-- Posted Tuesday, 6 April 2010 | | Source: GoldSeek.com
Otis Gold Corp.
(TSX-V: OOO)
Shares Outstanding: | 25.9 million |
Options Outstanding: | 1.5 million |
Warrants Outstanding: | 5.5 million |
Working Capital: | $4.2 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 (of which 0.5 million are NI 43-101 compliant), and has realistic potential to grow to 3 to 5 million ounces. In the next 12 months alone I expect them to achieve NI 43-101 resources of 1.0 million ounces. Some spectacular 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.
I first wrote about Otis in 2009, and followed this up with a more detailed introduction in September after I toured the Kilgore Gold Project. Since then, they have successfully raised $4.1 million, and as of December 31, 2009 they had $4.2 million in the bank. Most importantly, they have now issued results from their 2009 drill program (more on that below).
Even after their fall financings, Otis still has a great share structure (25.9 million shares outstanding) and very low valuation (a market capitalization of approximately $13.0 million). At current price levels, the company is valued at less than $10.0 per ounce in the ground on an adjusted market cap basis (their peers trade at average in the range of $40.0 to $50.0 per ounce in the ground).
Drill Results:
The company has now released results from the 12 core hole drilled in 2009 (totalling 3,100 m) the Mine Ridge deposit. A few things stick out from these results. Firstly, 11 of the 12 holes hit either bulk tonnage and/or high grade mineralization. Secondly, they hit some fantastic bulk-tonnage intercepts, such as 84.8 m of 1.37 g/t Au in hole 09 OKC-197, 78.1 m of 1.67 g/t Au in hole 09 OKC-204, 64.0 m of 1.89 g/t Au in hole 09 OKC-206 and 50.0 m of 1.02 g/t Au in hole 09 OKC-205. Thirdly, they were successful in hitting some nice high-grade intercepts, including 9.5 metres of 11.6 g/t Au in hole 09 OKC-199, 10.2 meters of 9.8 g/t Au in hole 09 OKC-204, 7.7 m of 12.70 g/t Au in hole 09 OKC-206 and 3.0 m of 8.42 g/t Au in hole 09 OKC-205.
These results are extremely strong. They very clearly enhance the bulk tonnage story at Kilgore (the existing resource has a grade of 1.15 g/t Au, and the new intercepts (coupled with their results from last year’s drilling, such as 55 meters of 6.15 g/t Au in hole 08 OKC-191 and 55 meters of 1.46 g/t Au in hole 08 OKC-193) will likely enhance the overall grade of the bulk tonnage deposit and increase the overall size of the deposit. With respect to the bulk tonnage story, it is worth noting that Echo Bay Mines, a previous operator, were seriously considering putting the project into production around 1996, and conducted a major engineering assessment that indicated a cash cost of about $225 per ounce, a mine life about 7 years and annual production of about 45,000 ounces per year. In 2002, an updated scoping study was completed that indicated a strong economic picture at $350 per ounce assuming the resource could be doubled in size (at the time, the mineable resource was about 0.5 million ounces).
In addition to the good drill results, they also completed a geophysical program at Kilgore’s “Dog Bone Ridge” target in late 2009. Dog Bone Ridge is a largely unexplored target at Kilgore and any drill success that mirrors what they are achieving at the Mine Ridge target will significantly enhance the story at Kilgore. Dog Bone Ridge is approximately 1,400 feet from the existing Mine Ridge deposit. The geophysical survey identified six strong geophysical targets (several which coincide with some historical bulk tonnage intercepts). The company feels Dog Bone Ridge could have the same size potential as Mine Ridge.
It is worth noting that the metallurgy at Kilgore is excellent, very little sulphides are present (creating a very simple and clean recovery process), the project has a very good environmental track record and there are no salmon spawning or other fish-bearing creeks or rivers in the area. Further, the project is outside to the Yellowstone “viewshed”. As a result, the company is confident about mine permitting.
As a result of the success from 2009 drilling, in 2010 the company is planning to drill 6,000 metres at Mine Ridge and 1,000 to 2,000 metres at Dog Bone Ridge. Drilling should commence in June 2009, and they plan to have three rigs running (two core rigs and one RC rig). As well, they have announced plans to initiate a pre-feasibility on the Mine Ridge portion of the project. This equates to lots of news flow beginning in 2010.
Recent Financings:
In the fall, Otis Gold raised $2.3 million at $.65 per share (with a half warrant at $.90 in year one and $1.25 year two) and forced the conversion of approximately 4.8 million warrants at $.35 per share. The financing was done at market, and they managed to close it in two weeks, and 100% of the warrants were converted. What makes this impressive? Well, during this period, over 4.8 million shares (that were placed at $.25 per share) came free trading. This to me demonstrated that the market has some pretty strong confidence in the company. Just as importantly, it put approximately $4.1 million into the treasury. After paying down their 2009 exploration expenditures, they had about $4.2 million in the bank at December 31, 2009. This leaves them in good shape for 2010 (their 2010 exploration program is budgeted at US$2.5 million).
Share Structure – Balance Sheet:
With only 25.9 million shares issued and outstanding, Otis has a very attractive share structure. After the forced exercise of the $.35 warrants, the “cheapest” warrants remaining outstanding are priced at $.90 per share (out of the money, so not creating an overhang in the market). As noted above, at the end of the year they had $4.2 million in the treasury.
Technical Chart - OOO:
The chart above shows a strong uptrend in progress with strong accumulation; investors are evidently eager to buy pullbacks. Although ultimately the stock price will see stronger correlation to metal prices, I see Otis Gold Corp. continuing to trend higher as investors continue to revalue it properly. The stock price has been trading in the $.45 to $.60 range for some time, and has good support at the $.45-.50 level. I see the ability for the stock to “break out” of these current levels and back to prior highs around .75-.80 in the near term, with a break of record highs opening up the $1 area as the next technical upside target.
Conclusion:
The company has an excellent technical team and is well managed. The Kilgore Gold Project has the potential to ultimately grow into a multi-million ounce gold deposit with a significant high grade core to enhance the economics of the deposit. With its tight share structure, good investor sponsorship and ongoing field programs, there is significant potential for strong growth in the share price. Assuming they can ultimately develop Kilgore into 2.0 million ounce resource, a value of $80 million could be created assuming the market gives Otis a $40 per ounce valuation.
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, they are an advertiser on this gold site and strongly feel that good drill results will drive significant value appreciation in the share price. Otis Gold Corp. has an opportunity to develop from a great story into a fantastic story and I look forward to following developments at Otis. Stay tuned!
Disclaimer & Additional Disclosure
The owner, editor, writer and publisher and their associates are not responsible for errors or omissions. The author of this report is not a registered financial advisor. Readers should not view this material as offering investment related advice. Authors have taken precautions to ensure accuracy of information provided. Information collected and presented are from what is perceived as reliable sources, but since the information source(s) are beyond our control, no representation or guarantee is made that it is complete or accurate. The reader accepts information on the condition that errors or omissions shall not be made the basis for any claim, demand or cause for action. Past results are not necessarily indicative of future results. Any statements non-factual in nature constitute only current opinions, which are subject to change. The information presented in stock reports are not a specific buy or sell recommendation and is presented solely for informational purposes only. The author/publisher may or may not have a position in the securities and/or options relating thereto, & may make purchases and/or sales of these securities relating thereto from time to time in the open market.
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-- Posted Tuesday, 6 April 2010 | Digg This Article
| Source: GoldSeek.com
Otis Gold Corp. (TSX-V: OOO; PINK: OGLDF.PK): High-Grade Gold Project; ex-Echo Bay Mines Technical Team
