Resource World Magazine

20 www.resourceworld.com D E C E M B E R / J A N U A R Y 2 0 1 5 i n s i g h t s & i n v e s t m e n t s B a r r y M u i r T he last trading day of October took gold prices to a four-year low below a crucial support of US $1,180/oz. Investors pulled funds from precious met- als as a result of a strengthening US dollar brought on by hawkish sentiment towards recently announced monetary policy in both the United States and Japan. With min- ing stocks back to their lows, it could be a great time to position ourselves in oversold stocks with strong cash positions, low politi- cal risks, proven management and a solid business model. Nevada is one of the largest sources of gold in the world, currently mining 79% of all the gold in the US. Newmont Mining has been producing gold in Nevada for 50 years. In 1961, when gold was US $35/ oz, they discovered the low-grade Carlin deposit. The mine began production in 1965 but it wasn't until gold prices shot up in the late 1970s that mining companies rushed to find similar deposits. When Newmont purchased Nevada- focused Fronteer Gold in 2011, they stated that they saw more value in buying devel- opment assets rather than mines already in production. Fronteer's flagship property was the Long Canyon Project and share- holders were offered $14 per share in a deal valued at $2.3 billion. Gold prices at the time were about US $1,350/oz and Long Canyon had grown to 4.2 million ounces of measured and indicated gold resources over approximately four years of exploration. Fronteer Gold had come a long way after starting out as a $2 million venture shell. After the buyout by Newmont, Fronteer's other assets outside the Long Canyon Project were spun out into a new company called Pilot Gold, keeping over 20 former employees. In the same year, Pilot Gold purchased an interest in the Kinsley Mountain property that sits roughly 75 km southeast of the Long Canyon property. The Kinsley property hosts a past-pro- ducing mine with an extensive exploration database and numerous untested gold targets. The stratigraphy and structural setting is similar to Long Canyon. Between 1995 and 1999, about 135,000 ounces of gold were produced from six open pits grading approximately 1.4 g/t. The mine was closed at a time of very low gold prices. Today, the Kinsley property is shared by two companies: Pilot Gold [PLG-TSX] is the operator with a 79% interest and Nevada Sunrise [NEV-TSXV] owns the remaining 21%. Currently, PLG's market cap stands at about $94 million and NEV's at $8.6 million. Both companies have additional assets but with the $2.3 billion Newmont paid for Long Canyon in mind, there remains some significant upside potential for both these companies. The original option agreement made in September 2011 between Nevada Sunrise and Pilot Gold would give Pilot Gold a 51% interest in the joint venture by incurring US $1.18 million in explora- tion expenditures by March 30, 2013. An additional undivided 14% interest could be had by spending an additional US $3 million on exploration within a five-year earn-in. By May 2012, Pilot had already elected to increase its interest to 65% after impressive results from the first work pro- gram and having incurred the required $3 million in expenditures. At the time, they also proposed a US $5.21 million budget for the remainder of the year. The tempo of Pilot's progress made it almost impossible for Nevada Sunrise to keep up and, as a result of declining mar- kets in August of 2013, it was left with little choice but to elect not to contribute to the initial work program, diluting its interest in Kinsley to approximately 20%. At the same time, Nevada Sunrise took on a new CEO, Warren Stanyer, who initi- ated a plan to re-structure the company in order to raise badly needed funds and, in December 2013, a consolidation of its com- mon shares took place on the basis of one share for every 10 shares held. Since the re-structuring, Nevada Sunrise has been able to raise close to $3.7 million. Over the past three years, Pilot Gold's technical team has used a methodical approach to exploration at Kinsley, benefit- ting largely from the knowledge gained by the same team's success at Long Canyon. The first work program began in December 2011, returning impressive intervals of gold mineralization from 1,250 metres of diamond drilling in six holes such as 5.91 g/t gold over 18.4 metres, including 11.93 g/t over 7.8 metres in hole PK-04. This program was designed to confirm miner- alization in historical reverse circulation holes near the past-producing open pits. As well, it confirmed Kinsley Mountain consisted of a unique combination of rocks, stratigraphy, structure and mineral- ization similar to Long Canyon. In 2012, Pilot Gold defined and expanded gold mineralization over a 2.2- km long trend. Some 12,000 metres of infill and step-out drilling were completed and with the help of a newly created three-dimensional model of geology and mineralization new targets were identified on the original 141 claims. An additional 128 claims were also staked to the north in a largely unexplored area. Drill highlights from the newly expanded Western Flank Zone in 2012 included 6.03 g/t gold over 13.7 metres in hole PK06, including 15.18 g/t over 4.6 metres; 5.48 g/t gold over 20.4 Pilot Gold and Nevada Sunrise – Treasure in the desert

• Cover