 Casey Files:
Understanding Nevada's Emerging Gold Plays
By Doug Casey
Chairman, Casey Research, LLC.
The
International Speculator
February 27, 2006
If Nevada was a separate country,
it would rank as the world's #3 gold producer, with most of that
production coming from the Carlin trend where over 50,000,000
ounces of gold have already been produced. There are, however,
an increasing number of savvy explorers coming to the conclusion
that the Cortez trend, which runs roughly parallel to and 50
miles southwest of the Carlin Trend, may host a resource as large,
or even larger.
The following article by Louis
James, senior editor of the International Speculator,
provides a very useful overview of Nevada, the past, present
and, more importantly for us as investors, the future.
The article is especially timely
given legitimate concerns about governments in Latin America
and elsewhere committing economic hari-kari by electing governments
with clear socialist, anti-business leanings. By contrast, Nevada
consistently ranks as one of the most geologically prospective
and pro-mining jurisdictions in the world today. And it is only
to the good that, being situated in the United States, Nevada
gives us extra leverage to a falling U.S. dollar.
You'll want to stash this article
in some corner of your computer for further reference.
-Doug Casey
Carlin Trend
The Carlin Trend is North America's
most prolific gold-producing area and hosts the second-largest
known gold resources in the world, after the Witwatersrand in
South Africa. More than 107 million ounces of known proven and
probable reserves occur on the Carlin Trend. And there may be
up to 180 million ounces of resources, depending on what you
include in the number.
The trend is a 40-mile-long,
northwest to southeast zone of low-grade, epithermal deposits,
discovered in 1961 by John Livermore and Alan Cope, geologists
then working for Newmont. The mineralization was near surface
(only 25 meters down), but so finely disseminated that all traces
were microscopic. In the areas that proved economic, assays averaged
6.2 g/t gold. Newmont opened the original Carlin open pit mine
in 1965, before the introduction of heap leaching. When that
technology matured in the 1980s, production ramped up to where
the Carlin Trend now accounts for over 35% of all U.S. gold output.
In 1994, mining companies began
moving underground to exploit the higher-grade ore down dip from
existing open pits. These deeper deposits have been discovered
at Rossi, Dee, Meikle, Gold Bug, Rodeo, Deep Post, Deep Star,
Turf, Four Corners, West Leeville, Hardie Footwall, Deep Carlin,
Mike, Rain, Tess and Rain Extension. Taken together, these recent
underground discoveries contain a total of 42 million ounces
of announced gold reserves, at an average grade of 10.8 g/t.
Large quantities of additional unannounced gold resources are
now drill indicated on the Carlin Trend.
Cortez Trend
The Cortez Trend is in the
same area of Nevada and is similar in size to the Carlin Trend,
but is displaced about 50 miles southwest. It includes the Pipeline
Mine Complex (12 million ounces) to the north and the Gold Bar
Mine (1 million ounces) to the south.
At a meeting of the Geological
Society of Nevada in mid-2004, a representative of the CJV-the
Placer Dome/Kennecott Cortez Joint Venture-announced that they
had intercepted 1.5 ounces of gold per ton (over 46 g/t) over
an interval of 400+ feet. Some reports have it at almost 2 ounces
per tonne-a staggeringly rich intercept. Current Proven and Probable
reserves at Cortez/Cortez Hills, as announced by joint venture
operator Placer Dome (now part of Barrick Gold, ABX) stand at
10 million ounces, with another 10.1 million ounces in resources).
The CJV has now approved mine construction. Since the much-discussed
CJV announcement at the Geological Society of Nevada meeting,
the Cortez Trend has become one of the most active prospecting
areas in Nevada. The expectation-or hope-that the Cortez Trend
is now an opportunity like the Carlin Trend was in the 1960s
is clearly the driving force in the area.
But is this hope realistic?
Comparison
The Eureka-Battle Mountain
region of Nevada has two layers of sedimentary rock: the "Upper
Plate" and "Lower Plate". The Upper Plate does
not typically host higher-grade gold mineralization, but can
contain indications of higher grades in Lower Plate rocks that
have "leaked" upwards. Lower Plate mineralization (Silurian-age
Roberts Mountains formation) correlates with the major gold deposits
of the Carlin Trend, where a great deal of surface erosion and
other geological activity has brought Lower Plate blocks ("horst
blocks") within range of open pit mining in some places.
"Carlin-style" deposits contain disseminated gold mineralization,
usually structurally controlled (meaning, along fault lines,
etc.). Mineralization may be predominantly oxides, sulphides,
refractory or carbonaceous sulphides.
Cortez Trend deposits are replacements
or disseminations in calcareous sediments and limestone strata,
also in Lower Plate rock. As on the Carlin Trend, one of the
keys to discovery is finding Lower Plate rocks that have been
exposed in or through "windows" where the Upper Plate
has been eroded.
The largest and highest-grade
discoveries along the Carlin Trend are associated with major
faults. These are very old faults, as are the Cortez faults,
though there is considerable disagreement among geologists on
numerous issues relating to these faults. Consulting geophysicist
Hans Rasmussen, who once worked with Newmont on the Carlin Trend,
believes there is a strong possibility that the Cortez Structural
corridor system may be both older and bigger than the Carlin
fault system. Being older is good: that allows more time for
more geological events to occur. The reasoning is long and technical,
but the bottom line is that if Rasmussen is right, the Cortez
Trend could prove to be not only as big as Carlin, but bigger.
If Cortez is so big, why wasn't
it discovered earlier? Well, one consequence of the geological
events that formed the trend is that they also buried it, making
it harder to find and more difficult to prove. But that is exactly
what numerous majors and juniors are working on, so time will
tell soon enough.
How to Play
In the latter half of 2005,
Rob McEwen, former CEO of Goldcorp, has made a lot of waves in
the area by buying major positions in a number of Cortez Trend
junior explorers. This included U.S. Gold (OTC:USGL), White Knight
Resources (V.WKR), Tone Resources (V.TNS), Nevada Pacific Gold
(V.NPG) and Coral Gold (V.CGR). These companies have all seen
substantial increases in share price in the months since then,
partly because, as he revealed to us when we interviewed him
for the January edition of our International
Speculator newsletter, McEwen hopes to amalgamate these
companies into a single company with a land package and an exploration
budget like that of a major, but with the fast-moving exploration
culture of a junior.
If you are looking to play
the Cortez, one could speculate on any one or all of these stocks
heading higher if McEwen is successful. Or one could look for
companies with land near those McEwen already has an interest
in, hoping he'll buy in and send the stocks higher. Or, one could
just do the homework necessary to determine which companies have
the most prospective projects in the region and buy them on the
hope of "getting rich on process." Buying any junior
mining stock is always a risky proposition, of course, but when
you pick an area like the Cortez Trend, where you know a lot
of investment is going to take place in the current cycle, and
focus on quality companies with the right management teams, you
stack the odds in your favor.
-Louis James
The
International Speculator
Doug Casey, the author of Crisis
Investing, which was #1 on the New York Times Best-Seller list
for 26 weeks, and the editor and publisher of the International
Speculator, one of the nation's most established and highly respected
publications on gold, silver and other natural resource investments,
has made himself and his subscribers millions with his in-depth
research, right-on perceptions and contrarian attitude. Click
here
to learn more about subscribing to the International Speculator.
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