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K2 Gold (TSX-V: KTO) CEO Stephen Swatton on Assay Results that Included Visible Gold at the Wels Gold Property

August 11, 2017

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is CEO of K2 Gold (TSX-V: KTO)(OTC: KTGDF), Mr. Stephen Swatton. Steve, how are you today?

Stephen Swatton: Good, thanks. Thanks for taking my call.

Gerardo Del Real: Thank you for making time. I know that you're on the road, but you had an important news release. You finally released the results from drilling at the Wels Gold property. You had some pretty significant intersections that I wanted to go over. Let me just start with the headline which reads, "K2 Gold drills 2.37 g/t gold over 28.5 meters and 5.08 g/t gold over 12.5 meters at the Wells Gold property." It was a limited, but very targeted initial drill program. Obviously very solid numbers, can you fill in the details for us, Stephen?

Stephen Swatton: Yeah, basically what we did is we did some extensional drilling and some infill drilling within the known area Saddle Zone. What we were trying to do is establish whether there were any other parallel zones to this by extending the drill a little bit longer than we had in the last campaign. Bear in mind that it was a previous company that did the last drill campaign. They did 442 meters, but we did 1,200 meters. Really it was just to establish, is this body of mineralization that they intersected continuous? I think we've proven with this news release and the drilling that we did that indeed it goes for at least 125 meters. We'd like to continue drilling in the next campaign to see, well how far does it really go?

Gerardo Del Real: Excellent. Now there were a couple of very interesting tidbits in the news release. One of them was the mention of visible gold in 3 of the 15 holes. The second one that I took as important, there's mention of an interval where the visible gold was identified, but it wasn't included in the sample for assay. Can you speak to that a bit Stephen?

Stephen Swatton: Yeah, thanks for bringing that up, Gerardo. It's almost key and essential to this news release that what we've discovered, which is quite a surprise for us, is that we've got some visible gold in quite a few sections. In this type of IRGS system, it's very rare to see any visible gold at all. We've seen it particularly in one section which is in hole DDH-17-14. We had visible gold recorded, but actually only 0.42 was the assay number. Well, this clearly tells us there's a nugget effect. A nugget effect, in mining speak, is a good thing for us to have. It means to say that the assay technique that we're using may not be the most optimal. That's to say that we're not going to do anything that's out of the ordinary. We're going to have to do a slightly different technique, which is actually going to catch all of the gold in that particular meterage that we've sampled. What it speaks to is that we have an effect of we're understating some of the gold values within these sections that have gold. The fact that we only had 0.42 and in that particular section we had three or four flakes of gold in the core is telling us exactly that we're not actually capturing, and it's not a true representation, of the gold that's really in the rock, which is very positive for us.

Gerardo Del Real: Excellent, so what is the next step to unlock the exact value, or a more accurate representation of the gold that is there?

Stephen Swatton: We're going to do what's called a metallic screen. At the moment what we're doing is a fire assay and we're doing the normal technique that everybody else would be using for most types of assay. It's really good enough. Most people do this because it's the cheapest and it gives you an idea of what's there. What we're doing is what's called a fire assay. It's about $20 a sample more. What we're doing at the moment is we've outlined the intersections which we're going to run for this metallic screen and we'll get a better idea of what actually the real number is. We're quite confident that the numbers will come back a little bit higher than they are. Maybe even significantly, we don't really know. All we do know is that we're not capturing all the gold in the type of analysis that we're using currently.

Gerardo Del Real: Excellent. Do you have an idea of the timeline to receive those updated assays?

Stephen Swatton: Yeah, the labs at the moment have got about a three to four week. In the Yukon, quite honestly, they had a feast period for about the last five years, and everybody said this year's going to be different. Well, they were slightly under prepared, I should say, and we're slightly underwhelmed with the three week turnaround ended up being a five week turnaround. My best guess, Gerardo, is anywhere between three and five weeks. We're going to get back on the ground hopefully before that time. Obviously what we're going to be doing with the drill holes is we're just taking the ones we have and re-assaying them. We hope to be getting back on the ground before the end of the season.

I think that was one thing that was not quite fleshed out in that news release, was the fact that our ongoing program, we're not finished for the year, by any means. We just need to sit back, take a little bit of a stock as to what we've got, because A, we had an extremely interesting and thick intersection, and B, we have a type of a gold tenor, if you like, which was pretty unexpected. We have to sit back and say, "Okay, what's the best method that we've got to prosecute this going forward?" What we're doing is that we've just appointed a new geologist. She, myself, and the chief geologist that we have on the staff at the moment, we're reevaluating all of the information that we have and coming up with the best game plan going forward.

As you might have noticed from the news release, we started very early in the season with our soil sampling program, and quite frankly they couldn't take some of the samples because the ground was still frozen in permafrost. We had to go in and infill. In those soil areas where we got some joy from this survey in the West Marsh Area, there's a lot of gaps. We need to fill in those gaps. We have quite a bit of work to do going forward. We're quite excited that we're going to be going back into the field. We're just taking a week or so here to just take stock of what we have. Look, the market this morning with our stock, it came out as a flier. I think, as a result of us not really giving a clear idea of what our ongoing program is, was maybe the reason why it's been held back a bit. I'm just telling your listeners here, your readers, that we do intend to go back in this year, and we intend to be as aggressive as we can.

Gerardo Del Real: I get the feeling that a lot of the people that sold on the expectation that you would be gone for the year may be buying back in, and probably at higher prices.

The market cap is still tiny. I want to say it's sub-$7 million Canadian, if I'm not mistaken. You mentioned being aggressive, you mentioned getting back in the field. There's mention of new zones in the news release. The main Saddle Zone, but then there's also parallel zones. Can you speak to those a bit?

Stephen Swatton: Yes. We suspected that there would be, in a structural system like we're intersecting here you come and you go out of these zones, but sometimes they can be not quite continuous that you would call it an actual zone. Particularly with the South Zone, we've hit it with four different sections of drill holes, so we know it's real. It's a fairly narrow zone, but again it's high-grade. What it speaks to is that there's three zones that we've recognized. There's bound to be more. The only reason why we've drilled at Saddle is because the surface results were so good. There's no reason to suggest that the North Ridge and the Southwest Spur are any less good than what we're looking at at Saddle, but with concentrating you always work from what you know to what you don't know.

Consequently, our next targeted areas will probably be these other two areas that I mentioned. Not least of which, also we have another zone 1.2 kilometers to the south, which the geologist identified as having similar characteristics to the Saddle Zone. We're still very early days. We've taken a few samples. We haven't got the results back, but if that indeed is the case, that it's the same type of granitoid body that hosts the mineralization, well then we're talking a fair sized intrusive body here with lots of potential. The significance of having two parallel zones is huge, but also it's important there's this new zone to the south that we discovered 1.2 km away.

Gerardo Del Real: Well obviously the Wels property is emerging as the flagship property, but I know there's always been a strategy, in the past anyway, there's been a strategy of possibly bringing new projects to the portfolio that would allow for year-round exploration. Can you talk to that a bit, Stephen? Is that something that's still in the works? Has there been any progress on that front, or is the focus going to be exclusively on Wels?

Stephen Swatton: No, I'm ambivalent. My previous job was Head of Business Development for the Exploration Division of BHP Billiton, based out of Singapore. I've seen a lot of projects, and I am quite conscious of the fact that we need to get a value add property somewhere, probably outside of the Yukon, that's going to make some sense so that we've got all year-round news flow. I've been pretty aggressively looking in parts of the United States. Look, these things take time. Negotiations take some time. Of course, with a market cap of 7 million, which quite honestly I think we are undervalued, we have quite a job trying to convince somebody -  the American companies tend to be a slightly higher valuation than actually what we have in the Yukon. Gold doesn't understand national boundaries. What we have in the Yukon is probably twice as good as what you have done there, but for one reason or another some of the US based companies have a higher market cap. I am making sure that K2 will get the best bang for its buck, but I am looking at two or three different opportunities down there, Gerardo.

Gerardo Del Real: Excellent. I know we spoke a bit earlier, could you tell us the cash position? Update us there, Stephen.

Stephen Swatton: Yeah, I asked yesterday, the guys, we're about 1.5. I know that we get about 120 in drilling costs, so let's say we're about 1.35 at the moment. We've got plenty to complete the programs and do whatever we need to do this year. We're not in any hurry to raise any more cash right now. What I'd like to do is to put the drill in the ground and see what we have at Wels. Simple as that and we have the cash to be able to do it.

Gerardo Del Real: Perfect, well it should be a very exciting next three or four weeks. Obviously you're going to reconvene and get the group together, and map out the next steps. I look forward to having you back on to talk about that, and obviously I'm looking forward to those assays. I also want to compliment you on a very, very thorough news release. The maps, the technical work that was put into them, is some of the best that I've seen. I encourage everybody to go to K2 Gold's website, which is k2gold.com, and just look over the cross-sections, look over the drill hole plan. It's a lot of good information, not just from this program, but from the historic programs and some of the other exploration that's been carried out at the property.

Stephen, I want to thank you very much for your time, and I hope that you'll join me back again as you get together with the team and figure out what the next step is going to be.

Stephen Swatton: Absolutely, Gerardo. It's been a pleasure. Thank you very much.

Gerardo Del Real: Thank you.

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