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Otis Gold (TSX-V: OOO) CEO Craig Lindsay on the Kilgore Gold Project in Idaho & Upcoming 2018 Catalysts, Including an Update Resource Estimate

February 6, 2018

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is President and CEO of Otis Gold (TSX-V: OOO)(OTC: OGLDF), Mr. Craig Lindsay. Craig, how are you today?

Craig Lindsay: Gerardo, I'm doing really well. I really appreciate you taking the time to spend a few minutes with me.

Gerardo Del Real: I appreciate the opportunity. Otis Gold, as you know, is a company that I'm very familiar with, that I've followed for quite a bit. Before we get into the details, you're going to have a really, really exciting 2018. I really believe that Otis is at a point where, if investors and potential shareholders aren't aware, it's the perfect time. You currently have a market cap of about $30 million, and I want to get into the flagship, which is the 100%-owned Kilgore Project, but before we do that, I'd love to touch a little bit on your background and how you got involved with Otis.

Craig Lindsay: I was actually a founder of Otis. We started the company up in 2008. I started the company up with two partners of mine, John Carden and Mitch Bernardi. John and Mitch are both long-time geologists who have had very successful careers focused on developing gold projects in the western U.S. And they, in fact, historically worked with a company called Echo Bay Mines who in the mid-'90s were developing the Kilgore Project and in fact they were moving it towards a mining situation in the mid-1990s.

The price of gold dropped precipitously around '95, '96. Echo Bay stepped away from the project. The project moved through a couple of different hands but in 2008 we were able to pick up originally a joint venture interest in the project and subsequently stepped up our interest to 100% interest. It was a natural fit for us to get involved in Kilgore simply because John and Mitch have had such a long history with the project back in the Echo Bay days.

Gerardo Del Real: Excellent. Now as I mentioned earlier, Kilgore is the flagship. It's 100% owned. There's no royalty burden. The infrastructure is excellent. You have great metallurgy historically and a very low projected strip ratio. All of that is going to bode well for later in the year and we'll talk about one of the catalysts, which I think is going to really force a re-rating of shares, which is going to be an updated resource estimate, right?

But before we do that, the project has attracted a very, very significant shareholder base led by Agnico Eagle, which came in last year if I'm not mistaken. Can we talk about the shareholder base before we get into the project, Craig?

Craig Lindsay: Sure, absolutely. As background, we have 162 million shares issued and outstanding. Typically with many juniors, we have a strong ownership interest from management and directors and insiders who own about 25, 26% of the company. But last year we had kind of a watershed moment when a company called Agnico Eagle Mines came in and bought a 9.9% interest in the company at 35 cents per share. Right now we're trading at about 21, 22 cents, so they came in at a significant premium to where we're trading at right now. Prior to Agnico coming in, over the past three years we've had very strong investor support from some private investors out of the United Kingdom, and that's been led by a fellow by the name of Chris Lee-Barber who owns about 11% of the company. He's bought his position through a combination of private placements and just as importantly a significant amount of stock that he's purchased in the open market.

So while we do have 162 million shares outstanding, we do have a very good base of these private investors out of the UK who are big supporters of the company. Obviously management and directors are long-term supporters of the company, and this anchor investor in Agnico Eagle creates an ownership base in the company that I think is really unparalleled in the junior mining sector right now.

Gerardo Del Real: You mentioned the shareholder support and I think this is an example that really speaks to it. You were actually able to raise money during the bear market without having to issue warrants. Is that correct, Craig?

Craig Lindsay: That's correct. In fact, since 2015, 100% of the financings that we have done have been above market and without warrants. So we've been very successful in attracting good investors who see good value even without these onerous warrant structures, which often can create a real challenge in your capital structure.

Gerardo Del Real: Wonderful, now let's talk about Kilgore. I mentioned the fact that it's an advanced stage project, the fact that you own 100% of it. Idaho has seen a resurgence lately of companies, mid-tiers and majors, really stepping up the exploration budgets, and I think, hopefully, you can walk me through geologically what's so attractive about Idaho? Also, as far as the regulatory burden goes, with permitting, how much more favorable the situation there is now compared to past years?

So, if we could start there and then talk about Kilgore, because it's an impressive project but again I think the best is yet to come here in 2018.

Craig Lindsay: Sure, well, firstly we are, as you mentioned, we're focused in the state of Idaho. Mining is, I think, the number five industry in the state. From the governor on down, the state is very supportive of mining activities. Your listeners and readers will probably be familiar with the Silver Valley, which is up around Coeur d'Alene in what we call the panhandle of Idaho. So that's very well known for silver production in the state, very large open-pit phosphate mines in the state of Idaho, companies like Monsanto, Agrium, J.R. Simplot operate these open pits. The old Thompson Creek Mine is the world's largest open-pit moly mine. It's owned by a company called Centerra Gold. There's also a whole range of open-pit, heap-leach, past-producing gold mines in the state. Historically, gold mining was started with a lot of placer operations and then moved largely into open-pit, heap-leach mining scenarios.

Idaho itself is, it really is a mining state. The state regulators are very supportive of mining activities and it's been a bit of an unloved state simply because there has been an impression that permitting has been problematic in the state, but frankly we've found our permitting to have been very smooth. We're on U.S. Forest Service land. We've worked very effectively with the Forest Service in completing all of the exploration permitting that we've done. We're just in the process of permitting a much larger exploration footprint out at Kilgore, and we've certainly found our permitting folks to be very supportive and easy to work with.

I think many of our friendly competitors in Idaho, folks like Liberty Gold, for instance, Midas Gold, Integra Resources, Revival Gold, are all having good success with permitting and are not having any challenges really whatsoever with that. We've found it to be a very, very favorable state. It's attracting a lot more eyeballs both in terms of strategic investors, institutional investors, and we're on the cusp of a real resurgence in the gold exploration and production side of things in the state. It's an exciting place to be doing business right now.

Gerardo Del Real: Let's talk about Kilgore. You have a current 43-101 resource estimate. I believe it was commissioned in 2012, and you have just shy of a million ounces in the indicated and inferred category. I believe it's 520,000 ounces of gold in the indicated category and I believe it's about 300,000 ounces in the inferred category, but you are in the process of updating that resource estimate. That, I think, is an absolute major catalyst in 2018. Can you talk to me about the pending resource estimate and when you expect it, Craig?

Craig Lindsay: Sure. So you nailed it on the numbers. Our indicated resource is 520,000 ounces at a grade of about 0.59 grams per tonne and we have 300,000 ounces of inferred gold at a grade of 0.46 grams per tonne. Frankly that's pretty standard for open-pit, heap-leach, bulk tonnage gold mines in the western U.S. These are the type of grades that you get in Idaho and Nevada for these style of deposits. What we have been doing since really 2015 has been stepping out on some higher-grade material with some thicker intercepts.

So what you're going to see with an updated resource estimate is a couple of things. We think the resource is growing. We think the quality of the resource is going to be coming up nicely so you're going to get much more indicated resource relative to inferred resource, and I think the quality of the resource in terms of grade is also going to increase a little bit and that's because we've been achieving some of these, I wouldn't call them higher-grade but stronger-grade bulk tonnage intercepts out there.

This is a volcanic-hosted gold system and it's on the northeast margin of something called the Kilgore Caldera. While you do see some lower grades out there, this is offset by the relatively low strip ratio. On our 2012 resource estimate. The strip's about 1.5 to 1. Then we have, I think you mentioned this, very, very strong metallurgy and that's a significant competitive advantage that we have to other deposits out there is that this is largely an oxide deposit and the gold leaches out very, very well. We get gold recoveries at 80 to 85% at inch and a half crush size. And there's no crush-size sensitivity to this ore, so if you crush it more, you don't necessarily get more gold out or to look at it conversely, if you crush it less you still get the same amount of gold out. So this lack of crush-size sensitivity is very attractive because it's going to reduce the amount of your capital costs because you're going to need less crushing equipment and your operating costs will come down as well, because you're not needing all of the energy to crush ore down to smaller crush sizes. That is, from a mining perspective, that really is a significant competitive advantage that we have.

Gerardo Del Real: Well, I have to believe that that's a part of the motivation for Agnico coming in, right? I mean, let's be frank. You've had very, very good exploration success since that last resource estimate and I just want to read off a couple of the highlighted intercepts. In 2015, you hit 94.5 meters of 4.21 grams per tonne gold. 2016, you hit 30.5 meters of 5.37 grams per tonne gold. Just last year in 2017 you hit 129.4 meters of 1.66 grams per tonne gold. I want listeners to be aware that when you talk about the resource growing, there's a potential there for definitely more than a million ounces and we'll know soon enough what that number looks like. When do you anticipate on having that estimate out, Craig?

Craig Lindsay: We should have it out in the spring of 2018, though can't really give you a specific date because we haven't even completed the release of all our 2017 drill results yet. So we have to get those out to market and then we have to drop them into our model and come up with a new resource estimate. But certainly we're targeting spring 2018.

Gerardo Del Real: Perfect. Now the other catalyst that you touched on briefly was the fact that you're completing or you've completed, I believe, the permitting for the plan of operation. You're looking to expand the exploration program on up to 140 drill sites. Is that correct, Craig?

Craig Lindsay: That's correct. So when your listeners are looking at Kilgore, you've got this one Kilgore Deposit, which is about 800,000 ounces and it's growing. Then around that deposit, we have a number of other high-priority targets that have the exact same geologic characteristics or signature that we have at the Kilgore Deposit. That's really, I think, one of the primary things that got Agnico involved was not looking at the Kilgore Deposit and is it going to go from 800,000 ounces to a million ounces or some other number but the fact that this is a very much a target-rich environment. It's a very large footprint.

We've just increased the project size by about 33% via direct staking. Why did we do that? Well, this past season, in addition to running a 25-hole drill program, I got a couple of geologists to go out and start doing old school exploration work outside of our project area. We did a lot of stream sediment sampling. We did a lot of rock chip sampling. We've identified some really interesting new targets above and beyond what we had at the beginning of the year and a result of that, we went out and staked an additional 3,000 acres of land out there. I suspect that's another feature of what you're going to see in 2018 is additional exploration work outside of the existing footprint as we look to expand the size of our holdings.

Your listeners should know, I think, right now, Otis has, in between the two projects that we have, the Kilgore Project and the Oakley Project, we have the largest exploration footprint in the state of Idaho in the golds.

Gerardo Del Real: That's important.

Craig Lindsay: There's one development stage company that has a larger footprint than us, so it's really an exciting place to be.

Gerardo Del Real: Well, you also have a board and a management team that's very, very familiar with the area. Can you speak to the Board of Directors a bit?

Craig Lindsay: Sure. I have a real seasoned board, and the guys that I'll just point out here, Roger Norwich is a very active director in the company. Roger's a geologist. He was a founder of a company called Rio Alto Mining. They built something called the La Arenas Deposit in Peru up from a million ounce resource to a 200,000-ounce a year production story in a very short period of time, so Roger's had some very good successes in the public company space with Rio Alto. He also has a significant ownership interest in a couple of producing copper and gold mining operations in Mexico and Guyana, so he's a well-qualified individual who's very supportive of what we're doing.

Another director who I want to point out who has been very active on our board is Don Poirier. Don was formerly the Vice President of Corporate Development for a company called Hecla Mining, which is an Idaho-based silver and gold mining company. Don's a geologist by training and, again because of his experience with Idaho, his experience with large producers, he's been able to add a significant amount of value to what we're doing.

We also have on our Advisory Board a guy by the name of Eric Klepfer, who leads the permitting side of our business and that's for any junior mining company, mid-tier, major, explorative producer, permitting is a big aspect of your company and we've got what we feel to be one of the strongest guys in the western U.S. Again, he's an Idahoan guy, which helps with the permitting side of things. So right across the board we do have a very qualified group of people who are actively supporting the development of Otis.

Gerardo Del Real: Tell me about the rest of 2018, Craig. I know obviously there's going to be some drilling. You're anticipating receiving the permits for those drill sites. What does 2018 look like as far as drilling? We know we have the resource estimate, that's going to be a big deal, especially in light of the fact that your current market cap I think is somewhere along the lines of $34 million Canadian, if I'm not mistaken. But what does drilling look like for the year?

Craig Lindsay: Well, that's a good question and we are going to be doing drilling on two areas. We're going to be drilling at Kilgore. Right now we're just in the process of analyzing the 2017 results and developing a plan for 2018. 2018's going to be exciting at Kilgore because not only are we going to be doing some additional step-out drilling at the existing Kilgore Deposit, but with this new permit that we've applied for we're going to have much more flexibility to do exploration drilling at some of these more greenfield targets out at Kilgore. That's going to be very, very exciting from a drilling and exploration point of view.

The second thing we're going to be doing from a drilling perspective is we have a second project in Idaho called Oakley. It's got a 160,000 ounce resource. There's 100-meter intercepts out there. There's a big silver kicker at the Oakley Project. So we're going to be doing some step-out drilling off of the 160,000 ounce gold resource at Oakley and we're going to be doing some initial drill testing at an adjacent target at Oakley called Matrix Creek, where we've got about 1,000 feet or 300 meters of mineralization that sits right at surface and has never been drill tested. So we're really looking forward to a first phase drill program at Matrix Creek this year.

Gerardo Del Real: Wonderful. Now there's very few teams that know Idaho the way your team does, Craig. Are you looking at potential acquisitions or, if you find an opportunity that's synergistic, is that something that's an option?

Craig Lindsay: You know, we really like the asset base that we have. We think we've got a very strong portfolio and there's a heck of a lot of work that we can do in these projects to extract a significant amount of value from them. Butit's difficult to answer that question and I don't want to appear cagey but we're reviewing a lot of different opportunities right now. It's an interesting time, there's a lot more interest in Idaho, so the phone lines are lit up pretty regularly. But I don't want to indicate that this is an entirely an M&A play where we're going to be spending 90% of our time looking at acquisitions, because frankly we really are excited about the current asset base that we have. In terms of acquisitions we're always looking. If we come across some stuff that makes sense selectively then we do pursue these things.

Gerardo Del Real: Well, it sounds like if the right deal presents itself you're definitely willing to entertain it but, rightfully so, the focus is on Kilgore.

Craig Lindsay: Correct, correct.

Gerardo Del Real: Excellent. Craig, it's been an absolute blast. I really appreciate you coming on. I want to have you back because I want to get a little bit deeper into the Kilgore Project. I know that the near-surface potential obviously has been proven and I think the resource estimate, when it's published, will speak to that. But the potential at depth really excites me. I know that's going to be a big part of 2018 and the drilling program. I know the Aspen Formation is something that's fairly recent, something that you came across in the last couple of years that has the potential to really, really enhance some of the lower-grade, near-surface intercepts and resource that you're looking to publish, so hopefully you will come back on and we can talk about Aspen and we can talk about the potential at depth. There's definitely analogs with some of the other companies in Idaho where there's great, great, great oxide near-surface potential that's outlined and then, at depth, almost a mirror of what's going on at surface but obviously with much higher grades. So hopefully I can have you back in a couple of weeks and we can talk about that.

Craig Lindsay: Absolutely. We'll be coming out with our final round of drill results pretty shortly and perhaps we can reconvene at that time and chat a little bit more about Kilgore and our 2017 results.

Gerardo Del Real: Looking forward to it, Craig, thank you very much for your time. I encourage everybody to get familiar with Otis Gold by going to their website. You can go to OtisGold.com. There really is a resurgence of exploration activity in Idaho. Revival Gold, you mentioned them, Midas is there, Integra's there. There's a handful of companies that are doing really quality work and I think it bodes well for a very, very robust 2018, especially if that resource estimate delivers.

Craig, anything else that you'd like to add?

Craig Lindsay: No, just wanted to thank you for taking the time, Gerardo. It's been a pleasure.

Gerardo Del Real: Well, thank you for the opportunity and I'm going to take you up on coming back and talking about the next set of assays.

Craig Lindsay: We'll talk to you soon. Look forward to it.

Gerardo Del Real: Thank you, Craig. Appreciate it.

Craig Lindsay: Take care.

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