Mexivada options up to 75% of its Gold Jackpot property - Analyst Blog

Steven Ralston, CFA

Mexivada options up to 75% of its Gold Jackpot property

Mexivada (MNV.V: TSX-V andMXVDF) optioned up to a 75% interest in its Gold Jackpot property in Nevada to Sphere Resources (SPH.V: TSX-V and SPHUF). Based on Mexivada’s geologic mapping and sampling, the Gold Jackpot area appears to have potential to produce multi-metal (gold, silver, tellurium, copper and lead) deposits from shallow depths utilizing open pit, heap leach methodologies. This unpopulated area has good access and has sufficient room for large-scale mine facilities and the associated dumps/heaps. In addition, the fault intersections are analogous to the top of a deep precious metal mineral system.

In order to earn the 75% interest, Sphere Resources must compensate Mexivada in structured payments of $425,000 in cash between March 30, 2011 and March 30, 2015, 4,900,000 common shares of SPV.V, and also invest $3,000,000 in exploration and development expenditures before March 30, 2015.

The strategy of Mexivada’s management is to acquire and explore properties near or adjacent to proven significant mineral deposits, and after a phase of additional investigation and exploration (the company’s core competency), management often seeks a joint venture partner to further explore and develop each property, thereby laying off significant exploration costs onto the partner and generating cash from the series of option payments. This option agreement of the Gold Jackpot property is fully within the company’s strategy and should generate healthy cash flow for Mexivada as Sphere Resources explores and hopefully succeeds in delivering an industry-standard Mining Pre-Feasibility Study within six years.

Mexivada has conducted field geology and sampling in the east and south of the Gold Jackpot property (Stag’s Leap zone). Management believes that the core of the Stag’s Leap target area may be the top of a volcanic breccia pipe above a metallized porphyry gold-copper system. The structure appears to have been re-fractured and used by epithermal gold-silver-tellurium mineralization process. Such porphyritic metal systems can yield significant gold and copper resources.

Sphere Resources plans to conduct additional drilling in order to further identify the gold-silver-tellurium resource. Previously, Mexivada’s field surface sampling revealed mineralization values up to 16 g/t Au, 239 g/t Ag, 1046 ppm Cu, 2% lead and 3.48 kg/t Te, one of the highest grade tellurium exploration samples found in the U.S. to-date. Tellurium is an extremely rare metal used as a photovoltaic metal (cadmium telluride – CdTe) to produce thin-film solar panel chips by companies like First Solar (FSLR: NASDAQ). There are only a few known deposits where tellurium is found at very high concentrations: one in Mexico, one in Papua New Guinea and one in China. The average price of Tellurium in 2010 was $230 per kg, up 50% from 2009. In early 2011, Te was trading between $290 and $330 per kg. Demand is expected to double within the next two years driven by the growing solar industry.

We reiterate our Outperform rating on Mexivada, and our target remains $0.25. Management continues to successfully execute on its strategy and find joint venture partners to further explore and develop its properties, while receiving cash from the series of option payments.

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