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Buffett Buying Silver Helped Create a Billionaire; Could It Happen with Gold?

Gold has pulled back some to around $1,950 an ounce from its record high at $2,089 set on August 7, but this is just temporary according to most analysts. Catalysts abound for why gold will undergo a protracted rise, including incessant money printing by central banks, a cheap USD, low inflation rates and a bullish supercycle for the precious yellow metal. 

As portfolio trackers go, Warren Buffett, who is famously known for holding equity for years and making billions of dollars by marching to his own drum, effectively gave his stamp of approval to gold this month. SEC filings showed that Berkshire Hathaway (NYSE: BRK.B)(NYSE: BRK.A) invested $564 million in Barrick Gold (NYSE: GOLD)(TSX: ABX) during the second quarter, marking holding company’s first ever gold stock.

As it happens, Berkshire’s first foray into gold aligns with the forecast of Bank of America, which recently set its 18-month price target for gold at $3,000/oz. Further up the road, Myrmikan Research makes a case why gold will reach $10,000/oz.

Berkshire a Good Omen for Gold (and Thomas Kaplan)

Berkshire, which rarely dabbles in commodities at all, made a brilliant call on silver in the late 1990’s, buying 3,500 tons of gold’s cheaper cousin at a bottom. Buffett saw shrinking inventories causing a supply/demand dislocation that would necessitate higher prices to correct. The Oracle of Omaha’s investment shone a bright light on silver companies, including Apex Silver Mines, which was being brought public by founder Thomas Kaplan about the same time the Berkshire silver buying spree was disclosed. 

Kaplan ultimately cashed out on Apex in 2004 with a big profit, taking that money to make even more profits investing in a platinum miner and starting an oil and gas company in Texas on his way to being worth well over $1 billion today. Currently, Kaplan sits as Chairman and the biggest shareholder of NovaGold (NYSE American: NG)(TSX: NG), whose primary asset is the Donlin Creek gold deposit that is co-owned with (wait for it)…Barrick.

A Golden Opportunity (with another Thomas)

Thomas Heathman is an admitted mining junkie. Asked to be involved with a small group of miners with 200 acres of claims in the prolific Plumas County gold district in northern California while working as a consultant to the U.S. Air Force, Heathman liked what he saw in the geology and the historic Treasure Canyon Lode mine on the land. Fast-forward two decades and Heathman, now the President and Director at Eon Discovery, which controls the Treasure Canyon project, is accelerating work and giving everyone an opportunity to participate with Eon recently becoming the flagship subsidiary of publicly held Buscar Company (OTC: CGLD).

As detailed in a recent audio Q&A session with Heathman, Treasure Canyon is full of history scratching at the surface of its potential. Discovered a century ago by Otto Hackbarth and kept in his family until recently, placer mining was conducted at the property’s Lights Creek, with an underground tunnel (the Ada drift) dug near what is believed to be the main Ada quartz vein. 

Hackbarth’s granddaughter tells the story that, using only primitive tools, Otto once headed into the mine to generate money to send for his relatives trapped in Germany as Hitler was coming to power. Within a few days – and with gold selling at just $35 per ounce – Hackbarth produced about $40,000 in gold, which he sent to save his family. At today’s prices, that amount of gold would be worth $2.23 million.

Incidentally, a second vein on the property bears Otto’s name.

A Production Play, Not Merely an Exploration Company

In addition to the anecdotal stories, Heathman has proven, through placer mining, tunnel exploration and geophysical work that there is gold in the deposits, sometimes in large amounts. Work shows that there is a halo of mineralization around both the Ada and Otto veins and that the halo at Otto is up to 127 feet wide.

Heathman is not alone in the contention. A geological report in 2016 analyzing gold concentrations from only the creek level to the top of the mapped veins (no vein extensions, true depth or placer gold considered) showed a calculation indicating the possibility of 3.6 million ounces of gold. That’s $7.02 billion at $1,950/ounce gold.

Now, it is up to Eon to prove these reserves through drilling, assays and geological surveys.

 To date, the team has accomplished a lot despite some tremendous headwinds. After noticing an anomalous area in the tunnel wall and making the prescient decision to turn the tunnel 90 degrees towards the Ada vein, mineralization on the walls began to get higher, reaching from the floor to 9 feet high when digging was stopped only about 15 feet from the main quartz vein. It was also determined that mineralization is about 30-40 feet wide around the Ada vein. A fire assay from this mineralization returned values as high as 29.2 ounces gold per ton.

However, a forest fire ravaged the area in 2006, burning the structural timbers and collapsing the mine tunnel. 

The team had collected about 60 tons of ore in the tunneling process en route to 100 tons required by a mill to process, which was piled outside of the tunnel’s entrance. Returning to the site after the fire, Heathman shoveled about 200-250 pounds uncrushed ore into rocker box to try and get a feel for the grade. Even with the sub-optimal means of processing, the return was right at 0.5 ounce (~112 grams/ton) of gold.

Unfortunately, a heavy year of snow and no ground cover to absorb the melt resulted in a flood of Lights Creek, subsequently washing nearly all of the ore away.

Extrapolating out to 60 tons, it is possible that even an extremely conservative estimate from rocker box processing (250 pounds @ 0.5 oz/ton, or 4 ounces per ton) calculates to 240 ounces of gold, or $468,000 at current prices. At the higher grade (29.2 ounces per ton), it works out to $3.42 million.

Anyway you shake it, there’s a lot of gold and Eon isn’t even to the prime mineralization yet.

Gold in Weeks, Not Months or Years

The acquisition by Buscar provided the capital to get back to assessment work this month. According to Heathman, the process is straightforward and quick. The team is already back on the property with some heavy equipment clearing the overburden, prepping for a mobile processing mill and digging the rubble from the collapsed opening to the tunnel. 

“We believe we can have the original tunnel cleaned out in a couple weeks,” commented Heathman during the interview.

Assessment work will allow mining operations of approximately 8-10 tons of ore per day, which is plenty to allow Eon to assess the recovery rates as it gets back to the halo ore. The company will also be doing grab samples for fire assay to assess native gold in the rock versus sulfide-laden gold, which informs as to the efficiency of the sampling unit.

Under the Phase 1 Plan of Operations, for which approval is expected September/October, Eon will process initially around 8-10 tons per day. Along with general mining activity, Phase 1 approval will allow for widening of the tunnel for modern machinery and reinforcing it with steel. 

A real differentiator here compared to other upstart miners/explorers is that Eon will immediately be generating revenue to help fund operations. Even at 2.5 ounces gold per ton (processing 8 tons daily), that’s 20 ounces per day. At $1,950 per ton gold, that’s $39,000 per day, or $780,000 per month (based upon 20 days of processing).

“Mostly we’re focused on getting back into the ore body that we pulled the 60 tons out of and assess the width and the breadth of it,” says Heathman. “If we’ve got that halo effect, this thing may follow the vein all the way.”

While Eon re-starts mining activity, a helicopter survey (called a VTEM) is scheduled to be performed in September. VTEM’s look deep into the ground to identify anomalies (read as “metal occurrences”), with the added benefit of providing a comparison to nearby properties already known to contain gold, silver, copper or Platinum Group Metals. 

The VTEM is integral to identifying targets for a drilling program slated for 2021.

When Phase 2 begins next summer, an equipment upgrade to a gravity separation unit will happen, increasing milling capacity to 40-50 tons ore per day. “Phase 2 is all about increasing our milling footprint,” according to Heathman.

At 2.5 ounces gold per ton (processing 40 tons daily), 5 days per week, that’s $19.5 million per month at $1,950/oz gold.

Cumulatively, the work will be used to contract a firm to generate a National Instrument 43-101 report next year. NI 43-101 reports are a well-known catalyst for companies because they officially identify proven and probable gold (and gold equivalent) resources.

2022 and Beyond

2021 should be a year that investors will watch Eon blossom from a small outfit of 6-8 employees to multiple crews working on known veins and their halos, while better delineating the numerous veins and overall project that can sustain a mine for decades to come.

Heathman expounds that Buscar and Eon have a bigger vision, and Treasure Canyon is just the start. The existing property is surrounded by more than 800 historical mines, creating a unique opportunity for expansion or acquisition of other projects in close proximity. Heathman says the company will be looking for similar historical mines that can be brought rapidly into production while leveraging the company’s existing infrastructure.

The mobile mill can be used to run tests on potential acquisitions. Furthermore, the upgrade of the milling system will serve as a milling hub and make Eon the only custom mill in the region. This strategy is how the company intends to meet milestones of milling 500 tons per day, albeit from Eon ore on contract milling for others.

“The goal is that Treasure Canyon operations will basically self-finance the ongoing operations and the planned expansion,” said Heathman in the later part of the interview. Talk about an anomaly in the small cap mining world. 

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