Geology and Geophysics

Unless you are a subscriber to Robert Bishop's Gold Mining Stock Report, you may not have heard about this budding uranium development company. The company's share price had a healthy rally after the San Francisco Gold Show, last November, when Kilgore Minerals (TSX: KAU) was discussed as a potential takeover candidate. Shares in this little-known minerals company catapulted from the C$0.50 - 0.60 range to as high as C$1.13/share by February 6th. Pinetree Capital (TSE: PNP), itself a red-hot stock whose shares have quadrupled since early November, announced it had purchased approximately 10.5 percent of Kilgore Minerals (and if the convertible securities were exercised, its ownership could reach 12.9 percent). What is the excitement over Kilgore Minerals? Norman Burmeister is hardly the promotional type. Even his good friend, letter writer Robert Bishop, describes the company as non-promotional. During our interview, it occurred one might think of Kilgore Minerals as a uranium company inside a gold exploration company. That should become apparent as you continue reading this. And the question was posed to Mr. Burmeister, "At the end of this year, will Kilgore be better known as a gold or uranium company." After a long pause, he responded, "The objective here is to build a mining company." Far from the very promotional Howe Street area, where the majority of the TSX Venture exchange companies have offices, Burmeister is nearly reclusive in a small town in Wyoming. "It's about ten miles to the nearest stop light," he told StockInterview. Actually, Dubois, Wyoming where you'll find Mr. Burmeister is less than 80 miles away from Yellowstone National Park. (Keep driving west on US 287, and you'll be in Montana.) When we hear a company CEO talking up that he's going to build a mining company, the phrase "grain of salt" comes to mind. But a careful review of Mr. Burmeister's resume will snap even the most cynical out of that frame of mind, starting with his graduation from the Colorado School of Mines as a geological engineer. (See bio snapshot at the end of the article.) He's found and developed a gold mine, found deposits, sold them to a major company. Been there, done it, and now he's ready for something even bigger. Kilgore Mineral's Uranium Projects Now, Burmeister has got three gold and 12 uranium properties. The uranium properties are convincing, and the company plans a drill program on one, in Nevada. "We are in the process of permitting one property for a summer drill program. It's a Nevada property that was drilled out by Utah Mining and Construction, which became a division of General Electric. It subsequently became Pathfinder Mines, when GE was ordered to divest their uranium mining and producing facilities." He's referring to the company's 46-claim Mountain West property in Elko, Nevada. One might suspect the hand of Dr. Dieter Krewedl in this property selection. Dr. Krewedl was vice president of exploration for Pathfinder in 1990 - 1995 (and also serves on the board of directors of Strathmore Minerals). "It's not the largest property in our portfolio, but it's handy," Burmeister said humbly. "It's in a good jurisdiction in Elko County, Nevada. It's something that we can get permitted and move forward. It's a relatively low cost type of operation. It's something we think our company with our resources can advance significantly within a budget that isn't going to commit the company's entire resources." Burmeister believes the Nevada uranium asset may have a good grade. "It's near surface with essentially a low stripping ratio, so it could be mined with a slot type of mining operation," he explained. When a deposit is relatively shallow, the slot type mining method can be used, similar to how a quarry is mined. His two Wyoming properties in Crook County, comprising 122 claims, were previously drilled by different major companies in each of the three claim blocks. Homestake Mining drilled over 3,000 holes as late as the mid 1980's on the 48-claim New Group block. In one area alone, within a 40-acre tract, over 250 holes were drilled (about six holes per acre). Bethlehem Steel's 2 claims in the Oshoto Group consist of an admittedly a small property. "But it is right in the center of what was developed in the late 1970's," Burmeister insisted. The joint venture, between Bethlehem Steel and a California-based oil company, did a successful test ISL operation on the property in 1979. As they were winding down the test, and evaluating the results, they had to contend, as did many other uranium exploration companies, with the public outcry after Three Mile Island. Another uranium property block, the 72-claim Wood Group, was also extensively drilled, by Homestake and Pioneer Nuclear. It is estimated several hundred holes explored the property, and 115 holes were drilled on one 160-acre tract. Burmeister hinted his uranium package was still being assembled. The company's website notes, "The Company will continue its efforts on the location and acquisition of historic data associated with its portfolio of uranium properties." What tickles Norman Burmeister's fancy about this area? "It is the Inyan Kara group," he said. His leases are part of a much larger package. "There is roll front Cretaceous sediment that surrounds the Black Hills. We have properties on northern part of the system in Montana, we have properties on the western flank, and this is in addition to lands on the roll front on the eastern flank of the Black Hills." And what makes this important? "It's the equivalent to the stratigraphic unit that has been highly productive in the Powder River Basin," explained Burmeister. "It's also been productive at its southern extremity in South Dakota in the Edgemont District." Others have been announcing uranium leases in Wyoming, and the state has become a hotbed of claims announcements in recent months. How did Kilgore Minerals come across these? "We came by some information in a package of data we purchased that included the definitive location of the roll front," explained Burmeister. "I don't think that information was widely known. That's why these leases were not picked up in the past. I think folks didn't know where that roll front was. That roll front was defined by a major uranium company with over 15 years of exploration in the area, having drilled I don't know how many thousands of reconnaissance drill holes of these things, like one per square mile, over several counties: northeastern Wyoming, southeast Montana, and western South Dakota. That information led to the definition of the roll front where these uranium deposits occur." With that said, Mr. Burmeister is quietly confident. The Kilgore Gold Project But which project gets Norman Burmeister talking breathlessly? Ask him about the company's Kilgore gold property in southeastern Idaho. "I'm very excited about this project," said Burmeister. "It was a property that was very high on Echo Bay's list. At the time they were active, Echo Bay was one of the major gold explorers of the world. They had a very large budget. This was one of their top projects, possibly even their top project." Indeed, Echo Bay had drilled 122 holes (82,987 feet of drilling) in 1994-96, and bought out Placer Dome for 100 percent ownership of the property. The collapse of junior gold exploration in 1997 led to the project (and all Echo Bay projects) being shelved. Kennecott, Placer and Pegasus each drilled the gold property between 1983 and 1994. Kilgore Gold (wholly owned subsidiary of Kilgore Minerals) acquired 100-percent ownership of the property, after the exploration industry had contracted. The smart buy at the bottom of the cycle, which is what Norman Burmeister did. During 2006, the main show for Kilgore Minerals will likely be the summer drilling program on the Kilgore gold property, comprising 150 unpatented claims over an area of approximately 4.7 square miles. The technical report (National Instrument 43-101) was filed on the property by G.H. Rayner and Associates, which estimated 218,000 ounces of gold indicated and 269,000 ounces of gold inferred. To ascertain that estimate, nearly 200 diamond and reverse circulation drill holes for more than 126, 000 feet were completed. Major gold companies spent more than $8 million to bring this property to this level of understanding. As a resource, less than 500,000 ounces is a small deposit. However, a drill intersection, during the summer 2004 drill program, struck a 10-foot section averaging 0.465 ounces/tonne or 14.5 grams per tonne gold. Designated the "Elsa Zone" discovery hole, the intersection found that gold sample more than 4,600 feet from the 487,000-ounce gold resource. A preliminary structural investigation by Stanton W. Caddey, a highly respected geological consultant, concluded in an October (2003) report: "The Kilgore prospect area represents a high quality gold project, much of which remains to be drill tested. Most the previous drilling was focused along a peripheral or satellite segment of the main hydrothermal system.... The primary exploration potential is for a bonanza, epithermal, gold-rich vein system localized along the major N60W-trending McGarry Canyon NW fault zone and subordinate faults in the area referred to as Dog Bone Ridge... Exploration potential at the Kilgore property for more than doubling the present gold resource with further exploration drilling is regarded as excellent." In May 2004, Mine Development Associates of Reno, Nevada completed a scoping level update of Echo Bay's 1996 initial engineering assessment of the Kilgore project. Neil B Prenn, P.E., agreed this is a large epithermal gold deposit, hosted in volcanic and sedimentary rocks, and the resource is hosted within quartz stockwork and in silicified sedimentary rocks. In reviewing Echo Bay's work, he observed that instead of calculating a reserve for the property, they described an "estimate with high confidence, the potential mineable part of the resources," at 10.087 million tonnes, averaging 1.28 grams/tonne, containing 417,000 ounces of gold. The engineer concluded, "The project appears to have reasonably attractive economics if the 'potentially mineable material' can be doubled at $375/ounce gold price." Burmeister believes the best is yet to come. His summary of Echo Bay's previous drilling was simple and to the point, "They were focused on a low-grade open pit occurrence, which is very nice. It has a significant resource. In their enthusiasm to move that particular aspect of the project forward, I think they did not have the chance to step back and look at the overall hydrothermal system, which we have done. Burmeister added, "We think the best may be yet to come by exploring for a high grade underground type of operation which is very much in favor these days." The successful drill hole was a blind discovery at 410 feet of depth. Burmeister clarified, saying "The first hole that we drilled, we were successful in discovering a 'blind' high grade occurrence of gold beneath the barren sinter." He realized the mistake made during the 2004 drill program, "In our enthusiasm to get our arms around this target area, which we call the Dog Bone Ridge area, we took enormous step-outs, and never offset that high grade hole. Subsequent holes were all interesting, museum quality realgar mineralization and stibnite mineralization, which are diagnostic of the epithermal model we're testing. We got anomalous gold, but we didn't get any ore grade material." The Dog Bone Ridge area, as determined by geochemistry, geophysics, geology and structure, is at least 6,000 feet long and 1,800 feet wide. Burmeister explained his better understanding of the target area, "We think this is a very recent geological occurrence, and has not been eroded. Typically, there is no gold on the surface on these systems. It comes as the result of boiling. The gold is precipitated out at that level and does not reach the surface. We're actually dealing with a paleo-surface. Our discovery hole was deeper in the system, below the zone of boiling. So I don't think the other drilling we did, the other core holes, they did nothing but reinforce our interpretation of the system." In July, Kilgore Minerals will proceed where drilling left off in 2004. A recent news release announced, "The summer 2006 drill program is expected to commence in July with the first holes designed to offset the Elsa Zone discovery. There are a number of Elsa 'look-alike' definitive targets within the overall Dog Bone Ridge target area that will also be tested." How does Norman Burmeister explain this in layman's terms? "We're going to offset that discovery hole and find out what that's all about," he told StockInterview. "We'll go about the business of evaluating that project because it's all prospective. We were targeting a projected structural intersection of which there are many. The success we had with that first hole, it's not unique in terms of what we know in the geophysics, the geology, the structure and the geochemistry. That's not to say that all of those targets are going to be successful, but the size of this system indicates it can host a very significant resource." It was an exciting discovery hole, and the summer 2006 drilling program could spell success if drilling results match Burmeister's enthusiasm. In closing, he said, "That hole could well be right smack in the middle of an ore body. We don't know what the orientation of the zone is, because with one hole, it is impossible to know what the dip and the strike is. We don't know if it's close to true width or we hit it at the high angle. But, it's very exciting." Stay Tuned.