Originally launched to provide a pure play on exploration, US Gold Corp (NASDAQ:USAU) secured its public listing in 2017 through a reverse takeover deal with Dataram Memory Corp, a technology sector story. The technology-based legacy assets related to Dataram were reorganized as a separate division and subsequently sold in deal announced in October. Shareholders of US Gold are now fully leveraged to resource discovery upside with this emerging exploration junior.
The Cortez Trend of Nevada: One of the Most Prolific Gold Districts in the World
With the objective of defining a large gold discovery, there is no better place to start than the Cortez Trend of Nevada. While the vast majority of domestic gold production comes from Nevada, most of the mines in the state are located within narrow linear districts, defined as ‘trends’, that extend through zones of highly prospective geology.
The ideal conditions for the emplacement of large gold deposits occur within these trends. This includes extensive sedimentary rock units favorable for alteration in gold-bearing systems. Within the Cortez Trend, the best of these is known as the Roberts Mountain Formation, host to some of the largest gold deposits in the world.
Probably the most important mine in Nevada for the last 50 years has been the Cortez Mine, operated by Barrick Gold. This mine commenced production in 1969 and still remains in operation today, with annual gold output often exceeding one million ounces. Further south along the Cortez Trend, the Gold Rush project has a defined gold deposit in excess of 15 million ounces. Numerous other deposits and past-producing mines are also located in close proximity, each amounting to more than one million ounces of gold.
This area is truly ‘elephant country’ in terms of the potential to yield a significant discovery. It should be noted that most of the largest property holdings in the district are controlled by the senior gold companies, either through direct ownership or partnered in joint venture arrangements.
Superb Exploration Prospects in Hand
US Gold has secured 100% ownership of two large exploration projects in the heart of the Cortez Trend. The Keystone Project, comprising roughly 12 square miles of property area, represents an exceptional early stage prospect for an emerging junior. The large surface area for Keystone is an advantage because similar to the game of lawn darts, it’s much easier to win when you have a big target zone to aim at.
A team of project geologists has been busy reviewing data from historical drilling records, in addition to their interpretation of data from geophysical surveys recently completed on the property. They have mapped gold showings at surface, and encountered anomalous gold values in drill core. The presence of pathfinder elements like arsenic and zinc also indicate that a hydrothermal alteration system has been active within the project area.
Prominent regional low-angle fault structures extend laterally through the lower plate sedimentary rock underlying Keystone, another key factor that is very encouraging. This lines up well with the geological model established for discoveries elsewhere in the district.
All of the right conditions are in place for the potential of a large gold system. And US Gold has improved its odds further, when the company secured a second large property in the Cortez Trend, the Gold Bar North, just a few miles away.
Gold Bar North was acquired by staking and is wholly owned by US Gold. It is aptly named, located just to the north of the multi-million ounce historic Gold Bar mine, a project currently under development by McEwen Mining to resume production from a newly discovered deposit area. Gold Bar North is located within a well-defined corridor of prospective structural features identified by geophysical interpretation, matching up very closely to the Gold Bar mine.
US Gold now has two hot irons in the fire, in the midst of the prolific Cortez Trend, and the company is about to embark on the first comprehensive exploration program that will follow up on all of the earlier work for both properties in a systematic approach.
High Profile Leadership
The potential for success at the end of the drill bit will probably be the most important factor driving the share price in the future. Given this reality, the experienced leadership provided by Dave Mathewson, VP of Exploration for the company, cannot be overstated. Mathewson has a solid track record of exploration success spanning 50 years on his resume, the bulk of that in Nevada. He has contributed to significant discoveries as Head of Exploration with senior miner Newmont Gold. Mathewson also achieved notable success as part of the management with junior explorer Gold Standard Ventures.
This direct experience in the field, and the accumulated knowledge of the characteristics of large gold deposits in Nevada, led Mathewson to acquire the key exploration projects held by US Gold in the state. Ultimately, his understanding of what to look for during the early phases of exploration could be the intangible that delivers the next big discovery in the Cortez Trend.
Built-In Asset Value
While the potential for a significant discovery in Nevada could be a big catalyst driving the performance for the share price in the future, US Gold has an asset value component to compliment the speculative aspect of this story. The company also controls the Copper King project, located in Wyoming. As suggested by its name, there is a large copper resource defined at this project, in addition to significant gold content.
Many large mines currently in operation today are working copper-gold deposits, and the benefit of a by-product metal is that it contributes a bonus in payable revenue that improves the overall economic performance of these mines. Also, copper itself is a beneficiary of bull market conditions, making the deposit more attractive overall.
Copper King is an advanced project, with a large deposit defined through decades of historical drilling work. A Preliminary Economic Assessment (PEA) was completed by a previous operator for the property in 2012. The deposit area considered in the PEA amounts to nearly 60 million tons in the Measured & Indicated classification, plus a further 15 million tons of Inferred resources. The combined resources outlined exceed 280 million pounds of copper and about 1.1 million ounces of gold.
This represents serious clout in terms of development potential, and the deposit remains open for expansion. In November, the company announced it has embarked on a round of drilling work based on interpretation of recently completed geophysical surveys. This will test high profile expansion targets to the northwest of the existing deposit area that have never been drilled in the past.
While the program has the potential to add a speculative premium to the prospect, the upside catalyst could come from improving the overall economic potential as a development candidate. Wyoming is considered a favorable jurisdiction for mining and Copper King is located entirely within state land, making the project easier to advance through permitting towards development.
As it currently stands, the Net Present Value for the project estimated from the 2012 PEA is nearly $160 million. Consider that the market value for the entire company is about $20 million based on recent trading. And as US Gold works to move Copper King further along the value curve, with plans to complete a Pre-Feasibility Study, the project may contribute greater value to this story.
For an emerging exploration junior with a modest market cap, US Gold Corp seems to have all of the elements in place that could lead to a much higher share price. The company controls undivided ownership of three excellent prospects, located in safe jurisdictions, with attractive exploration potential. Leadership from a skilled and proven management team affords a measure of confidence towards a successful discovery outcome.
The speculative appeal of the Cortez Trend could attract investment flow to this small company at the first hint of a discovery. Other juniors have enjoyed share price gains of several hundred percent this year on the news of discovery breakthroughs. US Gold is gearing up for the next phase of drilling to commence at Keystone, and that may provide the spark to move the stock higher.
Meanwhile, the Copper King project provides a measure of intrinsic value to support a higher share price target over and above the speculative premium. The value proposition is enhanced by the advanced stage of the Copper King project, plus the stand alone potential as a legitimate development candidate, either through the outright sale of the project, or as a joint venture prospect for an operating mine.
Two successful rounds of equity financing have generated a well funded treasury to enable aggressive exploration work. The company will be active at all three projects in the months ahead. This story may be seen as a value play even at its current status. However, with fewer than 15 million shares outstanding and a listing on a major US exchange providing liquidity, US Gold is certainly capable of delivering a much higher market value in 2018 if the company is able to deliver positive results in field.
Disclosure: We have no position in USAU and have not been compensated for this article.