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DAILY NEWS Nov 16, 2012 5:19 PM - 0 comments

Update: Fronteer gang looks to duplicate success with Pilot

Pilot CEO Lennox-King heads experienced team with enough cash to make a difference

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2012-11-16

With its coffers over-flowing Pilot Gold (PLG-T) is in the unique position amongst juniors of being able to drive heavy exploration programs at two projects, while partaking in the development of a third into a mine.

It's a story that has gained traction amongst investors of all stripes, as institutional, retail and major industry players all piled into a recent equity raise that led to an overallotment of issued shares.

While the bought financing deal was originally for $20.6 million, the number climbed to $25.6 million because of heavy interest from the institutional and retail side. Then Pilot raised another $8.08 million through private placements with Newmont Mining (NMC-T, NEM-N) and Teck Resources (TCK.A-T, TCK.B-T, TCK-N).

Prior to the deal, Newmont had a 16.2% stake in the company, while Teck had a 5.4% interest.

With its cash position now totaling $43 million, Pilot plans to push ahead on aggressive programs at its TV Tower and Kinsley Mountain exploration projects.

TV Tower is a gold and silver property that stretches out over 71-sq.km in central Turkey and Pilot has a joint venture with Teck on the permits with a right to earn a 60% stake.

While multiple discoveries have been made on the property the KCD zone has grabbed the most attention thanks to a highlight intercept of 137.1 metres grading 5.94 grams gold, 12.6 grams silver and 0.53% copper. That result was released on Sept. 19 and Pilot said it extended the high-grade breccia zone identified by the discovery hole roughly 50-metres to the south.

The result caught the market's attention as the press release propelled Pilot's shares up 44% to $1.68.

Now in the midst of a 55 hole, 9,000 metres program at the zone, the latest results (released on Nov. 14) returned more eye-catching results with highlight intercepts from three separate holes of: 32.5 metres grading 11.63 grams gold; 87 metres grading 3.4 grams gold and 15.2 metres grading 10.03 grams gold, 46.25 grams silver and 3.89% copper.

Importantly, the latest round of drilling hit mineralization outside of the breccia-hosted zone that Pilot had believed carried all the gold.That finding has led the company to update its geological model as it now sees a configuration that involves high-grade startiform mineralization.

Pilots CEO Matt Lennox-King says the new model could be game changer at KCD since stratiform zones are more tabular in shape, which in turn makes mining more efficient by way of keeping strip ratios down. Pilot expects to have a maiden resoruce estimate out on KCD by mid-next year. 

But as promising as KCD is shaping up to be it isn’t the entire story at TV Tower and with its coffers bursting, the company has the freedom to range throughout the property with the drill.

“We believe we have a series of projects on one project,” Lennox-King says. “ KCD leads the charge, Kayali is in the number two slot and that’s followed by Columbaz.”

Currently it is in the midst of a 16,000 metre program at the property. It plans to drill 3,500 metres at Kayali and 3,500 metres at Columbaz in the coming year.

Kayali is a high sulphidation epithermal zone that has returned a highlight intercept of 114.5 metres grading 0.87 grams gold. Columbaz is a low sulphidation epithermal vein that has never been drill tested. Geo-chemical testing has helped define a strike length at Columbaz of over 400 metres.

TV Tower is located in the Biga district, an emerging gold district on the Biga Peninsula in northwestern Turkey. Alamos Gold (AGI-T) has the advanced stage Agi Dagi and Kirazli projects in the region.

Pilot traces its roots in Turkey back to the Fronteer days, as that company went into Turkey in late 2004, joint venturing with Teck on two early stage gold projects. At the time it was one of the few juniors in the country, but once it made the Halilaga discovery it wasn’t about to leave anytime soon.

Halilaga is currently being developed by Teck, with Pilot holding a 40% stake in the project. A recent preliminary economic assessment outlined a 50,000 tonne per day operation with average grades of 0.28% copper and 0.3 grams gold for average annual production of 92,100 oz. of gold and 89 million lbs of copper. The project generated an after-tax net present value (NPV) of US$474 million using 7% discount rate. Pilot's share of that NPV would amount to $190 million.

As for why more Western companies hadn’t been exploring in Turkey sooner, Lennox-King explains that up until the early 1990s the country’s mining code was restrictive of foreign ownership. Since then, however, its evolution has been impressive.

“We think that now Turkey is just as good of a place to explore and mine as anywhere else in the world….and it may even be better than some parts of Canada,” he says, adding that the regulation process has been streamlined and that industry’s status as a key contributor to the country’s GDP has led the government to value foreign investment.

And while the country will receive roughly 60% of the Pilot’s hefty exploration budget going forward, its Kinsley Mountain project in northeastern Nevada will also get significant capital as it will take the remaining 40%.

Kinsley sits roughly 80-km southeast of Long Canyon, a project that Pilot's management team developed and eventually sold to Newmont. Indeed the same technical team that molded Long Canyon into a desirable target, is now back at it with Kinsley.

Lennox-King says there are some similarities between its former project and its current one.

“The host rocks at Long Canyon and Kinsley are very similar. The rocks are of a similar age, and the general architecture of mountain range and geometry of deposits are similar,” he says. “They are within a broad Carlin type footprint and both do have higher grade domains but at the same time they are two different beasts and will be quite different deposits.”

Kinsley hosts a past producing mine that turned out roughly 138,000 oxide ounces at an average head grade of 1.4 grams gold. Historic drill holes, however, only went down to an average depth of 65 metres and 350 holes with grade were left un-mined.

Pilot's value-add at Kinsley has come by way of its drill testing and discovering mineralization to the north and the northeast of the known deposit. The company has a 25,000 metre drill program planned for the area. The company expects to have a compliant resource estimate on the project by late next year. 

Pilot was formed as a spin-out from Fronteer Gold, after that company was acquired by Newmont in 2011 for $2.3 billion. Mark O'Dea, the former CEO of Fronteer now serves as Pilot's Chairman.

In all, Pilot took 25 former Fronteer people including members of the board, management and other members of the team. All 25 remain with the company.

Lennox-King, who was with Fronteer from the beginning, traces his connection to the company back to O’Dea who called him up 11 years ago, told him he was starting a new company and that he needed someone to go to Red Lake to check out some projects.

“The industry was pretty quiet at the time so I took it,” Lennox-King says. “That was 11 years ago and we’ve been going consistently ever since.”

Sometimes the easiest decisions are also the best decisions.



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