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Canagold: Sweet Surprise as a High-Grade Low-Cost Gold Deposit Delivers

Marc Davis Marc Davis,
1 Comment| September 22, 2021

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It’s a big shot in the arm that promises to redouble the considerable scarcity value of the New Polaris gold deposit.

A one-million-ounce gold deposit that is owned by Canagold Resources (TSX: CCM) (OTCBB: CRCUF) (Frankfurt: CANA), New Polaris may be on its way to becoming a larger, high-grade gold deposit than previously imagined.

By way of explanation, recent drilling has led to the discovery of rich concentrations of gold in a parallel vein system – known as C10 – that is only now beginning to reveal its considerable untapped potential.

A past-producer, New Polaris is located in mining-friendly northwestern British Columbia (BC) about 100 kilometres south of the town of Atlin.

Of particular significance, the drill intersections encountered within this under-explored, high-grade vein appear to be as richly mineralized as the high-grade C West Main (CWM) vein that forms the bulk of the New Polaris deposit. This opens up the possibility that New Polaris could become a larger, high-grade deposit.

This is extraordinary news for Canagold because it promises to significantly bolster the overall depth and breadth of a shallow, high-grade gold deposit that is amenable to some of the lowest production costs anywhere in the world. (More on this in a moment).

Add to this compelling dynamic that New Polaris is located in such a politically stable, mining-friendly jurisdiction as British Columbia, then the deposit’s overall appeal becomes increasingly lustrous.

Canagold is currently conducting a large-scale 24,000-metre drill program involving no less than 47 drill holes. This ambitious drill program should go a long way to upgrading the resources (in preparation for a feasibility study) within the known deposit via extensive infill drilling.

This upgrading represents a key de-risking dynamic, while also enhancing the overall value of the deposit. At the same time, the step-out component of the current drilling is being conducted to probe the potential of proximal vein systems, including the high-grade discovery zone within the C10 vein.

Obviously, this exploratory drilling is yielding very encouraging results so far, thereby representing the sizzle in the steak. These results include the following highlights: Hole 21-1890E1 intersected 17.1 g/t Au over 8.4 m from 343 metres in the C10 Vein and Hole 21-1890E2 intersected 7.25 g/t Au over 4.3 m from 368 metres in the same vein.

Canagold’s CEO Scott Eldridge summed up the significance of the new high-grade discovery zone at C10 in a news release yesterday with the words: “Intercepting high-grade gold over robust widths in the C10 vein parallel to the CWM vein was an unexpected bonus.”

He added: “The C10 vein has returned high-grade gold results in the past, but we have not previously estimated any resources for it. With these new drill results and further drilling, there is an opportunity for the C10 vein to add additional resources at New Polaris.”

It is also significant to note in the latest round of drill results that the infill drilling continues to deliver the high grades and mineralized widths that support the current resource model.

Accordingly, it is worth noting that investors can often profit handsomely by identifying junior mining companies that are ripe for the picking by the world’s large, supply-hungry gold miners.

Click to enlarge
Drilling into a rich gold vein at Canagold’s New Polaris deposit in northwestern BC

Mining’s New Mantra: Why Quality Trumps Quantity

These days, multinational mining companies are consistently choosing the quality of the asset over the size of the metal inventory in the ground. This makes high-grade deposits that are relatively cheap to mine at a modest capital cost particularly attractive as acquisitions. New Polaris is a compelling example of such a future prospective takeover target.

The rationale behind this new focus on commercializing smaller gold assets is that it allows the world’s dominant gold miners to reign-in their capital expenditures and operating costs.

Remember that most of them learned hard lessons from overextending themselves during the last mining boom with massive, capital-intense gold projects that became albatrosses during the particularly harsh, most recent mining industry recession.

Hence the appeal of a high-grade deposit like New Polaris that could prospectively be commercialized at a fraction of the cost of the huge elephant-sized deposits that have been the mainstay of the world’s big gold producers for the last few decades.

Furthermore, high-grade underground mines are the lowest quartile on the cost curve, which sweetens their appeal.

Hence, cashed-up gold producers are starting to aggressively target takeover candidates with rich under-developed discoveries. Especially ones in politically stable mining jurisdictions. Quite a few gold juniors have been snapped in big-dollar transactions over the past couple of years, particularly ones with Canadian gold deposits.

Aerial view of Canagold’s New Polaris project near Atlin, BC

The Magic in the Metrics

What makes New Polaris a stand-out candidate for a prospective takeover down the road (such as when a feasibility study is completed) is the magic in its mining metrics.

In other words, an upgraded, independently assessed 2020 preliminary economic assessment (PEA) for New Polaris computes that it can be mined at a rate of 80,000 ounces per annum for the projected very low cash cost of US $530 an ounce of gold. By comparison, most of the world’s major miners are paying upwards of US $1,000 an ounce to extract gold.

With such low operating costs, the prospect of putting this mine into production represents a low-risk, high-reward opportunity for investors and corporate suitors, alike.

All told, New Polaris’s PEA attests to a high-grade, underground resource of 586,000 indicated ounces (1.7 million tonnes of 10.8 g/t) and 485,000 inferred ounces (1.5 million tonnes of 10.2 g/t). The current infill drilling will help prove-up the project’s inferred resources into the indicated category.

The PEA also offers the prospect of robust project economics at New Polaris. Based on a US $1,500 gold price, and a head grade of 10.3 gpt (including 20% mining dilution) these metrics translate into an after-tax IRR 56%, a net present value (NPV) of US $333 million, and a very fast after-tax payback of 1.9 years.

Capital costs are estimated at a modest US $111 million to build a mine that would produce 80,000 ounces of gold per year, which would be made into dore bars on-site (another major cost-cutting component).

As a side note, the New Polaris is no stranger to production. It was successfully mined underground periodically between 1937 and 1951, yielding 232,000 ounces of gold from 691,000 tonnes, grading 11.9 g/t. These figures bode well for the deposit’s appeal as an emerging, high grade gold asset that is conveniently situated close enough to the surface to make for cheap extraction costs – especially with the benefit of modern mining technology.

Keep this in mind that the average gold grade globally for open-pit mines is just below 1 g/t and the average for underground operations is around 5 g/t to 6 g/t. Hence, the key takeaway here is that high-grade, low-risk underground projects like New Polaris are particularly scarce.

Investment Summary

All told, New Polaris represents a rich vein of opportunity for supply-hungry gold producers, regardless of whether bullion prices continue to trend upwards.

What matters most is that this still-emerging deposit offers an especially compelling production profile – one that promises an output of 80,000 gold ounces per annum at one of the lowest costs of any gold mine in the world. The goal in today’s program is to ultimately add more ounces and tweak the production slightly higher towards 100,000 ounce per year for a 10 year mine life, a number that attracts next-level attention from investors and mid-tier miners looking for acquisition targets. This is why Canagold is shaping up to be a ripe plum for the picking for future prospective suitors.

On a technical note, Canagold Resources has a relatively tight share structure with about 71 million shares outstanding (about 89 million fully diluted). This reality, matched with positive news flow, typically acts as a catalyst to an ascendant share price.

On this note, this company is well worth watching. Its ascendant fortunes promise to make Canagold a standout performer among gold juniors.

ABOUT THE AUTHOR: Marc Davis has a deep background in the capital markets spanning 30 years, having mostly worked as an analyst and stock market commentator. He is also a longstanding financial journalist. Over the years, his articles have appeared in dozens of digital publications worldwide. They include USA Today, CBS Money Watch, The Times (UK), Investors’ Business Daily, the Financial Post, Reuters, National Post, Google News, Barron’s, China Daily, Huffington Post, AOL, City A.M. (London), Bloomberg, (Germany) and the Independent (UK). He has also appeared in business interviews on the BBC, CBC, and SKY TV.

Marc is also an enthusiastic investor in Canagold Resources and his commentary is not intended to be a solicitation for other investors to purchase this stock. Investors are always advised to consult an investment advisor before making investment decisions.

FULL DISCLOSURE: Canagold Resources is a client of Stockhouse Publishing.

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