Tag: gold

Should Gold Mining Investors Consider Kilgore Minerals?

We wrote about Kilgore Minerals this past winter, because it holds prospective U.S. uranium properties. While studying the company, it became evident the companyís uranium would take a backseat to the companyís gold property in southern Idaho. We reviewed Robert Bishopís commentary in his self-published Gold Mining Stock Report. Mr. Bishop is highly regarded as an astute junior gold stock picker, and his analysis is quite thorough. There is little doubt Bishop holds high esteem for Kilgore Mineralsí Chief Executive Norman Burmeister.

More importantly, the very successful Pinetree Capital (Toronto: PNP) has made a significant investment in Kilgore. Respectively, the Chief Executive and CFO, Sheldon Inwentash and Larry Goldberg, of both Pinetree Capital and heavily touted Mega Uranium (TSX: MGA), have personally invested in Kilgore Minerals. A recent Forbes magazine article took a swipe at both Mega Uranium and Pinetree Capital. Actually, it was more of a head butt. Pinetree Capital is back to trading above C$17/share, up from a year ago when it traded for less than $3/share. So the Forbes article was a non-event for Pinetree Capital. And their holdings in Kilgore Minerals, which reportedly are estimated at between 10 and 20 percent of the company, were passed by without notice.

Property History

Kilgoreís Idaho gold property has been explored since the 1930ís, when a gold discovery was made by the Blue Ledge Co. Nearly 50 claims were staked in 1982 and leased to a Kennecott subsidiary in the mid 1980s. Seven holes were drilled. By 1990, Placer Dome acquired the property and drilled 39 holes, more than 21,000 feet of drilling. A Pegasus joint venture drilled another 23 holes, nearly 10,000 feet of drilling, by 1994. Echo Bay earned majority interest in the property, by 1996, after having spent $3.5 million drilling 122 holes for more than 82,000 feet. In 1997, with the falling price of gold and troubles in the mining sector brought on by the Indonesia stock fraud, Bre-X Minerals, Echo Bay dropped its exploration ambitions on Kilgore ñ and shelved all of its exploration projects. In 1998, Latitude Minerals continued a modest exploration of a little more than 4,000 feet.

Near the bottom of the gold bear market, Kilgore Gold (a wholly owned subsidiary of Kilgore Minerals) acquired 100 percent ownership of the property. A new round of preliminary exploration identified new gold targets. By 2004, Kilgore Gold expanded the companyís property holdings to 3,000 acres. Has this property been drilled like Swiss cheese or does Norman Burmeister know what he is doing? Itís had nearly 200 diamond and reverse circulation drill holes, totaling more than 126,000 feet of drilling.

In an earlier interview with Burmeister, he told us, ìIím very excited about this project. It was a property that was very high on Echo Bayís list.î Major companies have expended more than $8 million to define a modest, and possibly economic, resource. At least three different entities have established resource estimates on the Kilgore gold property. In 1996, Placer Dome reported 14.1 million tons, grading 0.04 ounces/ton and with a cut-off grade of 0.015, for a deposit of 561,000 ounces of gold. A year later, Echo Bay released a sectional estimate report showing 18.7 million tons, grading 0.029, for a total of 534,959 ounces of gold.

However, the only resource estimate approved by Canadian regulators (Kilgore trades on the Toronto Venture Exchange) is the Van Brunt/Rayner Technical Report, filed in October 2002, and which is compliant with National Instrument 43-101 (NI 43-101). This report showed about 7 million tons trading 0.031, with a 0.01 cut-off grade, for an indicated resource of 218,000 ounces of gold. The report showed an inferred resource, adding another 269,000 ounces of gold. This is close enough to the Placer Dome and Echo Bay estimates, but it is unlikely to be mineable unless Kilgore finds more gold.

During the 2004 drilling program, Norm Burmeister got the sniff of what might make this an attractive acquisition by a major gold company. ìWe are looking for a high grade feeder system,î Burmeister told us. In the previous drilling program, Burmeister got and encouraging intercept of 0.465 ounce per ton gold over 10 feet within a broader 170-foot zone of low-grade mineralization at 0.04 ounces per ton. On Tuesday, Kilgore Gold made its announcement it would commence its chase to find out if, indeed, there is an elephant discovery of gold on its property.

In an email to us, Norm Burmeister wrote, ìThe high-grade zone, called the ìElsa Zoneî, was intersected at a core depth of 410 feet. It is important to note that this hole was drilled in an area that had never been drilled some 4650 feet from the resource area.î The Elsa Zone is located within the Dog Bone Ridge target area. Burmeister also pointed out, ìThere are no known workings in the area, and there is no known gold mineralization at the surface, thus making the Elsa Zone a true ëblind discovery.í Kilgoreís blind discovery in the Elsa Zone proves there may be some prospects in the very large Dog Bone Ridge target area.

Rationale

The purpose of the 2006 drilling program, Burmeister told us, is to determine ìthe true potential of the Dog Bone Ridge area target.î Niel Prenn, a professional engineer with Mine Development Associates of Reno, Nevada, completed a scoping level update of Echo Bayís 1996 assessment of the project. He wrote, ìThe project appears to have reasonably attractive economics if the ëpotentially mineable materialí can be doubled at $375/ounce gold price.î Prenn saw the Kilgore project as one with a ìlarge epithermal gold deposit.î This confirmed an earlier geological report by Stanton W. Caddey, who wrote in an October 2003 report, ìExploration potential at the Kilgore property for more than doubling the present gold resource with further exploration drilling is regarded as excellent.î

The encouraging drill hole in 2004 helped move this project to the current drilling program. ìWe believe the Dog Bone Ridge target area represents the core of the hydrothermal system that has generated the known low grade resource at Kilgore,î Burmeister speculated. Thatís why he is drilling the Dog Bone Ridge target area. The first holes will be offsets to the promising 2004 discovery hole. ìWe donít know the direction or dipping,î said Burmeister, asking ìWhich way does it go?î The first hole will help Burmeister orient the direction on the north side of the target. Burmeister told us, ìThe knowledge we hope to gain from the Elsa Zone offsets will be important in efficiently testing other Elsa ëlook-a-likeí definitive targets within the Dog Bone Ridge target area.î

Expectations

A drill campaign tends to intensify expectations. Share prices tend to rally higher, depending upon market conditions, during a drill campaign. The company hopes to drill about twelve holes, down between 500 and 800 feet, in the target area. The first hole may be encouraging, but the results from that hole function as an identifier for where to place the next drill hole. ìThe best target has never been touched,î said Burmeister, referring to the north side of the Dog Bone Ridge. As with many promising properties, they donít always offer the easiest access. In this case, Burmeisterís expectant target on the north side of Dog Bone Ridge might only be accessed by helicopter, if thatís where he has to drill.

What happens if Burmeister is accurate in his assessment? If his favored Dog Bone Ridge target does represent the core of the hydrothermal system, then what will he have found? ìAs such, it represents an attractive high grade epithermal vein-type gold target,î Burmeister responded. ìThe successful interception of high grade gold during the 2004 program confirmed this interpretation.î

In 1980, Burmeister founded Bull Run Gold Mines, serving as Chief Executive and developing a successful Nevada gold mine. He arranged the IPO, which led to a NASDAQ National Market listing, and ran the company for eight years.

For thirteen years before that, he was the chief geologist for Silver Standard Resources. Burmeister discovered the Mill Creek orebody in Elko (Nevada), which moved that company forward. The property was subsequently sold to Freeport-McMoran. Burmeister also conceived for Silver Standard of a novel regional exploration program, covering 10,000 square miles in the Yukon over nearly unexplored territory. In a joint-venture with ASARCO, he helped discovery the Minto orebody in the Yukon. The copper-gold deposit is now going into production through Sherwood Copper.

After forty years in the mining industry, he hopes Dog Bone Ridge will add to his string of gold discoveries and corporate success stories.

 

Mining

Are There Any Great, New Mining Stocks Left?

Where are the hot and cold spots around the world for resource investors? The stampeding bull market in commodities has investors reaching for new ideas. Highly respected newsletter writer Lawrence Roulston of “Resource Opportunities” favors Canada, Alaska and China for investing in mining and energy companies.

StockInterview: Let’s get the cold spots out of the way so investors are forewarned about which countries to avoid.

Lawrence Roulston:
A lot of the (mining) companies that went overseas in decades back are recognizing the political difficulties with dealing in some jurisdictions. These include places like Indonesia, Columbia, and several of the African countries, such as Congo, Sudan and Eritrea. All of those places where there are great geological prospects, but are more and more risky to deal in. I think some of that mining is coming back closer to home, which is right here in Canada.

StockInterview: So Canada is on your “favorite countries” list?

Lawrence Roulston:
At the very top of the list would be Canada. As of right now, taking into account the geological potential, political situation, infrastructure and all the other issues, I would (highly) rate Canada and British Columbia. They have had decades of work. But for the last decade, there hasn’t been very much going on. The companies are just coming back and picking up with what’s been going on. Similarly, Ontario, Quebec – tremendous geological potential – and it’s been kind of ignored for a long time. Canada is now the most important place in the world for diamonds, representing 50 percent on exploration spending for diamonds.

StockInterview: Is there a specific mineral or metal that makes Canada especially appealing?

Lawrence Roulston:
It’s the whole gambit. Canada has always been one of the top metal producers, and it’s coming back to life. Of course, gold is at the top of the list, but also base metals and uranium. The Athabasca Basin in northern Saskatchewan is far and away the most important area to be looking at, geologically. It’s currently the biggest source of uranium and contains the highest grade deposit. There are other uranium prospective areas in Canada that are just emerging. The Thelon Basin in the Northwest Territories, north of the Athabasca Basin, is very similar, geologically, to the Athabasca Basin. It had some work done in the 1970s, and it’s been pretty much ignored until very recently. Going a little further north to Hornby Basin, it is a similar kind of situation. In Labrador, the central mineral belt is just emerging as a very important place to be looking for uranium.

StockInterview: Do you have any favorite companies, which you are following and which have good prospects?

Lawrence Roulston:
NovaGold Resources (TSX: NG; Amex: NG), for example, with the Galore Creek. It’s a billion ton deposit with enormous metal content. (Editor’s Note: Galore Creek has been called one of the largest and highest grade undeveloped porphyry-related gold-silver-copper deposits in North America.)

StockInterview: What is another of your favorite areas, which has gone largely undetected during this bull market?

Lawrence Roulston:
Nevada would be at the top of the list of anywhere in the world to be working and Alaska right behind it. There is huge potential in Alaska. Mining companies have only scratched the surface of exploration up there. Two of the largest metal deposits in the world are in Alaska. These are both discoveries going back decades, but work over the last couple of years has brought them to the point where they’re now recognized as among the largest metal deposits in the world: Donlin Creek, a 25-plus million ounce gold deposit, and the Pebble deposit, held by Northern Dynasty (TSX: NDM). The Pebble deposit is significantly larger than, and of comparable grade to, Ivanhoe’s (NYSE: IVN) Oyu Tolgoi (copper-gold) deposit in Mongolia. (Editor’s Note: The Donlin Creek project is a joint venture between NovaGold and Barrick Gold.)

StockInterview: Anywhere else in the world where you can find a great, but still “new” resource investment opportunity, in light of how hard the commodities bull has been stampeding the past few years?

Lawrence Roulston:
Often the better value to be had, or the better opportunity, is in being a little bit out of step with the crowd. One of the areas offering some outstanding opportunities is China.
China has done a tremendous amount of geological work, over the last few decades, but all from the perspective of finding, and then quickly developing, small deposits. There has been very little effort devoted to taking a bigger picture type look at China. The companies that have been able to take a kind of bigger picture look at China have begun to develop what I think are going to be some pretty spectacular results over time.

StockInterview: Isn’t it tough, though, doing business in China?

Lawrence Roulston:
There is still a perception out there that China is a difficult place to do business. Most people from the west walk into China cold and try to do a deal. It would be impossible for them. But, for western companies that are able to team up with groups that are well established within China – so that they’re able to find their way through the system over there – then there are outstanding opportunities. There are mountains of geological information – all in Chinese, of course. You’ve got to be able to work within that system and get the information, know how to put the deals together.

StockInterview: What do you mean by “knowing how to put the deals together?”

Lawrence Roulston:
If I was to go over to China and try to do a deal to get access to a coalbed methane property, I wouldn’t have a clue about how to begin. On the other hand, I could walk into the Petroleum Club in Calgary, and meet a half dozen guys and talk to them. I could build on my leads, and probably in a day be talking about a deal. When you go into China, unless you have somebody on your team that can get into the system and deal with the people, because of language issues, cultural issues and just having access to the information and knowing what sort of terms that they might be looking for… It’s a different culture from every perspective, and not the least of which is a different way of doing business.

StockInterview: In your April issue, you recommended one company, which overcame those hurdles, meets your criteria and already has a coalbed methane deal in China.

Lawrence Roulston:
Pacific Asia China Energy (TSX: PCE) established connections in China. They can draw on their contacts and their network. They can get into see the right people, where they can actually talk seriously about doing deals, and have an enormous leg up over somebody that walked in cold and tried to establish and build contacts and put a deal together. I think it is an absolutely outstanding opportunity that they’ve seized on.

StockInterview: There are many coalbed methane opportunities in Alberta. Why look to China?

Lawrence Roulston:
One of the things that makes China interesting is the entry cost to get into a coalbed methane (CBM) play in China is fairly modest. For example, to go to Alberta, or anywhere in the United States, and get access to the exploration rights, or exploitation rights, is enormously expensive. In China, they walked in and, for a fairly modest up-front commitment, obtained a control position in a CBM prospect.

StockInterview: How does Pacific Asia China Energy’s coalbed methane property in Guizhou, China rate against other coalbed methane plays?

Lawrence Roulston:
I think it’s an outstanding opportunity. Chinese government agencies have done an enormous amount of work at delineating the coal. To be able to step into that amount of data as a starting point to build up their CBM resource? The bottom line is that they’re not out there looking for coal. They know exactly where the material is, and they’re able to quickly start defining the issues like recoverability. They’re drilling in order to establish the basic physical parameters of the flow rates and the content within the coal. I think the companies which are able to effectively exploit the CBM technology in China are going to be the pioneers in that area.

StockInterview: To Americans, any business in China might appear to be “pioneering,” since most of still think of China as a third world country.

Lawrence Roulston:
I’ve been to China many times and I’ve been to parts of China where most people, as tourists, would never get anywhere near, because I go there to look at mineral exploration projects and mining projects. I’ve been to every corner of the country as well as the major cities. What I see happening everywhere I go is a pace of development that I’ve never seen anywhere else in my life, anywhere in the world. That is, 1.3 billion people are going from a basically rural farm-based economy to a modern industrial economy at a pace that has just never before been conceived.

StockInterview: How do you quantify that?

Lawrence Roulston:
This is a number that most people won’t get, and you won’t get until you’ve been over there and have seen it. There are 300 million people in China that are already well into the middle class. By middle class, I am comparing (the Chinese middle class) to the same absolute standards as we would apply in Canada or the United States in terms of dollars in your bank account, value of your house and your car, and everything else. There are 300 million people that have already achieved that status, which is more than the people at that status in North America. There are another 1 billion people who are busting their butts to get to that level.

StockInterview: But isn’t the rest of the world’s rural population just as industrious and ambitious?

Lawrence Roulston:
I’ve been in Africa, the Middle East, Asia and Latin America. If you go into any of those areas and you walk into the small towns, a lot of people are sitting around drinking coffee, crying the blues and complaining about how terrible life is. Go into a similar area in China, and the people are out working in the fields. In the middle of winter, they’re fixing up their fences, the dams and terraces, and clearing rocks, removing trees and stuff like that. It’s a high level of industry I’ve never seen in any other part of the world. So it goes from that ground level right up to the entrepreneurs, and the guys who are building the high rise condominium complexes in Shanghai.

StockInterview: How long will it take before American investors realize the impact China has on the global economy?

Lawrence Roulston:
It’s going to happen in a gradual way. I think those that keep their heads buried in the sand are going to get left behind as the world pulls ahead. I would suggest any investor in any company ask the question of the company: “Is that company involved in some way in China?” There are a lot of North American companies that have a very significant presence in China in terms of doing business over there, of getting established, of selling products or manufacturing products in China.

StockInterview: Why is China so important with regards to this commodities bull market, and are there still opportunities for investors?

Lawrence Roulston:
There is a lot of geological potential, and there is the perception that it’s difficult. Therefore, there isn’t yet a big crowd of people over there chasing after deals. The flip side of it is that China and its neighbors in southeast Asia, representing 3 billion people, are going through the modern industrialization process. That is going to continue to create a massive demand for metals for, I believe, a decade or probably even a couple of decades into the future.

StockInterview: And most likely, the U.S. investor is going to be left behind or the last one into the pond?

Lawrence Roulston:
The bottom line is that Americans tend to be more inward focused. The other evening I was having dinner with an oil man from Texas who had spent a lot of time in China. He had seen China first hand and was very bullish. I asked him, “How many of your countrymen do you think really get it about China?” And he responded, “Oh, about five.” Then he said, “Congress doesn’t get it, investors don’t get it and the man in the street doesn’t get it.” Americans just don’t understand what’s happening over there yet.