Dave Mathewson | Eighty-Percent of a Junior Gold Explorer’s Budget Must Be Spent Directly on Exploration

In this interview, Dave Mathewson shares regarding the process of gold discovery, his specific approach to gold discovery and many insights on what the mining investor should look for to determine if an exploration company is potentially a good investment opportunity.

Dave Mathewson is a geologist-explorer with 35 years of exploration experience in Nevada alone. Notable discoveries made while Head of Newmont Nevada’s Exploration team from 1989 through 2001 include: Tess, Northwest Rain, Saddle and South Emigrant in the Rain mining district. From 1999-2001 the Mathewson-led team made important deposit extension discoveries at Newmont’s Gold Quarry and Mike deposits. Most recently his work at Gold Standard Ventures led to the consolidation of the Railroad-Pinion district and the North Bullion & Bald Mountain discoveries.  Currently he is the Head of Exploration at US Gold Corp where they are currently drilling their Copper King project in Wyoming and their Keystone project in Nevada.

0:05 Introductions of Topic and Guest

1:06 Dave’s background and success as an exploration geologist

7:33 What are key things Dave looks for to determine if an exploration project is worth pursuing

8:57 Using geophysics in gold exploration

10:40 How important is it for a geologist to actually walk the property they are exploring?

11:51 Differences between older geologists and the newest generation of geologists

13:31 Key current-day trends in gold exploration

16:22 Key drivers of value in gold exploration companies

18:10 How should a junior gold explorer budget its spending?

19:30 Dave’s insights on analyzing exploration company press releases

21:51 US Gold Corp’s current projects and exploration program

BEGIN TRANSCRIPT:

Bill: Thanks for tuning in. Welcome back, ladies and gentlemen, to another Mining Stock Education expert interview. Today’s topic of discussion is regarding the process of gold discovery. It’s impossible to intelligently speculate an early-stage exploration gold mining stocks without understanding the process by which gold is discovered. So I have on the line with me, Dave Mathewson. Dave is a seasoned geologist with 35 years of gold exploration experience in Nevada alone, and he’s had several notable gold discoveries under his belt. Currently, he’s the head of exploration at U.S. Gold Corp. where they’re currently drilling Keystone project in Nevada, and also their Copper King project in Wyoming. Dave, thanks for coming on the program to share your insights.

Dave: Yes. I’m looking forward to this interview. Thank you.

Bill: Dave, could you give a little more detail regarding your background and success in gold exploration, please.

Dave: You bet. Well, my background goes back quite a long way. When I dropped out of college no less after my sophomore year, struggling academically and all that, and went to Suriname to actually get involved. And I was involved with bauxite exploration. And that was in 1964 and ’65, so that kind of dates the beginning of my efforts and work as an explorationist. Literally, I was involved with the discovery of bauxite, and that put the fire into my guts. And from then on, I knew exactly what I wanted to do academically. I pursued academics with a vigor and went from rather low to moderate grades to very good grades. At that point, I really knew I wanted to become an exploration geologist. I literally got the fire in my gut to do so. After college, I worked for various companies. I’ve actually worked for a large number of companies.

The longest was Newmont for a period of 12 to 13 years, mostly around and on the Carlin Trend, which was a great place to be working and exploring. And I had some success there, and then I’d pick what I would consider to be my exploration prowess outside of the corporation arena into the smaller and more entrepreneurial sectors, particularly junior exploration companies. That would include a couple that I formed myself, Tone Resources, a company called Gold Run, Nevada Gold Holdings, Gold Standard Ventures, and the most recent here is U.S. Gold Corporation.

Bill: What specific discoveries, gold discoveries? Can you talk a little bit about the ones you’ve been a part of discovering in Nevada?

Dave: I can and will. Well, I worked for Atlas for five years just prior to going to work for Newmont. And Atlas is known for their successes in the gold bar region in the Roberts Mountains. That’s a central part of north-central Nevada where there’s been a number of discoveries. And just to the north of that actually, just the north is our Keystone project which actually came about a little bit as a result of my efforts for Atlas back then. That was in the early 1980s, mid-1980s. And, of course, there’s Cortez Hills in the emerging Cortez District just to the north of that. I joined Newmont in 1989. I actually left them in 1991, but rejoined them in ’92 when Bruce Harvey, the Exploration Manager in the Carlin Trend, put a team together, and he asked me to come onboard. My first assignment was in the Rain District. And this was a district that “had been considered for a long time, and over-drilled small deposit district.”

I began work there, in earliest, 1992, and I came back to Bruce, talked to Bruce Harvey and I said that I thought the district was very underexplored in spite of the fact it had almost 2,000 holes that had been drilled previously, almost all of them by Newmont. There are a couple other companies. Homestake was in a portion of the area, Teck and a couple other companies. But there was a distinct lack of success for a long period of time, well, basically from the discovery of the Rain deposit itself. And I believe that’s in about 1985 or ’84, something on that age. Anyway, I turned the district around, applied geophysics, redid the geology of the entire district, and then proceeded to start drilling holes that were meaningful and were discovery holes. The first deposit that I discovered then was in mid to late ’92 was the Test deposit northwest of the Rain deposit. And then I went back toward the Rain deposit itself, historic Rain deposit and found northwest Rain deposit, just off the plank of Rain, and then went back to the west…or northwest Nevada and discovered the Saddle deposit.

I also discovered the major extension of the Emigrant deposit south of the known Emigrant Springs deposit at that time. So, the bulk of the gold was discovered starting in 1992 through my time there at about 1995. A little bit of it continued but…

Bill: And how many ounces of gold did it total, all the districts?

Dave: Right around four-and-a-half million ounces total. And there was about a million-and-a-half known prior to that time. So, it went from 1.5 million to 6 million under my guidance. And I’d like to point out one of my primary tools of use and application was gravity. Gravity was a new geophysical method not used so much in exploration, used actually in mining and for density determinations and finding voids in rocks and things like that. But I saw the application in exploration and for exploration, applied it very well, and it provided the best guide that I could have possibly imagined to the discoveries of those deposits. And that provided linear elements which became the major structures and zones of alteration. And to this day, I’m a huge firm believer in the application of gravity, and I use it everywhere in great detail. And I’ll have time maybe to say something about our application of the method at Keystone.

Bill: So, when you’re sizing up a potential project to determine if it’s worth your time, what are some things you look for, and you can use current examples with U.S. Gold Corp currently if you’d like?

Dave: Well, I’m a huge fan of location. As I put it like a real estate agent might, location, location, location. There are places in the earth’s crust which are particularly well-endowed, and that would include north-central Nevada, but that’s a big area. That’s as big as many of the individual states in the United States. So you have to refine down from there, but again, it’s location, location, so you look for reasons for these deposits to line up. They’re referred to sometimes as trends. I tend to line up things a little bit more geologically because trends are always based on the discovery of gold deposits, but that may mean there weren’t any gold deposits discovered in uncertain places. But the geology is right, and so I go after the geology. I think north-central Nevada is, obviously, it’s one of the premiere places in the world to be exploring for gold. And frankly, I believe that a very large portion of the gold that is in that part of the earth’s crust is yet to be discovered.

Bill: And then when you are actually on the ground, you mentioned gravity. What about geochemical, other geophysical methods? What do you prefer, and how do you apply those in Nevada?

Dave: Well, yeah. The geophysical methods really depend upon the rocks, which is one thing to find out about the rocks, different aspects of the rocks. For example, gravity is good for breaks in density, which could reflect structures. That’s a very good thing and important criteria in gold exploration. And also, density changes relating to alteration features. And this really came in big in the Rain district in my mind because the detailed gravity which show features which I started to question my mind about. “Well, why are these features showing up?” And often, those features related to alteration changes in the rock very important. The gold is sometimes related to, for example, dolomitization. Dolomite is a high-density element. And so, look for zones of higher density that might be reflecting dolomitization. And that was one of the key criteria used at Rain to make some of the discovery there. And I’ve used it ever since in various fashions. Also, you can destroy density in rock by eliminating or removing some materials such as carbonate from a carbonate rock and replacing it with silica. That tends to lower the density and these features will also show up in gravity data.

Bill: How important do you think it is to walk the actual project you’re exploring and not just rely on some of these geophysical data or 3D modeling?

Dave: Well, absolutely, you have to have a very good sense of what you’re looking at and what you’re looking for. And I should have elaborate from the previous question, a little bit about the geochemistry, too. And that really applies to what you’re looking at, like, in this question. So you’re looking at a rock and wondering, “What’s happening in that rock? Was it one of the only ways, the best ways to find out what’s happening?” There are other ways such as petrography, but is through the geochemistry. Elements that come in and are exotic, they don’t necessarily belong there. They can be part of a global system, for example, and the geochemistry, what we refer to as pathfinder geochemistry. And the big ones, the big elements there, arsenic, anemone, mercury, zinc, and a few other elements that often accompany gold, but gold may not be there. But if they’re there, that can be a good indicator that gold might be nearby.

Bill: When you look at your generation of exploration geologist, and you see the newest generation of exploration geologist, can you talk about some of the differences?

Dave: I can. I would say the typical elderly, older, more-experienced geologist is a person. And frankly, more capable geologist is a person that has a lot of field experience. I can look at rock and I see subtleties, changes, and things that are different that don’t belong there or should belong there and are not there, and that’s experience-based. And I think it’s extremely important, and I intended to do my best to always learn from those kinds of geologists out there that were successful. And I actually worked a little bit with John Livermore, and there were others, Bruce Harvey in another one, and other that were successful. And I paid a lot of attention to the reasons for their success, and a lot of that revolves around looking at the rocks, and looking for features in those rocks. I had literally stood on our crops with other geologists. And I look down at my feet and I say, “Oh my Gosh, this looks great.”

And all the other geologists sometimes, not always the case, are looking off in the distance and I don’t know what they’re contemplating, but I’m looking at the rocks at my feet always and very carefully and considerately. And I have found that to be the greatest and most valuable tool in gold exploration.

Bill: You shared how you’re an early adopter of using the gravity method for prospecting, and that that new technology helped you with the discoveries. What are some key trends you see now that will help the future of gold exploration?

Dave: Well, I think that much of the future gold exploration revolves around continued application of some of these methods, and refinement of those applications. And that is, you learn. You learn as you go. And you may have an idea and you apply some geophysics, could be gravity or could be some electrical method, and you apply a drill or put a drill to the test. And then you start to get hints about, “Well, this is working. That’s not working,” and so on and so forth. It’s a very iterative thoughtful process of where you go through this process ultimately to make the discoveries. It’s a hard long-fought, sometimes expensive, but it’s a great, fun, and enjoyable process, especially when you end up sticking on to something very good.

Bill: I listened to a round-table discussion once of some mining investors, and geologists and the question was asked, “What could potentially drive the price of gold down far?” And one of the commentators responded, “Well, if there’s new technological development that would cause us to basically see into the earth so we can more accurately pinpoint where the gold is and then that would bring a great supply to the market.” Any comments on that?

Dave: My comment would be, we are in fact looking down into the earth much better than we have in the past. And this relates to, and as a result of all the tools that are being applied, and probably in particular, geology itself, understanding the geology, the nuances. The models of these deposits is very important. And as I put it to everybody that I talked to, it’s really the subtleties that matter in this business, and an assessment of those subtleties. And some people, I think, are better at it than others I think. And this is where, and I mentioned it earlier, experience really factors in hugely to this process when some people are gonna look at rocks and see some very interesting and informative features and characteristics, and they’re meaningful. And others will just walk over rocks without hardly looking at them and considering them. And those don’t tend to make good explorers certainly, discoverers.

Bill: Dave, my next few questions will relate to what the mining investors should look for in a gold exploration company. So the first question is, what are some key drivers of value for exploration companies?

Dave: I think if you look at the history and across the board, I think the first thing that investors should look at is the leadership. “Who is leading the process, and what is that person’s track record?” Now, track records are out there. It’s hard to sometimes discern them and evaluate them or even understand them or even hear about them sometimes because often, explorers move around a lot. That’s one to stand and move around from company to companies. But follow those explorers. There’s a bunch of them out there. That would be the number one thing to do. And then look at what that explorer is doing, and certainly the track record always. That’s a big, big ticket item. But I would say, look at how that explorer is approaching things, is it in a fashion that were old that you think would be successful? Are the right tools being used? And probably the person, foremost and most importantly, is that geologist drilling holes because there’s…I think there’s a lot of companies out there that have properties, maybe good properties or maybe not so good, but the drilling is inadequate and lacking.

Look at those companies that are drilling. The drill is really the primary means of ultimately making a discovery, but those discoveries have to be led by good quality explorers, high-quality smart explorers.

Bill: When the investor is looking at how a company spends the money that it raises, what percentage of money raised do you think needs to be spent on actual exploration and not just G&A?

Dave: That’s a very good question, and I have what I think is a pretty good answer to it. When I worked for Newmont, we, and that would be Bruce Harvey, myself, and a few others, we tried to achieve a 70% money into the ground. Now, that left 30% for G&A and all these other superfluous things. That was our goal, and we came very close. And it was extraordinary because the past was, maybe 50%. And then when this team left, it became, once again, a dismal probably less than 50%. Look at juniors on the other hand, and I would say 80% of the money should go directly into the ground, and that is directly toward the discovery process, whatever methods are being employed, geochemistry, geophysics, drilling in particular. But 80%, no less than that, should be implemented or achieved or conducted for an exploration for junior companies.

Bill: When it comes for the money investor analyzing company press releases, let’s start with red flags. What are some red flags that the investors should look for when they’re reading exploration company press releases?

Dave: Well, one thing I would suggest would be not much in the way of new news. I think we all read press releases. And if there’s no new news, and that is it’s a rehash of something that was previously brought out, and/or there’s no, let’s say, increased or more valuable indicators such as some better grades, some bigger, greater thicknesses of drill holes, higher levels of surface samples, talk about distinct anomalies in geophysics and that sort of things. So, there’s a lot of press releases that kind of just rehash some of the same things that have been brought up in the past. There obviously, the company is probably not going anywhere. What you look for are changes and positive changes. And I would refer to it as almost a vector in a mental vector in process where you see positive emerging. That’s the way discoveries are made. It can be literally overnight that a discovery is made, and it only takes one good drill hole.

But usually, there’s a process involved where some of the drilling gets better, some thicker intercepts. Maybe some higher grades kicked into the intervals, and so on and so forth, but watch for that vectoring. As an investor, that’s what I would be doing. And of course, always look at the people that are involved. With the void companies that have a high turnover, for one thing, I think that tends to mean that they’re floundering a little bit and I don’t wanna point fingers to any company out there because we all go through the process of changes. But I would say solid and steady approaches to things and positive results happening on almost continued basis.

Bill: Let’s talk about your specific projects that you have, the Copper King project in Wyoming, and then the Keystone project in Nevada. Can you let us know what geological theory you’re working with there, and what are your goals, and when can we expect results?

Dave: Yes. I’ll start with Copper King only because it’s kind of…and for two reasons. It’s more of a discrete entity. It’s had many years of exploration, many companies have explored the project. But one of the things we did last year, it was early last year, and this is into the ’17, was we decided to do some additional geophysics. To my knowledge, geophysics methods change. They improve. They get better. And what I saw was that there was room for more geophysics coverage on this property. It’s about a two-section State of Wyoming owned area at which we’re exploited, so of limited size. We applied both ground magnetics and IP in considerable detail. And out of that emerged…well, yes, we got some ground magnetics anomalies, and we knew that gold was somewhat associated with magnetite, which is a reflector that provides a magnetic positive and an IP. We also knew that sulfides, the gold and copper…this is gold and copper and zinc and silver deposited obviously that has been known is associated with sulfide.

So what happened was, we ended up drawing four holes and was…Hole number one, that was on the west flank of the known deposit in an area that had a higher chargeability than the deposit itself, the known deposit, which is approximately a two-million-ounce equivalent deposit if you take gold and combine it with copper. And then there’s, as I mentioned, silver and zinc also. But we made it a discovery of a continuation. It was about a 200-meter step-out to the west of the known Copper King deposits and had a very nice hole. And that’s what we reported in our press releases and so on, the information is there. We are now following with additional program to further expand that discovery. It’s significant from the standpoint of what it could contribute to the ultimate size of the Copper King deposit, and I’m gonna just say it. It’s guess work at this point, but it could increase by 50 or more percent in size.

The grade, I’ll probably say, about the same. The grade was consistent with the historic grades. We’re planning on drilling that beginning approximately the middle of July, so we’ll have results early beginning…

Bill: September?

Dave: Well, mid-August I’ll say when we probably have some results out. And because it is a follow-up drilling program, we’re not gonna necessarily wait for every hole. We’ll report them as they come in, and we should do that anyway. So, we have that to look forward to. I’m putting the program together as we speak. Now, Keystone, our Nevada project is really our flagship. That’s a project that emerged actually through me. I put it together literally from scratch. Although I’ve had some property positions in that area for a long time, I’ve always known about Keystone and the district for a long time since my Atlas days in the early 1980s. I always liked it. I didn’t have much understanding of it. I never spent a whole lot of time there because there were companies XYZ, BDW and they were in and out of the area. The property positions were fragmented. All the previous drilling was fairly shallow. There were about 250 holes drilled total historically, and the average depth of those holes was about 250 feet, so their people are looking for shallow oxide which there may be some there.

But I think the bigger targets, the better targets are getting down into the better host rocks, which we are doing, and we have a big thick package of host rock possibilities which include Devonian Horse Canyon, Devonian Wenban Formation. And our Wenban really looks good. It’s comparable with the Wenban and how it looks in the Cortez and Pipeline area. And then Roberts Mountain is below that. These units, by the way, are all exposed at the surface in some places. It’s a structural geological mess. And I kind of like this. I do like it, but it’s a two-edged sword, and that, yes, it’s good to have all this complexity. But, yes, this complexity makes the job of geology and exploration maybe a little bit more difficult. But having said that, this complexity is one of the key places or I would say, if you see complexity, that’s where you wanna be in the scheme of things, and we are smack dab on the Cortez zone of the Battle Mountain-Eureka Trend. And clearly in the same rock, same intrusive ages, we have early treasury intrusives. We’re doing a lot of [inaudible 00:27:09], wound up with about 40 days right now, we have 10, and all those dates are on the 34 to 36 man year-old dates. Perfect.

That’s the same dates that they existed Cortez and Pipeline and so on. So we’re right on a major trend, right in some the best-looking rocks I’ve seen in an area that’s very, very complex. We’re just beginning to understand the geology where we have a person that’s been now mapping for a little over two years, and putting together some of the most excruciatingly difficult and complex geology that I’ve seen anywhere. But again, that tends to land toward a prospectivity very much. We’ve drilled about a dozen holes. Mostly, we’re about half core and half RC. They core holes were drilled largely for information in some places where we needed information, badly needed it, like, “What is the stratigraphy? How does it package up? What are the lithologies? What do they look like, and the best way to find them?” You can get that information as with core drilling. But now, we shifted to RC drilling a little bit more because I can look at the rock and say what this…I know what this looks like because we have it in core.

Our hole-spacing is nominal, say one mile apart at this point. We’re just now turning corners with respect to finding and identifying valid and very interesting and compelling targets. In addition to the drilling we’ve done, we’ve probably tripled the number of the amount of geochemistry. We have done detailed gravity, like, gravity has never been done even by me, even on the Carlin Trend. And as we’ve seen, more and more detail is giving us more and more features in the rocks, more definition on those features. We’re seeing a lot of interesting gravity loads associated or adjacent to gravity highs. Now, this suggested various forms of alteration, and we do have the areas, maps to some degree. I’d say about 50% of it is covered with upper-plate rock, which tends to obscure targets below, but we’re working outward and toward and underneath the upper-plate rocks, rock units.

Now, this is really an exciting area. I’ve never seen anything quite like it. From the standpoint of the appearances, the geochemistry is outstanding. I mean a lot of the drill holes, we’ve encountered a visible arsenic minerals, realgar, orpiment, arsenopyrite, quite a bit of zinc, which is a common epithermal associate. There’s very, very splashy anemonean places, mercury, and gold. We’re hitting very spiky and interesting gold. The key is to find out where those feeder structures are. And because we’re dealing with such a huge area, and in places largely massed by upper-plate rock and/or other structures. So, they could be flat structures, other forms less [inaudible 00:30:38] of stratigraphy and so on. The process is long and drawn out. And I would like to add one issue that has sort of held us up a bit, is the fact that we have not been able to do as much exploration in places that we’d like to do because that involves reaching out and disturbance. Right now, we have five NOIs. Each NOI gives us five acres of disturbance. That’s very, very limited for an area that the whole prospect or project areas is 20 square miles laterally.

And then vertically, we have a big depth factor of 3,000 or so feet of permissive rocks. We commenced an EA that is to give us a plan of operations almost two years ago now, and we’re nearing completion. We’ve been told from BOM and our regulator people, to Wood, that is doing that work that this will be completed approximately mid-August. But all this process depends upon government approvals and sign-offs and so on and so forth, but that looks pretty good. At that point in time, as far as the date, at that point in time, we will launch into our target specific drilling programs. We’re gonna do a little bit of drilling in an area that we acquired late last year, and what we call the Potato Canyon area, southwest. We put another NOI that’s five-acre limitation to that for disturbance, and we’re gonna drill two, three, four depending on number holes, but we’re kind of limited to a small number of holes until this EA is in place.

And once we have the EA, then we can disturb if we wanted to up to 200 acres, which basically gives us freedom to go anywhere on the property to test any target which we see and have identified anywhere on the project area. And the area is very extensive size-wise. It’s remarkable that no company has ever done what we’ve done. One thing, we put the entire district together in one package, one single package. We’re the only company there right now for the entire district, 20 square miles in size. And this has never been done in the past. And that has allowed us to apply geophysics, geochemistry in a very broad global fashion so we can take all that information, and then begin the zeroing in process. The discovery process is very much as zeroing in and vectoring process. The vectoring comes through drilling multiple holes, and seeing changes, and increases in the amount of gold as you go from hole to hole. And that’s the direction you want to go obviously. And that’s our intention.

Bill: That target specific drilling, when can we expect those results? Before the end of the year?

Dave: We’re gonna commence that program in a vigorous fashion. And now that we’re running, it’s gonna be a little bit later. We had hoped that we would have the EA done, and the original design was to have it done approximately this spring. But that didn’t happen because of regulatory issues working with bureaucrats and so on. Anyway, I’m not trying to complain about that, it’s just it’s a fact of life. Results will come in the fall, at this point, late fall or middle to late fall, probably September, October, more October when we start reporting out. We may not report out all the earliest holes. It is gonna be a vectoring process. Our drilling will depend on drilling. We already did. And drilling that we’re going to be doing, we will follow up both visually, and hopefully, it was positive geochemistry. We’ll follow up on holes that we think are promising, and at least pointing us in the right direction.

But the fact is, we need those holes in order to determine which directions to go and how many drill holes it’s going to take to complete this process and make a discovery. I’m anticipating frankly that we’re gonna do some very good…and get good results by the end of this year certainly. We’ll push the drilling last year. We were able to drill. In the year before, we did a little bit of drilling. Again, we are limited because we didn’t have an EA and plan of operations in place, but we were able to drill almost to Christmas time. So, if we can start mid-August this year, we’ll got a lot of holes in. We’ll make some huge advancements in the program.

Bill: And for investors wanting to learn more, you can go to usgoldcorp.gold. You can sign up for their email distribution list, and you can get the press releases and the results of the drill program as soon as U.S. Gold Corp releases it. Dave, I really appreciate your insights. This was very, very thorough. And for the Navis Mining Investor, it was fast paced. I’d recommend listening to it a couple of times. Go read a book on intro to mining book and come back and listen to this again, and you’ll see that you begin to grasp more of what Dave was sharing. Dave, as we conclude, is there any final parting thought you’d like to share with the investors that are listening to us?

Dave: Well, I guess, I appreciate the fact that there are investors out there. I always have. Without the investors, we would have no chance of going anywhere, but it’s our job to serve the investors and perform for you folks out there. And I have always done my best, and will continue to do the best I possibly can. I take investor moneys very seriously. I have a lot of my own into this company. I really believe in what we’re doing. I believe that the chances of success are very, very good. And thank you for paying attention.

Bill: Yes. I’m a shareholder. I’ve mentioned that on previous programs. And, Dave, thank you for speaking with me today.

Dave: You’re very welcome, Bill. Thank you.