-- Posted Tuesday, 6 October 2009 | | Source: GoldSeek.com
Otis Gold Corp.
(TSX-V: OOO)
Shares Outstanding: | 17.7 million |
Options Outstanding: | 1.5 million |
Warrants Outstanding: | 8.5 million |
Working Capital: | $2.0 million |
Debt: | Nil |
Overview:
Otis Gold Corp. (TSX-V: OOO; PINK: OGLDF.PK) is a gold exploration company with six projects in Idaho and Nevada, two which have an established resource base of 1.0 million ounces of gold (of which approximately 0.7 million ounces are NI 43-101 compliant). The company’s primary focus is the Kilgore Gold Project, located in Idaho. The Kilgore Gold Project has an existing gold resource of 0.7 million ounces. Some terrific drill results have been recorded at Kilgore, including: 90.0 feet of 1.09 opt, 27.2 feet of 0.382 opt, 15.0 feet of 2.046 opt, 65.0 feet of 0.243 opt and 25.0 feet of 0.558. These sorts of grades are extremely high-grade in nature, and rare. Otis is focused on developing a high-grade underground mining scenario at Kilgore, and will follow this up with developing a bulk tonnage, open pit deposit.
Otis has a great share structure (17.7 million shares outstanding) and very low valuation (a market capitalization of approximately $12 million – roughly $12 an ounce valuation with relative market valuations ranging from $40-$60 and higher). As a result, any positive drill results could have a strong-positive effect on the current share price. As well, there are no significant “cheap” warrants or options overhanging the market.
Management:
Otis is managed by Craig Lindsay, an investment banker by training with a BComm from UBC (Finance) and an MBA from Dalhousie University (Finance and International Business). He is also a Chartered Financial Analyst. Mr. Lindsay has a good track in the mining sector, having founded Magnum Uranium Corp. (TSXV: MM) and led the development of this company through to its recent merger with Energy Fuels Corp (TSX: EFR). He also was a founding director of Malaspina Capital Ltd, a junior capital pool company, and negotiated the merger of Malaspina with Miranda Mining Development Corp. Miranda was a Mexico-based gold producer with an established resource based in the state of Guerrero (primarily consisting of a 30% interest in the Los Filos deposit) which was sold to Wheaton River Minerals shortly after going public in a transaction valued at $53 million.
Otis’ technical team made up the “guts” of Echo Bay Mines US exploration team. Don Ranta (a Director of Otis) was the Vice President of Exploration for Echo Bay; Dr. John Carden (a Director of Otis) was the Director of US Exploration for Echo Bay; Mitch Bernardi (Chief Geologist of Otis) and Larry Pancoast (a Geologist for Otis) were both senior members of Echo Bay’s exploration team. It is unusual to find a technical team with such a high concentration of former members of a “major”, particularly working with a junior that has a market cap of less than $12 million! Of note, Don Ranta is currently the President & CEO of Rare Element Resources (TSX-V: RES). RES has been successful in attracting a very strong investor base, and many of these investors could focus some of their attention on Otis. As well, John Carden is a Director of Paramount Gold Corp, listed on the NYSE and TSX. During his tenure at Echo Bay Mines, Mitch Bernardi managed a drill program at the Kilgore Gold Project for almost three years, running a team of up to 20 geologists, drillers and support staff, so he is very well acquainted with Otis’ flagship project.
Properties:
Overview: The company’s core project is the Kilgore Gold Project. Located in Idaho, USA, the project comprises 150 federal BLM mining claims totaling 3,000 acres. Otis has a right to earn a 75% interest in the project in exchange for the issuance of 2.5 million shares, expending $3.0 million on the project and completing a pre-feasibility report. I expect they will have met the property expenditure requirement by the end of 2010 (based on the company’s planned field programs for 2009 and 2010).
The Kilgore Gold Project was formerly operated by Placer Dome, Pegasus Gold and Echo Bay Mines. A total of approximately 120,000 feet has been drilled on the property (several million dollars worth of work), over a total of 190 drill holes in the early and mid 1990s. During this period, these operators were focused on developing bulk tonnage, open pit mine. To date, a resource of approximately 0.7 million ounces of gold was developed having an average grade of 1.15 grams per tonne (0.03 opt). Of this amount, approximately 0.5 million ounces of this resource are NI 43-101 compliant.
Access to the property is excellent (Otis’ drill rig can be reached by two-wheel drive vehicle). All of Otis’ drilling (ongoing and planned) is utilizing existing drill roads. There is a permitted water well on site capable of providing sufficient water for up to three drill rigs. To date, Otis has permitted 20 drill sites, which will allow for approximately 100 holes to be drilled. The property is at a level of 7,500 feet, and at this elevation the drill season runs between late May and December (when Echo Bay operated the project, they drilled year round by winterizing the access road).
Deposit Potential: The deposit is a volcanic-hosted epithermal hot springs gold system. The deposit type is like Round Mountain in Nevada (currently in production) and Macdonald Meadows in Montana. These systems are characterized by high-grade coarse gold feeders surrounded by a halo of disseminated gold. Otis is currently focused on developing a 1.0 million ounce high-grade resource, and will then work on developing the lower-grade bulk tonnage deposit (which easily could grow to multi million ounces of gold). At present, Otis has identified a relatively flat lying upper lense of high grade mineralization at a depth of between 100 and 300 feet, and another relatively flat lying lower lense of high grade mineralization at a depth of between 400 and 1,000 feet.
Field Programs: In 2008, Otis drilled four holes totalling 2,050 feet. This year, Otis is drilling 10,000 to 12,000 feet spread amongst 15 to 18 holes. To date, 7 holes have been drilled, and samples from 5 holes are in the lab awaiting assays (I would expect to see results issued on the first holes at some point in October). In 2010, Otis plans to run 2 to 3 drills at Kilgore, and drill up to 30,000 feet.
Other Projects:
Otis has four other projects in Idaho and one in Nevada. While three of the projects are early stage projects, the Oakley Project, located in Idaho on the Utah border, has an existing resource of 320,000 ounce of gold (of which 235,000 ounces is NI 43-101 compliant). The Oakley Project is owned 100% by Otis, and comprises 3,500 acres. The project has been the subject of approximately 20,000 feet of historic drilling; the maximum depth of these holes was 400 feet, and a number of the holes bottomed out in mineralization. The ore grade holes are characterized by thick intercepts (between 100 and 400 feet) of relatively low grade mineralization (eg. 400 feet of 0.017 opt, 260 feet of 0.024 opt, 170 feet of 0.023 opt). The question has always been what is the source of this thick bed of mineralization. Otis geologists believe the source is high grade feeder structures. To help confirm this, Otis completed a geophysical survey at Oakley in the fall of 2008, and this program served to identify possible feeder structures. If found, these high grade structures would carry the project. Otis plans to joint venture this project, as its cash and manpower resources are currently focused on developing the Kilgore Gold Project.
Share Structure – Balance Sheet:
With only 17.7 million shares issued and outstanding, Otis has a very attractive share structure. One thing to note is that approximately 4.7 million warrants priced at $.35 will likely be exercised under an existing forced conversion mechanism. While this will increase the share capital to 22.5 million, it will result in a cash inflow of $1.6 million to the company’s treasury. After taking into account the ongoing $1.3 million exploration program at Kilgore, I expect the company will have $2.0 million in its treasury at year’s end.
Technical Chart - OOO:
The chart shows a strong uptrend in progress with strong accumulation; pullbacks are finding strong investment interest. Although ultimately the stock price will see stronger correlation to metal prices, I see Otis Gold continuing to trend higher as investors continue to discover the company along with positive drill results. The stock price is seeing strong upward momentum which could easily carry it to a $1/share and higher in a positive gold environment.
Conclusion:
The company has an excellent technical team and is well managed. Share structure is well intact and the company has adequate cash to progress. The Kilgore Gold Project has the potential to ultimately grow into a multi-million ounce gold deposit with a million ounce high grade core. With its tight share structure, growing public awareness (please note that they are an advertiser on goldseek.com which this author is proprietor of) and ongoing drill programs, there is significant potential for strong growth in its share price. Assuming a million ounce high grade deposit can be developed, and coupled with the existing 1.0 million ounce resource, a value of $80 million could be created assuming the market gives Otis a $40 per ounce valuation (which is an average multiple for companies with existing resources). Given the high grade nature of the deposit, a value multiple in excess of the market average would be realistic.
All investors interested in Otis Gold Corp. are urged to perform their own due diligence, to discuss this with a financial advisor, and to not simply go on my opinion alone. I do believe your research and conclusions will concur with mine. I have taken a position in this company, and strongly feel that good drill results will drive significant value appreciation in the share price. Otis Gold Corp. has an opportunity to develop into a significant gold exploration story. Updates on Otis will follow.
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-- Posted Tuesday, 6 October 2009 | Digg This Article
| Source: GoldSeek.com
Otis Gold Corp. (TSX-V: OOO; OTC: OGLDF): High-Grade Gold Project; ex-Echo Bay Mines Technical Team
