Understanding Nevada's Emerging Gold Plays

By: Doug Casey | Sat, Feb 25, 2006
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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.

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.

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.


 

Doug Casey

Author: Doug Casey

Doug Casey
Chairman
Casey Research, LLC.

Doug Casey

Doug Casey is a highly respected author, publisher and professional investor who graduated from Georgetown University in 1968.

Doug literally wrote the book on profiting from periods of economic turmoil: his book Crisis Investing spent multiple weeks as #1 on the New York Times bestseller list and became the best-selling financial book of 1980 with 438,640 copies sold; surpassing big-caliber names, like Free to Choose by Milton Friedman, The Real War by Richard Nixon, and Cosmos by Carl Sagan.

Then Doug broke the record with his next book, Strategic Investing, by receiving the largest advance ever paid for a financial book at the time. Interestingly enough, Doug's book The International Man was the most sold book in the history of Rhodesia.

He has been a featured guest on hundreds of radio and TV shows, including David Letterman, Merv Griffin, Charlie Rose, Phil Donahue, Regis Philbin, Maury Povich, NBC News and CNN; and has been the topic of numerous features in periodicals such as Time, Forbes, People, and the Washington Post.

Doug, who divides his time between homes in Aspen, Colorado; Auckland, New Zealand; and Salta, Argentina, has written newsletters and alert services for sophisticated investors for over 28 years. Doug has lived in 10 countries and visited over 175.

In addition to having served as a trustee on the Board of Governors of Washington College and Northwoods University, Doug has been a director and advisor to nine different financial corporations.

Doug is widely respected as one of the preeminent authorities on "rational speculation," especially in the high-potential natural resource sector.

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