November 3, 2022: American Pacific Mining (USGDF; C.USGD) reported yesterday that the acquisition of Constantine closed. This is a bigger deal than most investors realize…
First, the purchase basically means American Pacific now owns what used to be Constantine’s portion of the Palmer project in Alaska, a large and high-grade VMS (volcanogenic massive sulphide) deposit that contains zinc, copper, silver, gold and even some barite. It is strategically located, as it sits in an accessible part of coastal Southeast Alaska, with road access to the project and within 60 kilometers of the year-round deep-sea port in Haines.
American Pacific now owns 41% of the asset, as part of a joint venture with Dowa Metals & Mining. Dowa is the largest zinc smelter in Japan, so they’re motivated to see this project produce metal. And their large stake signals they believe it will not only be a mine someday but bigger than it currently is.
And that’s the second point: while the 2023 budget is not yet finalized, Dowa plans to spend somewhere in the range of a whopping $30-$39 million in exploration and development next summer. Drilling is more expensive in Alaska, but this is an incredible amount of capital going into one asset, in what is a relatively short season. Dowa’s proposed budget for 2022 was $18.8 million, so spending will roughly double in 2023. This shows you how much belief Dowa has in the asset.
American Pacific is not obligated to spend any capital on the project, but they can, and this will be decided at their next board meeting.
An immediate focus is building an underground portal, which is already permitted. Once completed, this will open it up to year-round exploration, as they’ll be able to work underground and out of the snow.
The other thing to keep in mind is that Palmer is already a 14 million tonne asset, while the median size of a VMS deposit is 5 million tonnes. Further, it has 15 VMS showings, but only 4 are in the PEA. Three others have been drilled, which returned some very high grades, but this means 8 more VMS showings haven’t even been explored yet.
VMS deposits tend to occur in clusters, and that Dowa and American Pacific see this many additional clusters is compelling. USGDF President and geologist Eric Saderhom thinks the asset could hold as much as 25 million tonnes, which would make it a truly world class mine, with American Pacific owning 41% of it. Bottom line, despite Palmer’s already large size, the potential to grow it is enormous.
Long-term steps include a pre-feasibility study next year, a full feasibility study in 2024, a formal production decision likely in 2025, with production beginning in 2026. There is every indication this will be a mine someday and is a company maker asset in its own right.
Elsewhere, the Madison copper-gold project in Montana will see partner Rio Tinto (through its subsidiary Kennecott Exploration) spend an estimated $3-5 million on the project next year. Again, American Pacific is free-carried so does not need to spend any cash. Rio must spend $30 million over 11 years to earn 70% of the project. Clearly Rio is not investing here to find something small.
So, here’s a question for investors: how many juniors do you know that will spend as much as $40 million on two projects next year?
Drilling and exploration don’t guarantee success—but in this case you have more capital going into the ground than almost any other junior company, with the spending coming from partners, on what will likely be two world-class projects. We could see some fun fireworks next year from American Pacific.
Keep in mind that strategic investor Michael Gentile is heavily invested in this stock and is believed to have sold no shares including from the financing at C$0.125. If you don’t know Michael is a very successful junior mining investor, basically a fund manager who left to invest his own capital.
Other catalysts include drill results from Tuscarora, and the start of drilling at Gooseberry (which they can do year-round despite the snow). Management is looking to put 10 holes into an entirely new zone at Gooseberry; permitting is in place and the sites have been identified, so drilling is likely to start in January. Management also mentioned they will be growing the team, including adding a president for the Alaska deposits.
One last thing: the company was under a news blackout while negotiating the Palmer purchase, so now that that’s done, we should see a lot more news flow. Any of which could serve as potential catalysts for the stock.
American Pacific is basically a mid-tier mining company with a junior miner market cap. This makes the stock a major buy for me. It is my opinion USGDF will be much higher priced by this time next year.