Peak Gold deal launches new Contango ORE
CEO has big plans for unique mineral exploration company with advantage of coming cashflow from Alaska's next mine North of 60 Mining News – October 30, 2020
Last updated 11/19/2020 at 8:46pm
In the few months since taking the helm at Contango ORE Inc., Rick Van Nieuwenhuyse has steered this unconventional mineral exploration company toward being the 30% owner of Alaska's next million-ounce gold producing mine.
This coming mine at Contango ORE's Peak Gold deposit quickly surpassed Donlin Gold, Livengood, and other top contenders for Alaska's next large gold operation when Kinross Gold Corp. acquired a 70% interest in the high-grade gold project and unveiled a strategy to bring it into production by 2024.
"We have a good solid plan with a great operator that is well known in Alaska," Van Nieuwenhuyse told Mining News.
The deal with Kinross, which completely bought out the 40% Peak Gold interest held by Royal Gold Inc., Contango ORE's former partner in the project, also simplifies the ownership of Peak Gold and provides a solid foundation for a new iteration of Contango ORE, also referred to as CORE.
CORE received US$32.4 million in cash and the 809,744 of its own shares that were previously held by Royal Gold, valued at US$12.1 million at the time of the transaction, for half of its 60% interest in Peak Gold.
As a result, CORE emerged from the three-way deal with a 30% interest in a mine slated to begin producing an average of 222,000 oz of gold per year starting in 2024; roughly US$35 million in cash in the bank; and a paltry 6 million shares issued.
This means the mineral exploration company already has plenty of cash in its treasury to pay for its 30% share of the US$110 million that Kinross estimates it will take to extract the first ounces of gold from Peak Gold and could easily raise additional funds to grow the business through acquisitions and exploration.
And Van Nieuwenhuyse, who took over as president and CEO early in 2020, plans to do just that.
"I see this as a launching platform for an Alaska-based exploration and development staged company," Van Nieuwenhuyse told Mining News.
Being Alaska-based and listed on American stock exchanges will make Contango ORE unique amongst its group of Alaska-focused gold exploration and mining peers, which is dominated by Canada- and more recently Australia-based companies.
Defying the norms
Founded by Texas oilmen looking for natural gas along a proposed pipeline corridor that would have headed south from Alaska, CORE is familiar with defying the norms of mineral exploration.
One of these oilmen, Brad Juneau, got his first taste of minerals exploration when he decided to expand his Texas-based oil and gas exploration company's horizons to Alaska in 2008 – investigating the natural gas potential on a 675,000-acre land package owned by Tetlin, a federally recognized tribe in eastern Alaska.
"We went up there looking for any kind of minerals and since we are oil and gas people that was our first thought," CORE co-founder and former President and CEO Kenneth Peak reflected during a 2011 interview with Mining News.
Instead of black gold, however, the Texas oilmen turned up a largely overlooked yellow gold prospect at Tetlin.
More familiar with petroleum than the hardrock mineral potential he kicked up on the surface of the Tetlin property, Peak and Juneau tapped the expertise of Avalon Development Corp., a Fairbanks-based geological consulting firm.
After being persuaded to look at the property in 2009, Avalon President Curt Freeman was convinced the Texas oilman may be onto an important Alaska discovery and CORE was born as an Alaska-focused spin-out of Peak's Contango Oil and Gas Company.
This newly formed company leased the enormous 675,000-acre land package from Tetlin Tribe.
Instead of transitioning to a more conventional mineral exploration company, CORE continued to blaze a unique path over the coming decade.
In 2011, when other mineral exploration companies were putting their best foot and drill results forward to attract capital, CORE's marketing campaign was seemingly designed to send investors and their money running.
An example of the unconventional exploration company's unabashed frankness could be seen in this message on its website at the time, "It would be truly exciting if CORE owned gold ... we sadly do not, we are an exploration company – i.e. a pure and simple speculation. In a speculation, one should be prepared – indeed expect – both financially and mentally, to lose it all."
Yet, while most of CORE's mineral exploration colleagues could not pull together the funds needed to mount a significant exploration campaigns that year, the unorthodox Houston-based company raised US$14.2 million to continue advancing Peak Gold.
With Ken Peak being diagnosed with terminal brain cancer, Juneau took the reigns as the president and CEO of CORE in 2011.
Continuing down the path less traveled, under Juneau's leadership CORE entered to a joint venture agreement with Royal Gold, a hugely successful gold royalty company that never gets directly involved in exploration, except for Peak Gold.
With the help of Alaska-based Avalon Development, this unique partnership between a Texas-based company run by oilmen and Colorado-based royalty company outlined 9.2 million metric tons of measured and indicated resources averaging 4.08 grams per metric ton (1.21 million ounces) gold and 14.2 g/t (4.2 million oz) silver at Peak Gold.
"The combination of robust grade, near-surface open-pit resource, and a large and prospective land package located close to existing infrastructure, makes the Peak Gold project unique," said Tony Jensen, who retired as Royal Gold CEO at the end of 2019.
Well connected within the mining sector, especially in Alaska, Van Nieuwenhuyse immediately began looking at ways to leverage this asset for the benefit of CORE upon taking over as president and CEO of the company in January.
This work culminated in a deal with Kinross that is set to elevate CORE to a gold producing company, breathes new life into Alaska's Fort Knox gold mine, changes the dynamic of gold exploration along Alaska's road system, and provides jobs and economic opportunities at and around the Peak Gold project.
"It ended up with what I think is a win-win deal," Van Nieuwenhuyse told Mining News. "It is going to be good for Fort Knox, good for Alaska, good for Fairbanks; it is going to be great for Tetlin and the communities in proximity to the Peak Gold area – Tanacross, Tok, Northway, and Tetlin – there will be good paying jobs there."
More Peak Gold
With CORE's treasury full and Peak Gold on the path to producing its first 1 million oz of gold before the end of the decade, Van Nieuwenhuyse has his sights set on the future of the company.
This future begins where Juneau first discovered gold while investigating the oil potential in the rolling hills of eastern Alaska.
This will include investing into finding more high-grade gold on the 675,000 acres of Tetlin lease lands under the joint venture agreement with Kinross, as well as exploring the vast potential across 170,000 acres of highly prospective adjacent state mining claims fully owned by CORE.
"The big thing we have to address is we have a 4.5-year mine life, we have to do more exploration and find more ore," said Van Nieuwenhuyse. "When you have a mining district like that, you will find more ore if you just drill more holes."
Unlike the large bulk tonnage gold deposits such as the one being mined at Fort Knox, the high-grade skarn pods like Main Peak and North Peak, which host the high-grade resource at Peak Gold, are small and discrete, making them much tougher to find.
As a longtime geologist with a long list of successes across Alaska, Yukon and British Columbia, Van Nieuwenhuyse relishes this challenge and is sure of the success of growing Peak Gold.
"I have always been successful at exploration – I will be involved – Curt Freeman will continue to be involved and so I am highly confident we will be able to extend the mine life beyond the current 4.5 years," he said.
Cash flowing soon
While expanding the high-grade gold at Peak is important, the first order of business is to collect the data needed to develop a feasibility level plan for developing a mine at the two already identified deposits.
Toward this end, the JV just launched a US$3.6 million program to collect the geotechnical, metallurgical and other data needed for engineering, economic and environmental studies needed to permit and develop the mine.
The lack of need for a mill and tailings facility on the Tetlin property where the Peak Gold deposits are located will reduce the environmental footprint and simplify the permitting process. This is why the partners believe that the mine will begin producing gold by 2024 at the latest.
Based on the currently outlined resource, Kinross expects the Peak Gold deposits to churn out 1 million gold-equivalent oz, which includes the value of both the gold and silver recovered, over an initial 4.5-year mine life, or roughly 222,000 oz per year.
As a 30% partner, CORE's share of this gold will be roughly 65,000 oz/year, on average.
Kinross estimates that the all-in sustaining cost of mining, trucking, and processing ore mined from Peak will be US$750 per gold-equivalent-oz recovered. At an average price of US$1,750/oz, CORE would average around US$65 million of annual free-cash-flow over an initial 4.5 years starting in 2024.
"I have 6 million shares outstanding and I have US$35 million in the bank, I do not need to raise more money to get from here to a producing gold mine," said Van Nieuwenhuyse. "So, this is a great cash flowing opportunity."
With a flush treasury and the prospect of a significant flow of cash in the coming years, Van Nieuwenhuyse is looking forward to exploring CORE opportunities.
These prospects begin with the vastly underexplored potential on the 170,000 acres of land the company owns east and north of Peak Gold.
"I am really excited about what we have got out on our 100% owned lands," he said.
Hona, a copper-gold prospect about 15 miles northwest of the Peak Gold deposits, is the most advanced target on these claims.
Work completed by Alaska Division of Geological & Geophysical Surveys found evidence of intrusion-related gold or porphyry copper-gold deposits at Hona.
CORE's 2019 exploration at Hona included reconnaissance rock sampling and mapping to follow up on as much as 9.9 g/t gold found in pan samples from streams draining the prospect. Rock samples collected from a 5,000-meter-long mineralized area of Hona returned assays as high as 12.5 g/t gold, 10.09% copper and 494 g/t silver.
Due to the widespread mineralization encountered in surface sampling, two holes were drilled at Hona.
Both holes encountered mineralization, with the most encouraging intercept being 17 meters of 0.41 g/t gold, 5.4 g/t silver and 0.33% copper in the second.
While Van Nieuwenhuyse is intrigued by Hona, he is more excited about Eagle, a robust gold target about 15 miles to the northwest.
"Eagle is really interesting – a dozen creeks in a row are highly anomalous in gold and other metals on both sides of the ridge," he said.
Other than stream sampling, there has been almost no geological work to identify the source of the gold, copper and silver found. Something Van Nieuwenhuyse plans to rectify.
Triple Z is a more advanced porphyry copper-gold target on a separate block of claims north of the Tetlin lease.
Currently, the claims that make up the Triple Z are in the midst of being transferred from federal to state ownership.
"Triple Z is a great target – it is all ready to drill but we just got to get the land sorted out there," said Van Nieuwenhuyse.
These provide a lot of intriguing targets for geologist-led CORE.
"I think we will have a lot fun exploring the district," said the CEO.
In the meantime, Van Nieuwenhuyse is looking for mineral exploration properties in Alaska and beyond.
"There are some really interesting opportunities up here, but I do not want to limit myself to just Alaska," Van Nieuwenhuyse said. "I want to look at new opportunities here in Alaska, next door in the Yukon, and British Columbia – I have worked in all those areas."
Looking further ahead, he sees CORE expanding its reach into other top tier mining jurisdictions around the globe. For now, there are plenty of CORE opportunities in his backyard.
"We will use this as a launching platform to do other things in Alaska – I am going to be based here and the company is going to be based here," he said.