Continental Gold (TSX: CNL) released a preliminary economic assessment of its Buritica project in Colombia earlier this week, which was roundly applauded for its strength and conservative approach.
On the news Continental's share price gained 52¢ in two days to reach $2.53. Gold price gains on those days certainly helped but CNL's 26% gain doubled that of the Junior Gold Miners ETF – so clearly the market liked the Buritica PEA.
There was much to like. My favorite part was a 31.5% after-tax internal rate of return at a gold price of US$1,200 per oz. Importantly, at US$1,000-per-oz. gold Buritica would still generate a 24.1% after-tax IRR.
I don't think gold is going to US$1,000. However, I do think that an after-tax internal rate of return of at least 20% using conservative metal price assumptions is a key indicator of a great project. If prices do better, it's all upside.
Essential to Buritica's good economics is grade. The current resource supports a mine churning through 20 million tonnes of ore over 18 years – ore bearing an average grade of 7.8 grams gold and 19.35 grams silver.
Continental (or whoever buys them out…) will have to dig down to get that ore. Buritica will be an underground operation, one with three ramps tapping into a series of steeply dipping vein families.
After years focused on open pits for their simplicity and supposedly lower costs, the sector is biased against underground operations. But underground mines can be very economic, as Buritica shows, as long as grades are good and the surrounding rock is competent.
Savvy investors know that, which is why CNL jumped on the PEA. But its share price remains far below its 2011-2012 average of $8. In other words, Continental shares were on sale for 75% off on Monday morning. Now the price has climbed, reducing the discount to 70%.
Still a good deal, in my view.
However, if you feel like $2.50 is a lot to pay for a junior mining stock these days you are not alone – and there is another option.
To understand that option, we have to talk geology for a moment.
Buritica owes its grade and size to the fact that it is a carbonate base metal (CBM) deposit. CBMs are epithermal systems that formed in particular circumstances, including lots of CO2 in the mineralizing fluids and particular host rock composition. The result is gold and silver across multiple zones – and with deep roots.
That means these things get big. The 25-million oz. Peñasquito deposit is a CBM system. The just-as-big Porgera deposits in Papua New Guinea are also CBMs and have been mined to more than a kilometer in depth.
Epithermal gold systems commonly pinch out after only a few hundred metres. It's the depth continuity of CBMs that is so significant in making them big.
Buritica isn't 25 million oz., but it's big. Continental has tracked Buritica more than a kilometer into the ground and the global resource there currently totals 7 million oz. gold and 21.5 million oz. silver.
It will almost certainly get bigger and, like I said, I think CNL at $2.50 represents a good deal. But for a CBM with greater upside potential, you need an earlier-stage story.
That you can find in Rockhaven Resources.
Rockhaven is currently calculating an initial resource for its Yukon gold project, Klaza. RK has been working away at Klaza for six years, but it was only two years ago that it realized – with help from Continental – it likely has a CBM on its hands.
Hits like 5.4 grams gold and 50 grams silver over 15 metres, 31 grams gold and 1,030 grams silver over 2.3 metres, and 5.6 grams gold and 300 grams silver over 19 metres mean the grades fit the CBM bill.
Klaza also offers other CBM attributes: multiple zones of mineralization, gold present as native metal or electrum, strike lengths of several kilometres, and good widths.
At the beginning of this year Rockhaven had tracked mineralization 300 metres down dip. If it is a CBM, though, Klaza should run much deeper. And so this summer the company included one deep hole in its drill program.
It hit. Hole 238 hit into the Western BRX zone 500 metres down dip from surface, returning 18.5 metres averaging 2.19 grams gold and 120 grams silver.
The last 1.4 metres of the intercept carried 16.3 grams gold, 1,435 grams silver, 6.23% zinc, and 5.57% lead.
Very nice mineralization – and suggestive of some significant depth potential.
Rockhaven has not yet attracted a lot of attention, not surprising given it has pulled its best Klaza results during four terrible mining market years.
But that is changing – we hit bottom on Nov. 5th, remember?!? – just in time for Rockhaven's initial resource. I think the resource will easily best 1 million oz. Then the market – impressed as it was with Continental's PEA – will sit up and take notice of this next CBM opportunity.
To learn how to turn resource knowledge into investment success: subscribe to Resource Maven: The Turning Point.
EDITORIAL POLICY AND COPYRIGHT: Companies are selected based solely on merit; fees are not paid. This document is protected by copyright laws and may not be reproduced in any form for other than personal use without prior written consent from the publisher.
DISCLAIMER: The information in this publication is not intended to be, nor shall constitute, an offer to sell or solicit any offer to buy any security. The information presented on this website is subject to change without notice, and neither Resource Maven (Maven) nor its affiliates assume any responsibility to update this information. Maven is not registered as a securities broker-dealer or an investment adviser in any jurisdiction. Additionally, it is not intended to be a complete description of the securities, markets, or developments referred to in the material. Maven cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. Additionally, Maven in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned. Furthermore, Maven accepts no liability whatsoever for any direct or consequential loss arising from any use of our product, website, or other content. The reader bears responsibility for his/her own investment research and decisions and should seek the advice of a qualified investment advisor and investigate and fully understand any and all risks before investing. Information and statistical data contained in this website were obtained or derived from sources believed to be reliable. However, Maven does not represent that any such information, opinion or statistical data is accurate or complete and should not be relied upon as such. This publication may provide addresses of, or contain hyperlinks to, Internet websites. Maven has not reviewed the Internet website of any third party and takes no responsibility for the contents thereof. Each such address or hyperlink is provided solely for the convenience and information of this website's users, and the content of linked third-party websites is not in any way incorporated into this website. Those who choose to access such third-party websites or follow such hyperlinks do so at their own risk. The publisher, owner, writer or their affiliates may own securities of or may have participated in the financings of some or all of the companies mentioned in this publication.
In her letter, Resource Maven explains what she is buying and selling, and why. Maven has bought into several of the markets best - performing stocks well ahead of the curve. She regularly identifies exciting new exploration opportunities and manages the inherent risk by selling some into speculative gains. And the mine builder and operator stocks that form the basis of the portfolio give strong, ongoing leverage to the rising prices of gold and silver. She has your precious metal bases covered.
Thank you for the update. I am actually quite glad that you are flexible with your letters to enable you to get your readers the best information. And, I appreciate your offer to join the premium newsletter. I hope to continue to build my portfolio, with the help of your newsletter, to the point where I am able to take advantage of your offer and join the pp world in the not too distant future. I have really enjoyed your newsletter, read it with interest and have aligned my commodity portfolio with your recommendations, which has worked out very well. You are clearly a very trustworthy person, which is not always commone in the world of commodity investing. Thank yo for doing what you do so the small retail investor/speculator like me can have a better chance at success.
BTW - I really enjoy reading your newsletter - very comprehensive and you do an excellent job of integrating a macro perspective into your analysis.