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From the Yukon to Colombia, with stops in Nevada and
Mexico, Dale Mah, an equity research analyst with
Mackie Research, covers the map looking for exciting exploration plays. Mah, a trained geologist with 14 years of experience,
shares his calculations and insights into how early-stage exploration plays
can be safe and satisfying in this exclusive Gold Report interview.
Companies Mentioned: Agnico-Eagle Mines Ltd. - Amarillo Gold Corp.- AngloGold Ashanti Ltd. - Atacama Pacific Gold
Corp. - Eco Oro Minerals Corp. - GMV Minerals Inc.- Goldcorp Inc.- Guyana Goldfields Inc.- ICN Resources Limited - Kootenay Gold, Inc. - Lupaka Gold Corp. - Magellan Minerals Ltd. - Newstrike Capital Inc.- Sandspring Resources Ltd.- Smash Minerals Corp.- Southern Arc Minerals Inc. - Sunward Resources Ltd.- Torex Gold Resources
Inc.
The Gold Report: Your recent description of Atacama Pacific Gold Corp. (ATM:TSX.V) paints a picture of what every major producer is
seeking: a large oxide resource with simple metallurgy in a mining-friendly
jurisdiction with other operating mines. Are brokerages taking a pass on
covering vein-hosted gold deposits in favor of lower-grade bulk-tonnage gold
projects?
Dale Mah: Analysts have their own criteria
for what's worthy of coverage and there are many variables for evaluating a
project. The major difference between bulk-tonnage, low-grade versus
low-tonnage, high-grade projects is that the former are generally cheaper to
exploit, easier to build a resource and, in some cases, easier to market.
Atacama Pacific has a 3.6 million ounce (Moz.) resource. In our model, a
44,000-tons-per-day (tpd) operation could produce
more than 200,000 oz. of gold for 14 years. Those numbers make it easier to
finance or to find a partner, because you know it has long-term potential.
TGR: Are the large-tonnage bulk operations easier to market on the
sell-side?
DM: In my experience, yes. A project with 510 Moz. and a 10-to-20-year
mine life is a long-term investment. You know what is going to happen in the
next 10 to 20 years. You can build your mine plan from a textbook, whereas
underground, you have to follow the structure and work off a mine plan that
needs to be updated on a regular basis and hope it doesn’t disappear or
get faulted off.
TGR: High-grade underground veins are rare. There are many more
average-grade veins—say in the 4–6 grams per ton (g/t) range. Are
those projects being developed less often, given the lack of financing?
DM: The terminology of high-grade and low-grade is all relative. What
used to be high-grade can be considered very high-grade nowadays, conversely,
what used to be low-grade can now be high-grade. For example, 1 g/t is
low-grade for a decent open pit. Underground, anything high-grade is
4–5 g/t. Double digits, like 9–10 g/t overall, is very
high-grade.
As far as operating costs go, you can't beat an open-pit mine for processing
thousands of tons per day. We are seeing a shift toward feasibility projects
looking at bulk tonnage underground situations. You have a tonnage that
doesn't quite support a massive open pit or the grades aren't high enough to
support conventional underground mining. So, a lot are considering
alternative underground methods such as block caving or sublevel caving to
mine bulk tonnage underground.
TGR: Agnico-Eagle
Mines Ltd. (AEM:TSX; AEM:NYSE) specializes in that.
DM: Yes.
TGR: For geologists in your line of work, drill intercepts are like
movie trailers: if they are interesting enough, they make you want to see the
bigger picture. When you get a drill intercept release, what do you do?
DM: First, I look at the available public information: the company's website,
PowerPoint presentations and technical reports. I look at previous news
releases to see if there is a track record or if it's a one-shot wonder. I
look at the stock chart to see if there is anything unusual happening. I look
to see if good people are involved, a good technical team and strong backers.
I look closely at the plan maps and at the intercepts to see the size
potential.
TGR: Once you determine size, do you try to calculate a rough net
present value?
DM: Not right away. If there has been enough drilling, I'll do a
back-of the-envelope estimate to see if it's cut off or if there is room for
expansion and growth.
TGR: What are three drill intercepts published in 2011 that got your
attention?
DM: On May 17, ICN Resources Ltd. (ICN:TSX.V) hit a 2.9 meter (m) intercept of 1,454 g/t gold on
their Goldfield Bonanza Project in western Nevada and they are earning into
80% of the project. That intercept hit over 1 kg. of
gold over 3m. This is also within a broader low-grade envelope of 45.6m at
grades of 96.3 grams. On August 15, the company followed up with 14.9m of
164.5 grams and 12m of 222.6 grams. Both of those intercepts contained
extremely high-grade assays of 900-1,700 g/t gold.
Another is Newstrike
Capital Inc. (NES:TSX.V), which announced 230.95m of 7.5 g/t gold from its Ana Paula Project
in Mexico on April 20. Newstrike acquired 100% of
this project from Goldcorp Inc. (G:TSX;
GG:NYSE) in 2010.
The mineralization style is typical of nearby deposits in the Guerrero Gold
Belt, which includes Torex Gold Resources Inc.'s (TXG:TSX) Morelos Project and Goldcorp's Los Filos
Project.
TGR: Why would Goldcorp give up a property like that?
DM: Goldcorp drilled it and knew it had gold, but they were focused on
Los Filos. Ana Paula sat in the background as a
side project. A lot of people at Newstrike came
from Teck who historically explored the area, so
they decided to pick up Ana Paula.
TGR: And the third name?
DM: Southern Arc
Minerals Inc. (SA:TSX.V), which I cover, announced a 39.7m intercept, grading 9.4 g/t gold
from the West Lombok Project in Indonesia on May 25. It's the best hole the
company has drilled to date.
TGR: Do ICN, Newstrike and Southern Arc all
have bulk tonnage potential or are they underground operations?
DM: Newstrike would be a bulk tonnage at
surface scenario. Southern Arc has structures that are probably more typical
of underground operations, unless it finds a nice surface envelope with
decent grade on it. Then it could start with a small open pit.
ICN has been hitting some extremely high grades, but has also shown potential
for a broad, low-grade envelope with internal high-grades. It could be a
combination and start with a small, open-pit mine and go underground once the
strip ratio gets out of hand.
TGR: You recently returned from Colombia, where you visited Sunward Resources Ltd.'s
(SWD:TSX.V) Titiribi copper-gold project, where one hole hit 458m of
.46 g/t gold and .11% copper. Tell us about your firsthand reactions.
DM: The main Cerro Vetas zone, where Titiribi is located, had an inferred resource of 3.7 Moz.
gold and almost 1 billion pounds of copper, with overall grades comparable to
other worldwide porphyry deposits (0.5 g/t gold and .2% copper). It contains
porphyry and epithermal targets at or near the surface. It has good
alteration and geophysical signature, which are helpful in exploration. I
like the cluster of targets that all occur within 5 km. of the main Cerro Vetas zone; several are untested and could increase the
resource significantly. I could see growth to the 56 Moz. range after
incorporating some of the new discoveries and on September 8, 2011, the
company announced an 8.28 Moz. gold resource (2.20 Moz. indicated, 6.08 Moz.
inferred) that exceeded my expectations by about 35%.
TGR: If the copper there did get developed, would it be a combination
underground and open-pit operation?
DM: All things being equal, it would be a perfect example of an
open-pit mine. But Colombia's booming mineral exploration industry is having
some growing pains now. AngloGold Ashanti Ltd.'s (AU:NYSE; ANG:JSE; AGG:ASX; AGD:LSE) La Colosa and Eco Oro Minerals Corp.'s
(EOM:TSX.V) (formerly
Greystar Resources Ltd.) projects are having to
reevaluate their feasibility studies.
TGR: But Greystar is near the top of a
mountain.
DM: Greystar is at elevation, but the
underlying issue is about wetlands preservation that is considered crucial to
water supply. Basically, a lot of people live downstream from that project
and use that water. They don't want a big open-pit mine using a lot of water
and cyanide. Greystar had to convert a 9 Moz.,
open-pit mine to a high-grade underground project that will be just over 2
Moz. It will have a much smaller footprint, use much less water and have less
significant environmental impact.
TGR: What is the situation with Sunward's
project?
DM: It's very close to the town of Titiribi.
Standing on the ridge, you can see Titiribi on one
side and the other side is developed for farming and ranching. The region is
equatorial, so it gets a lot of rainfall. There is good infrastructure; you
can drive to it. It's well below the limits of the no-go zone established by
the Colombian government.
TGR: Is there political support for a mine there?
DM: Yes. It's in the Department of Antioquia, which is a pro-mining
district. The town of Titiribi is pro-mining and it
has good community relations. But, Colombia has no track record of putting
large scale mines into production the way Peru and Chile have done.
TGR: Let's look at some other early-stage projects in the Americas
that are on your radar and might also have a bulk tonnage appeal.
DM: We have been watching GMV Minerals Inc. (GMV:TSX.V) in Guyana. The company has been plagued by
technical drill issues, but is on track to complete its 10,000m drill program
this year, drilling in areas with known gold occurrences. It is following the
Sandspring Resources Ltd. (SSP:TSX.V) and Guyana Goldfields Inc. (GUY:TSX) model of exploration. If the
results we see from GMV are anything like what we see from Sandspring and Guyana Goldfields, it will potentially be
a good bulk tonnage scenario.
TGR: Could GMV get as big as Sandspring,
which is about 8 Moz. gold plus copper?
DM: It's too early to tell. We haven't seen any drill results, but the
potential is there geologically. They are working a land package that came
from the same vendor that provided Sandspring and
Guyana Goldfields their properties. GMV's property borders one of Guyana
Goldfields' projects.
TGR: You have written that GMV has alluvial gold. What does that mean
in terms of its metallurgy and its mineability?
DM: Alluvial gold has come out of bedrock, been moved around by water,
and deposited in sand and gravel, or old stream beds. It is easily
recoverable. You can process river gravel or river sands over giant shaker
tables or sluice boxes and recover gold using gravity methods. You don't have
to process rock by using cyanide.
GMV uses local miners as their exploration tool, people who are already
finding gold in the area. It is likely to set up a drill very close to some
of the pits because the gold has been weathered out of the bedrock source.
The company will conduct geochemical and geophysical surveys to test for
potential bedrock sources.
TGR: In a recent research report you wrote about Smash Minerals Corp. (SSH:TSX.V), which holds over 4,100 claims and is one of the
largest landholders in the Yukon, covering 846 sq. km. Smash planned to drill
3,000m this summer on several targets. Is there bulk tonnage potential in
this area of the Yukon?
DM: Again, it's too early to tell. From what I read about Smash's
targets, the company is focusing on structural zones. That would imply low to
moderate tonnage with moderate to high grades. If Smash succeeds in hitting
mineralization, I would look for a zone of approximately 30m, grading 3 g/t
before labeling it as having bulk tonnage potential.
TGR: Has there been any news out of Smash Minerals' summer exploration
program?
DM: No, we are eagerly awaiting news. The company received assays from
more than 11,000 surface soil and channel rock samples. It prioritized at
least five zones for drill testing and started drilling about three weeks
ago. It will likely continue drilling as late as it can, but will probably be
finished by October. I would look for news in November, maybe earlier.
TGR: When did you last travel to the Yukon?
DM: I visited Smash Minerals two months ago. It has geography on its
side. The property adjoins the former Underworld project, now owned by
Kinross.
Smash has a very good exploration program underway. It is trying to
accomplish two or three seasons worth of exploration
in two or three months. This year, the company did a massive grid geochemical
survey and some tested a few trenches. It collected some rock channel samples
and started to drill shortly after that. It is being very aggressive. Now, we
will just hope for the best.
TGR: Has Smash assembled a good exploration team?
DM: That's one of the things that impressed me the most. Smash uses a
world-renowned geochemist named Dennis Arne. He set up a top notch procedure
for sample collection. Everything—from the assay procedure, how many
grams will be assayed, to where the sample comes from and where it is
collected—has been extremely well designed and executed.
TGR: Are there any other exploration stories you want to share with
our readers?
DM: I would mention Lupaka Gold Corp. (LPK:TSX), which started trading in June 2011. Crucero is their flagship, a 1.25 Moz. project in Peru.
Those resources are in a target called A-1. There are 10 other targets defined
by geology, geochemistry and geophysics that all occur within a 4–5 km.
area. The company has an 11,000m drill program underway.
Another is Kootenay
Gold Inc. (KTN:TSX.V). Despite the name, their main project is the Promontorio silver-lead-zinc deposit in Mexico. It has an
NI 43-101 compliant resource of about 10 Moz. silver,
110 million pounds (Mlb.) of lead and 125 Mlb. of zinc. It also has an extension to the southwest
that could double the resource. One of the holes, DH58, was announced earlier
this year. It was drilled outside resource and hit a 205m intercept of 49 g/t
of silver, .76% lead and 23% zinc.
TGR: Any other thoughts on your coverage sector?
DM: I cover two companies in Brazil. The first is Magellan Minerals Ltd. (MNM:TSX.V) Magellan's main project is Cuiú
Cuiú, a 1.3 Moz. resource, located 25 km.
northwest of El Dorado Gold Corp.'s (ELD:TSX; EGO:NYSE) 2.5 Moz. Tocantinzinho deposit. Magellan recently discovered a new
zone that could represent near-surface resources.
The other is Amarillo
Gold Corp. (AGC:TSX.V). It recently announced a resource update where it
converted almost all of its inferred resource to the measured and indicated
category. It now stands at 1.33 Moz., an increase of 11% overall, with 1.17
Moz. measured and inferred that is 88% of the total. Amarillo Gold also
improved the overall grade as well, going from 1.51 g/t to 1.72 g/t. The Mara
Rosa Project is in the prefeasibility stage, has good infrastructure and
could be built for just over US$110M. In my model, this would be paid back in
year 1 of a 12-year mine life. The company has good exploration potential
along trend and at the Lavras do Sul Project in southern Brazil.
TGR: Now that we’re nearing the end of Q3, do you think the
junior gold sector will outperform gold in the last three months of 2011?
DM: I would like to think so, but I'm not sure of the timeframe. A lot
of situations in the world right now are holding things back. If you look at
the seasonality of the exploration cycle, the fall is typically the strongest
part of the year. A lot of the results that companies have spent the last
three or four months collecting should be coming out in Q4. It will take a
few good, significant discoveries and some good drill intercepts to get the
excitement back. I hope that once that happens, we will start building some momentum.
TGR: Dale, thank you for your time and your insights.
Dale Mah is an Equity Research Analyst based in Mackie
Research Capital's Vancouver office. Dale joined Mackie Research Capital in
June 2010 after working in mining and mineral exploration industries for over
14 years and has experience in base metals, diamonds and gold in all stages
of mineral exploration and mining, including grassroots exploration, advanced
projects, production geology, mineral processing and resource estimation. He
focuses on junior and developing exploration companies in the mining sector
operating worldwide. Dale graduated with a Bachelor of Science with a
specialization in geology from the University of Alberta in 1996, and has
worked with both junior exploration companies and major mining companies.
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