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Exploration Company Homestake Resource Corp. (CVE:HSR)

Mining can be a fickle mistress, one marked by heavy cap ex to recover resources that, given a shifting commodities market, can often be selling at an entirely different price then when you made

Mining can be a fickle mistress, one marked by heavy cap ex to recover resources that, given a shifting commodities market, can often be selling at an entirely different price then when you made your initial investment. That’s why exploration companies can offer a sleeker alternative, identifying those properties with value and exploring them to determine how much resources they have prior to handing them off to mining companies for the removal of the actual metals.

And one such company would be British Columbia’s Homestake Resource Corporation ($HSR:CA). With its Homestake Ridge property, Homestake features some promising properties for recovering large quantities of gold and silver. Homestake’s President, Joe Kizis, talked with about the Homestake Ridge and where his company is headed in the near future.

EQ: Can you give us a brief overview of Homestake Resource Corporation and its operations?

Joe Kizis: We’re primarily an exploration company with a sizeable gold and silver resource. Most gold deposits are found in belts or trends. The Carlin Trend in Nevada would probably be  familiar to most. In Northwestern British Columbia, there’s a very, very rich group of deposits that form another trend. That’s the Jurassic-aged Hazelton group deposits. We’re at the south end, which is what we call the Kitsault Mineral District. We have 70 to 80 percent of that district.

The key piece of ground that we have there is the Homestake Ridge project. It’s an area that we have been exploring for about ten years now. We’ve discovered three deposits on the property, and we are confident there are more deposits to be found and a profitable underground mine to be developed.

EQ: What sort of growth prospects do you have in your target markets and how do you plan to capitalize on them?

Joe Kizis: Basically, we create wealth by exploring in areas where we think we can develop  mineral resources and ultimately, a profitable mine. Exploration has been in  a severe downturn since 2007 because of uncertain and erratic gold prices, resulting in fewer discoveries, and the market has divided the minerals industry into the explorers and the miners.

The explorers have really not had a great deal of cash to find new deposits,  but exploration is our expertise, and we have been successful over the years in raising the necessary risk capital to discover significant new deposits of gold and silver. We’re pretty good at exploration and there is the opportunity to add many more ounces of precious metals. We’ve had a very good success record at our Homestake Ridge project, and the adjacent Kinskuch project as well where we’ve had some success in developing mineralization that has very good grade silver, as well as some lead and zinc.

So, our intention is to continue finding and developing these deposits, which will add value to our company, possibly partnering with larger mining companies to develop them further.

EQ: What do you see as Homestake’s competitive edge?

Joe Kizis: A part of it is the land position. It is such a rich group of deposits that are exposed in that belt, and because we’ve been working on Homestake for a long time, we’ve developed a very, very detailed exploration model, which is another competitive edge that has helped guide us to discover new mineralization.

It’s basically understanding the geology, the geochemistry, and the way the chemistry changed as mineralizing fluids travelled through the deposits. For example, certain parts of the deposit are going to be more copper-rich, other parts are going to be more silver-rich. The gold should be somewhere in between.

Another competitive edge is our experienced geologists, who have a record of discovery. We have some mineral identification tricks that can tell us whether we’re above a deposit or below a deposit. For example, we drilled a few years ago in a pretty exciting area that looked pretty good. We had some good surface gold values. As we drilled under them, the chemistry changed and we felt like the gold deposit had been eroded away. We may come back to this area to evaluate its base-metal potential, but for now we are focused on adding new precious-metal resources.

In other areas we’ve tested there were virtually no economic values at surface, but we traced anomalous values down into the top of significant mineralization. Our Homestake Silver deposit, for example. So, that gives us a strategic advantage in the district, and the fact that there are such great deposits along the trend is another advantage, of course. We feel that exploration in districts with great mineral endowment increases the odds of making new economic discoveries.

EQ: Can you talk some about the transfer of complete ownership of the Homestake property back to your company? How do you envision that benefiting your company in the future?

Joe Kizis: It was an option agreement that Agnico Eagle Mines (AEM) had on the property from late August of 2012. We had just put our first few holes into our third discovery.

They basically put a bit of money into the Company as an equity investment, with an option to do additional exploration on the project to earn an interest. To us, it was quite a difficult time in the market, so it provided us with some additional cash and quite a bit of additional work, around $6 million worth, on the project. They felt like it was not producing what they were hoping to find, and they turned it back to us, so it’s 100% ours again. None of the work that they did affected the existing resource that we had put together, but their discovery of mineralization at the Slide target will almost certainly add resource to the property with further drilling.

To us, it’s unfortunate to lose a good mining company like Agnico as a partner. They’re great miners. But, on the other hand, we have 100% of the project now and it’s been improved because we feel like they’ve intersected the top of another important deposit, at our Slide target, that hasn’t been tested below the silver-enriched zone that caps our other gold deposits. We now have the opportunity to continue to explore for additional resources and to develop the property towards production, possibly with another experienced and well-funded miner.

EQ: Over the last year or so, gold prices have started to stabilize after swinging all the way up to $1,900 an ounce and then back down to $1,200 in the last few years. Now, it appears to be trading between $1,200 and $1,300 an ounce. Do you think that trading channel is here to stay? And, to what degree does this swing in prices affect your planning?

Joe Kizis: Well, a couple of points here. The discovery rate has decreased over time, so as Rick Rule likes to say, “It’s not a matter of if… it’s a matter of when” prices will come up to make it worthwhile to do additional exploration and develop new deposits.

The Industry is continuing to mine at an accelerated rate, and the discoveries that have been made in recent time can’t justify continuing to deplete existing resources at that rate. So, in general, I think prices have to rise. Whether they will rise any time soon is a difficult thing to predict at this point. I’ll leave that for others to consider.

One thing about the Homestake deposits though, is that they are quite rich. Within the deposits there are very high-grade portions of silver in part of the deposits and there are high-grade portions of gold in part of the deposits. So, we can adjust the cutoff grade and get much higher average grades in certain parts of the deposit.

Our primary function at this point is to find new deposits. Deposit grades tend to be predictive in the district. If we can find additional deposits, we know that portions of those deposits are going to be very, very rich. And so the idea is to discover enough of these deposits that the capital costs can be covered. Then, at that point, it’s a matter of what cutoff grade you apply, based on metal prices.

Many other deposits do not have these higher grade portions, so they’re limited and they’re really restricted by the price of gold. Obviously, we’d all like a higher price of gold. But there are portions of these deposits that are quite high grade and would allow us to at least evaluate the possibility of mining at various metal prices. Maybe at a smaller scale than we would like, but, certainly, one that attains that profitability that you need.

EQ: So, are there any milestones or goals over the next year that you think the investment community should be looking out for—for your company?

Joe Kizis: First, we just received notice that we’re receiving the property back so we will need to evaluate Agnico’s work in detail when received. But we know there are a number of exploration targets that were not tested. The primary one that we see is the Slide Zone, which was something that Agnico discovered. Initial drill holes are  silver-rich. There’s a bit of gold in one of the holes that they drilled, but from our model, we really didn’t predict the gold zone until deeper than they’ve tested.

So we’re looking at the possibility of testing that zone. Right now, we’re trying to gather costs to determine whether we want to do that ourselves. I’ve been contacted already by mining groups that have maintained interest in Homestake.

EQ: Do you have any additional closing comments that you’d like to make?

Joe Kizis: Well, there’s always a knee-jerk reaction when a major drops a junior’s project, but majors drop properties for a variety of reasons, not necessarily related to merits of the property. As a junior, often times what we like to do is get the biggest company possible involved in the project because they often spend a great deal of money and often turn the property back. When they turn the property back, there’s more data that advances the property with no dilution to the company. It’s generally improved.

In this case, we have a potential new discovery at Slide, which will be our fourth if additional drilling develops the gold deposit that we think is there. It would be accretive even if it’s just additional silver resource. But certainly the nearby deposits, on which we based our model, suggest that there should be a gold deposit beneath the area that has been drilled to date. So, it’s a great opportunity for our Company, I think, and at current market prices, a very good entry point for investors.

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