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Integra Resources (ITR.V) has released an updated resource estimate on its DeLamar project where it’s currently earning a 100% interest. The total resources increased by just over 20% on a gold-equivalent basis, but what’s more important is that roughly 90% of the ounces are now part of a measured and indicated resource. That’s almost unheard of for a company that hasn’t even completed a PEA yet, and it indicates the upcoming PEA (expected in September) will be very robust as the mine life will be based on the more reliable Measured and Indicated resources rather than using an all-inferred resource.

The average grade of 0.43 g/t gold and 21 g/t silver in the measured and indicated resource is also very decent, as this represents a gross rock value of US$28 per tonne. The net recoverable and payable rock value will depend on the recovery rates (which will be lower for the heap leach operations compared to milling the sulphides).

Of the 4.4 million gold-equivalent ounces (based on a silver:gold ratio of 77.7 to 1 ratio. Using the spot prices ($1343 – $14.92) the gold-equivalent resource would be 4.15 million ounces), approximately 1.9 million ounces are classified as oxide and transitional (in the measured, indicated and inferred categories combined), which means they should be amenable to heap leaching. Considering the recovery rate for the silver during the leaching process is substantially lower than for the gold (40% versus 83%), we estimate approximately 60-65% of the 1.9 million gold-equivalent ounces will be recoverable.

This paves the way for an initial heap leach operation that would be larger than we originally anticipated. We had expected Integra to design a mine plan which included a heap leach operation for the first 3-4 years of the DeLamar mine life as A) this would be less capital intensive and B) the revenue from the heap leach operations would help to fund the equity portion of the much more expensive sulphide milling operations. Considering the recovery rate of the silver is quite low in the heap leach phase and good during the milling phase with a recovery rate of 90% for the gold and 95% for the silver at DeLamar and 86% and 63% for the gold and silver at Florida Mountain), it would make sense for Integra to put the rock with higher gold grades and lower silver grades on the leach pad, and to keep the zones with relatively high silver grades for the mill phase.

Interestingly, the Florida Mountan resource contains higher gold values in the oxide & transitional zones while the recovery rates in a milling scenario would be lower than at DeLamar anyway. It’s still very early days, but it looks like Integra could pursue a heap leach operation at Florida Mountain while keeping the DeLamar resource body intact for a milling operation to maximize the silver recovery.

But with 900,000 recoverable ounces gold-equivalent, it now looks like the heap leach phase may last substantially longer than anticipated, and this puts Integra in the luxury position to consider a two-prong approach with heap leaching and milling going on at the same time.

The PEA will be out in September, but we will try to come up with a back-of-the-envelope economic model in the next few weeks.

Go to Integra’s website
The author has a long position in Integra Resources. Integra is a sponsor of the website. Please read the disclaimer

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Delrey Metals (DLRY.C) has reported the updated assay results from its Four Corners project in Newfoundland in Labrador as the company’s consultants have now used a metaborate fusion assay method to re-sample some of the historic drill core. Applying the metaborate fusion method should result in a more complete digestion of some mineral species showing higher recovery rates over the standard four acid digestion method that has been used in the past.

Applying the new method has indeed increased the vanadium pentoxide recovery by 14-28%, and the average assay results of the three main metals (iron, titanium and vanadium) were respectively 35.07% Fe, 10.28% TiO2 and 0.22% V2O5. After applying a normal Davis Tube recovery, the Delrey team was able to increase the average grade of the concentrate to 63.1% Fe and 0.64% V2O5 which means the iron ore product meets the Fe-grade requirements to be shipped overseas to end users. It will be interesting to see if Delrey will be able to market the high-vanadium iron ore concentrate, and what the pricing of such a concentrate will be.

We feel the titanium component may prove to be at least as valuable as the iron and vanadium content. A head grade of in excess of 10% TiO2 is excellent, and the quoted recovery rates north of 80% indicate Delrey has a good shot at separating the titanium metal from the iron ore concentrate and sell it as a different product.

More testing will obviously be needed, but it does look like Delrey Metals could be producing three sought-after metals from its Four Corners project, and we will keep an eye on the developments this year.

Go to Delrey’s website
The author has no position in Delrey Metals. Please read the disclaimer

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Newcrest Mining (ASX:NCM) has mobilized a drill rig to the Havieron project pursuant to an earn-in agreement with Greatland Gold (LON:GGP), whereby Newcrest will be able to earn an interest of up to 70% in the project by spending at least US$65M on exploration on the property.

The initial drill program will consist of 10,000 meters of drilling to define the extent of the mineralization along strike and at (substantial) depths as some of the drill holes will be drilled to a depth of up to 1,000 meters. The drill program started in the final week of May, and we will probably see the first assay results in July.

Go to Greatland’s website
The author has no position in either Greatland or Newcrest. Please read the disclaimer

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A few weeks ago, we were talking to the portfolio manager of a ‘generalist’ high-net-worth individual who only sporadically dabbles into mining. Despite having a clear focus on mainstream investments, he also wanted to have some low-risk exposure to the gold sector and we learned his core positions in mining consisted of investments in royalty and streaming companies.

The underlying reason for that decision was because A) operational and geopolitical risks are diversified amongst numerous mines and operators, B) royalty and streaming companies are not required to contribute to the underlying operator’s sustaining capital expenditures, but are entitled to the benefits of these expenditures and C) in times where the underlying operator may not be profitable, a royalty/streaming company will still be making money as its returns are based on the mine’s top line performance (metal output and market prices) rather than the bottom line. Royalty and streaming companies are exposed to long term economics of a mine, insofar as the operator and the mine have to stay in production. Three great reasons for a generalist investor to consider royalty companies to be the cornerstone of a mining segment in its portfolio.

For a long time, the royalty and streaming sector was dominated by a few large companies like Franco-Nevada (FNV, FNV.TO), Wheaton Precious Metals (WPM, WPM.TO) and Royal Gold (RGLD), followed by Osisko Gold Royalties (OR, OR.TO). The problem with Franco, Wheaton and Royal is that they seem to have become a victim of their own success as it’s tough for them to find new investments that are big enough to move the needle on their share price and attributable production rates. The result: their share prices are just treading water.

This actually created the perfect circumstances for Maverix Metals (MMX.V) which was able to complete a reverse takeover of MacMillan Minerals Inc. and simultaneously purchase a portfolio of 13 royalties and streams from Pan American Silver (PAAS, PAA.TO) in mid-2016. As a much smaller royalty company, Maverix was able to pursue the aggressive growth the bigger players were lacking. While the gold price (and the share price of its competitors) barely moved over the past three years since Maverix started trading in July 2016, Maverix’s share price has more than doubled since the closing bell after its first day of trading.

And after talking to Chairman Geoff Burns and CEO Dan O’Flaherty, seeing Maverix’s recent deals and its publicly announced plan to list in the US, we feel the best is yet to come and this US$450M/C$600M market cap company could relatively quickly evolve into a mid-tier royalty and streaming company.

The business model of royalty/streaming companies is straightforward

Although we are pretty certain most investors in the precious metals sector know what a royalty and streaming company does, we will explain the basic principles again.

Royalty companies purchase royalties on mining projects, which essentially means they are making a one-time lump sum payment (sometimes tied to the project owner reaching certain milestones) in return for a certain percentage of the life of mine revenue once the project is up and running. This model has gained in popularity over the past decade or so as Franco-Nevada has paved the way for other royalty companies to follow in its footsteps. And a royalty deal benefits both parties involved.

First of all, the seller of a royalty gets a nice amount of cash up front. This could for instance help the owner of the project to complete its economic studies or it could even be part of a construction funding package. As the equity markets for mining companies remain very volatile, selling a royalty could be a very welcome component of a financing structure, instead of the dilution that comes with selling equity at lower than optimum prices. And of course, not all royalties are newly created, as there could be royalties on a project as part of a previous transaction.

A streaming deal is slightly different from a royalty agreement as it generally requires an ongoing payment per ounce of gold and silver delivered to the streaming company.

A good real-life example of a stream transaction involving Maverix Metals would be its recent deal with Ascendant Resources (ASND.TO), which operates the El Mochito mine in Honduras. Maverix recently entered into an agreement with Ascendant whereby the latter committed to sell 22.5% of its silver production to Maverix Metals in return for an upfront cash payment of US$7.5M (approximately C$10M) and an ongoing payment per ounce of silver equal to 25% of the spot price for silver. Subject to certain conditions, Maverix may also acquire an additional 17.5% of the silver production by contributing an additional US$7.5M in cash.

You may wonder why Ascendant was crazy enough to sell an estimated 165,000 ounces of silver per year (this is 22.5% of the expected payable silver output) for an ongoing payment of US$3.75/oz, and thus leaving approximately US$2M per year on the table (the difference between selling the 165,000 ounces at $15/oz or $3.75/oz).

The answer is pretty simple. Ascendant currently has a market capitalization of less than C$30M and raising C$10M on the equity markets would have had a disastrous impact on Ascendant’s share structure. So for ASND it’s an easy move to decide to sell a silver stream as the cost of capital of the silver stream is lower than the cost of equity, especially because the silver is a by-product credit of the zinc mine, and using a part of the expected silver production in a streaming deal shouldn’t have a major impact on the economics of the mine. The US$7.5M cash payment from Maverix provides a very welcome cash inflow for Ascendant as it continues putting its financing package together to expand the mine and cut the production costs to less than a dollar per produced pound of zinc-equivalent.

El Mochito Mine operated by Ascendant Resources

So, the benefit for the seller of the stream (Ascendant) is very clear. It simply is the cheapest capital available. But the benefit for Maverix Metals is also clear. The company will be able to purchase 165,000 ounces of silver per year (the expected output in the next three years at the El Mochito mine) at an ongoing payment of $3.75 per ounce, and this doesn’t include the remaining 22.5% of life of mine silver production Maverix is entitled to.

Considering the current silver price is approximately $15/oz, Maverix will make a margin of approximately $11.25 per ounce delivered by Ascendant. $11.25 multiplied by 165,000 ounces results in an incoming annual cash flow of $1.8M. And considering Maverix paid just US$7.5M for the silver stream, the payback period is just 4.5 years.

And that’s where it gets interesting for Maverix Metals.

El Mochito contains approximately 7.5 million tonnes of rock in the measured and indicated resources and an additional 5 Million tonnes in the inferred resource category (note, this resource estimate is about a year old, so there very likely will be some depletion to the tune of the 800-900,000 tonnes that have been mined since the publication of the resource estimate).

If we would assume a part of the inferred resources would effectively be converted into M&I resources and subsequently be included in the mine plan and if we would assume 8 million tonnes of the 12.5 million tonnes across all categories (the NI43-101 rules obviously prohibit Ascendant Resources to throw Measured, Indicated and Inferred resources on one pile) would be processed, the remaining mine life at El Mochito would be around 10 years (excluding the impact of the expansion plans which could shorten the mine life but increase the annual production).

El Mochito Mineral Resource Estimate – January 2018

So Maverix purchased the stream based on a payback period of 4.5 years, while it reasonably expects the mine to be open for approximately 10 plus years. The mine has been operating for over 70 years, and previous operators have always been able to replenish the resources and bring the additional tonnes into a mine plan.

Conclusion: this streaming agreement makes sense for both Ascendant and Maverix. The deal obviously wasn’t risk free as Maverix will remain subject to Ascendant’s production decisions (the mine could for instance be put on care and maintenance should the zinc price collapse), but Maverix also benefits from exploration upside (more tonnes = more silver = more deliveries to Maverix Metals) and pricing upside (should the silver price increase to $20/oz, the operating margin would increase to $15/oz from the aforementioned $11.25/oz, and the payback period would decrease to a little over 3 years).

This real-life example probably explains very well why royalty or streaming deals could be a win-win for both parties involved. Maverix is able to invest its cash while generating positive returns and for Ascendant it just was the cheapest form of capital that was available to advance their expansion project at El Mochito. Win-win.

The brief history of Maverix Metals and its competitive advantage

As mentioned in the introduction, Maverix is a relatively new company as it only started trading on July 11th, 2016. Less than three years ago.

Bigger isn’t always better and smaller companies tend to be more agile than larger competitors, while the decision-making process involves fewer layers of management. That’s very likely one of the main reasons why Maverix Metals has substantially outperformed its larger peers. The chart below compares the performance of Maverix’s share price since the first trading day (so excluding the pro-forma valuation the moment the reverse takeover occurred) with Franco Nevada, Wheaton Precious Metals and Sandstorm Gold. We used the Canadian listings for all four companies to exclude the impact of FX changes to ensure we are comparing apples to apples:

Maverix Metals compared to Franco Nevada, Wheaton Precious Metals and Sandstorm Gold. Source: Stockcharts.com

While most mature streaming and royalty companies had difficulties to post a positive performance over the past 700 odd trading days, the performance of Maverix since its very first trading day is impressive.

And this didn’t happen by accident or luck, but by acquiring new royalties (and 3 major royalty portfolios) which subsequently created a solid platform to pursue additional transactions.

Maverix acquired 3 major royalty portfolios in under 2 years

Maverix has acquired a number of additional “bolt on” royalties since they started trading, but the major boosts in its portfolio were all caused by substantial acquisitions. Thanks to the excellent reputation both Burns and O’Flaherty enjoy in the mining sector, a lot of doors were opened and strategic deals with large and well-respected counter parties (Newmont Mining, Pan American Silver, Gold Fields,…) were the result. And if Maverix meets its guidance of 22,500-24,500 gold equivalent ounces for 2019, their attributable AuEq output will have doubled over the last two years (coming from 12,000 ounces in FY 2017).

The aggressive growth is spectacular, but there also is a downside. As Maverix was able to acquire these royalty portfolios by making payments in both cash and stock (again, it says a lot about the credibility of Maverix’s business plan and key people if you see that these large companies were willing to take Maverix stock in lieu of cash), Gold Fields, Newmont Mining and Pan American Silver ended up with a combined ownership of approximately 70% of Maverix Metals. Gold Fields recently sold its stake to other institutional investors, so we currently consider the shares to have ended up in strong hands.

On the one hand, it’s great to have one large producer as a reference shareholder, having three of them probably is the best vote of confidence you can get. Each of these three major shareholders also have future ROFO’s where they must give notice to and grant Maverix an opportunity to make an offer to acquire any future royalty or stream they contemplate granting in the future. Additionally, Pan American currently holds two seats on Maverix’s Board of Directors, while Newmont holds one, which brings another layer of experience and knowledge to Maverix’s Board.

On the other hand, it also creates liquidity issues. Maverix Metals has the perception of mainly being a ‘story for institutionals’ due to its anchor investors and lack of free float. The three large companies owned 70% right before Gold Fields sold its stake, Chairman Burns owns 5.7% while CEO O’Flaherty owns an additional 2.9% of Maverix Metals.

Other board members control an additional 2% (rounded) while Resolute Funds owns ~15% (as they were one of the purchasers of the Gold Fields block), and both Tocqueville Asset Management and US Global Investors own Maverix shares as well. This means five institutions and management & insiders control a large percentage of the stock. Throw in the fact most existing shareholders are extremely pleased with the performance of Maverix so far (which reduces their willingness to sell), and Maverix’s main issue right now is the lack of liquidity which acts as a potential deterrent for other investors.

The total trading volume in the past 5 trading days was approximately 336,000 shares (in Canada), which represents a dollar volume of C$1.8M, which is quite low for a company with a market capitalization of around C$600M. So if there’s something Maverix still needs to work on, it’s spreading the message and getting more retail investors interested in the stock as that’s what ultimately drives the volume, making the stock more ‘investable’ for other parties.

A quick look at some of Maverix’s most important royalties and streams

Considering Maverix Metals has multiple royalties and streams on producing (and non-producing) mines, it would take us too long to discuss them all in great detail. We will limit ourselves to highlighting just a few, but you can find a detailed (and up-to-date!) description of the producing mines on Maverix’s ‘assets’ pages.

La Colorada, Mexico

One of the original streams that was created when Maverix Metals acquired the portfolio from Pan American was the gold stream on the prolific La Colorada mine in Mexico. Maverix is entitled to purchase 100% of La Colorada’s by-product gold production at a fixed cost of $650/oz.

Considering La Colorada will produce between 4,100 and 4,800 ounces of gold this year, the La Colorada stream should result in an incoming cash flow of US$2.5-3M and represents approximately 20% of the expected full-year..

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A little while ago, Atalaya Mining (AYM.TO, LON:ATYM) reported its financial results of the first quarter of the year after it had already pre-published its production results (re-read them here).

The impact of the lower copper price ($2.80 per pound on average) was mitigated by an 8.2% production increase as Atalaya produced just over 10,200 tonnes of copper. The revenue remained relatively stable at 51.7M EUR but the EBITDA increased by 30% thanks to Atalaya’s operating cost reductions. As Atalaya also didn’t have to pay an interest expenses, the bottom line of the income statement showed a net income of 14.16M EUR, or 0.10 EUR per share (which is approximately C$0.155 per share).

Additionally, the cash flows also remained strong at 20.3M EUR, but this excludes any allocation for the taxes as Atalaya is still tapping into its accumulated losses from the past few years. It looks like that ‘tax shield’ should help Atalaya to avoid any tax-related payments until 2022, and helps its funding efforts.

The 20.3M EUR in operating cash flow (before changes in Atalaya’s working capital position) were sufficient to cover the 17.1M EUR in capital expenditures. As you may remember, Atalaya is in the middle of a capacity expansion which ultimately should lift its copper output to 110-120 million pounds per year. The construction phase (of the final expansion to 15 million tonnes per year) reached a 72% completion rate at the end of Q1, and the mechanical completion is still scheduled for the end of this month.

For 2019, the company maintains its previously issued production and cost guidance. It plans to produce 45,000-46,500 tonnes of copper (99-103 million pounds) at an all-in sustaining cost of $2.25-2.45. This means the mine should remain profitable at the current copper price of $2.60/pound, but the operating expenses (estimated at US$1.80 per pound in Q1) should increase throughout the remainder of this year so we estimate an average operating cash flow of 11-13M EUR per quarter in the next few quarters.

This puts Atalaya Mining in a strong position to take advantage of the expected improvement of the copper fundamentals, but we hope the company can solve all legal issues sooner rather than later.

Go to Atalaya’s website
The author has no position in Atalaya Mining. Please read the disclaimer

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White Rock Minerals (ASX:WRM) and partner Sandfire Resources (ASX:SFR) have started a new drill program on the Red Mountain VMS project in Alaska. Two diamond drill programs have been approved as one of them will follow up on the discovery of the Hunter zone last year, and a second drill program has been designed to test the additional regional targets that were identified during 2018.

Additionally, the companies are doing more than just drilling. They will also complete down-hole EM surveys to find additional conductivity anomalies that could justify to be drill-tested later on, while other teams are still working on a mapping and sampling program to follow up on last year’s stream samples which detected anomalous zinc values as well.

Go to White Rock’s website
The author has no position in either White Rock or Sandfire. Please read the disclaimer

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Western Copper and Gold (WRN.TO, WRN) has started a 10,000 meter drill program on the Casino copper-gold project in Canada’s Yukon Territory. The drill program will be completed by two diamond drill rigs that will punch holes with depths ranging from 150 meters to 400 meters, in an attempt to convert more of the inferred mineralization to the measured and indicated categories where after the additional tonnes could be added to the mine plan.

This very likely won’t have a noticeable impact on the NPV of the project (as the cash flow from the additional years will be severely discounted, although reducing the strip ratio by converting waste into ore could provide an attractive boost), but a longer mine life could make the project more appealing to the eventual buyer (which will undoubtedly be a major copper or gold company which wants to make sure the project has a multi-decade life span before committing to the billions in capex the construction will require).

Drilling will continue until the end of the exploration season at the end of September, but assay results should be released from July on.

Go to Western Copper’s website
The author has a small long position in Western Copper and is looking to increase this position. Please read the disclaimer

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Lucapa Diamond (ASX:LOM) (not to be confused with Lucara Diamond) has sold 7,008 carats of rough diamonds at an auction in Antwerp for a total of US$3.5M, including some diamonds selling for US$26,000 per carat which is substantially higher than the average sales price of US$588/carat for the total production of just over 12,400 carats so far this year.

Lucapa seems to be hanging in there despite its decision to delay the dewatering of the southern pit of the Mothae mine in Lesotho, as the water will be used to keep the plant up and running in the second half of the year. The pit water will first be transferred to a new 500,000 cubic meter reservoir where after Lucapa Diamond will start its mining activities at the Southern pit, where it expects to find higher margin diamonds than at the zones it’s currently mining.

Despite mining the ‘poorer’ zone right now, the proceeds from the diamond sales are encouraging, and Lucapa is planning to put a third tender together this month as the kimberlite plant continues to recover saleable diamonds.

Go to Lucapa’s website
The author has no position in Lucapa Diamond. Please read the disclaimer

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Maya Gold & Silver (MYA.V) grabbed the headlines in April when the company announced the results of its Preliminary Economic Assessment on its Boumadine project, which shows an after-tax Internal Rate of Return of 53% and a NPV6.5% of almost US$498M.

Impressive numbers for pretty much any mining project in the world, and we don’t even mind using a 6.5% discount rate as Morocco is indeed perceived to be a safer jurisdiction compared to most other African countries. The mine plan calls for the mining of 7.6 million tonnes at an average grade of almost 102 g/t silver, 1.67 g/t gold, 4.03% ZnPb and 5.4 g/t germanium that will be processed at a rate of 1,500 tonnes per day, increasing to 2,000 tonnes per day after two years.

The grades are good, the initial capex of US$89M (total capex including sustaining capex is estimated to be US$120M) is very reasonable and the mining cut-off grade was based on a gold price of $1300/oz, a silver price of $15.5/oz, a zinc price of $1.30 per pound, a lead price of $0.91 per pound and a Germanium price of $2,200/kilo. The zinc price may appear to be a bit optimistic here, but overall, we have no objections against using these prices to determine the cutoff grade.

What we fundamentally disagree with is the optimistic price deck used for the economic assumptions. Let’s have a look:

While we don’t doubt the accuracy of the production expenses (which are estimated at US$102/tonne and appears to be a very reasonable assumption), it looks like Maya (and Maya’s consultants) fell for the ‘over-optimistic’ trap by using metal prices that are too high to be a credible base case scenario. While we would obviously love for Maya Gold and Silver to be absolutely correct about its pricing projections, it’s perhaps not the best idea to use metal prices that are substantially higher than today’s  spot prices. In the next table we are comparing the base case prices with the metals prices as of the closing bell of the metals markets yesterday, June 7th.

It’s clear that using an optimistic price deck is the main contributor to the high NPV and strong Internal Rate of Return. Fortunately the NI43-101 report also contains a sensitivity analysis, so we checked what the NPV and IRR would be using metal prices that are approximately 20% lower than the base case scenario.

According to the official sensitivity analysis, using a 20% lower metals price, the pre-tax NPV6.5% would still have been around US$360M (with an estimated post-tax NPV of around US$300-310M). And yes, that’s still absolutely excellent for a low-capex operation. Using March 29th spot prices ($1195 Au, $15.10 Ag, $0.92 lead and $1.36 zinc), the after-tax NPV6.5% was calculated at US$383M with an IRR of 47%.

As the project seems to remain quite valuable even after applying a 20% lower metal price, we don’t understand why Maya Gold and Silver was so determined to use a price deck that is way too optimistic for a maiden PEA. We think the company lost a lot of credibility on the market doing resulting in a lukewarm reaction to the PEA. If Maya would have applied more conservative metal prices, it probably would have resulted in a better value recognition by the market.

Because that’s all the market cares about these days: projects that make sense and stand out from the crowd at the CURRENT metal prices. And Maya should be proud the Boumadine project does seem to work at those prices and shouldn’t have been putting lipstick on the project by using premium metal prices.

Go to Maya’s website
The author has no position in Maya Gold & Silver at this time. Please read the disclaimer

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The mining and commodity market has been performing poorly in the past few weeks and months until the gold price suddenly woke up earlier this week, and a recent visit to Vancouver, which undoubtedly is the mining capital of the world, seemed to confirm the (extremely) negative vibes of the current market before the gold price bounced back over the $1300 level.

Fortunately, there’s always light at the end of the tunnel, and exploration stories with excellent drill results are still performing very well as the market seems to be pulling itself up to discoveries and great exploration results. Great Bear Resources (GBR.V) appears to be catering to the market’s needs as the company’s discovery of a high-grade gold system at the Dixie gold project in Ontario’s Red Lake Gold district just keeps on giving. Great Bear has been busy with the (main) Dixie Hinge Zone, but its regional exploration program is paying off as Great Bear announced a new high-grade gold discovery at the Bear-Rimini zone on its extensive land package.

Red Lake: Property History The discovery of the Bear-Rimini zone

Last week, Great Bear requested a trading halt to provide an important update on its Dixie gold project, where the company announced a new high-grade gold discovery approximately 2.5 kilometers away from the Dixie Hinge Zone, which has been the center of attention during the past year.

Although Great Bear provided the drill results of just one hole, the discovery hole has a very meaningful impact on the perception and the scope of the entire Dixie gold project. In fact, the single discovery hole contained three separate mineralized zones: an ultra high-grade zone relatively close to surface, a wider zone that’s ‘just’ high-grade and a third zone which appears to be a very thick layer of low-grade gold mineralization with an average grade of 0.74 g/t gold.

And Great Bear played it fair. Rather than announcing 2 meters of 194.2 g/t gold (including 0.5 meters of 759 g/t gold, indicating the remaining 1.5 meters of the interval contains almost 6 g/t gold), Great Bear used the 14 meters containing 12.3 g/t gold as its headline result. Deservedly so, as that’s an interval with a thickness that’s much wider and a grade that’s a bit higher than your average Red Lake intercepts.

Map of the Dixie project showing the location of known gold zones (DHZ, DL, DNW and DNE) and current drill results. The location of the LP Fault drilled in DNW-011 is shown in red dashes.

What makes the discovery hole even more interesting is the fact that these zones are incredibly close to each other. From the bottom of the 2-meter interval to the start of the 14-meter intercept, there’s only 15 meters in between both zones. So within the first 85 meters from surface, GBR’s new discovery (called Bear-Rimini after the group of local geologists that has been working on the project for Great Bear) hosts two high-grade gold zones with mineable widths.

The very thick zone of low-grade material made us scratch our heads. We spoke with Bob Singh and David Terry, two geological masterminds who are respectively the VP Exploration and an independent director of the company at a Discovery Group-hosted presentation in Vancouver last Wednesday, and Singh confirmed he had been searching for similar types of deposits/mineralized structures all over the world but was unable to find a perfect match. So not only does the discovery hole confirm the mineralization is very wide-spread all over the Dixie project, the hole also encountered what appears to be a rather unique sequence of gold mineralization and we are sure Great Bear’s technical team is dying to figure out the details and interpretation of the Bear-Rimini gold structure.

Discovery Group-hosted presentation in Vancouver last Wednesday

The re-interpretation of the district

The discovery of the high-grade gold at Bear-Rimini appears to fully confirm the exploration theory about the LP Fault which is interpreted to be a major gold mineralization control as it acted as a hydrothermal fluid conduit during the Archean age. Considering there’s approximately one kilometer between the LP fault and the North Fault, Great Bear now thinks this zone could be an area where gold rich fluids accumulated, so there may be much more to be found.

And one of the images included in GBR’s press release showed the similarities between the fault structures that host the Red Lake mine complex and the LP Fault which appears to be controlling the gold mineralization at Dixie.

Lithoprobe 3D time travel tomography cross sectional interpretation showing two major crustal-scale structures in the Red Lake district, modified from Zeng and Calvert, 2006. The structure on the right is associated with the main mine trend including Newmont Goldcorp Corp.’s Red Lake Gold Mine. The structure on the left is the LP Fault at Great Bear’s Dixie project.

We already know the LP fault is expected to reach a depth of about 14 kilometers, but the Bear-Rimini discovery now also provides insight on the potential strike length of the LP Fault. All 15 drill holes that have been drilled along the LP fault over a distance of 2.5 kilometers have intersected anomalous or moderate gold grades. Most of these holes were drilled by previous operators and they didn’t fully realize what they could be sitting on as approximately 80% of these historical holes have never been split and assayed, so Great Bear will now embark on a large re-logging and re-assaying campaign to figure out if the previous operators might have missed something during their own drill campaigns.

The Hinge zone keeps on giving as well

With all the excitement surrounding this new discovery on the Dixie gold project, one would almost forget the Dixie Hinge Zone. It’s where it all started, and the zone continues to yield excellent exploration results as Great Bear’s hit ratio remains exceptionally high.

Cross section through the DHZ (view to west) as drilled to-date, showing the approximately 100 metre wide corridor of multiple high-grade gold veins. New results are highlighted in yellow. The DL zone is also shown on the right of the image.

In a late April update, Great Bear released the results from seven drill holes, which were all drilled on the so-called Dixie Limb zone (directly north of the Dixie Hinge Zone). All holes intersected gold, but three holes that assayed higher grade gold values offer important insight on the structures that control the gold mineralization as these three holes intersected gold at the predicted plunge. This could make Great Bear’s life much easier going forward as the high-grade gold zones at the Hinge Zone also appear to be predictable based on the plunges.

Upon reviewing the data from previous exploration programs and drill holes, Great Bear’s geologists noted the grades and thicknesses at Dixie Limb appeared to increase along a 100-meter strike length centered on the predicted intersection of the vein and the Dixie Limb.

The three holes that were drilled to test this theory effectively contained high-grade gold mineralization over mineable widths. Shorter intervals like 2.3 meters of 9.29 g/t is typical Red Lake stuff, but there were also some longer intervals (like 5.3 meters containing 9.15 g/t gold) as well as narrower but ultra high-grade zones with 1.5 meters grading 20.12 g/t gold and 0.5 meters at 24.38 g/t gold.

And just one week later, additional assay results from 30 meter and 100 meter step-downs along the projected plunge at the Dixie Hinge zone were published. Both stepdown holes have hit identical styles of high-grade gold mineralization, confirming the potential to find more gold at perhaps a higher average grade at depth.

With 3.7 meters containing 28.37 g/t gold (including 0.5 meters of 200 g/t gold), Great Bear has been very successful in proving the mineralization appears to continue at depth as the mineralization was encountered at a depth of approximately 273 meters. Other holes also contained several high-grade gold intervals, and this only strengthens and confirms Great Bear’s exploration thesis: the ‘corridor of gold veins’ continue at depth.

Hole 39 is now indeed the deepest hole where high-grade gold mineralization was successfully intersected, but this hole very likely is just the prelude of what could be found at lower levels. After all, gold mineralization in the Red Lake camp can easily continue to depths of in excess of 2 kilometers.

With 63% of the holes that have been completed at Dixie Hinge hitting grades of in excess of 15 g/t gold, the hit ratio is phenomenal. And that’s also one of the reasons why Great Bear decided to focus on its Dixie gold project by allowing GoldON Resources (GLD.V) to earn an initial 60% interest in GBR’s West Madsen project, where after it could acquire full ownership of the project.

Terms of the Option Agreement

To earn an initial 60% interest in the West Madsen Property, GoldON must:

(a) incur minimum Exploration Expenditures on the Property, as follows:

(i) $100,000 on or before the first anniversary of the Definitive Agreement;
(ii) a cumulative total of not less than $350,000 on or before the second anniversary; and
(iii) a cumulative total of not less than $750,000 on or before the third anniversary; and

(b) pay cash to Great Bear as..

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