West Vault's CEO Sandy McVey organized and hosted a site visit on June 13-15 in the Tonopah area of Nevada for analysts, journalists, investors and newsletter writers that spanned several days and involved 5 gold-silver and 3 lithium claystone companies. I was at first reluctant to participate because I had already researched West Vault Mining Inc, made it a Good Spec Value Favorite on April 13, 2023, and featured it at the May 27, 2023 Metals Investor Forum. The company updated its PFS earlier this year for the permitted Hasbrouck-Three Hills open pit mines and has adopted a strategy where it will not spend any money on exploration nor attempt to build the mine. Instead it is presenting itself as a buyout target for an established producer and offering itself to investors as a leveraged proxy for the price of gold.
At the $1,790 per oz base case price, which is below recent levels, the project clears development hurdles and at a 5% discount rate has an after-tax NPV of USD $190.5 million and IRR of 47.7% (my DCF model based on Jan 2023 PFS assumption - WVM PFS has USD $205.2 million NPV and 51% IRR). For a project at the permitting-feasibility stage waiting for a construction decision the fair value range is 50%-75% of the outcome value, which means the stock should be trading between $2.11-$3.16, 125%-238% higher than the current $0.90-$1.00 range (0.75 USD:CAD, 60.2 million fully diluted, 100% net interest). The leverage to gold comes when you calculate the NPV after increasing the base case price by 68% to $3,000 which results in an NPV 200% higher at USD $573 million. The fair value would jump to a range of $6.30-$9.45 which is 577%-916% higher than the current price.
So why is West Vault such a bargain the market is ignoring? A key problem is that the Hasbrouck project would produce only about 70,000 oz annually over 8 years. That seems too low to be worth the bother for a gold producer to acquire and turn into a standalone mine. But what if a producer decided to make the Tonopah district into its backyard with multiple gold mines? While I would not gain much from visiting the Hasbrouck-Three Hills project apart from the tangible experience of being there, I could potentially learn a lot about who else is active in the area and could become a collective target for a producer like Centerra or AngloGold Ashanti, both of which are active in the southern end of the Walker Lane.
Centerra Gold Inc acquired the Goldfield (Gemfield) project from Waterton on Februry 22, 2022 for USD $206 million. Waterton acquired the project when it bought Chaparral Gold Corp on February 20, 2015 for about CAD $73 million at $0.61. An updated June 2013 feasibility study by International Minerals Corp (from which Chaparral was spun out when Hochschild bought IMZ in 2013) reported a proven and probable reserve of 17,260,000 tonnes at 1.0 g/t gold (567,000 oz in situ 482,000 oz at 85.5% recovery). Waterton spent about USD $7 million to get Hwy 95 moved to bypass the Gemfield deposit. Centerra owns much of the old Goldfield district but as its map indicates there are still plenty of inlier claims held by others. Centerra has not released its own resource estimate. These deposits are classified as high sulphidation epithermal.
AngloGold Ashanti Ltd has tabulated 8.4 million ounces gold at grades ranging 0.24-1.26 g/t gold in the Bullfrog district, with Silicon, which it acquired 100% from Renaissance Gold, hosting 4,220,000 ounces at 0.83 g/t. AngloGold has consolidated the district by buying out Corvus Gold to get North Bullfrog and Motherlode, and purchasing Sterling from Coeur. Silicon is currently the focus of a feasibility study. AngloGold has its hands full with North Bullfrog, but apparently does have exploration claims north of Tonopah.
In the end I decided to participate in the Tonopah Site Visit so as to get a feel for the area and its potential to undergo a mining revival. Over the course of two days we visited the properties of West Vault Mining Inc, Allegiant Gold Inc, Black Rock Silver Corp, Summa Silver Corp and Viva Gold Corp. I call it the Tonopah Adventure Tour because on the second day we visited West Vault's Hasbrouck deposit which did turn out to be quite an adventure. On Tuesday we just piled into trucks and visited the properties of Allegiant, Blackrock and Summa. But on Tuesday morning after breakfast Sandy McVey handed out liability waiver forms for us to sign. It warned of Hasbrouck hazards like crazy donkeys, scorpions, lightning, poisonous snakes, flash floods and "other dangerous wildlife".
After Tuesday's tame site visits I wondered what awaited us. The adventure turned out to be a torturous drive to the top of Hasbrouck "mountain", which juts about 300 metres above the basin floor. The ascent with its hairpin turns was pretty interesting, but the descent promised to be rather hairy. One couple decided they would walk down, which took them only 20 minutes, so it really wasn't anything like my site visits in the Andes of Peru. We all survived without incident. And while I say the purpose of doing the Tonopah Adventure Tour was to assess the mining revival potential of Nevada's Walker Lane, there is something you get from a site visit that is never revealed by a technical report and corporate presentation: a sense for the sheer scale of a project. Standing on top of Hasbrouck it was amazing to realize that if everything works out, this small mountain will be gone, spread out on the valley floor below as 50 metre high piles of waste rock and heap leach pads contoured to blend in with the flat grazing land. |
