Black Swan?

Xtra-Gold (XTG, TSX) Is A "Self-Sustaining" Explorer That's 100% Focused.

Xtra-Gold has a nice long track record.

They've been trading publicly since 2010.

Over the years they've made several discoveries and delineated a total resource of approximately 600,000 ounces at 2 g/t Au.

But here's the amazing thing! Xtra-Gold has about the same number of shares outstanding today (46 million), nearly a decade later, as they did at their IPO!

No rollbacks.

No funny business whatsoever.

Xtra-Gold has been methodically advancing their 100% owned Kibi project, a new Gold belt in Ghana, with almost no dilution for nearly a decade. This is highly unusual for the exploration industry, as you know, so everyone should be curious about how they did it.

What was their secret sauce?

Cash flow from alluvial Gold sales!

Sounds like a no-brainer right, just generate some cash flow! Then live within your means (budget) and work-work-work. Becoming a small producer and generating cash flow helps keep equity dilution to a minimum.  But that's easier said than done. Many have tried and many have failed.

Why has Xtra-Gold been successful with alluvial production?

Several reasons, but first and foremost it's because they're not trying to do everything themselves. They share the wealth! Xtra-Gold outsources all the alluvial mining activities to a local contractor, which keeps their operating costs very low (close to zero in fact). The mining contractor, who's been granted exclusive access to Xtra-Gold's land, assumes all the risk in exchange for 80% of the reward. Xtra-Gold keeps the difference, 20%.

Year after year they've reinvested the cash flow into exploration with almost no dilution for those who own XTG.

Last year Xtra-Gold generated more than US$5 million from its 20% share of the Gold mining operations.

From here the questions relate to how they've spent the money, what's their exploration strategy? Etc. etc.

Let's start with the big picture in mind!

Xtra-Gold is pioneering the discovery of an entirely new Gold belt.

The "Kibi" project/belt is located east of the 4 major Gold belts in southern Ghana.

Xtra-Gold's camp is closest to the capital city (Accra) and easily accessible via a newly constructed highway to the concessions (55,905 acres in total). Hydro electricity from the main grid runs through the Kibi project, so infrastructure costs for mine construction and development would be relatively low.

Geologically speaking the Kibi belt is analogous to other prolific greenstone belts of southern Ghana, including the neighboring Ashanti belt.

Worldwide, Ashanti is one the largest Gold belts with an estimated endowment of 115 million ounces.

Xtra-Gold's competitive "edge" is their unrivaled understanding of the controls to Gold mineralization gained from 10 years of continuous exploration efforts within the Kibi belt.

Sticking to the point of Xtra-Gold's exploration edge, they've got +100 long term employees dedicated to their success. I talked to CEO/Founder James Longshore at some length about this recently because I think this full-time exploration workforce is arguably Xtra-Gold's most important asset (the hidden gem within this company).

Here's a few key points I took away from our conversation:

  • Now the number is up to 140! They've got 140 people working everyday. 40 hours per week with an opportunity for 10 hours overtime.
  • Xtra-Gold's full-time workforce is soil sampling, pitting, trenching, drilling, and building roads.
  • The Company-owned drill rig bounces back and forth between resource definition and high risk drilling (+4,000 m was drilled in 2018). Longshore recently hired a night shift to accelerate drilling output. Plus, he's entertaining the idea of buying a 2nd drill rig.

So as shareholders of XTG we've got 140 people working away everyday. They're taking all the exploration steps necessary, from soil sampling to road building, to advance individual targets to the drilling stage. Longshore's balancing the use of Xtra-Gold's drill rig between resource definition and high risk (grassroots) drilling. They've got US$4 million cash on hand, more than enough to buy a 2nd drill rig.

The 2nd drill would be dedicated to higher risk grassroots targets, which brings the potential for much higher reward upon making a new discovery.

I'd like to see Longshore make that move, it's one he could do quite fast.

Having 2 company-owned drill rigs working pretty much full-time with NO DILUTION to shareholders would be pretty impressive considering Xtra-Gold's market cap is only $22 million.

Internally, Xtra-Gold has a resource estimate of 600,000 ounces at close to 2 g/t Au (that's for Zone 2 and Zone 3, pictured in the map above). Those grades are very respectable for open pittable material. There's certainly room to reach the 1 million ounce mark, with grades holding near 1.5 g/t Au, but smartly, Longshore won't be wasting money on an updated resource estimate until he knows enough drilling has been done to hit 1 million ounces (maiden resource was published 2012).

Assuming a 600,000 ounce resource the market is valuing Xtra-Gold at more than $30 per-ounce. That number is relatively high compared to their peer group, but we should interpret this "premium" as a positive. By paying a premium price the market is telling us Xtra-Gold has great exploration upside within the Kibi belt.

Cobra Creek being 1 recent example, whereby Xtra-Gold has advanced a target from prospect through drilling discovery (Cobra Creek is at least 5 km SW of Zones 2 and 3).

Lots of information buried within that slide, but I take especial notice of the size and grade. Cobra Creek is a NE-trending structure that's been traced over 850 m (strike length) by 550 m (width). Near surface intercepts have returned 16.2 g/t Au over 2.9 m, 6.5 g/t Au over 5.5 m, and 37 g/t Au over 1.1 m.

Located more than 5 km from the known deposit (Zones 2 and 3), Cobra Creek shows some early indicators of possibly becoming a stand alone.

Having highlighted the known positives of Cobra Creek, I must say follow up drilling wasn't as successful and the vein showed signs of pinching out. That took some air out of the Cobra Creek bubble, but Xtra-Gold can't just walk away from grades of +1 ounce either. Longshore hired Tect Geological Consulting to spend some time on structural analysis.

Hillcrest, another prospect Xtra-Gold generated internally, is a good 8 km SW of Cobra Creek. A single scout trench there returned 2.2 g/t Au over 12 m.

Finally, the bullish chart.

If there's a knock on XTG it would probably be liquidity. Trading activity is thin, for sure, but that's often a trade-off in return for a lessor number of shares outstanding (at least until there's a reason for speculators to get really excited).

Higher-lows and higher-highs is what I like most about this setup. A series of higher-lows over a multi-year period is one of the strongest most reliably bullish TA indicators, in my experience. This recent pullback following a breakout is a nice entry point if you like XTG. I'd be surprised, pleasantly surprised, if it dropped back to 40-cents. XTG has an all-time high price of $2.50.