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Newton Notes on Blackrock Gold $BRC

I see something of a gold rush going on in Nevada these days and Blackrock Gold (TSXV:BRC) is
part of it. They have an option for the Silver Cloud property, which is “located near the
confluence of the Carlin Trend and the Northern Nevada Rift within north-central Nevada, the
richest gold mining area in North America” and are currently working on their first financing to
get this show on the road. The current round is small, but it’s enough to get started. Some recent
discussion on the company on CEO.CA from Andrew Pollard has grabbed my attention.

Mining at the project goes back to 1915 when the Silver Cloud Mine was the “largest mercury
producer” in the Ivanhoe Mining district. Fast forward to 1998, when Carl Pescio staked the
current property and then leased it to Teck-Cominco Resources who themselves did a joint-
venture with Placer-Dome several years later.
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It’s always fun to look for crumbs that majors dropped in bear markets – especially when
vetted by experienced people like Mr. Pescio.

The majors produced some nice drilling results at Silver Cloud, but it was a tough market and
Geologix Explorations, Inc. assumed the Placer Dome-Teck-Cominco JV in late 2003. They
produced a technical report in 2006 that is very well done before returning the project to
Pescio Exploration LLC. I wonder how many people have looked at it since and how quickly the
Blackrock team acted on the opportunity when it presented itself?

Blackrock optioned Silver Cloud from Pescio Exploration LLC in October 2017 and the option
terms are flexible on the front end, with requirement to drill a minimum of 15,000 feet during
the first 3 years and some small initial payments. The back end looks better for the optionor,
with US$3.65M additional payment over 8 years after the first 3 years, a royalty of 3.5% of the
gross value of production, and additional drilling requirements. The Gross Royalty can be
bought-down, but it may be a sticking point for some who review the project.

The company conducted a special transaction in mid-January 2018 where Directors Hendrik
van Alphen, Deepak Malhotra, and Alistair Waddell provided a loan of approximately $101,350
to the company. That amount is similar to the initial option payments due to Pescio
Exploration LLC in fall 2017, which makes sense. Blackrock Gold is now following on quickly
with the current financing.

I spent several hours going through the technical report (not a resource estimate!) for the
Silver Cloud project completed by Geologix in 2006 and other documents, including a resource
estimate and PFS on the nearby Hollister Mine published by Klondex in 2017 and a very helpful
report by the Exploration Alliance for the Association of Mining Analysts on Low Sulphidation
Epithermal deposits.

After reading through all this stuff for several hours and trying to put it all together, do I have
sense for Silver Cloud?

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One thing I do feel good about is the fact that there is some difference between geology at Silver
Cloud and Hollister. I'm not a geologist and can't quite articulate the difference, but I will try
anyway. The feature I’m referring has to do with the vertical extent of mineralized system.
Hollister is a good deposit (110% IRR from 3 years production at the Gloria and Main Deposits?!),
but it’s possible that Silver Cloud is better.

The Vinni Formation is the main host for gold at the Hollister Mine and the teriary volcanics
above it are actually excluded from the resource estimate. As in the Klondex report, “the
mineralized epithermal system cuts both units. The style of mineralization however does change
across this contact. The Hollister Mine underground resource is calculated only for
mineralization below the unconformity in epithermal veins hosted by the Ordovician sequences.
Previous operators mined some resources above the unconformity.” Previous operators of the
Hollister include Galactic Resources in the late 1980s.

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The good news is that gold at Silver Cloud isn’t just in the Vinni. The Geologix report notes, “In
discussions with Great Basin Gold geologists it is their belief that the veins were not able to
follow fractures or to propagate beyond the brittle Vinini because the tuffaceous sediments
overlying the Vinini are intensely argillized and fractures could not be maintained.” That is an
encouraging fact, but it’s just one piece of the puzzle.

An apparent negative at Silver Cloud is that everything appears to be deeper. The boiling point
is still 150-200 meters below surface, as expected, but some past holes go down +2,000 feet
and are still hitting antimony, which is surprising to me as the report I mentioned on low
sulphidation systems led me to believe that you typically see that element close to surface. The
resource estimate for Silver Cloud mentions that differences in topography at Silver Cloud
versus Hollister could have played a part in all this, but I’m out of my depth with the vertical
zonation of these deposits. I look forward to hearing more from Blackrock on the geology at
Silver Cloud – particularly around the presence of antimony at depths?

Again, I don't understand the details, but the takeaway is that there seems to be a much broader
vertical extent of mineralization at Silver Cloud is encouraging.

I think the main comparison for Silver Cloud will be Hollister Mine simply because they are so
close to each other, even if there are major geological differences. With all the history at the
Hollister, the Blackrock team may be able to pick and choose how they identify similarities and
differences between it and the Silver Cloud. The Hollister itself is not a bad deposit, but it may
not be the best one in the local area. The several other large mines in the area really give
Blackrock a great opportunity to tell a rich story for the exploration junkies out there.

One final quote from Geologix report on this topic:

“The presence of mineralization at Silver Cloud in the Tertiary volcanics would tend to suggest
that a greater vertical extent to the mineralization is possible than at Hollister. Hollister has a
known vertical extent of 300 m (open-ended) whereas Midas has a vertical extent of 500+ m. The
vertical extent of mineralization at Silver Cloud could more closely approach that of Midas as it

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may extend from the overlying volcanics through the underlying Vinini whereas Hollister occurs
from the Vinini contact down.”

We're far from getting any new evidence to explain what is happening at Silver Cloud, but the
holes that were drilled seem to provide some grades that were in the ballpark of what was seen
at the Midas Mine or Hollister Mine and that is encouraging. I’d say that it was just screaming for
follow-up work!

I have to wonder why Carl Pescio sat on Silver Cloud for so long. The answer may be simply that
he had lots of projects in inventory and was waiting for the right partner to come along to treat
Silver Cloud right. Whatever the reason, it’s ancient history now.

I will point out that there are several good data sets on the Silver Cloud, with several rounds of
drilling all the way through soil samples and onto bio geochemistry! They've actually sampled
the sage brush and the grass and had some encouraging results, finding gold I believe in the
plants of all things.

The first steps for Blackrock Gold at Silver Cloud may to reinterpreting the geological model.
Bringing a new set of eyes to a bunch of old data like this can really help change the script. I
don’t think there’s enough for a resource estimate from past work, but the Geologix technical
report was done in 2006 when the Hollister Mine was less understood. May the Blackrock team
can learn some things from recent developments there or elsewhere in the area and bring new
life to the rich old datasets they have at the Silver Cloud.

If Blackrock can do some meaningful work at Silver Cloud before drilling any new holes, then I
think they will get some well-deserved attention from majors in the area. With some good
desktop analysis and fieldwork, they could come storming out of the gates with lots to talk
about. What’s more, they have to keep their immediate work programs fairly modest to match
the size of their current financing.

A possible comparable for this is Cabral Gold (TSXV:CBR), who was able to start work on a revised
resource estimate right after going public. The prior owners had assayed some drill core, but

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not included it in a resource estimate and that allowed Cabral to hit the ground running. It’s
interesting to note that Alan Carter, CEO of Cabral, is also a Director of Blackrock Gold.

There are some serious geological minds behind the scenes at Blackrock who will be able to
guide the company forward. To see the shell company trading at a $2 million valuation prior to
this latest financing is encouraging as a speculative value play – the risks would seem to be
skewed to the upside at that valuation.

I had a look at the area around the Silver Cloud on Google Maps and it is stunning to see how
many large mines are nearby. Some are in production today by the likes of Newmont, Barrick,
SSR Mining. Others are long since exhausted.

This may prove to be a case of new things in old places, and quickly! Many of the new things
have already been done at Silver Cloud, at least on part of project area with the biogeochemistry,
high-tech soil sampling, and geophysics surveys that have been done at the project.

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I’ve still got some things to learn about the geological model at Silver Cloud, but the basics are
simple enough. In particular, I like the fact that this area was a prolific source of mercury since
that fits with the classic model for the vertical zonation of these low sulphidation epithermal
deposits.

There's good reason to expect some flashy gold numbers from the next work programs at Silver
Cloud. Even though those flashy numbers might be expected by geologists who understand the
deposit type, I think there's still good potential to surprise those skeptical geologists who may
have written Silver Cloud off.

What's more, there seems to be some resurgence in exploration in Nevada that lines up with a
macro trend supporting all kinds of economic activity within the domestic USA regardless of
problems with the national debt. The team at the top of Blackrock Gold are high-calibre and
capable of leading an effective exploration company in the USA. I look forward to learning more
about what they plan to do at the project and publishing an interview or two with management
to share their insights into the project and professional backgrounds, which are outstanding.

You may have to squint to see it at this point, but there’s something coming our way with
Blackrock Gold.

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