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Getting it Exactly Right

Bob Moriarty
Jun 8, 2010

I suppose I have done a couple of hundred of property tours over the last ten years. I've seen a lot of projects and a lot of companies. It is a great pleasure to see those companies who get it Exactly Right. They are few and far between.

Newsletter writers and geologists serve as sort of free consultants to the companies who invite them on tours though obviously the companies are most interested in free promotion. I've been on tours with most of the guys who do tours and everyone has something to offer. There is a lot of give and take and often a lot of criticism of what a company is or isn't doing. You can't really fool guys who have seen dozens of projects.

Often we are fed half truths, not total lies, but we run into those as well, so you not only need to know enough to recognize the truth of what you are being told but you also need to figure out what you aren't being told. But the joy of finding a hidden diamond is worth all the middle seats in airlines, rotten food and early hours.

I visited a company last week that has it Exactly Right. It was a great pleasure and shareholders are going to be greatly rewarded. The company is Premium Exploration Inc. (PEM-V).

Idaho native and Premium President Del Steiner formed the company in 2006 with assets in Mexico, PGM minerals in Montana and the gold core project in the Orogrande Shear Zone in Elk City, Idaho. I didn't even know Idaho was a big producer of gold but the Central Idaho gold region produced over 4 million ounces of gold from mostly placer projects.

Gold was first discovered in Idaho in 1860 and pretty much was the reason for the settlement. Population went up 800% from 1860 until Idaho was admitted to the union in 1890.

It's pretty much axiomatic that where you have placer gold, you have a lot more lode gold. For example I visited the Livengood project of International Tower Hill four years ago. We knew from historical data that every drainage off the hill was mined for placer dating back to 1915. I thought Livengood was going to be a really big project. Millions of dollars of exploration has confirmed the presence of almost 10 million ounces of lode gold. So for every ounce of placer produced, there is another 20 ounces of hard rock gold waiting to be produced.

I highly suspect that what Premium calls the Friday-Petsite gold project is going to be similar. I was briefed on the project at a meeting with Del Steiner and lovely Christine Kopr at the Vancouver Gold Show in January. Basically PEM has a 28 km long shear zone hosting high grade gold. The old timers went after the obvious gold in quartz veins seeing ounce plus material but the wall rock is highly mineralized as well. I've seen similar systems in Brazil that went on for miles.

My feeling at the time was that Premium was onto something really big. After spending a day driving around the project last week I am convinced the company is a sleeper. They keep saying they are trying to define a million ounces of gold but they have a lot more ounces than a million.

With prior drilling, PEM has a 43-101 resource of 532,000 ounces of gold at Friday-Petsite. At the Buffalo Gulch open pit project a few miles away; there is an historic resource of 110,000 ounces. Buffalo Gulch was test mined and has been permitted in the past.

Del Steiner has been planning the development of the Orogrande Shear Zone for many years. While President and CEO of Idaho Consolidated Minerals Del developed some 600,000 ounces of gold in the Orogrande Shear Zone. He was part of the permitting for Bema Gold when they advanced the Buffalo Gulch Gold mine originally in 1992.

Wilf Struck, the CEO of Premium also has a long history with gold in Idaho. He was the project Engineer for Friday-Petsite and Buffalo Gulch when he worked at Idaho Consolidated and he was the Supervisor of Exploration Properties with Bema Gold when they owned Buffalo Gulch.

When I visit a project, I'm always hoping to see something that gives me a real idea of the potential. When I met with management in Vancouver in January, I was thinking, this is really big. But you have to put boots on the ground to actually see it. And knowing that you are dealing with a shear zone is interesting but it doesn't mean anything all by itself.

You see things on a visit that management knows about but it may not mean anything to them. Here's what I saw, miles and miles and miles of placer workings. Over the last 100 years or so, there has been 400,000 ounces of gold taken out of the valley that the shear zone has created. That's a lot of placer gold. And when you see piles of cobbles stacked up for miles, it's easy to see that there is a lot of gold in the Orogrande Shear Zone waiting to be mined.

click to enlarge

Every mining company is run differently. It's pretty common for them to use the Beanie Baby approach where they have picked up a variety of projects in different commodities, even in different countries. For those few companies who really "Get It Right" they shed the excess baggage when they are ready to focus on the really big deal.

PEM is vending out their Mexican projects that consume both money and focus. They are spinning off their giant potential PGM minerals in Montana to a new company and vending most of the shares to existing shareholders. That's a brilliant move. They are getting absolutely no traction or value from the project and shareholders can get far more value from it being put into a new company.

Premium has a new gold district in Idaho at the Orogrande Shear Zone and it's going to be very big. Some of the already released drill results are mind bending. They announced some drill results in January. The best hole was 2.66 g/t over 198.4 meters. That's a giant hole.

I've used the concept of cubing a hole before. That is you presume the intercept is cubed to determine the total potential quantity of gold. It is not a scientific measure, as a matter of fact; unless you drilled vertically into a mineralized body that all the rock was exactly the same, you couldn't possibly get the same number. But it is a way of comparing one drill hole against another.

Very long intercepts can be quite important. 2.66 g/t is nice $106 rock and 198.4 meters is over 600 feet of mineralization. If you cube the hole, you come up with 1.7 million ounces of gold. With another hole showing 2.94 grams of gold over 73.5 meters, the 43-101 resource is going to grow in a hurry.

Those holes are not incorporated into the current 43-101 for Friday-Petsite. An updated resource will not be released until the fall but a few more holes like that and the market will wake up and bark.

Along with the shedding of assets that are not contributing to market value, PEM has embarked on a major 10,000-meter drill program in April and results will be coming out on a regular basis shortly. PEM is concentrating on increasing their visibility as well and more newsletter writers have been invited to do a tour and will be seeing the project shortly.

I would be very surprised if this isn't another multi-million ounce project with similar potential to that of Livengood for ITH and Rattlesnake Hills for Evolving Gold. It's a big system and Del Steiner has locked up the biggest and most prospective areas in the shear zone. He's got a serious drill program going and has hired top-notch people who know both the project and the area.

My opinion is that Premium is going to be a big surprise to most investors. They have been way off the radarscope but that is changing as I write. Del is doing everything exactly right and the results are already showing up. The company has just short of 70 million shares outstanding right now and is in the midst of a 23 million-share placement to pay for the major drill program. There are a lot of warrants outstanding but the price on them is non-dilutive. When they get exercised, the money will go for the next major drill program.

Premium is going to move from a tiny junior with interesting potential into a major junior with near term production potential. The Buffalo Gulch project doesn't' show much in the way of a resource but the material is so soft that it doesn't need blasting and the first 90 meters of material can be simply ripped with a Cat and fed onto a leach pad. PEM is advancing permitting right now and looks for production in 18-24 months.

I liked the company enough to buy some shares as soon as I got back. So I am biased. Premium is an advertiser. Christine Kopr is in charge of shareholder communication and quite competent as well as lovely. Feel free to call her and any questions she can't answer, either Del or Wilf can. Please take the responsibility for your own due diligence.

In any case, in my view, they are doing things Exactly Right and I expect big things out of them.

Premium Exploration Inc
PEM-V Cdn$.35 (Jun 7, 2010)
PMMEF-PK 68.5 million shares
Premium Exploration website


Bob Moriarty
President: 321gold

321gold Ltd