The Gold Report: Brian, thanks for joining us today. GFG Resources Inc.'s (GFG:TSX.V; GFGSF:OTCQB) 2016 drill program at Rattlesnake Hills in Wyoming discovered a new zone northeast of Antelope Basin and showed the potential to link the North Stock and Antelope Basin deposits. How large is the 2017 drill program? What are its goals?
Brian Skanderbeg: GFG is planning an aggressive 2017 drill program. We're going to drill 15,000 meters (15,000m) this year at our Rattlesnake Hills Gold Project. The focus will be on expanding the deposits and growing the new discovery proximal to Antelope Basin, as well as focusing elsewhere on greenfield opportunities. It's a fairly large program, the first aggressive program that GFG has completed on this property.
TGR: What do you have planned for greenfield exploration?
BS: Throughout 2016 and in early 2017, we've done a lot of detailed work—geophysical, geochemical, modeling—generating the targets that we feel offer a lot of upside in this district. We're going to test six of them this year. These are all kilometer-scale targets that have either rock or soil anomalous geochemistry with them, as well as geophysical signatures consistent with the deposits that exist in the district already. We will put 5,000m into testing six regional targets, none of which have had drill testing on them.
We feel very strongly that there's a good probability we're going to make a discovery in this district and continue to grow the number of deposits and build a significant resource base.
TGR: If you're going to put about 5,000m of drilling into the greenfield, does that mean that you're going to drill about 10,000m to expand known mineralization?
BS: Yes. We see a very good opportunity to grow the areas of known mineralization along strike, to link deposits together, to expand on the discovery area, and to find offset extensions to them. These are all brownfield-style targets that have a high probability of success from drill testing. At 10,000m, it'll be about 35 holes. And they, for the most part, are within 500m of North Stock and Antelope Basin and/or Blackjack.
TGR: What are some of the similarities between Rattlesnake Hills' geology and that of Newmont Mining Corp.'s (NEM:NYSE) Cripple Creek gold mine and Coeur Mining Inc.'s (CDE:NYSE) Wharf gold mine?
BS: Rattlesnake Hills is an alkaline gold system, and these are associated with relatively young alkaline intrusive districts. Both the Cripple Creek and Wharf mines are characterized by the same suite of intrusives. They're the same age, and have the same composition and the same style of emplacement. We're confident that the underlying district-scale characteristics are similar to that in terms of geology, geochemistry and timing.
Cripple Creek has been a very productive district historically, mining well in excess of 20 million ounces (20 Moz) of gold and continuing to have about 5 Moz of reserves. It's probably a 30 or 40 Moz gold district. It shares similarities to Rattlesnake Hills in terms of the age and the nature of the mineralization being largely diatreme hosted. It is largely an open-pit operation, at present mining both oxide and sulfide that is consistent with what we see at Rattlesnake Hills.
Our vice president of exploration, Tim Brown, worked for 23 years at Cripple Creek as its chief geologist and exploration manager. He knows the system well. He had visited Rattlesnake Hills while with AngloGold Ashanti Ltd. (AU:NYSE; ANG:JSE; AGG:ASX; AGD:LSE) and sees a lot of similarities. He was happy to come work for us and apply the experience of what he learned at Cripple Creek. So, there are strong analogies to Cripple Creek to one side.
The other side of the equation is Wharf, which I think is an underappreciated mine. It was sold by Goldcorp Inc. (G:TSX; GG:NYSE)) to Coeur just over two years ago. It produces about 110,000–120,000 ounces of gold a year (110–120 Koz/year), a very profitable operation, heap-leach oxide system, about a 3 Moz historical production, 700 Koz of current reserves. It's probably a 3, 4, 5 Moz system, very economic, and solely mines the oxide. It is the same age, same geology and same structural controls as what you see at Rattlesnake.
The distinction between them and what we have is Wharf mine is solely an oxide heap-leach operation. Cripple Creek mine is both oxide and sulfide. And at Rattlesnake Hills, we see oxide plus sulfide. Depending on what we find in the scope of the resource, we'll determine down the line what production may look like, whether it's solely oxide or whether it's oxide plus sulfide.
TGR: Are you looking at open-pit mining?
BS: Typically, these districts are open pit, a function of being broad, breccia-hosted, sulfide-replacement systems, often structurally controlled or structurally influenced as well.
The caveat is—and there are always some systems that don't follow all the rules—Cripple Creek is a very large open-pit mine as it is reflected today. Historically, though, the bulk of its production came with a narrow-vein underground mine. Wharf has always been, in its current vintage, an open-pit mine, although historically it was also an underground mine where they mined some deep structures. They weren't veins, but they were narrower, high-grade structures that could be mined underground.
What we are exploring for, and the bulk of what we've seen in drill intercepts at Rattlesnake Hills, would be an open pit in terms of the depth of mineralization and compared to the widths as well. So, we're certainly on an open pit-style target at Rattlesnake Hills.
TGR: Rattlesnake Hills has a significant history of interest from senior producers, including Newmont, Goldcorp and Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE). Could you tell us a little about its history and past exploration results?
BS: I first learned of and followed the Rattlesnake Hills asset under one of the companies that we acquired a portion of our land position from, Evolving Gold Corp. (EVG:TSX; EVOGF:OTCQX; EV7:FSE). Evolving Gold did a fair bit of work and outlined the scope and scale of the deposits from 2008 through 2012. After having some success in 2008 and 2009, Goldcorp placed a corporate investment into Evolving Gold. And in 2011, Agnico Eagle negotiated a joint venture (JV) on the property. Both of those companies saw scope and scale for the size of the deposits they were looking for.
When you look at the path under Agnico—the company was there for about a year—it had 23 regional drill targets, none of which was drill tested. It actually abandoned the JV in 2012 after the gold price collapsed. Before joining GFG, I had a conversation with the Agnico group. There is still a positive view on the asset. I think Agnico left because of timing and a poor JV structure.
What I take out of this is that this system has hallmarks, scale and size that are attractive to mid-tiers and majors. And that reflects both the level of the past drilling and the nature of the system, being an alkaline gold system and being district scale. A lot of these district targets have yet to be drill tested. They will be drill tested this year under GFG, though.
So, a fair bit of work was conducted under Evolving Gold and partly under the JV with Agnico and Newmont. There's one other group called Endurance Gold Corp. (EDG:TSX.V), a junior out of Vancouver, that controlled a portion of our land position. It did no drilling on it. There are several high priority targets on that land position that we will be testing this year as well.
When GFG was put together in 2015, it acquired these land positions off of two juniors that were financially in pretty tough shape. We all are familiar with the cycle of the capital markets, and at certain times, it's very difficult to raise capital to advance a project. GFG and our shareholders were able to take advantage of that and raise some private capital at the low of the cycle to take control of what is a very major land position.
TGR: What is Wyoming like as a mining jurisdiction and what is your permitting situation at Rattlesnake Hills?
BS: Wyoming is not a common jurisdiction that you hear about from a gold perspective. It is sought after for uranium and coal and oil and gas. It is a resource-driven economy. It is the least densely populated state in the U.S. outside of Alaska.
We see it as a good place to do business in the sense that government is supportive of extractive industries. Despite the fact there are no other gold mines active in the state, there are a number of open-pit uranium mines and underground and in situ leach uranium mines. There are also very large coal operations and oil and gas.
We think from a permitting perspective, the state would be permissible and something similar to that which you'd see in the good parts of Idaho or in Nevada. We are largely on U.S. Bureau of Land Management (BLM) land, which means it's under federal jurisdiction. There are a couple of state leases we hold and a bit of private land as well on which we have mineral rights.
Right now, we work under a Plan of Operations and a Notice of Intent for our exploration activities. We have inherited that Plan of Operations from Evolving Gold and Agnico. We're in the process of expanding the plan to include some of our testing that is proximal to the deposits. And we're also in the process of having a Notice of Intent approved with the BLM and with the state, which allows us to test some of the regional targets.
TGR: When do you expect to start to get drill results in? And when do you plan to release a maiden resource estimate?
BS: Our drill program will begin early in July, initially with one rig and ramping up to three rigs: two reverse circulation rigs and one core rig. Given that time frame and the typical time to turn around holes and assays, we would expect initial assays later in August or into September. This should be good timing for the fall markets, which are typically seen as a little more positive for gold and certainly garner more awareness from the market sectors base. We expect drill results to continue through Q3 and into Q4 and likely into Q1/18 before we get the final results out.
We plan to advance toward a resource estimate based on the historical drilling that's been completed but, also, incorporating the current program and the 2016 program into that resource estimate. So H1/18 would be our public guidance on coming up with a resource.
TGR: In addition to the resource estimate, what other catalysts do you foresee?
BS: The exploration results that you'll see coming out here in Q3 and Q4 will be quite material. A number of these targets have never been tested. And success in any one of our six regional targets would dramatically shift the potential of the district. We think there's good opportunity in that we're onto a 1–2 Moz system quite easily with North Stock and Antelope Basin. Discoveries elsewhere in the district could turn this into a much larger system.
We will also look to further some metallurgical test work based on the preliminary work that's been completed to date.
TGR: Can you talk about GFG's cash position and capital structure?
BS: Our capital structure is pretty simple and pretty lean. We became public in late October of 2016 and, essentially, we rolled the GFG Resources private company through a reverse takeover into Crest Petroleum Corp., which was a shell that we had access to. That became public, and we subsequently renamed the company GFG Resources in October.
We moved through and carried about US$1.5 million ($1.5M) out of the private company. In Q1/17, we raised CA$5M under a bought-deal financing. We currently have a budget for 2017 of US$5 million. That's a corporate budget that is fully funded. At the start of the year we had just over US$5M. Right now, we're hovering right around US$4M, and we anticipate that to be adequate financing for the entirety of the drill program and to take us into 2018.
Share structure would be about 50M shares out. We trade on the TSX Venture as a tier two listing. And we also trade on the OTCQB in the U.S. under the ticker GFGSF. Insiders own about 15% of the company, so there is a very leveraged insider group and a very tight share structure, trading around $0.70, $0.75 these days, which implies a market cap of around $35–40M.
TGR: Would you tell us about the management team and the board of directors and their experience?
BS: For us at GFG and working in the mining space, it starts with people, as it does in most sectors. We've put together a highly credible team of executives and management as well as board.
I was formerly the president and CEO of Claude Resources Inc. and held roles as vice president of exploration, chief operating officer and CEO before we were acquired by Silver Standard Resources Inc. (SSO:TSX; SSRI:NASDAQ) for CA$340M in June of last year and brought the team from Claude across into GFG.
We have Marc Lepage as our business development and investor relations vice president, and Rick Johnson, who is our chief financial officer. The three of us were all with Claude. Together, we added Tim Brown, and Tim is a key guy as vice president of exploration and is our U.S. presence based out of Colorado. He had 23 years with Anglo, and has very deep experience in alkaline gold systems and particularly at Cripple Creek but, also, looking at greenfield opportunities in North America for Anglo. That's our executive team, the four of us.
We have put together with a very strong board, where we have our founding CEO of GFG, Jon Awde. He is also the CEO and founder of Gold Standard Ventures (GSV:TSX; GSV:NYSE MKT), which is a very successful Nevada explorer and developer. And he was the one that brought me into the GFG group.
Patrick Downey is our chairman. He is currently the CEO of Orezone Gold Corp. (ORE:TSX). I got to know Paddy very well through Claude and through Elgin Mining Inc. and a number of other ventures. He is a very successful metallurgical engineer, has strong capital market experience and a great track record.
Steve de Jong, who just sold Integra Gold Corp. (ICG:TSX.V; ICGQF:OTCQX) to Eldorado Gold Corp. (ELD:TSX; EGO:NYSE), is on our board as well.
We have four CEOs who have all been successful at building companies, advancing them, making discoveries and completing transactions to build value for shareholders.
We also have Arnold Klassen, who is on Kirkland Lake Gold Inc.'s (KL:TSX; KLGDF:OTCQX) board, and he is our audit chair; he's the former vice president of finance for Dynatec Corp.
We have a very credible, deep team at the executive and board levels, with strong insider ownership. For a junior of $35–40M, we would put this team up against most seasoned explorers and certainly many developers and even producers in terms of the people behind it.
TGR: Any parting thoughts for our readers?
BS: We've been relatively quiet over the last six months, a function of not drilling since last November. But we've turned that corner, and we're about to have a very aggressive three-rig program start that we expect to be very newsy. And we're fully financed to do it. We think there are very key drivers and key milestones that'll certainly attract some attention moving through the summer into the fall for GFG.
So, keep an eye out, certainly on our website. And feel free to either reach out to myself, or Marc Lepage at our office in Saskatoon or by e-mail. And we're happy to take any other questions you may have.
TGR: Thank you for your time.
Brian Skanderbeg, P.Geo., is president, CEO and director of GFG Resources Inc. He was most recently president and CEO of Claude Resources Inc., which was acquired by Silver Standard Resources for $337 million. He previously worked for Goldcorp, Inco Ltd. and Helio Resources, holding positions in both exploration and operations. He holds a B.Sc. from the University of Manitoba and an M.Sc. from Rhodes University, South Africa.
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Disclosure:
1) Patrice Fusillo conducted this interview for Streetwise Reports LLC and provides services to Streetwise Reports as an employee. She owns, or her family owns, securities of the following companies mentioned in this interview: None. She is, or members of her immediate household or family are, paid by the following companies mentioned in this article: None.
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