Initial metallurgical tests determined that gold at Eastside is highly amenable to processing using cyanide. Columbus is now doing further metallurgical tests on samples of varying grades and ore types to evaluate potential heap leaching and whether crushing will be required and if so, the optimum crush size.

Eastside is located in an infrastructure sweet spot. It’s adjacent to Highway US95, the main road route between Las Vegas and Reno, and is connected by a county-maintained gravel road. A major transmission line runs through the Eastside property and there is available water from shallow aquifers in the area, Giustra says. Year-round drilling is possible at the property.

Infrastructure is excellent at Eastside, located about 32 km west of Tonopah, Nevada

Infrastructure is excellent at Eastside, located about 32 km west of Tonopah, Nevada

If Columbus Gold can connect the dots and mineralization at Eastside, the Nevada gold property could become an impressive flagship project. In Cordex, Eastside has an experienced minefinding partner. The project’s good metallurgy, superior road infrastructure, power and water access lower the threshold to develop a mine in America’s most important gold-producing state.

Price: 0.76
Shares outstanding: 142.9 million
Market capitalization: $108.6 million
Treasury: $4 million

Disclosure: The author owns shares of Columbus Gold and the company is one of a small number of Resource Opportunities sponsors, who help support the subscriber-funded newsletter. The work included in this article is based on SEDAR filings, current events, interviews, and corporate press releases. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. This publication is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions. Junior resource companies can easily lose 100% of their value, so read company profiles on www.SEDAR.com for important risk disclosures. It’s your money and your responsibility.

Kitchen-table deal launched a Nevada gold royalty play

Goldstrike1

Gold standard: Barrick’s Goldstrike mine was a company maker for both Barrick and Franco-Nevada.

By James Kwantes

“Royalty” — the primary definition refers to kings, queens and others of royal blood. And that usage hints at the strength of the mining industry variety — a defined share of revenues from a mining operation.

Mining royalties can be a fabulous business model, as demonstrated by royalty and streaming giant Franco-Nevada. The company has become a $15-billion powerhouse with claims on assets ranging from gold and base metals mines to oil and gas operations.

It all started in 1985 when cofounders Seymour Schulich and Pierre Lassonde purchased a 4% royalty on a small Nevada gold mine called Goldstrike. The $2 million they paid was no small bet — it represented the majority of cash on the budding company’s balance sheet. But the titans reasoned they were buying both a cut of production and exploration upside on the surrounding properties.

It turned out to be the bet of a lifetime. Barrick Gold purchased Goldstrike and soon hit a rich discovery on the way to a 50-million-ounce gold deposit. As Goldstrike grew to become Barrick’s flagship mine, it became a golden goose for Franco-Nevada.

Investors have taken note — Franco-Nevada shares have returned more than 140% in the past five years as commodity prices cratered and mining shares descended.

Others have followed in Franco-Nevada’s footsteps. One of the largest is Royal Gold, which also expanded rapidly by deploying cash flow from its flagship royalty on Barrick’s massive Cortez mine complex. More recently, Silver Wheaton, Osisko Gold Royalties and Sandstorm Gold have entered the scene, as well as smaller plays including AuRico Metals, Eurasian Minerals and Abitibi Royalties.

Mining exploration is a notoriously difficult, Darwinian business that weeds out the weak. Few junior exploration companies will find a mine and those that do face multiple headwinds that include regulatory, operating and financial risks. In short, it’s a tough business.

Royalty companies bypass most of these pitfalls. Royalties represent a perpetual, iron-clad claim on revenues, usually for life-of-mine. Royalty companies get paid whether the mine makes money or not. They get upside exposure to exploration and expansions, while being insulated from operating risks. Shares of royalty companies typically outperform mining company equities.

It’s no surprise the royalty structure is popular among mining investors who appreciate the upside exposure to attractive deposits minus the operational risks. But the key to profiting is not so different from hockey superstar Wayne Gretzky’s approach on the ice — skate to where the puck is going, not where it has been.

There’s a new royalty company on the scene and like young Franco-Nevada, its flagship asset is an attractive royalty on a Nevada gold deposit — Waterton’s Spring Valley. The company, Terraco Gold, recently closed a deal that sees it exercise options on the Spring Valley royalties and add another royalty on an adjoining property in Pershing County, Nevada.

Terraco exercised its option to buy the royalties through a US$19-million agreement with Waterton, the mining-focused private equity group that acquired Spring Valley last year from Barrick Gold (70%) and Midway Gold (30%). The deal sees Waterton pick up Terraco’s Moonlight property adjoining Spring Valley on the north by paying Terraco US$7 million in cash and subscribing to a US$12-million convertible debenture. The five-year debenture bears interest at .05% annually (more or less zero coupon) and is convertible to shares of Terraco at an exercise price of 18 cents or convertible into 45% of a Terraco subsidiary.

Terraco used US$16 million of the debenture and cash proceeds to exercise options to acquire and directly own a 3% royalty on most of the Spring Valley gold deposit, as well as royalties of up to 1% on contiguous properties that cover additional gold ounces. Terraco also retains a 2% NSR on the large 35-square-km Moonlight property adjoining Spring Valley to the north, which Waterton picked up as part of the deal.

TENroyalties

Terraco Gold is run by Todd Hilditch, not Lassonde and Schulich. The company’s royalties are on a deposit that is not yet producing. And the deal just closed on June 17. Terraco Gold is a minnow, Franco-Nevada a whale.

But Hilditch doesn’t have to duplicate Franco-Nevada’s success to make Terraco shareholders a lot of money. The stock trades at 14.5 cents, giving the royalty upstart a market capitalization of just $20.8 million, including more than $3 million in the treasury. Terraco also owns the Almaden-Nutmeg Mountain gold deposit in western Idaho, which has a NI 43-101 compliant resource of 864,000 ounces Measured and Indicated (near-surface) and 84,000 Inferred.

The debenture deal with Waterton, subject to a conversion into equity at 18 cents, hints at the value embedded in Terraco’s shares. Put differently, the group that is developing Spring Valley (and knows the most about it) has assigned a value to Terraco stock 25% higher than current levels.

Do the math on Terraco’s enterprise value and the picture gets even more interesting. A share price of 14.5 cents means a market capitalization of about $20.8 million. Add in debt of US$12 million ($15.6 million Canadian) and subtract Terraco’s cash — about $3.3 million — and the enterprise value comes to $33.1 million.

That works out to about 23 cents a share. And it doesn’t factor in rising gold or any blue-sky potential, including Hilditch’s plan to use the cash and/or stock to bolt on more royalties. He thinks Terraco stock is undervalued and has been accumulating in the public market. He’s purchased more than 1.6 million shares in the past year (between $0.07 and $0.13 a share), including spending more than $15,000 on shares in the past month at 13 cents. Hilditch owns more than 7.5 million shares, a 5.25% stake.

“Some people call me crazy, but I’ve never sold a Terraco share and I’ve added plenty,” he says of the company he co-founded 20 years ago as an oil and gas play. “This is my first-born.”

Terraco’s portfolio now includes:

  • 3% NSR on the majority of current resources of Spring Valley (the “Schmidt claims”);
  • 1% NSR on an additional portion of Spring Valley;
  • a right of first refusal relating to a 1% NSR on certain lands within one-half mile of the Schmidt claims;
  • 2% NSR on the Moonlight Project;
  • the Almaden-Nutmeg Mountain Gold Project located in Western Idaho;
  • about $3.3 million Canadian in cash.

According to a 2014 resource estimate, Spring Valley hosts 4.37 million ounces of gold Measured and Indicated at average grades of .55 g/t, as well as 1.07 million ounces Inferred at a grade of .47 g/t. The deposit is located north of and along trend with Coeur Mining’s Rochester silver-gold mine, which has produced 1.47 million ounces of gold and 134 million ounces of silver.

Hilditch’s plan is to build a royalty company with the Spring Valley gold royalties as the flagship. And while the Vancouver mining executive keeps a low profile, his track record shows he’s no rookie when it comes to creating shareholder value in the mining space.

A lithium score

Hilditch’s biggest score was in the lithium space, well before lithium plays became the TSXV’s hottest commodity. The financial crisis had taken the wind out of gold’s sails, and Hilditch was looking around for other opportunities. He co-founded and became president and CEO of Salares Lithium, which structured a deal on 7 lithium brine salars in Chile. Salares IPOed at 16 cents (included a concurrent 2 for 1 rollback from 8 cents) and was taken over by private lithium giant Talison Lithium just 17 months later, in 2010, for $1.25 a share.

ToddHilditch

Terraco Gold CEO Todd Hilditch

For Salares shareholders, the gains didn’t end there. Talison, which produced hard-rock lithium in Australia, used the Salares listing to go public. In 2012 Talison sold for $850 million ($7.50 a share) to Chengdu Tianqi, a Chinese company that outbid Rockwood Lithium (which itself later sold to Albemarle).

“Salares helped pay the bills while Terraco was on the back burner during a tough market time from 2008,” Hilditch says. But gold — specifically, royalties in Nevada — beckoned.

A passion for hockey is a thread woven through Hilditch’s life — he was drafted in 1988 by the Washington Capitals and later played pro in Europe. He now coaches his own kids. And it was through hockey that he got into the gold mining business.

Hilditch grew up in Vancouver and co-founded Terraco (with a junior hockey teammate and good friend) as an oil and gas play after studying business and economics at Rensselaer Polytechnic Institute (RPI) in New York. He also played defence at RPI, a NCAA Division 1 university whose most famous mining graduate is probably Western Copper and Gold chairman Dale Corman.

One of Hilditch’s grandfathers was a miner who worked at Bralorne and Britannia, two legendary British Columbia mines. Bralorne was a storied underground gold mine that was a rare employment bright spot during the Great Depression and Britannia, now a mining museum, used to be the largest copper mine in the British Empire.

But it was an encounter at a hockey tournament in the early 2000s that got Hilditch started in gold. He was relaxing poolside one evening playing cribbage with a teammate who ran a gold company with Nevada projects. The CEO’s phone was buzzing non-stop. Conversation turned to business and Hilditch’s oil and gas play, which was struggling with its Saskatchewan properties.

Hilditch pivoted to gold and optioned two Nevada gold projects, including one from a mining veteran named Paul Schmidt. Schmidt had also optioned the Spring Valley gold project to Midway Gold. Hilditch broke his pick on the two Terraco projects, but impressive drill results from Spring Valley began to capture his attention. Terraco picked up the Moonlight property, adjoining Spring Valley on the north, in 2006. And he kept in touch with Schmidt, who had retained valuable royalties on the Spring Valley properties.

In 2010 Terraco picked up the Almaden-Nutmeg Mountain gold project in Idaho through a takeover of Western Standard Metals. Hilditch built a strong team at the operational and board levels. One of Terraco’s directors is William Lamb, the Lucara CEO whose company is preparing for Wednesday’s live auction of its historic 1,109-carat Lesedi La Rona diamond. Lamb was a Salares Lithium director at the time of the Talison Lithium takeover.

Securing the Spring Valley royalties

In 2011, Hilditch was reminded of Schmidt’s Spring Valley royalties while watching the ounces build at Spring Valley through Barrick’s joint venture program with Midway Gold. He went to visit the veteran geologist at his Colorado home in the fall of 2011 to see if Schmidt would part with the NSR royalties he owned. Schmidt was skeptical.

“I said to him, Paul, I’m interested in doing a deal here,” recalled Hilditch, who had come to the meeting prepared. “He said, well, I’ve got somebody coming to see me tomorrow and besides Todd, you and Terraco can’t afford these royalties!”

“I don’t think he expected me to drop a $20-million term sheet on his kitchen table.”

On the way back to the Denver airport, Hilditch broke into a sweat wondering how he was going to pay for the royalty options. Schmidt had given him a 45-day term to come up with the cash, which he managed to secure and got the deal done. For Hilditch, the June 17, 2016 royalty financing agreement with Waterton represented the conclusion of a journey that began in Schmidt’s kitchen in Evergreen, Colorado five years ago.

Securing the option to exercise NSRs on Spring Valley over the past five years gave Terraco a toehold in a royalty space occupied by much larger players. The market, on the other hand, provided a few hurdles to full valuation for the company. Firstly, the NSR royalties were under an option and not full ownership yet.

“The market clearly gave us a discount for ‘leasing the car’ … not owning it,” Hilditch said. The junior bear market didn’t help, especially for companies with several different asset types, including royalties, advanced-stage and exploration projects. What was Terraco going to be when it grew up?

“Terraco went into stealth mode to ride out uncertainty in the junior mining space, we were very quiet,” Hilditch explained. “The Spring Valley project itself was garnering a lot of attention based on its results, so we felt that riding the quiet period out until we could exercise the royalty options was priority #1 — and it worked.”

The intercepts at Spring Valley, by now a Barrick-Midway Gold joint venture, had become even more eye-catching. In June 2013, for example, Barrick drilled 361 metres of 1.47 g/t gold. Through their option deal with Midway Gold, Barrick upped their interest in Spring Valley to 70% by spending US$38 million as of February 2014. Including earlier private placements, Barrick spent more than $70 million at Spring Valley. The pre-feasibility-stage project was one of four flagship Nevada development projects (pre-feasibility) for Barrick.

And that’s where things stood when Barrick’s JV partner, Midway Gold, went bankrupt last year. It had nothing to do with Spring Valley — the problems were at Midway’s Pan project, also in Nevada. Barrick was grappling with a few problems of its own — most significantly, a crippling debt load of more than $10 billion.

That’s when Waterton Global Resource Management swooped in. The Toronto-based private equity giant paid US$25 million for Midway’s 30% stake in Spring Valley (through bankruptcy court) and another US$110 million to purchase two projects from Barrick — 70% of Spring Valley and the Ruby Hill gold mine.

Gold in Nevada — it’s been a company maker for Franco-Nevada and Barrick Gold and it’s a major focus for Waterton as well. Several of their deals have been for Nevada assets, with the Spring Valley transactions among the most significant. As other mining companies struggled through the bear market, Waterton has put a strong technical team (many of them ex-Barrick employees) to work with money raised from sovereign wealth funds, university endowments and foundations.

And the private equity giant isn’t done yet. After raising $1 billion in 2014, Waterton just announced another US$725-million fund for mining investments in stable jurisdictions.

That gives Waterton an estimated US$2-billion-plus under management — and ensures Terraco Gold shareholders have a serious, deep-pocketed mining group advancing Spring Valley.

There are few small- to medium-sized players in the royalty space with high-quality, safe-jurisdiction assets that don’t become targets of the majors. Mid-tier royalty companies like Sandstorm Gold and Osisko Gold Royalties need to acquire or expand organically in order to maintain and grow their stature. So do the biggest players in the space, including Franco-Nevada and Royal Gold.

Terraco’s new royalty platform, starting with the 3% NSR on a multi-million-ounce Nevada gold deposit, gives the company a solid base for growth. It could also put a target on Terraco’s back before long.

Terraco Gold
Price: 14.5 cents
Shares outstanding: 143.6 million
Market cap: $20.8 million
Cash: $3.3 million

Disclosure: Author owns shares of Terraco Gold and the company is one of a small number of Resource Opportunities sponsors, who help support the subscriber-funded newsletter. The work included in this article is based on SEDAR filings, current events, interviews, and corporate press releases. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. This publication is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions. Junior resource companies can easily lose 100% of their value, so read company profiles on www.SEDAR.com for important risk disclosures. It’s your money and your responsibility.

Introducing our new editor

Message from Tommy Humphreys:

This morning, Resource Opportunities, a subscriber-supported investment newsletter founded by geologist Lawrence Roulston in 1998, appointed its next editor, Mr. James Kwantes, currently mining reporter with Vancouver Sun and editor of the World of Mining blog.

I know this because I recruited him for the position, having been working with Lawrence Roulston to revive Resource Opportunities since last Summer.

James and I have been close friends and associates for five years since I helped him establish the World of Mining blog. He has been an invaluable editor and source of council to me in the years I have built up CEO.ca, and is absolutely determined to make a success of Resource Opportunities.

Here’s the note I sent to subscribers this morning, introducing James:

James Kwantes

James Kwantes

Dear valued subscribers,

I have very good news about the future of this newsletter to share with you today. I also have a number of company updates and developments with Resource Opportunities companies.

As founder of CEO.CA, a digital business media startup, I’m overseeing the rapid growth of our new Canadian investor app, chat.ceo.ca.

Three talented Vancouver-based web developers and myself are experimenting with new messaging technology, specifically for junior resource investors. The users are playing an important role as well, providing feedback for continual improvements.

In recent weeks, Resource Opportunities has not been getting the attention it deserves.

Resource Opportunities’ founder, Lawrence Roulston, has also been busy building up a mining private equity firm with Quintana Resources Capital ULC. While Lawrence is able to provide as-needed technical advice for this newsletter, he and I both realized you deserve a dedicated editor.

Lawrence and I are proud to introduce James Kwantes as the next Editor of Resource Opportunities. James is someone who has subscribers’ best interests at heart and will help us profit greatly as the junior mining bull market inevitably returns.

James is the mining reporter at the Vancouver Sun, the city’s paper of record. A journalist with over 20 years of experience, James has interviewed a long list of executives, financiers and minefinders. In my five years of close friendship with James, he’s shown focus on only the highest-quality mining projects and management teams (including firms like Pretium Resources, Kaminak Gold and North Arrow Minerals, of late).

It’s important for you to know we recruited James because he is honest; he made the conscious decision to keep his independence from stock promoters, making him unique among mining writers.

James Kwantes is fully invested in making profits for subscribers. He is dedicated to identifying under-the-radar and high-quality junior mining companies, and has the help of a quality network of geologists, engineers and analysts, including Lawrence, to help with critical technical due diligence.

Ongoing, I will assist James with marketing and proactively share my top exploration ideas with him. You will always still be able to find me at CEO.ca and chat.ceo.ca, where we discuss many Resource Opportunities companies.

The Jack Nicklaus of newsletter writers was one of Lawrence’s contemporaries, Mr. Bob Bishop, who discovered countless major junior mining successes before the mainstream, and was wise enough to retire in 2007, at the top of the market. Mr. Bishop accomplished great success as a newsletter writer without a background in mining; he was a journalist, able to tell both sides of a story while educating readers.

I’m not saying James is going to win 18 major championships, or even come close to Mr. Bishop’s accomplishments. But I do think he is the best person in the world to be running this newsletter, and I am excited for what he can accomplish for subscribers, especially given the current low point in the mining cycle.

Please join me in welcoming our new editor, James Kwantes. He is taking subscriber emails and feedback at james.kwantes@gmail.com. For subscription-related inquiries, please email info@resourceopportunities.com.

And with that I’d like to hand it off to James.

James is already off to the races, commenting decisively on several junior prominent junior mines in this morning’s issue.

There’s a 30 day money-back-guarantee offered for test-driving Resource Opportunities ($299/year here), and junior mining investors should consider subscribing.

Here’s to the start of something good,

Tommy Humphreys
Founder, CEO.ca
Partner site, ResourceOpportunities.com

James Kwantes’s Vancouver Sun Interviews

James Kwantes has built an impressive library of interviews with mining executives.

West Vancouver diamond pioneer Gren Thomas still in the hunt for gems
March 17, 2015

Passion, persistence pave Peter Bradshaw’s path to top
February 24, 2015

Fronk eyes majors to develop northwestern bonanza
January 27, 2015

Home soil feels good for globe-trotting gold exec, Bob Gallagher
January 20, 2015

2014 another gruelling year for miners
December 30, 2014

Mining exec Randy Smallwood rides a silver stream
December 09, 2014

Pretium Resources lands $81-million deal with Chinese gold mining giant
December 08, 2014

De Beers lifts veil on where its best diamonds come from and how much they fetch per carat
November 04, 2014

Mining deals a positive sign, but insiders skeptical
October 28, 2014

Precious metals investing in not-so-golden times
October 14, 2014

Gold mining titan retains underdog sensibilities
September 23, 2014

CEO Watson grows a golden stream at Sandstorm Gold (updated with video)
August 26, 2014

Mount Polley mine disaster a blow to First Nations cooperation on B.C. mines
August 06, 2014

‘Queen of Diamonds’ has golden plans for Yukon project
July 08, 2014

O’Dea grows mining empire through a bear market
June 24, 2014

Diamond pioneer returns to the hunt for gems
June 10, 2014

Looking ahead to the next boom
May 20, 2014

Mining: Geologist takes mineral hunt to his hometown
May 13, 2014

Mining executive Bob Quartermain goes for gold in northwest B.C.
April 15, 2014

Roundup: Pretium CEO Bob Quartermain at Vancouver mining show
January 28, 2014

Junior miners: Worth the investment?
January 31, 2012

Minefinder Dave Broughton on Kaizen’s Discovery Trail

Billionaire mine developer Robert Friedland has said that real wealth in the mining sector is created by finding something.

Friedland would know this, having driven 5+ world-class mining discoveries in his career. He knows that to find a mine you have to spend a lot of money, and drill a lot of holes.

Another secret weapon of Friedland’s is people; he surrounds himself with impressive technical minds, and provides them with big budgets and plenty of autonomy to test their theories. Statistically speaking, explorationists who have already found mines are more likely to make future discoveries.

I first met Dave Broughton on an Ivanhoe Mines field trip to South Africa and D.R. Congo last year. Friedland stood beside Broughton at the site of Ivanhoe’s world-class Kamoa copper discovery. There, a Broughton led team had chased an exploration concept from stream and soil anomalies to drill targets and eventually, a world-class discovery. Kamoa was the first major copper discovery in the D.R.Congo in a hundred years.

At the 2015 PDAC conference in Toronto, Dr. Broughton and Mr. Friedland received the Thayer Lindsley International Discovery Award for their work finding Kamoa. This was the second time the Ivanhoe group had won the prestigious award at mining’s largest convention.

Just a few hours before Dr. Broughton received the award, he met up with Exploration Insights editor Brent Cook, CEO.ca cameraman Carter Smith and myself to talk a bit about his exploration methodology, as well as his plans for a next discovery.

David Broughton, Kaizen Discovery, Brent Cook, Exploration Insights, and Tommy Humphreys, CEO.ca discuss Kaizen’s Discovery Trail at the PDAC in Toronto, Mar 1, 2015:

Tommy Humphreys: I’m here with Dave Broughton who is the exploration boss at Kaizen Discovery as well as Ivanhoe Capital group, a very accomplished geologist, and my friend Brent Cook, editor of Exploration Insights. I wanted to introduce these guys because I think some of the work that Kaizen is doing is very fascinating and Brent hadn’t heard the story yet, and knows more than I do. To start off, what is the award that you’re receiving today and what brings you to PDAC?

Dave Broughton (DB): We are receiving, on behalf of a whole lot of people, the Thayer Lindsley Discovery Award, which is given every year by the PDAC for a significant international discovery. It’s the second time Ivanhoe group has won this. They won it for OT [Oyu Tolgoi] at the inaugural event when they first awarded it a number of years ago.

Brent Cook (BC): So now you’re up in the Yukon for something different?

DB: Kaizen, late last year, picked up a package of land and took over a small company with an adjoining package of land up in the Western part of Nunavut, and its another stratiform copper play like the one we found at Kamoa [Ivanhoe Mines’ DR Congo copper discovery]. There’s copper everywhere you land, so there are good signs when you just get on the ground and wander around. That’s been appreciated for a long time, it was discovered initially in the 60’s and some work was done then, but really, nothing’s happened for about 20 years. The last group of people to be in there in a significant way on the play we’re really excited about was Cominco and that was in the early 90s.

There really are two plays, there’s a volcanic hosted copper play, that has a lot of very high grade copper, well known, lode copper, I guess you’d call it, in volcanic rocks, and there’s a more, less appreciated play, which is what we’re really excited about, and it’s in the sedimentary rocks overlying it. The rocks are similar in age to those in the copperbelt which is intriguing, and there’s mineralization that’s outcropping and in most places it’s covered, certainly 95% cover. 150 kilometre strike of these sedimentary rocks with copper showing here and there but it really hasn’t been tested.

BC: How many holes have been put into this?

DB: Well, Cominco put about a half a dozen holes at the far eastern end of the area and the rest is basically untouched.

BC: What did they find?

DB: They hit mineralization. They didn’t hit an ore grade intersection over ore grade widths, but there are lots of holes at Kamoa or Kupferschiefer, or anywhere you want to go in these systems, you don’t always hit ore on your first hole. The usual things right: persistent and all that.

BC: What sort of width and thickness are we talking in this horizon from the drilling you’ve got so far?

DB: You’ve got mineralization over metres in lenses and so on. There is some government geophysical data that gives up some idea as to what the big structures might be that might help control mineralization. We have some old prospecting that we know about. It’s really going to be getting on the ground and walking those contacts and making up our own mind of where we can find mineralization. And then we’re looking at doing a series of widely spaced stratigraphic holes, just like you would in other districts. You’ve really got to step back. These things go for kilometres, Kamoa is 50 square kilometres in area, so you really have to look at it at a base of scale and then narrow in on what you find. We’re going to take a big-scaled approach to start with and test as much of the strike length as we can, I think.

BC: What’s the access like?

DB: The access is actually excellent. We’re just south of the old town of Coppermine.

BC: Ah, the old famous Coppermine?

DB: It’s a short helicopter ride from there to the project. There’s an airstrip, regular air service. There’s an old air strip actually on one of the properties we’re going to use for direct access with a fixed wing aircraft, so it doesn’t get much better in that sense.

BC: Conceptually, what do you need to see, what do you need to find there to take it to the Kamoa stage, or up to a stage where it’s a world class deposit or something that’s really profitable.

DB: Like anywhere, you want to drill a discovery hole that’s got an ore grade and width and then you want to step out from that and build tonnes. That’s what it’s all about.

BC: What grade do you need?

DB: Up there, good question. Kamoa’s average grade is close to 3%, there are other deposits around the world that have that. If you get 3% copper of sufficient width, you’re in business.

BC: So that’s how we can judge your program. Although admittedly the first round is basic geology which I think is really smart. Get a handle on what’s going on and then zero in. If we’re going to watch this play, it’s about, first off, we get the concept, it’s coming together or it’s not coming together, here’s our targets, next round or two rounds after that, we’re getting low cost mineable widths over 3+% copper, okay.

DB: That’s the objective but like anything, you find what you find, and you go with it. They are mining the Kupferschiefer at under 2%. It really depends on all sorts of other factors, I’m not going to be able to predict that.

BC: You’re not that good yet?

DB: Not that good yet, sorry.

BC: What sort of shape is the company in? How much cash do you have and what’s your market cap?

DB: We’re in good shape. We’ve got a unique strategic relationship with the Japanese trading houses, they fund a number of our exploration projects, and we’ve got a long history of relationships with them, going back to the Ivanhoe group as well. That’s kind of our key strategic difference that we’ve got. In addition, we’ve got a treasury and no debt so that helps too.

BC: They are funding by way of placements, or getting a piece of the project, or an offtake agreement, what’s their relationship?

DB: It varies project to project. We have projects in BC where they are funding the exploration directly. They are interested in the offtake in the long term for Japan; that’s really what’s driving them. And we’re interested in the metals that work for that reason.

BC: That was Kaizen. They are looking for stratiform copper in Nunavut. Actually pretty interesting concept. If they can pull together a large enough volume of rock at 3%, which is what they’re after, it sounds like the infrastructure is not too bad, that could be quite significant. They’ve got a good deal structured with a number of Japanese groups, so it’s worth watching for sure.

Discuss @ chat.ceo.ca

FORWARD-LOOKING STATEMENTS

Statements in this video and article that are forward-looking statements are subject to various risks and uncertainties concerning the specific factors disclosed here and elsewhere in Kaizen’s periodic filings with Canadian securities regulators. When used in this video and article, words such as “will, could, plan, estimate, expect, intend, may, potential, should,” and similar expressions, are forward-looking statements. Information provided in this document is necessarily summarized and may not contain all available material information.

Although Kaizen has attempted to identify important factors that could cause actual results, performance or achievements to differ materially from those contained in the forward-looking statements, there can be other factors that cause results, performance or achievements not to be as anticipated, estimated or intended. There can be no assurance that such information will prove to be accurate or that management’s expectations or estimates of future developments, circumstances or results will materialize. As a result of these risks and uncertainties, the results or events predicted in these forward-looking statements may differ materially from actual results or events.

Accordingly, readers should not place undue reliance on forward-looking statements. The forward-looking statements in this news release are made as of the date of this release. Kaizen disclaims any intention or obligation to update or revise such information, except as required by applicable law, and Kaizen does not assume any liability for disclosure relating to any other company mentioned herein.

Disclosure: Author is a small shareholder in both Ivanhoe Mines and Kaizen Discovery. This is not investment advice. Consult a professional investment advisor prior to making any investment decision.

Photo credit: Ivanhoe Mines