In the notoriously risky gold exploration business, how do you skew the odds in your favour?
In the case of ML Gold Corp. (TSX: V.MLG, MLGCF, Forum), the solution involves using leverage.
This means taking a small, under-developed deposit and upgrading it to a much larger asset within close proximity to other gold mines among the world’s richest gold fields. I’m talking about Nevada, which is to gold what Saudi Arabia is to oil.
These fabled gold fields are where deposits as small as a few hundred thousand ounces can be successfully commercialized with minimal up-front capital expenditures and very low operating costs.
After all, Nevada is home to many of the world’s lowest-cost, yet most profitable gold mines. This is in part due to the easy accessibility of much of the gold, which can be found at shallow depths. It is also because of the ready availability of plentiful mining infrastructure and other logistic benefits in this mining-friendly state.
Accordingly, ML Gold just took the first major step towards executing on its shrewd strategy of proving up a modestly-sized, yet high-grade gold deposit: the Vancouver-based start-up just announced a maiden inferred mineral resource at its Palmetto Project.
Building on a Foundation Gold Asset
ML Gold is a diversified exploration company with several projects in North America. However, its flagship asset is the Palmetto Project in Esmeralda County at the heart of Nevada’s prolifically-mineralized Walker Lane Gold Belt.
This gold belt is home to numerous mines and mines in the making. It is also Nevada’s third most prolific (yet least developed) gold belt. And it is home to several multi-million-ounce, world-class mines.
What’s equally important is that Walker Lane also encompasses a handful of much smaller mines, which benefit from high grades and low mining costs. In other words, the Palmetto deposit only needs to double or triple in size to have a real shot at becoming a lucrative mine.
Notably, the Palmetto deposit has only been partially explored so far and therefore has considerable scope for significant expansion in every direction. More on this in a moment.
At this relatively early stage of exploration, the company’s newly drill-defined maiden gold resource computes to 10.1 million tonnes grading 0.95 g/t of gold, and 7.29 g/t of silver. This amounts to 310,000 ounces of gold, and 2.4 million ounces of silver for a total of 353,475 gold equivalent ounces (the deposit’s combined gold and silver values).
This also translates to an average grade of 1.05 g/t of gold equivalent, which is considered high-grade in an environment where some mines can make money with grades as low as one-third of 1 g/t.
In particular, drilling has shown that high-grade mineralization runs to a depth of at least 237 metres. This is where 6.1 metres of 1.82 g/t was intersected. Essentially, such grades offer a tantalizing hint that an untested feeder zone of enriched mineralization may exist at depth.
There is also plenty of potential for the deposit to expand considerably along a lateral plane. In particular, the deposit sits within a structurally-controlled mineralized trend, which has an east-west trending “strike length” (the length and direction of a rock formation when measured on a horizontal plane) that is “open” (continuous) in all directions.
Notably, the newly-discovered Northwest zone represents a new discovery zone that parallels the original structure, where the newly-announced maiden resource estimate has been outlined.
All told, an expansive bulk tonnage gold vein system is beginning to emerge at Palmetto with plenty of untapped potential for the delineation of a much bigger resource.
To this point, the company has drilled four step-out exploration holes in this geologically fertile new area (see the image below). High-grade highlights include 21.3 metres of 0.93 g/t of gold, including 7.6 metres grading 2.26 g/t. This attests to the presence of wide mineralized intercepts within a thick, consistently mineralized horizon.
Essentially, this step-out drilling is the company’s initial foray into the northern reaches of a golden corridor, known as the Palmetto Trend. Significantly, this trend is already known to be geologically very fertile because it encompasses small-scale historic underground gold workings, as well as the past producing Red Rock Mercury mine.
The Big Picture Comes Into Focus
With this in mind, it’s not hard to see how the still-emerging Palmetto deposit may have the potential to grow big enough to become a “company maker” mineral asset — one that may eventually get acquired by a nearby gold producer.
In fact, the Walker Land gold belt is synonymous with a few successfully commercialized near-surface oxide deposits. In other words, these types of vein-hosted deposits can be inexpensively mined in open pits (a quarry-like operation). Open pit mining also typically translates into a favourably very low stripping ratio (the ratio of waste rock to ore), which also makes for inexpensive production costs).
Also, this is where gold can be recovered with inexpensive heap leach methods (using an acid solvent to extract the gold).
Ml Gold is now gearing-up for a Phase II drill program, consisting of up to 25 drill holes, that will focus on high-priority drill targets existing to the north and northwest of the deposit’s main discovery area within the Palmetto Gold Trend.
Why Nevada
Nevada is known as “elephant country” due to a proliferation of world-class mineral deposits and its considerable blue-sky potential for many more discoveries.
With a long mining history, this jurisdiction is also very pro-mining. Nevada averages about 5.5 million ounces of gold output per annum. And due to its wealth of gold — with over 300 million ounces mined so far — it also has excellent mining infrastructure, including two dozen processing facilities.
Other key benefits to operating here include a streamlined, well-defined permitting process. And unlike many of the world’s other top gold-mining regions, Nevada also offers geopolitical stability. So too is it one of the world’s most favourable mining jurisdictions for taxation, regulations, and labour.
Investment Summary
The still-emerging Palmetto deposit constitutes a tangible, growing asset that provides a solid underpinning for ML’s inexpensive share price.
Additionally, this deposit is being inexpensively developed on an expedited timeline. The project can also be worked year-round. All of this means that that the company’s share price probably won’t remain undervalued for much longer.
Meanwhile, the so-called “sizzle in the steak” is clearly represented by the opportunity to cost-effectively build upon the company’s resource base via step-out drilling, as well as proving up the deposit’s rich mineralization at depth.
In other words, management believes that ML Gold may already be a success story in the making. And this promises to eventually make the company a likely takeover target. In turn, such a scenario would offer a home-run win for patient investors.
On a technical note, ML Gold has a relatively tight share structure with about 72 million shares outstanding (of which about 20 million shares are owned by insiders). This reality, matched with positive news flow, typically acts as a catalyst to higher share price valuations.
Assuming this news flow continues to be positive, this should give the company’s share price plenty of upside for the foreseeable future — especially in response to the advent of plenty more encouraging drill results.
Let’s also not forget that Nevada is the least expensive place in the world to develop new gold deposits and also has the world’s highest success rate for new discoveries.
The ultimate takeaway here is that ML Gold’s aggressive approach to growth via the drill bit is proving very successful so far. And the prospect of significantly expanding on Palmetto’s maiden resource estimate promises to be a powerful springboard to success on a “company maker” scale.
FULL DISCLOSURE: ML Gold Corp. is a paid client of Stockhouse Publishing.
About the Author: Marc Davis has a deep background in the capital markets spanning 25 years. He is also a longstanding financial journalist, having worked for leading digital financial news agencies in North America and in London’s financial centre. He is also a former business reporter for CBC Television.
Over the years, his articles have also appeared in dozens of digital publications worldwide. They include USA Today, CBS Money Watch, Investors’ Business Daily, the Financial Post, Reuters, National Post, Google News, Barron’s, China Daily, Huffington Post and AOL.