I continue to like MAD's model and the addition of Paul van Eeden to the board is a step welcomed by this (patient) shareholder. - q

Exploration Insights' Brent Cook on Nevada's geology

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Special to Mining Markets

Nevada's Basin and Range is one of the great metallogenic gold provinces of the world. Gold production from Nevada totals about 175 million oz., while proven and probable reserves at existing operations exceed 70 million oz. In 2008 alone, Nevada was ranked as the world's fourth-largest gold producing region, contributing 5.7 million oz. from 19 major gold operations. Exploration spending, as voluntarily reported to the Nevada Division of Mines, is in the US$50-million-per-year range (probably closer to US$70 million) while mine expansion expenditures came to US$110 million in 2008.

Nevada's vast gold endowment is due to the unique geologic evolution of the Basin and Range province and the favourable geology contained therein. This evolution, discussed below as briefly and succinctly as possible, goes something like this.

About 750 million years ago (or six days if you are so inclined), Antarctica and Australia drifted away from North America, leaving an ocean basin stretching far to the west over what is now Nevada. During the following several hundred million years, sand, limestone, silt, metalliferous shales, and deep sea ooze accumulated on this sea floor: a setting analogous to processes going on today along the east coast of North America. Around 350 million years ago, a number of island arcs formed and the thick sequence of deep-water sediments was pushed (thrust) over the shallow water limestones and sands that had formed closer to the continental margin.

The contact (thrust fault) between the lower plate, eastern (autochthonous) rocks, and the overlying upper plate thrusted western (allocthonous) rocks, is an important boundary for gold miners and explorers. It places chemically unfavourable shales and cherts over limestones and sands that are chemically favourable to the precipitation of gold. It is the carbonate, carbon and iron within the lower plate rocks that are reactive to gold-bearing hydrothermal fluids, hence their importance for exploration.

Moving on, roughly 200 million years ago, the ocean floor began subducting beneath the great thickness of sedimentary rocks that is now Nevada. The subduction produced volcanoes and granites plus many of the structures that would eventually be utilized by ore-bearing fluids. Finally, and most importantly, around 40 million years ago the western U.S. began pulling apart, or extending. As this extension proceeded, the Earth's surface was stretched thin (in fact, the distance between what is now Reno and Salt Lake City doubled) and large volumes of lava were erupted across the region.

As Nevada was pulled and wrenched apart, deep cracks formed in the Earth's surface. These cracks did two things; they drew the gold-bearing fluids toward them, and provided the conduits to move the fluids toward the surface. Along the way to the surface, chemical, temperature, and pressure changes in the fluid and adjacent favourable rocks resulted in the precipitation of massive amounts of gold. The more important of these cracks are now delineated by the major gold trends of Nevada: Carlin, Cortez, and, to a lesser degree, the Walker Lane. The biggest and most developed of these, the Carlin Trend, has produced roughly 72 million oz. since its original discovery in the 1980s. It is these Carlin-type, or "sediment-hosted" deposits that are the real giants of the Nevada gold systems.

As you would imagine, the competition for property within these major gold trends is fierce, and exploration has been intense over the past 30 years. Major mining companies, specifically Barrick Gold (ABX-T, ABX-N) and Newmont Mining (NMC-T, NEM-N), who are responsible for 85% of Nevada's current gold production, hold most of the prospective ground on these trends and have been exploring there since the 1980s. Junior companies active within the prolific Carlin and Cortez trends are few and far between. On the Carlin trend, Evolving Gold (EVG-V) is testing deep targets south of the town of Carlin. On the Cortez trend, Miranda Gold (MAD-V) Coral Gold Resources (CLH-V) and US Gold (UXG-T) are the most active junior companies.

Both the Carlin and Cortez trends are mature exploration belts, and most new exploration targets are blind from the surface and usually quite deep. Nearly all of the exploration therefore relies on pushing the limits of our geochemical and geophysical tools into conceptually interesting targets. The costs associated with this style of exploration, essentially using a drill bit to collect basic rock data, can rapidly outstrip a junior company's ability to finance the work required for discovery. That funding hurdle and the associated exploration risk is being dealt with in one of two ways.

Evolving Gold, which has intercepted gold mineralization associated with a deep and strong Carlin-type system, has met this hurdle via a recent $15.6-million placement from Goldcorp (G-T, GG-N). The advantage of bringing a major mining company into the mix is the depth of experience they provide and the possibility of a buyout should the exploration prove successful. The disadvantage, of course, is shareholder dilution as the data collection process (drilling) advances.

The other strategy for financing exploration within these difficult belts is exemplified by Miranda Gold. The company has tested a number of targets along the Cortez trend via funding from joint-venture partners. Although Miranda has yet to make a discovery, drilling has been encouraging enough to bring new partners in as the old ones run out of money or patience. The advantage to this exploration model is that shareholder dilution is minimized. The disadvantage, of course, is that should a discovery be made, shareholders will receive a smaller piece of the eventual prize. Any speculator in Nevada exploration (or anywhere for that matter) needs to weigh the risk to reward offered by a company's financing strategy.

Elsewhere in Nevada, exploration is also going strong, with dozens of junior companies actively retesting old projects as well as initiating new ones. The most exciting new discovery is the Long Canyon gold deposit near the Utah border. Fronteer Gold (FRG-T, FRG-X) and partner AuEx Ventures (XAU-T), which agreed to merge in late August, are defining a robust Carlin-type deposit in an area not previously explored for this type of deposit. Allied Nevada Gold's (ANV-T, ANV-X) Hycroft epithermal deposit has passed the 10-million-oz. resource mark and the company is working on an economically feasible metallurgical process for the sulphide ore. Great Basin Gold (GBG-T, GBG-X) has also begun mining the high-grade epithermal veins at Hollister. In the development stage, Midway Gold (MDW-V) is in the early stages of putting the Pan deposit into production, and there are a number of other juniors defining resources with similar aspirations.

It is my view that Nevada will remain a prime gold mining and exploration region for decades, if not centuries to come. As we've discussed many times in Exploration Insights, however, the key to making a discovery in this, or any, mature province relies in sound geologic work, persistence and money. The key to making money on a discovery is by investing in the junior explorer that is capable of executing an intelligent strategy incorporating geology and persistence without excessive shareholder dilution. Always bear in mind: a discovery is of no value to us if it is not reflected in the share price.

That's the way I see it.

-- The author is a geologist and the editor of the junior mining investment newsletter Exploration Insights (www.explorationinsights.com).