Categories: Precious Metals
Topics: General Precious Metals

Otis Gold (TSX-V: OOO) CEO Craig Lindsay on the Nearly 1 Million Ounce Resource at Kilgore Project & New 5-Year Exploration Permit that Expands Drilling to Multiple Exploration Targets

 

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is President and CEO of Otis Gold (TSX-V: OOO)(OTC: OGLDF), Mr. Craig Lindsay. Craig, how are you this morning?

Craig Lindsay: Gerardo, I'm doing great. It's real nice to speak with you.

Gerardo Del Real: It's great to catch up again. You've had two very significant pieces of news here recently. The first piece, of course, is you increased the resource at the flagship Kilgore pretty significantly. You increased the indicated gold, the resource, by 59%, and I know that's important because these nearly 1 million ounces – you have 825,000 in the indicated category and 136,000 inferred – come from a single pit, and I know that you've attracted the attention of some mid-tiers and majors that were looking for you to be able to aggressively step out from these nearly 1 million ounces. The second bit of news, of course, is that you did receive a new 5-year exploration permit that's going to allow you to do just that. Let's start with the resource. What can you tell me about it, Craig?

Craig Lindsay: Well, it's a big step for the company, number one. The last resource was done in 2012, and since that time we've done a bunch of drilling underneath the deposit. In 2016 and 2017, as everyone probably knows, we got some really nice hits in the underlying Aspen Formation. We put out this new resource, and what's exciting is, I think you mentioned it, it's a 60% increase in the indicated resource. So the 2012 resource had 520,000 ounces of indicated resource, we're now at 825,000 ounces. And again, with the inferred increasing to 136,000 ounces, we're very close to that million ounce kind of magic mark that people look for. The quality of the resource has increased really nicely.

The other thing people should be aware of, we were really operating under significant drilling constraints in 2016 and 2017 in that we had no ability to do what is referred to as step-out drilling off of the deposit. We were really drilling underneath the deposit, and really didn't have as much chance to aggressively grow the size of the deposit.

So, with this new permit that we have in place, really, all of the shackles are off of us from an exploration and drilling perspective. And we can now start to march out off of the deposit, up to the northwest, for instance, where the last drill hole on the northwest end of the deposit was 85 meters of 2.5 grams per tonne. Down in the southwest and southeastern end of the deposit where we're leading into a target area called Prospect Ridge, the last hole that was drilled was 24 meters of 4.3 grams per tonne. So there's lots of room to start marching out off of this deposit and start growing it aggressively. We're very excited about that.

Let's take a step back here. We are still sitting at a grade of 0.6 grams per tonne, Gerardo, and people scratch their head over that. We're actually looking at it an entirely different way. The Kilgore deposit compares very favorably with other Great Basin gold deposits that are open pit, heap leach run-of-mine scenarios, and these things all produce at a grade of about 0.5 gram per tonne. We're above that, and just as importantly, our strip ratio is very low out there. At our current cut-off grade of 0.21 grams per tonne, our strip ratio is down to 1.3:1, so an extremely low strip ratio. And when you use lower cut-offs, the strip ratio actually is reduced even further. It's down to about 0.9:1, so we have a less than 1:1 strip ratio at lower cut-offs.

From a mining perspective, it looks very attractive. So yes, we all want a 2 million, 3 million ounce resource, and we really think the project has that kind of potential. But right now, we've got a deposit that is beginning to look very attractive from an open pit, heap leach potential, and people are starting to knock on the door because of that.

Gerardo Del Real: Craig, can you talk a bit about why that strip ratio is important? Because that gets so lost with a lot of newer speculators and, frankly, some of the more seasoned ones. They see grade, they see a million ounces, and they don't take into account how sensitive the strip ratio, or how much, I should say, the strip ratio affects the potential margins and economics of these deposits. Can you explain that just a tiny bit?

Craig Lindsay: Yeah, sure. Well, I hope this is a simple explanation. At a cut-off grade of 0.21 and a strip ratio of 1.3:1 at Kilgore, you're moving about 70 million tonnes of waste. If you move down to a lower cut-off of 0.14 grams per tonne, your strip ratio goes down to 0.9:1 and your waste tonnes that you're moving move from 71 million tonnes to 59 million tonnes. That's a difference of 12 million tonnes, and the mining costs out there are about $2 per tonne. So that's a savings of $24 million in mining costs alone on a deposit that is 960,000 ounces in total. Those are material numbers, and that is really why the strip ratio is so important.

Gerardo Del Real: You mentioned analogs to Great Basin open pit, heap leach deposits. Can you give us a couple of examples that people could reference when they're trying to get perspective of these nearly 1 million ounces in this standalone pit and some potential analogs out there?

Craig Lindsay: Sure. Well, you're talking about in term of Great Basin open, pit heap leach deposits. Guys like Liberty Gold, for instance, and the work that they're doing out at the Black Pine Mine. Those are the types of deposits that are in that 0.5 gram, 0.6 gram per tonne range, and those are the kind of ones that we are competing with. And there's many of these kind of deposits that are operating today, and then others that are in development stages.

When we talk about Great Basin, just for your listeners, we're talking generally Nevada, up into Idaho a little bit, easterly into Utah. We're not talking about competing against open pit, heap leach operations in Africa, which have very different cost parameters and grades, etc. We're talking about competing open pit, heap leach deposits in the Western USA.

Gerardo Del Real: Excellent, excellent. Now, let's talk the permit. This is a milestone. It's a significant one for the company. You now have the flexibility to drill on up to 140 drill sites. We've talked in the past about how mining friendly Idaho has become here in the past several years. This is another great example of that, I believe. Tell us about the permit and why it's so important to the company, Craig.

Craig Lindsay: Sure. Well, a couple things. The last permit that we did, back about five years ago, it took us almost two and a half years to get a Plan of Operation approved on something called an environmental assessment. This Plan of Operation was approved in less than 12 months, so less than a year. And it was a much more complicated permit application for a much larger drilling footprint. So that's very, very positive for all of the folks, all of our friendly competitors in the US who are working in this area, because there clearly is a much stronger interest from the regulatory people to basically simplify and speed up the permitting process in the US. That's had a real positive benefit for us in the most recent round of permitting but also going forward. And that's also going to have a very positive effect, I think, on some of the folks that are also operating in the US.

Secondly, and probably more importantly from an Otis perspective, this permit, and I think I mentioned this before, we were extremely permit constrained. We were operating in a very, very tight footprint, and we had no ability to build roads, which was going to allow us to step out and start growing the resource laterally. We're now in a position to be able to do that. I use that term, the shackles are off. They truly are, and we'll just have a lot more flexibility going forward. It's an extremely positive event for us.

Gerardo Del Real: You mentioned going forward. What does that look like? What's next? Can we expect some drilling here soon?

Craig Lindsay: Yes. We're hoping to get out there this fall, and we're looking at step-out drilling into what we call Prospect Ridge, and we're also going to be doing step-outs up into the northwest end of our deposit to something called Gold Ridge. So that's going to be the main focus of our drilling this fall.

We're also going to be doing a bunch of additional exploration work, ground-based exploration work on some of the new targets that we have out there. We've talked in the past about the Gold Knob claims. We added about 3,000 acres to our project area last year. The only thing that's been done out there to date has been stream sediment sampling and rock and chip sampling. We're going to be doing a complete soil sampling program over that entire Gold Knob area. We're also modeling up the Dog Bone Ridge area. All of this work that we're doing is going to be leading towards drilling programs at some of these emerging targets.

Gerardo Del Real: How many targets do you have in all, Craig? Again, you mentioned having these shackles for years on end and not being able to step out significantly, and frankly, not be able to do any exploration targeting. How many high-priority prospects are you looking at right now that you can point at and say these must be drilled in order and that obviously are going to potentially add to the million or so ounces that you have right now?

Craig Lindsay: That's a loaded question, because it really is a target rich environment out at Kilgore.

Gerardo Del Real: It was meant to be, by the way, Craig.

Craig Lindsay: Well, let's get going here on that. Let me try and respond. At the Kilgore deposit, that is an area we refer to as Mine Ridge. The current Kilgore deposit in the Mine Ridge area has a strike length of about a kilometer in length. There's a strike length right along the, we call it, the toe of a volcanic terrace. There's the main northwest fault that runs parallel to the edge of this toe that's 5.5 kilometers long, never been drilled. So we've got lots of room in what we call stepping out along the strike at Mine Ridge. Then we've got Gold Ridge, number two; we've got Prospect Ridge, number three; Dog Bone Ridge, number four. These are very large exploration areas with numerous targets on each one of them.

And then, as I mentioned, we've done a bunch of work last year where we had about 9,000 acres of land prior to the end of last year, and one of my crews, we gave them a mandate to go start doing ground-based exploration work outside of our claim block area. They were coming up with all sorts of targets outside of this claim block area, and that's why we added these 3,000 acres. We refer to it as Gold Knob.

All of these targets generally run along the edge of the Kilgore Caldera margin, so we're seeing a lot of our best targets are right along the projected edge of the Kilgore Caldera. And I can tell you, as we speak, we've had a crew out at Kilgore since the end of May, early June, doing additional generative exploration work in and around some of these new targets that we have, as well as going outside of the claim block, and we continue to make progress.

Gerardo Del Real: Excellent, excellent. I couldn't have put it any better, obviously. I wanted to make sure that we explained thoroughly that yes, you have nearly a million ounces. It's from one single deposit. You've just expanded the area that you've been targeting, the targets that you can drill, significantly.

What's the cash position look like, Craig?

Craig Lindsay: Cash position is less than $1 million dollars right now, so that is a challenge for us. At the same time, we're sitting on a little over $2 million worth of additional liquid investments that we're looking at marketing out of to generate some immediate cash. And then, we're in various discussions on additional ways to access capital in the near term.

If there's a weakness in the story it's that we are in a difficult financing market and we don't have a lot of cash in the bank. The good news is the new permit, the new resource is generating a lot of new opportunities for us. And again, this focus on this open pit heap, leach model is really, I think, going to hold us in good stead.

I want to jump back a little bit. You were asking about some Great Basin open pit heap leach comparables.

Gerardo Del Real: Yes, sir.

Craig Lindsay: I'm looking at kind of seven or eight of them right in front of me right now. These include the Emigrant Mine, Newmont; Long Canyon, Newmont; Marigold, SSR Mining; Round Mountain, Bald Mountain, both Kinross projects; the Mesquite mine that New Gold has, they're run-of-mine open pit heap leaches. Their resource/reserve grade on those deposits average 0.53 grams per tonne and average a recovery of 70.3% under a run-of-mine basis.

Well, Kilgore is sitting at 0.59 grams per tonne, so we compare favorably there on our indicated resource. And then our gold recoveries are sitting around 80-85% at inch and a half crush, so this situation does compare favorably. I can't throw out strip ratios to you on those deposits I just mentioned, but I can tell you, 1.3:1, this looks very, very attractive.

Gerardo Del Real: We talked a bit about the cash position. Let's be clear that you have significant shareholders that I'm pretty confident in saying are very interested and keen on stepping in and filling some of that treasury. Those include Agnico. Can you share a couple of the other names there, Craig?

Craig Lindsay: Sure. Agnico does own about 9% of our stock, and they've been very supportive investors who came in to the company a year ago. We've also got a heavy compliment of high net worth investors out of the United Kingdom who have supported us strongly. A guy by the name of Chris Lee-Barber owns over 10% of the company, private investor out of the UK. He remains very strongly supportive and excited about what we're doing. We are starting to grow our investor base down in the US. VanEck Funds out of New York owns a chunk of the company. I think they're listed just around 5 million shares in the company, so we are looking to grow that investor base.

And keep in mind, investors are now looking at, it's a bit of a flight to safety, so people are now looking a lot more at gold projects in places like Canada and the United States simply because the regulatory environment is much more stable and, despite what you may think, the political environment is much more stable. Basically, your claim ownership is much better defined in North America than it is in places such as South America or Africa, arguably.

People who traditionally invested in high-risk, high-reward, exciting jurisdictions have been burned and they're now looking a lot more closely at places such as the United States. And you're seeing that with a lot of institutional money, strategic money coming into the US and, frankly, coming into Idaho in particular. Let's talk about Midas Gold, a company that I have a lot of time for. They're doing great things, and folks such as Paulson & Co. out of New York have written a big check to them. Barrick, big check to them. Revival Gold, a company who we also think very highly of. Orion Mine Finance has a big shareholding in that company. RCF out of the States has bought a big position in Liberty Gold, who's developing the Black Pine mine in Idaho. Integra, Osisko is involved in that from an investor point of view.

So there's some very smart money that's coming into the United States and specifically being focused on Idaho itself. I do lose sleep over the market being difficult and availability of capital being a challenge. At the same time, relative to many of our competitors in other jurisdictions, I think we're in fairly good shape.

Gerardo Del Real: I couldn't agree more. Craig, thank you so much for your time. Is there anything else that you would like to add that we didn't touch on? I know that was a pretty thorough update and I appreciate you taking the time to give it to us.

Craig Lindsay: I really thank you for taking the time. One thing perhaps we haven't touched on, and it's been a real positive development at Otis, the two fellows that I've worked with for many years, Dr. John Carden and Mitch Bernardi, who have been very instrumental in moving Otis forward from a technical/geologic perspective, retired at the end of last year. I went through the process of finding a new VP Exploration to lead our technical team, and we landed on a guy by the name of Alan Roberts. Alan has just been doing a great job for us, a really hands-on guy. Younger geologist, it's his first time as a VP Exploration but he does have over 25 years of experience in the field. He's run big programs.

He came to us from the Castle Mountain mine in California. That's part of the Equinox Gold group. That's an open pit, heap leach, run-of-mine scenario. Low-grade, and he's worked very hard at taking that from a development stage into a kind of a shovel-ready phase. That's exactly what we're doing at Kilgore right now, so he's the perfect guy to be working with us. He's been doing a great job, very happy to have him on board, and he's making a real positive difference for Otis. That's something we hadn't talked about that's been a real positive development for Otis.

Gerardo Del Real: Fantastic. Craig, thanks again. I appreciate the time.

Craig Lindsay: Yep, no worries. Good to talk to you, Gerardo.

Gerardo Del Real: We'll chat soon.