(Source: IAUX vs. SPX/COMPQ, TC2000.com)

 

I-80 Gold - A Clear Path To Mid-Tier Status by 2025

 

For those unfamiliar, i-80 Gold is named after Interstate 80 in Nevada which stretches across Northern Nevada for over 400 miles. The name choice is related to the fact that its Lone Tree Processing Facility (autoclave, heap leach pads, permitted tailings facility) lies right along Interstate 80, as does its Buffalo Mountain Project, and its Granite Creek Project. The latter is notable for its very attractive address less than 10 miles from the 20+ million-ounce Turquoise Ridge Mine which is capable of producing over 450,000 ounces per annum and it is the #3 asset from a contribution standpoint in Nevada Gold Mines portfolio. For those unfamiliar with the story, a picture tells a thousand words, and the below map highlights i-80's Lone Tree facility, its Granite Creek, Buffalo Mountain, McCoy Cove and and Ruby Hill Projects, and autoclaves/roasters in Nevada. 

 

(Source: Nevada Map, i-80 Gold's Properties, Company Presentation)

 

The key differentiator for i-80 Gold vs. its peers in Nevada is that the company has a processing facility (Lone Tree) capable of treating refractory ore, making it the #3 company in the state with this ability as well as Nevada Gold Mines (Barrick/Newmont JV), and First Majestic Silver (AG). This is a huge deal for i-80 given that without Lone Tree, the company would not control its own destiny and would have to rely on setting up toll-milling agreements to process refractory ore from its three high-grade mines in the state (Ruby Deeps, McCoy-Cove, Granite Creek).  That said, the company did negotiate a 10-year processing agreement for double refractory ore at NGM's facilities as part of its asset exchange (Lone Tree for its interest in the South Arturo Mine in the Carlin Complex), providing it the ability to treat refractory ore from McCoy Cove at Lone Tree and double refractory ore (750 tonnes per day) at NGM's roasters. The company also secured an interim processing agreement with NGM so that it can process its high-grade material from Granite Creek Underground (currently in production) at the Sage Autoclave (Turquoise Ridge Operations that are barely 10 miles northeast of Granite Creek). 

 

So, what's the company's plan? 

 

i-80's current plan is to bring its resources at its three high-grade mines into reserve status while simultaneously refurbishing its Lone Tree Facility. In the meantime, the company expects to generate cash flow from shipping ore from Granite Creek Underground to NGM's Sage Autoclave while also conducting residual leaching and processing any oxides from the 426 Zone (Ruby Hill) and Ogee Zone (Granite Creek) at its heap leach pads (Lone Tree/Ruby Hill) and its CIL Mill (Ruby Hill). Once the Lone Tree Facility is ready to handle refractory material in 2025, the plan is to have its three high-grade underground mines feeding Lone Tree and with additional double-refractory ore heading to one of NGM's roasters, which would support a production profile of ~250,000 ounces in 2025. In addition to this, we could see incremental production from oxide material and low-grade material at Buffalo Mountain, translating to a 270,000-ounce production profile on a two-year average basis (2025/2026). For those unfamiliar, the Lone Tree Facility is capable of processing 1.0 million tons per annum and would likely receive 1,000 tons per day from Granite Creek, 1,000 tons per day from Ruby Deeps, and just over 700 tons per day from McCoy Cove, with double refractory material sent elsewhere. 

 

This Hub & Spoke model might appear complex at first glance, but it's been successfully employed by Barrick (ABX.TSX/GOLD) and Newmont (NGT.TSX/NEM) in Nevada for decades, with Barrick's multiple mines feeding its Goldstrike Complex, and multiple mines feeding Newmont's Carlin Complex with refractory ore even being trucked from the Battle Mountain Trend to the Carlin Trend where its main processing facilities are located. In i-80's case, the company plans to truck material north from Ruby Hill and McCoy Cove to Lone Tree while trucking material south from Granite Creek to Lone Tree. Based on the fact that i-80 Gold will be a Tier-1 gold proucer with what should be three of the top-20 highest-grade mines globally once they're in production, this should command a premium valuation, and I would argue the stock can easily command a US$1.50 billion valuation as a 250,000-ounce producer in Nevada.  

 

While i-80's Hub & Spoke Model (four mines feeding a central plant) would make it one of the largest producers in Nevada (ahead of Marigold) and just behind Kinross' (K.TSX/KGC) Round Mountain & Bald Mountain mines combined, it's development is also noteworthy, and a key piece to the story that appears to be overlooked. This pipeline includes a ~6.0 million-ounce oxide gold deposit at its Ruby Hill Project (Mineral Point) and a ~1.2 million-ounce high-grade oxide open-pit project at Granite Creek (Granite Creek Open Pit). The latter project would be a company-maker for any junior producer or developer with the project capable of producing ~195,000 ounces per annum at sub $1,000/oz all-in sustaining costs [AISC]. Finally, the company also had a zinc-rich skarn (Blackjack) underneath the previously mined Archimedes Pit. The result is that even without Blackjack being in the resource category yet, i-80 Gold is the second-largest holder of mineral resources in Nevada, only second to a joint-venture between two companies with a combined market cap of ~$70 billion. Below is a look at its Granite Creek Open Pit Project and how it stacks up vs. other undeveloped gold projects globally. As we can see, it's highly attractive with a strong production profile but very modest upfront capex, and well below the trendline compared to projects of its size. 

 

(Source: Granite Creek Open Pit Project, Company Filings, Author's Chart)

 

However, i-80's development pipeline has recently seen a massive upgrade with the discovery of the Hilltop Zone, an ultra high-grade carbonate replacement deposit [CRD] that lies 400 meters southwest of Blackjack and just south of the Archimedes Pit. The initial discovery hole hit an incredible 28.3 meters of 515 grams per tonne silver, 28.9% lead, 10.5% zinc, and 0.90 grams per tonne gold or ~26 grams per tonne gold-equivalent, but it was the next set of results and hole 55 that highlighted just how rich Hilltop is and was arguably the most impressive new discovery made this year among sub $1.0 billion market cap companies. This was evidenced by hole 55 intersecting 10.0 meters of 60.2 grams per tonne gold, 908 grams per tonne silver, 15.7% lead, and 1.1% zinc, or ~80.0 grams per tonne gold-equivalent ($4,000/ton+ rock value). Let’s take a look at why this is so important:

 

(Source: i-80 Hilltop Zone & Ruby Hill Project and Previous Mines, Company Presentation)

 

The Hilltop Discovery: A Game-Changer

 

Before digging into Hilltop further, it's worth noting that the Eureka District has a long history of polymetallic mining that began in the 1860s, and these mines were among the highest-grade globally for CRD mineralization. As detailed by Lambert Molinelli & Co in work written in the 1870s, Eureka's population was less than 100 in 1869, but it increased to 2,000 by October 1870, 4,000 by the fall of 1872, and soared to more than 6,000 in 1874 and the town grew to the second in Nevada State in population and resources. This torrid pace of population growth can be attributed to the start of mining in 1869, with the total bullion yield of the Eureka District coming in below $100,000. This figure steadily increased to more than $10 million by 1878 with 900 miners in the town of Ruby Hill (four kilometers west of Eureka) and multiple smelting furnaces in Eureka to process the ore, with capacities ranging from 40 to 60 tons. As noted by Lambert Molinelli in his work:

 

"The main cause of the unexampled prosperity of the mining interests of Eureka is to be found in the character of the ores. They are self-fluxing. They carry from 15 to 60 percent of lead and sufficient iron and silica to obviate the necessity of importing foreign material for smelting purposes. Eureka is the only known mining district possessing this important advantage. 

 

The Silver Lick, previous to litigation, produced a large quantity of ore, yielding several hundred thousand dollars. Although many others (mines) in the district have done wonderfully well, the Richmond and Eureka Consolidated have of course been the largest and best paying properties, having disbursed many millions in dividends. Notwithstanding this large production, it is generally thought that these mines have yet to see their best days, all the other more promising properties in the district having as yet hardly entered upon the great success that probably awaits them in the near future."

 

"One of the most encouraging features is that these rich bodies have been found at the lowest depth penetrated on the lode, having been reached at a distance of one thousand feet below the surface, and its proportions in that direction are as yet only a matter of conjecture. This provdes that the mineral deposits in the district are not, as formerly argued, merely surface bodies, liable to give out as explorations were carried on, but rather that the great belt on Ruby Hill and its contents are permanent, and will be found in greater proportions as further depth is attained". 

 

- Eureka And Its Resources - A Complete History of Eureka Country, Nevada - Lambert Molinelli & Co

 

The last excerpt is the most encouraging, with Molinelli highlighting that there is believed to be further potential at depth and given the more archaid mining methods of the 1870s to 1960s, the old-timers mining the area were mostly going after the low hanging fruit before production ceased in the 1960s. To provide some context, we can look at the three historic mines that lie on i-80 Gold's property (shown in teal in the below map) and their grades mined from a report of the Eureka Mining District Nevada by Thomas B. Nolan. As shown below, the three mines on i-80's ground were the Silverlick (Holly Mine), the Bullwhacker Mine, and the TL Mine. From historic records of average grades, Bullwhacker average $2,000/ton rock at today's prices (0.36 ounces per ton gold, 33 ounces per ton silver, 38% lead), the TL Mine avearaged 0.43 ounces per ton gold, 11.5 ounces per ton silver, and 17% lead with additional zinc credits, and the Silver Lick Mine averaged 0.23 ounces per ton gold, 28.7 ounces per ton silver, and 37% lead, but periods of record from 1878-1880 appear too show much higher grades (1.04 ounces per ton gold, 50 ounces per ton silver, and 0.6% lead). 

 

(Source: Eureka District, Golden Hill Mining Company, Paycore Minerals)

 

If we look to the south, the historic Ruby Hill Mine on Paycore's (CORE.V) property averaged nearly 1.0 ounce per ton gold, which places its historic grades in line with the highest-grade gold mine that helped Kirkland Lake Gold grow from a ~$2.0 billion company to a $10.0 billion company before its eventual takeover. However, that doesn't even account for the additional 21 ounces per ton silver and 15% lead that make this deposit even more rich, with an average gold-equivalent grade of nearly 40 grams per ton. So, i-80 Gold may have made a new discovery to the south of its Archimedes Pit, but it's simply following in the footsteps of success by previous miners and prospectors and benefiting from an opportunity that was ignored by Barrick Gold and Homestake when they owned the Ruby Hill Project. 

 

One of the most important takeaways though is that there is a ~600-meter wide and multi-kilometer long corridor (spans from the previously mined-out Archimedes Pit on i-80 Gold's property to the FAD deposit) that is largely untested due to it being under alluvial cover, meaning that the old-timers would not have easily found this due due there being no outcroppings. This suggests the potential for additional CRD discoveries in addition to Hilltop, and this appears to be largely ignored by the market. The view that more CRD discoveries will be made is reinforced by the fact that Paycore is hitting incredible grades at the south end of this corridor, intersecting 12.5 meters of 22% zinc, 1.5% lead, 155 grams per tonne silver, and 1.06 grams per tonne gold in September, and following this up with an impressive 27.4 meters of 10% zinc, 1% lead, 79 grams per tonne silver, and 8.0 grams per tonne gold earlier this month. 

 

While these hits don't measure up to the grades and thicknesses at Hilltop, these holes should be very encouraging to investors in i-80 Gold given that it would be very unusual for there to be a dozen properties yielding high-grade polymetallic mineralization in this region and high-grade hits at the north end of the Hilltop Corridor and the south end but then absolutely nothing in the gap between where i-80 and Paycore are drilling. Hence, investors can look forward to a very exciting 2023 as i-80 Gold begins to step out into this corridor.  While discussing step-outs, it's worth noting that i-80 Gold released results from one new hole (hole 61) into the Hilltop Corridor and intersected 39.6 meters of 12.3% zinc or nearly 8.0 grams per ton gold-equivalent in what is being named the South Blackjack Target. While some investors have been disappointed with the grades after coming off a high with ~80 grams per tonne gold-equivalent in hole 55, it's important to note that the relatively "low" grades here were somewhat expected vs. the blowout grades at Hilltop with this hole being closer to the East Archimedes Fault. Importantly, these grades are mostly in line with what we saw from Blackjack in historical drilling, and if this does end up being a southern strike extension of Blackjack, Blackjack could more than triple in size which could very quickly add tonnes at this zinc-rich skarn deposit. 

 

 

So, how big is this opportunity and what does it mean for i-80 Gold?

 

Assuming that i-80 Gold can prove up 10 million tons of material at Hilltop and Blackjack combined at an average rock value of $650/ton, this would easily support a 2,000 to 2,500 ton per day through rate for a flotation plant producing two concentrates (lead/silver and zinc). If we assume 86% payability on metals which is below that of Arizona Mining's Taylor deposit and 92% recoveries which is slightly above the Taylor deposit (owing to the higher grades of Hilltop/Blackjack) and we incorporate 5% mining dilution, we could see a production profile of ~197,400 gold-equivalent ounces per annum. If we assume a larger 2,500 ton per day throughput rate, that number increases to ~247,800 GEOs and essentially doubles i-80 Gold's future production profile from 250,000 ounces of gold (Hub & Spoke Model) to nearly 500,000 GEOs. However, the point that investors must focus on is that this material would be higher-grade than anything i-80 Gold is mining and would likely see ~65% or higher margins based on $160/ton mining costs, $40/ton processing costs,  and $25/ton in sustaining capital plus G&A. After combining these figures, the company could be mining and processing this ultra-rich material for $225/ton and recovering ~$525/ton or better using $650/ton rock and after adjusting for payability, recoveries and any mining dilution. 

 

However, for anyone following the drill results out of Hilltop to date, it's quite clear that they're coming in between $1,000/ton and $4,000/ton, with the average intercept having Fosterville-like grades at ~28+ grams per ton gold. At 28.0 grams per ton gold, it quickly becomes quite clear that this could be much more than a ~200,000 GEO per annum operation at a 2,000 ton per day processing rate, with the rock value on this being north of $1,400/ton. However, there's no resource here yet and it's early days so I've chosen to be conservative and look at what the potential is here using three scenarios (2,000, 2,200, and 2,500 tons per day) and a rock value of $650, $700, and $800/ton for Hilltop and Blackjack blended material. As we can see, the worst case ($650/ton rock at 2,000 tons per day) could yield ~197,000 GEOs, and the best case under these conservative assumptions ($800/ton rock value at 2,500 tons per day) could yield 305,000 GEOs with 70% plus AISC margins. 

 

(Source: Potential Production Profile of Polymetallic Mine at Ruby Hill (Blackjack/Hilltop Blend), Author's Table & Estimates)

 

As the chart above shows of undeveloped gold projects, projects in expansion, or mines that recently entered commercial production, i-80 Gold's Hilltop could potentially be in the company of Alamos' Island Gold Expansion (AGI.TSX/AGI), Osisko Mining's (OSK.TSX/OBNNF) Windfall, and Skeena's Eskay (SKE.TSX/SKE). However, the major difference is that upfront capex should come in at a fraction of the price given that this would be a much smaller plant than the ~3,500 tonnes per day envisioned by Osisko, the ~7,000 tonnes per day operation planned by Skeena, the 12,500+ tonnes per day envisioned by Kinross at Great Bear later this decade, and the 5.0 meter diameter shaft being sunk at Island to a depth of 1,400 meters. 

 

(Source: Company Filings, Author's Chart & Estimates, Costs Inflation Adjusted Where Applicable for Dated Studies)

 

Hence, from the position of a suitor looking at i-80 Gold, there is the potential for significant production growth in the a top mining jurisdiction with very modest capex (Autoclave Refurbishment, Flotation Plant construction & associated infrastructure + moderate underground development) compared to the capex bills to replicate similar 300,000-ounce to 400,000 ounce projects elsewhere in the sector. For example, Kinross' Great Bear is going to be a $1.0 billion build or a $2.4 billion total acquisition cost (price paid + study, drilling, and construction costs) to put this ~400,000-ounce per annum operation into production, and it still might not pour first gold before H1 2029 depending on the timing of permits. So, if we put this all together, it makes little sense that i-80 Gold is trading at a valuation of US$820 million which is consistent with a ~150,000 producer in a Tier-1 jurisdiction when it has a pipeline in place that could allow for production of more than 800,000 GEOs long-term. This is based on ~250,000 ounces from its Autoclave facility, ~250,000+ GEOs from a polymetallic opportunity at Ruby Hill, ~190,000 from Granite Creek Open Pit, and upwards of 200,000 ounces from Mineral Point if it were moved into production at the end of this decade. Obviously, this growth is not going to happen overnight, but i-80 Gold now appears to have two high-margin and modest capex projects to complement its high-grade Hub & Spoke Model which is a very enviable position to be in.

 

So, what's a fair value for the company? 

 

Based on an estimated net asset value of US$1.52 billion which ascribes only $50 million in value to its polymetallic opportunity given that it's pre-resource and premature to model, I see a fair value for the stock of US$1.59 billion or a target price of US$5.44 [C$7.34] based on a 1.05x P/NAV multiple to reflect it being a top-10 exploration story sector-wide in a top-ranked mining jurisdiction. However, as I've highlighted above, this valuation really doesn't assign any value to the emerging polymetallic potential at Ruby Hill and if this Hilltop Corridor is even half as well-endowed as the rest of the Eureka District, it wouldn't be a stretch for the company to make another one or two CRD discoveries over the next year which would add critical mass and certainly shine a lot more attention on i-80 Gold given that a 10+ million ton resource at 12+ gram per ton gold-equivalent is a serious project for any company, let alone a junior producer. So, if this polymetallic opportunity does pan out and looking at comparable prices paid for projects of this calibre or assigned by the market (250,000 GEOs per annum at sub $700/oz AISC) like Great Bear, Long Canyon, and Hermosa, it wouldn't be a stretch for the polymetallic opportunity to be valued at north of US$1.0 billion or US$3.00 per share alone. Hence, while there's already considerable upside to fair value, these estimates truly don't do the stock justice.

 

The Technicals

 

As discussed previously, i-80 Gold is the most exciting story I've seen since Kirkland Lake Gold in 2017 (KL.TSX/KL), which was a unicorn in the sense that it had a bonanza-grade mine in a Tier-1 jurisdiction that continued to grow in size and the result was that early investors enjoyed a 1500%+ return in a period when the GDX was flat and gold made limited upside progress. Interestingly, i-80 Gold is showing similar characteristics to this story from a technical standpoint, with i-80 Gold breaking out to new all-time highs vs. the Gold Miners Index on a relative strength standpoint, just as Kirkland Lake Gold did in 2017. The rest was history for Kirkland Lake Gold was the below charts show, with the stock returning 114% annualized over the next three years or a 910% return. Given that i-80 Gold has a similar technical setup and is breaking out of a primary base (stage-1 base) and among the top 3% of strongest stocks on the US Market, I see the stock as a Strong Buy from a valuation and technical standpoint, and I would expect any sharp pullbacks to provide add-on buying opportunities given that we still look to be in inning #1 or #2 of this growth story.

 

(Source: TC2000.com, Kirkland Lake Gold - 2017-2020)

(Source: TC2000.com, i-80 Gold Chart vs. GDX and i-80 Gold Weekly Chart, Marketsmith)

 

Disclosure: I am long IAU.TSX/IAUX

 

Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing. This article is provided for informational purposes only, and is not intended to be investment advice of any kind, and the author is not sponsored by any company discussed in the article, nor has he ever been compensated by any company discussed in the article. Given the volatility in the precious metals sector, position sizing is critical, so when buying small-cap precious metals stocks, position sizes should be limited to 5% or less of one's portfolio.