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Bob Moriarty
Archives
May 4, 2015
During my weeklong journey around Nevada visiting various mining projects at different stages in the cycle, we passed by the Three Hills and Hasbrouck gold projects belonging to West Kirkland Mining. The pair of projects is just outside of Tonopah. There isn't much mining going on around Tonopah, the main industry seems to be the manufacture of crystal meth.
I wrote about the company back in September of 2014 after a visit. Little has changed in the market other than investors still hate mining shares and the price of West Kirkland is half of what it was 9 months ago.
WKM is blessed with exceptionally strong management in the form of CEO Michael Jones and CFO Frank Hallam. The team founded Mag Silver and was part of the West Timmins Mining Company that was bought by Lake Shore Gold in 2009.
In early 2014, West Kirkland entered into an agreement with Allied Nevada to develop the Hasbrouck/Three Hills gold project. WKM paid some $20 million for 75% of the deal. They have the right until October 2016 to purchase the remaining 25% of the project for an additional $10 million. Allied Nevada may or may not accept the $10 million and can turn it into a 75/25 JV at that point.
The project has interesting numbers. It's a 2 million ounce gold equivalent deposit of somewhat low-grade ore. WKM intends to put Three Hills into production at first and use the cash flow to finance Hasbrouck into production.
Obviously Allied Nevada going into bankruptcy has changed the picture. WKM has between now and the end of 2016 to figure out what they would prefer to do about the remaining 25% and who might be their partner. I don't understand just how the bankruptcy changes the picture. I would think Allied Nevada would be just thrilled with $10 million in cash but it is under court protection and may not be able to make the decision by themselves.
The drop in the price of the shares makes for some interesting economics. The company has a market cap of under $20 million. They own 75% of about 2 million gold equivalent ounces that makes gold worth about $13 in the ground. It cost more than that just to discover those ounces. WKM is a highly leveraged pure bet on the future price of gold. If you believe gold is going up, WKM gets a lot more attractive in a hurry. There are a lot of projects with similar grades in production in Nevada.