Contact Gold (C.V) has released the first NI 43-101 resource estimate on the Pony Creek oxide gold project in Nevada. The pit-constrained resource contains 433,000 ounces of gold at an average grade of 0.52 g/t gold, and is the initial stepping stone to further resource expansion at Pony Creek.
Contact Gold drilled Pony Creek soon after acquiring the project, but was never really able to do work on it sufficiently in all aspects as Pony only had a permit to construct drill pads on small patches of land. That changed in late 2020 when the company received the approval for a full Plan of Operations from the Nevada Bureau of Land Management. That’s an important achievement as this will allow Contact Gold to design new drill programs from more optimally placed drill pads, and over a much larger area of the Pony Creek property. This means that future drill programs should be more effective and efficient (although it will be difficult to beat the 92% drill success rate of the first few drill programs) as the limitations that impacted previous drill programs have now been removed.
While continued drilling success meant most of the attention was on Green Springs in recent years, this also meant Pony Creek was on the ‘back burner’. Not undeservedly as A) Green Springs filled a void as Contact Gold was waiting for the Plan of Operations to be approved and B) the Green Springs project obviously still has a lot of merit and drilling will continue there in Q1/22 .
This maiden resource should be seen as an initial stepping stone providing a basis or early valuation. While the company originally didn’t intend to calculate a resource estimate, it also wasn’t getting any value for Pony Creek from the market: the market capitalization of Contact Gold is just around C$13.5M using the current share price of C$0.045. Additionally, Contact has approximately C$2.8M in cash resulting in an enterprise value of just over C$10M and either project should likely be valued higher than that. If you would apply a value of US$20/oz on the current Pony Creek resource, you’d end up with a valuation of US$8.65M. At the current exchange rate, that’s approximately C$11M. Not only is that already higher than the current enterprise value, you’re also getting the exploration upside and Green Springs exposure thrown in for free.
The downside of the company’s decision to release a 433,000 ounce resource is virtually nonexistent.. In fact, there is considerable upside. Not only does this help Contact remind the market that it still owns the Pony Creek project, it also helps to underpin the market cap. Because what is an inferred ounce in Nevada really worth? That’s a rhetorical question as there is no ‘one right answer’. But what would be fair? The US$20 we used in the example above? US$40? In any case, using that range of valuation you’d easily end up with US$8.6-17M which would be (or exceed) the approximate current enterprise value.
And it’s worth emphasizing this is just the maiden resource at Pony Creek. There’s much more work to be done there and, with the Plan of Operations now in place, we expect Contact Gold to design a more optimal drill program to pursue resource growth. The Bowl Zone remains open to the Northwest, and towards Palomino, while the Stallion Zone remains open in all directions and its 63,000 ounce resource could easily be multiplied. The most recent drill results from the Stallion Zone (released in Q4 2019) indicated the existence of a higher grade zone with for instance 1.52 meters containing 1.25 g/t gold within a 64 meter interval of 0.35 g/t gold. Additionally, other holes (21, 23 and 25 to be precise) encountered respectively 69, 69 and 61 meters of 0.25 g/t gold, 0.29 g/t gold and 0.30 g/t gold which compares favorable to the average grade of 0.27 g/t in the Stallion resource.
And there’s plenty of low hanging fruit elsewhere. The image below shows the pit outline (in red) overlaying the mineralized zones (in green-blue). Especially at Appaloosa a substantial portion of the mineralization didn’t make it to an in-pit resource but could be included in a next resource with just a bit of infill drilling.
Contact Gold raised C$3M in a financing priced at C$0.05 in December and the use of proceeds did mention the Pony Creek project so perhaps we will see some activity sooner than anticipated in an attempt to reach the ‘magic’ 1 million ounce mark. In any case, neighbouring Gold Standard Ventures (GSV, GSV.TO) will likely be keeping tabs on Pony Creek as the project literally adjoins their Jasperoid Wash target and a combined development effort appears to be the most efficient route.
According to Gold Standard’s pre-feasibility study, filed in 2020, the average grade of the Pinion reserves was just 0.63 g/t gold (with a slightly higher strip ratio) while the additional inferred resource (not included in the economics) on the Jasperoid Wash target (which is just a stone’s throw away from the Pony Creek tenements and the Stallion Zone) had an average grade of just 0.33 g/t gold.
We are waiting for the NI 43-101 technical report to be filed, but we are happy that after several years there now is something ‘tangible’ to underpin the market capitalization of Contact Gold. Is 433,000 ounces at 0.52 g/t gold jaw-dropping? No. But it’s just a starting point for Pony Creek. And the threshold to reach the critical mass to prove economic viability for oxide gold projects in Nevada is rather low.
Once we have had a chance to read through the entire technical report and talk to the Contact Gold team we’ll work on a more extensive update.
Disclosure: The author has a long position in Contact Gold. Contact Gold is a sponsor of the website. Please read our disclaimer.
Excellent summary. Undervalued play!!