Finding a chest of gold at Golden Chest

New Jersey Mining has generated sustainable mining operations in Idaho while achieving discovery success as an emerging producer in a difficult market. Investor's Digest of Canada columnist Mike Kachanovsky.

While the start to 2018 has been somewhat lacklustre, the glass should be considered half-full in the junior mining sector. On one hand, it has been a difficult operating regime for small-scale miners where the costs associated with production have been trimmed to the bone, and yet the low spot prices for gold and silver continue to put a dent in the margins for most companies. However, this sluggish market environment has also contributed to lower acquisitions costs, while drilling expenses have been held in check, and consulting services are available with a limited backlog.

The more ambitious junior mining companies are taking advantage of this opportunity to get deals done, adding new assets that will build a foundation for growth ahead of the next bull market cycle. Consider that during the heights of the last mining mania, many companies overpaid for acquisitions that went sour shortly thereafter.

The lesson here is not a new revelation: The best time to buy a resource property is when the market sentiment is flat.

Assembly property in gold-mining districts

Building a successful mining company requires that management understands the longer-term market cycles and plans accordingly. At Kellogg, Idaho headquartered-New Jersey Mining Co. (OTCMKTS-NJMC), a core focus on achieving production and a keen eye for timely acquisitions have established a solid asset base that should pave the way for future growth.

The management team has been patiently assembling a suite of properties within historic gold-mining districts of Idaho and Montana that have the potential to support a much more significant production objective for the company in the years ahead.

This strategy is based on the early success it achieved at the past-producing Golden Chest mine project, which has been running efficiently since active gold mining operations resumed last year. The largest historic gold mine in northern Idaho, with prior underground mining activity stretching back more than 100 years, Golden Chest has been extensively upgraded since NJMC acquired the project in 2010. The company has been able to define entirely new resource zones at surface that enabled development of a low-cost open pit mine.

The cash flow generated from this work is contributing to the company's longer-term growth plan. Rehabilitation of the underground mine infrastructure was completed late last year, restoring access to remaining higher-grade gold zones that were established from drilling work by previous operators. In addition, the company has completed several rounds of exploration work that have expanded the historic resources and several new high-priority targets have been defined that may deliver further discovery success.

A modern mill and processing plant is currently running at the nearby New Jersey mill. Full-year production from 2017 came in at 3,525 ounces of gold. Underground mining resumed in December and this will now add much higher-grade gold feed to the mill.

Second open pit mine may be developed

NJMC is considering the development of a second open pit mine further along the main system, where exploration has unveiled another ore shoot of higher-grade gold outcropping at surface. This would provide operating flexibility and contribute to accelerated production growth. As it now stands, management guidance indicates 2018 production targets in the range of 5,000 ounces to 7,000 ounces of gold from Golden Chest, representing the potential to double output from the past year.

Longer-term aspirations towards more significant production increases are also in the works to advance the company among the ranks of mid-tier gold producers.

The recently updated technical report for Golden Chest documents more than 250,000 ounces of gold in the measured and indicated categories, plus a further 223,000 ounces inferred. This represents a head start that supports many years of mining while the company advances the next phase of its growth strategy.

The mineral inventory is also very likely to increase as more exploration work is completed at this highly prospective property. The company has purchased a drill rig that will be used for resource definition at the open-pit and deep-drilling programs at the underground mine.

Other properties being acquired

With their backgrounds, including many years of mining and exploration work in Idaho, the management of NJMC is not content with delivering steady growth from just one project in the prolific Murray Gold Belt. Several other attractive prospects in the district are an ideal fit and the company set about acquiring more property leverage with the potential to expand the overall resource magnitude.

In March, NJMC announced the acquisition of the Four Square property, a historic gold and tungsten producer, located further along trend in the Murray Gold Belt. Similar to the Golden Chest mine, this project includes historic underground mine infrastructure with remnant gold-tungsten resource zones, and also the potential to develop near-surface discovery zones from a well-defined vein system encountered at outcrops.

The company has added to existing land holdings there through staking to control more of this vein system, and plans to commence a drilling program later this year.

As a historic gold producer within an established district, the Four Square project was a bargain. The company acquired the asset for US$800,000 to be paid in shares and cash instalments. In part, the successful outcome of this deal was due to the respect afforded to the NJMC management team and its track record of strong performance in the district during the difficult circumstances of the last few years. Perhaps this will contribute towards additional acquisitions that the company is working on as it expands on the beachhead established in northern Idaho.

NJMC also maintains 50 per cent ownership of the Butte Highlands project, an advanced fully-permitted gold mine in Montana. Held under a joint venture partnership, the modern mine infrastructure includes more than a mile of underground workings and surface support facilities.

New Jersey Mining has generated sustainable mining operations in Idaho while achieving discovery success as an emerging producer in a difficult market. Its focused management team has done an excellent job of putting the company on a stable footing. The latest moves to build a larger suite of properties with the potential to build production will furnish meaningful growth opportunities in the years ahead.

Mike Kachanovsky is a freelance writer who specializes in junior mining stocks and also covers technology companies.

This is an edited version of an article that was originally published for subscribers in the May 11, 2018, issue of Investor's Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor's Digest of Canada.

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