Spec Value Hunter Comment - February 28, 2012: McEwen Mining forms strategic alliance with Nevada Exploration Inc
Nevada Exploration Inc announced on February 27, 2012 that it had signed what amounts to a two year strategic alliance with McEwen Mining Inc within a 25,000 hectare area of interest in north central Nevada that will rely on NGE's "gold-in-groundwater" hydrogeochemistry exploration tool to generate targets. The arrangement is unusual in that McEwen will pay for the hydrogeochemistry surveys, claim acquisition costs and a minimum $25,000 bonus or $100 per claim staked to NGE which will have a 30% interest carried in each property until a production decision is made, at which point McEwen and NGE would form a joint venture. The location of the area of interest is secret, it does not appear any claims have yet been staked, and it is unclear to what extent this area was the subject of previous reconnaissance sampling work by NGE on open ground. We do know that past sampling work by NGE has identified several dozen "golden haystacks" in northern Nevada of which it has secured title to only a dozen or so, with the remainder either covered by somebody else's claims or open and awaiting a staking green light in the form of staking and exploration funds. This secret map of Nevada causes Wade Hodges to have sleepless nights, because although the gold-in-groundwater anomalies sit in basin gravels in areas nobody with conventional geological data sets would think to stake and explore, there is always the possibility that a company with nearby claims in the range front or shallow basin margin may pull a hot hole that triggers a staking rush that unwittingly gobble's up NGE's golden haystacks. NGE has not said whether or not the McEwen area of interest has been the subject of past hydrogeochemical sampling, but it is probably safe to assume that it is in a setting where a structural case can be made for the possibility of a major gold system, even if the absence of any major deposits in the nearby range fronts and extensive gravel cover has discouraged prior exploration. It will be interesting to find out where this area of interest lies, what sort of claim packages McEwen/NGE assemble, and what sort of budget McEwen Mining makes available for its exploration team to pursue needles in NGE's golden haystacks. McEwen Mining has already retained NGE to generate gold-in-groundwater targets on its Tonkin-Gold Bar holdings within the southern portion of the Cortez Trend, and although no aggressive drilling has yet been undertaken on any targets this work may have generated, Rob McEwen and his team appear to have become sufficiently comfortable with the approach to turn NGE into a high stakes prospect generator focused on north-central Nevada basins whose prospectivity for major gold deposits has not been made obvious by the known presence of gold mineralization in the range fronts. The deal structure may cause some mining executives to wince because the 30% carried to a production decision feature does not leave the operator any tools with which to abuse the junior partner in the event that a major discovery is made, such as killing the junior with heavy cash calls and feeble news flow, but Rob McEwen may in fact be ahead of the curve on this just as he was when he opened Goldcorp's Red Lake dataset during the nineties and sponsored a contest that tapped into the visualization talents of the geological community to help it sort out the high grade gold zones at Red Lake, as recounted by Don Tapscott and Anthony Williams recount in their book Wikinomics: How Mass Collaboration Changes Everythig. The genius of what seems to be a very generous deal by McEwen Mining for NGE is that the NGE team now has extraordinary incentive to deliver a major gold discovery to McEwen Mining, even on McEwen's Cortez Trend holdings where a discovery would only yield a 0.5% NSR for NGE. I should probably shelve my prediction that NGE will be the next Barrick to emerge from Nevada because it is more likely to be McEwen Mining. Until McEwen gives the goahead to stake claims and initiate meaningful exploration on the 25,000 hectare NGE area of interest, the market will still feel the weight of skeptics who point out that the hydrogeochemistry exploration tool will remain conceptual until it delivers a discovery. And those skeptics include all of NGE's peers who have no access to NGE's proprietary exploration technology. The endorsement by McEwen Mining of NGE's strategy, however, is good news for Spec Value Hunters, especially if it encourages other parties to seek similar deals with NGE on other northern Nevada "areas of interest".
*JK owns shares in Nevada Exploration Inc