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Meadow Bay Gold already drawing admiring glances from the big boys

In December, the company completed the first phase of its drilling programme in on the Atlanta Project, some 250 miles due north of Las Vegas, covering just over 30,000 feet

The next six months will be crucial in the development of TSX-listed Meadow Bay Gold (TSE:MAY), which is already starting to attract the attention of some of the sector’s largest operators. 

In December, the company completed the first phase of its drilling programme in on the Atlanta Project, some 250 miles due north of Las Vegas, covering just over 30,000 feet. 

So we can now expect a steady diet of drill results that it is hoped will culminate in a maiden 43-101 resource statement in the second quarter of 2012. 

The diamond core and reverse circulation drilling just completed will serve three distinct purposes. 

The first objective is to confirm data collated in the 1990s by Goldfields and Kinross. 

They proved up a non-compliant resource of some 464,479 ounces of gold and almost 4 million ounces of silver. 

The company is not treating the estimate as a current mineral resource, but seven twinned holes in the 2011 drill programme appear to support this earlier data. 

Outside consultants, meanwhile, are reviewing the results of the twinned holes with a goal of confirming the validity of the historical drill base.

The second aim is to prove the linear extension of the Atlanta Fault, which, based on the results of an induced polarisation study, can be traced for a further five kilometres north of its historic boundary.

The third aim is exploration of the intrusive porphyry. 

Huge excitement could be generated by the results from a gold-hosting porphyry system within that fault. 

Initial drill results suggest that gold mineralisation is hosted in what is described as an “intrusive latite porphyry”, which is located above the Atlanta fault and about 400 feet below the surface. 

The company is currently awaiting results from 11 holes drilled into the porphyry. But initial indications are that the porphyry is at least 300 meters wide and 400 meters north-south. It also appears to be open to the north. 

This has the potential to utterly transform the scale and economics of the project, according to Meadow Bay’s chief executive Robert Dinning.

He said: “When we went into the property our private thoughts were it was showing almost 500,000 ounces of gold from previous data. 

“So we thought if we could get it up to 1 million ounces, or a million and a half then we felt this would be pretty good and worth the effort to try and get this  verified. 

“The porphyry discovery now alters our thinking and suggests the resource is quite a bit larger.”

Atlanta has been explored and worked intermittently for more than a century from 1860. 

However it was most productive in the decade from 1975 when 121,000 ounces of gold and 800,000 ounces of silver were unearthed.

Meadow Bay bought the property early last year for US$6 million in cash and set about expanding its foot-print from 1,000 acres to around 12,000 by acquiring neighbouring concessions.

The site is unique for a gold project at this stage of development in that it has a 15-mile electrical line to the site, water and accommodation onsite.

Nevada, meanwhile, is one of the most accommodating mining jurisdictions in terms of security of tenure and the co-operation provided by the local authorities, according to Dinning.

That co-operation will be essential as the group spends the next two or three months permitting the area to the north of the main Atlanta fault.

Receiving the necessary permissions allows the Meadow Bay team to extend its drilling programme to the north in search of what they believe might be a second gold-hosting porphyry. 

The discovery of such a find then catapults Atlanta even further up the value chain, according to Dinning. “If this is the case (and we have a second porphyry) then we have huge upside from historical and current information available,” he said.

Last year the group raised US$15 million in three separate tranches. It has allowed the group to embark on this fairly substantial exploration programme.

However now drilling has been curtailed for the foreseeable future, the cash burn will drop dramatically until work resumes, Dinning said. 

This gives the group plenty of breathing space as it completes its permitting requirements, carries out preliminary metallurgy and commences compilation of a GIS database.

This database will be used for both resource calculation and future exploration. 

Already the group has received tentative approaches from companies possibly interested in partnering the project.

And it says a great deal about Atlanta’s potential that some of the industry’s larger operators have been in touch, Dinning revealed.

Where smaller miners might look at gold resources starting around the one million ounce mark, the economics of the industry heavyweights mean they would only consider opportunities of two to three million ounces and above. 

Dinning won’t predict the size of the Atlanta project, but he appeared quietly confident about its scale when we spoke.  

He added: “We need to have that 43-101 (resource statement) to really justify this confidence.”    

The company does have two other projects – Colorback and Spruce Mountain. 

The latter is a potential molybdenum deposit, which is described as “not a priority” as the company is focused currently on gold and silver.

Meadow Bay’s geologists are currently taking a “close look” at Colorback, where there is potential for deeper drilling.

A number of miners have re-visited claims and drilled far deeper than previously to uncover substantial gold deposits.

However, it is Atlanta that provides the main focus for the company, and the most obvious potential valuation kicker.

Proving up a resource of 2-3 million ounces could lead to a significant re-rating based on an in-the-ground gold valuation of US$50-100 an ounce, analysts said. 

Even on the most conservative assumptions there is significant upside on the company’s current market capitalisation of C$40 million, or US$1 a share, they added.

Dinning and his team are examining the potential of contract mining operation at Atlanta. 

However, the likelihood is this project will be acquired by a larger miner if the price is right, a reality the Meadow Bay chief has already recognised.

“The exploration system is a feeder to the miners,” he said.

“Even though we are looking downstream and considering whether to contract mining out, normally what happens is someone comes along and makes an offer you find acceptable.

“The larger miners always need inventory. For most of the big companies the asset base is depleting quicker than they can add to the inventory.