On February 6th I wrote a detailed introductory article on Bullfrog Gold, (BFGC.OB) in which I said the Company is less risky then it appears, yet still has tremendous upside. Bullfrog's Newsboy project recently obtained dedicated funding from a $4.2 million debt facility provided by RMB Resources. The Company also has a highly strategic land position less than a mile from Barrick Gold's, (ABX) past producing Bullfrog Gold mine. While less advanced than the Newsboy project, the Bullfrog project has a good chance of moving into development next year.
In commentary on 4th quarter earnings calls from companies like Barrick, Coeur d'Alene, (CDE) and Newmont (NEM) management teams reiterated the importance of their U.S. portfolios. "Mined in America," which for gold largely means, "Mined in Nevada and Arizona," is becoming a prominent theme in 2013.
An important quote from CEO David Beling from my previous article regarding Newsboy bears repeating,
"Our Newsboy Project has a solid data base from work performed by several recognized mining companies and professional engineering firms during the past 25 years. Bullfrog has also drilled more than 50 holes in the past 14 months. Newsboy encompasses several square miles that have been intensely altered by hydro-thermal mineral solutions that deposited gold and silver. The main deposit has been defined by nearly 200 holes, yet remains open on the east where thicker higher grade mineralization was discovered in 2012."
"The Queen of Sheba, and several other exploration targets within three miles of the main deposit, are highly prospective with indicative higher grades from surface samples. RMB Resources has thoroughly examined the property and stated publicly their view of a preliminary estimated NPV of $90 million, based on a $1,700 gold price and a 5% discount factor."
On February 25th, just three weeks after the above quote from Beling, Bullfrog released the results of the initial five holes of the Company's phase 3 drill campaign at Newsboy. These holes were drilled on patented claims in the Queen of Sheba area. One hole had 2.8 ounces, (yes ounces!) of gold per ton, "opt," over the first 25 feet from surface plus very interesting material at the bottom 10 feet of the hole, Three other holes had 5-15 feet of 0.016 to 0.029 opt of gold in the same high grade, shallow mineral zone. One hole came in below the cut-off grade.
Not only did these results confirm prior drilling data, (an important de-risking event in and of itself) but the at-surface, bonanza grade was quite a pleasant surprise. In no way does this suggest that multiple-ounce gold is the norm at Newsboy, but the possibility of a higher project-wide average grade has certainly gone up. On February 27th Beling commented,
"We are extremely pleased with this remarkable high grade within shallow mineralization that was also intersected in holes 13 - 49 through 51 plus a hole cored in 1995."
After pausing for a moment to enjoy these recent results, it was back to the salt mines....Beling added,
"Nearly all Phase 3 holes planned in the main deposit were completed and the drill rig resumed drilling in the Queen of Sheba area on February 26, 2013. We expect to complete the balance of Phase 3 drilling by mid-March with receipt of assays by mid-April. A Phase 4 drill program is scheduled to resume on the patented property by mid-April."
The de-risking of the Newsboy project is progressing at a robust pace. Upon completion of the Phase 3 drill program, the Company plans to initiate a third party re-estimation of resources and could be in the position to report an increase to the 235k historical ounces estimated 20 years ago.
Prospects for Klondike Looking More Interesting
Klondike has the most risk of Bullfrog's three assets, but the upside potential is huge. Make no mistake, it's still early, but just a few drilling campaigns this year and next will provide valuable information. Klondike could have multiple-ounce silver grades within 30-50 feet of surface. The economics of just two opt silver are quite compelling as two ounces are worth about $60 per ounce in today's market. It's reasonable to assume that high-grade, near-surface silver could potentially be mined and heap leached at an operating cost of about $15 per ton. Clearly robust margins are possible. From my prior article I repeat what Beling said,
"The Klondike property covers nearly all of the historic Alpha Mining District (District) in central Nevada and has shallow, relatively high grade silver with potential byproducts of barite, lead, zinc and copper in several exploration target areas. As a result, the Klondike project may develop substantial value."
Since my February 6th report, I've done a lot more due diligence on the Klondike opportunity. In my mind, the potential for economic barite extraction is growing. And, not merely as a byproduct to the potential mining of silver. According to a 1977 report by a geologist named W. Van der Ley, in some places barite is highly concentrated and found in relatively thick seams.
What if Barite Could be Mined on its Own?
I believe there's a possibility that barite could be mined, crushed and direct shipped without any processing and therefore with far less associated permitting required. This could put Klondike on a considerably faster track towards positive cash flow.
Up to 80% of the global supply of barite comes from China. Therefore, domestically produced barite has huge transportation and logistics advantages. Barite has a relatively high specific gravity, meaning it's heavy. For industrial uses, this material is cheaper and preferable to several other minerals that have been used in drilling mud. Drilling mud is used for well control and other oil field service applications.
The United States Geological Survey ("USGS") released its 2013 Annual Pricing Survey for 2012 and notes that the estimated barite pricing, FOB mine, averaged US$89 per ton. According to the report, barite for oil and gas well drilling has experienced strong and steady demand over the past number of years. Yet, annual estimated production from US sources has decreased by a total of 11% since the 2011 USGS barite report, while demand has increased by 380,000 tons in the same period.
A barite operation of 100,000 tons could generate $6-$7 million of cash flow per year. That could equate to a 10-yr, NPV(12%) of $20-$30 million. At current FOB prices near $89 per ton and mining operating costs estimated at below $20 per ton, direct shipping of barite could be a lucrative business. Given the demand, 100,000 tons is not a stretch. It could be a multiple of that, (speculation on my part, we still have to test the quantity & quality of the barite).
What Else is in the W. Van der Ley Resource Report?
In 1977, geologist W. Van der Ley completed a comprehensive report on the Klondike area. Below are 8 key excerpts from this report:
1) The district has never been seriously explored/investigated by a major company.
2) Secondary silver shows best a few feet below the surface and may spread tens and hundreds of feet. Zinc at 10 feet may average a grade of 2%, at 24 feet 3% and at 50-100 feet up to 5%. At depth, lead and zinc may reach grades of 10% to 35%.
3) On a site named Copper Hill, assays commonly run from 10 to 20 opt of silver. Much of the better grade silver is 5 feet thick and spreads across the 300-foot wide mineralized zone. Smithsonite occurs east of Copper Hill in well-defined veins that range from 10%-35% zinc and 3%-16% lead.
4) Altered Eureka sandstone is an important exploration target, minerals may reach 30 opt with lead from 3%-16% and could exceed 50 million tons of material.
5) Barite is of economic importance and some high grade white lenses are 6 to 20 feet wide and assay 90% barite with a strong specific gravity, which may qualify it as direct shipping quality. Barite is almost always underlain by lead mineralization, which usually has a halo of silver ranging from 1 to 7 opt. Barite which occurs dominantly in the SE side of the property may be 50% of the rock.
6) The vein at the Old Whalen No.3 shaft contains up to 16% lead, 5 to 8 opt silver plus copper. Two pits to the south contain up to 22% lead and several opt of silver.
7) The longest adit in the area is 170 feet into Cougar Hill. It intersected a 4-5 foot vein that assays 2.8% copper, high lead and zinc content and up to 80 opt silver!
8) The Silver Belle mine near the crest of the Sulphur Springs Range contains massive amounts of barite and 5%-8% lead grades. Silver runs about 13 opt but the ore mined historically was probably higher grade. The mineralized zone is over 100-feet wide.
In addition to the barite, there are multiple zones containing relatively high grades of silver, lead and zinc. While a lot of metallurgy remains to be done, silver an barite are promising and have possible, "credits" from byproducts lead, zinc and copper. Credits represent revenues derived from the sale of byproducts, applied to offset the operating costs of the primary mined minerals.
One last thing on W. Van der Ley, please consider the following:
In 2010, Alec Creighton, a consulting geologist, examined the Klondike property with the owner and carefully reviewed Van der Ley's 1977 report. Creighton noted that confirmatory drilling and field work needed to be done, but that,
"There is nothing to suggest anything but quality work in Van der Ley's reporting, and, as he lived on the claims, he certainly had time to explore it well."
Despite a lot of speculation on my part regarding the possibilities for barite, silver is still the primary target. Based on the W. Van der Ley resource report, there appears to be a decent chance of finding millions of ounces of silver. Drilling of the Klondike project is expected to commence this Spring/Summer.
Three Real Projects, Two with Uncorrelated Blue-sky Potential
To sum up, Bullfrog Gold has three main projects, each of which could easily support the current market cap of $16 million. Early last week the Company's Newsboy project was materially de-risked with successful drill results and further due diligence on Klondike has me even more excited.
In this article, I did not mention the Company's Bullfrog project simply because I wanted to focus my commentary, (all of which is my own opinion, unless quoted directly from Beling), on key developments at Newsboy and Klondike. The three main catalysts for the remainder of the year are initial drill results for Klondike, a re-assessment of the 235k historical ounces of gold and subsequently a 4th and/or 5th drill campaign on Newsboy, possibly leading to another expanded resource by year-end.