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Barkerville Gold Mines (BGM.v): Quinton Hennigh's take

If you want to know about geology, ask a geologist.

Exploration Insights these days isn't just one but two top quality geological brains, as Quinton Hennigh has joined Brent Cook and since that doubleteam got together, the service has even better than it was before (and when it was just Cook it was still the best letter in the biz). The following is a note produced by Quinton Hennigh on Barkerville Gold (BGM.v) over the weekend and your humble scribe asked for and has been given permission to publish it here. The reason I asked is that 1) it's a great rundown of the NR published by BGM.v that sprang the stock hard last week and 2) I'm keen on showing people just how good the Exploration Insights service is because with luck, a few more people will sign up as subscribers. I'm not on any sort of commission either, I just want more people to get smarter about their junior mining investment and there's no better place on the web than the Cook & Hennigh show.

Anyway, without further ado here's Quinton Hennigh's assessment of BGM.v that his subscribers read over the weekend and were able to act upon today Tuesday (this is going up post-closing bell). To learn more about Exploration Insights, go visit the website.


Let’s just visualize what this deposit would have to look like on the ground. It is an order of magnitude richer per cubic meter than the Timmins Camp in Ontario. To support such a resource, the 1,000 by 300 by 300-meter block of ground at Barkerville’s Cow Mountain would have to host approximately 39 kilometers of Mother Lode type veins, at a density of one 2-meter wide vein spaced every 7.6 meters. This assumes each and every vein is consistently grading 5.28 grams per tonne gold along a 300 meter strike and 300 meter depth. Got it?

As a geologist, I will steer away from commenting on some corporate anomalies at Barkerville such as the recent resignation of a couple and the very short tenure (45 days) of a CEO appointed in early March.

I do not have the luxury of having the final NI43-101 report supporting this resource in hand, so my initial review comes from the June 29, 2012 news release and other publically available information from the company’s website and SEDAR. Having reviewed these over the weekend, I would like to address several technical red flags I see around the reported resource at Cow Mountain.

1) This resource is a quantum leap in size and grade over the last resource for the Cariboo Gold Project published by Giroux (2006) which, at a 0.01 oz per ton cut-off, included an indicated resource of 479,504 oz gold at a grade of 0.046 oz per ton gold and and inferred resource of 112,992 oz gold at a grade of 0.033 oz per ton gold. Such growth over such a short time would be extraordinary, especially the increase in grade.

2) All of the resource at Cow Mountain is classified as indicated and none is classified as inferred. It is exceptional to see a resource, especially one of this magnitude, display this high of certainty.
3) The news release mentions that if a block falls within the search ellipse of one drill hole, it is classified as “ore.” Most resource calculations require more stringent criteria for resource blocks to be classified as indicated.
4) From a drill plan map available on Barkerville’s website, I calculate there have been 238 surface drill holes completed at Cow Mountain between 2007 and 2011. In the news release, there is a mention of 2,638 drill holes totaling 145,600 meters, mostly historic, used for calculating this resource. Although results from 2007-2011 drill holes are available in recent news releases and the NI43-101 update report from 2009, data from the vast number of historic holes is not readily available. This lack of transparency is disturbing.
5) There are all of seven cross sections showing drill intercepts on the company’s website. Text displayed on these sections is painfully hard to read due to the very small font size used. Gold intercepts on these sections as well as in recent news releases are mostly narrow, typically no more than a few meters, and of highly variable grades ranging from less than one gram per tonne gold up to rare intercept grading >100 grams per tonne gold. On the sections, no attempt has been made to connect veins from one drill hole to the next. A full set of cross sections like those described as having been employed by the resource modeler in the news release are not available on Barkerville’s website. This makes a critique of the news release’s assertions nearly impossible.
6) A review of recent news releases indicates some drill holes have occasionally intersect narrow, very high grade veins. Mesothermal lode gold systems such as Cariboo commonly display such “nuggety” gold. What is disturbing is that the company has employed extreme grade smearing utilizing these high grade spikes. For example, on December 12, 2011, the company reported an intercept of 62.3 meters at 14.2 grams per tonne gold in hole CM11-102. Within this are two intervals (veins), 0.9 meters at 858.1 grams per tonne gold and 0.7 meters at 84.6 grams per tonne gold. I calculate these smaller intercepts contribute 95% of the gold to the longer intercept, yet represent only 2.5% of its length. Although these high grade intercepts are intriguing, one look at the cross section displaying this hole indicates they do not extend to other nearby holes. Therefore, it is likely these represent small volumes of material, certainly not the large high grade zone implied by the longer reported intercept.
7) Reporting “geological potential” is highly unconventional, but it is done very liberally in this news release. The QP asserts that the Island-Cow-Barkerville belt potentially hosts 405-684 million tons at 0.12-0.16 oz per ton for 65-90 million oz gold. The Rainbow unit of the Barkerville sequence is stated as being the preferential host to veins at Cariboo due to its brittle nature. The news release implies that the resource modeler used this observation to make certain assumptions about volumes of rock, vein density, etc. to help calculate this potential. While such theoretical exercises are entertaining, they are highly speculative and have no place in a news release.

The seven red flags I have presented here are hopefully enough to provide you a taste of my initial review of Barkerville’s resource. This story comes at an interesting time given the current doldrums in the market. I’d urge subscribers to give the observations above some thought and undertake your own due diligence before jumping into this stock.

We have now beaten this one up sufficiently. It is up to Peter T. George, the resource modeler contracted by Barkerville, to, in his upcoming NI 43-101 report, fully illuminate investors on the methodology he employed to calculate this astounding resource. Like Brent, I shall be preparing a cold gin and tonic about 45 days from now in preparation.

Cheers, QH

UPDATE: Good comments being left below this post. Particular agreement with anon at 9:52pm. Also, thanks to one comment I've recently corrected my bad spelling of Quinton Hennigh's name. Thanks for the nudge, appreciated.

UPDATE 2: Brent Cook weighs in, via an interview with Northern Miner.I like the bit where he references Bre-X