Clifton Mining Company, A Gold Nugget Waiting To Be Discovered
Jan. 29, 2018 4:04 PM ET| There is an updated version
Summary
CFTN is a micro-cap stock (as of December 31, 2017 stock price was $0.10) that has a high probability of increasing in value to $0.68 in the near future.
Per observation on August 15, 2017 during a visit to the mine, Newmont Mining geologists were on the property with CFTN management. Newwmont may be interested in doing a deal.
Newmont Mining has many mining claims surrounding CFTN’s property;some of the claims border on CFTN’s property.
Based on a reputable consulting geologist’s estimate there are one billion ounces of silver on CFTN’s property. There are also unofficial estimates of between 1.5 million ounces and 4 million ounces of gold.
Introduction
On May 20, 2015 the author published a report on Clifton Mining Company (the “Company,” “CFTN,” or “Clifton”). That report, titled “Thar’s Gold (and Silver Too) in Them Thar Hills: Discover Clifton Mining Company,” was published in the PRO section of Seeking Alpha. Since the date of that publication there have been significant developments at CFTN, and the author has become aware of items not known to him at that date. This report is being written to update readers and to give the investing public more information regarding CFTN.
This current report will only cover CFTN’s property and the value of gold and silver on CFTN’s property. In a subsequent report recent mining operations and the details of the royalty agreement with Desert Hawk Gold Corp (“Desert Hawk”) will be presented. In addition, CFTN’s affiliate American Biotech Labs (“ABL”) and its medical products will be presented in yet a later report to be published.
Newmont Mining’s Claims Surrounding Clifton’s Property
Newmont Mining has staked approximately 1,500 claims which surround Clifton’s property. On August 15, 2017 during a visit to Clifton’s properties, it was observed that top geologists of Newmont Mining, together with Clifton Management, were visiting Clifton’s property. It was observed they were specifically visiting the Cane Springs section of Clifton’s property. They may also have visited other sections of the property.
Company Background and History
Clifton Mining Company (OTCPK:CFTN) is a natural resource company focused on the production of precious metals. With its headquarters in American Fork, Utah, it was founded in 1993. Clifton Mining Company's property contains both patented and lode claims, and the Company has a 250 tons/day production mill facility. It has a joint venture property located at the Utah-Nevada border with an area of 33 square miles. Its resource base is mainly confined to Clifton Shear Zones (sometimes referred to as Clifton Shear Veins), Mineral Deposits, Skarn Deposits, Bedded Replacement Deposits and Porphyry Deposits. The Company's major mineral deposits include silver, gold and lead. Some of its exploration sites show copper or copper-molybdenum and tungsten deposits. For a detailed description of CFTN and its 19.1% owned affiliate, ABL, see CFTN's webpage.
CFTN management has been very conservative in spending, which has resulted in CFTN having a very strong balance sheet with no debt. CFTN has no need to spend cash for exploration, and there is no cash burn for mining operations. Desert Hawk incurred all of the exploration costs and paid CFTN a royalty for minerals it extracted from CFTN's properties. CFTN has $460,716 cash, total assets of $3.3 million, and Shareholders' equity is $2.6 million as of December 31, 2016, the last date for which financial statements are available. Readers are invited to read CFTN's financial statements.
CFTN trades on the OTC. At market close on Friday, December 29, 2017 the shares were at $0.10.
Description of Mining Properties and Precious Metals in the Properties
I am not a geologist or mineralogist. What is presented in this section is the knowledge gleaned from being a shareholder of CFTN for the past 11 years. I have had many interviews with Bill Moeller, past Chairman of CFTN who passed away in 2015. I have attended the annual shareholder meetings. I have interviewed geologists and Ken Friedman, CFTN's President. Recently, I visited with Keith Moeller, an officer of CFTN, and learned a lot more about how the estimated amount of gold and silver in the various sections of CFTN’s property is computed. As a result, this report will more accurately state the quantities of estimated precious metals on the CFTN’s property and also state how these estimates are arrived at.
In July 2014, I visited the mining properties with Bill Moeller and was very impressed with the scale of the mining being done by Desert Hawk, and the very large heap leach Desert Hawk has constructed, from which it is collecting gold and silver. In a later report to be prepared in the near future, Desert Hawk and its mining of the Kiewit section, which is owned by CFTN, and the agreement between CFTN and Desert Hawk will be discussed.
The following description of the veins and deposits are directly from an entry in Wikipedia which is no longer available on line. The description corresponded closely, if not exactly, with what Bill Moeller described to me in my interviews with him and with the discussion I had with him during our tour of the mining properties. This description is also verified by the conversations I have had with geologists and what I have heard from management, and a University of Utah professor of mineralogy, who gave a presentation at one of the shareholders' meeting I attended. I feel confident that this description is substantially accurate.
The veins are a rich source of silver, lead and gold. The Shear Veins are unusal in the fact that they come right to the surface. This vein structure is visible for distances of up to 6,000 ft. Approximately 100 mine workings penetrate the shear veins and give access into the veins for distances of over 400 ft. The old workings are located on all sides of the Shear Vein section of the property at varying elevations, enabling the Company to show consistent silver, gold, and lead values throughout the shear vein system.
Two additional types of mineral deposits have been discovered within Clifton’s property boundaries, and there is strong evidence of a third. They are skarn deposits, bedded replacement deposits, and the probable third is a porphyry deposit.
The skarn system is a two-mile-long system with numerous surface exposures. Historical records in the area report some gold values associated with these skarns to be in the multiple-ounce gold category. Copper, which is also associated with the Clifton skarns, can exceed 10%. Samples taken within Clifton's skarn system have values in excess of 0.3 oz. /ton gold. Further drill work and sampling will be necessary to delineate exact boundaries and tonnage potentials; however, it is currently estimated that Clifton's skarn system may hold as much mineral value potential as the Shear Zones.
Clifton Mining has already discovered and assayed numerous Bedded replacement deposits within the Clifton claim block. The assay values associated with these deposits have typically been very high-grade. Assay work completed on the surface and within accessible mine workings, shows value ranges from 0.014 to 0.50 oz./ton gold, 8.0 to 50.0 oz./ton silver, 1 to 30% copper (Monocco bedding), and lead values from 7 to 34%. Current information shows average values within the bedded replacement deposits of approximately 0.04 oz. /ton gold, 12 oz. /ton silver, and 10% lead. The Clifton Cabin bedding, which was core drilled (see announcement 11/3/97), showed average values of 28.11 oz/ton silver, 17.6% lead, and 0.013 oz/ton gold.
There is also strong evidence that a large mineralized porphyry system intrudes the property from the east side, holding promise for a large deep-seated copper or copper-molybdenum deposit. It is expected that this porphyry deposit will be similar to the Ruth (Robinson) deposit, located only 70 miles south of Clifton's property.
When one reads the description of the property in Note 3 "Mineral Properties" contained in CFTN's Financial Statements, one would reach the conclusion there is not enough gold and silver to get really excited about. CFTN's management has chosen not to spend a large amount of money for drilling core samples, and therefore the extent of the depth of the veins and magnitude of the deposits of silver in the veins is not proven, and for that reason cannot be stated in the audited financial statements. Management has stated that CFTN would need to spend approximately $15 million to determine how deep the veins go and how many ounces of silver per ton are contained in the Clifton Shear Veins.
You will note that this report mostly discusses silver in the Clifton Shear Veins. There are also known deposits of silver, gold, tungsten, lead and other minerals at other locations on the property owned by CFTN. But it is the magnitude and the richness of the possible silver deposits in the Clifton Shear Veins that gets me excited.
Clifton Shear Veins Section of the Property
From discussions with Bill Moeller, I have learned that in the Clifton Shear Veins the known ounces per ton of silver range from 5 ounces to 25 ounces per ton with an average of 17 ounces per ton. This is a very rich deposit of silver. These measurements of ounces per ton come from what can be observed from the surface and from old mine workings. Bill Moeller was of the opinion there is a high probability that there are in excess of one billion ounces of silver in the Clifton Shear Veins.
A Behre Dolbert Report that was updated October 2000 by Robert Cameron Consulting shows a significantly different resource calculation. This report shows 901,597 measured ounces of silver and 3,905,133 of indicated ounces of silver (a total of 4,806,730 of measured and indicated ounces of silver). In the survey of the Shear Veins calculation, only 11 of the 38 identified shear veins were included in the resources calculations, and the calculated resource represented less than 10 percent of the potential of these veins. Robert Cameron Consulting states, “Most of the preliminary sampling on other veins indicates that these veins will most likely prove out with similar grade and thickness to those currently within the resource basis after the planned program of sampling and drilling has been completed.” Based on this report the projection of 166 million of measured and indicated ounces of silver is reasonable.
However, from what the geologist reported to CFTN’s management, this appears to be a mesothermal system. A general (maybe half the time) rule of thumb is that these are half as deep as they are long. The vein system stretches 1.5 miles in length, suggesting a potential depth of 3,000 feet. The estimates from the geologist were to a depth of 600' (from the top to the bottom of the mountain). Therefore, one would multiply the estimated 166 million ounces of silver by 5. This calculation gives a result of approximately 830 million ounces of silver.
In addition, it is plausible that there is a zone of enrichment around the water line, as water dripping down the veins may have dissolved some of the silver, which could then be redeposited at a greater depth. That could add an additional 20% to the 830 million ounces of silver resulting in approximately 1 billion ounces of silver. Bill Moeller always stated there were 1.1 billion ounces of silver. The 1.1 billion ounces of silver was the ‘possible resource’ category estimated by consulting geologist J. Randall Burke in an earlier (pre-Behre Dolbeart) report.
Kiewit Section of the Property
Desert Hawk constructed a heap leach and began mining on the Kiewit section of Clifton’s property in the spring of 2014. Unfortunately, due to the bankruptcy of Desert Hawk’s funding source (Platinum Partners), mining operations on the Kiewit section ceased in July 2017 However, Desert Hawk’s exploration of the section it was mining indicated 1 million ounces of gold and core samples to the north of the mining operations indicated the potential for at least 1 million more ounces of gold.
Cane Springs Section of the Property
It is estimated there are between 500,000 ounces of gold and 2 million ounces of gold in the Cane Springs section of Clifton’s property. This estimate is determined from pillars in ore shoots visible in previous mining operations on Cane Springs. The mining of the ore shoots was abandoned during World War II and came into possession of CFTN during the 1990s. One of these pillars shows the possibility of 7 ounces of gold per ton, a very high grade of ore.
Summary of Total Value of Precious Metals on Clifton’s Property
It is a bit difficult to value the total amount of precious metals on Clifton’s property because there have not been enough core drills made. However, it appears that in Clifton’s property there is a minimum of 166 million ounces of silver and a minimum of 1.5 million ounces of gold. Recent market prices, as of January 24, 2019, for silver at $17.57 per ounce and $1,358 per ounce for gold would result in the total value of silver and gold refined on the surface to be $4.95 billion. If there are 1 billion ounces of silver and 4 million ounces of gold on Clifton’s property, then the total value of silver and gold refined on the surface would be $23 billion.
This is why I get excited about CFTN, and why I have been a shareholder of CFTN stock for the past 11 years. I believe the market gives CFTN a value of $5.9 million because CFTN has not been discovered by the market. This market cap is based on 154,584 preferred shares outstanding (a preferred share is convertible into one share of common stock) plus 58,770,791 shares of common stock outstanding on December 31, 2016 (a total of 58,925,375 equivalent common shares) and a closing price of the common stock of $0.10 on December 29, 2017.
So far, I have only discussed 166 million ounces of silver estimated to exist in the Clifton Shear Veins, and the possible amount that exists there, i.e. one billion ounces of silver, and then there are the 1.5 million ounces of gold estimated to exist in the Kiewit section and Cane Springs section and the possible amount of 4 million ounces of gold in these two sections of the property. The values of the heap leach pad constructed by Desert Hawk, and CFTN’s ownership of ABL are worth far more than the $5.9 million current market value of CFTN/
Cessation of Desert Hawk’s Mining Operations and Current Status of Desert Hawk
In my next report, I will go into the particular points of the arrangement with Desert Hawk, and the recent mining operations and royalties received from Desert Hawk. In this present report suffice it to say that Desert Hawk is currently unable to continue its mining operations due to its inability to obtain necessary funding to continue such mining operations.
While Desert Hawk was operating, it reported concentrated sales of $1,224,892 for 2014, $3,275,457 for 2015 and $291,693 for the first three months of 2016, and there are no reports available after that date. Platinum Partners filed bankruptcy in October 2016, and as a result Desert Hawk has been unable to continue its mining operations due to lack of funding.
There are four possible outcomes related to Desert Hawk’s future operations:
Due to lack of funding Desert Hawk will be forced into bankruptcy and will no longer be able to mine at the Kiewit section. If this occurs, the heap leach pad that has been constructed and the ore on it will become the property of CFTN since it is real property on CFTN’s property and cannot be removed.
The receiver in charge of the Platinum Partners bankruptcy estate (“Bankruptcy Estate”) may fund Desert Hawk’s operations. The reason this may occur is the Bankruptcy Estate receiver believes there is sufficient gold in the Kiewit section to give a return to Platinum Partners’ creditors. If this outcome occurs then Desert Hawk would continue loading the heap leach pad, extracting gold and paying a royalty to CFTN. Read the filing of the Bankruptcy Estate receiver (page 27) dated April 28, 2017. To date there has been no further action by the Bankruptcy Estate receiver, and it is the author’s opinion this is unlikely to occur because of the significant investment required to restart mining operations
The Bankruptcy Estate receiver may decide to sell Desert Hawk to a large mining company such as Barrick Gold Corporation, Hecla Mining Company, or Coeur Mining Inc. (Formerly Coeur d’ Alene Mines Corporation). This outcome is highly unlikely because management of these mining companies would have to continually deal with the Bankruptcy Estate receiver which would limit their ability to mine with good business judgment.
Desert Hawk could negotiate a settlement with the Bankruptcy Estate receiver in which it would receive forgiveness of the debt owed for a nominal payment of the debt, and the Bankruptcy Estate receiver would release Desert Hawk of any future obligation to the Bankruptcy Estate.
The Bankruptcy Estate receiver may well agree to such a settlement because he would rather have some repayment of the some of debt rather than risk Desert Hawk’s going bankrupt, and the Bankruptcy Estate receiving nothing. This outcome would allow Desert Hawk to obtain new financing or to be sold to a large mining company without the encumbrances of the Bankruptcy Estate.
The Heap Leach Pad on Clifton’s Property
The heap leach pad on CFTN’s property (constructed by Desert Hawk during its mining operations) is approximately 20 acres. Loading the heap leach pad, particularly one as large as the one on the Kiewit, takes time. This is done by covering the pad with ore and then laying pipe over the ore to apply the cyanide solution. After the first layer of ore is laid down a second layer of ore is laid down, then more pipe is laid down. As one can see from the above reported revenues, the more layers laid down and the more time the solution is applied, the higher the revenue stream from the pad.
Heap leaches are an interesting way of extracting precious minerals from low grade mined ore. A heap leach continues to produce for several years even after no more ore is added to it. The expected productive life of the Kiewit heap leach is more than 10 years. For a more detailed description of the heap leach process, please visit CFTN's webpage and Desert Hawk's Form 10-K and Desert Hawk’s mining video found on YouTube. One might ask; why so much time and space is spent explaining the heap leach built by Desert Hawk, when Desert Hawk is not expected to continue? The answer is to demonstrate the excellent mining done by Desert Hawk and to show what Desert Hawk’s successor will inherit. The heap leach is in place. There is ore on it, and there will not be a need to expend large sums of money to get back into mining. The successor can simply continue to mine where Desert Hawk left off.
Conclusion
When we consider Newmont Mining’s interest in doing a deal with CNTN, and an operating heap leach in place, and the $7.5 million estimated value of CFTN’s investment in ABL, CFTN could easily have a current market cap of $40 million versus its current market cap of only $5.9 million. This would equate to a per share amount of $0.68 instead of the current share value of $0.10 per share. If the market discovers CFTN in the next few months, which I believe it will, CFTN could easily result in an investor increasing his money by 7 times in a very short period of time. The $40 million value is computed without any recognition of the possible one billion ounces of silver in the Clifton Shear Veins or the possible 4 million ounces of gold in the Cane Springs section and the Kiewit section.
In my mind, CFTN could easily be valued at $300 million. Some have told me that figure is too low, but I am a conservative old accountant and will use this lower value. This $300 million valuation is based on the assumption there are one billion ounces of silver in the Clifton Shear Veins (there is strong evidence there is that much silver), there are between 500,000 ounces of gold and 2 million ounces of gold in the Cane Springs section, and there are between 1 million and 2 million ounces of gold in the Kiewit section. The value of 166 million ounces of silver refined on the surface is $2.9 billion at a current price of $17.57 per ounce for silver, while the value of 1 billion ounces of silver would be $17.6 billion. The value of 1.5 million ounces of gold refined on the surface is $2 billion at a current price of gold at $1,358, while the value of 4 million ounces of gold would be $5.4 billion. In addition, there is the $7.5 million value of ABL that is not recognized by the market. Using the $300 million valuation, CFTN's shares are extremely under priced and could easily be priced at $5.09. With no heap leach in place, and no revenues or operating profit, CFTN was valued at $2.55 per share on February 1, 2004.
Disclosure: I am/we are long CFTN.
Additional disclosure: I have owned CFTN for 11 years. I am currently acquiring shares at these low prices and will probably continue to acquire shares.
Additionally:
per the lease agreement with desert hawk, Clifton is to recie4ve a net smelter royalty from 2-15 %. 8 % at current prices and if silver goes over 25 bucks the nsr increases to 15%.
On paper, desert hawk appears near bankrupt, however DMRJ group has invested 15 million which consists of 67% of desert hawk stock. Unlikely to walk away now.
Revenues to Clifton should be 1.4 million based upon 20,000 gold ounces produced at 1200 x oz.
CFTN also owns 19.7 % of ABL AMERICAN BIOTECH LABS, a manufacturer of health care products using nano silver technology valued at approximately 10.2 million
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