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Continental Gold just showed the value in CBM geology with a strong economic assessment of its Buritica gold project. Continental is a good buy – but Rockhaven Resources offers the same CBM opportunity at an earlier, cheaper stage.
Nov 19, 2014

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.

For more information on Rockhaven and the Klaza project, check out my recommendation from September 24th, or my daily comments on RK news from October 17th and October 22nd.


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