After a successful exploration campaign in 2018 wherein Contact Gold (C.V) confirmed the widespread presence of gold mineralization on its greater Pony Creek area (with very thick intervals such as 93 meters at 0.33 g/t gold), the company decided to go back to the main Bowl Zone which hosts the historic resource estimate (1.2 million ounces at 1.5 g/t gold). We aren’t sure that historical estimate is very reliable, so perhaps it’s safer to assume there’s around 0.7-1 million ounces at the Bowl Zone.
Nevertheless, this zone could be the kickstarter for all future exploration and development programs at Pony Creek. While we totally understand the company’s desire to go out there and kick the rocks to figure out what Mother Nature has hidden on the property, it could make more sense to have some sort of ‘main’ zone which could be developed where after the cash flows from mining that zone could then be used to go hunt for more discoveries. After all, you can RUN a mine with 93 meters at 0.33 g/t (especially with Contact Gold’s excellent metallurgical test results) but you can’t BUILD a mine with those grades.
Now Contact Gold’s bank account has been cashed up with the proceeds of a C$4M public offering (and the C$2.85M private placement that as closed in March), the company did decide to go back to the Bowl Zone, and the initial results are very pleasing.
Only three holes have been reported so far, but with 35 meters containing 0.43 g/t gold almost starting at surface (the interval stated just 15 meters downhole), 32 meters at 0.8 g/t and 12 meters at 1.21 g/t gold, Contact Gold has confirmed the higher grade gold mineralization at the Bowl Zone. Some of the reported intervals are relatively deep, but that’s not necessarily an issue as you’d obviously design the open pit so that you can excavate the tonnes that are the closest to the surface first.
Surprisingly, the market didn’t seem to care at all about these intervals. Surprising, considering even the near-surface 0.43 g/t gold over 35 meters would result in healthy operating margins. Applying Contact Gold’s average recovery rate of 85-90% (as published in May 2018), the recoverable gold value would be around 0.37 g/t for a rock value of $16.6 per tonne using a gold price of $1400/oz. Low? Absolutely. But the processing costs of a heap leach operation in Nevada are low as well. Fiore Gold, for instance, has a mining cost of $1.50/t and a processing cost of $1.22/t. So even with a 3:1 strip ratio, the operating expenses would be just $7.5/t leaving a margin of $9/t on the table. So although we agree the head grade of 0.43 g/t appears to be only marginally better than last year’s 0.33 g/t interval, the latter has a recoverable value of just $12.6/t indicating the margins would be approximately 40% lower.
10 holes have already been drilled to offset the higher grade (and more oxidized) corridor that was encountered in 2018, and we should see more exploration results come in over the next few weeks.