We missed Explorers’ League Honoree Mark O’Dea on our last trip to Vancouver, so we called him up and got a fresh update on his activities. He’s focused on two companies right now, Pilot Gold (PLG.TO) and Pure Gold (PGM.V). The first one is in the International Speculator portfolio. His comments on both are examples of how geological insight can lead to economic discoveries.
Louis James: Mark, thanks for talking with us today. You’re known for big discoveries – Michelin and Long Canyon – big, market-moving events that we’ve seen in the last round of this cycle. People want to know what you’re working on today.
Mark O’Dea: Well, let’s reflect back on what’s happened over the last 15 years. We’ve created seven exploration and mining companies and have sold all but two of them, creating real value for our investors backed by real deposits that have already become or are going to become mines in the future. Our most recent success culminated in building an operating open-pit gold mine in West Africa and rolling it into Endeavour Mining in a change of control transaction.
We currently have two high-quality exploration companies in our stable, which I am heavily focused on and invested in. They are Pilot Gold and Pure Gold. Let’s start with Pilot. Over the past six months it has gone through a pretty major transformation in terms of focus and leadership. We brought in a new CEO with a fresh perspective and real drive and hunger. The company is now run by Cal Everett, who is well known in the Canadian mining scene. He came out of retirement to run the company because of the potential he saw at our Goldstrike Project in Utah.
Because of that, there has been a real pivot in terms of geographic focus, which is now squarely centered on our U.S. gold portfolio. What’s interesting about our U.S. projects is that when you look at The Great Basin, the epicenter of which is in Nevada, it captures all of our projects including our two newest projects: Goldstrike in Utah and Mineral Gulch in Idaho.
The Great Basin hosts this huge proliferation of what has come to be known as Carlin-style gold deposits. They’re sediment-hosted deposits that have large endowments clustered in relatively small areas. If you take the outline of our Goldstrike project, for example, and superimpose it on the North Carlin Trend, that 65 square kilometers of real estate hosts over 60 million ounces of gold. I’m not saying that we are going to find 60 million ounces at Goldstrike. Heck, we’d be happy with five million. What I am saying is that this part of the world hosts some truly world-class gold systems. Our Goldstrike property hosts a real Carlin system so it inherently has significant size potential and certainly has the right geological address.
L: I hadn’t quite realized how large the property is. Even if you hit and miss, if the geology is similar, there’s plenty of room for discovery.
Mark: Right. The deposits that you find in The Great Basin, Carlin-style deposits, they can be really big. And they occur in clusters. The stratigraphic host rocks are exposed intermittently at Goldstrike over about a 30 square kilometer area. Everywhere that they are exposed, there is gold in them, either in surface samples or drill holes. This gives us a pretty big sandbox to play in!
L: Which is why so many companies are exploring for gold in Nevada – but you’re working in Utah.
Mark: We have important projects in Nevada too, but we’ve chosen to focus “off trend” because there’s less competition and we feel the rocks are just as prospective. That has pushed us towards the edges of the Great Basin, which doesn’t pay much attention to political boundaries. We believe we can apply some new geological thinking to lead us to discoveries. We intend to show that these Carlin systems are in no way limited to the Carlin trend, or the Cortez trend, or any of the famous trends in Nevada.
L: Well, Long Canyon certainly proved that.
Editor’s Note: Long Canyon was the gold discovery that Ron Parrat’s AuEx Ventures and Mark O’Dea’s Fronteer Gold advanced and sold to gold major Newmont Mining. This was a huge win for our readers, on the order of 1000% gains. Interestingly enough, while in Nevada, Long Canyon is away from the main trends, close to the border with Utah.
Mark: Long Canyon, exactly. It was one of the first new pins in the map that said – hey, guys, look over here. These Carlin systems are obviously not exclusive to one postal code. They don’t care where state borders lie. That led us to Goldstrike. It was a past-producing, open-pit, heap leach mine. Production came from a series of shallow pits focused on where mineralization outcropped. What they left behind was effectively the root of an iceberg, locally tested by shallow drill holes. Applying 3D modeling and new geological interpretations in that area has led us to conclude, unequivocally, that what they left behind are extensive down-dropped continuations of the original orebodies that have great lateral continuity, and are now under shallow cover.
L: That’s the thesis Pilot is working on now.
Mark: Yes. But it is not just a thesis anymore. It’s proven. We’re drilling and hitting targets that are the down-dropped continuations of the known historical orebodies. We are convinced that mineralization extends under cover over large areas and this project has the hallmarks of a multimillion-ounce system. We’re putting a second rig to work on it in September, and ramping up our exploration efforts. We expect to receive an approved plan of operations [exploration permit] by March 2017, which will allow us to really hit it hard in 2017.
It’s exciting. In some ways, it’s greenfields, as we’re making new discoveries. But in many ways it’s brownfields, because it was a past-producing mine with good grade and good recoveries. Finding a multimillion-ounce, open-pit, heap leachable deposit in the Great Basin is extremely rare today.
L: I picture you standing on a hill overlooking the property, waving your arms when you say that.
Mark: I’m waving my arms for sure. But it doesn’t feel like it’s a big stretch.
L: Agreed, given the size of the area you’re exploring.
Mark: We’ve recently had some analysts down at the site, and everyone’s come away with a sense of scale.
L: So, is it fair to say then that the shift from Kinsley to Goldstrike isn’t because there’s anything wrong with Kinsley. You still have a thesis there. You found the right horizon, and it’s widespread. That’s still to be tested. But Goldstrike is close to surface and it has a much bigger footprint. So you go after the big one first.
Mark: Yes. That’s exactly what’s happened. I would call this lower-hanging fruit. It’s an easier system. It’s a bigger scale. It’s geologically and geometrically simpler. But Kinsley is still an excellent target. You know, our maiden resource there was almost the same as our maiden resource at Long Canyon. It was a half a million ounces at over two grams, which is excellent. It just needs a little more concentrated effort. If we had $100 million in the treasury, we’d be going after both of them concurrently, but we don’t. We had to decide where we’re going to get the most bang for our buck right now. The drilling at Goldstrike is shallow, fast, and inexpensive, and we are hitting gold in over 80% of the holes.
L: As for the pivot you mentioned earlier, it seems rather prescient that you shifted your focus away from Turkey, in light of recent events there. Is that just fortuitous? Or did you guys feel warning tremors in the ground?
Mark: Turkey is actually still a great place to work and explore. Especially when you are on the ground in our project area. But the headline risk makes it difficult for investors to stomach. We felt it was timely to focus on our U.S. portfolio which has a much warmer geopolitical risk profile.
But I do want to stress that we have great projects in Turkey still. We are still 100% committed to the mineral potential. It is one of the few places in the world where you can walk up to outcropping porphyry mineralization, drill a hole, and make a discovery. At some point they’re going to create a tremendous amount of value. They’ll get sold or restarted down the road when things settle down there. But we were listening to our investors, and they just did not want to hear about Turkey, despite the phenomenal results and excellent projects.
Having a U.S. gold-focused company made a whole lot of sense, with everything that’s going on in the world. Between Goldstrike, Kinsley and Mineral Gulch, we have our hands full with three great properties. If there’s one theme that you see repeatedly with our group, it’s that we try and get into projects that have lots of historical data. We can work with it, reinterpret it, remodel it, and recast it. Then we go out and test our new model. It’s a heck of a lot cheaper than starting from scratch. Moira Smith and her team are true superstars and minefinders. They have done a tremendous job. They drive the science and create the value over and over again.
L: Sounds great, but we could probably talk about the Great Basin all day. Do you want to talk about Pure Gold?
Mark: I’d love to, yes. Pure Gold’s Madsen project is similar in a lot of ways to Goldstrike, in the fact that it’s a past-producing mine, with a ton of infrastructure already there, but at the opposite end of the grade spectrum. It’s a Canadian high-grade underground project.
What we love about the Madsen gold mine is that it ticks so many boxes. It is starting with a large high-grade resource of approximately 1.2 million ounces at 10g/t in MI&I. It has at least $200 million of capital already spent and available on the property, including a shaft to 1,275 meters, 27 levels of underground development, a 550 tonne per day mill, a tailings facility, and a ramp from surface to 150 meters accessing the McVeigh. The mill and tailings facility are permitted, with expansion opportunities to 1,089 tonnes per day, and the project is connected to roads and power, etc.
But importantly, it’s never really had big-picture relook over the past 30 years. Claude Resources had it from 1998 to 2013 – but they had one single objective, which was to get the mine restarted by accessing the existing resource at depth using the shaft.
Unfortunately, they never really had the capital to make that work. It’s not a bad approach at all, and I have no doubt it would work, but It’s just really expensive and they were capital-constrained.
L: Such a pity too, because the mine is permitted and could be dusted off in a very short period of time.
Mark: Yes, indeed. But we decided to take a different approach; turn the opportunity on its head. We know that the roots of this system are going to go on forever. They all do at Red Lake. They are currently mining down to 2,400 meters at Goldcorp’s Red Lake Gold Mine, for example. So these are deep, deep systems. Historically at Madsen, 2.5 million ounces were taken out from surface down to about 1.2 kilometers. There are hits way below that that illustrate that it keeps going. In fact, Placer Dome did a scoping study on it. They suggested that there’s probably upwards of five million ounces of upside along strike and deeper within that mine complex. So, again, we said: “That’s not going anywhere, let’s focus on the easier, shallow, high-grade extensions of this system.”
We’re looking for high-grade, near-surface ounces that could be ramp-accessible. Rather than have to refurbish the shaft, and dewater, let’s look at ramp-accessible, high-grade continuations of this ore body along strike, in parallel zones, or in new targets a little bit further afield. That’s what we’ve been working on. The big breakthrough came about six months or eight months ago when we had a bit of a eureka moment with the geology.
As you can see in the graphic I sent you, there are two parallel zones. So imagine two veins. They aren’t real veins, but they are vein systems. These two parallel zones are dipping steeply. The main one is called Austin. The Austin Horizon hosted about 95% of the ore that’s ever been mined out of Madsen. It was mined from surface to about 1.2 kilometers down. About 150 meters into the footwall of the Austin, there’s another zone. It’s dead parallel. It’s called the McVeigh. It looks identical to the Austin.
The old-timers stopped mining the McVeigh at about 150 meters below surface. We couldn’t figure out why. They had a deep-rooted ore system in the Austin. They had the same ore body in the McVeigh. But for some reason, they stopped mining at 150 meters. Surely it must keep going, but where? Thinking about this, we came to the conclusion that the stratigraphy there is folded; the McVeigh is the Austin. If you fold the Austin – imagine projecting it into the air, folding it over, and then coming down on the other limb – it’s the same horizon. Are you with me?
L: Yes. So it was folded into an anticline and the top was eroded away?
Mark: Yes, an eroded anticline. So, the ore in the Austin was plunging in a certain direction. It was like a pencil, or a cigar, within the plane of the structure. It was all plunging in one direction. So if you imagine drawing this on a sheet of paper and then folding it over…
L: Ah! If you fold it over, the plunge on the other side – the McVeigh side – would be in the opposite direction.
Mark: Exactly. It’s an old magic trick, right? [Laughs] We believe they stopped mining because they thought the McVeigh should plunge in the same direction as the Austin. But it doesn’t. It plunges in a different direction. That’s what we’ve been testing – and we’ve been hitting, over and over again, below the old workings. There is absolutely no doubt that mineralization within the McVeigh continues way below the old workings and is wide open in all directions. We’ve hit it repeatedly in new holes with intercepts such as 11.0 g/t gold over 5.9 meters, 10.9 g/t gold over 9.8 meters, 31.3 g/t gold over 3.7 meters, and 50.2 g/t gold over 4.0 meters. In fact, we’ve dug up an old Claude hole where they hit it inadvertently at 1,000 meters’ depth.
L: They hit it by accident?
Mark: They were targeting a different zone and they had to go through the McVeigh to get to it. They reported a mineralized interval running 17.7 g/t gold over 2.0 meters, but it was the McVeigh. The McVeigh is the same horizon as the Austin, folded over, and now we know it’s mineralized down to over 1,000 meters’ depth, starting from surface. We’re drilling now below the old workings at about 400 meters and we are hitting. We now have 600 meters of a gap that we need to fill in with pierce points to build this new deposit. It’s a brand-new discovery. It’s been sitting there, untested for 40 years, just 150 meters from the old mine.
L: That’s a great story. It reminds me of Ron Parratt’s first six holes at Long Canyon. He’d said: “What if it dips in the other direction?” They drilled and boom, boom, boom…
Mark: There you go. It takes a bit of luck, but also a little different thinking. So far, it’s working. The Austin produced about 2,000 ounces per vertical meter. In the scheme of high-grade underground deposits, that’s pretty darn good. Anything north of 1,500 ounces per vertical meter is a nice system. It’s a strong system that’s going to be economic. If you apply that metric to the McVeigh and estimate upwards of 2,000 ounces per vertical meter, and you’ve got a kilometer of depth potentially, there could be a couple million ounces there.
Now, maybe that’s on the high side, I don’t know. But there’s got to be at least a million ounces if this thing has continuity, depending on how many chutes of high-grade material we can find within that limb.
L: And this would be relatively easy to put into production.
Mark: Yes. Madsen is essentially permitted for production. That’s the other part of the story that’s unique. We’ve got a fully permitted mine with a mill and a tailings facility with capacity and room for expansion. We have $200 million of infrastructure in place, including a shaft for ventilation and a decline that goes down to 150 meters that we can extend for very little capital. It’s a turnkey mining operation, with power, trained labor nearby, and all of that capital you don’t need to sink.
So we said, lets backstop the value of this enterprise by doing a base-case preliminary economic assessment (PEA). For the purposes of the study, we assumed that we don’t find a single ounce of additional gold, and that all we have to work with is the 1.2 million-ounce remnant resource. We estimated that there are around 300,000 ounces that we can access by ramp, from surface down to about 500 meters’ depth. The economics of those ounces are incredible, because the capital required to open that decline, refurbish the mill, and do development work is only about $20 million.
L: The key reason the economics came out so different from what was done before is that you’re looking at a ramp rather than using the old shaft. Is that right?
Mark: That’s exactly right. The study at today’s gold price and today’s exchange rate generates an NPV of about $170 million, from a 50,000-ounce-per-year producer lasting six years. That’s because there’s effectively negligible capital that goes into this. Your return on capital is huge.
So we have a base case in which we don’t find any more gold – all of the holes we drill are zero – and we still have $1.00 per share in NPV today, on a fully diluted basis.
But the exciting thing is that we know there is more gold because we are building continuity of gold below the old McVeigh workings. Our intention is not to go into production for six years at 50,000 ounces a year. Our intention is to try and double that. We want to get to a new base-case scenario through additional discovery, in which we can become a 100,000-plus-ounce-per-year producer.
It’s a little-known fact that while Madsen operated at 550 tonnes per day, it’s permitted for 1,089 tonnes per day. We could double the capacity of the mill. The permits are in place. At the grades we’re hitting, we could easily become a new 100,000-ounce-per-year producer in Red Lake.
L: And that’s big enough to make Pure Gold an interesting takeover target.
Mark: Absolutely. And then you factor in the regional consolidation that we’ve done. We’ve rolled in new ground. We have made two new discoveries in Russet South and in other areas within trucking distance of the mill. There are other satellite zones that are showing this to be a very fertile area. It just hasn’t been thoroughly explored.
L: That’s a great story, Mark. I guess the question our readers might have now is: Is there going to be a new Mark O’Dea play? You sold True Gold, these two are coming along nicely – is there an earlier-stage company we can get in on the ground floor?
Mark: Nothing that we can talk about right now. We are looking at a number of things that are extremely interesting. They’re getting harder to find, I have to say. But there are a few things that we’re actively looking at right now in the gold space and also in the base metal space. We’ll see if any of those come to fruition. I hope they do.
L: Alright. Well, keep us posted.
Mark: Speaking of True Gold, I actually view our accomplishments out there as among the proudest things I’ve ever been involved in. Look at the economics that have come out of this, especially post-deal with Endeavour. What started out as a 43% premium – that’s now layered on another 100% return on top of that 43% premium – it’s turned into a $500 million deal. That’s exactly the sort of return that we were hoping to see.
L: Because True Gold sold at a 43% premium to Endeavour for shares, then Endeavour rose 100% after the deal, adding even more value for True Gold shareholders.
Mark: Yes. That was the rationale for doing this deal. It wasn’t a sale. It was all about becoming a meaningful part of something bigger that will trade at higher multiples than a single asset producer. True Gold shareholders own a meaningful chunk of it, and have greater leverage to the price of gold, as Endeavour grows.
And the True Gold team achieved this in a three-year period. We took a cashed-up shell called Blue Gold, merged with Riverstone, drilled off Karma, permitted it, funded it in the toughest part of the market, built an operating mine, and sold it − all within three years. It was an incredibly intense and rewarding period. I hope people realize what was delivered. Delivering any mine in any market is no easy feat.
L: Right. And in the face of really serious challenges. Do you have any sense for how many of your shareholders held on when the local trouble flared up? No one was hurt, but equipment was destroyed. And you guys won over the locals, got the mine built. Kudos. But I wonder how many shareholders stuck with you and were able to reap the benefits you were talking about?
Mark: I don’t know. It’s hard to quantify. I know the big ones did – like Liberty, and Teck, and all of us in house. It’s turned out to be an absolutely spectacular outcome and something that everybody involved in True Gold should be very, very proud of having achieved.
L: It’s good. You didn’t mention it, but this was a win-win-win-win or something, if you count all the different stakeholders. That mine is built in one of the most poverty-stricken, parched pieces of earth in the world. And you’ve just opened up a geyser of money, training, and productive work there. You’ve given positive purpose in life to people who desperately need it. With no handouts. No insulting, dehumanizing “government help,” but real honest work. It’s a community-changing, positive event. And you did it for profit. It’s a beautiful example of how the system should work. So congratulations.
Mark: Thank you. I couldn’t agree more.
L: Well, thanks for your time and insight. Good luck going forward.
Mark: My pleasure and same to your readers.