PAC

Right before the summer we published a report on Pacton Gold (PAC.V) that was picking up land in Australia’s Pilbara region. Although one would think the recent Novo Resources-hype in the past few years would have resulted in all good pieces of land to have been scooped up by now, Pacton has been able to negotiate the acquisition of several projects, joining Novo in its quest to prove the viability of conglomerate-hosted gold systems.

To be brought fully up to speed, we would recommend you to read our initial report on Pacton Gold, which was published right before the summer. It provides a summary of Pacton’s first few projects and the exploration theory it’s applying.

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Pacton has been keeping itself busy over the summer

Pacton Gold hasn’t wasted much time this year as just weeks after securing some key tenements in the Egina-region (which is the hotspot of Novo Resources’ activities), the company was able to release a steady stream of news. In a first step, Pacton Gold acquired the Hong Kong and Golden Palms licenses, which are both directly adjacent to the previously acquired Friendly Creek land package. This allowed Pacton to further consolidate more ground in the Egina region.

As a first step, Pacton’s prospectors apparently discovered gold nuggets on six different locations on Pacton Gold’s Friendly Creek tenement. The nuggets were encountered in weathered material, and although the origin of the nuggets hasn’t been confirmed yet, the company’s initial interpretation is that these nuggets have not been transported and represent eluvial material that was disconnected from the underlying bedrock. Pacton says this interpretation matches the interpretation and assumptions of historical work on the Friendly Creek property, as well as previous interpretations of the Hong Kong tenement.

Friendly Creek and adjacent Pacton tenements. Mineralized Mesoarchean basal unit, Western Australia MINEDEX gold occurrences, and location of recent gold nugget discoveries (circle).
Friendly Creek and adjacent Pacton tenements. Mineralized Mesoarchean basal unit, Western Australia MINEDEX gold occurrences, and location of recent gold nugget discoveries (circle).

No two without three, and just a few days later, Pacton’s interpretation gained even more credibility when prospectors also confirmed the discovery of gold nuggets on the Hong Kong tenement, which is located directly adjacent to the original Friendly Creek land package. Hong Kong is the most recent acquisition, as Pacton only signed a definitive agreement to earn a 70% stake in the tenement in October. Pacton could earn its 70% stake by paying C$175,000 in cash and issuing almost 3.8 million shares of Pacton, while the latter also committed to spend at least C$500,000 on exploration within an initial 24 month time frame.

Pacton didn’t waste any time and immediately sent the prospecting team (that was working on the nearby Friendly Creek tenement) over to the Hong Kong land package, where the gold nuggets were encountered.

This new discovery appears to cover an area of 300 by 300 meters, and is the first ever nugget discovery on the Hong Kong land package. On top of that, it did validate Pacton’s structural theory as this new discovery is approximately 2.5 kilometers away from the Friendly Creek discovery, but it appears to be on the same regional structural trend. Pacton’s entire exploration model at South Egina is based on a relatively long volcano-sedimentary system with a strike length of approximately 10 kilometers in a Southwest-Northeast trend.

We haven’t seen any exploration results from the Golden Palms zone yet, and we are actually looking forward to see the initial reports from the prospecting team on the ground as there has actually been some artisanal mining on the Golden Palm claims. According to the data Pacton has been able to access, the property was known for small-scale mining in the late 1800’s, and (an unknown quantity of) gold was recovered from eluvial workings and quartz veins. Pacton Gold did encounter some gold nuggets during its Due Diligence exploration, so we know there’s ‘something’ there, but it would be interesting to start a more thorough exploration program at Golden Palms to further define and confirm the northeast trend that has been encountered at both Friendly Creek and Hong Kong.

And Pacton Gold didn’t just spend its efforts on exploring the tenements; the company also signed a MOU with Artemis Resources (ARV.AX) allowing Pacton to process its bulk samples at the existing Artemis-owned processing plant.

Pacton Regional Project Location Plan & Artemis Radio Hill Processing Facility
Pacton Regional Project Location Plan & Artemis Radio Hill Processing Facility

We think this is an important step forward for Pacton as it will allow the company to gain a better and faster insight in the structure and gold distribution in its conglomerates. The Artemis plant is located on the Radio Hill tenements just 30 kilometers from the city of Karratha. Additionally, both companies are investigating more options to join forces and work together to unlock the full potential of their respective Pilbara tenements.

The acquisition of gold rights from Calidus Resources

Late October, Pacton announced it has signed a definitive agreement with ASX-listed Calidus Resources (CAI.AX), whereby the latter will transfer the conglomerate gold rights on its land package in the Marble Bar district to Pacton Gold. This is an interesting deal as Calidus is actually exploring for gold as well, but is focusing on the orogenic shear-hosted gold zones, and doesn’t care about the conglomerates at all.

Pacton Pilbara Gold Exploration Projects
Pacton Pilbara Gold Exploration Projects

This interesting deal will allow Calidus to retain its shear-hosted gold rights, but transfer the conglomerate rights to Pacton Gold. This deal makes sense for both companies as they are both chasing ‘a different thing’ and while Pacton acquires the gold rights for the conglomerate it has been eyeing, Calidus will be issued 7 million shares of Pacton Gold (for a current pro-forma value of C$1.8M), which could then be monetized to fund its exploration program to drill-test the orogenic gold zones.

Location of Calidus tenements subject to Calidus-Pacton Agreement
Location of Calidus tenements subject to Calidus-Pacton Agreement

This land has strategic value for Pacton Gold, as it’s located right in the middle of its existing tenements in that region. On top of that, Pacton has already defined three high priority targets on the Calidus tenements after what the company calls ‘an unusual precise targeting due to the favourable weathering characteristics’. Pacton has already identified the pathfinder elements and signatures that indicate the presence of conglomerate units, and Pacton will follow up on this immediately after closing the transaction.

Section of distinct contact between Mount Roe Basalt and basement rocks
Section of distinct contact between Mount Roe Basalt and basement rocks

The share price performance will continue to be correlated to Novo Resources

At the end of October, Pacton’s share price lost some ground after Novo Resources released the results of its bulk sampling program. As we explained in our introduction report, it will be almost impossible to define a resource estimate according to the NI43 standards as a conglomerate-hosted nugget deposit simply cannot be put into a reliable resource model. These type of conglomerate deposits will be ‘mine as you go’ type of production scenario’s whereby the owner will only know how valuable the rock is after processing it.

That’s why the conventional method to put a resource estimate together through drill holes doesn’t really work here. To fully capture and understand the ‘nugget effect’, it’s recommended to take bulk samples to make sure there’s a reliable guesstimate of how much gold the rocks contain (and even those estimates won’t be very accurate due to the very same nugget effect). Novo’s update on its bulk samples didn’t really impress the market, and as a result, Pacton Gold was hit as well.

Bulk sampling previously conducted on Friendly Creek Mining Lease
Bulk sampling previously conducted on Friendly Creek Mining Lease

The financial situation

As of the end of August, Pacton Gold still had C$3.16M in cash, and a working capital position of approximately C$3.1M. This should allow the company to continue to advance its exploration activities in Australia where it has spent almost C$900,000 on exploration in the first nine months of the year. That C$900,000 appears to be the ‘pure’ exploration expense, as we would expect (hope) a large part of the C$1.3M in consulting fees was also related to exploring the Pilbara region.

That being said, a part of the consulting fees were related to the finders fees on the acquisitions of the properties in Australia. This part of the expenses should decrease pretty fast from here on so the remaining C$3M+ could be spent on the properties.

Conclusion

As we explained in our previous report, Pacton Gold is a ‘special’ company as the nugget-rich projects in Australia won’t allow the company to put together the ‘conventional’ NI43-101 technical reports and resource estimates. There definitely is gold on Pacton’s land (evidenced by the gold nuggets), but any potential operation on Pacton Gold’s Pilbara project will be a ‘mine as you go’ operation where the proof will be in the pudding.

We expect Pacton’s share price to be correlated to the performance of Novo Resources which is acting as the ‘first mover’ in the space. Pacton will be able to learn and benefit from how Novo is approaching the development scenario on its projects. That being said, Pacton’s current market capitalization is still just a fraction of Novo’s market capitalization (even after the recent disappointing share performance), so it remains the best Canadian call option on the Pilbara region.

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Disclosure: Pacton Gold is a sponsor of this website. The author has a long position in Pacton Gold. Please read the disclaimer

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