Kermode Resources is gambling that a stretch of land near Jackson's Arm has the same kind of geology that has yielded a bonanza load of gold in Nevada.
If the Vancouver-based junior is right, the discovery will mean a jackpot for the company and for the province's mining industry.
Kermode's interest in Jackson's Arm is the second roll of the dice for the property.
The region's gold potential was first discovered in 1983 during the construction of the Cat Arm Hydro access road. A local prospector who explored the road found evidence of gold. Labrador Mining and Exploration, which was then owned by Conrad Black, sent a geologist in to take a look. With gold potential confirmed, the company spent two years exploring the property before selling it to BP Canada.
From 1985 to 1991, BP Canada drilled some 63 holes turning up good gold showings. But with BP Canada's decision to get out of the mining exploration business in 1991, all work on the property came to a standstill.
Not until 1999, when geologist Charlie Dearin started going over BP's results and saw a similarity in its geology to the lucrative Carlin gold district in Nevada, did interest in the area revive. Dearin shopped his findings to Neil Briggs, a director with Kermode Resources. Briggs had spent seven years working in Newfoundland with Falconbridge Nickel, so he and Dearin knew each other well.
"I guess it goes back to old connections," says Kermode president Don Moore explaining how his company secured the mineral rights to the land. "Charlie sold Neil the idea that day that maybe this thing could be something along the lines of Nevada."
'what we bid on'
According to Moore, BP Canada saw the potential of a large bulk tonnage gold operation at Jackson's Arm based on the gold contained in the area's granite deposits. BP wasn't looking to find higher grades of gold in the younger sedimentary rocks piled up against the granites.
But that's the way the Carlin gold system, which last year yielded its 50th million ounce of gold, works. It's a similar geological system that Kermode is trying to prove exists at Jackson's Arm.
"And that's what we bid on," says Moore. "We bid on that bait, we liked the fact that there was gold in those sediments (at Jackson's Arm) that hadn't been looked at."
Moore says there's a good reason BP Canada didn't realize the tremendous gold potential in the sedimentary rocks. There was nothing to compare the geology to.
"If you turn the clock back to when they (BP Canada) were looking at it, the Carlin trend really had not taken off. It was a struggling open pit type of mine down in Nevada. The real potential of that area had not yet been realized."
Kermode has begun its exploration program where BP Canada left off, in an area called the Beaver Dam Zone. So far drilling in the sediments has turned up gold values as high as 10.01 and 11.50 grams of gold per tonne over one metre and a third of a metre of drilling core, respectively.
"We've been at it now for the better part of a year," says Moore. "We just got some reasonable financing last summer to do some geochem and get our program started and we're now at the drilling stage and we're excited."
Moore admits he owes a debt of gratitude to the provincial government, both for storing BP Canada's old drilling core for future inspection at Pasadena, and for conducting a large regional geochemical survey in the area, which included part of what is now Kermode's property.
"When Charlie (Dearin) staked the ground, he didn't stake the full suite of ground as we have today," Moore explains. "But when the Newfoundland government did that regional program and we saw that there were results over there, we immediately staked another slab of ground up the eastern side to cover up yet another stretch of geology that was very favourable and then we followed up with a regional geochemical survey... I can't say enough about the back-up that the mining department gives people when you're out there working. They've just been great."
'multi-million ounce potential'
Kermode's own geochemical survey on the heels of the government one yielded 23 drill targets.
"And it's those drill targets out in the sediments that have got us particularly excited," Moore says.
"I think that Jackson's Arm has multi-million ounce potential. I think Jackson's Arm has the potential to host numerous deposits. I go into this project knowing and feeling very strongly that we're going to discover a lot of ounces of gold, but what I can't tell you yet is what kind of grades we're going to be able to get. That Jackson's Arm mineralizing system is big, it's strong, even with this first round of drilling that we've done, we're seeing this mineralized system 45 metres and 47 metres wide."
To earn its 100 per cent interest in the property, Kermode must spend $2 million over five-and-a-half years and pay Dearin's company, South Coast Ventures, $285,000 in cash and 570,000 Kermode shares. Dearin will also retain a three per cent net smelter return on any gold produced at Jackson's Arm.
Moore says it's a really fair deal.
"It's good for Charlie Dearin and it's good for us," he says. "It gives us a chance to get in and do the work that we have to do and, if it all works out, Charlie is going to make himself a nice bundle. I think it's the kind of deal that everybody wins with."
Though Kermode is only a small junior exploration company, it's not looking for other partners to split the cost of exploration. But if the property proves out, Kermode will likely hand it off for development to a major.
"We're not looking to joint venture right now," Moore says. "I know a lot of companies in Newfoundland have the business model (where) they stake the ground and they want to get it joint ventured right away. We've got a slightly different philosophy. We look for projects that have got immense upside (potential) and then, if we get lucky, in this business there's going to be a huge payout to the shareholders. You've got complete exposure and with that exposure goes the downside risk also. But when you see a project like this, it's got a lot of upside."
Moore says Kermode has $900,000 in the kitty to conduct drilling this year and is in the market to raise more.
"We're going to spend the money we've got and hopefully a lot more," Moore says. "To go along with this good geology and everything, we need that old thing called good luck, and you can contribute by crossing your fingers for us."