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Strategic Metals: Building long-term value in a cash-burning sector

By James Kwantes
Resource Opportunities

Every junior resource speculator, whether consciously or not, balances risk and reward. The potential for lucrative gains lures investors into this small and notoriously volatile corner of the investment world – the promise of 10-baggers and more. But risk is the admission price for entry. And it comes at a cost, even if the stock is cheap.

Unfortunately, the drill plays that offer the greatest upside potential also carry the most risk. Take too many foolish or reckless risks along the way and you won’t have money left to invest. And today’s high flyer can quickly turn into tomorrow’s pooch. That makes capital preservation a key consideration for junior resource speculators – even though the emphasis is usually on the reward side of the equation. Describing it as the lottery ticket approach to investing is not much of an exaggeration.

Enter project generators, which can allow investors to manage risk while keeping upside exposure in a sector with often binary outcomes. Project generators build value by optioning out properties – and risk – to exploration companies, typically in exchange for cash and shares. The downside is protected by cash, land and proprietary databases, while the shares of optionee companies offer upside. The business method also allows the company to dodge share dilution – a fatal bullet for many juniors.

The business model has been successfully demonstrated by Strategic Metals (SMD-V) in the Yukon. Strategic refocused to adopt the generative model in December 2005, starting out with working capital (cash + shares) of 7 cents and the stock at 21 cents. As of Feb. 14, SMD had working capital of 36 cents per share (now 37 cents) and a share price of 48 cents (now 45 cents). There have also been distributions/spinouts of 24 cents a share along the way, including Silver Range Resources (SNG-V) and most recently, Trifecta Gold (TG-V).

That works out to a compound annual growth rate of 7.6% for the stock, assuming dividends are reinvested. The growth in working capital per share – from 7 cents to 36 cents – has been even more impressive. Strategic has a volatile 10-year stock chart, but the spikes offer shareholders higher exit points. During the severe dips, Strategic buys back its own shares. Want explosive upside potential? Strategic has been no slouch, as demonstrated by 2010 and 2011 share price action. High-grade gold discoveries at ATAC’s Rackla property – along with gold’s run to US$1,900 an ounce – lifted Strategic shares above $3 for several months in 2011 (ATAC shares hit $9 that year).

Strategic Metals: working capital vs. market capitalization

 

With gold approaching 2016 and 2017 highs, Strategic is well-positioned to capitalize. The company’s dominant position in the Yukon positioned it ahead of the herd, allowing it to secure key land positions around all the projects that subsequently saw investment by majors including Barrick, Newmont and Agnico Eagle. In a sector where companies burn through capital, think of Strategic as a business that steadily grows shareholder value with a long-term outlook. As Strategic Metals CEO Doug Eaton puts it, “we don’t have the purity of the exploration plays, but we have leverage to all of them.”

Strategic CEO Doug Eaton checks out samples at Trifecta’s Triple Crown property.

The company’s main edge is the vast geological database of storied Yukon consultancy Archer Cathro, run by Strategic CEO Eaton and his team of geologists and project managers. Strategic’s brain trust has been involved in many of Yukon’s top discoveries and deposits, including Western Copper and Gold’s Casino, Rockhaven’s Klaza and ATAC’s Osiris and Tiger projects. Eaton’s knowledge of the Yukon is encyclopedic and his decades operating in the Northern territory help him snap up neglected and forgotten claims.

Strategic is known as a kind of Yukon-focused investment fund, with extensive shareholdings and a treasury currently at about $13.4 million. But a good argument could be made that the company’s true value is its property portfolio. Strategic has more than 100 fully owned projects available for option, many of them permitted for large-scale drill programs. Among them:

  • Hopper, a large porphyry-style target where Strategic assayed 0.52% copper over 45.7 metres in a trench. Geochemical surveys outlined strong copper, gold and moly soil anomalies covering a 3,600-metre by 2,500-metre area. Similar age as Western’s Casino deposit 190 km to the north-northwest.
  • Meloy, another large porphyry target in the belt that includes Casino. Chip samples graded up to 8.7% copper, 560 g/t silver, 1.06 g/t gold, 1.47% moly and 3.51% tungsten.

Strategic owns a 39.7% stake in Rockhaven Resources (RK-V) and has a 7.3% stake in ATAC Resources (ATC-V), among other shareholdings. After a busy drill season, Rockhaven is prepping a resource update and looking at processing changes at Klaza, the Yukon’s highest-grade gold deposit of more than 1 million ounces. Last year Coeur Mining bought a 9.9% stake. ATAC is advancing its Carlin-type gold deposits at the Rackla property and last year attracted a $63.3-million investment from Barrick, which is earning a 70% interest in the Orion project. There are also significant stakes in exploreco Precipitate Gold (PRG-V) and project generator Silver Range Resources, among many others.

The latest Strategic spinout was Trifecta, which is exploring properties in Yukon’s White Gold country and B.C.’s Golden Triangle. Trifecta shares flew out of the gate after listing at 10 cents, briefly trading above 30 cents. But the stock has since settled back down to the 10-cent level after disappointing drill results at the Squid claims at its Trident property. Speaking about Squid, Trifecta CEO Dylan Wallinger had pledged to “prove it or kill it” – the company has subsequently dropped those claims, optioned from Metals Creek Resources.

In addition to developments at portfolio companies Rockhaven and ATAC, there are new potential catalysts in 2018. One of the more interesting new positions will be a 19.9% stake in Territory Metals, a private company expected to IPO on the TSX Venture later this year. Territory purchased six high-grade gold and silver prospects from Strategic, which retains a 2% royalty on all the properties – and a 10% NSR on any small-scale high-grade production.

The six properties, in central Yukon’s Tombstone belt, are Mt. Hinton, Plata, Lance/Lois, News, Naws and Nels. At least a couple of them could provide fireworks. Placer miners have been pulling out multi-ounce rounded gold nuggets – believed to be near source – from Granite Creek, which drains the Mt. Hinton property. Mt. Hinton is located near Alexco’s ground in the Keno Hill district.

Plata, subject to Strategic’s high-grade NSR, also offers intriguing potential. The ore mined at Plata, which is atop a mountain, was very rich. In the 1980s, miners hand-mined and transported it down by helicopter to an air strip at the bottom of the mountain. The ore was then flown to Ross River and trucked all the way down to smelter at Trail, B.C., 2,600 kilometres away. Helicopters, airplanes and truck transport – yet the mining was still profitable.

Strategic has also made a foray into Canadian diamond exploration through a $1-million financing that gave Strategic a 45% stake in diamond exploreco GGL Resources (GGL-V). GGL has property holdings in the Lac de Gras diamond field in the Northwest Territories and a diamond database with more than $30 million worth of exploration data. In November GGL brought in David Kelsch as president and chief operating officer. Kelsch is a Canadian diamond exploration veteran who worked for Rio Tinto and was involved in the discovery of the Diavik diamond mine.

Diamonds have been generating some buzz of late. Dominion Diamond Corp., owner of Ekati and 40% owner of Rio’s Diavik mine, was recently bought for US$1.2 billion and taken private by the Washington Group. Mountain Province Diamonds, meanwhile, purchased Kennady Diamonds – a former spinco – and its Kelvin and Faraday diamond projects in the Northwest Territories for $176 million. GGL Resources has two royalties on Kennady claims, on trend with the Gahcho Kue diamond mine and Kennady’s Kelvin-Faraday corridor.

Strategic Metals (SMD-V)
Price: 0.45
Cash: $13.4 million
Working capital: $33.3 million (37 cents a share)
Shares outstanding: 89.44 million (96.8 fully diluted)
Market cap: $40.2 million

Disclosure: Strategic Metals is one of three company sponsors of Resource Opportunities and Resource Opportunities editor James Kwantes owns SMD shares, which makes me biased. Readers are advised that the material contained herein is solely for information purposes. Readers are encouraged to always conduct their own research and due diligence, and/or obtain professional advice. Dollar and $ refer to Canadian dollars, unless stated otherwise.

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An UnderValued Mining Play in a Storied Gold District

Strategic Metals (SMD-V) is spinning out Trifecta Gold, with 4 projects in Yukon’s hot White Gold district

First-mover philosophy helps Strategic beat the majors into Yukon’s best area plays

By James Kwantes

Fortunes are made, and sometimes lost, in the great mining rushes that drive people, prospectors and dollars on the heels of exciting discoveries. One of the greatest was the Klondike Gold Rush of 1896-1899, kicked off by the August 1896 discovery of gold at Bonanza Creek by Skookum Jim, Dawson Charlie, George Carmack and Kate Carmack.

Almost a year after the discovery, the SS Portland steamship arrived in Seattle. Among its passengers were several of the most successful Yukon prospectors. Its cargo included more than one tonne of gold. Two days earlier, another gold-laden ship had landed in San Francisco. In Seattle, a crowd of thousands greeted the Portland. The Seattle Post-Intelligencer newspaper screamed “Gold! Gold! Gold! Gold!” in a banner headline. The race was on.

Treasure hunters came by the tens of thousands. But they soon discovered that the prime land around gold-rich creeks had already been staked by prospectors in the Yukon. For some who got in early, it was a ticket to riches.

Fast-forward 120 years and another gold rush is taking shape in the mineral-rich Yukon. This one is being led by major gold mining companies, who are systematically buying up stakes in exploration companies in a jurisdiction the Fraser Institute describes as one of the best in the world. Goldcorp (G-T) kicked off the new gold rush in May 2016 with its $520-million purchase of Kaminak Gold and the multi-million-ounce Coffee deposit in the hot Dawson Range gold belt.

In the original Gold Rush, those who arrived early — before the crowd — were most likely to secure their fortunes. It’s no less true today. In the hunt for geological riches, “location, location, location” is key for majors in search of the next big gold district. Public companies that can secure valuable land positions — and investors who get in early — will be the biggest winners.

ENTER BARRICK
The latest major to enter the Yukon is Barrick Gold (ABX-T), the world’s largest gold miner. In an option deal announced April 10, Barrick will invest up to a total of $63.3 million in ATAC Resources (ATC-V) for a staged buy-in that will give the miner up to a 70% interest in ATAC’s Orion project. The deal includes a flow-through private placement financing of $8.3 million that takes Barrick’s stake in ATAC to 19.9%. It’s a good deal made even better because the Orion project does not include ATAC’s major discoveries — Tiger, Conrad and Osiris.

Given Barrick’s history, the partnership with ATAC is a natural. In 1986, Barrick acquired the small Goldstrike mine in Nevada’s Carlin trend. Barrick soon hit a rich discovery and Goldstrike turned into a company maker, delivering enormous profits and 50 million ounces of gold production (and counting) to Barrick. ATAC has North America’s only known Carlin-type gold mineralization outside Nevada at its vast Rackla project in Yukon. And it was ATAC’s 2011 discovery of Carlin-type gold at Rackla that sent the company’s stock above $9 that year.

PRIME POSITIONING
As the largest claims holder in the Yukon, no company is better poised to benefit from the majors’ renewed Yukon interest than project generator Strategic Metals (SMD-V). Strategic holds valuable land positions in each of Yukon’s major mineral belts, assembled over decades using the proprietary database of storied geological consultancy Archer, Cathro & Associates. Archer Cathro has had a hand in most of the Yukon’s major mineral discoveries and deposits.

In each of the recent investments by majors, Strategic had already staked claims and was positioned in the neighbourhood. The growing list of majors that have stepped up to secure their Yukon stakes is a who’s who of gold miners. Their investments validate Strategic’s early-mover philosophy.

The Barrick-ATAC deal was just the latest example. Strategic owns more than 10.1 million shares of ATAC Resources, an 8.3% stake that has increased in value more than 50% since the JV deal was announced. Strategic also has several claims and large land positions adjacent to much of ATAC’s Rackla project in Yukon’s Nadaleen Trend.

Of any of the investments by majors, Newmont’s deal with Yukon junior Goldstrike Resources (GSR-V) may have been the most surprising. The agreement, announced March 6, includes a private placement and could see Newmont invest up to $53 million for a majority stake in Goldstrike’s Plateau gold project in the east-central Yukon. It was another case of Strategic beating the majors to a potential district — the project generator had already staked ground in the prospective area. And on April 6 Strategic announced that it had added to its land position near Plateau through staking.

Goldcorp and Coffee — yes, Strategic was already there. It was Strategic CEO Doug Eaton who staked the Dan Man property, which borders Coffee’s northern boundary and is owned by Arcus Development Group (ADG-V). The Coffee gold mineralization extends right to the Dan Man property boundary and Goldcorp followed up its purchase of Coffee by buying a 19.9% stake in Arcus. Strategic owns 3,333,333 Arcus shares, a 4.5% stake in the company. Arcus is planning a 2017 drill program at Dan Man, with technical help from Goldcorp.

A NEW WHITE GOLD PLAY, FOR ‘FREE’
But the Strategic Metals holding with potentially the most upside remains under the radar, its worth yet to be determined by the market. The company is Trifecta Gold, a new precious metals exploration company that will come out of the gate with four projects in the Yukon’s hot White Gold district. Pending shareholder approval — the vote is this Friday — Trifecta shares will be spun out of Strategic Metals early next month. Strategic shareholders will receive one Trifecta common share for each 4.5 Strategic shares held. Trifecta shares will trade as “TG” on the TSX Venture Exchange.

For Trifecta, the last gold play to go public in the prolific district offers a glimpse at the possibilities. It was White Gold Corp (WGO-V), which holds a large land package after purchasing Yukon prospector Shawn Ryan’s White Gold claims. Ryan, of course, helped put the district on the map with discoveries that culminated in buyouts from Kinross (Golden Saddle in 2010) and Goldcorp (Coffee in 2016). He’s also chief technical advisor for the new exploration play. In late 2016, Agnico Eagle paid $14.5 million for a 19.9% stake in the company, valuing White Gold Corp. at $72.5 million. The market capitalization has since surged past $130 million.

White Gold’s trajectory is evidence that the Dawson Range belt has become one of the hottest gold exploration districts globally. With gold approaching US$1,300 an ounce and risk capital tentatively returning to the exploration sector, the timing couldn’t be better.

The renewal of action and interest bodes well for Trifecta Gold stock, which is expected to begin trading in early May. The share distribution record date is set for April 27. Investors who own Strategic shares before that date are staking their claim to a promising, tightly held exploration play before the stock hits the public market. Strategic will retain about 9.8% of Trifecta shares and distribute the rest to its shareholders.

Trifecta’s properties in the Dawson Range gold belt are:
Eureka — Eureka is a 70-sq-km orogenic gold project at the southern end of the Klondike Goldfields. The Eureka claims straddle the headwaters of two of the most productive placer creeks — Eureka and Black Hills — in the southern Klondike. The creeks have spit out a reported 200,000 ounces of placer gold between 1978 and 2016, and the gold’s attributes suggest that it’s near source. Eureka is drill-permitted and exploration will focus on a handful of showings identified by soil geochemistry, trenching and drilling. Eureka is along the proposed haulage route to Goldcorp’s Coffee project and could progress quickly from exploration to development.

Triple Crown and Treble — The properties are located halfway between Coffee and Rockhaven’s (RK-V) Klaza, a polymetallic gold deposit. Initial prospecting at Triple Crown yielded a rock sample assaying 6,680 g/t silver, 30.22% lead and 0.80 g/t gold. A follow-up trench there returned 570 g/t silver, 2.76% lead, 0.08 g/t gold over 6.4 metres and 106 g/t silver, 0.84% lead and 0.03 g/t gold over 9.6 metres. There are several geochemical anomalies at Treble; 2011 prospecting at one of them revealed a 100m by 120m zone of brecciated hydrothermal quartz and gold mineralization in rock samples.

Trident — The road-accessible Trident property consists of 525 claims, 195 wholly owned by Strategic and 330 optioned from two other companies. At the Squid project, optioned from Metals Creek Resources, limited drilling returned results including 21.0 metres of 1.55 g/t gold and 114 g/t silver and 12.0 metres of 1.7 g/t gold and 81.78 g/t silver.

Trifecta’s CEO, Dylan Wallinger, witnessed firsthand the type of shareholder value that discovery can create during the summer of 2010. Working out of Archer Cathro’s Whitehorse office, Wallinger was part of a small field crew at ATAC’s Rau property, where his duties included everything from prospecting to splitting core. The project was not yet a major focus for ATAC. But that changed quickly when assays were returned from one of the cores Wallinger split. It turned out to be the Osiris discovery hole announced on Sept. 1, 2010, which returned 9.26 g/t gold over 31.13 metres within a larger interval averaging 4.65 g/t over 65.20 metres.

That discovery, as gold surged toward an eventual peak of US$1,900/oz the following year, was one of the catalysts that fuelled ATAC’s rocket ride in 2010 and 2011. The stock climbed above $8 in 2010 and cracked $9 the following year on excitement about the discovery of a new Carlin-type gold district outside of Nevada.

TRIFECTA CEO: ‘PROVE IT OR KILL IT’
As president and CEO of Trifecta, Wallinger will have the chance to play a more central role in creating shareholder value. The former Archer Cathro project manager has stepped down as a partner with the geological consultancy to focus on Trifecta. Strategic is seeding Trifecta with about $750,000. Depending on the work program, Wallinger knows he’ll have to raise more money. The CEO wants to finance at higher prices than where Trifecta shares start trading.

Trident may be Trifecta’s most intriguing project. The road-accessible property hosts an air strip and several roads, as well as gently sloping terrain amenable to a mining operation. There are drill permits in place but Trifecta has applied for more extensive permits. Trident has resource-sharing possibilities — there’s a producing placer mine on the property — but also spending obligations. On the Squid option, Trifecta must spend a minimum of $500,000 in the first year ($2.25 million over three years and issue 6.5 million TG shares) as part of a staged 60% earn-in.

Wallinger says Trifecta won’t spend any more than necessary to either prove mineralization at the optioned claims or walk away. If results are positive, the company plans to mobilize more drills, heavy equipment and fuel by road and continue to work into late fall. “The idea is to go in and explore aggressively, and prove it or kill it,” Wallinger says.

Strategic has more than 100 wholly owned projects in Yukon available for option, many of which are drill-ready and fully permitted for advanced exploration.The company also has an investment fund with dozens of junior exploration investments at various stages of development. Strategic owns major stakes in:

Rockhaven Resources (RK-V) — Strategic owns a 45.2% stake in Rockhaven, which is expanding and advancing the high-grade, polymetallic Klaza deposit towards production;
Precipitate Gold (PRG-V) — Strategic owns 31.2% of Precipitate, which is advancing the flagship Juan de Herrera project located within the emerging Tireo Gold Camp in the Dominican Republic;
Silver Range Resources (SNG-V) — Strategic owns 15.3% of Silver Range, which owns four zinc-lead-silver projects in Yukon and high-grade gold projects in NWT, Nunavut and Nevada.

For some mining-focused investors, one of the knocks on project generators is a structure that prevents them from capturing the full shareholder value driven by discovery. But with the spinout of Trifecta Gold, Strategic is changing the game by surfacing value unrecognized by the market. Shareholders will have exposure to both discovery upside in one of the world’s hottest exploration districts AND the diversification of Strategic’s valuable shareholdings and Yukon claims. The price tag is low — Strategic’s working capital amounts to almost $40 million currently and its market cap is just $50 million.

Price: 0.58
Shares outstanding: 89.1 million
Market cap: $51.7 million
Working capital: $39 million

The Yukon is a major focus for Resource Opportunities and subscribers have enjoyed several wins as the best Yukon companies get rerated. Get high-potential junior resource stories first by subscribing to the premium Resource Opportunities newsletter today: Resource Opportunities. The cost is just $299 a year or $449 for two years, well below the price of a single profitable trade.

Disclosure: The author owns shares of Strategic Metals, Rockhaven Resources, Silver Range Resources and Arcus Development Group. Strategic Metals is one of three Resource Opportunities sponsors, who help support the subscriber-funded newsletter by keeping subscription prices low. 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.

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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.

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