NevGold Corp (NAU.V) recently released the assay results from three additional holes drilled on the Cadillac Valley zone of its Limousine Butte gold exploration project in Nevada. Holes 4 and 5 appeared to have been drilled from the same drill pad as hole 2 but it really is hole 6 that caught the market’s attention. And deservedly so. Not only did this hole encounter a thick interval of gold mineralization with a grade that should be economical, the main takeaway is that this hole was drilled more than 600 meters away from previously drilled holes, thereby extending the strike length by hundreds of meters.
The consistency of the gold mineralization is striking and the geological team likely can’t wait to get back into the field for the Phase II drill program at Cadillac Valley and Limousine Butte as a whole.
And with all the excitement surrounding Limousine Butte, investors would almost forget the company owns two more projects: the Cedar Wash gold project in Nevada and the Ptarmigan silver project in British Columbia. Despite the excellent results at Limousine Butte, the two other projects will not be placed on the backburner as NevGold still anticipates to complete a drill program on both in 2022.
NevGold appears to be serious about building a multi-million ounce gold exploration company as it recently entered into an agreement with GoldMining (GOLD.TO, GLDG) to acquire the Almaden property (which will now be renamed into Nutmeg Mountain).
Why hole 6 at Cadillac Valley could be a game changer for NevGold
While holes 4 and 5 yielded nice results as you can see in the table below, the attention was obviously drawn to the excellent result encountered in hole 6. The drill bit encountered just over 73 meters with an average grade of 0.51 g/t in oxide mineralization.
As you know, most Nevada-based oxide-hosted gold deposits have a cutoff grade of anywhere between 0.14 and 0.21 g/t so having a thick interval with an average grade of in excess of 0.5 g/t gold should meet the typical cutoff grades. So the grade is fine. Encountering the mineralization at a depth of approximately 131 meters downhole is relatively deep as it indicates a lot of overburden would have to be stripped before actually hitting the paydirt. This doesn’t have to be an issue. The long section provides a better idea of how the mineralization appears to be extending. As you can see, the very first hole the company drilled was already successful in defining a thick interval of oxide-hosted gold mineralization albeit quite deep.
But as you can see in the image above, the mineralization actually gets closer to surface as the drilling moves further to the southwest. You can also clearly see the area to the southwest of hole 6 on the left hand side of the long section now is the company’s next target. And that makes the depth of the mineralization a little bit less relevant. If the exploration theory is correct and the gold mineralization does pop up closer to the surface, where do you think mining activities will start? Right, in the area where the mineralization gets close to surface.
That would mean that (of course under the condition the company is able to work out an economic mining scenario) mining activities would likely commence in the southwestern zone and stripping the overburden would then be a sustaining capex funded by the cash flows generated from where the initial pit is planned. So yes, the mineralization is relatively deep at this point but remember, NevGold has drilled just a handful of holes so the exploration phase of the project is still in its infancy with a lot more work to be done to “fill in some of the gaps”.
The main takeaway of NevGold’s exploration update is not the thickness nor the grade of the mineralization, but the fact that hole 6 adds another piece to the puzzle. And when you take a step back and look at the bigger picture, there are a few takeaways.
- Hole 6 was drilled 650 meters away from hole 2 and has now expanded the strike length at Cadillac Valley to approximately 1,600 meters.
- Hole 6 paves the way for further extensions towards the southwest. According to the company there’s an additional strike length of approximately 1.5 kilometers further to the southwest that remains untested and will likely soon be tested. The company can apply the same successful drill targeting techniques utilizing historical data layers to find more mineralization.
- The consistency is key here. The gold mineralization appears to be quite predictable (knock on wood) and this could simplify future exploration programs as drilling will become more efficient. The ‘target areas’ defined by NevGold aren’t pipe dreams.
The company will continue to drill at Limousine Butte but still intends to drill all three projects this year
The Limousine Butte project was the company’s focus in the past few months and rightly so, considering the excellent exploration results.
NevGold started the year with the intention to drill all three projects this year and in a catch-up call CEO Brandon Bonifacio confirmed that still is the case. While most of the attention will obviously still be directed towards Limousine Butte where a Phase II drill program will follow up on the recent discoveries, NevGold is still aiming to complete the Phase I drill programs a both Cedar Wash and Ptarmigan.
Those drill programs will be relatively small with about 2,500 meters of (cheap) RC drilling budgeted for Cedar Wash while the drill plans for Ptarmigan are still being finalized. A potential consequence of the excellent drill results at Cadillac Valley could be NevGold delaying the interim resource update it had originally planned for this year.
In this case, delaying a resource update would be a positive signal as NevGold will need more time (and data) to really figure out the Cadillac Valley project. And as markets tend to be backward looking when it comes to resource estimates, we would completely understand it if NevGold would backtrack on its promise to release an updated resource estimate this year if it thinks it can do substantially better after including the results of the Phase II drill program.
Nutmeg Mountain: the next step in building a multi-million-ounce gold exploration company
NevGold recently entered into an option agreement to acquire full ownership of the Nutmeg Mountain project from GoldMining. This project is located in Idaho and already contains a NI43-101 compliant resource estimate with 910,000 ounces of gold in the indicated resource category and an additional 160,000 ounces in the inferred resource category (based on in excess of 900 holes drilled). The average grade is respectively 0.65 g/t and 0.56 g/t.
Almaden Property Location and Geological Provinces, Idaho
That sounds low but just like the Limousine Butte project, the gold is amenable to be recovered by using the heap leach or vat leach processing option. An additional bonus is the fact the mineralization starts right at surface and the strip ratio may even be less than 1.
According to the technical report completed for GoldMining, about 72% of the contained gold was recoverable by direct cyanidation while 21% was associated with silica encapsulation. The ounces are there, and the main issue NevGold will have to tackle will be metallurgy as that will obviously be key if one would like to develop a 0.65 g/t gold deposit, especially considering there’s a 5% NSR on most of the current resource. A 5% NSR could kill a project (or at least make it substantially less appealing) so it is good to see NevGold has already started to talk to the royalty owners in an attempt to reduce the royalty rate.
NevGold plans to hit the ground running: it aims to start a 10,000 meter drill program in the next quarter and drilling will focus on stepping out from the existing resource while also taking some samples to use for the additional metallurgical test work, planned to start in Q4 2022. As this is an advanced project, NevGold thinks it can have a PEA or PFS ready by next year.
As the project needs a lot more work to be done, NevGold was able to acquire it on the cheap. It initially issued 4.44 million shares as consideration for the option. This represents a pro forma value of C$3M using a share price of C$0.675 and GoldMining is also participating in a private placement at that price investing an additional C$1M in cash with a firm commitment to be the lead order for an additional C$1.25M in the next financing to be conducted by NevGold (this will go a long way to complete the drill program on the property).
NevGold will also have to make additional cash or stock payments (at the discretion of the company) totalling C$6M (C$1.5M on January 1 2023 and July 1 2023 followed by C$3M payable on January 1 2024). NevGold will also commit to spending C$2.25M in exploration on the project (which shouldn’t be an issue considering it is planning a substantial drill program) while GoldMining will be entitled to C$7.5M in milestone payments (C$0.5M on the completion of a PEA, C$2.5M on the completion of a PFS and C$4.5M on the completion of a feasibility study).
Nevgold recently published its financial statements
Drilling can be expensive and we need to keep an eye on NevGold’s financial situation to make sure the company’s treasury isn’t running on fumes. As of the end of March, the balance sheet indicates a total working capital of approximately C$900,000 with just over C$1.1M in cash after having spent in excess of C$1.1M on capitalized exploration in the first quarter. The balance sheet contains an additional $0.4M in prepaid expenses that are not booked as ‘current’ assets but could be tapped into at any time. So in reality, the quarter end working capital position including these prepaid expenses was closer to C$1.3M.
More cash is coming in from warrant exercises and subsequent to the end of the first quarter, NevGold actually received in excess of C$200,000 from these exercises. If the share price can hold its ground now, we can reasonably expect warrant holders to exercise more of their warrants. There are in excess of 7.5 million warrants with an exercise price of C$0.60 expiring in June 2023 and the company is currently trading north of C$0.70 per share. Although that’s still a year away, the warrants could be a good source of funding to keep the treasury at an acceptable level while the company executes on its drill programs.
Conclusion
Despite only having completed six holes at Cadillac Valley so far, NevGold has already been able to surprise friend and foe with its assay results. The grade and thickness of the mineralization is very consistent and that will (hopefully) simplify the task of the company’s exploration team.
It goes without saying Limousine Butte is now more than ever NevGold’s flagship project, but we are looking forward to seeing the results of the upcoming drill programs at Cedar Wash and Ptarmigan.
NevGold will have a full plate this year and next year as it will also complete a 10,000 meter drill program and additional metallurgical test work on the recently acquired Nutmeg Mountain project. NevGold is acquiring the project on the cheap by paying just around C$11 per ounce in the ground (increasing to C$17 including the milestone payments). But now it is up to NevGold’s technical team to show those ounces can be mined and recovered economically, which is something they have had success on to date at Limousine Butte. The company sees a very similar value roadmap at Nutmeg Mountain like it did when it acquired Limousine Butte approximately 18 months ago, and they will apply the same expertise and technical rigor and let’s hope this will result in a positive PEA or PFS, which is just a few quarters away.
Disclosure: The author has a long position in NevGold. NevGold is a sponsor of the website. Please read our disclaimer.
