Otis Gold Corp (TSXV:OOO) announced results from the 12 final drill holes from its 2016, ~10km (40 holes) drill program the company completed at its
wholly owned Kilgore gold project in Idaho. These results returned a weighted average grade of 1.16 g/t Au over 29.2m and were highlighted by 1.79
g/t Au over 128.0m, including 11.96 g/t Au over 7.6m (16 OKC-353). The width and grade of these results, along with the balance of the 2016 program
suggests to us that the current 820k oz Au (47.5M tonnes @ 0.53 g/t Au) resource (indicated + inferred) is poised to grow with the planned H1 2017
update. This likely resource growth does not appear to be priced into Otis’ current valuation as it trades at C$33/oz versus peers at C$40/oz. In our
opinion, the Kilgore project’s likely resource growth along with the project’s location (stable jurisdiction, proximity of infrastructure) should allow
Otis to close the valuation gap to peers.
Project likely to grow on the back of extensive exploration activity. The Kilgore project is located in Idaho in the proximity of transportation
and power infrastructure. The project previously hosted a high grade underground mine and contains mineralization that is similar to that of the gold
deposits of Round Mountain, Nevada, and McDonald Meadows, Montana. Approximately 52km of historic drilling has been completed on the property by various
operators, and since completing a resource estimate on Kilgore in 2012, Otis has completed an additional ~14km of drilling on the property. The wider
intervals and higher grades that have been intersected but not yet incorporated into a resource estimate suggest the resource is likely to grow over
the current 820k oz Au (47.5M tonnes @ 0.53 g/t Au).
Drill program unfolds a new, promising formation
. The bulk of the 2016 program focused on the Aspen formation where drill holes have intersected
wider and higher grade intervals than that of the current resource. The formation, that appears to be trending northwest, was extended to a depth of
300m and remains open along strike and potentially at depth. The final results from Aspen were highlighted by hole 16 OKC-353 that returned 1.79 g/t
Au over 128.0m, including 11.96 g/t Au over 7.6m (Figure 1). The results from the 12 final holes returned a weighted average grade of 1.16 g/t Au over
29.2m which compares favourably with the current resource grade and supports our view that there is potential for resource growth at Kilgore.
Valuation gap likely to close with resource update.
At C$33/oz, Otis currently trades at a discount to peers (C$40/oz). In our view,
the market does not appear to fully account for Kilgore’s likely resource growth as indicated by recent drill results. Coupled with the project being
located in a stable jurisdiction in the vicinity of infrastructure, we expect the pending resource update to be an important catalyst for the company.
Derek Macpherson | VP Mining Analysis
Sunneva Bernhardsdottir | Associate, Mining Analysis
Victoria Ellis Hayes | Associate
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