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The Second Time Around

Bob Moriarty
Jul 30, 2009

I've been on a lot of tours lately. I have five companies in line to be written up so you should be checking back on a regular basis.

On one of the trips someone mentioned something to me that I hadn't thought of in a while and I want to bring it up.

The biggest problem in mining is capital. Mining is an extremely capital intensive business. Probably the biggest shortage in mining is that of really good management. There are boatloads of companies out there run by geos or financial types who don't have much of a claim to actual experience running a financially successful mining company.

So it's pretty common for good projects and mines to move from one hand to another and often time it's the second time around that investors find the most success. Either a failure of finance or a failure of management forces change.

I've been to Jade City in Northern BC half a dozen times. I noticed a sign there for the Cusac mine but hadn't paid any attention although I did own some shares several years back.

The Cassiar Gold Camp was once one of British Columbia's premier gold regions. The highest value gold vein systems ever located in BC were from Cassiar. Cusac Mines put the 270 TPD mill and mine into care and maintenance about ten years ago due to low gold prices.

Cusac reopened the mine in December of 2006 with anticipated production estimated at 22,500 ounces a year. Alas, when the company tried advancing a new decline, they ran into water problems and ran out of cash.

Historic production from the camp was about 500,000 ounces at a grade of just less than half an ounce of gold to the tonne. They put the project back into care and maintenance in October of 2007. The good thing about putting it back into care and maintenance is that it can be turned back into production for a minimal cost.

In simple terms the company was underfinanced and undermanaged. That's far more common than rare in the mining business.

As I said, sometimes better the second time around... Welcome Hawthorne Gold.

On April 15th of 2008, Hawthorne Gold Corporation (HGC-V) took Cusac over. They issued about 6.15 million shares at a time when their shares traded at a 19-1 premium to the Cusac share price. It was near a 52 week high for Hawthorne and a 52 week low for Cusac. Since then they have consolidated the 56,300-hectare Cassiar District for the first time by buying assets from American Bonanza Gold and adding them to what they got from Cusac.

Hawthorne is both well managed and well financed, an especially difficult task in these times. President and CEO Richard Barclay and Chairman Michael Beley were the technical brains behind both Eldorado Gold and Bema Gold. They are production guys and both British Columbia boys and that rings my bell. I'm not certain gold production is the be all and end all during a Depression but share prices seem to agree with me. These guys are production guys and everyone I met on my tour was production oriented.

They brought in a strong leader to run the mining division, Michael Petrina and one of the best regulatory First Nations and government officials, Marlin Murphy. They are two more experienced mining guys from BC. Of course, their Exploration Manager, John Dadds, is also from BC.

For their money, HGC picked up a 270 TPD mill with a $30 million replacement value and a 43-101 resource of 1.05 million ounces of gold. I spent a few hours touring the property with Exploration Manager John Dadds co-discoverer of the Hemlo Deposit in Ontario and prior Mining Exploration Manager at Barrick's Eskay Creek just down the highway in Northern BC.

Hawthorne has three primary gold projects, each capable of being a large scale operation. Two, The Cassiar Gold Mine and the Taurus Project are part of the Cassiar Gold Belt located along a 23 km greenstone hosted quartz carbonate formation.

The joint ventured (for up to 60%) Hawthorne Gold Frasergold Project is located in the Quesnel Trough of central BC some 100km east of Williams Lake. I didn't visit this property and all I can say is that their web site does an excellent job of discussing the property. The company conducted a 10,400-meter drill program in 2008 (after 3,600 meters in 2007) in order to complete a 43-101 resource on the main zone in 2009. The new 43-101 will be released in a few weeks.

In the Cassiar region, during 2008, HGC conducted a 6,355 line-kilometer airborne geophysics survey, mapping and soil sampling program in preparation for a massive 2009 10,000 meter drill program.

Hawthorne has built a 40-person camp and finished an underground access rehabilitation program. They finished a 2,500-meter, 15-hole surface drill program in the East Bain Zone in December of 2008 where John Dadds wants to define two years of reserves before starting up the mill for full production now scheduled for Q4 of 2009 or Q1 of 2010. Hawthorne announced a week ago intentions of advancing the ramp that buried Cusac another 140 meters to the rich East Bain Zone.

The mill is a fully permitted 270 tpd gravity/flotation facility. The mine has 13 portals/adits and 25 km of underground development with 23 km of surface roads. Highway 37 runs through the property and should they need it, the Cassiar airstrip is located only 10 km from the mine site.

Anyone reading this site for any length of time knows that I believe we are in the midst of biggest financial disaster in world history. The safest possible investment that you can make is to be in a producing gold or silver mine. I was impressed as hell with John Dadds and his crew. Really good people hire really good people. My impression of the HGC people on the ground at Cassiar was that they are a first class team. They will be in production soon and that's always the sweet spot of investing.

The deposit is a faulted structure as it winds and weaves throughout the property. The structure is not simple and I do admire the job the guys spotting the drill holes were doing. John Dadds and I drove around the project. You could see quartz float all over the place. John informed me that the gold is hosted in quartz veins. We stopped and I picked up a piece. It had visible gold in it. That's always a good sign on a tour of a gold mine.

Hawthorne will be releasing results shortly. John wants two years of ore defined before starting production. I don't see it as a problem. I think they are estimating 20,000-25,000 ounces per year production of gold in the first year and ramping up production as development continues. I see that as achievable.

Ignoring any value from Frasergold, Hawthorne seems cheap to me at $30 million dollar market cap. The company is cashed up and seems to have no problem raising money even in this market. For investors looking for an excellent production story, I think Hawthorne is worth a close look. Drill results are due any day now. Look for them.

Hawthorne is an advertiser and we are naturally biased .We do not own shares. Investors are always cautioned that they get the benefit of their investments and as such are responsible for their own due diligence.

The largest gold nugget ever found in British Columbia was found at Cassiar. There are bound to be more still waiting for discovery. It's better the 2nd time around.

Hawthorne Gold Corp
HGC-V $.375 (July 29, 2009)
HWTHF-OTCBB 74.1 million shares
Hawthorne Gold website

Bob Moriarty
President: 321gold

321gold Ltd