Corvus CEO sees exploration upside at North Bullfrog

VANCOUVER — Corvus Gold (TSX: KOR) hit a milestone with the release of a preliminary economic assessment (PEA) on its 75 sq. km North Bullfrog gold-silver project 10 km north of Beatty, Nev. The study has intriguing economics, but CEO Jeff Pontius is more excited about an upcoming exploration drill campaign on untested targets in the east.

The company first approached North Bullfrog five years ago to target outcropping, low-grade mineralization for a heap-leach mining operation. The market was bolstered by higher gold prices at the time, and Corvus sat on a relatively greenfield land position, 8 km north of Barrick Gold’s (TSX: ABX; NYSE: ABX) past-producing Bullfrog mine.

The goal posts shifted for the company, however, when it made the promising Yellowjacket discovery, which holds high-grade, structurally controlled fissure veins and associated stockwork zones.

“We went about drilling and sort of serendipitously discovered Yellowjacket, which was a real game changer for us,” Pontius said. “We’ve since come up the structural orientation on the system and figured out we’re looking at a stockwork vein system that was fairly broad with strong grades.”

Not surprisingly, the higher-grade areas play a big role in Corvus’ economic study. North Bullfrog would carry a reasonable US$175-million price tag and produce 149,000 oz. gold annually over a decade-long mine life, at cash costs of US$635 per oz. The project boasts a competitive 0.6-to-1 strip ratio, which is where the lower-grade, disseminated material comes into play.

“My history has made me really focused on metallurgy … if we’re going to have low-grade, we want just the best oxides, and these low-sulphidation vein systems are typically good recovery targets. If you just look at the oxide material — which run over the top 150 metres in our deposit — it responds exceedingly well to heap-leaching,” Pontius says.

“The key piece for the low-grade component was when we determined there was no constant-tail effect, which means no base level of gold you don’t get out of the rock,” he added. “It created a product that doesn’t have a high margin, but supplies some financial upside to the project.”

According to Corvus’ mine plan, the heap-leach material accounts for 23 million measured and indicated tonnes grading 0.3 gram gold per tonne and 0.46 gram silver per tonne at a 0.15 gram gold cut-off grade. Disseminated inferred resources tack on 176 million tonnes of 0.19 gram gold and 0.67 gram silver.

Meanwhile, Yellowjacket’s measured and indicated resources total 5.7 million tonnes of 2.22 grams gold and 16.67 grams silver at a 0.52 gram gold cut-off grade. Measured and indicated in-situ metals in the PEA total 627,700 oz. gold and 3.4 million oz. silver, while inferred material hosts 1.13 million oz. gold and 4 million oz. silver.

The heap-leach component designed for the project’s northern area would operate at an average 44,400 tonnes per day, while the higher-grade YellowJacket vein and stockwork mineralization would be crushed and milled at a rate of 3,000 tonnes per day. The proposed mill circuit involves cyanide leaching of a gravity concentrate and the final cyanide leaching of tail products. Corvus estimates it would average a 74% recovery via heap leaching and 87% at its carbon-in-leach mill.

At its current design and a US$1,200 per oz. gold price, North Bullfrog would have a US$246-million after-tax net present value (NPV) at a 5% discount rate, 38% internal rate of return (IRR) and a 2.2-year payback period on initial capital. Assuming US$1,100 per oz. gold, North Bullfrog carries a US$175-million after-tax NPV and a 29.6% IRR.

“In the market today there is a real sensitivity about gold price. People want to see a project that’s resilient at lower gold prices, and we were able to create a scenario that still provides a good economic performance at lower metal prices,” Pontius said. “I think that helps establish faith in the asset.”

The real upside for Corvus would be finding high-grade ounces at Yellowjacket’s extensions, or at new priority targets in North Bullfrog’s eastern areas that carry similar geophysical and geochemical signatures. Pontius points out that two-thirds of the pre-tax cash flows in the PEA base case — which total US$479 million — would come from the high-grade ounces at Yellowjacket.

“To some degree it is scalable. Remember we only have mill ore for the first six years of our mine life. Our real goal right now in the exploration program we started two months ago is to define new high-grade zones,” Pontius explained.

The eastern prospect covers 15 sq. km that hosts promising alteration. Corvus has determined that the rock ages in the area correspond to mineralization at the North Bullfrog deposits. The company has outlined a structure that looks analogous to Yellowjacket, and unearthed mineralization at the target.

“We have confidence in the relationship between the deep structures and the ability to channel fluids, as they come up to form this big alteration zone we’ve exposed in the east. There’s potential for that area to host a really big gold deposit,” Pontius said, adding that after Corvus drills around Yellowjacket, it intends to turn its drill eastward.

“We’re surveying soil right now to see if we can pop up any geochemical anomalies. Amazingly enough, we were out in the field and found a metre-wide vein with great boiling textures. It’s the exact kind of thing we want to see, and that vein system extends for a kilometre, where we’ve also found highly anomalous gold and silver values,” Pontius added.

Corvus closed a $4.5-million non-brokered private placement in February, wherein it issued 4.5 million shares priced at $1 per share. The financing was impressive considering it carried no warrants, and was completed at a 35% premium to the company’s spot share price. Pontius says this speaks to the confidence of Corvus’ two major shareholders: Tocqueville Asset Management and AngloGold Ashanti (NYSE: AU; ASX: AGG).

Corvus has traded within a 52-week window of 63¢ to $1.62, and closed at 75¢ per share at press time. The company reported cash and equivalents of nearly $7 million at the end of February, and has 80.2 million shares outstanding for a $60-million market capitalization.

“We need to do what we do best. People always ask me: ‘How are you going to continue to create more value?’ The only way I know how to do it is with exploration and the drill bit. I’m a geologist, and you’re not going to hire me to build or run your mine. Trying to cobble together a mining team is honestly one of the worst things you can do,” Pontius said.

“From my angle, we’ve seen more mergers and acquisitions in the gold space over the past five months. So this year has been one where a project like Bullfrog has gotten a lot more interest. I believe the best result for us would be a transaction with a quality mine builder and operator.”