Categories: Precious Metals
Topics: General Precious Metals

Ethos Gold (ECC: TSXV)

Last week Ethos Gold (ECC: TSXV) announced a new gold discovery on its Yukon property. The news was met with fairly heavy selling, which is the exact opposite of what would be expected given the grades the company reported and the vast potential for the property.

It underscores that it's not just risk capital fleeing the market, but capital in general.

There's such a thirst for liquidity that most players are selling on news even in the face of very good fundamentals, as far as they exist in the sector.

I'll tell you right up front that, based on the news the company released and the weakness in the stock, I put in a bid for 50,000 shares, and I hope to be able to buy more. Now, can the stock go lower? You bet it can.

But we have to realize that this is a company with $10 million cash in the bank, so they have no near-term financing needs. On top of that, they've got a developing asset within a crow's flight of two other large gold discoveries.

This is the very first drill program, and the company came up with a discovery. In fact, the results were among the best we've seen so far in the region from any of the active companies there. So chances are we'll see even better holes as the team starts to get the discovery figured out.

It's important to remember that at this point the company is essentially verifying that it has a deposit. From here they'll move to get a better handle on its size and specific geology.

The other, more advanced plays in the area command market caps of five to ten times the size of Ethos.

The structure the company is drilling is very juicy, showing mineralization throughout.

Now, all of this sounds great, but what does it all mean, and what's the upside?

Atac, which sits in a very remote region, commands a current market cap of about $240 million. The company has 500,000 indicated ounces of gold.

Kaminak has a $135 million market cap without having completed a resource study. The company has delineated several different gold-bearing zones and is working on a very large drill program this year.

So the upside for Ethos, which has the newest discovery, is easily a near-term double, especially at recent depressed prices. As the company proves this discovery up, and reduces uncertainty, we could see shares in the $2 range.

Human psychology is an amazing thing. In a bull market scenario, like that of last summer, this news would've tacked 50%-100% on to the share price in a single day.

But as it stands shares got put on sale, right when the news got better. That's the way bear markets work.

The biggest question surrounding this discussion is the macroeconomic outlook.

We all know the junior resource sector is highly volatile, going through epic boom and bust periods on a regular basis. Shares are currently down 50% to 80% across the board.

Now that in itself isn't any reason to buy. You have to find relative value.

With Ethos, we have that. The company has a solid cash position, roughly 25 cents a share, and a new discovery. We can expect the discovery to grow, and along with it the share price.

Keep in mind, the geology of the region is relatively straightforward and so far has proven to be consistent. It's too early to start throwing around numbers, but we have some nearby success stories we can look to.

The bottom line is the company has a developing asset, and shares are trading at very attractive prices.

This isn't for the impatient or the risk-averse. But we do see it as an excellent buy at these levels.

Here's the press release:

Vancouver, BC - June 26, 2012 Ethos Gold Corp. (the "Company" or "Ethos") (TSX-V: ECC) is pleased to announce assay results from 22 drill holes, representing the first half of a planned reconnaissance Phase One drill program on the 100% owned Betty Gold Property, Yukon Territory. These 22 reverse circulation (“RC”) holes target the ~17 square kilometer Mascot Creek gold-in-soil anomaly that yielded prospecting rock grab samples up to 24.8 g/t Au (see October 6, 2011 news release) and intervals in trench pits with the best result averaging 7.3 g/t Au over 50 meters (see October 27, 2011, November 15, 2011 and January 18, 2012 news releases).

Widespread drilling has so far tested five sub-areas within the Mascot Creek anomaly. Intervals of intense alteration containing gold mineralization have been discovered in all sub-areas tested. The best results so far occur in BETR-022 which intersected 7.1 g/t gold and 209 g/t silver over 13.7 meters (Marshall target) and in BETR-012 which assayed 29.8 g/t gold over 3.1 meters (Perrault target). True width is unknown for all intercepts.

Highlights:

 

Target

Hole ID

From_m

To_m

Interval_m

Au g/t

Ag g/t

Bond

BETR12-003

54.9

71.6

16.7

0.6

19

Mercedes

BETR12-007

55.5

76.8

21.3

1.5

 

Perrault

BETR12-012

27.1

30.2

3.1

29.8

27

Perrault

BETR12-014

109.7

112.8

3.1

6.0

27

Marshall

BETR12-022

16.9

58.0

41.1

2.6

107

including

 

25.9

39.6

13.7

7.1

209
 

 

Gary Freeman, President and CEO of Ethos states, "We are excited to have made several new and substantial gold discoveries during the first drill test program on the Betty Property which is confirmed to have potential to host large gold deposits. We are looking forward to continued success as the drill completes the remainder of the reconnaissance program and begins follow-up drilling in July.”

Drill Program

To date, a total of 30 of 44 planned Phase One holes have been completed using a reverse circulation (“RC”) drill rig contracted from Northspan Explorations Ltd. The RC rig completes an average of one hole per day to an expected target depth of 150 meters. All holes have been drilled at a 50 degree angle. True width is unknown for all intercepts. Approximately 4,000 meters of drilling has been completed, and 3,000 samples weighing approximately 6 tonnes have been submitted for assay. The drill program is currently operating on schedule and under budget.

Drill Results

The principal objective of Phase One reconnaissance drilling is to identify gold grades over width in bedrock beneath gold-bearing surface trench pits or anomalous gold soils. Most RC holes to date have intersected limonite and clay alteration and arsenopyrite mineralization, with or without quartz veining and silicification. There appears to be several phases of progressive or overprinting alteration and mineralization which is a very positive exploration indication. Some holes have intersected mineralized andesite and felsite dykes within alteration zones. A total of 14 of 22 holes so far have gold bearing intervals.

Peter Tallman, COO of Ethos states, "The sizeable intersections of both higher and lower gold grades, as well as the presence of intense widespread alteration is very encouraging at this early stage of exploration.”

 

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