Blue-Sky Gold Potential Right in America's Backyard

Arizona ranks second in the U.S. for mineral production, with copper topping its list of mineral products, followed by molybdenum, which is often found in tandem with copper. A number of large mining companies are active in the state:

The mining behemoth Freeport-McMoRan Inc. (FCX:NYSE) has five mines open-pit copper mines in the state, and is actively exploring the Lone Star project, which is located adjacent to its Stafford project. The company believes that production from Lone Star could begin in 2021 and could have a 20 year mine life. Lone Star would use Stafford's existing infrastructure.

Resolution Copper is developing another copper mine in Arizona that could become the U.S.'s largest copper mine, capable of meeting 25% of the U.S.'s demand each year. The deep mine, over a mile underground, is being built under the historical Magma copper mine. The company is a joint venture between subsidiaries of two mining giants, Rio Tinto Plc (RIO:NYSE; RIO:ASX; RIO:LSE; RTPPF:OTCPK) and BHP Billiton Ltd. (BHP:NYSE; BHPLF:OTCPK).

"Kerr Mines' Copperstone project is of significantly higher grade than most of the deposits in the western U.S." - Fundamental Research

Arizona is also seeing zinc exploration. Arizona Mining Inc. (AZ:TSX) recently received, four months ahead of plan, all the permits required to construct two exploration declines at its Taylor zinc-lead-silver project in Santa Cruz County. The project currently has a Measured mineral resource of 15.2 million tons grading 9.6% zinc equivalent; 85 million tons grading 10.5% zinc equivalent Indicated; and 43 million tons grading 11.9% zinc equivalent Inferred.

Gold has a much lower profile than copper and zinc in the state. While visitors can pan for gold along several of Arizona's rivers, larger-scale gold mines are as scarce as water in the Sonoran desert.

That is about to change. Kerr Mines Inc. (KER:TSX; KERMF:OTC; 7AZ1:FRA) has been actively exploring bringing the past-producing Copperstone Gold Mine in western Arizona back to life.

Copperstone, located in mining-friendly Arizona, has a lot going for it. The fully permitted mine is built and there is infrastructure on site. It already has a 300,000 ounce resource, and the land package offers lots of exploration potential.

Copperstone was mined by Cyprus Minerals as a heap-leach surface mine from 1989 to 1993, when it was decommissioned. Between 2010 and 2014, a previous junior mining company developed a small underground operation that was put on care and maintenance due to engineering and financial issues, as well as a downward trending gold price. Some 500,000 ounces of gold have been produced at the mine.

Kerr acquired Copperstone in 2014.

The previous owners of the mine had made large investments in infrastructure and drilling. The existing underground access, mill, surface impoundments and related infrastructure are well built and are in sound working condition, according to the company. The infrastructure investments were made relatively recently and cost the previous operator between CA$50 million and CA$60 million; today they would cost over CA$100 million to replicate, Kerr CEO Claudio Ciavarella told Streetwise Reports.

Kerr over the last six months or so has released some eye-popping drill results. On Feb. 21, the company announced that Copperstone hole KER-17U-50 returned a 7.3 meter drill hole interval with 102.7 g/t gold, an off-the-charts result.

On January 15, Kerr announced an increase of 255% of mineralized extents in the Footwall zone, "including an increase of 223 meters of strike and 91 meters of dip extents compared to previously announced Footwall Zone." The company also noted the discovery of a "new and separate Footwall mineralized zone with 105 meters of strike and 240 meters of dip." This area remains open along strike and dip. The company also noted the presence of copper as high as 2.78%, which could be an additional revenue source for the mine.

And on December 5, Kerr noted that hole KER-17U-12's total interval length is 60.5 feet at 27.0 g/t gold, another high-grade result that also increased the down-dip extension of the deposit.

The company released results from its prefeasibility study on April 10.

According to the prefeasibility study, the 300,000-ounce resource begins beneath an open pit 500-feet deep, and the company's biggest news suggests interesting numbers for future development. Based on the company's recent news release, it expects to jump into production quickly.

A Clear Path to Production

The study shows strong highlights for both the quality and quantity of the gold found in Copperstone. The company announces a base case of $1,250 per ounce of gold, which is about $65 below today's price. With average annual sales of 38,347 ounces gold, the company expects payback of initial capital ($22.7 million) within 2.3 years of a 2019 production start. That low capex of $22.7 million also includes a mine equipment capital lease. With a study life operating margin (EBITDA) of $89 million and an internal rate of return of 40%, the company is confident in starting production next year.

With the infrastructure in place and strong numbers, the company says it has a 95% average of recovering gold using crushing, grinding, and whole ore leach.

CEO Claudio Ciavarella estimated that the company could be looking at 100,000 ounces of gold per 100 vertical feet of its Copperstone project. While the open pit was initially 500 feet deep, the company has added an additional 300 feet. Ciavarella says Kerr Mines could go another 400 to 500 feet deep.

"If this mineralization continues at the same rate, this would mean that we could grow the resources to around the 1,200-1,400-foot level and add another 300,000 to 400,000 ounces in resources," explained Ciavarella.

Kerr Mines' president, Martin Kostuik, shares the excitement: "The results of this PFS display the strong near-term production opportunity for the Copperstone Mine and robust returns for our investors. This is just the beginning."

The company threw out big-picture numbers for the long term. According to the study, the study life operating margin (EBITDA) is $89 million, with an internal rate of return of 40%.

5-Year Projection

The company has identified its first five years of gold production. Per the company's production schedule, the company expects to mine over 1.2 million tonnes in total.

"The impressive exploration upside displayed by the 2017 Phase I program, the historical production of over 500,000 gold ounces and the potential to generate solid positive cash flows by identifying the first four years of gold production, all point toward the opportunity of many more years, beyond the Study timeframe, of profitable production," said Kostuik.

Furthermore, the company is pleased that there are 100,000 ounces of measured and indicated mineral resources that were not included in the confirmed mineral resources. According to the company, part of this additional 100,000 ounces of gold is immediately accessible for drilling and potential inclusion during the phase 2, 2018 drill program.

A Copperstone Gold Mine tour video is available here.

Fundamental Research Corp. released an investment analysis for Kerr Mines on April 18. Analyst Siddharth Rajeev noted that "at an average grade of 7.36 gpt (across the resource categories), the Copperstone project is of significantly higher grade than most of the deposits in the western U.S."

Rajeev also expressed the belief that "the PFS was very conservative as it only accounted for 63% of the measured and indicated resource. Also, we believe the current resource and NPV estimates do not account for any upside potential from the ongoing exploration. A newly discovered Footwall zone has potential to be of the same dimensions as the main Copperstone zone."

"Approximately 100 Koz of measured and indicated resources were not included in the reserve estimate, which we believe would have added another 2 to 3 years to the mine life, and potentially $50 million in additional operating profit," Rajeev added.

Fundamental Research has a Buy rating on Kerr and assigns a fair value estimate of C$0.49 per share. The stock currently sits at CA$0.24.

Currently, there are 255 million shares outstanding, with 32% held by management and directors. Eric Sprott has an approximately 7% stake in the company.

Technical analyst Clive Maund on April 10 reiterated Kerr Mines as a strong buy: "It looks like Kerr will break to the upside soon from the current tight range, and it is therefore rated a strong buy here."

Want to read more Gold Report articles like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent articles and interviews with industry analysts and commentators, visit our Streetwise Interviews page.

Disclosure:
1) Nikia Wade compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: Kerr Mines. Click here for important disclosures about sponsor fees. As of the date of this article, an affiliate of Streetwise Reports has a consulting relationship with Kerr Mines. Please click here for more information. An affiliate of Streetwise Reports is conducting a digital media marketing campaign on this article on behalf of Kerr Mines. Please click here for more information.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Kerr Mines, a company mentioned in this article.

Disclosures from Fundamental Research Corp., Kerr Mines Inc., April 19, 2018

The opinions expressed in this report are the true opinions of the analyst about this company and industry. Any “forward looking statements” are our best estimates and opinions based upon information that is publicly available and that we believe to be correct, but we have not independently verified with respect to truth or correctness. There is no guarantee that our forecasts will materialize. Actual results will likely vary. FRC and the Analyst do not own shares of the subject company. Fees were paid by KER to FRC. The purpose of the fee is to subsidize the high costs of research and monitoring. FRC takes steps to ensure independence including setting fees in advance and utilizing analysts who must abide by CFA Institute Code of Ethics and Standards of Professional Conduct. Additionally, analysts may not trade in any security under coverage. Our full editorial control of all research, timing of release of the reports, and release of liability for negative reports are protected contractually. To further ensure independence, KER has agreed to a minimum coverage term including an initial report and three updates. Coverage cannot be unilaterally terminated.

CliveMaund.com Disclosure:
The above represents the opinion and analysis of Mr Maund, based on data available to him, at the time of writing. Mr. Maund's opinions are his own, and are not a recommendation or an offer to buy or sell securities. Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications. Although a qualified and experienced stock market analyst, Clive Maund is not a Registered Securities Advisor. Therefore Mr. Maund's opinions on the market and stocks can only be construed as a solicitation to buy and sell securities when they are subject to the prior approval and endorsement of a Registered Securities Advisor operating in accordance with the appropriate regulations in your area of jurisdiction.

Clive Maund: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: None. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None.