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Going It Alone: Micro-cap Gowest Gold Aims For 2015 Production

|Includes:GBRIF, GWSAF, Osisko Mng Inc (OBNNF), QNMNF

Not all companies follow the same path to production. In fact they can diverge radically, as two November 12 announcements show.

Queenston Mining (OTC:QNMNF) is poised to follow the more common route. A smaller company develops and de-risks a deposit until it's all but irresistible to a bigger company. The latter then makes an offer shareholders rarely refuse. In this case, Osisko Mining (OSKFF.PK) is offering 0.611 of one of its shares for each Queenston share. Based on Osisko's November 9 close of $9.82, the offer was worth $6 per Queenston share. Queenston had closed that day at $5.01. The November 12 announcement then saw Osisko drop to a $9.02 close, making its 0.611 offer worth $5.51. Queenston, meanwhile, closed November 12 at $5.75. Nevertheless Queenston seems ready for acquisition, whether by Osisko or another mid-tier outfit.

But for another company, the path to production might not require wealthy suitors or even large capitalization. Gowest Gold (OTC:GWSAF) closed November 12 at $0.095 for a market cap of $12.53 million. Even so, it's determined to take its Frankfield East gold deposit into production by Q1 2015, and to do so itself-well, with a little help from some friends.

The company hopes to shorten the path and lower the capex by contracting a third party to produce high-grade concentrate. That, in turn, would be sold to a customer who would refine it further. Gowest's location in the Timmins mining camp helped the company find a processor with sufficient capacity, which led to the memorandum of understanding announced November 12.

"It's a matter of building the mine a couple of years sooner and putting less than a third of the capital into it than if we tried to do it ourselves," says IR manager Greg Taylor. "That would mean generating cash flow a couple of years early, and then we'd make a separate decision on whether to continue doing it that way or to build our own plant after we've already started mining."

To that end, Gowest is now working on engineering, metallurgical and mine development studies prior to hammering out a final agreement with the mill operator next year. A report announced last February suggests the mill would produce concentrate grading over 90 grams per tonne gold.

The 2,444-hectare Frankfield East deposit forms part of Gowest's 90-square-kilometre North Timmins Gold Project. The deposit's August 2011 resource shows an indicated category of 1.62 million tonnes grading an average 6.68 g/t for 348,000 gold ounces. The inferred category shows 4.34 million tonnes grading an average 6.01 g/t for 838,900 ounces.

The deposit starts near surface and is open along strike and at depth. Taylor says he expects a resource update soon, followed by an update to last year's PEA.

The deposit holds refractory ore, Taylor points out. "That means it's a little harder and a little more expensive to produce. All the tests we've done indicate that it's economically viable. We've tested this on a commercial basis using an ore-sorting process that's really quite remarkable."

Normally refractory gold is separated from sulphides using an oxidation process in either a roaster or an autoclave. Taylor says this deposit features "a very strong correlation between arsenopyrite and gold." Gowest plans to use technology from the German firm CommodasUltrasort that features "an X-ray system that detects incredibly low levels of arsenopyrite and kicks aside the rest. So you end up putting though only half the rock and losing less than 1% of the gold, while more than doubling the grade. It's really quite a remarkable process. Then we have the third-party process that can turn this into 90-gram-plus [per tonne] concentrate. The ore-sorting, third-party processing and concentrate upgrade mean we can go into production more quickly and without having to rely as much on capital markets."

Certainly there are gold-producers trading for pennies. One example is Golden Band Resources (OTC:GBRIF), which closed November 12 at $0.145 for a market cap of $41.29 million. Yellow metal notwithstanding, the company's not yet in the black. Golden Band's fiscal Q1 net loss, announced July 31, came to $3.6 million despite gold sales revenue of $12.7 million. But the Saskatchewan-based company expects to see profits through more efficient mining and higher production. Golden Band currently operates two mines at its La Ronge Gold Project, with three more deposits moving towards production.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.