Outline:
..
Part
1: .Overview
...Part
2:..
The
Fundamentals
...Part
3:...Overview
of Players, Two Majors
...Part
4....Profiles
of Sample Junior Players
...Part
5:...Cortez
Trend Maps, Pictorial Overview
....
Part
One
Overview
The Cortez Trend comprises the southern "hot
play" portion of what has been long known as the Battle Mountain-Eureka
Trend in north central Nevada. Some new interpretations of the
Cortez Trend's Carlin-style geology over the last few years have
caused many experts to believe that Cortez Trend may eventually
rival or even surpass the famous Carlin Trend, one of the top
three gold fields in the entire world. "Will it or won't
it? is the basic question addressed in this five part article.
In this article I reference independent analysts
such as John Kaiser (author of Kaiser
Bottom-Fish), Paul Van
Eeden (Kitco.com columnist),
Frank Veneroso
(Veneroso Gold Associates), John Doody (Gold
Stock Analyst), Brien Lundin (Gold
Newsletter), and Bob Moriarty of 321Gold.com
who have recommended or invested in Cortez Trend junior mining
companies. Major mining companies such as Newmont, Placer Dome,
Kennecott (Rio Tinto), Teck Cominco, Goldfields, and Goldcorp
have invested significant funds or made major new obligations
in the area.
I am grateful that Intierra Resource Intelligence
has given me permission to use one of its Hot
Play maps (see Part
Five). I am also thankful that CEO's and head geologists of
major junior mining companies active in the Cortez Trend have
generously given their time both over the phone and in person
at the Jan 2005 Vancouver Resource Investment Conference to help
me improve the accuracy of this research project.
In many places in this series I have tried to create
a forum format, in which different viewpoints help us to see the
proverbial elephant from different perspectives. In some cases
different sources disagree somewhat on their resource estimates.
I quote them "as is" in an effort to let them speak
for themselves. Geology is not a precise science.
...your own investments at
issue.
Sometimes you do not have to scale the Andes or
tromp through dark jungles of Africa to find a really good investment
idea. You might have passed within miles of this opportunity crossing
the USA on Interstate 80 on a vacation trip last summer. In addition,
sometimes it is a better idea to approach junior mining companies
from the perspective of who is involved in a particular hot trend
play, to the extent that a rising tide can lift all boats. (Similar
in concept to the saying, "If you want to get rich in real
estate, buy property in the way of the growing big city").
Later in this article I will discuss "the many
ways to play" the trend and valuation methodologies. But
first a quick synopsis:: Right Trend?
Since 1991 just one segment of the Cortez Trend, the Cortez Joint
Venture area, has manifested 31.5 million contained ounces (produced
ounces plus resource ounces still in the ground). The Cortez Trend
runs parallel and has strong geological similarities to the world
class Carlin Trend, which has already either produced or proved
up over 180 million ounces. Right state?
Many parts of the U.S.are regulatory and environmental nightmares
for miners, but Nevada remains the most unencumbered state of
all. Right country? Gold is more likely
to experience real appreciation relative to the dollar than any
other currency, yet America still has less geopolitical risk relative
to most other countries. Lastly, Right time?
I will update my article "Back
of the Envelope Analysis for $1,000 Gold in Five Years"
published last March. The fundamentals for gold grow stronger
by the month.
Right Trend?
A proverbial saying in the gold mining business
is that if you want to find elephants, go to elephant country
where big elephants have already been found. According to the
Nov 2002 Gold Newsletter, "The rich Carlin Trend
is second [in the world] only to the legendary Witwatersrand Basin
of South Africa in terms of gold reserves..."
For geologists, the main focus of "The Cortez
Trend" has been that part of the Battle-Mountain Eureka Trend
south of the city of Battle Mountain and Interstate 80 which has
sedimentary rocks capable of hosting Carlin-style gold deposits
created roughly 38 million years ago. This is in contrast to areas
north of Battle Mountain where gold tends to be hosted in volcanic
rocks. However, the definition of the Cortez Trend can get more
geologically complicated because it, like the Carlin Trend, also
involves numerous interactive cross rifts to the main fault system
that involve other types of gold deposits created in other geological
periods.
| xxxx
Data from the Nevada Bureau
of Mines and Geology, Nevada Division of Minerals, U.S Bureau
of Mines, and U.S. Geological Survey |
About 60 million ounces total have been produced from the Carlin
Trend to date, with over 120 million still in the ground as reserves
out of a total of perhaps 200 million in all the trends of Nevada.
According to Miranda
Gold, "...Total production from 1859 through 2001 totals
137 million ounces." In other words, since its inception
in the early 1960's, Carlin has accounted for nearly half of Nevada's
historic gold production and it currently accounts for the majority
of its reserves.
Overview of the Carlin and Cortez (Battle
Mountain-Eureka) Trends.
 |
| Gold Deposits on the Carlin Trend in Northeast Nevada.
Source: U.S. Geological Survey |
According to Klondex
Mining: "[It was] Dr. Ralph Roberts who pioneered the
idea of sub-microscopic gold deposits. His famous paper published
in 1960 entitled, `Alignment of Mining Districts in North-Central
Nevada' was the catalyst for all subsequent development in the
parallel Carlin and Battle Mountain trends and the evolution of
the heap-leach [cyanide] method of extraction. He stated as recently
as 1988 that "probably only 15% to 25% of those belts have
been adequately explored."
Dr. Roberts is often lionized as the father of the
Carlin Trend and the companies it helped create such as Newmont
Mining and Barrick Gold. His book "A
Passion for Gold: An Autobiography" has become a gold
mining industry classic.
Newmont Mining, which is now the largest gold mining
company in the world, observed
that, "Carlin is Newmont's foundation. In 1961, Company geologists
began probing the high desert area around the Tuscarora Mountains
in search of finely disseminated gold - gold that could be seen
only in a microscope and, thus, had eluded earlier prospectors.
By the summer of 1963, drilling had identified a three-million
ounce deposit, sufficient to justify a mine even at the then-prevailing
gold price of $35 an ounce. Newmont's first open pit mine and
oxide mill began production in 1965."
According to one source, the gold is so fine that
one actually needs an electron microscope to see it,
and it is so small relative to water molecules that early prospectors
were unable to pan it out.
Typical
assays in early years were found in 80 foot trenches at 6.2g/t
(0.2 ounces/tonne). The largest specks were .0002 inches and had
to be magnified 1,800 times before they could be photographed.
Today the core of the Carlin
Trend is about two miles wide and 18 miles long. In some areas
huge open pit mines run into each other and seem to form a long
string. The "elephants" along the Carlin Trend include
Barrick's 32 million ounce open-pit Post-Betze mine and its 10
million ounce underground Meikle Mine. It also includes Newmont's
prolific Carlin mine. Further to the south outside the core area
(see chart in Part
Five), the Carlin Trend also includes the 35 million resource
ounce open-pit Gold Quarry Mine. According to Miranda
Gold, "Intense exploration over the last 20 years in
the Carlin Trend has resulted in the discovery of over 40 deposits
that contain(ed) a total of 180 million ounces of gold."
It
is a lot harder than it looks
For readers unfamiliar with the gold mining business,
please be aware that less than one in a thousand good project
ideas wind up as an economic mine. A highly competent geologist
is doing extremely well relative to his peers to uncover two or
three economic deposits in a 30 year career that might have 250,000
ounces in reserves apiece. The Carlin numbers are so huge by industry
standards, that it may be more appropriate to refer the Carlin
Trend as "Super-Elephant" country.
Please also be aware that the Carlin story is also
a technology story. It is about how new geological theory got
married with highly capital-intensive, high tech production and
processing techniques. Newmont Mining points
out that: "Nevada Operations boast the widest variety of
processing methods of any gold mining complex in the world. Fourteen
active processing facilities, ranging from autoclaves and a roaster
to flotation cells and heap leaching, allow Newmont to maximize
the economic recovery of gold from a wide variety of ore types
and grades. A linear program helps direct the movement of ore
to the processing plant that offers the highest economic return.
This flexibility is vital to unlocking value in Nevada as the
proportion of harder-to-process refractory ore increases and easily
recoverable oxide leach ounces declines."
Meanwhile
back at Cortez...
The Battle Mountain-Eureka Trend saw its own action
during the Carlin development period. Over the last two decades,
there have in fact been about twenty producing mines, some with
substantial production, scattered about the Battle Mountain-Eureka
area. As examples, in the NW extremity, they include the Marigold
Mine operated by Glamis Gold and the Lone Tree Mine operated by
Newmont. In the center is Placer Dome's prolific Pipeline Complex.
In the mid SE area there is the Gold Bar Mine (former annual open
pit production 527,000
ounces) controlled by American Bonanza. In the SE extremity by
the town of Eureka is a cluster of dormant mines. Barrick is planning
to put its Archimedes mine in this area back into production in
2005.
Up until fairly recently, exploration in the Battle
Mountain-Eureka Trend area focused on shallow deposits exploitable
by open pit mines. Economic deposits were typically uncovered
by shotgun prospecting methods without the aid of the more recent
prospecting theory that is exciting geologists today.
 |
| Major Nevada Trends. The Cortez Trend runs
parallel to and is bracketed by the Carlin and Lovelock-Austin
Trends. Cortez Hills is just north of Fye Canyon on this chart.
Source: White
Knight Resources. |
Let
the show begin...
The first major phase in the current Cortez drama
started in 1991
when Placer Dome decided to drill below an inactive leach pad
to see how far down one had to go to reach the water table. Local
lore has it that the next thing they did was post security guards
around the site pending legal perfection of their claim, owing
to a peculiarity of Nevada law that gives ownership to finders
and not necessarily to claim owners. Placer Dome obviously was
not guarding water rights. In fact, this became the site of the
prolific Pipeline and South Pipeline Mines still in operation
today. Placer Dome has been steadily drilling around the area
and adding mining infrastructure ever since.
The Bravo Venture Group notes
that the Battle Mountain-Eureka trend has already produced 23
million ounces over the last 30 years, making it the second most
productive belt in Nevada after the Carlin Trend. Between 1991
and June 2004 Placer Dome mined 8.3
million ounces out of the Cortez Joint Venture area, and noted
in Jan 2005 a total of 36.9 million contained (produced and still
in the ground) resource ounces.
An Aug 3, 2004 Raymond James research report noted
that 31.5 million ounces have been proven up to date in the broader
Battle Mountain-Eureka Trend compared to 107 million ounces for
the Carlin trend. The report reasons that since 23.5 million ounces
have been discovered in the last 13 years (since 1991), the trend
very likely "is still in `exploration infancy' compared to
the Carlin trend, which has been explored since the 1960's."
Obvious
question: Why do we now have a "world class" deposit
right in the middle of this trend?
Then came the Cortez Hills discovery within Placer
Dome's Cortez Joint Venture property area. According to the Canadian
research firm Loewen, Ondaatje, McCutcheon in its June 15, 2004
report,
"Placer Dome reported the discovery of Cortez Hills in April
2003, with an initial resource of 2.1 million ounces in measured
and indicated resource plus an additional 932,000 ounces in inferred
resource. In less than two months, measured and indicated resources
more than doubled to 4.5 million ounces. By the end of 2003, the
Cortez Hills deposit was estimated to contain 5.25 million ounces
of proven and probable reserves, 0.5 million ounces of measured
and indicated resources plus an inferred resource of 1.0 million
ounces gold. The rapid expansion of mineralization validates the
geological model."
It gets even better. Placer Dome notes on page 17.46
of its September 2004
Technical Report that the Cortez Joint Venture (CJV) contained
15.04 million proven and probable reserves (1.94 g/ton gold oz
@$350/oz) as of 30 June 2004. The area also has 8.15 million measured
and indicated reserves (.94 g/ton for pits optimized at $450/oz.).
The total of the two categories now amounts to a
whopping 23.2 million ounces.
The report
notes on page 8-1 that "Carlin-type deposits in the CJV
area are situated along the Cortez Rift." It also observes
on page 9-1 that, "The Pipeline, South Pipeline, and Crossroads
deposits are disseminated, Carlin-type, sedimentary rock-hosted
gold occurrences."
Incidentally, this does not include another site
called "ET Blue" in the Cortez JV area SW of Cortez
Hills, also recently drilled by Placer Dome. Various newsletters
are guessing between one million to over five
million ounces. Placer Dome has not released results yet.
The Loewen
report notes (in exhibit 2) that the Cortez Pipeline and Cortez
Hills sites share in common with Newmont and Barrick's Carlin
properties such geological characteristics as intrusive proximity,
deep rooted fault, sediment host rocks, Carlin-type geochemistry,
low silver to gold ratio, and micron-sized gold in Arsenian Pyrite.
Placer Dome has drilled down 2,500 feet in the Cortez
Hills and still has not hit bottom with impressive gold assays.
This suggests that Placer Dome could run an open pit mine down
to 1,200 feet and then continue on with an underground mine, which
would be a similar evolution compared to many Carlin Trend mines.
...and now we continue
with "Bonanza"...
In "Stocks
Explode on Cortez Hills Speculation," Mineweb's Tim
Wood reported Placer Dome's announcement on 4 June 2004 before
the Nevada Geological Society that it had drilled a hole in another
area between the Cortez Hills and Pediment deposits and found
bonanza grade ore over a long distance. A Placer Dome spokesman
told me that they found 500 feet at .7 ounce or 410 feet at 1.035
ounces. Elsewhere I have seen an analyst claim that they found
1.5 ounces at 500 feet. According to Wood:
Rumours say there are more drill holes returning
better than an ounce over intercepts of up to 500 feet. It is
said to remain open at substantial depth. What is still unclear
is whether Placer has succeeded in linking the Pediment deposit
with Cortez Hills. However, there are persistent rumours of
successful drilling south of the Cortez Hills "envelope."
That has given rise to speculation that the Cortez Joint Venture
may be sitting on more than 20 million ounces, a good portion
of which is shallow enough to be quite quickly mined...
The rapid accumulation of resources at Cortez Hills has been
likened to the early days at Barrick's Betze Post [on the Carlin
Trend]. There is some conviction that another Goldstrike complex
is in the making.
According
to Tim Wood, as this news filtered out to the public, "White
Knight Resources [stock, symbol TX.V WKR, was] up 69.5% today;
Victoria Resources [VIT.V] up 55.6%; Miranda Gold [MAD.V] up 24%;
Placer Dome [PDG] up 5.8%; CMQ Resources up 5.6%. Those gains
were made against the backdrop of an otherwise ordinary day for
resource stocks as gold gave up nearly $5 per ounce."
For readers new to mining, please be aware that .3 ounces per
tonne is considered "high grade," and one troy ounce
per tonne or above is "bonanza." Most good assays are
just a few feet long and do not necessarily prove a continuous
ore body long enough or wide enough to make an economic deposit.
But 410 feet at over an ounce? A 3 Aug 2004 Raymond James research
report comments, "If confirmed, this intersection represents
the highest value intersection ever attained within the entire
northern Nevada region. Secondly, the majority of the deposit
is oxidized, indicating low processing costs may be possible.
Thirdly, the project appears to be, at least in part, open-pitable
[much cheaper than underground mining]."
It will be interesting to see how the 23.2 million ounce total
will increase once Placer Dome officially factors in both its
ET Blue discovery and the aforementioned bonanza discovery. A
company spokesperson told me that Placer Dome is doubling its
exploration spending in the Cortez area to $12 million for 2005
compared to 2004. One constraint regarding more spending is that
rig availability has already become very tight in Nevada.
A junior mining executive who negotiated a joint venture with
Placer Dome in the Cortez Trend told me that he thinks we may
be entering a saturation drilling phase that has the potential
to offer similar results to the historical phase where the Carlin
Trend made huge leaps in discoveries.
Right
State?
The state of Nevada maintains a reputation as a geologists' and
miners' paradise for a number of reasons. For starters, geologists
only care about things that are tens of millions of years old,
back when jungles and oceans existed on this planet in places
where deserts and mountains stand today. The state is so barren
that major parts of it are essentially America's answer to the
moon, meaning relatively little pesky shrubbery to obstruct observing
and accessing geological formations. In fact, with the exception
of a few small rivers that feed into the Colorado River on the
southernmost border, or into Idaho's Snake River from the NE corner
of the state, no rivers lead out of Nevada into the ocean. Geologically
most of Nevada is part of a sunken desert known as The Great Basin
where all streams eventually meander to a place where the water
simply evaporates or sinks into the ground.
Secondly (actually firstly), Nevada "has got
the beef." The modern economic history of the state starts
with the Comstock Lode ("The mine that helped save
the Union"). Even today, Nevada is the world's third
largest gold producer after South Africa and Australia.
According to Nevada
Pacific Corp, "During the period from 1985-1991, eight
of the world's largest gold deposits, totaling approximately 87
million ounces were discovered in Nevada. In 1999, the state of
Nevada produced just over 8.26 million ounces representing approximately
76% of the gold produced in the United States and 11.2%
of world production..In a 1998/1999 Survey of Mining Companies
carried out by The Fraser Institute, Canada's economic think tank,
Nevada ranked highest in North America for overall mining investment
attractiveness. This top ranking is the result of Nevada's high
mineral potential and excellent public policies such as taxation,
regulatory consistency, and land use policies."
Despite Nevada's importance on the world gold stage,
I was surprised to learn that the mining industry produced only
2% of Nevada's Gross State Product in 2000 (Nevada
Economic Overview, Exhibit 1A-38). Gaming, tourism, financial
services, and hotels are the overwhelming mainstay of the Nevada
economy. These types of service industries are located in border
regions away from mining activities in remote Great Basin desert
areas. People in the former industries tend to leave the miners
alone.
As I explain in the next section, I agree with
James
Puplava and other very pro-gold financial commentators that
America is very likely headed for a full blown hyperinflationary
depression that could send gold to the moon and simultaneously
knock the tar out of the Nevada services sector, in which case
I could see mining go from 2% to over 20% of the state economy,
making Nevadans more than just a little bit glad they left the
miners alone.
Right Country?
This is really a fundamental question regarding
how the value of gold will likely rise relative to the U.S. dollar
compared to most other currencies.
In my March 2004 article "Back
of the Envelope Analysis for $1,000 Gold in Five Years"
I explain how gold has been more suppressed
relative to the dollar than to any other currency on the planet.
This has been caused by two primary factors. The first involves
direct central bank intervention reminiscent of the London
Gold Pool episode of the 1960's. The second factor involves
economic distortion related to the dollar's post-World War II
status as a global currency, which has made foreign banks unusually
willing to swallow tidal waves of dollars pumped out by the Fed.
Under ordinary circumstances involving ordinary
countries, a 6% balance of trade deficit triggers a serious currency
crisis. But as the world's so-called "last remaining super-power"
in which 80% of global trade has been conducted with dollars,
the United States has been neither an ordinary country, nor has
it operated under ordinary circumstances. However, no country
can finesse a fundamentally unsound position forever, and we are
already seeing increasing signs that the dam is breaking and that
foreigners are getting ready to wash tidal waves of dollars back
at America. PIMCO analyst Chris Dialynas now sees the deficit
growing
worse to 8%, pushing the global tolerance of America's profligacy
to the absolute breaking point.
Brett Arends of the Boston Herald reported
on 23 Nov 2004 that Stephen Roach, chief economist at Morgan Stanley,
told a private meeting of fund managers in Boston that, "America
has no better than a 10 percent chance of avoiding economic `armageddon.'"
I will highlight just a few of the key trends I
discussed in my March
article that have become progressively worse. Short position
overhangs in the futures markets and draw-downs on central bank
gold and silver reserves have increased, but obviously can not
go on forever. Runaway consumer, corporate, and government debt
are now running away even
faster. America's intervention in Iraq is not bringing down
oil prices, which constitute a tax on the economy and one more
motivation for central bank inflationary bailout. The slide in
the dollar has not solved the balance of trade deficits,
which have doubled
in the last three years. The deficits reflect deeply structural
problems such as a longstanding productivity
decline and loss of half
of America's manufacturing jobs in the last three decades. Runaway
government spending, which contributes to the skyrocketing debt
described in the Grandfather
Report, and which will ultimately have to be bailed out by
inflationary
central bank policies, has only grown worse as a result of escalating
social and military spending. Robert Chapman's Jan 2005 International
Forecaster (issue 4) observes, "When you pencil
all the debt commitments, you will find the US on the hook for
$82 trillion. That is over 800% of GDP. There is no question of
the eventuality of bankruptcy." Foreigners are switching
out of dollars into Euros and other currencies, and showing increasing
reluctance to absorb excess dollar deposits from their continuing
trade surpluses.
During Al Korelin's
Nov 28-29th San Francisco Gold Show round table,
Paul van Eeden commented:
"I think the gold bull market widely perceived to be in place
is not a bull market at all. We are really just experiencing a
dollar bear market. And so you want to leverage yourself against
that dollar decline. It does not make any sense to go out and
buy gold mining companies all over the world when the increase
in the gold price is perceived mainly in terms of the US dollar.
So you want to focus on gold mining companies with operations
in the United States, that basically narrows it down to Nevada
and Alaska, with some lessor projects in other states."
The
Right Time?
This question is oriented more towards stock price
"technicals" of gold mining companies involved with
the Cortez Trend.
After the run-up in junior gold mining stocks between
late summer and winter 2003, the stocks underwent a pull back
beginning in the spring 2004. Part of the reason is that the price
of gold got swatted down back below $400 an ounce. Also, there
was apparently an overhang of paper from new stock issues, in
which the industry raised $5 billion in new capital. Rick
Rule observed in a panel discussion at the 2004 San Francisco
Gold conference that the market cap of the junior mining sector
has nearly tripled.
In his SmartStox
interview at the 3-4 Oct Toronto Resource Conference, John
Kaiser commented that investors have been holding back on running
up junior mining stocks because, "There has been no multibillion
dollar discovery for six or seven years. The investor is waiting
for a fifty cent (stock) to find 500 feet [core drill result]
of 1.5 oz gold [per ton], as happened with Placer Dome [at the
Cortez Trend] in Nevada. Any junior such as White Knight or Miranda
could do the same thing."
Incidentally, Dr. Keith Barron, VP Aurelian Resources,
made essentially the same point in his Dec 4, 2004 interview
at the San Francisco Gold Show with James Puplava, namely that
if the Cortez Hills discovery had happened to a junior mining
company as opposed to Placer Dome, it might have ignited the whole
junior mining sector.
The recent relative lack of an "elephant"
discovery among junior mining companies can be blamed in part
on the extremely depressed gold prices in the late 1990's, which
threatened to put half of all mining companies out of business.
The Bre-X
scandal, in which a junior exploration company operating in
Indonesia got caught salting its core samples, did not encourage
exploratory investment either.
According to Bill Murphy, head of the Gold Anti-Trust
Action Committee, (GATA), the
Deputy Chairman of the Central Bank of Russia gave
a talk in London in July 2004 that validated its claims regarding
a gold suppression campaign led by America's Federal Reserve.
The Russians claim that if gold had simply kept pace with global
inflation, it would have risen to $740-$760 an ounce rather than
dropping below $300 an ounce in the late 1990's. This analysis
has also been seconded in a report
by the eminent Canadian investment firm Sprott Asset Management.
This suggests two other key factors that could run
up junior gold stocks apart from a major new discovery. One might
involve a situation where central banks completely run out of
any gold or any other last forms of influence to keep gold artificially
suppressed. Another scenario might involve a country or group
of private individuals who decide to make a determined effort
to aggressively buy gold and start a "run on the bank."
The odds are unknowable regarding when any of the
aforementioned scenarios might take place...unknowable except
perhaps to a very small number of people at the pinnacles of power.
However, so long as America continues to experience aggressive
debt creation, steady increases in government spending, growth
in balance of trade deficits, and aggressive money supply creation,
the arrival of a day of reckoning is a virtual certainty. In fact,
the longer it is delayed through continued use of "the best
defense is a good offense" tactics, the more dramatic the
outcome will be later on.
Link to......
Part
II of series
Jump to......
Part
Three ......Part
Four ......Part
Five
Disclaimer: This
report is for research/informational purposes only, and should
not be construed as a recommendation of any security. Information
contained herein has been compiled from sources believed to be
reliable. There is however, no guarantee of its accuracy or completeness.
Bill Fox is VP/Investment Strategist, America
First Trust. Bill welcomes phone calls and email responses
to this article. His most current contact
information is at his web site: www.amfir.com.
at the Battle of Cowpens, S. Carolina, 1781