Compelling PM MicroCaps Series, Volume IV: Barkerville Gold Mines
On a subconscious level, I won't deny that eyeing my own last name (Barker) within that of a microcap gold producer likely played a role in grabbing my attention when I first came across the company late last year. But from, that point on, it was purely an objective examination of this company's exciting potential that led me to initiate and grow a core position. The first factor to catch my eye immediately as I began due diligence was that this company had already just commenced production at its QR mine and mill facility (purchased from Kinross Gold for a song at just over $2m in shares and warrants, where prior owners had invested $75m).
The company's intention to produce 50,000 ounces during its first year in production will require a positive permitting decision for small-scale production from the Bonanza Ledge property, and the company recently reported positive indications that its application is being favorably received. Once production commences from the enticingly named Bonanza Ledge deposit, the company will focus development efforts on relocating and upgrading a second mill facility purchased late last year in order to further increase throughput capacity and target 100,000 ounces per year by 2013. Any and all significant milestone achievements along the road toward realizing those production objectives will spark powerful upside moves in the share price, and of course the converse applies that any significant obstacles encountered could diffuse some of the anticipation that may be behind the stock's recent breakoutabove $1.50 per share (mcap is now $115m at $1.75/sh.).
In any event, the fact that production is already underway represents a significant de-risking factor for the shares vis-a-vis non-producing explorers. The resulting cash flow will go a long way toward bankrolling exploration and development costs, and I estimate that successful implemetation of targeted production rates are likely to yield net profits either later this year or early next while still providing for expanding development and exploration expenditures.
Of course, another major de-risking factor for the shares is the extent of compliant resources already identified on Barkerville's 100%-owned properties. Within the company's huge land position (112,000 hectares) in British Columbia that hosted 7 historical gold mines (yet another powerful de-risking factor), Barkerville has identified M&I resources of 652,569 ounces of gold (66% of which is within the Company's Cariboo Gold deposit), including 116,640 in the P&P category. Adding inferred resourcfes of 185,729 ounces, we get a global resource identified to date of 838,298 ounces of gold at very attractive grades above 2.5g/t. At $137 per global ounce, the current market cap is above the $100/oz. fair value metric referenced by Alexandria Minerals in our prior discussion, but recall that this is a gold producer rather than merely an explorer, and valuations must be adapted accordingly. More to the point, the company has made incredible mineral discoveries subsequent to those published resource estimates, and in this company we find that same record of consistent exploration success throughout the archives of press releases that substantially buoys an investor's confidence in the further expansion of resources over time.
In September 2010, Barkerville discovered a new zone of gold mineralization through trnching within 100m of the Bonanza Ledge deposit, with those trenches showing sweet hits like 16.8 g/t gold over 38 feet, and later 8.7m of 80.78 g/t! Follow-up channel sampling then expanded both the strike and width of the emerging deposit with multiple 10m-plus hits of between 1.64 and 16.7 g/t gold. The first diamond drilling conducted there has returned 14.1m at 12.1g/t. As the company explained in its March 21 release: "Four styles of gold mineralization have now been identified in the camp all within close proximity of each other. Three styles; Bonanza Ledge style, quartz-pyrite stockworks and BC Vein (a large gold-bearing quartz strike vein) have all been identified within the Bonanza Ledge proposed open pit area."
Continuing that trend of encountering multiple types of gold mineralization across multiple geological strata located within the region, Barkerville has confirmed "replacement-style mineralization" during the early portion of its ongoing 20,000-meter drilling program its Cariboo Gold project (first indicated in January 2010). This included 16.7m grading 15.g/t within the proposed open pit area, and, more importantly from a resource-expansion perspective, 32.6m grading 10.8g/t encountered 190m northwest of the proposed pit. As the CEO J. Frank Callaghan explained in its February 10 news release: "These are exciting developments around the proposed Cariboo Gold Quartz mine. The current NI43-101 resource and our past drilling here have been based on gold hosted in a quartz stockworks. Finding gold in replacement mineralization similar to the style found at Bonanza Ledge and the neighboring historic Island Mountain Mine brings a new dimension to Cow Mountain. Additionally encountering a higher grading gold in quartz-pyrite veins 190 meters outside of the Cariboo Gold Quartz proposed open pit area really brings up the potential to extend the mineralized area."
None of the recent discoveries discussed above have been incorprated into updated resource estimates as yet, presenting a compelling set of future upside catalysts for the shares.
Because I myself discovered this company only relatively recently, I have not yet had an opportunity to develop the sort of personal rapport that I have enjoyed building with management at many other companies in which I hold core investment positions. I have sought to initiate that relationship by inviting the company to participate in this blog post in similar fashion to Caza and Alexandria's participation in our prior discussions. [I encourage Fools with interest in this company to check back periodically in case someone from the company is able to join us here.] As investors, however, we properly assess management on the basis of prior achievements, and in this case CEO J. Frank Callaghan's 20-year tenure at the helm of this company is as valuable as anything else you'd want to see. He has led the company's amassing of a resource base that will likely sit well over 1 million ounces after recent drilling is considered, and he has seen the company into production in a way that meaningfully reduces risk for shareholders. I am highly impressed with the company's strategic plan for further resource and production expansion, and so I have seen more than enough over the course of my due diligence to feel extremely confident in the effectiveness and strategic direction of Barkerville's current management.
I congratulate Barkerville on a job well done acquiring the QR mine and mill to fast-track into production, and I join with them in anticipating a positive permit decision for production at Bonanza Ledge to utilize a greater portion of the mill's 900-tpd capacity. I believe that ongoing exploration continues to make the case for fast-tracked expansion of mining operations, once approved, to employ the second mill facility that Barkerville proposes to relocate and revamp to a 2,000-tpd facility.
I will apply my my new scorecard system to Barkerville Gold Mines later today or tomorrow, but first I want to run the numbers on a few more companies to give me something to measure the results against. Also, I have not had a chance to seek out information on management's ownership in the company. If anyone has a chance to do so, please post your findings. As always, please ask any questions about this company that come to mind as you have a closer look, and either I or someone from the company will be happy to address those questions accordingly. Thank you again for your own active participation in this ongoing series, and for adding your own findings below as we amass our collective body of due diligence.
Barkerville Gold Mines company website:
Since the mid 1990s the Company has focused on exploration and development of gold projects in the Cariboo Mining District in central B.C. The Company's mineral tenures now cover over 1,225 square kilometers, encompassing seven past producing hard rock mines and three NI 43-101 gold deposits, including the QR Mine & Mill. The QR Property was acquired in February 2010 and includes a 900 tonne/day gold milling facility and a permitted gold mine located approximately 110 kilometers by highway and all-weather road from the Barkerville Gold Camp. Mining operations commenced at QR in February 2010 and the Company began pouring doré gold in September 2010. In November 2010, the Company acquired a second permitted mill currently on care and maintenance in Revelstoke, B.C. for relocation to the Barkerville Gold Camp near Wells, B.C. and upgrade it to a 2,000-tonne/day facility subject to government approvals. In November 2010 the Company and the Lhtako Dene First Nation also signed a Project Agreement in relation to its Bonanza Ledge and Cariboo Gold Projects. The Company has not hedged any of its future gold production.
Barkerville Gold Mines Corporate Presentation:
Recent mentions of Barkerville in interviews by The Gold Report:
It is my sincere hope that someone from the company will see fit to make an appearance, but at the same time I want to point out that we were enormously fortunate on those first two instances, and that it would be somewhat unrealistic for me/us to expect that each company highlighted in this series will have an opportunity or inclination to participate. While I do think it reflects very positively on the quality and character of management in those cases where we do succeed in achieving their direct participation, I certainly would not wish to suggest the converse that a lack of participation conveys something negative about management. Are we clear on that, Fools? Just because we've enjoyed a terrific start at 2-for-2 with respect to achieving direct participation, I ask that you maintain perspective regarding just how rarely companies engage in this sort of dialogue wihtin financial social media. This remains a fresh new experiment in an innovative approach to investor relations, and I aim to approach each company successively without harboring expectations of any kind. Furthermore, I would wish for companies to participate solely because they see a valuable opportunity to connect with existing and prospective shareholders in an innovative way, and not as a result of feeling put on the spot by our collective hopes or expectations. Does that sound like a fair approach for us to maintain here? Thanks for hearing me out on that.
Also, I hope to organize the effort more effectively going forward, and give these companies more time to consider whether or not to participate. I contacted Barkerville only yesterday, and for all I know senior management could be out of the office or otherwise fully occupied this week. My fingers are crossed, but no expectations. :)