When you come to a fork in the road
When I was out in Reno recently on a 17-day tour of half the western part of the US, I was lucky enough to sit down and talk to Dr. Roger Steininger, the man responsible for the discovery of Barrick Gold’s Pipeline deposit. The Pipeline gold mine has more than 21 million ounces of gold in a resource. He is now the COO of a company operating in Nevada named NuLegacy.
NuLegacy is a young company founded in 2009 by Albert Matter of National Gold and Alamos fame and Dr. Steininger. The company has a joint venture with Barrick gold in the world-class Cortez Trend, home to some of Barrick’s best and most profitable mines. The Trend contains three of Barrick’s prime projects, Pipeline with 21 million ounces of gold, Cortez Hills with another 15 million ounces and the new Goldrush Mine with 14.1 million ounces defined. If those deposits seem to be evenly spaced every 7 km, it’s because they are. And now Dr. Steininger has located another gold deposit they call the Iceberg. It’s 7 km from Goldrush.
NuLegacy hit the ground running. Realizing that a lot of good gold projects were gathering dust due to the collapse of the financial markets in 2008, NuLegacy did a deal with Barrick on their Red Hill project. The JV calls for NUG to spend $5 million in exploration over a five-year period ending in 2015 to earn a 70% interest. At the completion of the earn-in, Barrick has 90 days after that date where they can elect to back-in to a 70% interest by spending an additional $15 million over a five-year period. If Barrick elects to back-in, NUG’s 30% interest is carried to production.
Now the only issue is, does the Iceberg deposit show another Carlin system in the Cortez Trend? A news release put out three weeks ago seems to indicate it does. Dr. Steininger compiled the data from 149 historic holes and 16 NuLegacy holes in and around the Iceberg deposit. The company says their figures indicate the presence of a large tonnage Carlin Style deposit around 100 million tonnes grading between .7 g/t and 1/0 g/t.
NuLegacy has spent $2.1 million of the required $5 million. They intend to spend another $2.15 million drilling 45-50 holes into Iceberg and $750,000 into wildcat exploration of three other highly prospective targets over the next 18 months.
There is a branch of psychology called “mathematical” psychology. Experts attempt to use “mathematical” psychology to solve problems where you can assign hard numbers to issues. Let’s try to do that.
If you assume there is a 10% chance of Dr. Steininger finding another major deposit of 14.1 million ounces of gold or higher in the Cortez Trend, what would that be worth? Let’s assume that many ounces in Nevada would be worth $100 an ounce to a major. And that’s really conservative. That would make a 14.1 million ounce project worth $1.41 billion. A 30% carried interest in such a deposit would be worth $423 million. If you only gave a 10% probability to the chance of finding such a deposit at Iceberg, that would be worth $42.3 million. NUG has a market cap today of about $6.3 million. Those look like pretty good odds.
NuLegacy is at an interesting fork in the road. They have announced another 10-hole drill program for this fall and a $1 million dollar raise to fund it. If they end up with a 30% carried interest in a very big deposit, that’s a good thing. If they end up with a 70% interest in a very big deposit, someone will be very happy to buy them out. That’s also a good thing.
The company has excellent, seasoned management and the highest regarded expert on the Cortez Trend in the industry. This company is an easy ten-bagger from where it is today.
NuLegacy is not an advertiser and I own no shares. I am biased to the extent that I think gold shares are absurdly cheap and there are a number of companies out there with extraordinary profit potential. Investors should do their own due diligence.
NuLegacy Gold Corp.