Mining Markets


Analysts share their top junior gold picks

Mining Markets asked three star mining analysts to share their top picks in the junior gold sector. The juniors selected by our panel have projects that run the gamut from early-stage to advanced, and appear below in that order.

Mining Markets asked three star mining analysts to share their top picks in the junior gold sector. The juniors selected by our panel have projects that run the gamut from early-stage to advanced, and appear below in that order.

Our experts are: Adam Graf, a senior mining analyst and managing director at U.S. investment bank Dahlman Rose & Co., who was ranked as the No. 1 U.S. mining and metals stock picker by Starmine in 2011; Ron Stewart, a senior mining analyst and head of research at Dundee Securities who was ranked Canada’s No. 1 metals and mining stock picker in 2010 by Starmine; and Brent Cook, editor of the newsletter Exploration Insights and a geologist with 30 years of experience in the mining business as an adviser and consultant.

Reservoir Minerals (RMC-V)
Asset: Timok copper-gold project in Serbia
Stage: Exploration
Analyst: Brent Cook, Exploration Insights

When Brent Cook made this pick in late August, Reservoir Minerals had only reported a single drill-hole assay from its Timok copper-gold project — 266 metres of 1.23% copper-equivalent (or 1.07% copper and 0.28 gram gold) from 598 metres depth. But the one hole was enough to confirm a discovery, Cook said.

“From that drill hole, we know that it’s a high-sulphidation and porphyry copper system. Given the continuity of the mineralization, the style of the alteration, the rock type, we know it’s typical of a major mineral system.”

The hole was also enough to prompt Freeport-McMoRan Copper & Gold (FCX-N) to exercise its option to earn 55% of the project and beome the operator. Freeport is now sole-funding exploration and can earn 75% by completing a feasibility study.

“A bankable feasibility study on this type of deposit, which is block-cave underground, is going to be hundreds of millions of dollars, so that’s not a dime Reservoir has to put up for that,”Cook says.

Despite the market’s unfamiliarity with Serbia as a mining jurisdiction, Reservoir and Freeport are looking in the right place. “This is on trend from one of the largest copper-gold deposits in Europe,” says Cook, referring to the Bor copper mine, 7 km away. Bor has produced 6 million tonnes of copper and close to 10 million oz. gold under a state-owned mining company.

Upcoming news: Freeport has four drill rigs on site, and Cook said in August the next assays have to confirm the grades from the first hole or better. “We need confirmation that they can step out 200 metres and hit that again.”

At presstime, the partners delivered even better than that, announcing that a hole drilled 200 metres south of the discovery hole had hit 160 metres of 10.16% copper-equivalent or 6.92% copper and 5.4 grams gold.

Greatest Risk: “We don’t have the dimensions of (the deposit) — this is a flat out gamble,” Cook said in late August. However, in early September, it’s already looking as if this gamble is paying off.

Last word: “I like really big systems,” Cook says. “Ideally, what we’re after at Exploration Insights is to be early into a world-class discovery and copper-gold systems of this sort are the biggest and most profitable in the world. That’s what Rio Tinto, BHP Billiton, Newcrest Mining, Barrick, Gold Fields — these are the types of deposits they want.”

Gold Standard Ventures (GSV-V, GSV-X)
Asset: Railroad gold project in northeast Nevada
Stage: Exploration
Analyst: Adam Graf, Dahlman Rose & Co.

Gold Standard Ventures, a company largely staffed with former Newmont Mining (NMC-T, NEM-N) ore-finders, has proven its understanding of Nevada geology with the discovery of the North Bullion Fault zone at the Railroad project, says Adam Graf. Following up on promising historic drilling, recent drilling has returned impressive results. Hole 11-16 cut 56.4 metres grading 4.26 grams gold starting at 169 metres depth, and hole 12-1, a 91-metre northern stepout, hit 164 metres of 3.38 grams gold from 237 metres, ending in mineralization.

“They’ve discovered, no doubt, a Carlin system, more like the very large Carlin systems on the north side of the trend versus a smaller system like the adjacent Rain system,” Graf explains.

Graf believes the collapse-breccia-hosted, Carlin-type deposit, which is on trend with Newmont’s Rain and Emigrant mines, will eventually prove to be a multi-million-ounce deposit. So far, it is about 900 metres long, 300 metres wide and 460 metres vertically.

Although low-grade assay results from three holes designed to test the eastern extent of North Bullion disappointed the market in August, not every hole should be expected to hit high grade in a Carlin deposit. Such deposits have a low-grade halo of mineralization with blind, high-grade feeder zones, and can be complex.

Moreover, difficult rock conditions meant that two other holes drilled at the same time had to be abandoned before they hit their target depth. Graf says the selloff in the stock resulting from the lack of high-grade results was unwarranted. “Nothing has changed — this is still a successful discovery story.”

Another plus for Gold Standard is the investment that Newmont and Barrick Gold (ABX-T, ABX-N) have made in Nevada infrastructure, including in power and roasters to treat refractory Carlin ore.

Upcoming news: Gold Standard is spending $14 million to complete 40 holes totalling 112,650 metres at Railroad this year. Results from holes 12-10 and 12-11, designed to test the northern and southern extent of high-grade mineralization hit in hole 12-1, are expected by the end of September. (The deposit’s feeder zones run north-south.)

Greatest risk: Graf says that drilling at Railroad is slow, difficult and expensive, and that the company will have to manage expectations. “Achieving consistent exploration results, and balancing resource definition with cash burn will be key issues over the longer-term.”

Last word: “Newmont and Barrick need this kind of ore to feed their roasters and autoclaves. It doesn’t get any better than this,” Graf says. “I think there’s a tremendous opportunity for investors to get in to this early stage story at a quite reasonable price (under $2).”


Gold Canyon Resources (GCU-V)
Asset: Springpole gold-silver project in northwestern Ontario
Stage: Advanced exploration
Analyst: Adam Graf, Dahlman Rose & Co.

Gold Canyon Resources is working on an updated resource for its Springpole gold-silver deposit, 115 km east-northeast of Red Lake, Ont., building on a 3.7-million-oz. gold estimate released in February.

Although that resource disappointed the market when it came out, Graf notes that the estimate was very conservative.

“Quite a bit of the orebody that is obvious when you look at the drill results and three-dimensional diagrams did not have sufficient spacing at February to qualify as resource,” Graf says. “You could see it, but it doesn’t qualify as resource technically.”

The update will bring more of the deposit into the resource, and will incorporate another 30,000 metres of drilling.

“I think ultimately, with sufficient definition drilling, which takes time, (Springpole’s) going to be north of 8 million oz.” Graf says. “I don’t know if that’s going to be this year or next, but it’s my opinion that the ounces are there. It’s just a matter of drill-hole density.”

Indicated resources at Springpole come to 1.2 million oz. gold and 4.8 million oz. silver contained in 30 million tonnes grading 1.26 grams gold per tonne and 5 grams silver. Inferred resources add 2.5 million oz. gold and 11.6 million oz. silver in 60 million tonnes averaging 1.27 grams gold and 6 grams silver. (Resources were calculated using a 0.4 gram gold cutoff grade and metal prices of US$1,300 per oz. gold and US$15 per oz. silver.)

Springpole is an alkalic gold system, like AngloGold Ashanti’s (AU-N) Cripple Creek mine in Colorado — an unusual deposit to have in Canada, Graf says. “It’s seen multiple stages of alteration and folding and metamorphism which should contribute to positive mining and metallurgical characteristics.”

Upcoming news: A resource update is due out by year end, and a preliminary economic assessment is on tap for early 2013.

Greatest risk: There’s a perception that permitting could be an issue, Graf says. “There are very shallow portions of a lake that overlay what will be the open pit, and it would need coffer dams,” he explains. “Luckily for Gold Canyon, there are other guys that have the same issue that are set to be permitted first.”

Graf puts Osisko Mining’s (OSK-T) Hammond Reef project, also in Ontario, in that category, and sees concern dissipating after permits are received there.

Graf doesn’t anticipate that metallurgy will be a problem and adds that infrastructure (roads and power) are not far away.

Last word: “Gold Canyon has defined a substantial-sized gold orebody that would be an open-pit deposit with very low initial stripping,” Graf says. “It’s got size, it’s got grade and it’s got good processing characteristics — and it’s in a favourable jurisdiction.”

Continental Gold (CNL-T)
Asset: Buritica gold project in Colombia
Stage: Scoping/advanced exploration
Analyst: Ron Stewart, Dundee Securities

Continental Gold’s Buritica, in Colombia’s Antioquia Department, is a high-grade, carbonate base metal vein (CBM) deposit that already hosts 3 million oz. of gold and could grow, says Ron Stewart.

“It’s a simple, high-grade deposit with great blue-sky potential,” Stewart says, adding he believes the resource could double or triple. “The resource is in the order of 13 grams — that’s a very, very high-grade deposit and it’s being well managed.”

Stewart says CBM deposits, such as Barrick’s Porgera mine in Papua New Guinea, are often sizeable and long-lived. “These are large mineral systems with good continuity and become very good assets.”

Measured and indicated resources at Buritica total 630,000 oz. gold, 1.5 million oz. silver, and 18.7 million lbs. zinc contained in 1.1 million tonnes grading 17.8 grams gold, 42 grams silver, and 0.8% zinc. Inferred resources add 2.5 million oz. gold, 9.5 million oz. silver, and 88 million lbs. zinc contained in 6.9 million tonnes grading 11.4 grams gold, 43 grams silver, and 0.6% zinc.

Infrastructure is good at the site, 75 km northwest of Medellin, and water is available. Stewart says the deposit isn’t complicated metallurgically. The company is targeting production in 2015.

Upcoming news: A resource update is due out in the third quarter, with a preliminary economic assessment expected by year’s end. Stewart will be looking closely at the forecast production rate and costing estimates, but adds: “I’m not expecting too many surprises.”

At presstime, Continental had just received a permit to drive an underground ramp into the base of the deposit for feasibility-level work. It expects to begin drilling from underground next year.

Greatest risk: “I don’t believe that a modern gold mine has been permitted in Colombia for 20 odd years, so clearly breaking that trail is a risk,” Stewart notes.

While the veins at Buritica are high grade, Stewart says that they are narrow, which could result in quite a bit of dilution, the other main risk for Continental. “That would bring the mill grade down considerably,” he says. “Our model forecasts a grade of around 9 grams gold.”

Last word: While Buritica will take some time to develop, Stewart sees a straightforward development path for Continental. “It will likely be permitted easier than a lot of the large, open-pit style projects in Colombia because the footprint that this project will have on the landscape around it will be considerably smaller.”

Lydian International (LYD-T)
Asset: Amulsar gold project in Armenia
Stage: Advanced (feasibility)
Analyst: Brent Cook, Exploration Insights

While Lydian International’s Amulsar desposit is low grade, the high-sulphidation epithermal gold deposit is oxidized, Cook notes, which means that processing and capital costs will be minimal. Lydian is targeting production in mid-2014.

The company completed a positive preliminary economic assessment (PEA) for the project last year, with a feasibility study expected to be released in early September.

The PEA looked at two development options for a heap-leach operation with a seven-year mine life churning out a total of 1.4 million oz. of gold.

Under a contract mining scenario, the internal rate of return was 45% and the net present value US$514.5 million, with total capex at US$254.6 million. Under an owner-operated option, returns were slightly lower and capex was pegged at US$378.8 million.

Initial capital costs under either option came to $162.5 million, and both scenarios were based on US$1,200 per oz. gold.

Indicated resources at Amulsar (as of January) total 2.1 million oz. gold contained in 68.2 million tonnes grading 1 gram gold per tonne. Another 1.1 million inferred oz. are contained in 36.1 million tonnes at 0.9 gram gold. (The estimate uses a cutoff of 0.4 gram gold and a gold price of US$1,300 per oz.)

Mineralization at Amulsar, which is hosted in the contiguous Tigranes and Artavascles zones, the adjacent Arshak zone to the south, and Erato, 900 metres to the north, remains open in all directions.

Upcoming news: Cook says he expects to see a higher capex in the upcoming feasibility, as well as an increase in projected tonnage per day.

He also believes a mid-tier miner could step up to buy Amulsar after the feasibility is released. “It’s an unknown country and there’s a hesitation I’m sure amongst companies because of that. But once you’ve been there and seen it, you recognize this actually is a good place,” Cook says.

Greatest risk: In terms of what could go wrong at Amulsar, Cook says it’s possible it could suffer the same sort of capital cost blowout other projects have recently. Permitting isn’t a major risk: Dundee Precious Metals (DPM-T) has already gone through the process successfully with its Deno gold mine in Armenia.

Last word: Cook believes Amulsar will be relatively easy to permit and says that the mine would represent a huge source of tax revenues and employment for the country. “The advantage here is that the government really wants this, from everything I can see,” he says. “In fact, part of Lydian’s contract is that they have to move this thing along, to get it into production.”

Torex Gold Resources (TXG-T)
Asset: Morelos gold-silver project in Mexico
Stage: Advanced (permitting)
Analyst: Ron Stewart, Dundee Securities

Like his other pick, Continental, Stewart sees a “clear path to production” for Torex Gold Resources’ Morelos project, 180 km southwest of Mexico City, in Guerrero state. The deposit boasts high grades for an open-pit project. Moreover, the skarn deposit, composed of three zones: Guajes East, Guajes West and El Limon, is well drilled and located in a mining-friendly jurisdiction.

At presstime, a feasibility study for Morelos had just been released, outlining a 14,000-tonne per day operation fed by two open pits. The mine would churn out 337,000 oz. gold and 211,000 oz. silver per year over a 10.5-year mine life, and would cost US$675 million to build, plus US$86 million after it reaches commercial production. The initial capex is somewhat offset by US$123 million in expected revenue from pre-production operations.

The project has a net present value of US$900 million after taxes, and an internal rate of return of 24.2% using a discount rate of 5%. Cash costs, net of silver revenues, are pegged at US$421 per oz.

Morelos hosts proven and probable reserves of 4 million oz. gold and 6.8 million oz. silver in 48.8 million tonnes grading 2.61 grams gold and 4.35 grams silver. (Reserves were calculated based on a cutoff grade of 0.5 gram gold and metals prices of US$1,250 per oz. gold and US$22 per oz. silver.)

Upcoming news: Torex is aiming to start construction in early 2013, pending permits, with production slated for 2015. In July, the company received water permits for the operation.

Greatest risk: The deposit is located on the side of a very steep hill, Stewart says, which entails some technical risk. “The topography there is very rugged. It will take some time to develop that mine.”

Stewart sees less risk in the criminal gang activity that has touched the area, most recently in a robbery of two of Torex’s trucks last year.

“Torex has actually banded together with the local community to put pressure on the Mexican authorities to help them with that, and from what we understand, Mexico is very interested in seeing legitimate businesses thrive, whereas they’re less motivated to see criminal activity thrive.”

Building the project requires a relocation of more than 100 families living in two Ejido villages, but Torex has already signed land-lease agreements with the residents. Agreements are pending on several small individually owned parcels of land.

Last word: “The company is very well managed; it’s got a team that’s very capable of building and operating a mine.”

—    This story appears in the September issue of Mining Markets magazine.

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