Brad Aelicks: Follow up Coverage 2020.11.13
Introduction: Freegold Ventures Ltd (TSX:FVL) released results November 10th 2020 for Hole #’s 3, 4 and 5 of the 2020 drill program at the company’s Golden Summit project just outside of Fairbanks Alaska and 5km from Kinross Gold’s Fort Knox deposit.
The junior market is always very edgy this time of year and last Mondays $100 drop in the gold price had investors even more nervous than normal. There is a lot riding on these results for Freegold as the company pushes forward to prove their Golden Summit property can evolve into a Tier 1 asset being greater than 10 million ounces of gold.
Background: The Golden Summit property has seen continued resource expansion since the inaugural 2011 resource was issued. By August 2013 Freegold published a non pit constrained resource of 6,524,000 ounces of gold as categorized below.
The Dolphin Stock resource is contained predominantly within a uniform intrusive granite body with a modest grade of about 0.63 grams gold but remains wide open for expansion. In fact, the Hole #1 discovery, in 2020 collared just north of the resource proved there may be a much higher-grade bigger prize potential in the sediments surrounding the intrusive to add to that 6.524 million ounces of gold.
Before we go there, I’d like to review one more critical component. Within that 6.524 million ounce resource, in January 2016 Freegold completed a Preliminary Economic Assessment (PEA) within a conceptual pit using a 0.30 gram cut off and demonstrated 2,947,000 ounces of gold at an average grade of 0.69 grams gold as broken out below.
Dolphin Zone Indicated Resource within Conceptual Pit
Dolphin Zone Inferred Resource within Conceptual Pit
The importance of this study demonstrated just this small part of the deposit would produce 98,000 ounces gold per year for 24 years with peak production of 150,000 ounces at a cash cost of $842 using only a $1300 gold price. A key parameter disclosed was the operating cost per tonne of just $18.11 for the sulphide ore and only $14.90 per tonne for the oxide ore.
The PEA also indicates that the first phase of production postulates a heap leach operation for the oxide ore (as did the Fort Knox comparative which sits only 5km south east) with estimated capital cost of only $88 million that would last for 8 years. There are 528,000 ounces in the first phase of oxide production at an average grade of 0.63 grams gold. At current gold prices of US$1850 that is $37.48 per tonne as compared to the $14.90 it would cost to mine and leach it. Further confirmation is knowing that Kinross at its Fort Knox deposit is using a 0.1g/t gold cut off at their pit with a head grade of 0.33 grams per tonne gold according to their Dec 2017 43-101report
The New Discovery: On May 6th 2020 Freegold announced results for GSDL 2001, Hole 1 with 257 m of 2.94 grams per tonne gold including 188m of 3.69 grams per tonne gold, which included high grade sections of 2m of 169 grams gold with the last 20 meters grading 9.87 grams gold. The hole was collared just north of the mineralization in the PEA and drilled to the north. The huge improvement in grade came from the altered sedimentary host rocks that surround the Dolphin intrusive. The drill holes showed pervasive silicification and veinlets throughout the sediments as well as the high-grade veins referenced above.
This exciting new discovery rocketed the stock to $1.95 per share but delays in the lab and Covid precautions with a Canadian company operating in Alaska using Canadian drillers created extraordinary delays and Freegold’s share price has corrected significantly with the rest of the market.
We’re finally starting to get a steady flow of news with 5 holes being released from the 2020 program and confirmation of the discovery would leave investors with an exceptional 2nd chance to gain exposure to this monster historical/ global resource opportunity of 6.524 million ounces @ 0.63 grams gold.
Let’s review progress to date:
At first blush these are, imo, outstanding numbers in every regard. Here’s my take away after a thorough review.
First: The plan map shows these holes are not small step outs, they are starting to define an area over 200m wide east to west between hole 2 and hole 4 and 110m north south between hole 1 and hole 5.
Second: These are monster mineralized intercepts:
But wait, the bull boards became bear boards on Tuesday after an irresponsible post claimed that the one intercept in Hole 5 was smearing the 3 meters of high grade over the length of the hole and the writer claimed when removing that intercept, the company had Sweet F All. Although the point is worth looking at, it is absolutely ridiculous to imagine the company throwing out 3m of 131.5 grams gold no matter where it lays within the 119 m of continuous mineralization let alone the 573 meters of mineralization that it lies within.
Any concern over the influence of high-grade intercepts within a drill hole or deposit is commonly addressed on projects by cutting any one-off high-grade intercepts to come in line with other notable intercepts. So, I posed the question to Freegold’s management and I was told that during their 43-101 reporting process the ultra high grade should be cut to 88 grams per tonne gold. This is still too high for my liking so I’ll take you through an exercise below cutting the high grades from over 4 and 5 ounces per tonne to 1 ounce per tonne.
If we take a look at these five holes, three of them report intercept grades over 100 grams per tonne gold. Hole 1 with 2m of 169.5gpt gold, Hole 3 with 3m of 107gpt gold and Hole 5, with 3m of 131.5gpt gold. The average of these intercepts is actually 136 grams gold – and we’re not talking about 30 cm single assays here – these are 2- and 3-meter wide intercepts.
These intercepts alone make the drill holes incredibly successful no matter what the bulk tonnage zones are. But just to be absolutely sure I cut the assays and recalculated the huge-mineralized intercepts to see if the bulk tonnage expansion into the sediments remains a viable target. I didn’t use the companies suggested 88 grams either. I slashed the high-grade down to the bone, to 1oz or 31.1 grams gold. Here’s what I got.
Now it’s important to understand that I don’t have access to the raw data and cutting these intervals using the raw data could be slightly different. None the less, after completing the exercise, you can see that only 2 of the holes are even affected, Holes 1 and 5, since the Hole 3 intercept of 3 m of 107 grams gold was a stand-alone interval (outside the zone) and the bulk tonnage intercepts remain the same grade, 1.32 grams over 33m, 0.8 grams over 146.5m and 0.95 grams gold over 55m.
Both of the other holes delivered resounding results that are equivalent to or significantly better than the existing global, historic resources of 6.524 million ounces at 0.63 grams and dwarf the numbers being mined only 5km away at Fort Knox’s 0.33 grams per tonne gold. In fact, the average mineralized intercepts across the 5 holes after cutting the high-grade still delivers 309 meters of 1.02 grams gold, 50% better than the Dolphin Stock grade and over 3x the grade at Fort Knox!
Third: Freegold is building ounces incredibly quickly. If we take the area of influence of the 5 holes 250 m east to west and 150 m north south with 309m of mineralized intercepts at 2.68 specific gravity then cut the volume in half as currently this is a triangular wedge and not a rectangle yet, we arrive at 15.53 million tonnes of influence. After cutting the high grade to 1oz Golden Summit could expect to deliver a minimum 509,000 ounces at 1.02 grams gold. As Freegold continues to tighten the drill spacing and proves the continuity of the high-grade without cutting, the average grade of 1.54 grams calculates to 769,000 ounces. At current prices $1850 gold, Freegold may have just added between $925 million and $1.42 Billion in gross metal value with 5 holes. No matter which way you cut it (Pun intended) it’s a long way from Sweet F All and could be the most cost-effective ounces drilled in North America this year.
Fourth: Every hole has delivered additive mineralization in the top 100m of their sections which will improve the economics and strip ratios of the previous Preliminary Economic Assessment discussed above. Freegold has not indicated how much of this is oxide or sulphide but they have announced additional work to be completed on metallurgical studies.
Fifth: Freegold has indicated at least 80 known high-grade gold occurrences on their property at least a half dozen of which have seen production at better than 1 ounce per tonne average. The current drilling is demonstrating that these high-grade veins persist to at least 500m in depth and are often associated with pervasive silica flooding and quartz veinlets that provide opportunities for bulk underground mining no matter what level of pit floor is ultimately proven.
Freegold is just getting out of the gates with results from this years program and although they have had their share of challenges with Covid-19 and lab turn around, the three drills they have turning will continue to bang out a combination of bulk tonnage and high grade intercepts for the foreseeable future as they move north and east towards the former high grade production areas. We will see intercepts from the Tolovana Vein the Wackwitz, Wyoming, Colorado and Cleary veins, as these veins all seem to converge in the current drilling area. Then in 2021 the company will ultimately be afforded the time to get a first look below, and on trend with, American Eagle, News Boy and Hi Yu mines.
Back stopped by a global historic resource of 6.524 million ounces of gold and $30 million in cash, my money is on Freegold’s Golden Summit Project cruising to plus 10 million ounces of gold. But the junior markets are a wild and woolly arena and the ups and downs are not for the faint of heart. The recent price correction along with the rest of the market appears to be an excellent opportunity for those willing to do some proper diligence to capitalize on one of the fastest growing leveraged plays to gold in North America.
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