Over the past nine months, U.S. Gold shares (UXG) lost two-thirds of their value, even while gold itself flirted with over-$1000 prices. The problem? A toxic combination of mildly-disappointing exploration results and sky-high investor expectations. Shareholders apparently focused on CEO Rob McEwen’s past achievements and assumed a bonanza strike would be announced any day.Unfortunately, mining doesn’t work that way. Like investing, it's a game of probabilities. Line up the best properties, management team, geological engineers, and roll up your sleeves. If you are lucky, you might find something that makes you rich beyond your wildest dreams. But success rarely happens overnight, and is never ensured.
On Tuesday, U.S. Gold finally gave investors some positive news. UXG reported improved exploration results for its flagship Tonkin Project in Nevada’s fabled Cortez Trend:
The Tonkin Project is located in Nevada’s Cortez Trend and 10 miles (16 km) south of Barrick Gold’s large Cortez Hills discovery. Since last reported in 2006, the total estimated mineral resource has increased by 24% to 44.9 million tons at a grade of 0.039 opt (1.35 gpt) for a total gold content of 1.76 million ounces (Table 1) (Figure 1). The cutoff grade used for both estimates was 0.018 opt gold (0.6 gpt gold).
The mineral resource estimate is comprised of three separate deposits referred to as North, Central and South. US Gold’s drilling has successfully expanded the size of each deposit and our work indicates there remains significant potential for additional growth (Figure 2).
In addition to increasing the size of the estimated resource and outlining expansion areas, exploration has successfully increased the confidence level in grade and continuity of mineralization. This is highlighted by a 366% increase (820,000 gold ounces versus 176,000 gold ounces) in the total ounces within the measured category. This information is important because US Gold’s additional drilling underscores the consistency of grade and predictability of mineralization and will help aid future exploration and possible mine planning scenarios.
Tonkin 2008 Exploration
During the winter season US Gold’s geological team worked with Ore Reserve Engineering, the author of the new NI 43-101 resource estimate. The team also worked with Diagnos Inc., a leader in artificial intelligence, with the goal of indentifying areas where there is potential to make a new discovery similar in size and grade to Barrick’s Cortez Hills gold deposit and also to expand the lateral and vertical extension of known mineralization (Figure 2).
Based on this work and new geological modeling, US Gold believes there is significant potential to further increase the size of the current 1.76 million ounce gold resource. With the heavy snow now melted in Nevada, US Gold is preparing to resume its exploration drilling activities at Tonkin, Gold Bar and Limo.
US Gold Company-Wide Resource Estimate
2.4 Million Gold Ounces
US Gold’s global estimated resources in Nevada and Mexico has subsequently increased to 2.4 million ounces of gold from the previously disclosed 2.1 million ounces (Table 2). There is great potential to increase this estimate further with immediate expansion opportunities at Tonkin in addition to the initial resource estimate being prepared for Gold Bar (Nevada - Gold), Limo (Nevada - Gold) and the exploration currently taking place at the Magistral Mine (Mexico - Gold).
The emphasis is mine. A word of caution: the results are preliminary, and there is no guarantee that they will be confirmed by 2008 exploration. However, for now, they show that the market was wrong to write off U.S. Gold as a dud. I’m betting that the upward break holds and U.S. Gold shares perform well in the coming months.
DISCLOSURE: Long UXG.