Is GMN Another Lihir?

This is a must read for all new & existing GMN Shareholders
All credit for this articlae has been recerched and compiled by John Rawicki from BlueSky Sharholder Services..

Is GMN another Lihir?
Your stock, Gold Mountain Limited (ASX:GMN), is exploring one of the world’s richest locations for gold.
Papua New Guinea is well-known as one of the richest gold mining areas on the planet. But it wasn’t always like that. Up until 1970, there wasn’t much mining going on in PNG, at least not by large global miners like there is today. The late 1980s in particular saw one of the greatest gold rushes of the modern era in PNG, sparked by an accidental discovery of gold nuggets by Rio Tinto at Mount Kare, in Enga Province (roughly 50km away from Gold Mountain’s project). Traces of gold had been found in nearby creeks before, and artisanal gold mining had historically been done on a small scale by the locals, but the discovery of large shiny nuggets by a global mining giant brought about a sudden rush of thousands of miners to the region. By 1988 there were an estimated 10,000 miners digging, panning, sinking shafts, and finding millions of dollars worth of the shiny yellow metal in the area. It all got a bit crazy. Nuggets were being pulled out of creeks, muddy pits, shaken down from dug up tree roots, and picked up from underneath boulders. There was so much gold being found that some locals estimated up to 1 million ounces of gold were pulled out of the ground around Mount Kare, most of it from the surface. That’s PNG gold for you.
In 1990, Porgera Mine opened. Porgera Mine is also located in Enga Province, about 30km away from Gold Mountain’s project. Porgera is the second largest gold mine in Papua New Guinea and is regarded as one of the world’s top ten gold mines, producing over 500,000 ounces of gold each year. At current prices, that is about $600,000,000 in revenues per year! Porgera achieved total production of 20,000,000 ounces in March 2017…and is still going strong.
Lihir (taken over by Newcrest for $10.6 billion a few years ago) poured its first gold bullion in 1997. The gold deposit at Lihir is within an extinct volcanic crater, and is one of the largest known gold deposits in the world. Lihir now produce an astonishing 900,000 ounces of gold per annum. You do the math.
The geology of Gold Mountain’s Crown Ridge project bears a number of striking resemblances to the Lihir deposit.
Porgera, OK Tedi, Grasberg, Lihir, Frieda River, Hidden Valley…at least a few of these PNG gold mines are household names now and you have no doubt heard of at least some of them. They are among the world’s biggest gold mines, and most have only been developed in the last 2 or 3 decades. PNG is still very much unexplored, and there is little doubt that in our lifetime another world-class deposit (or two) may be discovered in PNG. Could Gold Mountain be the company to bag that elephant? Maybe. What I can confidently tell you is that to date, the signs are very encouraging.

The more I see from GMN, the more confident I feel that we are onto a real winner here. They have found plenty of gold so far, and I firmly believe that they have every chance of finding plenty more, very soon.
GMN first announced their interest in the PNG gold project in June 2014, shortly after the new board was elected. The board, now led by Tony Teng (who was involved in the successful $200 million takeover of Coalworks by Whitehaven in 2012), immediately got to work on an intensive exploration program.
(Side note: I recommended GMN (then called CGU) as a BUY to all my clients, and to the public in May 2014 when the stock was 1.9c.)
GMN found plenty of gold at the surface during this first stage exploration program in late 2014. Panned concentrates from Crown Ridge returned highly anomalous gold values, up to 29.9 grams per tonne – pretty impressive stuff. But it wasn’t the kind of smooth, rounded gold nuggets one normally finds in or around bodies of water. (Nuggets get their smooth, round texture from being pushed along and ‘travelling’ over long periods of time. A nugget that’s travelled means you are not likely to be near the hard rock gold source.) The gold that Gold Mountain kept finding (and they found gold almost everywhere they looked for it) was sharp and angular, meaning the source (ie, the mother lode) was likely nearby, perhaps even right under GMN’s feet.
Further geological mapping identified a potential hard rock gold source for the Crown Ridge project in EL1968, as shown below. As you can see, the potential source area is the outer rim of an ancient volcano (PNG was a volcanic hotspot in ancient times. Volcanic explosions are a great way to bring large deposits of gold, copper, platinum, diamonds and other rarities closer to the Earth’s surface).

On the strength of these initial results, GMN quickly started an intensive 2^nd Stage sampling program in mid 2015 to better define the gold-bearing zone. Again, strongly anomalous gold values were received which confirmed and enhanced the Crown Ridge model. (That’s when I bought even more stock). The GMN team ramped up exploration even further, and engaged a very experienced specialist geologist Douglas Smith, to lead the way.
In September 2015 a ground magnetics survey was done on Crown Ridge, focusing on the area that had yielded the most encouraging sampling results. The results look similar to an MRI scan – a kind of colourful ‘x-ray’ that shows up concentrations of metallic zones. Different metals have different ‘colour signatures’, allowing geologists to interpret what is likely to be there, and how it’s distributed – extremely useful data that really helps in identifying where to drill!
Magnetics data is useful. But even more useful is to take that data, combine it with the very latest 3D mapping technology, and build a detailed 3-dimensional model of the data. That’s exactly what Gold Mountain did, and the results were impressive.
The 3D modelling indicated a strong correlation with the previous sampling results. It proved GMN had been right all along to focus their efforts on this part of Crown Ridge. But the best news was that the 3D modelling indicated extensive, shallow drill targets within the project zone, and that the zone extended past known project limits. It is no surprise that the GMN share price ran up from 4c to 18.5c over the next few weeks as savvy investors scrambled to get on board.
The hunt for the hard rock source (where the surface gold originates from, and by definition is extremely rich in gold) then stepped up another notch. In mid-2016 an intensive trenching program commenced at Crown Ridge. Results were so good (free gold was recovered in the majority of trenches) that GMN wasted no time and quickly moved straight to an accelerated bulk-sampling program at Crown Ridge. Again, the free gold was sharp and angular, meaning they were close to the source. And getting closer every day. Confidence in Crown Ridge rose even higher.
By December 2016, GMN had dug 52 bulk sampling pits (2x2x2m each). 48 of the pits produced visible free gold. This is a very impressive hit rate of 92%. Keep in mind that these pits were only 2 metres deep, yet almost every pit yielded gold. Sharp, angular, free gold. Further 3D modelling again confirmed the presence of a large porphyry target and multiple shallow free gold targets.

I keep emphasising the word ‘shallow’ because when you are mining for gold (or anything else really), the shallower the deposit, the easier, cheaper and faster it will be to mine. A surface deposit means you don’t have to build big expensive mine shafts and complicated infrastructure that can easily run into hundreds of millions of dollars in capex costs. A surface (open pit) mine can get away with minimal capex, often as little as $10m-$20m depending on the size. If you can find a surface deposit, you really do hit the jackpot.
Lihir is a 57 million ounce surface mine. It is literally one deposit, with one open pit mine, stripping away surface gold from multiple ore zones. Indications to date show that GMN’s gold deposit is also likely to be an easily mineable surface one. With gold results being consistently found only a few metres under the ground at Crown Ridge, it really would be a rather simple journey from here to mining.
Results from extended airborne magnetics and 3D modelling, released to the ASX on 27/2/2017, delivered even more good news for GMN. They identified two potential large calderas (collapsed volcanos) at Crown Ridge. To the trained eye of expert geologists, this is massive news, because it means that Crown Ridge potentially has multiple layers of gold-bearing systems, not just the 1 porphyry deposit identified earlier. Whatever estimates you had before, it’s time to reconsider. The features of Crown Ridge started to resemble Lihir more and more.
In the words of GMN’s Exploration Director “This potentially places Crown Ridge in the league of other very large Caldera-hosted deposits such as the nearby 57 Moz Lihir project. As such, for a junior exploration and project development activity to have a project of such potential scale is very encouraging and exciting for our shareholders.”
Exciting indeed. Lihir shares were trading at $4.49 when taken over by Newcrest.
Encouraged by this development, GMN ramped up their bulk sampling program by digging larger 5x5x5m pits in the prospective ‘hot’ zone identified at Crown Ridge. The thing to realise is that GMN has had a laser-sharp focus on only a very small area of Crown Ridge, roughly 1 km² this whole time. GMN is seeking to complete the Stage 2 bulk sampling program with a view to achieving a maiden mineral resource under the JORC code. Gold stocks with a JORC resource grab the attention of brokers, funds, and the general public, and the share price usually gets a nice uplift.
Between February and April 2017, GMN announced very encouraging results from their first large pit (Pit 200). More than 2 ounces of free gold and 9 grams of platinum were recovered. 20 metres away from the pit a hard rock sample with extensive gold mineralisation was uncovered. The sample was cut open and recorded on camera – the video and photos are seriously worth seeing here. When I saw these results announced to the market I knew Crown Ridge has good prospects. I think I actually bought more stock on that day or soon after. A combination of free gold, plus hard rock gold all in the one area. In my view an early stage gold exploration project doesn’t get much better than that!

By April, further 3D modelling of Crown Ridge came back looking very positive. It indicated that the free gold and platinum could extend to depths well over 60 metres. It also showed that GMN is sitting on a large and potentially heavily mineralised rock structure that runs for 4km. If this is the case, this mineral resource would support a significant low-cost bulk mining undertaking.
Just how significant you ask?
Here’s where it all starts to get really exciting! Keep reading.
GMN is now fully funded for drilling, having just raised $3.7 million at 10 cents per share.
GMN has budgeted $1m-$1.5m of that to undertake a drilling and bulk sampling program to identify a mineral resource under the JORC code.
The program will comprise more than 30 new bulk sampling pits in an even more highly-targeted area from the original target of 1km² they’ve been focused on to date. They have narrowed down an area that’s only about 500 metres x 500 metres (0.25sq km) for the bulk sampling and drilling program that will seek to identify a mineral resource under the JORC code, but this time the focus will be on exploring depth. Hence, at the same time as the pits are being dug, GMN will drill 8 or more vertical diamond drill holes up to 40-50 metres depth within this carefully-selected zone to prove consistency with the magnetics and 3D modelling.
If the results of the pits and drilling are consistent with the results to date, then it will truly be a moment to sit back and have a glass of your finest scotch. Here’s why.
In this possible scenario, the JORC calculation would be as follows:
Target Zone = 500 metres x 500 metres x 50 metres = 12,500,000 cubic metres
If the sample from Pit 200 (which was approximately 0.7 grams per cubic metre including platinum) is found to apply to this 12.5 million m3 target zone, the mineralisation under the JORC code would be = 8,750,000 grams of gold. That’s 281,350 ounces.
At today’s $1200/oz, that’s $337,000,000 in mineable gold. It’s $337 million in future revenues if you start mining.
From that one tiny little sliver of land measuring 500x500m.
What if GMN then expands their activities to an area of the full 1 sq km that they’ve been getting great sampling results from? If consistent grades were to be found, multiply everything by 4.
GMN starts drilling in late August or early September, only a few weeks from now. They are seeking to have a mineral resource under the JORC code by end of Q1 2018.
Having a mineral resource under the JORC code will enable Gold Mountain to apply to the PNG Mines Department for a mining licence. Getting a mining licence in PNG is generally not a difficult process. A mining licence means mining activity is permitted, and leads to immediate cashflow, which would be used by GMN to fund further drill targets and expand its mineral resource under the JORC code. As a result of such activity GMN would likely be self-funding.
But achieving a mineral resource under the JORC code isn’t the only thing Gold Mountain is doing. They like to think big. Starting at the same time as the targeted bulk sampling program, GMN will initiate a special diamond drilling program to test multiple targets within the postulated hard rock gold source (shown below). They will drill 3 angled holes, between 150 and 200 metres deep, and potentially more if early results warrant it.
These 3 drill holes will test the potential for a major gold deposit at Crown Ridge.
Having been a GMN shareholder for the past 3 years, I believe that GMN’s proposed programs for the next 6-9 months will enable GMN to maximise its chances of establishing a mineral resource under the JORC code. I am quietly confident that we will see a share price well into the double digits if they hit a home run. I’m already a holder of GMN stock, but I have the feeling that soon I will be wishing I had bought even more.
Best of luck to all shareholders!