Kootenay Gold’s New Projects Generate Income For Its Mexico Silver Project

By Kevin Michael Grace

Geologist Jim McDonald was in the mining business 20 years when he became President and CEO of Kootenay Gold Inc in 2003. A co-founder of what became Alamos Gold, McDonald pondered the state of the industry and came to this conclusion: “Very few companies were generating new projects, and the ability to do that through prospecting would have more and more value.” In 2011, as the ever-rising value of gold and silver have made the majors desperate for new resources, Kootenay is well positioned to supply them.

Back in the 1990s, McDonald had watched as gold and silver hit bottom, and “A lot of assets were being given up by the majors at ridiculously low prices.” He believed that gold and silver would rebound and that selective acquisition of these assets would generate great value. To pick the right assets, however, would require the right expertise. To that end, he joined forces with entrepreneur and former NHLer Ken Berry, now Kootenay’s Chairman.

McDonald then “collected under one roof a group of professional prospectors who had worked for various projects for 20 years.” The idea was to “take advantage of our human capital, who are among the best in the business at project generation: finding new properties through ground work and quickly evaluating their potential.”

Kootenay chose to focus on central and southern British Columbia and northern Mexico. It was in Mexico that Kootenay secured its flagship property: the 79,000-hectare Promontorio Silver Project in Sonora. Located on the Sierra Madre Trend, which has produced 520 million ounces silver and 15 million ounces gold, it was bought in 2006 for $2 million.

Development at Promontorio is a century old. Between 1988 and 1990, 48,000 tons of ore were processed. It was optioned in 1997 and then abandoned in 1999 because of low metals prices. After a series of drilling campaigns, an August 2010 43-101 resource estimate reveals 5.22 million tonnes averaging 52.7 grams per tonne silver, 0.86% lead and 0.96% zinc indicated (8.9 million ounces silver, 99.3 million pounds lead and 110.8 million pounds zinc). Inferred resources are 0.65 million tonnes averaging 55.7 g/t silver, 0.94% lead and 1% zinc (1.17 million ounces silver, 13.4 million pounds lead and 14.3 million pounds zinc).

McDonald says that Promontorio is proof that northern Mexico remains “highly prospective.” He declares, “The discovery rate there in the last decade is, I believe, unparalleled. There are eight or nine mines in operation, where a decade ago there were none.”

Highlights from February 3 assay results include 38.8 g/t silver and 0.55 g/t gold over 70.5 meters (including 58.6 g/t silver and 1.15 g/t gold over 24 metres), 149 g/t silver and 1.1 g/t gold over 10.5 metres, 17.7 g/t silver over 90 metres, 108.8 g/t silver over 16.5 metres, 26.9 g/t silver and 0.58 g/t gold over 36.4 metres and 23.6 silver over 45 metres.

“We are now in Phase 4 of Promontorio drilling, and it’s looking morepromising than ever,” McDonald says. There are two rigs currently inoperation, seeking to expand the resource to the northeast andsouthwest. “Our objective,” McDonald reports, “is 100 million ouncessilver.”

This will take money, and so Kootenay leverages its over a dozen generative projects to reduce risk through joint ventures and to acquire assets. The most recent example of this was on February 2, when the company optioned 60% of four gold-silver-base metals properties in the Kootenay region of BC to SG Spirit Gold for 4.8 million shares and $4.5 million in exploration expenses.

In addition to SG Spirit, Kootenay has BC option-JV agreements with Theia Resources, Fjordland Exploration, Orestone Mining, Northern Vertex Capital and Astral Mining and Mexico agreements with Copper Creek Gold and Klondike Silver. These agreements have secured Kootenay more than 20 million shares and $31 million in exploration funding.

“We’re receiving strong interest in our remaining generative projects, and pretty soon we’re going to have just about all of our early-stage stuff optioned out,” McDonald reports. He is particularly keen on BC’s Rossland region, which he sees as a potential extension of Idaho’s gold-silver deposits and where “there has been very little real exploration done over the last 20 years.”

McDonald ponders the state of his company, and he likes what he sees. “We are a very well-rounded company,” he argues. “Our ability to assess projects gives us quite an edge. We are also strong on the corporate and marketing side. That’s not something you see with every junior. Most have one strength or the other, but we offer both.”

Kootenay has a market cap of $46 million and $10 million in cash. Shares fell to $0.43 in August but have recovered to $1.04. McDonald attributes the fall to “the general downtown in the industry following 2008″ and Kootenay‘s failed bid to buy Idaho’s Sunshine Silver Mine. “I think the market became confused and got the impression we’d lost faith in Promontorio, our main asset.”

Now that Promontorio is about a year from prefeasibility, McDonald isconfident that confusion has been dispelled. He concludes, “Good silverprojects are scarce, so as we build up more ounces on Promontorio,we’ll become a more serious takeover target. We’re positioned forsuccess.”

This article was posted by Andrea Butterworth on Friday, February 11th, 2011 at 2:27 pm.