Gold Success 2.0
One of the great success stories of this bull market cycle in gold was that of Fronteer Gold. From a low of $1.55 in November of 2008, the company rocketed higher until being bought out for $14 a share or $2.3 billion dollars in early 2011 by Newmont. In addition, certain non-core assets of Fronteer Gold were spun off to their existing shareholders in a new company to be called Pilot Gold (PLG-T). These assets were in Turkey and later Pilot added a Nevada project. Fronteer got about $288 per 43-101 ounce of gold.
The management team is doing it all over again. Let’s call it Gold Success 2.0 or Pilot Gold. I love these stories. I get so tired of reading about and hearing about yet another 11-year-old story on the verge of success. Raise money and spend it. Raise money and spend it. If you get the feeling that 50-60% of the juniors’ companies out there are run for the sole benefit of management, you have it about right. If someone hasn’t done anything, gone anywhere in 11 years of the biggest bull market in history, they are never going to go anywhere.
Pilot Gold has three company making projects. You may reasonably think of them as Papa Bear, Momma Bear and Baby Bear for convenience. Their biggest project is in Turkey and is called Halilaga. Pilot is in a 40/60 joint venture with Teck Resources. Pilot owns 40%, Teck, 60%. Halilaga is a gold rich, copper porphyry of some 380 million tonnes with an indicated resource of 1.1 billion pounds of copper and 1.66 million ounces of gold and an inferred resource of 1 billion ounces of copper and another 1.66 million ounces of gold.
For convenience sake, you can use a resource number of 10 million ounces of gold equivalent. Pilot owns 40%.
Here is where it gets really interesting. A 400 million tonne project is too small for Teck and too large for Pilot. But Pilot management in the past has proved adroit at monetizing assets. Someone in the world would just love to own something the size of Halilaga in a mining friendly environment such as Turkey with power running through the project and on nice roads. If Pilot could convince a buyer to belly up to the bar and pay the same $288 an ounce that Newmont paid, they would be putting $1.15 billion in their pockets. This is a company with a market cap of $110 million as of today.
I’m going to digress for a moment to talk about Turkey. There are dozens of Doom&Gloom stories posted daily about the disaster that is the Euro Zone. We have one up right now that pretty much says it all. “This Is What Happens When You Allow Your Country To Become Enslaved To The Bankers.” I went to Istanbul believing I was going to see riots in the streets and nothing but closed shops as I saw in Spain years ago.
Wrong. Those are only problems in the Euro Zone. Turkey has its own currency, the Lira. And is not enslaved to the bankers. You see, when Italy, Spain, Portugal and Greece entered the Euro Zone, they traded their freedom for lots of low cost loans from bankers quite willing to give money to every deadbeat and potential deadbeat in Europe.
Turkey didn’t fiddle their books to get into the Euro and they didn’t borrow money they couldn’t pay back. They avoided the Euro while everyone in Europe believed they were punishing Turkey for their lack of control over their currency. Well, the laugh is on them, Turkey is booming.
Every cloud has its silver lining. One would think that with all the whining out of Israel about a mythical nuclear-armed Iran that all the others in the neighborhood would be trembling in fear as Israel is. Wrong again. The US and Israel have been in a state of war with Iran for years and have enforced sanctions that limit just who can trade with Iran. Well, Turkey and Iran share a long border, Turkey doesn’t quiver in fear of Iran, they look at them as a major trading partner.
In short, Turkey is booming, Istanbul is a bustling city of some 13 million people. Much to my surprise, on the tour with Pilot I learned that Turkey has seven producing gold mines and produces more gold than any country in Europe. There may be chaos and a depression in the rest of Europe but not in Turkey. And the sanctions on Iran may hurt the US, they don’t hurt Turkey.
Pilot’s 2nd major project is the TV Tower gold/silver project on the Biga Peninsula across the Sea of Marmara from Istanbul. Pilot is in a Joint Venture with Teck. Pilot now owns 40% of the project and is earning an additional 20% by spending $21 million in exploration. In addition, they have to issue about 6.5 million shares and 3 million warrants to Teck over the earn-in period. After the $21 million has been spent, Pilot must pay Teck $20 per ounce of gold for 20% of the gold defined in excess of 750,000 ounces in a 43-101 resource.
The really excellent technical team of Pilot defines the TV Tower project as a high-sulphidation gold target. In general high-sulphidation projects are large but low grade. The intercepts Pilot has been getting are similar in length to that of porphyry properties but far higher grade. Before we arrived, the best intercept reported was of 136.4 meters of 4.28 g/t Au. Interestingly enough, Thom Calandra was on the two-day tour. He was impressed enough after the first day to shoot out a buy recommendation on Pilot at anything below $1.30.
The next day, as we were visiting the TV Tower property, Pilot released the single best intercept ever reported from either Fronteer or Pilot, some 137.1 meters of 5.94 g/t Au, 12.6 g/t Ag and .53% copper. At today’s prices, that would be $395 rock. That single hole probably added half a million ounces to the eventual resource. It was a good call on Thom’s part; the shares rocketed from $1.32 to $1.75 on the day.
Pilot is the operator on the project and has a $5 million dollar program scheduled for the year July 2012 to June 2013 with 16,000 meters of drilling planned. They want to produce a 43-101 resource in Q4 2012 or Q1 2013. As Pilot advances the project and adds ounces, the project will become more attractive as a production story to Teck or anyone else wanting a foothold in Turkey.
In general, junior mining companies never get any respect for their third projects or Baby Bear as I term their Nevada project at Kinsley Mountain in North East Nevada. But I visited the project some 10 years ago and I’m pretty familiar with its history.
Alta Gold owned the project as the Kinsley Gold Mine from 1994 until closing down in 1999. They produced just under 30,000 ounces a year. I visited the project with Bill Henderson in 2002. It was the ugliest gold mine I have ever seen. I think you can understand what I mean if you think about walking into a mechanic’s shop and seeing splotches of grease all over the floor. Rusty and oily tools are spread all over a dirty and dusty workbench and he has an oily rag stuck out of his back pocket.
Would you want to leave your car there for repairs?
That’s what Kinsley Mountain looked like. It was a butt ugly mine with heaps of rocks everywhere. It was really easy to imagine why Alta couldn’t make money there.
Nevada Sunrise picked up the project and sat on it for ten years, doing nothing to advance it. I went on a tour of Nevada with Henderson and a pretty good geologist to inspect the ten or so projects Nevada Sunrise had in their stable in 2002. The geo and I believed Henderson should rank order the projects and come up with a budget for each. Henderson thought he should sit on them and do nothing. After all, the sole purpose of running a gold junior was to collect a paycheck and options all the time for doing nothing.
Animas Resources did a deal with him in 2010. They did nothing on the project. When Pilot Gold did a deal with Animas in 2011 to take over the project, no one had ever even digitized the drill data and sampling results. It was pretty ugly.
I have to give Pilot a world of credit. They have a whole group of highly qualified experts. They recognized the similarity between Kinsley and Long Canyon some 55 km away. Pilot did digitize the data and came up with a totally different interpretation of just what sort of deposit it is.
As a result, their scout drill holes are coming up with what would be blistering results for any other company and are only so-so with what they are doing in Turkey.
Pilot is finishing a 12,000-meter drill program now and will be commencing a 25,000-meter drill program in 2013. They intend to complete the $3 million in required exploration in 2013 and at that point Nevada Sunrise will be required to belly up to the bar and pay their own way for 35% of all exploration expenses. Given that NEV hasn’t spent a dime on the project in ten years and has about $1 million in the bank, that’s going to get real interesting, real quick. Normally a junior in a JV on an advancing gold project gets benefit from its partner when good drill results come out but Nevada Sunrise is a disaster waiting to happen and will not get a benefit. They simply lack the ability to raise money. Even for a killer project.
It’s rare in the junior mining business to meet a company that simply gets it right. If there were a flaw in Fronteer and now Pilot Gold, it would only be their lack of promotion. If you waste your time reading the chat boards, you can hear the punters whining about companies promoting themselves. Yes, it’s certainly possible to over promote and that’s what most companies do. But it’s just as possible to under promote. If anything, Fronteer lost a lot of money in the takeover by Newmont because they were so cheap that it made sense for Newmont to buy them as soon as possible. Pilot has three company making projects now and is selling for chump change. Every one of those projects would be worth $100 million in a healthy market.
I have heard hundreds of stories about what someone was going to do. In the future. I wanted to believe and in a way, I had to, lacking any other information. But the mining business is filled with dreamers and schemers who lie for a living. The number of people who actually produce something of value is small indeed.
The Fronteer team put together some great projects and delivered a lot of value to their shareholders. The Turkey projects of Pilot were originally the primary projects of Fronteer and were spun off into Pilot. Pilot has the same great management and same great technical team.
If they learn how to promote, they have a lot more potential than Fronteer.
I regret that Thom Calandra skunked me by recommending the company at $1.30. I regret even more not picking up some shares when the drill results came out last week. I suspect when Pilot gets taken out that it will be a lot higher than Fronteer.
I don’t own shares, I wasn’t smart enough to listen to Thom Calandra and I wasn’t adroit enough to buy some when the drill results came out. If they come down a little more I will buy some. I am biased, hell, everyone is biased and the most biased people are those who claim they aren’t biased. You get the profit and the losses from your own investment decisions so take some responsibility for yourself.
Pilot Gold Inc