A Swing Past West Kirkland Mining
During my weeklong journey around Nevada visiting various mining projects at different stages in the cycle, we passed by the Three Hills and Hasbrouck gold projects belonging to West Kirkland Mining. The pair of projects is just outside of Tonopah. There isn't much mining going on around Tonopah, the main industry seems to be the manufacture of crystal meth.
I wrote about the company back in September of 2014 after a visit. Little has changed in the market other than investors still hate mining shares and the price of West Kirkland is half of what it was 9 months ago.
WKM is blessed with exceptionally strong management in the form of CEO Michael Jones and CFO Frank Hallam. The team founded Mag Silver and was part of the West Timmins Mining Company that was bought by Lake Shore Gold in 2009.
In early 2014, West Kirkland entered into an agreement with Allied Nevada to develop the Hasbrouck/Three Hills gold project. WKM paid some $20 million for 75% of the deal. They have the right until October 2016 to purchase the remaining 25% of the project for an additional $10 million. Allied Nevada may or may not accept the $10 million and can turn it into a 75/25 JV at that point.
The project has interesting numbers. It's a 2 million ounce gold equivalent deposit of somewhat low-grade ore. WKM intends to put Three Hills into production at first and use the cash flow to finance Hasbrouck into production.
Obviously Allied Nevada going into bankruptcy has changed the picture. WKM has between now and the end of 2016 to figure out what they would prefer to do about the remaining 25% and who might be their partner. I don't understand just how the bankruptcy changes the picture. I would think Allied Nevada would be just thrilled with $10 million in cash but it is under court protection and may not be able to make the decision by themselves.
The drop in the price of the shares makes for some interesting economics. The company has a market cap of under $20 million. They own 75% of about 2 million gold equivalent ounces that makes gold worth about $13 in the ground. It cost more than that just to discover those ounces. WKM is a highly leveraged pure bet on the future price of gold. If you believe gold is going up, WKM gets a lot more attractive in a hurry. There are a lot of projects with similar grades in production in Nevada.
Management is proceeding on a two-part plan to get into production. They just held the first meeting with the BLM under the NEPA process on the 30th of April. (National Environmental Protection Act) If the BLM allows a mining permit for Three Hills under an Environmental Assessment (EA) the process will take 6-9 months. The criteria for an EA are (1) small (2) short mine life and (3) no significant environmental impact. Three Hills is less than a square mile, mine life is 2-3 years and mining it would improve the environment, there has already been mining happening there 100 years ago.
Alternatively the Three Hills project would be permitted under an EIS (Environmental Impact Statement) that could take 20+ months. Hasbrouck is larger and will fall under the EIS requirement. The plan of WKM is to use the cash flow from Three Hills to construct Hasbrouck.
There are two big advantages to an EA over an EIS. The EA costs 25% of an EIS and is a far faster way to production.
West Kirkland plans to release a Prefeasibility Study incorporating numbers for both Three Hills and Hasbrouck early this month. It will provide investors with time lines and numbers for recovery and costs. I liked the project enough to buy some shares recently but for hesitant investors, wait until you see the Pre-Feasibility.
Investors should remember that gold hit it's low about $252 in late August of 1999. Silver didn't hit it's low at $4 until late November of 2001. For that entire two-year period from August of 1999 until November of 2001, gold and silver shares were basing and didn't really come to life until late 2001.
I suspect we are in another similar basing period that should soon end. WKM has 220 million warrants at $.30 good until 2019. Those warrants traded at $.03 nine months ago and recently at $.005. That's a 83% decline on a 50% decline in the shares. So a 100% rise in the stock might increase the warrant price by 500%. If you really like gold, consider the warrants.
I have bought both shares and warrants. I like the management and the project. Getting approval for an EA would give a boost to the stock, a favorable Pre-Feasibility study would give a boost to the stock and should gold ever go up again, that would give a real boost to the shares. WKM is an advertiser.
Please take some responsibility for your own investment decisions.West Kirkland Mining
WKM-V $.065 (May 1, 2015)
WKLDF-OTCBB 294.1 million shares
WKM.WT $.005 220.9 million warrants at $.30 until April 2019
West Kirkland Mining website