Geologists from Liberty Gold in the field at Goldstrike in Utah
There's a standoff in store between gold producers and explorers and the end game could mean big paydays for savvy explorers.
The global gold industry is on the cusp of steady annual production declines. Some authorities on the subject, including Randall Oliphant (Chairman of the World Gold Council), believe we may already be there. This isn't just theory. South Africa may well be the smoking gun. Once boasting annual production of over 1,000 tonnes of gold a half-century ago, it produced a mere 167.1 tonnes in 2016. Even worse, South Africa may completely deplete its reserve base in less than four decades - this according to the Environmental Economic Accounts Compendium published by African Statistics Day. When you consider that South Africa is currently the fifth largest gold producer on the planet, that is an ominous forecast.
South African mining companies are not alone. Every miner on the planet faces a similar set of challenges. Many of the largest gold deposits, like those in the Witwatersrand Basin in South Africa, are nearing the end of their life cycles. Producing companies are forced to dig deeper. They are forced to mine rock that is becoming increasingly difficult to process - ore that is only marginally economic. This has an obvious negative impact on a miner’s bottom line.
These increased costs pale in comparison to an even more serious predicament, one faced by nearly every producing company in the gold arena today. Every day that a gold miner digs ore out of the ground - every day the company is in business - they reduce their inventory of the precious metal. They are depleting their reserve bases. And these ounces are not easy to replace. For companies that produce millions of ounces of gold annually, adding to reserves in a meaningful way requires a steady stream of new discoveries. The brutal bear market of the last 6.5 years forced producing companies to dramatically scale back exploration spending. The aftermath: a shortfall in new gold discoveries. This sets up an interesting dynamic, particularly for those smaller companies sitting on large, potentially economic deposits. Companies holding such assets in politically stable regions, like the southwest US, are in a unique position to create substantial value for shareholders.
"There are some people who are constant winners in the game of life... They find a way to win." - Stephen Shwarzman
Liberty Board at the historic Moosehead Pit at Goldstrike. From left: Rob Pease, Mark O’Dea, Don McInnes, Sean Tetzlaff, Cal Everett
The recipient of numerous honours and awards, Mark O'Dea (Ph.D., P.Geo) is a seasoned geologist and deal maker. He is well known across the industry having led several mineral startups to spectacular successes. Examples: Aurora Energy Resources was acquired for $260 million in 2011; Fronteer Gold sold to Newmont Mining for US$2.3 billion, also in 2011; African developer True Gold was acquired by Endeavour Mining for US$190 million in 2016. This is not a complete list. O'Dea and his team have created billions in shareholder and transaction value over the past decade.
O'Dea's geological team, a dynamic group of individuals in their own right, possesses a wide range of skill-sets covering every aspect of the mining business - everything from resource discovery to mine building and production. Once a discovery is made, they de-risk the deposit by systematically drilling it off, performing technical studies along the way. The ultimate goal is selling the deposit to a producer at a fat premium, or building the mine themselves.
Liberty Gold (TSX:PLG), originally called Pilot Gold (TSX:PLG), was the spin-out from Newmont Mining's acquisition of the Long Canyon deposit. The team of experts that helped O’Dea drive Long Canyon to the $2.3 billion takeover in 2011 are the same group steering Liberty Gold today. For context, Liberty is valued at a mere $65 million.
O'Dea's team includes the following noteworthy members:
Moira Smith (Ph.D., P. Geo) is Liberty’s VP of Exploration and Geoscience. Some call Dr. Smith the 'rock whisperer', and for good reason. Her impressive track record includes seven significant gold mine discoveries that are now in development or production, including the 5.5 million ounce Pogo gold deposit, the 1.5 billion tonne Petaquilla Cu-Mo-Au porphyry deposit in Panama, and the 3.5 million ounce El Limon gold deposit in Mexico (personal note: Moira happens to be a hero of mine).
Adding depth and experience to the team, the company boasts the talents of Cal Everett (B.Sc), Liberty's President, Chief Executive Officer and Director. Everett, a geologist from New Brunswick, cut his teeth in the sector working surface and underground exploration back in the day. His move to the finance side in 1990 was the dawn of an impressive career; one which began with a 12-year stint with BMO Nesbitt Burns where he concentrated on resource equities, then another 7 years with PI Financial focusing on senior resource institutional sales and capital markets. In 2010, he was honored with the Murray Pezim Award from the Association for Mineral Exploration British Columbia for perseverance and success in financing mineral exploration. He later went on to found Axemen Resource Capital, having established a reputation as one of the mining industries most influential discovery financiers.
Everett was appointed CEO of the company in early 2016 when O’Dea went looking for a fresh set of eyes to manage and direct the company. It was an opportunity Everett simply could not pass up.
“They have an incredible screening process, having been all over the world. It’s no accident they do metallurgy early, avoid political risk, focus on large land positions and other vetting procedures up-front.” Everett says.
On Liberty’s project portfolio, “Three major district-scalable projects, all that are drill confirmed and have given grade in the jurisdiction where everybody wants to be.”
Aside from O'Dea and his impressive team of scientists, the company controls an enviable portfolio of projects, all at varying stages of exploration and development.
With an eye trained on the desperate situation currently faced by producing companies - having depleted their gold reserves faster than they can replace them through new discoveries - O'Dea is applying a simple formula: acquire and advance a portfolio of past producing Carlin-style gold projects in the southwestern part of the US. This is one of the most politically stable, mining-friendly and geologically prospective regions on the planet. This is where many of the largest gold producers, including Newmont (NYSE:NEM), Goldcorp (NYSE:GG), Barrick (NYSE:ABX) and Kinross (NYSE:KTO) have positioned and established themselves, and will likely seek further investment to extend their pipeline of gold deposits out into the future.
Goldstrike, a Carlin-style, sediment-hosted gold property located in southwest Utah, is Liberty's flagship project. Situated just over the border from Nevada, it was mined between 1988 and 1994, producing some 209,000 ounces of gold at a grade of 1.2 g/t Au in 12 shallow pits. The early operators of the property chose to mine only the higher grade ore exposed on the surface. Liberty's current drilling outside the pit shells, and exploration drilling elsewhere on the property, clearly demonstrate missed potential. Goldstrike's mineralization continues downdip of the historic pits and runs along under shallow cover linking several of the older pits into one large system. When viewed against the scale of Goldstrike’s 22 kilometer target area, Liberty’s recent drilling, some 476 holes between 2015 and 2017, has barely scratched the surface. There is plenty of exploration upside here. This is also a property that can be drilled 10.5 months out of the year.
In an effort to expedite the development of Goldstrike, Liberty has run metallurgical tests on a number of core holes drilled during the recent program. These preliminary results demonstrate an 86% recovery rate of leachable gold (81% within 10 days in column tests). These results, though preliminary, compare well with other heap leach projects under development in the southwestern US.
CEO Everett on Goldstrike, “The Mining companies know that if you have the district, and you keep drilling, you will find more gold. It's as simple as that. We are advancing Goldstrike, targeting it to become a minimum 100,000 ounce gold producer. It just takes drilling and scientific back up to try and reach your goal.”
There's a potential near-term catalyst for current shareholders in the Goldstrike property. A maiden resource estimate is due to be tabled in Q1 of 2018. The goal is for 1 million ounces of gold, but with the incorporation of 1,500 historic drill holes, along with the 476 holes Liberty has drilled over the past two years, it wouldn't surprise me if Liberty exceeded that goal.
Aside from the maiden resource estimate due in Q1 of this year, drilling at Goldstrike is set to resume in March.
Kinsley is a Carlin-style, sediment-hosted gold property located south of Newmont Mining’s Long Canyon deposit - a deposit acquired from O'Dea's Fronteer Gold in 2011 for US$2.3 billion. The property is 79% owned by Liberty. Previous operators mined the project for shallow oxidized ore between 1995 and 1999, producing approximately 138,000 ounces of gold at grades of 1.4 g/t gold. Liberty set its sights beyond the oxidized ore on the surface. Probing the favourable geological setting at depth, it discovered high-grade gold at the Western Flank zone in late 2013. Subsequent drilling in 2014 and 2015 lead to the release of a maiden resource estimate, one which includes 284,000 Indicated ounces at an average grade of 6.04 g/t.
Initial results at Kinsley demonstrate excellent metallurgy with recoveries between 83% and 95% with the potential to produce a high-grade flotation concentrate.
The company believes it is unlikely that the Western Flank is the only high-grade gold zone in the area. There remain eight high priority drill targets in the vicinity to follow up on.
Black Pine was acquired from Western Pacific in mid-2016 for US$800,000 cash, 300,000 shares of Liberty Gold and a 0.5% NSR. It too is a past producer, having given up some 435,000 ounces of gold between 1991 and 1998 at a historical grade of 0.7 grams per tonne from seven shallow pits. The project, encompassing 31.7 square kilometers of land, is a Carlin-style, sediment-hosted gold property located in Cassia County of southern Idaho. This project is the next in line, after Goldstrike, to be systematically drilled and de-risked.
Black Pine has over 12 square kilometers of favourable geology to test with the drill bit. Results from a modest drill program initiated on the property late last year are in. Thus far the drilling has succeeded in validating historical results adjacent to historic pits. These early results also demonstrate the exploration potential that exists beneath the limits of shallow historical drilling, as well as the prospect for new discoveries across the property.
Liberty's Turkish assets have dropped off the radar of most investors. Resource investors do not assign any value to these assets in the current market. They should.
Halilağa is a copper-gold porphyry project located in the Biga District of northwestern Turkey. Liberty is partnered with mining giant Teck Resources on this one. A PEA released in 2015 suggests very favourable economics for the project. Using $1,200/oz gold and $2.90/lb copper, an after-tax NPV (7%) of $474 million and 43.1% after-tax IRR is indicated. Given the fall in the Turkish Lira versus the US dollar, not to mention higher metal prices, the return from this deposit could be significantly higher. Influential mining analyst Brent Cook assigned an approximate US$66 million value for Halilağa a few years back.
Elsewhere in Turkey, Liberty controls 60% of the TV Tower project. TV Tower is a high-sulphidation epithermal and porphyry gold-copper property also located in the Biga District of northwestern Turkey. The project hosts numerous discoveries to-date with a number of targets yet to be tested. The KCD target alone sports a very respectable Indicated resource of 996,000 AuEq ounces (23.06 Mt at 1.34 g/t AuEq) and an Inferred resource of 351,000 AuEq ounces (10.77 Mt at 1.01 g/t AuEq).
Liberty has been in talks with potentially interested parties for the sale of these under-appreciated assets in Turkey. If a buyer cannot be found, the company plans to spin them off to current shareholders.
On a financing note, Liberty recently announced a $10.5 million bought deal private placement with a syndicate of underwriters at a price of $0.42 per unit (each Unit consists of 1 common share and a .5 common share purchase warrant - each whole warrant is exercisable into 1 share of the company at a price of $0.65 for a period of 36 months). The negative first: the offering price is low. I’m sure CEO Everett would have preferred to finance at much higher levels in order to limit the dilution. The positives: the company is now fully cashed up to continue drilling off Goldstrike and Black Pine. It can also finalize its maiden resource estimate for Goldstrike, due this quarter. Another positive that shouldn’t be overlooked is that the lion’s share of the PP was taken down by RCF Opportunities Fund L.P. Following closing of the PP, RCF will own 8.4% of the Liberty’s issued and outstanding common shares (12.1% on a partially-diluted basis). RCF’s participation might be considered a ‘smart money’ vote of confidence for the company.
If we are in fact living in a world where gold production can be expected to decline dramatically in the coming years, companies like Liberty Gold have a critical role to play. Producing companies, after years of scaling back exploration spending, are being forced to approach companies like Liberty Gold in order to add ounces to their steadily depleting reserve bases. O'Dea's strategy of establishing a foothold in under-explored, politically stable and geologically prospective regions in the southwestern US, then applying a systematic approach to making discoveries and de-risking them, could pay off handsomely for current Liberty Gold shareholders. This company has an end game.
Market cap: $63,992,792 Cdn
Shares outstanding: 150.59M
Share price: $0.43
52 week range: $0.35 - $0.68
Web site: http://www.libertygold.ca/
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