Should Gold Mining Investors Consider Kilgore Minerals

We wrote about Kilgore Minerals this past winter, because it holds prospective U.S. uranium similarities. While studying the company, it became apparent the company’s uranium would take a backseat to the company’s gold character in southern Idaho. We reviewed Robert Bishop’s commentary in his self-published Gold Mining Stock Report. Mr. Bishop is highly regarded as an perceptive junior gold stock picker, and his examination is quite thorough. There is little doubt Bishop holds high esteem for Kilgore Minerals’ Chief Executive Norman Burmeister.

More importantly, the very successful Pinetree Capital (Toronto: PNP) has made a meaningful investment in Kilgore. Respectively, the Chief Executive and CFO, Sheldon Inwentash and Larry Goldberg, of both Pinetree Capital and heavily touted Mega Uranium (TSX: MGA), have personally invested in Kilgore Minerals. A recent Forbes magazine article took a swipe at both Mega Uranium and Pinetree Capital. truly, it was more of a head butt. Pinetree Capital is back to trading above C$17/proportion, up from a year ago when it traded for less than $3/proportion. So the Forbes article was a non-event for Pinetree Capital. And their holdings in Kilgore Minerals, which reportedly are estimated at between 10 and 20 percent of the company, were passed by without notice.

character History

Kilgore’s Idaho gold character has been explored since the 1930’s, when a gold discovery was made by the Blue Ledge Co. Nearly 50 claims were staked in 1982 and leased to a Kennecott subsidiary in the mid 1980s. Seven holes were drilled. By 1990, Placer Dome acquired the character and drilled 39 holes, more than 21,000 feet of drilling. A Pegasus joint venture drilled another 23 holes, nearly 10,000 feet of drilling, by 1994. Echo Bay earned majority interest in the character, by 1996, after having spent $3.5 million drilling 122 holes for more than 82,000 feet. In 1997, with the falling price of gold and troubles in the mining sector brought on by the Indonesia stock fraud, Bre-X Minerals, Echo Bay dropped its exploration ambitions on Kilgore – and shelved all of its exploration projects. In 1998, Latitude Minerals continued a modest exploration of a simply 4,000 feet.

Near the bottom of the gold bear market, Kilgore Gold (a wholly owned subsidiary of Kilgore Minerals) acquired 100 percent ownership of the character. A new round of preliminary exploration identified new gold targets. By 2004, Kilgore Gold expanded the company’s character holdings to 3,000 acres. Has this character been drilled like Swiss cheese or does Norman Burmeister know what he is doing? It’s had nearly 200 diamond and reverse circulation drill holes, totaling more than 126,000 feet of drilling.

In an earlier interview with Burmeister, he told us, “I’m very excited about this project. It was a character that was very high on Echo Bay’s list.” Major companies have expended more than $8 million to define a modest, and possibly economic, resource. at the minimum three different entities have established resource estimates on the Kilgore gold character. In 1996, Placer Dome reported 14.1 million tons, grading 0.04 ounces/ton and with a cut-off grade of 0.015, for a place of 561,000 ounces of gold. A year later, Echo Bay released a sectional calculate report showing 18.7 million tons, grading 0.029, for a total of 534,959 ounces of gold.

However, the only resource calculate approved by Canadian regulators (Kilgore trades on the Toronto Venture Exchange) is the Van Brunt/Rayner Technical Report, filed in October 2002, and which is compliant with National Instrument 43-101 (NI 43-101). This report showed about 7 million tons trading 0.031, with a 0.01 cut-off grade, for an indicated resource of 218,000 ounces of gold. The report showed an inferred resource, adding another 269,000 ounces of gold. This is close enough to the Placer Dome and Echo Bay estimates, but it is doubtful to be mineable unless Kilgore finds more gold.

During the 2004 drilling program, Norm Burmeister got the sniff of what might make this an attractive acquisition by a major gold company. “We are looking for a high grade feeder system,” Burmeister told us. In the past drilling program, Burmeister got and encouraging intercept of 0.465 ounce per ton gold over 10 feet within a broader 170-foot zone of low-grade mineralization at 0.04 ounces per ton. On Tuesday, Kilgore Gold made its announcement it would commence its chase to find out if, indeed, there is an elephant discovery of gold on its character.

In an email to us, Norm Burmeister wrote, “The high-grade zone, called the “Elsa Zone”, was intersected at a chief thoroughness of 410 feet. It is important to observe that this hole was drilled in an area that had never been drilled some 4650 feet from the resource area.” The Elsa Zone is located within the Dog Bone Ridge target area. Burmeister also pointed out, “There are no known workings in the area, and there is no known gold mineralization at the surface, consequently making the Elsa Zone a true ‘blind discovery.’ Kilgore’s blind discovery in the Elsa Zone proves there may be some prospects in the very large Dog Bone Ridge target area.

Rationale

The purpose of the 2006 drilling program, Burmeister told us, is to determine “the true possible of the Dog Bone Ridge area target.” Niel Prenn, a specialized engineer with Mine Development Associates of Reno, Nevada, completed a scoping level update of Echo Bay’s 1996 assessment of the project. He wrote, “The project appears to have reasonably attractive economics if the ‘potentially mineable material’ can be doubled at $375/ounce gold price.” Prenn saw the Kilgore project as one with a “large epithermal gold place.” This confirmed an earlier geological report by Stanton W. Caddey, who wrote in an October 2003 report, “Exploration possible at the Kilgore character for more than doubling the present gold resource with further exploration drilling is regarded as excellent.”

The encouraging drill hole in 2004 helped move this project to the current drilling program. “We believe the Dog Bone Ridge target area represents the chief of the hydrothermal system that has generated the known low grade resource at Kilgore,” Burmeister speculated. That’s why he is drilling the Dog Bone Ridge target area. The first holes will be offsets to the promising 2004 discovery hole. “We don’t know the direction or dipping,” said Burmeister, asking “Which way does it go?” The first hole will help Burmeister orient the direction on the north side of the target. Burmeister told us, “The knowledge we hope to gain from the Elsa Zone offsets will be important in efficiently testing other Elsa ‘look-a-like’ definitive targets within the Dog Bone Ridge target area.”

Expectations

A drill campaign tends to strengthen expectations. proportion prices tend to rally higher, depending upon market conditions, during a drill campaign. The company hopes to drill about twelve holes, down between 500 and 800 feet, in the target area. The first hole may be encouraging, but the results from that hole function as an identifier for where to place the next drill hole. “The best target has never been touched,” said Burmeister, referring to the north side of the Dog Bone Ridge. As with many promising similarities, they don’t always offer the easiest access. In this case, Burmeister’s expectant target on the north side of Dog Bone Ridge might only be accessed by helicopter, if that’s where he has to drill.

What happens if Burmeister is accurate in his assessment? If his favored Dog Bone Ridge target does represent the chief of the hydrothermal system, then what will he have found? “As such, it represents an attractive high grade epithermal vein-kind gold target,” Burmeister responded. “The successful interception of high grade gold during the 2004 program confirmed this interpretation.”

In 1980, Burmeister established Bull Run Gold Mines, serving as Chief Executive and developing a successful Nevada gold mine. He arranged the IPO, which led to a NASDAQ National Market listing, and ran the company for eight years.

For thirteen years before that, he was the chief geologist for Silver Standard Resources. Burmeister discovered the Mill Creek orebody in Elko (Nevada), which moved that company forward. The character was afterward sold to Freeport-McMoran. Burmeister also conceived for Silver Standard of a novel regional exploration program, covering 10,000 square miles in the Yukon over nearly unexplored territory. In a joint-venture with ASARCO, he helped discovery the Minto orebody in the Yukon. The copper-gold place is now going into production by Sherwood Copper.

After forty years in the mining industry, he hopes Dog Bone Ridge will add to his string of gold discoveries and corporate success stories.

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