Every bull market in gold has one thing in common: old projects that were not viable at lower prices suddenly get ‘recycled’ and revamped with new companies trying to crack the code. That rarely works, but every once in a while there is a junior exploration company that is actually able to acquire the rights to an existing project with plenty of merits that has been gathering dust on a shelf getting no attention or resources from mid and large capitalization companies.
In a nutshell, that’s what NevGold (NAU.V) is about. The company was created to acquire the Limousine Butte and Cedar Wash gold projects in Nevada from McEwen Mining (MUX, MUX.TO). McEwen was focused on their other assets in Nevada and Ontario and NevGold was able to acquire the portfolio on the cheap. As this is now the company’s flagship project, the specific focus on this project both in terms of capital spending as well as having a field team dedicating their time and efforts to this specific project, NevGold should be able to rapidly figure out a plan forward to reach the critical resource mass.
Limousine Butte: the flagship project offering a resource base with significant exploration upside
The flagship asset of NevGold is the Limousine Butte gold project in Nevada. This project is located in White Pine County, Nevada, just about 100 kilometers northeast of Ely, which is one of the mining epicenters in Nevada. The property is easily accessible from Ely through a combination of a paved highway and county-maintained gravel roads.
What makes Limousine Butte so attractive is the historical exploration activities on the property. According to NevGold, the total amount of historical exploration expenses totals almost US$50M with almost 900 holes and 120,000 meters of drilling completed.. The project also historically produced approximately 91,000 ounces of gold in 1989-1990 from a near-surface oxide pit of highly oxidized ore. Over 40% of the historical holes were focused on the Golden Butte/Resurrection Ridge area, which is a key target area of NevGold. The other holes were drilled on the regional exploration targets in close vicinity to Resurrection Ridge including Cadillac Valley, Coffee Mug, Ticup, Epex, and Pony Express. These advanced targets will also be followed up on and further drill tested by NevGold.
The holes drilled at Resurrection Ridge allowed for a resource estimate to be calculated in 2009 by US Gold (the predecessor of McEwen Mining). The consultant used by McEwen utilized a cutoff grade of 0.411 g/t gold resulting in a total of 9.6 million tonnes in the Measured and Indicated category at Resurrection Ridge and Cadillac Valley. At an average grade of 0.78 g/t gold, those zones host approximately 241,000 ounces of near-surface oxide gold. A large portion of this resource is close to 0.9 g/t gold, which is high-grade for this type of near-surface oxide deposit in Nevada.
There is also a small Inferred resource at Coffee Mug where about 2.26 million tonnes at 0.7 g/t gold represent a resource of just over 50,000 ounces. This brings the total existing historical resource on the greater Limousine Butte property to 292,000 ounces.
This historical resource already implies some really low-hanging fruit ready to be picked: using a cutoff grade of 0.41 g/t for a near-surface oxide resource was perhaps perfectly acceptable in 2009 when gold was trading at around $800/oz. However, typical cutoff grades for those resources at similar projects in Nevada have now fallen to less than 0.2 g/t. It looks like reducing the cutoff grade at the Limousine Butte project could provide an immediate 50-60% boost to the resource size without compromising too much on the average grade. Even if the average grade of the Measured and Indicated resources would drop from 0.78 g/t to 0.65 g/t gold, the updated resource would clearly be viable as historical recovery results indicated a recovery rate of around 80% using column leach tests. With some further metallurgical test work and fine-tuning (crush size, reagent consumption) the recovery rates could likely be optimized for a heap leach scenario. Dropping the cutoff grade to a level in line with similar projects in Nevada will not jeopardize the potential economics of the project in today’s commodity price environment.
Cedar Wash: the second project offering blue-sky gold and silver exploration potential
NevGold acquired Limousine Butte in a ‘package deal’ with the Cedar Wash gold project from McEwen Mining. Cedar Wash is also located in Nevada (about 50 kilometers southeast of the town of Caliente) and was actually a grassroots gold discovery made by McEwen Mining about six years ago.
While this project is obviously nowhere near being as advanced as Limousine Butte, Cedar Wash does deserve some attention as McEwen defined a gold in soil anomaly for over 2 kilometers and initial drill holes yielded high-grade gold results with for instance 10.7 meters at 2 g/t gold, 16.7 at 1.36 g/t gold, and 16.7 meters at 1.03 g/t gold. All three highlighted intervals are located in oxide mineralization and very clearly meet the cutoff grade for those Nevada-based oxide gold deposits. And the added bonus is that all three high-grade oxide intervals started at surface indicating the potential strip ratio (in case an in-pit resource could be defined) will likely be very low.
McEwen drilled about 7,000 meters at Cedar Wash in 2017 before it shut down most of its exploration activities in Nevada as the attention was focused on building the Gold Bar mine in the state. NevGold has access to the data of all 7,000 meters of drilling which is a good thing as we could not find much data from the McEwen exploration period as none of the quarterly reports in 2017 (the year wherein the drill program took place) refer to Cedar Wash.
As very little exploration work has been done since that 2017 drill program, NevGold will likely first focus on doing some more field work before embarking on another drill program at Cedar Wash. In any case, it looks like McEwen threw in the Cedar Wash discovery for a value of close to zero as Limousine Butte by itself is worth more than the total consideration paid by NevGold for the acquisition of both projects.
The acquisition terms: advantageous to NevGold
Both projects were acquired from McEwen Mining for a C$600,000 cash payment (with an additional C$50,000 cash due on each of the first and second anniversary of the agreement) while giving McEwen a 10% stake in NevGold and some warrants. McEwen is also entitled to a 0.5% NSR on the Limousine Butte property and a 2.5% NSR on the Cedar Wash property. NevGold can reduce the NSR payable at Cedar Wash to 1% by paying US$1.75M in cash.
A very straightforward deal, and more importantly, a relatively cheap deal for NevGold: the cash payments are very minimal and McEwen’s 10% stake in NevGold currently has a market value of just around C$2M. There is also an Investor Rights Agreement with McEwen, and they are a strategic, friendly shareholder of the company.
A very well-negotiated deal by NevGold with minimal cash payments, allowing it to direct more dollars to actual exploration efforts.
The near-term plans
Resource expansion at Limousine Butte will obviously be the main priority in the near future as NevGold wants to expand the resource to a level where investors will start to pay attention. A 297,000 ounce historical resource is a great starting point, but it should be the company’s intention to push towards the one million ounce mark in an interim resource update in the next 6-9 months.
NevGold has started the permitting process and will permit three distinct zones for disturbance which will allow it to start drilling while it works on submitting a plan of operations which will make the company’s life much easier going forward. The initial focus will be around Resurrection Ridge where the current resource estimate is hosted while the Cadillac Valley zone also tops the list of priorities. As previous operators have already completed more than 23,000 meters of drilling at Cadillac Valley, NevGold should be able to rapidly and easily combine the data from its own drill program with historical data and put everything into a NI43-101 compliant resource estimate as well.
NevGold will complete approximately 10,000 meters of drilling (which we expect will cost roughly US$2.5M/C$3.1M) and will likely split the drill program on a 50/50 basis between RC drilling and diamond drilling. While RC drilling appears to be more common on these types of oxide gold deposits, NevGold also wants to gain more insight in the structural controls and high-grade areas, and diamond drilling is the best way to accomplish this.
This 10,000 meter drill program will result in an interim resource update, scheduled for Q1 2022. We are hoping to see NevGold being able to immediately reach the 1 million ounce gold mark which appears to be feasible given a) the potential to immediately add ounces to the historical resource by lowering the cutoff grade and b) carefully connecting the dots of historical drill programs with the results of the 2021 drill program to add ‘new’ ounces to the resource. Keep in mind this will just be the first of what likely will be a series of resource updates at Limousine Butte. Although the market tends to be backward-looking, the maiden compliant resource at Limousine Butte will be the starting point and for sure not the endpoint for the project.
Drilling should start in September (subject to the completion of the permitting process, of course), and results will be received throughout Q4.
The company is fully cashed up after its financing
Concurrent with its RTO of Silver Mountain Mines, the company raised about C$6.3M (it was eyeing a minimum raise of C$4M) to hit the ground running in Nevada.
NevGold issued 15.66 million shares priced at C$0.40 which also had a ½ warrant where each full warrant allows the warrant holder to acquire an additional share at C$0.60 for a period of 2 years after closing. Should those warrants end up being in the money, NevGold will receive an additional C$4.7M in proceeds.
Thanks to this June financing, NevGold comes out of the gate with in excess of C$5.7M in cash, even after making the cash payment to McEwen Mining and paying all fees and expenses related to the RTO. With just under 50 million shares outstanding, the current cash position represents a value of approximately C$0.10/share. This gives NevGold plenty of runway to complete a few drill programs before it will have to raise money again. And of course, one can hope for the C$0.60 warrants to get ‘in the money’. While some companies consider a warrant overhang to be a negative thing, in NevGold’s case it could be an interesting option to fill the treasury again as it would act as some sort of ‘secondary financing’ whereby warrants could be gradually exercised by friendly, long-term investors who participated in the initial public offering. But of course, NevGold’s share price should be trading above C$0.60 first, that’s obvious.
The management team
Brandon Bonifacio – President, CEO, Director
Mr. Bonifacio is a mining executive with expertise in project development, mergers and acquisitions, and project evaluations with over 10 years of experience. He was the finance director of the Norte Abierto Joint Venture (Cerro Casale/Caspiche) in the Maricunga Region, Chile and a member of the corporate development team at Goldcorp Inc. (now Newmont Corporation). Mr. Bonifacio holds a MASc – Mining Engineering and MBA from the University of Nevada, Reno and a Bachelor of Commerce – Finance from the University of British Columbia. He is currently Director of Angold Resources Ltd.
Bob McKnight – Executive VP, CFO and Corporate Development
Mr. McKnight is a mining executive with over 40 years of relevant experience in the mining industry. He has been directly involved in over $1.5 billion in project debt, equity, stream, and M&A transactions. As Executive VP and CFO of Nevada Copper Corp., Mr. McKnight has participated in the arrangement over $500 million in debt, equity, and metal stream financings for the Pumpkin Hollow Project. He holds a P.Eng., B.A.Sc., and MBA.
Derick Unger – Chief Geologist
Mr. Unger is a geologist with over a decade of experience leading exploration teams in the discovery of gold and silver deposits. His prior experience includes serving as Chief Geologist for NuLegacy Gold Corporation where he led the exploration team at NuLegacy’s Red Hill project in Nevada. Unger held progressively senior roles with Nyrstar, Newmont, and Victoria Gold and he played a key role in Newmont’s discovery of the East veins at the Midas Mine, Nevada and Victoria Gold’s discovery of the high-grade Helen zone at the Cove Project, Nevada. Mr. Unger most recently served as a Resource Geologist at Mine Development Associates in Reno, Nevada, where he gained valuable experience in completing resource estimations and authoring technical reports on projects in Nevada, Idaho, Nicaragua, and Mexico.
Board of Directors
Giulio Bonifacio – Capital Markets
Mr. Bonifacio has over 35 years of experience in senior executive roles in the mining industry. Mr. Bonifacio is the Founder and former Director, President & CEO of Nevada Copper Corp. since its inception in 2005 until his retirement in February 2018. Among his many accomplishments Mr. Bonifacio has raised directly over $700 million through equity and project debt financings for projects of merit as well as being involved in corporate transactions aggregating in excess of a billion dollars. Mr. Bonifacio has led and directed efforts at every stage of development from exploration, development, permitting and construction.
Mr. Bonifacio is currently Chairman and Director of CopperBank Resources Corp., Chairman and Director of Candente Copper Corp., and CEO & Director of Arizona Gold Corp.
Victor Bradley – Capital Markets
Educated in England, Mr. Bradley is a Chartered Professional Accountant with more than 50 years experience in the mining industry, including more than 15 years with Cominco Ltd. and McIntyre Mines Ltd. in a wide variety of senior financial positions from Controller to Chief Financial Officer. Over the past 30 years Vic has founded, financed and operated several mining and advanced stage exploration and development companies, including the original Yamana Gold Inc., Aura Minerals Inc. and Nevoro Inc. (sold to Starfield Resources). He founded the original Yamana in early 1994, and served as President and CEO and then Chairman of the Board and Lead Director until 2008. He also served as Chairman of Osisko Mining Corp from November 2006 up to its sale for $4.1 billion to Agnico Eagle and Yamana in June, 2014, director of Osisko Gold Royalties Ltd. (spun out of the Osisko Mining sale), and as Chairman of Nevada Copper Corp.. He now serves as Chairman of Osisko Bermuda Ltd., Osisko Gold Royalties offshore subsidiary that controls all of its assets outside of North America.
Greg French – Geology, Technical
Mr. French is a geologist with over 35 years of exploration experience in the western US and Canada . He has worked in various capacities for Homestake Mining Co., Atlas Precious Metals, and Cornerstone Industrial Minerals as well as consulting for numerous junior mining companies. Mr. French has a Nevada gold discovery to his credit and extensive project development experience including two projects taken through feasibility and production.
Tim Dyhr – Permitting, ESG, Communities
Mr. Dyhr has 35 years of experience in mining. He has led multidisciplinary teams to successfully permit copper and gold mines in Nevada since 1983, and worked on projects in Arizona, California, Washington, Montana, Wyoming, Peru, Chile, Argentina, Australia, Africa, Turkey, China and Papua New Guinea. His experience includes environmental, regulatory, land and legal affairs; and government, media, NGO and public relations. He has worked as a mine site environmental manager, environmental consultant, natural resources manager, and group environmental manager for BHP Copper.
While we discussed the two Nevada-based projects, there actually is a third project in the NevGold asset portfolio. As NevGold went public through an RTO of Silver Mountain Mines, an existing TSX-V listed company, the historical property owned by Silver Mountain is also now owned by NevGold. The Ptarmigan silver-gold-copper project in British Columbia is a little bit of a “sleeper” in the portfolio, but the company is actively working through the historical data compilation and anticipates advancing the project in 2021/2022.
We do expect the company to come up with a strategy for Ptarmigan as the project definitely has its merits as a bonanza grade polymetallic asset with both epithermal veins and sulphide mineralization. With that being said, there is no rush as the historical exploration expenditures at Ptarmigan are sufficient to keep the property in good standing for the foreseeable future. And as it’s a BC-based project, NevGold will take advance of flow-through funds to do some exploration work at Ptarmigan.
But initially, the focus will be on Limousine Butte where NevGold aims to have an updated interim resource ready in Q1 2022 to better understand the true resource size potential of the project.
NevGold is cashed up and has enough funds in the bank to complete its upcoming programs at Limousine Butte, Cedar Wash, and Ptamirgan and will not need to raise any additional cash unless it wants to. NevGold is ready to hit the ground running and drills will be turning at Limousine Butte as soon as the permits are issued (likely in September). The stock has performed well and has traded above the C$0.50 level on high volume in the past week, which is great to see for a new company. A story to keep on your radar as the resource expansion at Limousine Butte should be relatively straightforward.
Disclosure: The author has a long position in NevGold. NevGold is a sponsor of the website. Please read our disclaimer.