Without internally generated positive cash flow our juniors are money-eating machines constantly having to go to the market to raise capital through equity offerings.
However there are companies doing things a little different than the mainstream junior – they’re called “Project Generators.” Project generators, after finding and securing a property, do the initial mapping, sampling and maybe a small drill program. Upon making a discovery, basically finding something of interest, they turn it over to a joint venture partner who puts up the money and or its own shares to earn into the property while investigating the discovery.
A property ownership dilution business model is not as well liked as the much more common share dilution (through equity offerings known as private placements) model. Yes the project generator shareholder’s eventual ownership of a discovery is diluted, BUT, their ownership in the prospect generating company is not diluted because there is very little dilution of the project generators outstanding shares. This is because the exploration/development expenses are paid by the partner, not the generator.
The Best of Both Worlds
Kootenay Gold’s strategy has been to build a company incorporating both the property ownership dilution business model and share dilution model. They have several projects joint ventured with other junior explorers who pay costs for exploration and issue KTN shares in their company while Kootenay has retained 100% ownership of their flag ship Mexican property – the advanced stage Promontorio silver project.
Northern Mexico is Kootenay Gold’s major focus. Kootenay hired Dr. Tony Starling of Telluris Consulting Ltd. to conduct satellite imagery and interpretation of geological structures over a huge area – Dr Starling has developed a process that allows him to identify mineral systems from satellite imagery. Starlings technology works by measuring the various wavelengths of reflected light to identify mineral systems. The technology has about a 90% accuracy rate.
Kootenay was able to identify numerous mineralized systems over a 180,000 square km area which allowed them to cheaply, and very quickly, tie up a lot of prospective ground.
In December 2006, Kootenay announced an agreement to acquire 100% interest in the former producing Promontorio Mine and the surrounding properties and mineral rights known as the Promontorio Concession. The claims cover approximately 79,000 hectares and are located in the historic, prolific silver and gold producing Sierra Madre Region of northwest Mexico.
Historical data from Promontorio shows individual holes with 1 kg of silver over 5 m, 10 m, 15 m and an average silver grade of 367 g/t. Historic reports also cite widths of 20 meters on average.
The project had seen some sporadic exploration and limited production over the years but Kootenay Gold’s exploration efforts represent the first thorough exploration program using highly advanced modern techniques.
Early on Kootenay Gold recognized the potential of the Promontorio Pit zone. And drill results confirmed their confidence by showing strong precious and base metal mineralization over considerable lengths:
- Hole 23 – drilled from the northwest corner of the zone – returned 437.5 meters grading 28.2 grams silver per tonne, 0.44 gram gold, 0.53% lead and 0.63% zinc from surface. Using today’s metal prices of $1378.80 an oz gold, $24.65 silver, $1.08lb lead and $1.08lb zinc that’s 437m of US$69.47 rock in an open pit mining scenario
- From the centre of the Promontorio Pit zone Hole 25 returned 386.6 meters of 46.15 grams silver, 0.44 gram gold, 0.78% lead and 0.76% zinc – also from surface. Using today’s metal prices that’s 386m of US$92.75 rock in an open pit mining scenario
Kootenay’s drill programs defined a 300 by 300 meter silver, gold and polymetallic mineralized area up to 400 meters deep open to the east, west and north.
Kootenay than drilled five step out holes:
- Three holes were drilled 1.6 km northwest into the Dorotea zone. Mineralization encountered was very similar to the Pit zone. From near surface Hole 55 cut 13.5 meters grading 77.39 grams silver, 2.78 grams gold, and 1.08% combined lead and zinc. Hole 56 returned 34.5 meters at 74.83 grams silver, 1.73 grams gold and 2.42% lead and zinc. Hole 58 hit 17 meters grading 86.1 grams silver, 0.52 gram gold and 3.79% lead and zinc, starting 123 meters down-hole.
- Two step out holes drilled 1 km to the northeast hit grades of silver, gold, lead and zinc, again similar to the style of mineralization found in the Pit zone. Hole 53 assayed out at 59 meters averaging 32.24 grams silver, 0.27 gram gold and 1.25% combined lead and zinc, starting at a depth of 135 meters. Hole 54 returned 101 meters of 26.21 grams silver, 0.37 gram gold and 0.74% lead and zinc.
A total of 835 grab samples assayed indicate strong mineralization throughout the entire area explored to date – assay results contain variously, anomalous to highly anomalous levels of gold, silver, copper, lead and zinc along with anomalous levels of tungsten, molybdenum and the rare earth lanthanum.
“Sampling Results and Airborne data define a belt of gold/silver and polymetallic mineralization which can be inferred to extend from the Promontorio Pit area in the south for some 25 km to the northwest. The Promontorio with its demonstrated potential for multiple open pit scenarios remains a top priority for the company. Step-out drilling has identified areas with similar characteristics to the past producing Pit Zone which contain grades of 950 g/t Silver over 18.4 m. Continuous high IP chargeability between the mineralized Pit Zone and the Northeast Zone underlines the projects large-scale potential. Moreover, multiple untested priority drill targets suggest strong potential for a host of new discoveries within the property.” Jim McDonald, CEO of Kootenay Gold
Kootenay is conducting a systematic exploration program that is prioritizing targets from the Promontorio pit area in the south for approximately 25 kilometers to the northwest. Presently there are over 30 High-Priority EM Targets undergoing exploration at Promontorio.
The following early results (from the more than 30 targets), from surface sampling, outline the presence of three areas of anomalous mineralization with similarities to the Promontorio Pit and Northeast Zones:
- Gold 8.06 g/t; 3.40 g/t; 2.27 g/t; 2.08 g/t
- Copper 10.95%; 12.8%; 3.5%
- Gold 8.80 g/t; 3.2 g/t; 3.0 g/t; 2.53 g/t
- Copper 11.2%; 3.4%; 1.1%
- Silver 895 g/t
- Copper 8.0%
The mineralization in these three areas appears to be controlled by a regional structural setting that also controls the mineralization of the Pit Zone.
Kootenay Gold recently announced an independent mineral resource estimate from AGP Mining Consultants (AGP) for just the Pit Discovery Zone. A Multi-Phase drill program is now planned to expand the Pit Zone resource and test a 700 meter mineralized corridor trending to the North East Zone.
The AGP resource estimate comprises Indicated Mineral Resources of 5.22 million tonnes averaging 52.7 g/t silver, 0.86% lead and 0.96% zinc, containing 8.9 million oz Silver, 99.3 million pounds of lead and 110.8 million pounds of zinc. AGP also estimated that Promontorio contains 0.65 million tonnes averaging 55.7 g/t silver, 0.94% lead and 1.00% zinc in the Inferred category, containing 1.17 million oz Silver,13.4 million pounds of lead and 14.3 million pounds of zinc.
5.22 million tonnes averaging 52.7 g/t silver, 0.86% lead and 0.96% zinc = US$85.10 rock for an in situ gross metal value of US$444,222,000.00
“The resource estimate is further validation that Promontorio is a maturing project displaying all the earmarks to develop into a substantial mineral entity. The resource identified to date, coupled with existing data and upcoming concurrent exploration and drill programs on multiple prospective targets, within known areas of widespread mineralization, bode extremely well for the projects’ future development.” Jim McDonald, Kootenay CEO
With the large drill program currently underway there will be a lot of news flow from Promontorio until well into the new year.
News Release, dated September 27th 2010 – KOOTENAY COMMENCES 10,000 METER MULTI-PHASE DRILL PROGRAM AIMED AT EXPANSION OF CURRENT RESOURCE AND PREMIER PROMONTORIO TARGETS
Kootenay Gold Inc. has commenced the 10,000-metre drill program at its Promontorio silver project. The multiphase drill program will seek to expand the Pit zone resource, which is open in three directions (northeast, northwest and at depth), and test an 800-metre mineralized corridor trending to the northeast.
Highlights of the Promontorio pit resource (indicated and inferred, based on 27 drill holes):
Contained silver: 10.07 million ounces
Contained lead: 112.7 million pounds
Contained zinc: 125.1 million pounds
Metal recoveries used for the above calculations were silver at 82 per cent, lead at 85 per cent and zinc at 91 per cent.
Joint Venture Projects – Kootenay’s experienced exploration team has developed an impressive portfolio with multiple exploration discoveries in the
Rossland Republic Trend of British Columbia, Canada and the Sierra Madre
Trend of Mexico.
Rosetta Stone – 11,588 hectares located in southeastern BC, Canada. JV partner can earn 60 percent by spending C$1,000,000 and issuing KTN 400,000 (THH.v) shares. The 11,588 hectares is located in southeastern BC, Canada. The drill program will test two newly discovered gold showings named the “Road” and “Rosetta Stone” showings. The road showing is 94 m long and 4 to 6 m wide and can be projected for another 450 meters along strike; and the Rosetta Stone showing is exposed for 40 m of strike over 2 to 4 m wide before disappearing into overburden on both ends. Grab samples from the Rosetta Stone showing up to 21.1 grams g/t gold. Grab samples from the Road showing ranged from background to a high of 17.0 g/t. gold.
Espiritu – JV partner can earn 50 percent by spending US$1,000,000 and issuing KTN 500,000 (KS.v) shares. Gold – Copper porphyry system located in Sonora, Mexico. Mineralization and alteration is traceable in a northeasterly trend for approximately 4 km and up to 800m in width. Greater than 0.100 g/t Gold was contained in 30 of the 150 grab samples including values of 1.078, 1.359, 1.781, 2.39 and 3.6 g/t. The average copper values from surface grab samples returned 0.27% (2700 ppm), including background levels. Lead returned values to 9.6% and zinc to 9.8%. The current phase of drilling intends to establish the thickness of the enriched Supergene layer and the grade of mineralization.
Connor Creek – JV partner can earn a 60% interest by spending US$1,000,000 and issuing KTN 750,000 (ORS.v) shares. The property is located in south eastern British Columbia. Exploration conducted over the past few years has identified several clear gold and gold-copper-lead-zinc enriched zones as defined by geophysics, geologic mapping, rock and soil anomalies and ~1,850 meters of drilling. Two main types of mineralization found are; semi-massive sulfide vein with characteristics similar to the Rossland veins in nearby Rossland that produced nearly 3.0 million ounces of gold at an average grade of 0.4 ounces per tonnes and disseminated sulfides hosted in zones of shearing.
Deer Creek – JV partner can earn 60% by spending C$1,000,000 and issuing KTN 400,000 (NEE.v) shares. Deer Creek covers 10, 573 hectares in 24 claims. It covers four types of mineralization in veins and shears which are; copper bearing sulfide veins, lead-zinc silver sulfide veins and gold bearing quartz veins and shears. Mapping and geophysics shows mineralization occurs along north south trending dyke swarms and structures up to 2 kilometers in length.
Jumping Josephine – JV partner can earn 60% by spending C$2,000,000 and issuing KTN 400,000 (AA.v) shares. The 18,429.5 hectare gold project is located in the West Kootenay region of British Columbia within a mining district boasting historical production in excess of 9 million ounces of high-grade gold. Jumping Josephine drilling (6,000 meters) has defined a gold bearing structure 900 m long by 12m width by 225m depth. The structure is open at both ends and at depth, with strong indications that parallel structures are present.
Shares Outstanding: 37,226,600
Fully Diluted: 46,527,100
Insider Share Ownership: 25%
Institutional Share Ownership: 30%
Retail Share Ownership: 45%
*As of June 30, 2010
James M. McDonald, PGeo – President & CEO. Jim co-founded and successfully developed Black Bull Resources, National Gold (merged w/Alamos Gold) and White Knight Resources. Mr. McDonald continues to serve on the board of Alamos Gold Inc.
Kenneth E. Berry, B.Comm – Chairman & Director. Ken served as an investment adviser, advertising executive and managing director of corporate communications for public companies which have raised in excess of $275 million.
Dr. Tom Richards, BSc, PhD – Vice President of Exploration. Dr. Richards is an accomplished author and co-author of numerous publications involved in the science of Geology through central British Columbia.
Brian Groves, BSc Geophysics – Director. Brian has worked in the mining and exploration industries for more than 29 years. A graduate of The University of Sydney, Australia, Brian began his career in exploration as a geophysicist in Australia and North America. He has been involved in exploration for coal, gold, base metals and diamonds with junior, mid-tier and major companies such as AMAX Minerals, Noranda and Placer Dome where he served for 12 years ending as a Manager of Corporate Development, Canada.
Dr. Tony Starling, BSc, PhD – Regional Target Generation. Dr. Starling has been instrumental in the discovery of several new ore bodies throughout Mexico. Specifically, he has applied his distinguished mesothermal /orogenic gold systems studies to discoveries in districts such as Charcas, San Martin and Taxco.
Rajwant Kang, CMA – Chief Financial Officer & Corporate Secretary. Mr Kang has over 18 years financial experience and has held various senior financial positions within public and private companies including Salares Lithium, Gryphon Gold, Star Shipping and Steppe Gold. He brings an extensive knowledge of finance, accounting and public markets. Mr Kang holds a CMA designation obtained in Canada and a HND in Business and Finance, obtained in the UK.
Kootenay has everything going for it that I look for in a junior resource company:
- Share structure
- Ability to access capital markets
The more projects found and partnered off, the more likely project generator shareholders are to participate in a big discovery while their company successfully preserves the treasury and keeps share dilution down to a minimum. This is the power of, and how, the joint venture model is supposed to work, exploration and hopefully future development of project after project is funded using OPM – other people’s money.
And when a company has an exceptionally high quality 100% owned property such as Kootenay’s Promontorio Project things look especially promising for investors to perhaps participate in a major discovery and possibly even travelling down the development path towards the building of a mine.
Is British Columbia’s West Kootenay region, northern Mexico and Kootenay Gold – with its experienced high quality management team, excellent mix of business models and an exceptional 100% owned project on your radar screen?
If not, maybe it should be.
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Richard is host of aheadoftheherd.com and invests in the junior resource sector. His articles have been published on over 200 websites, including: Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell.com, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor and Financial Sense.
Legal Notice / Disclaimer
This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.
Richard Mills does not own shares of Kootenay Gold Corp.
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