Barkerville Gold Mines (CVE:BGM)… where to begin

Remember how Bre-X had a potential of up to 200 million ounces?  Well let me introduce you to Barkerville Gold Mines.  According to Barkerville’s press release, it has a “geological potential” for up to 65-90 million ounces of gold.  (Cue laughter.)

What is happening here is that Barkerville has hired a certain Peter George of Geoex Limited to write a very aggressive technical report for them.  I do not believe that any type of Bre-X style gold salting is occurring.  Rather, Barkerville has hired a geologist who has made a contorted geological interpretation of the gold that exists on Barkerville’s property.  Remember that exploration drilling samples only a tiny fraction of what exists in the ground.  Everything in between and around the drillholes is an educated guess.  In this case, Peter George seems to have made an extremely aggressive guess as to the deposit.

The BCSC (BC Securities Commission) has stepped in and slapped a cease trade order on Barkerville (as there are concerns that the technical report may be ridiculously aggressive and misleading to the investing/speculating public).  Here’s an excerpt from that press release:

Vancouver, BC – Barkerville Gold Mines Ltd. (TSXV: BGM) (the “Company” or “Barkerville”) announced today that the British Columbia Securities Commission (the “BCSC”) has issued a cease trade order, effective August 14, 2012, disclosing that the Company filed a technical report August 13, 2012 that was not in the required form under National Instrument 43-101 Standards of Disclosure for Mineral Projects.

The Company is advised that the cease trade order will remain in place until the Company files a technical report acceptable to the BCSC and addresses all technical disclosure concerns.

Personally I think that Barkerville is a joke of a company.  To be somewhat fair, there is some gold on its property as the property used to host a producing mine.  The mine was shut down after all the most economic ore was mined and the remaining veins of gold were too narrow to mine profitably.  The Cariboo gold district produced slightly over a million ounces of gold in the past from three different mines.  Barkerville’s project is a brownfield exploration project and they did not pay that much for the property, so I wouldn’t expect anything spectacular to come out of the property.  Yet they are claiming that it has the potential to be one of the world’s largest gold deposits.  (In the unlikely event that we do someday find a mega-deposit, it will be some greenfield exploration project with incredible drill results.  It may be some shady junior exploration company that finds it, like Diamond Fields discovering the Voisey’s Bay nickel deposit.  You can be pretty sure that the junior will issue press releases on all of their impressive drill results.  Barkerville did not do this.)

The other reason why Barkerville is a joke is that they spend ridiculous amounts of money on promotion and insider compensation.  For example, this company with current assets of just $9.4M (book value of around $30M) spent over $1M on travel and entertainment in a year.  The G&A spending at this company is extreme.  Google Finance shows $18.16M for the 12 months ending 2012-02-29.

Issues with the technical report that I can see

  1. Geological potential is a bogus concept.  Every property has the potential for some sort of large discovery.  You can make the argument that every junior has a geological potential for tens of millions of ounces.  But just because longshots can happen doesn’t mean that they are likely to happen.
  2. The technical report is unusual in that it talks about geological potential and has many disclaimers so that the author does not get into too much trouble.  The report states EIGHT times: “Inferred resources are too speculative geologically to have economic considerations applied to them and there is no certainty that the inferred resources will be converted to measured and indicated resources.”  Other technical reports do not repeatedly state disclaimers that often.
  3. The report spends a lot of space on geological potential and disclaimers and is very different than other technical reports that I have read.
  4. The capping method is unusual and non-standard.  It is standard practice to use a single value to cap assays at.  That number is based on the statistics of the assay results and probably will not be a nice round number.  The report uses an unusual method with three values that are nice round numbers: “The 10-5-2 capping factor is an empirical capping system often applied in high grade, nuggety gold situations.  Composites greater than 10 oz./ton are cut to 10, composites greater than 5 oz./ton are cut to 5, and composites greater than 2 oz./ton are cut to 2.”  Capping composites to only 10 oz./ton (283 g/t) is rather aggressive.  Most deposits will use a cap value that is a fraction of that.
  5. It’s unusual that such high cap values still have a large impact on the resource estimate (37%).  I would expect that such high cap values would have little effect on the resource estimate.  Something funky must be going on where the majority of the ounces is coming from high-grade assay values.  This suggests that the high-grade assays have been manipulated so that they account for a greater volume/portion of the deposit.
  6. It’s unusual that adjusting the cut-off grade HAS NO EFFECT on the overall resource estimate.  I have never seen this before.  The cut-off grade always affects the size of a resource estimate.  “A cut-off grade of 0.025 ounces per ton was used initially and subsequently cut-off grades of 0.035 and 0.045 ounces per ton were applied. As explained in Section 1.6.5, the above-cut and below-cut resource blocks are comingled hence cut-off grades do not come into play for an open pit where all blocks will have to be mined in order to recover the above cut-off blocks.”
  7. The methodology in the technical report does not match the press release.  The press release states: “mineralized blocks (i.e. meeting the block category of 1 drill hole intercept within the search ellipse range”.  The technical report states: “Mineralized blocks (i.e. meeting the block category of 4 drill hole intercepts within the search ellipse
    range) but below the cut-off grade”.  So is it 1 intercept (you can’t get any more aggressive) or 4 intercepts (less aggressive)?
  8. Similarly, the amount of gold is different between the press release and the technical report.

Links

Quinton Hennigh’s take on Barkerville, published on IKN

Northern Miner (5MB PDF) – Barkerville is a front page story.

Mineweb / BCSC raises doubts on Barkerville’s huge gold resource estimates – Analysis by a Lawrence Williams

Barkerville Announces a NI 43-101 Compliant Indicated Resource of 10,626,100 oz’s Gold on Cow Mtn with a NI 43-101 Compliant Geological Potential of 65 – 90 Million oz’s Gold in an Area Encompassing Approximately 10% of its Cariboo Gold Project

Barkerville Clarifies Technical Disclosure – press release clarifying the earlier one.

Closing remarks

This is an example of what’s wrong with the junior exploration market.

*Disclosure:  No position at the moment.  I will probably short a tiny amount of this in the future if I can.

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2 thoughts on “Barkerville Gold Mines (CVE:BGM)… where to begin

  1. Pingback: Pretium recap | Glenn Chan's Random Notes on Investing

  2. Pingback: Pretium’s Resource Estimate filed Feb 3 2014 | Glenn Chan's Random Notes on Investing

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