Old Mines, New Opportunity
I have little doubt most of our readers are familiar with the phrase, “The best place to find a new mine is in the shadow of the head frame of an old mine.” Actually the best place to find a new mine is to find an old mine.
I spent the week of Memorial Day out in Idaho banging on rocks. My second visit of the week was to the Empire Copper mine now owned 100% by Musgrove Minerals. (MGS-V)
I’ve followed Musgrove, formerly Journey Resources, for a couple of years but they never caught traction. Part of the reason was legal issues between the landowners and a prior JV partner of Musgrove. Eventually Musgrove simply bought out their partner and are now proceeding on their own.
The series of mines that is now called the Empire Mine by Musgrove was first discovered in the late 1880s and put into production on a small scale by a number of small mining companies. In 1901, the famed John MacKay, who made his fortune mining in the Comstock Lode in Nevada, took control of the White Knob Mining Company and built a railway system and a 600 TPD smelter to handle the ore from his mine.
In addition, he planned a company town to house the hundreds of miners and workers for the smelter. The new village was to be called MacKay. It’s still there today but a mere shadow of its former splendor.
Under the ownership of John MacKay, the mine was in production of copper, gold, silver and zinc from 1901 until WW II in 1942 forced its closure. The Empire underground mine produced ore grading 3.64% copper, 1.64 g/t gold and 53.8 g/t silver.
Cambior controlled the property in the 1990s and spent $2.7 million dollars in exploration. In 1997 they reported a surface resource of about 28 million tons of .42% copper, .33% zinc, .33 g/t gold and 10.2 g/t silver. That’s a historic resource and Musgrove will have to twin some holes to come up with a 43-101 compliant resource.
At today’s prices that is about $70 a ton rock [Kitco Calculator]. Or $1.9 billion dollars worth of metal in the ground. With a market cap today of just under $5 million, that makes the company look pretty cheap. If you gave the company a market value of only 1% of gross metal value, that would be $19 million. That’s cheap.
Musgrove drilled an additional 33 holes from 2006 and 2007 that are not included in the Cambior resource. The company plans on 3200 meters of infill holes on the near surface deposit for 2011 and 6-8 deep exploration holes to test the high-grade mineralization at depth. The drill program began in May and results will be announced as they are processed throughout the summer.
If Musgrove was only a one trick pony, it would be cheap today. But it’s not a one trick pony. Prior to the Empire Mine Exploration and Lease agreement early this year, the main focus was on the Musgrove Creek gold project.
The Musgrove Gold project carried a higher market cap alone than the entire company does now. A large part of that was simply because there was little news for the last year or so. That’s about to change.
The Musgrove Gold project shows a 43-101 resource of 8 million tonnes at 1.22 g/t gold. That’s about 313,000 ounces. The 2011 work program calls for 14,000 feet of drilling in up to 18 holes to expand the known resource. The company goal for now is to define 1 million ounces prior to making a production decision.
I’ve made it clear over the last month that I believe Europe is on the verge of disaster and if Greece or any of the other PIIGS [Portugal, Ireland, Italy, Greece, Spain] default, it could mean a collapse of the world’s financial system. The system is terribly distorted and 2008 didn’t fix it, we merely kicked the can down the road. We are in a dangerous time for at least the next six months.
That said, there are still some great opportunities. I think MGS at $.15 is one of them. I think so to the point I was willing to participate in a PP at $.15. At this point, either project, Musgrove Gold or the Empire Mine would support a far higher market cap than the company has today. I think the stock is pretty safe at these prices even if doomsday comes.
Musgrove is a sponsor and I have participated in the PP and I own shares. I am biased. As always, you are responsible for your own due diligence.