Bottom-Fish Comment - August 1, 2012: Bottom-Fish Strategy for Carlin Gold Corp
Carlin Gold Corp was recommended as an extreme risk bottom-fish buy below $0.10 on July 13, 2012 based on the arrival of a major new shareholder which invested $2.7 million earmarked for the exploration of Carlin Gold's key Nevada prospects in the Cortez Trend. The stock is ranked extreme risk because it has 106,898,236 shares fully diluted and early stage projects of which one qualifies as a high risk high reward Big Anomaly play. The rollback risk is mitigated by the fact that management owns meaningful equity stakes, and the arrival of a hedge fund as a major shareholder with no exit strategy other than a discovery. The market has not responded to the new stakeholder in part because we are in a serious bear market, but also because Carlin Gold has repeatedly disappointed earlier supporters by failing to turn any of its drill plays into a discovery play. Carlin has a long history stretching back into the eighties, but its current form after several rollbacks took shape in 2004 when it conducted an RTO of a private company backed by Michael Baybak with a Chinese gold project generated by Ralph Westervelt. The Naneng gold play hoped to benefit from the hype generated by Southwestern's Boka project in Yunnan Province, but poor results and Westervelt's resignation due to health reasons derailed that story. Wayne Livingstone took charge as "interim" president and steered Carlin Gold back to Nevada where in February 2006 it acquired Toquima Minerals Corp which held Rubicon's portfolio of Nevada prospects as well as the Palmer VMS deposit in Alaska. Bob Thomas, a Nevada geology expert, joined Carlin and Garfield MacVeigh, a Rubicon founder, took charge of Constantine Metal Resources Ltd which was spun off through an IPO based on the Palmer project. Carlin drilled most of the Nevada prospects without generating results good enough to launch a speculation cycle, and by the end of 2008 it had lost its newsletter writer support.
However, Carlin made a little noticed acquisition in 2007 called Cortez Summit by staking a chunk of open land east of the Cortez Hills deposit and between the old Horse Canyon and Buckhorn pits. This land which was once owned by the Cortez Syndicate and is now surrounded by Barrick, had been allowed to lapse because it is largely covered by a sequence of basalt and conglomerate, and had been mapped as underlain by Upper Plate Vinni Formation rocks. Livingstone staked the property after a former Placer employee made a case that the geology was mismapped, that Cortez Summit was in fact underlain by Lower Plate rocks. Generating interest in a blind conceptual Carlin-style target in Nevada has not been easy in recent years because of the perception that all prospective land in Nevada is already owned by Newmont and Barrick. The $50 million plus Rob McEwen blew on the Tonkin Springs property in the southern part of the Cortez Trend reinforced that perception, which is unfortunate because little of that money was spent on the ground US Gold acquired through the consolidation of White, Tone and Nevada Pacific. For the juniors the Holy Grail became a previously unrecognized setting for Carlin-style mineralization elsewhere in the world.
In late 2010 Livingstone and Thomas heeded the siren song from Atac's Osiris discovery in the Yukon's Rackla Belt which told of a new Carlin-style district. Carlin Gold formed a 50:50 JV with Constantine to stake a portfolio of properties within the Selwyn Basin of east-central Yukon based on regional geochemical anomalies. Constantine and Carlin had a deal to sell their Yukon stakes to a shell in exchange for stock in Q1 of 2012, but due to the poor market conditions and the fact that the Yukon regional play had flopped in 2011 when Atac failed to deliver results supporting very high market expectations, this deal was scrapped in Q2 of 2012. Carlin and Constantine are holding their Yukon prospects in the hope of a better market in 2013.
Nevada, however, is warming up as a relatively secure jurisdiction where big gold discoveries can still be made. Nowhere is this more evident than in the fact that Gold Standard Ventures Corp was able to secure a NYSE listing and a $20 million financing at $2 in 2012 for the Railroad project at the southern end of the Carlin Trend despite the sour market mood and a swiss-cheesed play whose potential lies in using deep visualization skills to unravel complex geology believed to harbour high grade Carlin-style zones. Livingstone shifted his focus back to the Cortez Trend after Barrick reported in September 2011 gold resources for the Red Hill and Goldrush zones southeast of the Cortez Hills deposit and less than 2 km southwest of the Cortez Summit property. Carlin has generated a target area in the southwest portion of the property which is cut by the NNW trending Fourmile Canyon fault (the structural setting), which passes through altered clastic Horse Canyon rocks at surface that should be underlain by Wenban Formation rocks (the stratigraphic setting), both of which are apparently hosts for Carlin-style mineralization at Red Hill and Goldrush. Surface sampling in this area has yielded low grade gold values, suggesting the Fourmile fault served as a conduit for gold bearing solutions that may have formed deposits at depth similar to the Red Hill and Goldrush deposits to the west which are hosted within Horse Canyon and Wenban stratigraphy. Carlin Gold has received permits for 24 drill locations on Cortez Summit, and plans to start a $1 million 10 hole program in mid August that will test the target to a maximum depth of 2,000 ft. Although the target is somewhat vague, spatially it is only 1 km by 1.5 km in close proximity to 7 million new ounces reported by Barrick in 2011. While the Fourmile structure is not the same as the Cortez Fault that seems to be key to the Barrick discoveries, the tectonic complexity of the region suggests that this target is alive until killed by extensive drilling. Cortez Summit thus qualifies as a Big Anomaly play of sorts in that the intersection of any Carlin style gold mineralization would turn this into a very hot discovery delineation play.
Should this program fail, Carlin will shift its focus to the eastern part of the property where the basalt cover is 500 ft deep. The basalt hosts the former Buckhorn deposit, a younger (11 Ma) low sulphidation epithermal system similar to Fire Creek which past drilling has demonstrated does not extend onto the Cortez Summit property. Barrick is not interested in the Buckhorn system, but it is investigating the possibility that Lower Plate rocks beneath Buckhorn may have experienced the 37-40 Ma mineralizing event associated with Carlin style deposits, which may have even served as the source for the shallower Buckhorn system's gold. If Barrick drills deep holes that confirm this thesis, the Willow Creek target area of Cortez Summit would become a priority.
What makes Carlin Gold an interesting bottom-fish is that the Electrum Group, which has placed huge bets on the advanced multi-million ounce deposits of Novagold and Gabriel, has shifted its attention to blind exploration discovery plays by purchasing 21,404,647 units at $0.125 in June 2012 which was at a premium to the market price. This gives Electrum Gold Exploration LLC a 27% stake in Carlin Gold, which would grow to 40% on a fully diluted basis if it exercises its full warrant at $0.16. Although Carlin Gold now has 106,898,236 shares fully diluted, the presence of Electrum as the major shareholder opens the possibility that Carlin Gold will serve as a vehicle for other projects backed by Electrum's financial muscle. Carlin Gold is unlikely to get any anticipatory mileage out of its upcoming drill program; bottom-fishers will have to treat it as a Big Anomaly play one either owns in advance as a lottery ticket, though one that Geologic will probably grant multiple draws on other prospects such as JDS further south in the Cortez Trend, or puts on watch to buy in the $0.30-$0.50 range when drill results deliver evidence of an emerging discovery.