The Castle Mountain heap leach gold mine in San Bernardino County in southern California produced 1.24 million ounces of gold between 1991 and 2001, when mining was suspended due to low gold prices. Now a management team and board stacked with former executives of Kinross Gold (TSX: T; NYSE: KGC) plan to restart the mine as soon as possible.
The mine is permitted for open-pit production of up to 8.15 million tonnes of ore per year until December 2025 and Castle Mountain Mining (TSXV: CMM)—which listed in May—completed a Phase I drill program in June that intersected long intervals of high-grade oxide mineralization in multiple target areas.
Highlights of the 30-hole drill program (6,305 metres of core drilling and 2,063 metres of reverse circulation drilling) included 30 metres of 2.32 grams gold per tonne including 6 metres of 8.24 grams gold; 22 metres of 2.33 grams gold including 3 metres of 9.95 grams gold; 143 metres of 1.27 grams gold; and 288 metres of 0.79 gram gold. The Phase I program was designed to twin and scissor historic drill holes in and around the previously mined pits and to test mineralization in exploration target areas.
“Nothing in life is a sure thing but this is about as close to a sure thing as I have seen in recent times for this kind of gold price environment,” Gordon McCreary, Castle Mountain’s president and chief executive, says of the project, about a two-hour drive from Las Vegas. “We don’t really need a higher gold price than we have today for this project, in my view. It would help to raise equity, but I think the economics work at the current gold price and even at lower gold prices than we see today.”
Part of a team headed by Robert Buchan that founded Kinross Gold in 1993, McCreary worked at the gold major for eleven years before leaving to follow a dream and set up Baffinland Iron Ore Mines in 2004, where he raised about $500 million to advance the company’s massive Mary River iron ore project on Baffin Island, about 1,000 km northwest of Iqaluit.
“It was a big dream and a big project that will run for not just decades, but possibly centuries,” he says of Mary River. “I have no doubt that once Mary River starts producing it will produce into the next century. But it is what I call a green banana, there is so much infrastructure that has to be developed.” (By some estimates the mine and associated infrastructure, including a port and railway, is expected to cost $4-5 billion.)
After Baffinland was acquired by Arcelor Mittal (NYSE: MTN) in a hostile takeover in 2011, McCreary had to figure out what he wanted to do with the rest of his life.
“I spent a considerable period of time trying to figure out what was going to come next after Baffinland and I determined that I wanted to go back to gold because I felt the bananas are riper in the gold business...And at this stage in my career, it’s time to focus on some riper fruit.”
Not only that, he adds, but he had “dreamed about these kinds of gold prices” for his entire career. “I’m basically a gold guy that happened to do a big iron ore project.”
McCreary then looked up former colleague Buchan, and together the pair started kicking the tires of a number of gold assets in the western United States, before coming across Castle Mountain.
“We concluded that Castle Mountain was the one with the best potential,” he says. “This was one that was head and shoulders above everything else.” (Buchan is chairman of Castle Mountain’s board. He is also chairman of the board at another company with assets in the western U.S., Allied Nevada (TSX: ANV; NYSE: ANV).)
Since the first phase of the drill program at the California gold project was completed in June, Castle Mountain's management team has been assessing what the next step will be, and working with its consultants. Among the options: A second-phase drill program of about 20,000 metres.
While it's a tough time to raise money, McCreary says, if anyone can do it, it’s probably Castle Mountain.
“The markets are very soft right now but we think that with the quality of the story and the management team, if anybody can get financed, we can. But we’re not there yet.”
Currently the company has about $2 million in its treasury.
To complete its earn in and acquisition of 100% of the Castle Mountain project, the company must pay Sprott Lending Group $3 million in cash or shares upon completion of a feasibility study by August 2015 and another $5 million in cash or shares upon making a production decision by August 2017.
Institutions hold about 25% of the junior developer’s 53.5 million shares outstanding.
So far, three of the seven analysts who toured the property in June, have initiated coverage.
Joe Mazumdar and Scott McLean of Canaccord Genuity have a target price of 50¢ per share and view the junior as a takeover candidate.
“The Castle Mountain gold project’s attractive potential economics, at current price levels, combined with the low-moderate technical (open-pit, heap leach) and execution (significant permits in hand) risk, in our opinion, present an attractive M&A target for an intermediate producer,” the analysts note in a research report today.
The mining analysts also point out that the project is grandfathered “under the less onerous mining regulations that were in place at the time of operation, (no backfilling requirements).”
Canaccord has modeled an oxide, open-pit resource of 1.45 million ounces grading 0.9 gram gold.
A historic resource estimate in 2012 outlined potential mineralization of 1.9 million ounces grading 0.8 gram gold at a cut-off grade of 0.8 gram gold. An earlier historic resource estimate in 2002 concluded Castle Mountain held 1.2 million ounces grading 1.36 grams gold at a cut-off of grade of 0.5 gram gold.
Since May, the junior has traded within a range of 20¢ to 60¢.
At presstime its shares were trading at 40¢.
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