Determined to achieve mid-tier producer status in a few years, Reno-based
Chief among these is the historic Esmeralda (formerly Aurora) project, about 100 miles southeast of Reno, where Metallic is trying to expand the measured and indicated resource, which stands at 30.7 million tons grading 0.031 oz. gold per ton, or 952,700 contained ounces. A further 9.2 million tons at 0.025 oz. gold are in the inferred category.
The program entails drilling several targets and excavating two declines, one of which will provide access to the 3800 and 3560 high-grade zones in the Prospective vein, while the other will allow crews to work the Martinez vein at depth.
When the declines are completed, Metallic intends to carry out 10,000 ft. of underground core drilling at Prospectus and 7,000 ft. at Martinez.
The company has also hired a mill manager and expects to have the mill refurbished in a matter months at a cost of about US$1 million.
Overall, US$1.9 million has been budgeted for work at Esmeralda this year.
Chairman Jeffrey Ward says the company could be producing gold from development ore by the latter half of the year. He adds that Metallic will not hedge any production, particularly since the payback period for redeveloping Esmeralda would likely be quick.
The company paid US$457,000 for the property, which it acquired in March 2000 from the trustee in bankruptcy for Aurora Consolidated Mines, a U.S. subsidiary of Real Del Monte Mining.
Metallic has since spent another US$1.1 million acquiring more properties in the district, and now holds claims and fee lands totalling 5,644 contiguous acres. The project is still subject to several net smelter return royalties ranging from 1.5% to 6.5%.
The site includes a 350-ton-per-day, carbon-in-leach mill, a refinery, an assay lab and an office complex (all with an estimated replacement value of US$10 million). It is fully permitted and bonded with Nevada state agencies and the U.S. Forest Service.
High-grade gold and silver were discovered in the area in the early 1860s, in quartz-adularia-sericite veins associated with fault zones. Records show 1.9 million oz. gold were produced at Esmeralda, of which 1.5 million oz. were mined from 670,000 tons between 1864 and 1920.
During the 1970s and 80s, a half-dozen companies re-explored the area, and in 1987, Consolidated Nevada Goldfields brought the Prospectus pit into production and began feeding the 350-per-day mill.
By 1998, Consolidated Nevada had produced 125,470 oz. gold and 265,927 oz. silver from the Prospectus, Juniata and Martinez open pits and underground workings.
Meanwhile, next door, a junior named Aurora Partnership was exploiting the Humboldt and Hilton veins using open-pit mining and heap-leach recovery. Aurora produced 231,470 oz. gold in all, at a 75% recovery rate.
However, with bullion prices plummeting, both producers filed for bankruptcy in the late 1990s.
Ward tells The Northern Miner that Consolidated Nevada and Aurora focused too much on developing open-pit reserves and ignored opportunities to explore for high-grade gold beneath the current workings and away from the main pits.
For instance, high-grade ore shoots in the Prospectus vein system can be up to 60 ft. long and less than 3 ft. wide but can grade as high as 19.3 oz. gold and 82 oz. silver per ton.
Soon after acquiring Esmeralda, Metallic embarked on a multi-year program of sampling, mapping and drilling to gain a better understanding of the high-grade mineralization. Geologists have consolidated the results with past work in the district to create, for the first time, a single, digitized database.
At the Goldfield project, 270 miles southeast of Reno, Metallic plans to spend US$1.2 million this year exploring for high-grade gold.
Goldfield’s geology is characterized by a volcanic-hosted, high-sulphidation gold-copper system. Resources are contained in three areas: Goldfield Main, where most mining has taken place; McMahon Ridge, to the north of Goldfield Main; and Gemfield, to the northwest.
The company acquired the property in March 2001. Three months later, crews began drill-testing 4,800 ft. of strike length along McMahon Ridge, which remains open in all directions and is considered to be amenable to open-pit mining.
The resource base at Goldfield is conservatively estimated at 23.4 million tons grading 0.031 oz. gold (720,300 contained ounces) in the indicated category and 10.2 million tons of 0.024 oz. (247,000 oz.) in the inferred category.
However, this estimate does not take into account some excellent drill intercepts from the 2002 campaign at McMahon Ridge, which included 0.958 oz. gold over 24.6 true ft. (from 320 ft. down-hole) in hole 164, and 0.922 oz. gold over 13.3 true ft. (from 145 ft.) in hole 176.
Metallic has compiled a database of 270,000 ft. of drilling in the Goldfield Main area, 56,000 ft. from McMahon Ridge, and 100,000 ft. from Gemfield.
The property, which covers 29 sq. miles of patented and unpatented mining claims, was discovered in 1902. Since then, records show the area has produced more than 4 million oz. at an average grade of 0.5 oz. per ton from bonanza-grade ore shoots. More recently, Goldfield has supported three open-pit, heap-leach operations.
Metallic acquired the project when it bought the exploration assets of Romarco Minerals, a former high-flying junior in the Nevada gold scene, which decided, in a moment of exquisitely bad timing, to exit the gold business and get into high-tech.
Metallic paid US$250,000 for Goldfield and later, in August 2002, paid US$1 million to
The project is still subject to various royalties, ranging from 2% to 7%, and the annual fees payable under lease obligations and to the Bureau of Land Management are hefty: US$456,000 in 2002, US$318,000 in 2003; US$583,000 in 2004; and US$282,000 in 2005.
Metallic’s third major gold project, Converse, is the least advanced and has yet to see any production.
The 11-sq.-mile property is 30 miles southeast of Winnemucca, Nev., at the southern end of the prolific Battle Mountain trend.
Metallic acquired a quarter-interest in Converse in March 2001 through the Romarco acquisition. Since 1995, it had been a joint venture among Romarco (with 25%), Newmont (50%), and UUS (formerly Uranerz), a subsidiary of
In November 2002, Metallic acquired the remaining 75% interest in Converse for US$750,000.
Since the property was first explored, in 1989, some 155 drill holes totalling 104,000 ft. have delineated a skarn-hosted resource of 77.4 million tons grading 0.020 oz. gold, or 1.5 million contained ounces, in the indicated category and 61.8 million tons grading 0.018 oz. gold (1.1 million oz.) in the inferred category.
The spacing of much of the above drilling is a rather wide 400 ft. — a distance greater than the length of several neighbouring, economic gold deposits, such as Lone Tree, Marigold, Trenton Canyon and Buffalo Valley.
This year, Metallic plans to spend US$400,000 at Converse in a program consisting of geological and geophysical work, the re-logging of old drill core and cuttings, and 13,000 ft. of reverse-circulation and core drilling.
Metallic has several more gold projects in the southwestern U.S., including: Red Rock, Bald Peak and Mustang Canyon, all in Esmeralda Cty.; Gold Hill, near Wendover, Utah; Mogollon, in Catron Cty., New Mexico; the BCS project, southeast of Reno; and Monica, near Eureka, Nev.
At the heart of the company is the long-standing partnership between Ward and President Richard McNeely. Before establishing Metallic, the two mining engineers were the driving force behind Cobre Mining and its principal asset, the Continental copper mine in New Mexico.
In the early 1990s, privately held Cobre acquired the dormant Cont
inental property for US$8.3 million and, financed by Switzerland’s Glencore, reopened and re-energized the open-pit and underground operation. Over the next four years, Cobre boosted production by 300%, chopped production costs by 50% and grew reserves by more than 500%.
In early 1998, a year after going public, Cobre was acquired through a hostile takeover by Phelps Dodge, which operated the much-larger Chino copper mine and smelter, 3 miles away. The offer valued the junior at US$105 million, of which Ward and McNeeley walked away with more than US$40 million between them.
Their first fortunes made, Ward and McNeely kept a small group of Cobre personnel together and then incorporated their new private company, Metallic Ventures, in May 1998.
The next two years were spent traveling the globe, looking for attractive precious or base metal assets to acquire. Soon enough, the Metallic story had a theme: the company would take advantage of depressed prices for gold assets and acquire advanced gold projects in Nevada and neighbouring states.
In late 2002, Metallic closed its initial public offering of 8 million shares at $3 apiece, led by a syndicate consisting of Cannacord Capital, Haywood Securities, Griffiths McBurney & Partners, and Westwind Partners.
Following the payment of $1.7 million in fees to the syndicate, gross proceeds amounted to $22.3 million.
(The IPO was the largest in the North American mining sector in 2002, not counting Noranda’s spining-off of its CEZinc refinery into a trust unit.)
At the same time, all of Metallic’s class A shares (issued via an US$8-million private placement in July and priced at an conversion equivalent of US$1.25 each) were converted into common shares, for an immediate paper profit for class A shareholders of more than $1.
More shares were issued in January 2003, when the members of the broker syndicate exercised their over-allotment option to buy another 500,000 shares at $3 each, bringing the total number of outstanding shares to 34.9 million shares.
Ward and McNeely have personally invested some US$9 million in Metallic, and now own 11.2 million and 9.1 million shares, respectively, or a combined 58% of the company. Ward and McNeely’s shares are subject to a “lock-up” agreement, and cannot be sold until 18 months after the IPO.
Metallic shares oscillated about the $3 mark for two months after the IPO and then surged to a 52-week high of $3.70 at presstime, giving the company a market capitalization of $129 million.
Metallic’s stated goal is to build the company into “North America’s premier mid-tier gold producer.”
Looking ahead, Ward says the company will pursue further acquisitions but that new projects are not a priority this year.
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