Back in April, I took a look at U.S. Gold Corp., which had been acquired by Dataram (DRAM, Financial), as part of this analysis. I suggested that the company is one of the most interesting companies on the Nevada gold mining exploration scene right now, based on the involvement of a guru geologist in the space, David Mathewson.
Those familiar with the gold mining space, and especially the Nevada-specific side of the industry, will likely recognize the name – he's a geologist with more than 35 years' experience whose most notable role was head of exploration for gold mining giant Newmont Mining Corp. (NEM, Financial) in Nevada. He's credited with some of the latter's most notable discoveries, including Tess, Northwest Rain, Saddle and South Emigrant in the Rain mining district, and he left Newmont to found and grow what proved his next billion-dollar gold mining venture, Gold Standard Ventures Corp. (GSV, Financial).
At the time I highlighted this as one to watch, the information available as to the company's lead Nevada project, Keystone, the project Mathewson is tasked with developing, was somewhat sparse. There existed a degree of legacy drilling data and some limited gravity survey results, but that's about it.
In other words, the reason it stood out at that time was that Mathewson was involved.
Subsequent to my initial coverage U.S. Gold had expanded considerably on the project's potential, both from an already established perspective and from the point of view of what shareholders can expect going forward in terms of milestones, catalysts and time frames.
With this in mind, here's an updated look at the company with what we now know and what markets should be looking for going forward as indicative of U.S. Gold staying on track with what – at first glance – looks like a pretty ambitious set of self-established exploration-related targets.
First up, a quick introduction to the company.
This one is a relative newcomer to the gold mining space, having formed out of a merger between U.S.-based networking company Dataram and the previously privately held U.S. Gold. By way of a bit of history, it was Mathewson who initially acquired the claims to the property that's going to form the basis of this discussion, the above-mentioned Keystone, and Mathewson took them to Edward Karr, who is the company's founder and CEO, with the goal of developing them toward production. Karr brought with him an infusion of capital, and the company got moving.
There are actually two properties on U.S. Gold's roster – one being Keystone and the second being Copper King. Again, the latter of these is something I looked at in detail in my previous coverage so I won't go into it here – suffice to say it's a surveyed and established copper resource in Wyoming that serves to bolster this company as an entity, but which is likely going to play second fiddle to what I see as the primary resource, Keystone.
Keystone is located in Nevada; specifically, it's located along the state's Cortez trend. Historically, the Carlin trend has been Nevada's primary target for gold explorers. Its geology lends itself perfectly to mineralization, and this has proved correct on numerous occasions through the discovery of large, multimillion ounces of gold deposits along the trend. Increasingly, though, the Cortez Trend is becoming the trend of choice for exploration by companies at both ends of the spectrum.
Some of Barrick Gold Corp. (ABX, Financial)'s lead-producing properties lay along the trend as do a number of the above-mentioned Newmont deposits.
In gold mining, it's all about geological formation. Geological formation is a local phenomenon in that certain rock types form within relatively condensed areas of landscape. With this noted, then, the proximity of an exploratory property to an already established resource can be a strong indicator of an economically viable deposit.
U.S. Gold's Keystone project lays just south of Barrick's Cortez, as well as in close proximity to (also due south of) Barrick and Newmont's Twin Creeks and Getchell deposits and just east of Newmont's Battle Mountain mine.
Importantly, it lies along a specific part of the Cortez Trend characterized by what geologists refer to as north-northwest trending structural breaks. In this region, a geographical line called the SR 706 line runs through pretty much all of the deposits noted above, with the line based on the location of a geological feature called right lateral dislocation. North-northwest trending structural breaks are characterized by this particular right lateral dislocation feature, suggesting that any mineralization along the SR 706 line in Nevada is a strong indicator of a solid resource. Battle Mountain, Twin Creek and Cortez (Barrick's mine, not the trend itself) and Keystone all intersect SR 706. The first three on this list are producing millions of ounces of gold annually.
Initially, then, when U.S. Gold first formed around the Keystone project, the claims count totaled 377. These 377 claims were spread across 12 miles² or 38 kilometers². Throughout 2016, management (led by Mathewson) undertook what the company refers to as its 2016 field exploration program, which was essentially a scouting program designed to both locate the most promising sites at which to conduct drilling (these sorts of drilling programs can be expensive so the company has to make sure it is drilling in the most promising locations before it breaks ground) and to expand on the already established claims count in the region.
Both of these aims were successfully achieved.
On the back of the 2016 field exploration program, the Keystone project now consists of 479 unpatented lode mining claims, including 102 additional and newly staked claims on the east and southeastern portions of the property in Eureka County, Nevada. Those familiar with this space will know that Eureka County is one of the most favorable jurisdictions in which to conduct gold mining operations in Nevada so to expand a project into Eureka (if possible) is a smart move by any explorer.
The scouting program allowed the company to pinpoint a region in the eastern part of the district where previous drilling has been sparse to nonexistent. There's one more scout type drill hole set to be conducted near term (this was initially planned for last year but was postponed for weather reasons) in this eastern region. Once this hole is drilled, the company will then collate the data from the entire program and use it to underpin permitting applications, which are required to drill the larger, deeper holes that will be necessary to firmly establish a resource estimate for Keystone.
What comes next?
Permitting is a necessary evil in the gold-mining space. As is the case for any early exploration type company, the next few months are going to be dominated by collecting the bureaucratic go-aheads for disturbing the land in various regions of Keystone. Sure, US Gold might have claims to any resources within the project, but this doesn't mean that the company can just start drilling as and where it likes.
As per the company's latest update, we know that three of what are called "exploration notice of intents" (NOI) – which permit up to a total of 15 acres of disturbance – are currently in place, and these will afford U.S. Gold the opportunity to access new targets for drilling purposes in 2017.
Further, there's an environmental assessment (EA) for the purpose of an expanded exploration program through an exploration plan of operations (POO) already under way. The completion of both the EA and POO are potential near-term catalysts that could get this company moving as and when they hit press.
The timeline that the company has put forward for the remainder of 2017 looks like this:
- Detailed propertywide scouting, additional claim staking and additional target reconnaissance.
- Digitization of all prior analog data to build a current geological propertywide database.
- A detailed mapping program to accurately identify the property's geological characteristics.
- Additional detailed gravity surveys, managed by J L Wright Geophysics, to help define and refine drill targets
- Additional soil and rock sampling and geochemical assessment for greater targeting synthesis.
- Drill target selection and continued permitting.
- Drilling.
As readers will see from this list, and as many will probably already be aware (especially those familiar with the natural resource space), the first 24 to 36 months of any project are geared toward one thing and one thing only – establishing the resource. Without a definitive resource estimate in place (for Keystone, the estimates vary too much right now for me to even mention them with any credibility in this piece), it's very difficult to apply a long-term valuation to a company. It's also difficult for the company to raise the capital necessary to get to production or to score a partnership with a deeper pocketed name.
With that said, of course, there has to be a methodology through which early stage shareholders (read: the ones that basically fund exploration) attempt to figure out whether it's worth picking up exposure ahead of resource establishing.
There is, and this methodology is rooted in the discussion above – mineralization, geological features and location with relation to other, already established, deposits.
Keystone, when considered against these three methodology inputs, seems to check the box on each.
It's far from a sure thing, as is always the case with explorer stage gold mining. Even when considered in line with the above methodology, there can be no guarantee that the project will contain substantial gold deposits, and further, that the gold deposits it does contain will be worthwhile digging up and processing (from an economic viability perspective).
This company is also going to need to raise capital to fund development and it is shareholders that are going to have to foot the bill on these raises.
With that said, and taken against a backdrop of the company's current market capitalization, this one remains one of the most interesting gold plays in Nevada right now.
Disclosure: The author has no positions in any of the stocks mentioned in this article, and does not intend to buy or sell any discussed stocks for the next 30 days.
