Corvus Gold - North Bullfrog

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(translated to Spanish: Jajajajajajajajajajajajajajajajajajajajaja - I get some readers from Peru).

Summary
Small, low grade deposit that is getting pushed as a development project.
Costs casually ignore lots of costs to make the project appear good
Comparison with actual mines just shows that the the PEA report was a simple exercise in BS

Sorry, I couldn't couldn't help myself. So, the North Bullfrog deposit. Where to begin.

Lets start with the resources - here is the table from the June 2015 technical report.

can we call these eBay resources - one mine's waste is another mine's ore?

WTF? I've been spend ages browsing the internet to find any mine (in the US) that operates at those grades. Here is what I have so far (feel free to send me other suggestions)

Mesquite Mine* (New Gold) - 0.34 g/t Au
Marigold Mine* (Silver Standard) - 0.45 g/t Au
Rochester Mine (Coeur) - 0.34 g/t AuEq (0.0933 g/t Au and 16.5 g/t Ag)
Round Mountain Mine (Kinross) - 0.79 g/t Au
Florida Canyon (Rye Patch) - 0.4 g/t Au
Phoenix (Newmont) - 0.62 g/t Au
Lone Tree Leachpad and stockpiles (Newmont) - 0.24 g/t Au (a bit unfair as this has already been mined)
Mineral Ridge Mine (Scorpio) - 1.9 g/t Au (but a small resource)


So I can't find any active mine (reprocessing leach pads and stockpiles doesn't count - sorry Lone Tree) that is mining ore with grades as low as the East Bullfrog resources (ignoring the Yellowjacket ore which will be crushed and milled so has different economics and is a small portion of the deposit).

We're all adults here, we all know that for a mine to be profitable - I'm so sorry, I'll use the nicer, more nebulous and safer terms - "generating revenue" or "cash flow positive", from now on (I don't want to scare people away by using one of the "unmentionable" words on this blog), we need to understand:


So for starters North Bullfrog has low value dirt - approx US$10.8/tonne (assuming 100% recovery and $1350/oz), but fortunately for me Corvus has done all the hard work for me in their seminal June 2015 PEA (like all popular documents a second edition (actually an Amended and restated version) was released in May 2016 (link)).

So why don't we have a close look at those numbers:

There is some obvious BS in this table

Here is the summary from the same PR:
The base case PEA assumed a conceptual Whittle^TM pit shell and would be scheduled for processing as defined at a US $900 gold price.  Highlights of the PEA (in constant 2015 USD) include:

• Pre-Tax Total Cash Flow: $479M at $1,200 gold, IRR of 53%
• NPV^{(5% post-tax)}: $246M at $1,200 gold, IRR of 38%
• NPV^{(5% post-tax)}: $103M at $1,000 gold, IRR of 20.5%  
• Projected average annual production: 149 k ounces gold per year for first 6 years dropping to 68.5 k ounces gold per year for the remaining 4 years
• Projected silver production of 2.49 M ounces Life of Mine (LOM)
• Cash Cost per gold ounce: $635
• Project Total  Capital Cost per gold ounce: $206
• Initial Capex: $175M (LOM sustaining Capital $83M)
• Strip ratio of 0.6-1 (waste to ore)
• Gold recoveries of 87% mill and 74% heap leach
• Mill resource grade increase of +100% to 2.1g/t gold
• YellowJacket/mill resource confidence increased significantly with 91% in Measured & Indicated category up from <20% in 2014 resource

In summary:

But we all know that cash costs are BS, so why don't we go down the rabbit hole.

Look closely at table 22-3 (which is an expanded version of table 4)

What other costs are passed over in the press release?

• CAPEX and LOM Capital - we can ignore this costs of $1.5/tonne for the press release
• Moving the waste - $1.52/tonne (from the technical report - page 232)
• Royalties - at least they tell us they are ignoring these costs

So if we add the costs to move the waste rock, the cost per tonne increases from:

• $4.62/tonne - the press release figure
• $6.12/tonne - the technical report figure
• $7.64/tonne - technical report figure + costs associated with moving the waste rock.

So the 'all inclusive' cost/tonne is only $3.02 more that the PR figure (65% more - so nothing substantial), and that increases the cost/ounce from $635/oz to $963/ounce.

That is a bit different, we've only added an additional $330 onto the costs/ounce and that was the obvious stuff.

When I look at table 22-4 - the annual production and cash flow chart for North Bullfrog I get confused (easily done as I'm a geologist).


Why is the Capex in year -1 $162.1M not $175.4?
They also moved 6.8 million tonnes of waste for free (operating cost cell is blank).
When I check the operating costs values they average $4.38/tonne so again there appears to be no costs associated with moving the waste rock, so I decided to update this table with:

• Overburden mining costs = $1.52/tonne
• Operating costs = $4.62/tonne

Our operating costs have increased by $183M and Pre-tax cash flow has decreased by nearly $200M (or by 41%). I need to recalculate the Federal income tax (I've left these values the same). So there has been a significant change in the economics of the project.

How do these number compare with other operations.

Round Mountain - 2015 costs

• cash costs = $750/oz
• Op earning = -$8.9M
• grade 0.94 g/t Au
• Real operating costs = $1210/oz

Mesquite Mine

• cash costs = $743/oz
• Op earning = $54.88.9M
• grade 0.34 g/t Au
• Real operating costs = $1156/oz

So these mines are bigger and higher grade, and have a long history of producing significant number of ounces and according to the 2015 financial reports at $1200/oz they are moderately profitable. Corvus say that they can build and operate a mine with lower grades (averaging 0.21 g/t Au) and be more profitable that several long lived mines.

The other issue you have with very low grade operations is that they are very unforgiving, a minor change in CAPEX (there are hundreds of projects that have done over budget), schedule, recovery (a few percent change in recovery would be disastrous), dilution and average grade could lead to massive issues.

There are better projects out there that are bigger and higher grade that are waiting to be developed, I can't see North Bullfrog competing with these. I'll spend some time working with the exploration data to see if there is any potential to define/expand more high grade resources, but it is simple too low grade to be viable unless gold prices increase significantly.

Columbus Gold - Eastside Deposit

I mentioned (many moons ago) that I was working on a review of the Eastside deposit that is currently being explored by Columbus Gold.

Summary

• The deposit has a good 'zip code' located near to several major mines/deposits.
• Initial drilling has identified a two zones (east and West zone) of low to moderate grade gold mineralisation with sub-vertical higher (>1 g/t Au) grade zones.
• These zones appear to be approx. 25-75m wide.
• The East zone mineralization appears to be open to the south (drill-hole ES-100) and to depth.
• Better mineralisation is relatively deep (<200m) - can this be mined from an open pit?
• Many of the thick 'ore' grade intercepts are actually wide low grade zones with higher grade intervals.
• e.g. ES-080 - 500' (~150m) @ 0.71 (economic) has a residual grade of ~0.37 g/t (marginal) when you remove the high grade intervals
• ES-100 - 329' @ 0.63 g/t Au - the residual grade is ~0.4 g/t A

Issues

• Vertical drill holes maybe drilling down vertical gold zones, this can lead to over-estimation of thicknesses and grades of these zones (but they do make for sexy PR headlines).
• Metallurgical test work has been conducted on samples that are much higher grade that the estimated average grade of the mineralisation.

I think there are better project in invest in, I quite like Gold Standard's Railroad project (I'm working on reviewing this project now), but this could be one to keep an eye on, especially if they get some better results from drilling around hole ES-100.


I found this project very interesting to work with, the drilling has found two zones of gold mineralisation (East and West). Near surface the gold is relatively chaotically distributed (in narrow veins/structures) and at depth these high-grade zones appear to widen and are surrounded by a wide zone of low grade disseminated mineralisation.

We see our normal exploration company trick of grade expansion - increasing the average grade of wide zones by including narrow high grade intervals. This happens with frequency at Eastside, but Columbus have included a number of sections (link) that you can see what is going on.

Section 8900N

Zoomed in:

That 265' section really grades 0.31 g/t Au

So, here is the project in 3D (Columbus have a video here (link) - the interesting part is from 2:30 onward)


You can quickly see that the majority of the intercepts are less than 0.5 g/t Au (yellow) with relatively few high grade hits.



When you strip out the impact of the narrow high grade zones, the thick high(ish) grade zones disappear, We've gone from a nice, thick economic intercepts (for open pit mining) to low grade ore with thin, narrow high grade zones

Again you can download my 3D model here (link)

Just eye-balling the data, the majority of the mineralisation at Eastside sits between 0.25-0.5 g/t Au (for reference - Silver Standard are mining 0.45 g/t Au rock at Marigold), and when you couple that with the fact that the 'good' mineralisation appears to start at around 100m depths, it begs the questions, are the grades good enough to sustain a large pre-strip to get to some low grade material?

But it isn't all bad news. Drill-hole ES-100 intersected a thick zone of moderate grade rock (section 28740 - below).

Section 28740N

This zone has been poorly drilled, many of the drill-holes around this area were stopped before they could reach this zone, and one hole (ES-112 - results pending) was drilled to see if this zone continues to the south, but may be poorly located and could actually miss the target.
Maybe Columbus could see about extending drill-hole ES-103 by another 300m

I've going to keep my eye on Eastside, at the moment the drilling to date hasn't defined any decent grade mineralisation, but hole ES-100 offers some hope. If hole ES-112 is successful, this could be a project to key your eye on.


However, I did see some issues.

When you watch the video and spin around the data from Eastside (you can download my model from here (link) and open it up the the Leapfrog viewer), you 'll notice that the 'best' intercepts (the thickest, highest grade zones) appear to come from vertical drill-holes.

A series of structurally controlled gold zones with low grade halo?

This is typically where you have vertical mineralisation, a few holes get lucky and drill down a high grade zone and give great results, but often holes miss them and give you low grade (or nothing). I would like this zone to be drilled with some angle holes so to provide more info on the nature of the mineralization. Good rule of thumb - if a project has only been drilled by vertical holes, there will be issues.


I also noticed in the March 2015 technical report was the inclusion of metallurgical test results. This was surprising for a project with no resources, but it is good to have as you need to know if you can actually recovery the gold and silver. If the recovery is crap, it gives you an opportunity to walk away and spend money elsewhere.

It was stated that the recoveries were good, 94.8% for Au and 52.1% for Ag. That is excellent recovery for gold, and for silver, it is such a minor constituent, no-one really cares about it. If you look at the accompanying table (12.1 - page 48), you'll notice something.

Cast a quick look at the drill-intercepts figure above, you can see that the majority of the drilling intercepted grades between 0.25 g/t Au and 0.5 g/t Au. How many of the samples in the table above lie in this range?
The answer is 1 - sample 70908 - averaged 0.342 g/t Au. Every other sample (13 or 93%), can from material that was, in cases, significantly higher grade. This essentially means that the metallurgical results are useless. I would like to see the results from sample 70908 to see it its recovery is significantly different from the other samples as it is testing modal (the most frequently occurring) i.e. the majority of the mineralized material in the deposit. If the recovery for this grade material is poor, the deposit has no value.

Why is this important? I've taken some data from Gold Standard Resources Pinion project (link) to illustrate.


I chucked the numbers into Excel so we can see them visually.

As cut-off grades increase, number of indicated resources decrease.

This is logical, basically you have smaller amounts of higher grade material, and this means that a similar pattern is seen in the contained ounces.

Less tonnes (albeit at higher grade) = less ounces. At a 0.6% cut-off we reduce the ounces of gold by 38% and only 76,000 ounces (12% of the indicated resources) are found in blocks grading >1 g/t Au.

If we assume that a similar pattern is seen at Eastside, and just working with the subset of data that I got from their website, we can see that:

• 51% of the assays are less than 0.25 g/t Au
• 79% are less than 0.5 g/t Au
• 86% are less than 1 g/t Au
• only 6% grade > 2 g/t Au

If we ignore the samples grading less than 0.25 g/t Au (I'm assuming that this will be waste), we now see that:

• 44% of the samples assay 0.25-0.5 g/t Au - 1 met sample (7%)
• 29% grade between 0.5 and 1 g/t Au - 2 met samples (14%)
• 14% grade between 1 and 2 g/t Au - 5 samples (36%)
• 13% grade over 2 g/t Au - 6 samples (43%).

NOTE: my data is biased due to the over reporting of high grade intervals in the press releases.

So we can quickly see that there is an extreme bias in the metallurgical sampling. The majority (79%) of the samples test were from high grade areas which (using the Pinion charts as a guide) will probably form a minor (less than 15%) part of the deposit. If this company is serious about mining this deposit (at this stage they aren't), I would like to see a few more samples testing the average grade material.

I was a bit disappointed with the quality of data released to the public by Columbus. I identified numerous errors:

• Incorrect distances (lots of typos and some unit conversion errors)
• Average grade errors - several intervals gave me negative residual grades.
• Incorrect drill-hole data in an earlier technical report table (reported earlier).

This may suggest a lack of attention to detail (i.e. rushing data into press releases), and they are probably just minor issues (my belief). However, it makes you think a bit more a dig deeper to see if this is actually a reflection on the attitude of the company when handling exploration data. I don;t think this is happening here, but is more common that you think, especially in Latin countries emphasis is put on data presentation (i.e. how "pretty" the logs are) rather than the importance of collecting high quality data.

Pretium - Vidi Vici Veni

This a quick follow-up post on Valley of the Kings. I had a lot of feedback from people from my last post, so I decided to work with some more data to see if my initial assessment was valid.

My original hypothesis: The VoK deposit was essentially a series of irregular, narrow veins emplaced in a weakly mineralized host.

So, as I often do I like to compare the PR intercepts against reality.

PR intercepts - cut Au values

Here are the CUT intercepts from the 2015/16 drilling (140 drill-holes, data from Pretium website) and you can clearly virtually every hole has intersected multiple, thick high grade (>10 g/t Au) zones.  I mean every single drill-hole, no matter where it is located, has drilled a wide zone of excellent gold values. All hits and no misses, that is exceptional.

So for a casual glance at the data, everything looks great, you have:

• high grades - tick
• wide gold zones - tick
• great recovery - tick
• good mining jurisdiction - tick 

This project is as near to perfection as you can find. It should make massive amounts of cash for everyone, and we can all retire to the Caribbean.

But, when I started to look at the data in detail, I noticed something strange in the assay tables:

Normally companies will report the just the highest grade intervals within the mineralized intersection, so why would you report a high-grade sample with lower Au values than the average grade of the whole intervals? It make no sense.

Is everything well in Rome?

I worked on a subset of the data that Pretium has released on their website. I focused on just 140 drill-holes from the 2015/16 drilling campaign, and started pulling apart the data to work out the grade distribution and see what the high grade zones have on the overall grades for the wide intercepts.
It quickly became apparent that the majority of the gold (often >90%) is found in the high grade structures, and the average grade of the rock between them (i.e. the low grade bulk tonnage material) typically contained ~1g/t Au.

When we look at this data in 3D and compare it to the image above, we see:

Crap, where have all those thick, high grade zones gone?

The thick 10+ g/t Au intervals have ALL disappeared when we remove the impact of the high grade structures. The rock surrounding these 50cm wide structures contain less than  2.5 g/t Au.

I calculated the arithmetic average grade of the country rock to be:

1.748 g/t Au and 47.32 g/t Ag or 2.64 g/t AuEq

This is about half of the cut-off (5 g/t AuEq) used by Tetra Tech in the 2014 feasibility study.

Pretium is building a 2700 tonne per day mill to mine ~1 million tonnes per year from VoK. The way that the data is presented in the Press Releases they state that there are wide, continuous zones of gold mineralisation, that will be easy to mine and contain excellent gold values and amenable to be mined on a large scale by mechanized mining with relatively little dilution.

When you pull apart the data you can see that in reality the majority of the rock that they plan to mine will be this low grade country rock with small zones of high grade mineralisation. If this is the case, then with mechanized mining there will be huge dilution, with 90% of the rock that they will be mining and processing containing less than 2.5 g/t Au, and only a small portion containing the bonanza grades that have been headlining the press releases.

At other gold projects (e.g. Curraghinalt), drilling has defined a number of veins that have been defined for many hundreds of meters vertically and horizontally with a high degree of confidence.

At VoK it is different, Pretium admits in their May 31 PR, that after a massive drilling campaign and with a drill-hole every 5-10m, both vertically and horizontally, they don’t know the orientation of these high grade structures.

The widths of the high grade structures at VoK range from 0.5 to 2m,  with an average width of between 0.50 to 1.0 meter.  These widths are amenable to more selective mining methods, such as cut and fill, which will lower the dilution factor but will be difficult to maintain the high throughput needed to feed the mill.

So in conclusion, Pretium don't accurately know where these high grade structures are located, but they appear to contain the majority of the gold in the deposit?

FUBR?

Why and how did this happen, maybe a clue is in the 2014 technical report, in below the summary resource table you see:

They have used a block size of 5m x 5m x 5m, what does this mean? I’ve taken an image from K2 & Associates excellent summary on the Asanko Gold Mine, to demonstrate this visually:

Source: Asanko Gold Mine, K2&Associates

You get this strong feeling that there is something not quite right at VoK. I’m not saying that Pretium are being fraudulent, but I do I feel that they may have been biased by their desire to exploite VoK using mechanized mining that the methodology that has been used to calculate the resources isn't optimal for this type of deposit and has led to the very high grade gold values being smeared into the low grade country rock and 'making' it carry economic grades.

Have they shot themselves in the foot by using a methodology that has led to the extreme over estimation of the size and tonnage of the high grade mineralisation? Time will tell, Pretium stock will rise and fall with gold prices, but it will be interesting to see what happens once they start mining, and when their quarterly reports are scattered with missed production schedules and quotes like -  "the deposit is more complicated than we expected" or "the grade is more variable than expected".

When I was running through the data I humorously commented that why didn't report their 50cm interval grading >20,000 g/t Au as 10000m at 1 g/t Au, as mathematically they are the same.

Again, you can find a Leapfrog Model containing the summary PR assays as well as the back calculated residual assays (link).

I know I will receive a lot of comments telling me that I am wrong, and that the bulk samples collected demonstrated that Pretium’s methodology was correct, but why don’t we look at that as well.

Tonnes

The tonnes processed are very similar for each area, with slightly more material mined from area 615L. Nothing surprising here.

Gold Grades

The average grades for each area is a bit more interesting. In zones 426555E, 426645E and 426585E (using the 2013 data - grey) what they predicted and what they actually mined had very similar grades. However, for 426615, the average Au grade was significantly higher (more than double) than predicted and for area 615L it was significantly lower.

Gold Production

It was the surprising high grades mined in area 426615E that saved them. It was not predicted in Pretium’s own resource model, was the materiel they mined representative? Strathcona attributed the high grades in this area to the previously unknown Cleopatra vein. why don;t we have a look at what the drilling tells us about where this sample came from.

Here are a couple of sections from Pretium, showing the 426615E bulk sample area:

Section 426615E

And you can see that below the level is a nice high grade intersection.

Section 426637.5E

It is more obvious here - there is a very high grade structure exactly where the bulk sample was collected.

It looks like this sample was not a representative sample for the whole resource, but luckily managed to collect some high grade material that made the number balance out.