Jeff Killeen: Cash And Catalysts Rule The Day

JK: At this point Primero is focused on Black Fox. Down the road there could be some opportunities for consolidation. St Andrew Goldfields Ltd. (SAS:TSX), for instance, is one of Primero's neighbors. St Andrew has been working toward getting the Taylor mine up and running. Once that mine is in operation, St Andrew's mill would be east of Black Fox and Primero's Stock mill whereas Taylor is west. St Andrew would effectively be passing right by Primero's mill to travel to its mill. Do I think that there could be further consolidation in the district? It's possible but I don't think that is as likely. Developing working agreements between companies to improve efficiency is a more likely outcome in my mind.

TGR: What are some other stories under coverage?

JK: Argonaut Gold Inc. (AR:TSX) recently released an initial resource for its San Agustin project in Mexico. Why it's interesting is that San Agustin is the neighboring project to the company's flagship mine, El Castillo, about 10 kilometers away. Argonaut performed well in 2013, yet its shares have underperformed in 2014. I think part of that underperformance has stemmed from some concern about Argonaut's next leg of growth—but the initial San Agustin resource could be that next leg of growth. With an average gold grade of about 0.32 grams per ton (0.32 g/t) in its resource statement, I wouldn't call the grades flashy but the neighboring El Castillo mine has a reserve grade of 0.36 g/t. A PEA for San Agustin before the end of 2014 could be another meaningful catalyst for Argonaut.

TGR: Maybe one more?

JK: One junior that continues to get attention is Pilot Gold, largely on the back of its good work in Turkey and Nevada. We've seen some great results from its Kinsley project in Nevada—some of the better grades I've seen in Nevada in recent memory. How big is the Kinsley deposit? The overall footprint is still fairly small so there is more work to be done to conceptualize the size of the deposit and get investors fully engaged. Nonetheless, the grades are robust and have garnered some market attention.

In Turkey, Pilot identified several new zones at the TV Tower project, a joint venture with Teck Resources Ltd. (TCK:TSX; TCK:NYSE). Again, oxidized mineralization in some cases and showing consistent mineralization patterns. Bottom line: There seems to be a fairly clear path to adding ounces at both projects. Those are the kinds of things that get the market's attention.

TGR: One recent drill result at TV Tower was 130.9 meters grading 1.5 g/t Au and 0.48% Cu starting at surface. You model results like these all the time. What does that look like to you?

JK: No project is a single drill hole, but to have a single hole with those kinds of numbers is an excellent start. If you put several intercepts like that together you can quickly build pounds and ounces. Being able to validate a surface geological interpretation is big and a great starting point for any drill program.

TGR: What's your sense of where we are in the recovery of precious metals equities?

JK: I get the feeling that we have hit the bottom and taken the first leg up—but the next leg up could take some time to materialize. There are individual stocks that should have good performance through the back half of 2014 and over the next 12 to 18 months.

From a broader perspective, a lot of the cost improvements have already materialized and I think there is little producers can do to significantly improve margins or cash flow. To accomplish those things we need to see a few things happen: more fundamental support from the gold price and an increase in physical demand in India and the rest of Asia. Better yields will catalyze the generalist investor back to investing in gold stocks.

TGR: Thank you, Jeff, for your insight.

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Kevin Michael Grace conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining ...

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