Otis Gold Probes High-Grade Potential At Kilgore

SITE VISIT

CLARK CTY., IDAHO — Although Otis Gold (OOO-V, OGLDF-O) has just gotten started with a few thousand metres of drilling and some geophysical surveys at the Kilgore gold project 97 km north of Idaho Falls, Idaho, geologists Mitch Bernardi and John Carden are pretty confident that their hard work won’t be a waste of time.

The reason: this pair of geos has worked here before, so they’ve been able to review the old data — including a historic resource of 706,000 oz. gold at a grade of 15 grams gold per tonne — with ease and certainty.

In fact, Carden was the head of U. S. exploration for Echo Bay Mines when he hired Bernardi as a geologist. And it was Bernardi who suggested the company pick up a couple of properties, one of which was Kilgore, a former Placer Dome U. S. project.

Bernardi became the chief geologist for Kilgore and at the time, the mandate was to develop an open-pit volcanic-hosted gold deposit.

Echo Bay drilled about 110 holes between 1994 and 1996, bringing the total number of drill holes on the property to 110, spread over about 35,000 metres.

“Through all that work we came up with a resource out here of about 700,000 oz. gold. The metallurgy was excellent column leach,” Bernardi recalls.

But Echo Bay closed its doors while the company was in the midst of a prefeasibility study.

The resource is now considered historic but a more recent resource estimate was done in 2002, after Bernardi and Carden’s time, by Kilgore Minerals (which merged with Bayswater Uranium [BAY-V, BYSWF-O]).

Indicated resources were estimated at 7.1 million tons grading 0.031 oz. per ton (0.97 gram gold per tonne) for 218,000 oz. gold, plus another 269,000 inferred oz.

But don’t let these low grades and memories of open-pit targets fool you. Otis is focusing on a high-grade underground deposit, at least to start.

“We know we’ve got these high-grade hits that we got when we were drilling for the bulk-tonnage deposit back in the ’90s,” Bernardi explains.

But because Echo Bay wanted to pursue a bulk-tonnage deposit, Bernardi and Carden never got the chance to follow up on the highgrade intercepts by infill drilling, leaving the area hastily explored. Spacing for the holes was between 200 and 400 ft.

Some of the best intercepts from the ’90s include 90 ft. grading 1.09 oz. per ton, 75 ft. of 0.222 oz. and 65 ft. of 0.241 oz. (27 metres grading 34 grams gold per tonne, 23 metres of 6.9 grams gold and 20 metres at 7.5 grams gold, respectively).

The initial plan is to better define these high-grade zones located within the bulk-tonnage target to see if it would be possible to go the underground route first. Bernardi says permitting an underground mine would be easier than an open-pit mine, but the company is not ignoring the bulk-tonnage potential of the deposit.

The end of Echo Bay didn’t mean the end for Bernardi and Carden. The two continued to work together for junior exploration companies, including Magnum Uranium.

Then, a few years ago, the pair felt they’d brought Magnum’s projects as far as they could go and were itching to get back into gold.

“We said, ‘Well, the gold market looks like it’s emerging and we’ve got some really good gold ideas that we want to go back and follow up on,'” Bernardi says. “We knew one of the core properties we wanted was Kilgore.”

Bernardi and Carden weren’t alone in their pursuit of forming a new gold junior. Craig Lindsay, Magnum’s founder and former president, also helped form Otis and is now Otis’s president. In fact, much of the Otis team comes from either Magnum or Echo Bay. (Magnum merged with Energy Fuels [EFR-T, EFRFF-O] in June).

Otis had its initial public offering in late 2007 and, as luck would have it, the company that held the Kilgore property was looking to option it out. With Otis’s history of working on the project, the company was the natural choice for a partner.

Last June, Otis signed a joint-venture agreement with Bayswater Uranium for the Kilgore, Gold Bug and Hai properties, all in Idaho. Under the deal, Otis paid US$200,000 in cash, and must issue 2.5 million shares and spend US$3 million on exploration over five years to earn a 50% interest in the projects. To earn 75%, Otis must complete a prefeasibility study on Kilgore and issue another 1 million shares. Bayswater would receive a 2% net smelter return royalty (NSR) on the project. Otis can buy 1.75% of the NSR for US$500,000.

Lindsay says the background of the exploration team has been a huge plus. Echo Bay received a state reclamation award for its exploration work at Kilgore in 1995. When Otis applied for a drilling permit last year, Bernardi and Carden were names that weren’t forgotten.

“When they came in with a drill permit application, (the state officials) remembered Mitch and John from the Echo Bay days, elevated the permit to a higher level and approved it in six weeks,” Lindsay says. “We thought it might be months and months.”

The Kilgore property is located about 5 miles west of a village called Kilgore in Clark County, population 1,022. The project area is situated within hilly, forested terrain in the middle of a flat, dry agricultural area known as the Snake River Plain and the Yellowstone Plateau. Grazing cattle and hay fields blend into one another against the backdrop of the low mountain range. Kilgore isn’t much more than a corner with a few houses and a quaint general store with some hunting cabins for rent out back.

“Kilgore is certainly a beautiful, pristine area,” Bernardi says. “The way we feel about it, to try to follow up on an open-pit deposit out here would not be the route to go. We think that an underground deposit makes more sense in terms of permitting.”

The property has a good road network for trucks and SUVs but not cars.

“People know what we are trying to do is keep our footprint to a minimum,” he says. “We’ve used all of the existing roads for all our drill sites. . . environmentally, I think our impact is going to be minimal as far as exploration goes.”

The Kilgore deposit is a part of a volcanic-hosted epithermal gold system. Otis says the mineralization style and setting, host-rock type, thickness and overall size of the mineralizing system are analogous to those characterizing Round Mountain in Nevada and McDonald Meadows in Montana — both multimillion-ounce volcanic-hosted disseminated gold deposits where high-grade, coarse gold feeder veins also exist.

Otis got started with a four-hole drilling program in late 2008. The focus was in the Mine Ridge area, following up on old highgrade assays. Results came by March and April 2009. Intervals were reported between 41.8 metres and 192 metres depth.

The company started a follow-up 3,050-to 3,650-metre drill program in July spread over 15 to 20 holes.

The idea was to step out and fan down on extensions of those historic high-grade intercepts of previous operators, including Echo Bay.

No results have come out yet, however, in October, the company did re-report drill results that came out in the spring.

But this time Otis was hoping to demonstrate the potential for a bulk-tonnage deposit. The cutoff grade was 1.7 grams gold per tonne for the earlier results. Lindsay said that no cutoff grade was used for assays in the latest announcement.

“It didn’t encapsulate all of the bulk-tonnage mineralization that was in that, so we went back and reanalyzed those and wanted to get those out to market,” Lindsay explains.

He points out that the company is exploring three targets — the bulk-tonnage deposit, the highgrade core and a new target, Dog Bone Ridge. Lindsay says the latest press release gives a better picture of what’s there.

“When we went back and looked at it, we really should have reported on the entire length the mineralization in those holes because that really helps the bulk-tonnage story out there because it increases the overall grade,” Linds
ay says. “People look at that and think it’s just high-grade shots, but it’s high-grade shots within the lower-grade bulk-tonnage envelope.”

Lindsay says that when the results from the summer drill program come out, they will report the entire hole and not just the high-grade intercepts.

In October, an Otis press release said that “some recent additional geochemical assay results” from three of the four holes drilled in November and December 2008 contained significant bulk-tonnage, open-pittable thicknesses and grades.

The company called them “new intervals” but they weren’t exactly new. Just more complete and only in metric. The holes were drilled about 38 metres apart along an east-west section of the Mine Ridge area.

The original results from hole OKC-191 included a 1.3-metre intercept grading 60.5 grams gold per tonne, 2 metres of 4.6 grams gold, 8.3 metres of 13.1 grams gold, and 1.8 metres at 54.1 grams per tonne (all between 41.8 metres and 97.2 metres depth).

Results released in October from hole OKC-191 were: 55.4 metres grading 6.15 grams gold per tonne from 41.8 metres depth, and then highlighted the same above higher-grade intercepts reported in the spring.

As for the other holes, in the spring, from hole OKC-192, Otis reported 1.5 metres grading 7.7 grams gold per tonne and 3.9 metres averaging 6.1 grams gold, including 2.1 metres of 9.1 grams gold. These intercepts were between 37.2 metres and 92.9 metres depth.

In October, the company reported a shallower intercept starting at 28 metres depth — 10.7 metres grading 1.32 grams gold.

Another newly reported intercept started at 89 metres depth — 14.6 metres of 2.27 grams gold per tonne.

For hole OKC-193, Otis reported an additional 55-metre interval grading 1.46 grams gold per tonne. This intercept started at 79.6 metres and included the previously reported 2.3 metres grading 8.2 grams gold starting at the same depth.

A new 5.7-metre interval was reported grading 3.3 grams gold starting at 128.9 metres, including the previously reported 2.6 metres grading 24.2 grams gold from 132 metres depth.

The company did not report any additional grades from hole OKC- 194, which returned 1 metre grading 3.4 grams gold and 6.1 metres of 54.7 grams silver.

Otis says the correlation of the detailed geology and structure from core logging and gold assay values between some of the new holes and the Echo Bay holes indicated the presence of a structurally controlled high-grade gold vein system.

There are also old caved underground workings from a company that mined Kilgore during the 1930s. Carden pointed out several of the blocked off adits used as entrances.

But how much gold was produced by that company is unknown. It was shut down by the federal government during the Second World War, along with other gold mines, to free up resources for the war effort. Because it wasn’t a public company, there are no official records.

“We know that some of the piles we’ve analyzed around these old adits run about one ounce per ton,” Carden says.

Whether there’s enough high-grade gold to warrant underground mining is what Otis has yet to figure out.

The company is expecting results from the first six holes of the summer drill program before the end of the year. The company had completed 15 of 18 holes at presstime. Exploration will stop between January and May. Lindsay says the results of the latest drill program will help the company decide if it will begin a prefeasibility study.

Results from a geophysical survey done on a nearby Dog Bone Ridge target should also be coming out soon.

Otis has four other gold projects in Idaho and one gold project in Nevada. The company has about $4.8 million in the bank and it’s just raised another $4 million — $2.4 million through a private placement and $1.6 million in warrant exercises.

At presstime, Otis shares traded at 61¢ apiece with a 52-week high of 82¢ in October and a low of 15¢ last November. The stock has about 15.3 million shares outstanding.