Another week, another boatload of news and activity in the mining sector – as if we needed any further evidence that the bull is back.
This week’s Maven Letter snippet includes two In The News articles covering drill results from Gold Standard Ventures and Marathon Gold, which both saw significant share price moves.
The macro article goes through the attributes that will make projects shine in this market. It was written as a prelude to the two stocks I then recommended…but that information is reserved for subscribers. Click here to sign up now.
In The News
Gold Standard Hits a Hot Hole
The market is a demanding beast. Investors expect companies to churn news out constantly; if activity slows or pauses, people get antsy.
I would say that pretty much describes what had been going on with Gold Standard Ventures’ (TSXV: GSV) share price over the last month. The company had a very busy winter, spring, and early summer: thru January they released fall drilling results from three different targets at its large Carlin trend property, including a hit at North Dark Star that attracted a lot of attention; they welcomed a new major shareholder in Goldcorp who put $16 million into the company, a move that prompted existing shareholder Oceanagold to invest another $12.6 million to maintain its stake; it announced and then kicked off a US$13.4-million exploration program; it updated the resource estimate for Pinion, one of its targets; and it put some of its large bank account to work by buying 27% of earlier-stage Carlin trend explorer Battle Mountain.
Then, after starting its drill program in late May, the company kind of went quiet. There were bits of news – AGM results and some metallurgical testwork – but the market only had ears for one thing: drilling. Each day that passed without drill results appearing saw another investor get anxious and sell.
Anyone who did is kicking him- or herself now.
Yesterday Gold Standard put out the news everyone was awaiting – and then some. The primary goal of the drilling at North Dark Star (the zone where they pulled that hot hole last winter) was to step out from that hit and show some continuity. They didn’t do that – they showed that it has way more to offer.
The hole last year returned 97 metres of 1.61 g/t gold. The hole announced yesterday: 126 metres grading 3.95 g/t gold.
That is a heck of a hole.
To situate you: Gold Standard controls the second-largest land package in the Carlin trend. It has defined three deposits to date – Dark Star, Pinion, and North Bullion – and has a list of other targets.
Pinion and Dark Star are oxide gold deposits, classic Carlin gold zones where the key is to find where favourable sedimentary units intersect structure. There is one major structure running north-south through the entire property (the Bullion Fault Corridor) but there are parallel structures as well, including a north-south fault running along the ridge at Dark Star.
That was one of the reasons GSV stepped north and discovered gold at North Dark Star. Now it is filling in the area between.
The favourable unit is the Penn-Perm Conglomerate. Seeing it offer mineralization of this grade and width has Gold Standard following the unit closely to see what else it might have to offer.
As Gold Standard’s VP geologist Mac Jackson explained, “What we see in the hole is a very extensive zone of alteration that extends top to bottom in this hole. And these are carbonate bearing rock but the carbonate is gone – that kind of extensive alteration as well as the grade are indications of what we’re dealing with here in terms of the size and strength of this system.”
“This is a special hole that opens up a lot of possibilities,” said Jonathan Awde, CEO of Gold Standard. “There are a lot of other areas on our project that offer this same kind of rock unit, so we are investigating that. But really holes like this are rare and only the most robust Carlin systems make this kind of high grade mineralization.”
Gold Standard’s share price definitely reacted, gaining 70% in two days.
What can we learn? Mainly: patience.
If you liked GSV in April, a seeming lack of drill results in June and July did not change the story. As such there was no reason to sell. I understand that the rapid-fire nature of a new mining bull market makes us anxious for news, but remember that exploration is an imperfect process that simply takes time.
In this case, the drilling news was slow to arrive because the late spring weather in north central Nevada was wet and difficult. It was hard to move drills and hard to operate them. Then there’s the fact that the mineralized unit at North Dark Star is a variably silicified, pervasively oxidized, collapse brecciated debris flow conglomerate – hard stuff to drill.
Holes are slow. Patience is necessary. Hopefully this hit will hold investors over until the next set of results. The plan map above shows what is coming: one hole to the northwest and several holes to the south, between Dark Star and North Dark Star.
I’m happy to wait!
Marathon Gold Grabs Attention
Marathon Gold (TSX: MOZ) has been advancing its Valentine gold project in Newfoundland for six years. The project offers many of the attributes that investors want today: a supportive jurisdiction, the potential for a large gold endowment, defined zones of open-pittable gold at grades better than 2 g/t, very good recoveries via milling and tests for heap leach amenability (which would be easier and cheaper) ongoing, and an asset with enough work done that it is time to start thinking about development.
And now some drill results have finally attracted market attention.
The Valentine Gold Camp covers 18 km of prospective strike in an area of central Newfoundland known for its volcanogenic massive sulphide deposits. Valentine, though, tracks along an intrusive suite that pushed up through the dominant sedimentary rocks. All along the intrusive-sedimentary boundary, Marathon has defined a series of deposits.
The four deposits defined to date all grade better than 2 g/t gold and most of their ounces fit into open pit shells. All four are also open for expansion, along strike and at depth (the deepest hole at Leprechaun, for example, returned 16 metres of 5.54 g/t gold from 337 metres depth).
And the areas between known deposits remain essentially unexplored, even where magnetic highs and structural knowledge suggest good potential.
So there is considerable ‘blue sky’ potential backing a resource that already makes sense. The grades are good – very good in an open pittable scenario – and it looks like the gold will be easy to recover. Conventional milling gets more than 93% of the gold from the rock; heap leach tests are underway and initial results suggest a basic run of mine heap leach might recover 74% of the gold. Either way, what matters is that the ore is straightforward to handle.
I’m writing about Marathon today because yesterday the company put out drill results that grabbed attention. The headline hole was 68 metres grading 2.11 g/t gold; second best was 49 metres of 1.33 g/t gold. Both results extend the Marathon deposit to depth. Specifically, the hits extended the mineralized envelope 80 metres down dip, while also returning wider zones of mineralization than are found at surface.
In response, the market lifted MOZ 29% in two days, a nice break out for a stock that has already enjoyed a strong run in recent months.
On The Macro: Context and Requirements
To start I want to post (with permission!) this gold price chart from Jordan Roy-Byrne of www.thedailygold.com.
The blue line is the average price pattern from the two best bull markets (1976 and 2008) while the red averages the price from the last four rebounds. Black is us today, clearly tracking the four-cycle average very closely. If gold continues to track like that the price could reach US$1,500 per oz. before the end of the year.
Beyond that – well, you can see the possibilities. Including gold priced at US$1,900 by the end of next year.
I put this up for two reasons: to stoke excitement, in case anyone is lacking that, and to bestow confidence that it still makes sense to buy stocks today that are already up significantly.
A lot of companies will see share price gains if gold follows anything close to the trajectory shown above. Some, however, will rise farther and faster than the rest. My job is to identify which those are, and in recent weeks I’ve gone through my outlook in a couple different ways (including last week’s list of the kinds of opportunities available today).
This week I want to outline the project attributes that I think will matter most. In the last bull market bigger was better and few cared about cost. Things will be different this time around. I think this bull market will focus on assets that actually make sense (at least to start – if the market gets really hot then sense could well disappear again). So with pragmatism in mind, here is my list of essential project attributes.
- Location. That starts with rule of law (security of mineral rights, reliable fiscal structures, etc) but of equal importance also includes social license (from sage grouse to water rights to spawning grounds to artisanal miners to tree huggers to political impacts) and accessibility (steep mountains? roads anywhere nearby? lots of waterways that would require bridges?) Not every project has to answer all the questions of Could It Be A Mine right off the bat, but major hurdles like these can really limit speculative interest in a discovery.
- Infrastructure. People think this only matters in terms of building a mine, but it matters way before then. I was chatting with a geologist yesterday who has decades of experience in Russia. He has a list of prospects in the Russian Far East that he would love to explore – but just to mobilize a drill program there costs $1 million, and that’s before the first foot of core. These considerations matter, especially in a market that is demanding consistent news flow (after a long bear market, investors are still jittery and will take gains and run if not given constant reasons to stay. GSV is a perfect example.). The costs of working in difficult locations mean ongoing financing struggles AND gaps between exploration programs, because working constantly is too expensive. Together those represent a big challenge in today’s market.
- Grade with scale. The last bull market saw miners in an inane race to produce as many ounces as possible, without any thought for making money. That setup led companies to develop marginal assets – decisions that are still hurting balance sheets to this day. Marginal assets will not come back into favor any time soon. The best way for an asset to support better economics is with higher grades. That being said, those grades need to come within a package that offers scale potential – the big returns will come from takeovers where a major bids at a premium to buy a company for its large, high-grade discovery.
- Easy. No project is ever easy, but an oxide deposit with good grade that gives up its gold in a run-of-mine heap leach will have a serious advantage over a refractory asset that would require roasting, or even a hard polymetallic ore that needs multiple stages of grinding and floating to produce concentrates.
- Historic advantage. Unless it is a brand new discovery (which can also work), there needs to be a reason why the project didn’t work in the last cycle and a way the new team is approaching past work differently to make it an asset for them.
- The right path for the time. This is a people requirement – the folks in charge of the asset have to consider the project’s potential and what is going on in the market to come up with a plan that delivers progress people will care about. Sometimes focusing on putting a small oxide deposit into production makes sense, but in other cases drilling to expand that deposit would deliver much bigger results. Sometimes making a big deposit bigger is important, but other times the market needs metallurgical work and permitting progress and infrastructure plans to accept that the asset makes sense. It depends on the asset, the market, the costs, the timelines, and the goal, but at the end of the day it has to be a story that investors want to hear at the time.