NuLegacy gets in line on Nevada’s Cortez trend

A little over two decades ago Roger Steininger made a major gold discovery in Nevada by bucking conventional wisdom. Today he’s trying to do it again.

Steininger has found himself chief operations officer and a director at Nevada-focused NuLegacy Gold (NUG-V), which listed on the TSX Venture Exchange at the end of 2010. He is joined by long-time business partner and promoter Albert Matter — who worked to put NuLegacy together, and is now chairman — while James Anderson with his financial background came on as CEO in July to round out the team. All three have set the rather ambitious goal of finding the next major gold deposit on northern Nevada’s Cortez trend.

The team, however, at least have a bit of history behind them. Steininger is credited with discovering the Pipeline deposit on the Cortez trend back in 1989 by following an instinct.

As the story goes, Steininger ignored the directions of his boss, Royal Gold chairman Stanley Dempsey, by pushing the drilling much deeper than was thought to be useful.

“I was drilling down to about seven-hundred feet, and in those days you didn’t drill that deep,” Steininger says, as we rumble along the dirt roads that connect the mega-mines of the Cortez trend. “Stan said later that ‘If I had known you were drilling that deep, I would have fired you. Thank God I didn’t know you were drilling that deep,’” Steininger recounts with a laugh.

Pipeline would eventually become a 20 million oz. deposit, and help establish Cortez as a contender to the state’s fabled Carlin trend.

After legal wranglings, mergers and acquisitions, the deposit eventually became part of Barrick Gold’s (ABX-T, ABX-N) Cortez complex, while Royal Gold was left with a sizeable royalty. Last year Barrick’s Pipeline Cortez property — which includes the Pipeline, Pipeline South and Cortez Hills mines, plus the Goldrush deposit — produced 1.42 million oz. at US$245 per oz. gold, while reserves stood at 306.9 million short tons grading 0.047 oz. per ton for 14.5 million oz. gold.

For NuLegacy, the mines on the trend are more than just evidence that it is exploring in elephant country — its Red Hill property is next in-line for a major deposit. Standing on an exposed scrubby hill on NuLegacy’s 116 sq. km, four-option-deal Red Hill project, you can see the Goldrush deposit where Barrick has 7 million oz. gold already established in indicated and inferred categories. Beyond that you can see the hills that host the Cortez Hill mine. And a short drive along the county road from the Cortez Hill mine brings you to Pipeline. All three deposits line up along a northwest–southeast trend, with Red Hill waiting patiently at the southeast end.

But NuLegacy is not the first to notice the direction and pattern of the Cortez trend that point to Redhill. Many majors tested the ground before and after the potential of the area was known, with Homestake Mining, Kennecott, Pathfinder Exploration, Romarco Minerals, Phelps Dodge, Newcrest Mining, Placer Dome and Barrick all taking a crack at the property between the 1960s and 2008. None came up with too much.

With little success on the property over the years, Barrick was quick to curtail exploration in the area when the market crashed in 2008. According to Albert Matter, Barrick stopped drilling its Goldrush property, pulled out of an option deal with Miranda Gold (MAD-V) and would soon open its own property in the area to optioning, which is where NuLegacy came in.

Sensing an opportunity in the down-market, Matter worked to secure Nevada claims in 2009 while NuLegacy was still private. With Steininger’s reputation, the fledgling company found several open doors, first securing an option deal on Miranda’s 11.3 sq. km Red Hill project in October 2009, then after a year of delay signing a deal with Barrick on its 65 sq. km property, and soon after adding the 39 sq. km Idaho property from Bill Wilson. NuLegacy also secured an option deal from Miranda on the Wood Hills South project at the same time as the other Miranda deal, but Redhill has since become its focus.

The option deals are neither cheap nor prohibitive, considering the district. The Miranda deal has NuLegacy spending US$5.5 million by September 2014 to earn a 60% interest, and can earn 10% more by finishing a feasibility study within four years and spending $1 million on exploration each year.

The Barrick option requires NuLegacy to spend US$5 million on exploration by the end of 2015 for a 70% interest, after which Barrick has 90 days to back into a 70% interest by spending US$15 million over five years. If Barrick earns back in, NuLegacy’s 30% is carried by Barrick until commercial production.

Finally, the Idaho deal requires NuLegacy to spend US$4 million on exploration by the end of 2015, plus advanced royalty payments of US$25,000 a year and a 3% royalty during commercial production.

When asked about the nearly $16 million in spending commitments within the next three years, NuLegacy CEO Anderson said the company could always drop a property if it doesn’t think the spending is worthwhile.

Matter points out that it was only a year after signing the deal with Barrick that the major announced the potential at Goldrush, which rekindled interest in the area.

“You couldn’t have made the same deal today, now that they’ve discovered Goldrush and understand how big it is,” Matter says.

With the deals signed, NuLegacy has the tall order of finding gold where all the majors missed.

Steininger is optimistic, though, and is using the same lessons learned at Pipeline. But there is a lot of work ahead: a thick layer of sandy dirt and dry-scrub brush covers the property, with almost no outcrop showing on Redhill.

The company got its first break in June after releasing results from the Central Mineralized zone on the Barrick property option. Hole 12-006 hit an oxidized intercept of 27.4 metres grading 1.4 grams gold per tonne from 120.4 metres depth, and 19.8 metres grading 0.2 gram gold from 171 metres depth.

The results are hardly eye-catching on their own, but Steininger points out that the gold is contained mostly within silicified limestone, with associated trace elements and alteration that point to Carlin-type gold mineralization.

“It has the right rocks, the right alteration and the right geochemistry,” Steininger sums up.

NuLegacy drilled hole 6 as a follow-up to several holes drilled by an earlier operator, which had all only been drilled to a little over 100 metres — right where NuLegacy hit its encouraging intercept. The company thinks previous operators didn’t drill deep enough, and believes it could be on to a major, oxidized gold deposit.

Tapering expectations on the property, however, is the fact that the other 11 holes drilled this year on the Barrick and Miranda properties hit only anomalous gold. But even then, Steininger isn’t discouraged.

“You drill into something, you’ve got 0.2  to 0.3 [gram gold], but it has the right rocks and alteration, so you know you’re in the gold system,” Steininger says. “This intercept at CMZ, it’s in the right kind of rocks with the right kind of alteration, it’s just the thing you want to see,” Steininger says, “and so you know you’re in the right environment.”

“The next question is: ‘OK, grade and tons,’ and that’s going to take a lot of drilling,” Steininger adds.

The first follow-up drilling on the Central Mineralized zone would start at the end of September once the drill permits are cleared. The company plans to drill 6 holes, each at 300 metres d
eep, to test the potential at depth around discovery hole 6.

Meanwhile, across the empty expanse, Barrick is apparently drilling Goldrush with 12 rigs on site, working to increase the current resources of 11.2 million indicated tons grading 0.113 oz. per ton for 1.3 million oz. gold, plus 41.3 million inferred tons grading 0.139 oz. per ton for 5.8 million oz. gold.

For NuLegacy — with its property hosting mineralization similar to Goldrush, just 8 km southeast across the valley — the potential is hard to ignore.

But markets are not as keen on similarities and potential as they are on results, and NuLegacy’s share price has been hovering at around 14¢. The company hit 40¢ shortly after listing in 2010, but has struggled to gain momentum since.

NuLegacy’s share price had a brief rally to 30¢ in early February on news that induced polarization and resistivity geophysics showed that the Central Pediment anomaly at Red Hill, sitting northeast of the Central Mineralized zone, was larger than previously thought. There was also news of interesting drill results from its Wood Hills project. But the poor market and few results since then has seen the company’s share price decline to where it is now.

At the end of June the company had just over $1 million in working capital thanks to a $440,000 financing in June at 20¢ per unit, though the company originally set out to raise $700,000. The company now has 59.3 million shares outstanding, or 87.2 million fully diluted.

But Steininger seems undaunted by the mixed gold results so far. Instead, he is excited about the trace elements and other indicators that have guided past discoveries in Nevada’s elephant country. Like his past discovery, Steininger is methodically following the evidence, and using his 40 years in the industry to try to find the next big thing.

If he finds a deposit, he could say he had a pretty strong hunch all along — just like when he made the Pipeline discovery.

“A lot of it was just experience. I’ve seen this movie before, and I know how it ends,” Steininger sums up.