"It'll never be a mine."
No more damning words exist in the mining investment space. They imply that a deposit is uneconomic…a science project…a lump of rock that's promoted but never fulfilled.
And often, it's a true statement. Just as often, it's used to put down that other company's project. The proclaimer usually follows that with some rationalization—grade's too low, bad jurisdiction, too remote, etc.
Some of my greatest wins came on stocks with mines that had that label. Companies like Kaminak Gold (sold to Goldcorp), Romarco Minerals (sold to Oceanagold), Rainy River Resources (sold to New Gold)…you get the picture.
That's the reason I don't stop digging into a project, even when someone I respect utters those words. In my experience, few mining "experts" really understand mineral economics.
That's why I'm watching U.S. Gold Corp.'s (USAU:NASDAQ) CK Gold Project right now.
I heard that comment several times in reference to it. The average cutoff grade is around 0.32 grams per ton (g/t) gold and 0.10% copper (Cu %). That's modest to low grade. It doesn't knock your socks off at all. And it's a modest size, at just under 50 million tons measured and indicated resource.
That certainly isn't flashy. But there are some positives.
The Preliminary Economic Assessment (PEA) puts its net present value (NPV) at $178.5 million, if the gold price is $1,275 per ounce. We're well above that, today. And the cost to build the mine (CAPEX) is quite low—just $113.7 million. But we all know that PEA's are notoriously optimistic.
That said, I know several smart geologists, including U.S. Gold President George Bee, who really like it. So, I decided to dig deeper…and I think this could be much bigger than the naysayers could imagine.
First off, it checks all the location/jurisdiction boxes—close to water, roads and power. It's close, but not too close to people. Jurisdictionally, it's located in the U.S. All those things matter…but what makes it more interesting to me is its physical attributes.
If you visit the site, you can literally stand on ore. That's important, because it means the mine begins to generate revenue on day one. For those of you who focus mainly on juniors, "revenue" is a financial term that indicates the company sells material and receives money in return.
The host rock is a Proterozoic granodiorite. For non-geologists, this is a dark granite. Giant mining company Martin Marietta has a construction aggregate mine nearby. They use the rock for railroad base.
The deposit sits on a major shear zone that acted as the plumbing for the metal-rich fluid to emerge. In a map-view, the project's gold endowment looks like a giant bullseye. In the center are the highest gold grades, associated with mylonite alteration. That's a metamorphic rock that looks like pulled taffy, because that's how it forms. While hot, the rock undergoes massive pushing and pulling.
The mylonite rocks at CK Gold hold higher gold grades than the average. In a recent press release, 14 of the 20 surface rock chip samples collected by U.S. Gold geologists contained more than 2.0 grams per ton gold.
Here's a quick summary of the highest samples:
Sample |
Gold |
Copper |
KCCK-04 |
6.47 g/t |
1.11 Cu % |
KCCK-10 |
7.08 g/t |
0.97 Cu % |
KCCK-12 |
9.93 g/t |
1.37 Cu % |
KCCK-15 |
10.20 g/t |
1.45 Cu % |
KCCK-17 |
8.81 g/t |
2.31 Cu % |
KCCK-18 |
7.21 g/t |
1.21 Cu % |
KCCK-19 |
11.90 g/t |
1.21 Cu % |
KCCK-20 |
11.40 g/t |
1.94 Cu % |
U.S. Gold Nov. 5, 2020, press release.
These results seem at odds with the 0.5 g/t average grade. The problem with surface samples is human bias, so I dug into the historical information. And that data goes way back…
Discovered in 1881, it went into production through 1910. The original miners produced 287 metric tons of ore that held 27 ounces of gold, 483 ounces of silver and 25,782 pounds of copper. That works out to an average grade of 3 g/t gold, 53.9 g/t silver and 4% copper.
That shows us that there was a high-grade core to this deposit. And since 287 metric tons isn't much, I went to the drilling info to see if anyone encountered more. What I discovered is that the CK Gold project is dramatically underexplored.
The earliest drilling goes back to ASARCO (American Smelting and Refining Company) back in 1938. Over the intervening 82 years, eight different companies drilled nine historical drill programs on the deposit.
Out of all those drilling campaigns, the total drilling amounted to just 138 holes. The average length was just 142 meters. That's barely scratched the surface of this deposit. That's because most of the drilling focused on the shallow, oxide high-grade portion of the deposit.
Several of the holes held long intercepts of solid gold and copper grades. ASARCO's A2 hole held 92 meters of 2.71 g/t gold and 0.51% copper. Compass Minerals' CCK1 hold hit 110 meters of 4.21 g/t gold and 0.58% copper.
Those are excellent intersections. What they show us, as investors, is that there is an economic engine to drive this project. In addition, there must be more exploration. Nearly all (80%) of the drill holes ended in mineralization.
In other words, the previous work focused on the core, and neglected delineation.
Recent geophysical work shows that there are other anomalies nearby that need exploration. These are the right rocks. And we know there are high-grade occurrences, which means there should be more.
I'm firmly in George Bee's camp on this one. You can't write it off because of the low average grade. The high-grade core will be the economic engine that drives this deposit to be a mine. More important, it needs a lot of exploration.
U.S. Gold needs to do more drilling and there are drills turning on the project right now. And considering U.S. Gold's market cap is just $33.3 million…this is a stock worth looking into.
--Matt Badiali
Matt Badiali is a geologist and independent financial analyst. He spent fifteen years researching and writing about great investments inside the natural resources sectors. He can be reached at www.mattbadiali.net.
[NLINSERT]Streetwise Reports Disclosure:
1) Matt Badiali: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: U.S. Gold. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: I am a consultant to U.S. Gold Corp. My company has a financial relationship with the following companies mentioned in this article: None. I determined which companies would be included in this article based on my research and understanding of the sector.
2) The following companies mentioned in the article are sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
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 decision to publish an article until three business days after the publication of the article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.
